Usio(USIO) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and stockholders' equity, along with detailed notes on accounting policies, leases, accrued expenses, loans, stock-based compensation, income taxes, related party transactions, segment reporting, and commitments and contingencies for the periods ended June 30, 2025 and 2024 Condensed Consolidated Balance Sheets | Metric | Dec 31, 2024 | Jun 30, 2025 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total Assets | $107,208,447 | $108,351,847 | +$1,143,400 | | Total Liabilities | $88,051,484 | $89,618,996 | +$1,567,512 | | Total Stockholders' Equity | $19,156,963 | $18,732,851 | -$424,112 | | Cash and cash equivalents | $8,056,891 | $7,506,411 | -$550,480 | | Settlement processing assets | $47,104,006 | $62,891,265 | +$15,787,259 | | Prepaid card load assets | $25,648,688 | $13,064,060 | -$12,584,628 | Condensed Consolidated Statements of Operations | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $19,960,990 | $20,079,888 | $41,970,040 | $41,050,274 | | Gross profit | $5,140,069 | $4,799,814 | $9,949,212 | $9,653,509 | | Operating (loss) | $(396,970) | $(208,941) | $(636,554) | $(490,898) | | Net income (loss) | $(366,654) | $75,492 | $(601,624) | $(174,696) | | Basic EPS | $(0.01) | $0.00 | $(0.02) | $(0.01) | Condensed Consolidated Statements of Cash Flows | Metric | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $1,110,326 | $457,772 | +$652,554 | | Net cash (used in) investing activities | $(747,167) | $(455,057) | -$292,110 | | Net cash provided by financing activities | $2,463,501 | $2,525,199 | -$61,698 | | Change in cash, cash equivalents, settlement processing assets, prepaid card load assets, customer deposits and merchant reserves | $2,826,660 | $2,527,914 | +$298,746 | Condensed Consolidated Statements of Stockholders' Equity | Metric | Dec 31, 2024 | Jun 30, 2025 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $19,156,963 | $18,732,851 | -$424,112 | | Accumulated Deficit | $(68,032,656) | $(68,634,280) | -$601,624 | | Treasury Stock | $(5,770,592) | $(6,478,890) | -$708,298 | Notes to Condensed Consolidated Financial Statements Note 1. Basis of Presentation and Significant Accounting Policies This note outlines the basis of financial statement preparation, significant accounting policies, and recent changes. A key change was the retrospective reclassification of prepaid card load obligations from operating to financing activities in the cash flow statement, and including settlement processing assets as cash equivalents, which did not impact net loss or total assets/liabilities/equity - The company retrospectively changed its cash flow presentation policy to include settlement processing assets as cash equivalents and reclassified prepaid card load obligations from operating to financing activities, effective December 31, 2024. This change increased operating cash flows for the six months ended June 30, 2024, by $3.5 million and assets held for customers by $6.2 million, with no impact on working capital, total assets, liabilities, equity, or net loss[20] - The company earns interest revenue on settlement processing assets (ACH and complementary services), prepaid card load assets (prepaid card services), and customer deposits (Output Solutions)[23][24][25][27] - The allowance for expected credit losses for accounts receivable remained at $324,000 at June 30, 2025, and December 31, 2024[28] - Capitalized software costs for internal use were $608,233 for the six months ended June 30, 2025, up from $353,316 in the prior year[32] - The reserve for processing losses decreased to $725,591 at June 30, 2025, from $897,116 at December 31, 2024[38] | Revenue Source | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | ACH and complementary services | $5,192,224 | $3,894,330 | $10,236,741 | $7,776,064 | | Credit card | $7,045,030 | $7,261,268 | $14,923,724 | $14,822,002 | | Prepaid card services | $2,726,410 | $3,673,418 | $5,633,861 | $7,014,642 | | Output Solutions | $4,642,901 | $4,686,869 | $10,375,768 | $10,224,792 | | Interest - ACH and complementary services | $176,518 | $190,233 | $400,647 | $401,873 | | Interest - Prepaid card services | $134,823 | $334,624 | $317,484 | $737,365 | | Interest - Output Solutions | $43,084 | $39,146 | $81,815 | $73,536 | | Total revenue | $19,960,990 | $20,079,888 | $41,970,040 | $41,050,274 | Note 2. Leases Operating lease expenses for facilities and office equipment were $151,568 for the three months ended June 30, 2025, an increase from $133,973 in the