UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission File Number:000-30152

USIO, INC.

(Exact name of registrant as specified in its charter)

Nevada		98-0190072
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



3611 Paesanos Parkway, Suite 300, San Antonio, TX		78231
(Address of principal executive offices)		(Zip Code)

(210) 249-4100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name on each exchange on which registered
Common stock, par value $0.001 per share	USIO	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging Growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

As of ~~November 8, 2021,~~August 11, 2022, the number of outstanding shares of the registrant's common stock was ~~24,973,775.~~25,188,217.

Table of Contents

	September 30, 2021			December 31, 2020			*June 30, 2022*			*December 31, 2021*
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	5,939,834		$	5,011,132		$	5,102,061		$	7,255,321
Accounts receivable, net		4,187,253			2,863,638			3,854,077			4,979,493
Settlement processing assets		36,492,916			43,558,442			36,927,255			63,824,646
Prepaid card load assets		15,084,868			7,610,242			15,104,808			36,590,893
Customer deposits		1,505,324			1,305,296			1,471,214			1,364,193
Inventory		221,675			176,466			488,382			434,532
Prepaid expenses and other		247,046			301,755			829,902			426,963
Current assets before merchant reserves		63,678,916			60,826,971			63,777,699			114,876,041
Merchant reserves		7,261,153			8,265,555			6,815,073			6,381,153
Total current assets		70,940,069			69,092,526			70,592,772			121,257,194

Property and equipment, net		3,625,050			3,105,926			3,432,039			3,607,157

Other assets:
Intangibles, net		4,631,861			6,035,761			3,227,962			4,163,894
Deferred tax asset, net		1,394,000			1,394,000			1,504,000			1,504,000
Operating lease right-of-use assets		2,921,129			2,671,266			3,083,555			2,802,113
Other assets		345,078			368,078			345,357			345,357
Total other assets		9,292,068			10,469,105			8,160,874			8,815,364

Total assets	$	83,857,187		$	82,667,557		$	82,185,685		$	133,679,715

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,334,579		$	851,349		$	719,379		$	1,400,100
Accrued expenses		1,746,226			1,463,944			2,177,000			2,325,665
Operating lease liabilities, current portion		494,983			346,913			579,442			504,027
Equipment loan, current portion		54,217			0			43,386			54,760
Settlement processing obligations		36,492,916			43,558,442			36,927,255			63,824,646
Prepaid card load obligations		15,084,868			7,610,242			15,104,808			36,590,893
Customer deposits		1,505,324			1,305,296			1,471,214			1,364,193
Deferred revenues		30,882			66,572			0			17,647
Current liabilities before merchant reserve obligations		56,743,995			55,202,758			57,022,484			106,081,931
Merchant reserve obligations		7,261,153			8,265,555			6,815,073			6,381,153
Total current liabilities		64,005,148			63,468,313			63,837,557			112,463,084

Non-current liabilities:
Equipment loan, non-current portion		85,333			0			55,698			71,434
Operating lease liabilities, non-current portion		2,606,709			2,495,883			2,690,378			2,476,291
Total liabilities		66,697,190			65,964,196			66,583,633			115,010,809

Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively		0			0
Common stock, $0.001 par value, 200,000,000 shares authorized; 26,289,288 and 26,260,776 issued, and 24,962,750 and 24,974,995 outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively		194,746			194,692
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at June 30, 2022 (unaudited) and December 31, 2021, respectively								0			0
Common stock, $0.001 par value, 200,000,000 shares authorized; 26,837,978 and 26,807,145 issued, and 25,295,875 and 25,473,453 outstanding at June 30, 2022 (unaudited) and December 31, 2021, respectively								195,250			195,235
Additional paid-in capital		89,702,612			89,659,433			93,468,139			93,100,129
Treasury stock, at cost; 1,326,538 and 1,285,781 shares at September 30, 2021 (unaudited) and December 31, 2020, respectively		(2,364,071	)		(2,165,721	)
Treasury stock, at cost; 1,542,103 and 1,333,692 shares at June 30, 2022 (unaudited) and December 31, 2021, respectively								(2,951,047	)		(2,404,458	)
Deferred compensation		(4,954,584	)		(5,926,872	)		(6,167,870	)		(6,842,195	)
Accumulated deficit		(65,418,706	)		(65,058,171	)		(68,942,420	)		(65,379,805	)
Total stockholders’ equity		17,159,997			16,703,361			15,602,052			18,668,906

Total liabilities and stockholders’ equity	$	83,857,187		$	82,667,557		$	82,185,685		$	133,679,715

See the accompanying notes to the condensed interim consolidated financial statements.