prior year | Period | Operating Lease Expenses | | :-------------------------- | :----------------------- | | 3 Months Ended Jun 30, 2025 | $151,568 | | 3 Months Ended Jun 30, 2024 | $133,973 | | 6 Months Ended Jun 30, 2025 | $302,256 | | 6 Months Ended Jun 30, 2024 | $266,105 | Note 3. Accrued Expenses Total accrued expenses decreased to $2.56 million at June 30, 2025, from $3.37 million at December 31, 2024, primarily due to reductions in accrued salaries, taxes, and processing loss reserves | Accrued Expense Category | Jun 30, 2025 | Dec 31, 2024 | | :----------------------- | :----------- | :----------- | | Accrued commissions | $599,189 | $425,486 | | Reserve for processing losses | $725,591 | $897,116 | | Other accrued expenses | $749,031 | $881,925 | | Accrued taxes | $159,377 | $474,561 | | Accrued salaries | $331,003 | $687,837 | | Total accrued expenses | $2,564,191 | $3,366,925 | Note 4. Loans The company has an equipment loan for an Output Solutions folder and inserter, with future principal payments totaling $647,115. An older equipment loan was paid in full in March 2024. The company also maintains an undrawn $475,000 revolving line of credit and a $474,229 irrevocable letter of credit, both secured for a legal appeal bond - An equipment loan for $165,996 (3.95% interest) was paid in full on its maturity date of March 20, 2024[51] - A new equipment loan for $811,819 (6.75% interest) was entered into on October 1, 2023, maturing April 5, 2029, for an Output Solutions folder and inserter[52] - The company has an unsecured revolving line of credit with a maximum borrowing capacity of $475,000, maturing June 5, 2026, which remains undrawn[54] - An irrevocable letter of credit for $474,229, issued June 3, 2024, maturing June 3, 2026, has not been drawn upon. Both credit facilities support a bond requirement for the KDHM lawsuit appeal[55][56] | Year Ending December 31, | Amount Due | | :----------------------- | :--------- | | 2025 (remainder of the year) | $74,525 | | 2026 | $158,043 | | 2027 | $169,048 | | 2028 | $180,818 | | 2029 | $64,681 | | Total payments | $647,115 | Note 5. Stockholders' Equity Stockholders' equity decreased by $0.42 million to $18.73 million at June 30, 2025, from $19.16 million at December 31, 2024. This was influenced by net losses and treasury stock purchases, partially offset by issuances of common stock under equity incentive and employee stock purchase plans. Warrants issued in 2020 related to the IMS acquisition are amortized, with $27,615 and $55,228 amortized for the three and six months ended June 30, 2025, respectively - Warrants to purchase 945,599 shares of common stock were issued on December 15, 2020, to KDHM, LLC, with an initial exercise price of $4.23 per share. These warrants became fully vested on December 15, 2023[58] - Amortization of these warrants, included in customer list intangible asset amortization, totaled $27,615 for the three months and $55,228 for the six months ended June 30, 2025 and 2024, respectively[58] Note 6. Net Income (Loss) Per Share Basic and diluted net loss per common share was $(0.01) for the three months and $(0.02) for the six months ended June 30, 2025, compared to $0.00 and $(0.01) for the respective prior year periods. Warrants outstanding were anti-dilutive and thus not included in diluted EPS calculations | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (loss) available to common shareholders | $(366,654) | $75,492 | $(601,624) | $(174,696) | | Basic EPS | $(0.01) | $0.00 | $(0.02) | $(0.01) | | Diluted EPS | $(0.01) | $0.00 | $(0.02) | $(0.01) | | Weighted average common shares outstanding (Basic/Diluted) | 26,456,411 | 26,534,407 | 26,577,052 | 26,454,848 | - 945,599 anti-dilutive warrants were outstanding at June 30, 2025 and 2024, and were not included in diluted EPS computation[61] Note 7. Income Taxes The company had a deferred tax asset of approximately $4.6 million, net of a $2.7 million valuation allowance, at June 30, 2025. It also holds approximately $21.8 million in net operating loss (NOL) carryforwards, with $8.8 million expiring between 2025 and 2037, and $13.0 million generated after 2017 that do not expire - Deferred tax asset of approximately $4.6 million, net of a $2.7 million valuation allowance, at June 30, 2025[63] - Total net operating loss carryforwards (NOLs) of approximately $21.8 million at June 30, 2025[64][69] | Tax Year End | NOL (Expiring) | Expiration Year | | :----------- | :------------- | :-------------- | | 2005 | $1,275,415 | 2025 | | 2006 | $1,350,961 | 2026 | | 2007 | $1,740,724 | 2027 | | 2008 | $918,960 | 2028 | | 2009 | $835,322 | 2029 | | 2010 | $429,827 | 2030 | | 2013 | $504,862 | 2033 | | 2016 | $474,465 | 2036 | | 2017 | $1,267,336 | 2037 | | Total Expiring NOLs | $8,797,872 | | - Approximately $13.0 million in NOLs generated since 2017 do not expire and can be carried forward indefinitely[68][69] Note 8. Related Party Transactions The company purchased $4,756 and $4,402 of corporate sportswear and promotional items from Angry Pug Sportswear during the six months ended June 30, 2025 and 2024, respectively. The company's Chairman, President, CEO, and COO is a 50% owner of Angry Pug Sportswear LLC | Period | Purchases from Angry Pug Sportswear | | :-------------------------- | :-------------------------------- | | 6 Months Ended Jun 30, 2025 | $4,756 | | 6 Months Ended Jun 30, 2024 | $4,402 | - The company's Chairman, President, CEO, and COO is a 50% owner of Angry Pug Sportswear LLC[70] Note 9. Stock Based Compensation Stock-based compensation expenses decreased to $0.4 million for the three months and $0.8 million for the six months ended June 30, 2025, due to completed amortization of previously issued awards. The company withheld shares for tax purposes from officers, directors, and employees in both periods. In June 2024, significant restricted stock and RSU grants were made to officers, employees, and non-employee directors | Period | Stock-based Compensation Expenses | Shares Withheld for Taxes | Value of Shares Withheld | | :-------------------------- | :------------------------------ | :------------------------ | :----------------------- | | 3 Months Ended Jun 30, 2025 | $434,255 | N/A | N/A | | 3 Months Ended Jun 30, 2024 | $460,061 | N/A | N/A | | 6 Months Ended Jun 30, 2025 | $844,317 | 76,397 | $136,036 | | 6 Months Ended Jun 30, 2024 | $959,334 | 219,536 | $319,244 | - On June 21, 2024, the company granted 966,000 shares of restricted common stock (10-year cliff vesting) and 277,200 restricted stock units (3-year equal tranche vesting) to officers and employees, and 84,000 RSUs (3-year vesting) to non-employee directors, all at an issue price of $1.55 per share[72][73] Note 10. Segment Reporting The company operates in two reportable segments: Output Solutions and Merchant Services. For the three months ended June 30, 2025, Output Solutions' gross profit decreased while Merchant Services' gross profit increased, leading to an overall increase in consolidated gross profit. For the six months, both segments showed gross profit increases - Output Solutions offers electronic bill presentment, document composition, printing, and mailing services[76] - Merchant Services provides integrated electronic payment processing, including credit/debit card processing, ACH network services, and Mastercard-branded prepaid card programs[77] | Metric (3 Months Ended Jun 30, 2025) | Output Solutions | Merchant Services | Total | | :----------------------------------- | :--------------- | :---------------- | :---- | | Revenues | $4,685,985 | $15,275,005 | $19,960,990 | | Cost of services | $3,846,854 | $10,974,067 | $14,820,921 | | Gross profit | $839,131 | $4,300,938 | $5,140,069 | | | | | | | Metric (3 Months Ended Jun 30, 2024) | Output Solutions | Merchant Services | Total | | :----------------------------------- | :--------------- | :---------------- | :---- | | Revenues | $4,726,015 | $15,353,873 | $20,079,888 | | Cost of services | $3,790,529 | $11,489,545 | $15,280,074 | | Gross profit | $935,486 | $3,864,328 | $4,799,814 | | Metric (6 Months Ended Jun 30, 2025) | Output Solutions | Merchant Services | Total | | :----------------------------------- | :--------------- | :---------------- | :---- | | Revenues | $10,457,583 | $31,512,457 | $41,970,040 | | Cost of services | $8,372,664 | $23,648,164 | $32,020,828 | | Gross profit | $2,084,919 | $7,864,293 | $9,949,212 | | | | | | | Metric (6 Months Ended Jun 30, 2024) | Output Solutions | Merchant Services | Total | | :----------------------------------- | :--------------- | :---------------- | :---- | | Revenues | $10,298,328 | $30,751,946 | $41,050,274 | | Cost of services | $8,355,378 | $23,041,387 | $31,396,765 | | Gross profit | $1,942,950 | $7,710,559 | $9,653,509 | Note 11. Commitments and Contingencies The company is involved in two significant legal proceedings: a breach of contract and trade secret misappropriation suit against former executives (Kauder, Pioletti, and Triple Pay Play), and a dispute with KDHM, LLC regarding an asset purchase agreement. In the KDHM