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020			2022			2021			2022			2021

Revenues	$	15,821,070		$	8,137,077		$	44,515,761		$	22,869,309		$	16,215,686		$	15,233,141		$	34,327,029		$	28,694,691
Cost of services		11,787,439			6,414,807			33,447,448			17,933,089			12,955,782			11,105,696			27,557,996			21,660,009
Gross profit		4,033,631			1,722,270			11,068,313			4,936,220			3,259,904			4,127,445			6,769,033			7,034,682

Selling, general and administrative:
Stock-based compensation		343,567			267,223			988,567			903,326			473,701			317,285			1,024,383			645,000
Other SG&A expenses		2,844,205			1,976,191			8,349,452			5,955,221			3,848,696			2,845,213			7,643,842			5,505,247
Depreciation and amortization		634,912			390,216			1,884,268			1,160,255			807,934			627,149			1,522,869			1,249,356
Total selling, general and administrative expenses		3,822,684			2,633,630			11,222,287			8,018,802			5,130,331			3,789,647			10,191,094			7,399,603

Operating income (loss)		210,947			(911,360	)		(153,974	)		(3,082,582	)		(1,870,427	)		337,798			(3,422,061	)		(364,921	)

Other income and (expense):
Interest income		1,767			10,157			6,403			22,800			1,166			2,169			1,747			4,636
Other income (expense)		(1,480	)		186			(2,964	)		912
Interest expense														(1,084	)		(1,484	)		(2,301	)		(1,484	)
Other income and (expense), net		287			10,343			3,439			23,712			82			685			(554	)		3,152

Income (loss) before income taxes		211,234			(901,017	)		(150,535	)		(3,058,870	)
Income (Loss) before income taxes														(1,870,345	)		338,483			(3,422,615	)		(361,769	)
Income tax expense		70,000			35,000			210,000			325			70,000			120,000			140,000			140,000

Net income (loss)	$	141,234		$	(936,017	)	$	(360,535	)	$	(3,059,195	)
Net income (Loss)													$	(1,940,345	)	$	218,483		$	(3,562,615	)	$	(501,769	)

Income (Loss) Per Share
Basic income (loss) per common share:	$	0.01		$	(0.06	)	$	(0.02	)	$	(0.22	)	$	(0.10	)	$	0.01		$	(0.18	)	$	(0.03	)
Diluted income (loss) per common share:	$	0.01		$	(0.06	)	$	(0.02	)	$	(0.22	)	$	(0.10	)	$	0.01		$	(0.18	)	$	(0.03	)
Weighted average common shares outstanding
Basic		20,033,515			15,474,171			19,986,279			13,924,803			20,316,572			19,993,387			20,298,573			19,962,661
Diluted		24,935,517			15,474,171			19,986,279			13,924,803			20,316,572			24,962,389			20,298,573			19,962,661

See the accompanying notes to the condensed interim consolidated financial statements.

	*Nine Months Ended September 30,*						*Six Months Ended June 30,*
	*2021*			*2020*			*2022*			*2021*
Operating activities:
Net (loss)	$	(360,535	)	$	(3,059,195	)	$	(3,562,615	)	$	(501,769	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Adjustments to reconcile net (loss) to net cash provided (used) by operating activities:
Depreciation		480,368			410,254			586,936			313,423
Amortization		1,403,900			750,001			935,933			935,933
Bad debt		87,190			0			0			86,402
Non-cash stock-based compensation		988,567			903,326			1,024,383			645,000
Amortization of warrant costs		26,955			26,958			17,970			17,970
Changes in current assets and current liabilities:
Accounts receivable		(1,410,805	)		54,631			1,125,416			(383,213	)
Prepaid expenses and other		54,709			(1,534	)		(402,939	)		(130,662	)
Operating lease right-of-use assets		(249,863	)		172,166			(281,442	)		(367,654	)
Other assets		23,000			(18,363	)		0			(45,883	)
Inventory		(45,209	)		0			(53,850	)		(38,452	)
Accounts payable and accrued expenses		765,512			(71,309	)		(829,390	)		177,315
Operating lease liabilities		258,896			(168,458	)		289,502			377,957
Prepaid card load obligations		7,474,626			7,378,146			(21,486,085	)		1,547,277
Merchant reserves		(1,004,402	)		(1,782,500	)		433,920			(164,402	)
Customer deposits		200,028			0			107,021			105,311
Deferred revenue		(35,690	)		(39,705	)		(17,647	)		(22,454	)
Net cash provided by operating activities		8,657,247			4,554,418
Net cash provided (used) by operating activities								(22,112,887	)		2,552,099