case, an appeals court reversed a lower court's judgment against Usio on one claim, remanding others. The company has not recorded a contingency for the KDHM case, considering the risk of loss remote, and has credit facilities to cover potential bond requirements - Usio filed a lawsuit against former executives Ben Kauder and Nina Pioletti and their new company, Triple Pay Play, for breach of contract and misappropriation of trade secrets. The motion to dismiss by the defendants was denied in March 2025, and depositions are ongoing[83][84][85][86] - KDHM, LLC sued Usio Output Solutions, Inc. for breach of an asset purchase agreement, claiming improper transfer of $317,000 in customer deposits. Usio counterclaimed, alleging misrepresentations and failure to disclose additional customer deposits by KDHM[87][88][89] - On April 2, 2025, the Fourth Court of Appeals reversed the trial court's judgment against Usio on KDHM's "money had and received claim" and remanded the remaining claims. KDHM's motion for reconsideration was denied[93] - The company has not recorded a contingency for the KDHM case, deeming the risk of loss remote. It has a $475,000 undrawn line of credit and a $474,229 irrevocable letter of credit to cover the appeal bond requirement[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, a summary of recent financial performance, material trends and uncertainties, critical accounting policies, key business metrics (including non-GAAP measures), and a detailed analysis of revenues, expenses, liquidity, and cash flows Forward-Looking Statements Disclaimer - The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially from expectations[97] - The company does not intend to update forward-looking statements after the report date, except as required by law[97] Overview - Usio is a cloud-based, Fintech payment processor providing payment acceptance (payment facilitation, prepaid card, electronic billing) and funds disbursement services[99] - The company has expanded its offerings from Electronic Bill Presentment and Payment (EBPP) to include ACH network services, PINless debit, Remotely Created Checks (RCC), account validation, and credit card payment facilitation (PayFac)[100] - In the first half of 2025, Usio completed development of a new EBPP offering[100] - The company is expanding into Real Time Payments (RTP) and enhancing existing products with improvements in reporting, data management, fraud/risk monitoring, and client onboarding[102] - The "One Usio" strategy aims to unify brand, sales, and payment offerings, including enhanced client onboarding, customer management, reporting, and a consolidated sales/marketing team[103] Summary of Results - Q2 2025 revenues decreased 1% to $20.0 million (vs. $20.1 million in Q2 2024), while six-month revenues increased 2% to $42.0 million (vs. $41.1 million in H1 2024)[115][116] - Revenue declines in Q2 2025 were primarily due to a 26% decrease in prepaid card services (loss of key client's downstream customers) and a 3% decrease in credit card business (loss of a meaningful PayFac customer, legacy portfolio attrition). Output Solutions also saw a 1% decline due to the absence of one-time revenues[115] - Strong growth in ACH and complementary services (33% in Q2 2025) partially offset revenue declines, driven by organic growth and new client implementations[115] - SG&A expenses increased to $4.6 million in Q2 2025 (vs. $4.0 million in Q2 2024) due to one-time expenses (insurance renewals, marketing, travel, professional fees), but are anticipated to decline sequentially and remain relatively flat year-over-year[117][164] | Metric (Q2 2025 vs Q2 2024) | Change | | :-------------------------- | :----- | | Credit card transactions | +69% | | Credit card dollars processed | +9% | | ACH (eCheck) transaction counts | +33% | | Returned check transactions | +32% | | Electronic check dollars processed | +19% | | Prepaid card load volumes | -51% | | Prepaid card transaction counts | -37% | | Prepaid card purchase volume | -23% | | Output Solutions total mail pieces processed | +3% | | Total dollar volumes processed (all business lines) | +15% (to $1.94 billion) | Material Trends and Uncertainties - The Inflation Reduction Act's 1% excise tax on stock repurchases may apply to the company's buyback program, which repurchased $708,298 of stock in H1 2025[127] - Interest income is declining due to Federal Reserve rate cuts in late 2024, which reduced interest earnings on cash balances[128][129] - Global economic activity is impacted by