Investing activities:
Purchases of property and equipment		(999,493	)		(582,347	)		(411,818	)		(533,854	)
Net cash (used) by investing activities		(999,493	)		(582,347	)		(411,818	)		(533,854	)

Financing activities:
Proceeds from PPP Loan Program		0			813,500
Proceeds from public offering, net of expenses		0			7,257,925
Proceeds from private offering		0			3,000,000
Proceeds from equipment loan		165,996			0			0			165,996
Payments on equipment loan		(26,446	)		0			(27,110	)		(13,221	)
Purchases of treasury stock		(198,350	)		(180,311	)		(546,589	)		(79,264	)
Net cash (used) provided by financing activities		(58,800	)		10,891,114
Net cash provided (used) by financing activities								(573,699	)		73,511

Change in cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves		7,598,954			14,863,185			(23,098,404	)		2,091,756
Cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves, beginning of period		22,192,225			12,682,918			51,591,560			22,192,225

Cash, Cash Equivalents, Prepaid Card Load Assets, Customer Deposits and Merchant Reserves, End of Period	$	29,791,179		$	27,546,103		$	28,493,156		$	24,283,981

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	2,964		$	0		$	2,301		$	1,484
Income taxes		92,850			93,525			0			92,850
Non-cash transactions:
Issuance of deferred stock compensation		0			1,559,520			12,330			0

See accompanying notes to the condensed interim consolidated financial statements.

	*Common Stock*						*Additional Paid- In*			*Treasury*			*Deferred*			*Accumulated*			*Total Stockholders'*			*Common Stock*						*Additional Paid- In*			*Treasury*			*Deferred*			*Accumulated*			*Total Stockholders'*
	*Shares*			*Amount*			*Capital*			*Stock*			*Compensation*			*Deficit*			*Equity*			*Shares*			*Amount*			*Capital*			*Stock*			*Compensation*			*Deficit*			*Equity*

Balance at December 31, 2021																							26,807,145		$	195,235		$	93,100,129		$	(2,404,458	)	$	(6,842,195	)	$	(65,379,805	)	$	18,668,906

Issuance of common stock under equity incentive plan																							61,600			62			267,856			0			(12,330	)		0			255,588
Warrant compensation costs																							—			0			8,985			0			0			0			8,985
Deferred compensation amortization																							—			—			—			—			295,092			—			295,092
Purchase of treasury stock costs																							—			0			0			(66,494	)		0			0			(66,494	)
Net (loss) for the period																							—			0			0			0			0			(1,622,270	)		(1,622,270	)

Balance at March 31, 2022																							26,868,745		$	195,297		$	93,376,970		$	(2,470,952	)	$	(6,559,433	)	$	(67,002,075	)	$	17,539,807

Issuance of common stock under equity incentive plan																							54,233			52			258,636			0			0			0			258,687
Warrant compensation costs																							—			0			8,985			0			0			0			8,985
Reversal of deferred compensation amortization that did not vest																							(85,000	)		(85	)		(176,465	)		—			97,621			—			(78,929	)
Deferred compensation amortization																							—			—			—			—			293,942			—			293,942
Purchase of treasury stock costs																							—			0			0			(480,095	)		0			0			(480,095	)
Net (loss) for the period																							—			0			0			0			0			(1,940,345	)		(1,940,345	)

Balance at June 30, 2022																							26,837,978		$	195,264		$	93,468,126		$	(2,951,047	)	$	(6,167,870	)	$	(68,942,420	)	$	15,602,052

Balance at December 31, 2020		26,260,776		$	194,692		$	89,659,433		$	(2,165,721	)	$	(5,926,872	)	$	(65,058,171	)	$	16,703,361			26,260,776		$	194,692		$	89,659,433		$	(2,165,721	)	$	(5,926,872	)	$	(65,058,171	)	$	16,703,361

Issuance of common stock under equity incentive plan		51,000			51			120,484			—			—			—			120,535			51,000			51			120,484			0			0			0			120,535
Warrant compensation costs		—			—			8,985			—			—			—			8,985			—			0			8,985			0			0			0			8,985
Cashless warrant exercise		19,795			19			(19	)		—			—			—			—			19,795			19			(19	)		—			—			—			—
Reversal of deferred compensation amortization that did not vest		(17,111	)		(17	)		(48,599	)		—			5,994			—			(42,622	)		(17,111	)		(17	)		(48,599	)		0			5,994			0			(42,622	)
Deferred compensation amortization		—			—			—			—			249,801			—			249,801			—			0			0			0			249,801			0			249,801
Purchase of treasury stock costs		—			—			—			(49,454	)		—			—			(49,454	)		—			0			0			(49,454	)		0			0			(49,454	)
Net (loss) for the period		—			—			—			—			—			(720,252	)		(720,252	)		—			0			0			0			0			(720,252	)		(720,252	)

Balance at March 31, 2021		26,314,460		$	194,745		$	89,740,284		$	(2,215,175	)	$	(5,671,077	)	$	(65,778,423	)	$	16,270,354			26,314,460		$	194,745		$	89,740,284		$	(2,215,175	)	$	(5,671,077	)	$	(65,778,423	)	$	16,270,354

Issuance of common stock under equity incentive plan		61,556			61			150,481			—			—			—			150,542			61,556			61			150,481			0			0			0			150,542
Warrant compensation costs		—			—			8,985			—			—			—			8,985			—			0			8,985			0			0			0			8,985
Reversal of deferred compensation amortization that did not vest		(115,000	)		(115	)		(237,085	)		—			158,096			—			(79,104	)		(115,000	)		(115	)		(237,085	)		0			158,096			0			(79,104	)
Deferred compensation amortization		—			—			—			—			245,847			—			245,847			—			0			0			0			245,847			0			245,847
Purchase of treasury stock costs		—			—			—			(29,810	)		—			—			(29,810	)		—			0			0			(29,810	)		0			0			(29,810	)
Net income for the period		—			—			—			—			—			218,483			218,483			—			0			0			0			0			218,483			218,483

Balance at June 30, 2021		26,261,016		$	194,691		$	89,662,665		$	(2,244,985	)	$	(5,267,134	)	$	(65,559,940	)	$	16,785,297			26,261,016		$	194,691		$	89,662,665		$	(2,244,985	)	$	(5,267,134	)	$	(65,559,940	)	$	16,785,297

Issuance of common stock under equity incentive plan		49,322			76			108,146			—			20,785			—			129,007
Warrant compensation costs		—			—			8,985			—			—			—			8,985
Cashless warrant exercise		19,950			20			(20	)		—			—			—			—
Reversal of deferred compensation amortization that did not vest		(41,000	)		(41	)		(77,164	)		—			52,434			—			(24,771	)
Deferred compensation amortization		—			—			—			—			239,331			—			239,331
Purchase of treasury stock costs		—			—			—			(119,086	)		—			—			(119,086	)
Net income for the period		—			—			—			—			—			141,234			141,234

Balance at September 30, 2021		26,289,288		$	194,746		$	89,702,612		$	(2,364,071	)	$	(4,954,584	)	$	(65,418,706	)	$	17,159,997

Balance at December 31, 2019		18,224,577		$	186,656		$	77,055,273		$	(1,885,452	)	$	(5,636,154	)	$	(62,151,988	)	$	7,568,335

Issuance of common stock under equity incentive plan		51,000			51			59,440			—			—			—			59,491
Warrant compensation costs		—			—			8,985			—			—			—			8,985
Deferred compensation amortization		—			—			—			—			228,219			—			228,219
Purchase of treasury stock costs		—			—			—			(26,629	)		—			—			(26,629	)
Net (loss) for the period		—			—			—			—			—			(835,009	)		(835,009	)