inflation, geopolitical concerns (Russia-Ukraine, Hamas-Israel), and international trade policy changes (tariffs), increasing the risk of lower consumer spending, bankruptcies, and higher credit losses[130][131] Critical Accounting Policies and Estimates - Reserve for processing losses was $725,591 at June 30, 2025, down from $897,116 at December 31, 2024[136] - Allowance for expected credit losses for accounts receivable remained at $324,000 at June 30, 2025, and December 31, 2024[137] - Revenue is recognized gross as a principal, not net as an agent, for electronic payment processing and related services[143] - Interest earned on customer balances (ACH, prepaid card, Output Solutions) is recognized as revenue in the respective business lines[144] Key Business Metrics - Non-GAAP Financial Measures | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating (loss) | $(396,970) | $(208,941) | $(636,554) | $(490,898) | | Depreciation and amortization | $464,599 | $547,849 | $960,369 | $1,124,003 | | EBITDA | $67,629 | $338,908 | $323,815 | $633,105 | | Non-cash stock-based compensation expense, net | $434,255 | $460,061 | $844,317 | $959,334 | | Adjusted EBITDA | $501,884 | $798,969 | $1,168,132 | $1,592,439 | | Revenues | $19,960,990 | $20,079,888 | $41,970,040 | $41,050,274 | | Adjusted EBITDA margins | 2.5% | 4.0% | 2.8% | 3.9% | - The decrease in Adjusted EBITDA and margins was primarily due to higher SG&A expenses and lower interest revenues[147][148] Results of Operations Revenues Consolidated revenue for Q2 2025 decreased by 1% to $20.0 million, while for the six months ended June 30, 2025, it increased by 2% to $42.0 million. ACH and complementary services showed strong growth (33% in Q2, 32% in H1), offsetting declines in prepaid card services (26% in Q2, 20% in H1) and a slight decrease in credit card revenue (3% in Q2) | Revenue Source | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | ACH and complementary services | $5,192,224 | $3,894,330 | $10,236,741 | $7,776,064 | | Credit card | $7,045,030 | $7,261,268 | $14,923,724 | $14,822,002 | | Prepaid card services | $2,726,410 | $3,673,418 | $5,633,861 | $7,014,642 | | Output Solutions | $4,642,901 | $4,686,869 | $10,375,768 | $10,224,792 | | Interest - ACH and complementary services | $176,518 | $190,233 | $400,647 | $401,873 | | Interest - Prepaid card services | $134,823 | $334,624 | $317,484 | $737,365 | | Interest - Output Solutions | $43,084 | $39,146 | $81,815 | $73,536 | | Total Revenue | $19,960,990 | $20,079,888 | $41,970,040 | $41,050,274 | - ACH and complementary services revenue grew by 33% in Q2 2025 and 32% in H1 2025, driven by increased check dollar volume (19% in Q2), transactions (33% in Q2), and returned check transactions (32% in Q2), as well as ancillary product offerings[154][155] - Prepaid card services revenue declined by 26% in Q2 2025 and 20% in H1 2025 due to a key client losing downstream customers[154][155] - Credit card revenue decreased by 3% in Q2 2025 but increased by 1% in H1 2025, impacted by the loss of a key PayFac customer and legacy portfolio attrition, though new client implementations are expected to offset this[154][155] Cost of Services Cost of services decreased by 3% to $14.8 million in Q2 2025 due to lower total revenues and a higher contribution from higher-margin business lines. For the six months, it increased by 2% to $32.0 million, in line with increased total revenues | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of services | $14,820,921 | $15,280,074 | $32,020,828 | $31,396,765 | - Q2 2025 cost of services decreased by $0.5 million (3%) due to lower total revenues and increased revenue contribution from higher-margin ACH services[157] - H1 2025 cost of services increased by $0.6 million (2%) due to increased total revenues[158] Gross Profit Gross profit increased by 7% to $5.1 million in Q2 2025, with the gross profit percentage rising to 25.8% from 23.9%, primarily due to the strong performance of the higher-margin ACH and complementary services segment. For the six months, gross profit increased by 3% to $9.9 million, with a slight improvement in gross profit percentage | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Gross profit | $5,140,069 | $4,799,814 | $9,949,212 | $9,653,509 | | Gross profit percentage | 25.8% | 23.9% | 23.7% | 23.5% | - The increase in gross profit percentage in Q2 2025 was primarily driven by revenue growth in the high-margin ACH and complementary services segment, while lower-margin revenues declined[161] Stock-based Compensation Stock-based compensation expenses decreased to $0.4 million in Q2 2025 and $0.8 million in H1 2025, compared to $0.5 million and $1.0 million in the respective prior year periods, due to the completed amortization of previously issued awards | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-based compensation | $434,255 | $460,061 | $844,317 | $959,334 | Selling, General and Administrative Expenses SG&A expenses increased to $4.6 million in Q2 2025 and $8.8 million in H1 2025, compared to $4.0 million and $8.1 million in the prior year periods, respectively. This increase was attributed to one-time expenditures such as insurance renewals, marketing, travel, and professional fees, but are expected to decline sequentially and remain flat year-over-year | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | SG&A | $4,638,185 | $4,000,845 | $8,781,080 | $8,061,070 | - The increase in SG&A was driven by one-time expenditures including insurance renewals, marketing and travel, and professional fees[164][165] - SG&A expenses are anticipated to decline sequentially and remain essentially flat relative to prior year periods[164][165] Depreciation and Amortization Depreciation and amortization expense slightly decreased to $0.5 million in Q2 2025 and $1.0 million in H1 2025, compared to $0.5 million and $1.1 million in the prior year periods, respectively. This reduction was due to the completed amortization of certain intangible assets, particularly capitalized labor for internal use software | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Depreciation and amortization | $464,599 | $547,849 | $960,369 | $1,124,003 | - The decrease was due to the completed amortization of intangible assets, specifically capitalized labor for internal use software[167][168] Other Income Other income, net, significantly decreased to $0.1 million in Q2 2025 and $0.2 million in H1 2025, compared to $0.4 million and $0.5 million in the prior year periods, respectively. This decline was primarily due to the absence of an employee retention tax credit received in the prior year | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Other income, net | $99,173 | $354,433 | $166,341 | $456,202 | - The decrease was primarily due to the receipt of an employee retention tax credit under the CARES Act in the prior year period, which was not present in the current period[169][170] Income Taxes State income tax expense remained relatively stable at $68,857 for Q2 2025 and $131,411 for H1 2025, compared to $70,000 and $140,000 in the respective prior year periods | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | State income tax expense | $68,857 | $70,000 | $131,411 | $140,000 | Net Income (Loss) The company reported a net loss of $0.4 million for Q2 2025, a decline from net income of $0.1 million in Q2 2024. For H1 2025, the net loss increased to $0.6 million from $0.2 million in H1 2024. This deterioration was mainly due to increased SG&A and the absence of a prior-year employee retention tax credit | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $(366,654) | $75,492 | $(601,624) | $(174,696) | - The shift from net income to net loss in Q2 and increased net loss in H1 was driven by higher SG&A expenses and the absence of an employee retention tax credit received in the prior year[173][174] Liquidity and Capital Resources - Cash and cash equivalents were $7.5 million as of June 30, 2025[176] - Cash provided by operations was $1.1 million for the six months ended June 30, 2025[176] - The company had an accumulated deficit of $68.6 million and working capital of $9.9 million at June 30, 2025[177] - An undrawn $475,000 unsecured revolving line of credit (matures June 5, 2026) and an undrawn $474,229 irrevocable letter of credit (matures June 3, 2026) are in place, both secured for a legal appeal bond[179][180] - Management believes existing cash balances and credit facilities are sufficient to meet operational needs and legal obligations for at least the next 12 months[176][181] Cash Flows | Cash Flow Activity | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $1,110,326 | $457,772 | +$652,554 | | Net cash used in investing activities | $(747,167) | $(455,057) | -$292,110 | | Net cash provided by financing activities | $2,463,501 | $2,525,199 | -$61,698 | - Increase in operating cash flow was due to tax credit collection and reducing accounts receivable[182] - Increase in cash used in investing activities was due to increased fixed asset purchases and capitalization of internal use software[183] - Financing