Balance at March 31, 2020		18,275,577		$	186,707		$	77,123,698		$	(1,912,081	)	$	(5,407,935	)	$	(62,986,997	)	$	7,003,392

Issuance of common stock under equity incentive plan		1,500,544			1,500			1,641,304			—			(1,559,520	)		—			83,284
Warrant compensation cost		—			—			8,988			—			—			—			8,988
Deferred compensation amortization		—			—			—			—			267,207			—			267,207
Purchase of treasury stock		—			—			—			(55,819	)		—			—			(55,819	)
Net (loss) for the period		—			—			—			—			—			(1,288,169	)		(1,288,169	)

Balance at June 30, 2020		19,776,121		$	188,207		$	78,773,990		$	(1,967,900	)	$	(6,700,248	)	$	(64,275,166	)	$	6,018,883

Issuance of common stock under equity incentive plan		32,323			32			149,961			—			—			—			149,993
Warrant compensation cost		—			—			8,985			—			—			—			8,985
Cashless warrant exercise		27,051			27			(27	)		—			—			—			—
Reversal of deferred compensation amortization that did not vest		(450,000	)		(450	)		(791,550	)		—			594,900			—			(197,100	)
Issuance of common stock, public offering		4,705,883			4,705			7,253,220			—			—			—			7,257,925
Issuance of common stock, private offering		1,796,407			1,797			2,998,203			—			—			—			3,000,000
Deferred compensation amortization		—			—			—			—			312,232			—			312,232
Purchase of treasury stock		—			—			—			(97,863	)		—			—			(97,863	)
Net (loss) for the period		—			—			—			—			—			(936,017	)		(936,017	)

Balance at September 30, 2020		25,887,785		$	194,318		$	88,392,782		$	(2,065,763	)	$	(5,793,116	)	$	(65,211,183	)	$	15,517,038

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying unaudited interim condensed consolidated financial statements of Usio, Inc. and its subsidiaries (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company's financial position, results of operations and cash flows for such periods. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the Securities and Exchange Commission on March ~~30, 2021.~~17, 2022. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition: Revenue consists primarily of fees generated through the electronic processing of payment transactions and related ~~services and bill preparation, presentment and mailing~~ 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~~Solutions is recognized when the related services are performed for printing and delivered to USPS for postage.

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*				*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2021*		*2020*		*2021*		*2020*		*2022*		*2021*		*2022*		*2021*

ACH and complementary service revenue	$	3,733,453	$	2,063,458	$	10,813,806	$	6,080,449	$	3,899,612	$	4,001,897	$	7,742,928	$	7,080,353
Credit card revenue		6,509,344		5,076,591		18,791,129		14,647,448		6,885,697		6,558,076		13,653,919		12,281,785
Prepaid card services revenue		2,004,657		997,028		3,968,764		2,141,412		1,388,110		1,077,531		4,156,557		1,964,107
Output solutions revenue		3,573,616		0		10,942,062		0		4,042,267		3,595,637		8,773,625		7,368,446
Total revenue	$	15,821,070	$	8,137,077	$	44,515,761	$	22,869,309	$	16,215,686	$	15,233,141	$	34,327,029	$	28,694,691

Deferred Revenues: The Company records deferred revenues when it receives payments in advance of transferring control of promised goods or services to a customer. The advance consideration received from a customer is deferred until the Company provides the customer that product or service. The deferred revenues totaled ~~$30,882~~$0 and ~~$66,572~~$17,647 at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021, respectively.

Cash and Cash Equivalents: Cash and cash equivalents includes cash and other money market instruments. The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

Settlement Processing Assets and Obligations: Settlement processing assets and obligations represent intermediary balances arising in our settlement process for merchants.

Customer Deposits: The Company holds customer deposits primarily for postage expenses to ensure the Company is not out of pocket for amounts billed daily by the United States Postal Service. These customer deposits are carried on the Company's balance sheet with a corresponding liability.

Merchant Reserves: The Company has merchant reserve requirements associated with Automated Clearing House ("ACH") transactions. The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability. Merchant Reserves are set for each merchant. Funds are collected from each merchant and held as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant agreement. While this cash is not restricted in its use, the Company believes that designating this cash to collateralize Merchant Reserves strengthens its fiduciary standing with the Company's member sponsors and is in accordance with the guidelines set by the card networks.

Prepaid Card Load Assets: The Company maintains pre-funding accounts for its customers to facilitate prepaid card loads as initiated by the customer. These prepaid card load assets are carried on the Company's balance sheet with a corresponding liability.

The reconciliation of cash and cash equivalents to cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves is as follows for each period presented:

	*Nine Months Ended September 30,*				Three Months Ended June 30,				Six Months Ended June 30,
	*2021*		*2020*		2022		2021		2022		2021

Beginning cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves:
Cash and cash equivalents	$	5,011,132	$	2,137,580	$	7,590,951	$	4,284,360	$	7,255,321	$	5,011,132
Prepaid card load assets		7,610,242		528,434		28,846,980		18,555,474		36,590,893		7,610,242
Customer deposits		1,305,296		0		1,391,465		1,357,242		1,364,193		1,305,296
Merchant reserves		8,265,555		10,016,904		6,386,153		8,317,462		6,381,153		8,265,555
Total	$	22,192,225	$	12,682,918	$	44,215,549	$	32,514,538	$	51,591,560	$	22,192,225

Ending cash, cash equivalents, prepaid card load assets, customer deposits and merchant reserves:
Cash and cash equivalents	$	5,939,834	$	11,405,119	$	5,102,061	$	5,614,702	$	5,102,061	$	5,614,702
Prepaid card load assets		15,084,868		7,906,580		15,104,808		9,157,519		15,104,808		9,157,519
Customer deposits		1,505,324		0		1,471,214		1,410,607		1,471,214		1,410,607
Merchant reserves		7,261,153		8,234,404		6,815,073		8,101,153		6,815,073		8,101,153
Total	$	29,791,179	$	27,546,103	$	28,493,156	$	24,283,981	$	28,493,156	$	24,283,981

Allowance for Estimated Losses: The Company maintains an allowance for estimated doubtful accounts receivable resulting from the inability or failure of the Company’s customers to make required payments. The Company determines the allowance for estimated doubtful accounts receivable losses based on an account-by-account review, taking into consideration such factors as the age of the outstanding balance, historical pattern of collections and financial condition of the customer. Past losses incurred by the Company due to bad debts have been within its expectations. If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional allowances might be required. Estimates for doubtful account losses are variable based on the volume of transactions processed and could increase or decrease accordingly. The allowance for estimated doubtful accounts was ~~$261,500 and $205,522~~$319,000 at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021~~, respectively.~~.

Inventory: Inventory is stated at the lower of cost or net realizable value. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, inventory consisted primarily of printing and paper supplies used for Output solutions.

Accounting for Internal Use Software: The Company capitalizes the costs associated with software being developed or obtained for internal use when both the preliminary project stage is completed, and it is probable that computer software being developed will be completed and placed-in service. Capitalized costs include only (i) external direct costs of materials and services consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly associated with and who devote time to the internal-use software project, and (iii) interest costs incurred, when material, while developing internal-use software. The Company ceases capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose. In the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021, the Company capitalized ~~$561,177~~$246,210 and ~~$492,294,~~$388,349, respectively.

Valuation of Long-Lived and Intangible Assets: The Company assesses the impairment of long-lived and intangible assets at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following: significant under performance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy of the overall business; and significant negative industry trends. When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair value. NaN impairment losses were recorded in ~~2020~~2021 or during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022. Management is not aware of any impairment changes that may currently be required; however, the Company cannot predict the occurrence of events that might adversely affect the reported values in the future.

Reserve for Processing Losses: If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its credit card, ACH or prepaid customers that have been properly "charged back" by the customer, or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risks. In addition, the Company utilizes multiple systems and procedures to manage merchant risk. ACH, prepaid and credit card merchant processing loss reserves are primarily determined by performing a historical analysis of the Company’s loss experience, considering other factors that could affect that experience in the future, such as the types of transactions processed and nature of the merchant relationship with its consumers and the Company’s relationship with the Company’s prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates. The Company has not incurred any significant processing losses to date. Estimates for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021, the Company’s reserve for processing losses was ~~$608,149~~$689,494 and ~~$515,199~~$623,494 respectively.