activities were primarily driven by an increase in assets held for customers (settlement processing and prepaid card load assets)[184] Off-Balance Sheet Arrangements - The company has no material off-balance sheet arrangements[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Usio is electing scaled disclosure reporting obligations and is not required to provide detailed quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide detailed market risk disclosures[186] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025. There were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of June 30, 2025[187] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[189] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in two main legal proceedings: a lawsuit against former executives for breach of contract and trade secret misappropriation, where a motion to dismiss was denied, and a dispute with KDHM, LLC over an asset purchase agreement. In the KDHM case, an appeals court reversed a lower court's judgment on one claim and remanded others. The company considers the risk of loss remote for the KDHM case and has credit facilities for appeal bond requirements - Usio is suing former executives Ben Kauder and Nina Pioletti and their new company, Triple Pay Play, for breach of contract and misappropriation of trade secrets. A motion to dismiss was denied in March 2025, and depositions are ongoing[193][194] - KDHM, LLC sued Usio Output Solutions, Inc. for breach of an asset purchase agreement regarding customer deposits. Usio counterclaimed, alleging misrepresentations and undisclosed deposits by KDHM[195][196][197] - On April 2, 2025, the Fourth Court of Appeals reversed the trial court's judgment against Usio on KDHM's "money had and received claim" and remanded the remaining claims. KDHM's motion for reconsideration was denied[201] - The company has not recorded a contingency for the KDHM case, considering the risk of loss remote, and has credit facilities (undrawn line of credit and irrevocable letter of credit) to cover appeal bond requirements[202][203] Item 1A. Risk Factors There were no changes to the risk factors disclosed in the 2024 Annual Report, except for an updated discussion on global and regional economic conditions, emphasizing potential adverse impacts from political unrest, financial market volatility, inflation, geopolitical conflicts, and trade policies on demand for services and credit losses - No changes to Risk Factors from the 2024 Annual Report, except for an updated discussion on global and regional economic conditions[205] - Adverse global and regional economic conditions (political unrest, financial market volatility, inflation, geopolitical conditions, trade policies, tariffs) could materially impact demand for products/services, transaction volumes, and increase credit losses[206] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue unregistered securities during Q2 2025. The Board of Directors renewed the stock buyback program on March 24, 2025, with a $4 million limit and a three-year duration. During Q2 2025, the company repurchased 249,365 shares for an average price of $1.45 per share, leaving $4,150,466 available under the program - No unregistered securities were issued during the quarter ended June 30, 2025[207] - The stock buyback program was renewed on March 24, 2025, with a $4 million limit and a three-year duration, terminating by May 15, 2028[208] | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining | | :----------------------- | :--------------------- | :--------------------------- | :----------------------------- | | April 1 - April 30, 2025 | 142,280 | $1.43 | $4,307,235 | | May 1 - May 31, 2025 | 67,622 | $1.48 | $4,207,300 | | June 1 - June 30, 2025 | 39,463 | $1.44 | $4,150,466 | | Total (Q2 2025) | 249,365 | ~$1.45 | $4,150,466 | Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities[209] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[210] Item 5. Other Information During the six months ended June 30, 2025, no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the six months ended June 30, 2025[211] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including articles of incorporation, by-laws, employment agreements, bank sponsorship agreements, lease agreements, equity incentive plans, warrant agreements, and certifications - The section lists various exhibits, including corporate governance documents, employment agreements, bank and lease agreements, equity plans, and legal certifications[212][213][214]