Legal Proceedings: TheThe Company may be involved in legal matters arising in the ordinary course of business from time to time. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is or could become involved in litigation will not have a material adverse effect on its business, financial condition or results of operations.

New Accounting Pronouncements: In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 326 is effective for fiscal years beginning after December ~~25,~~15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company does not expect the adoption of the amendments in ASU 2016-13 to have a significant effect on its financial position and the results of its operations when such amendment is adopted.

Accounting standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

On ~~December 15, 2020,~~ the Company entered into an asset purchase agreement to purchase substantially all the assets of Information Management Solutions, LLC ("IMS"), a Texas limited liability company in 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. The total purchase price consideration consisted of a cash payment of $5,907,408 at closing and warrant considerations valued at $552,283. The warrants were comprised of 945,599 unregistered warrants to purchase shares of common stock of the Company, or 945,599 shares of common stock, $0.001 par value per share, with an exercise price of $4.23 per share.

~~The final number of warrants was determined by dividing $2,000,000 by the~~ 5~~-day weighted average closing price for the~~ ~~four~~ ~~trading days preceding the closing date and the closing day, or $2.115 per share. The exercise price of the warrants was determined by multiplying the~~ 5~~-day weighted average closing price by the number 2. The warrants vest in~~ ~~three~~ ~~equal installments on the first,~~ ~~second~~ ~~and~~ ~~third~~ ~~anniversary of the closing date and have a term of~~ ~~five~~ ~~years from vest.~~

~~The purchase price was allocated to the net assets acquired based upon their estimated fair values as follows:~~

~~The unaudited proforma results including the effects of the IMS acquisition as if it had been consummated on~~ ~~January 1, 2019~~ ~~were included in a Form~~ 8~~-K/A filed on~~ ~~March 3, 2021~~ ~~and summarized in the Form~~ 10~~-K filed on~~ ~~March 30, 2021.~~

The Company leases facilities and office equipment under various operating leases, which generally are expected to be renewed or replaced by other leases. For the quarters ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021, operating lease expenses totaled ~~$117,689~~$239,105 and ~~$58,039,~~$123,134, respectively. ~~For the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~31,~~~~2021~~ ~~and~~ ~~2020~~~~, operating lease expenses totaled $338,355 and $186,731, respectively.~~

~~Operating lease liabilities as of~~ ~~September 30, 2021~~ ~~will require the following payments:~~

On March 20, 2021, the Company entered into a debt arrangement to finance $165,996 for the purchase of an Output Solutions sorter. The loan is for a period of 36 months with a maturity date of March 20, 2024. The repayment amount is for 36 months at $4,902 per month. Annual payments are $58,821. The financing is at an interest rate of 3.95%. Current ~~year~~period payments on the ~~Equipment Loan~~equipment loan were ~~$26,446.~~

Stock Warrants: On August 21, 2018, the Company issued University FanCards, LLC a warrant to purchase 150,000 shares of the Company's common stock. 30,000 warrants vested immediately upon the date on which the first financial transaction was processed on a card account issued under the prepaid agreement, which occurred on October 5, 2018. 120,000 warrants vest annually over 4 years in 30,000 warrant increments beginning on July 31, 2019 and becoming fully vested on July 31, 2022. The exercise price for the 30,000 warrants that vested immediately on October 5, 2018 was $1.80 per share. The exercise price for the remaining 120,000 warrants will be the lesser of $2.00 per share or one hundred and twenty percent (120%) of the market price of the Company's common stock on the vesting date of the warrant. The warrants were valued using the Black-Scholes option pricing model. Assumptions used were as follows: (i) the fair value of the underlying stock was $0.94 for the 30,000 warrants and $0.90 for the 120,000 warrants; (ii) the risk-free interest rate is 2.77%; (iii) the contractual life is 5 years; (iv) the dividend yield is 0%; and (v) the volatility is 64.6%. The fair value of the warrants was $135,764 which will be amortized over the life of the warrants as a reduction of revenues. The reduction of revenues recorded for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was ~~$26,955.~~$17,970.

On August 12, 2020, the Company issued 27,051 shares of common stock to University FanCards, LLC in a cashless exercise at $3.46 per common share in exchange for 60,000 warrants exercised by FanCards, LLC.

On February 5, 2021, the Company issued 19,795 shares of common stock to University FanCards, LLC in a cashless exercise at $5.88 per common share in exchange for 30,000 warrants exercised by FanCards, LLC.

On September 1, 2021, the Company issued 19,950 shares of common stock to University FanCards, LLC in a cashless exercise at $5.97 per common share in exchange for 30,000 warrants exercised by FanCards, LLC.

On December 15, 2020, the Company issued to Information Management Solutions, LLC warrants to purchase 945,599 unregistered shares of Usio, Inc. or 945,599 shares of common stock, $0.001 par value per share, with an exercise price of $4.23. 945,599 warrants vest annually over 3 years in three equal tranches beginning on December 15, 2021 and becoming fully vested on December 15, 2023. The warrants were valued using the Black-Scholes option pricing model. Assumptions used were as follows: (i) the fair value of the underlying stock was $0.58; (ii) the risk-free interest rate is 0.09%; (iii) the contractual life is 5 years; (iv) the dividend yield of 0%; and (v) the volatility is 59.9%. The fair value of the warrants amounted to $552,283 and will be recorded as an increase in the customer list asset and have a term of five years from time of vest.

Basic ~~income~~ (loss) per share (EPS) was computed by dividing net ~~income~~ (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS differs from basic EPS due to the assumed conversion of potentially dilutive awards and options that were outstanding during the period. The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net ~~income~~ (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021.

	*Three Months Ended September 30,*					*Nine Months Ended September 30,*						*Three Months Ended June 30,*					*Six Months Ended June 30,*
	*2021*		*2020*			*2021*			*2020*			*2022*			*2021*		*2022*			*2021*
Numerator:
Numerator for basic and diluted income (loss) per share, net income (loss) available to common shareholders	$	141,234	$	(936,017	)	$	(360,535	)	$	(3,059,195	)	$	(1,940,345	)	$	218,483	$	(3,562,615	)	$	(501,769	)
Denominator:
Denominator for basic (loss) per share, weighted average shares outstanding		20,033,515		15,474,171			19,986,279			13,924,803
Denominator for basic income (loss) per share, weighted average shares outstanding													20,316,572			19,993,387		20,298,573			19,962,661
Effect of dilutive securities		4,902,002		0			0			0			0			4,969,002		0			0
Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion		24,935,517		15,474,171			19,986,279			13,924,803			20,316,572			24,962,389		20,298,573			19,962,661
Basic income (loss) per common share	$	0.01	$	(0.06	)	$	(0.02	)	$	(0.22	)	$	(0.10	)	$	0.01	$	(0.18	)	$	(0.03	)
Diluted income (loss) per common share and common share equivalent	$	0.01	$	(0.06	)	$	(0.02	)	$	(0.22	)	$	(0.10	)	$	0.01	$	(0.18	)	$	(0.03	)

The awards and options to purchase shares of common stock that were outstanding at ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows:

Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities and are measured by the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires judgment by management. U.S. generally accepted accounting principles prescribe a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Income tax benefits that meet the “more likely than not” recognition threshold should be recognized.

The Company has recognized a net deferred tax asset of approximately ~~$1.4~~$1.5 million and has recorded a valuation allowance of approximately ~~$7.5~~$5.2 million against the other deferred tax assets. The Company reviews the assessment of the deferred tax asset and valuation allowance on an annual basis or more often when events indicate that a change to the valuation allowance may be warranted.

At December 31, ~~2020~~2021, the Company had available net operating loss carryforwards of approximately ~~$39.4~~$29.5 million. Net operating loss carryforwards prior to 2017 are available to offset taxable income of future periods and ~~begin to~~ expire20 years after the loss was generated.

Net operating loss carryforwards totaling $10.7 million expired in 2021. The schedule below outlines when the Company's pre-2017 net operating losses were generated and the year they may expire.

Effective for tax years ending in 2018, net operating losses can be carried forward to future years indefinitely. ~~Approximately $0.5 million of the~~Net operating losses generated in 2018 and later total $9,413,692. The below table outlines our net operating ~~loss carryforward is subject to an IRS Section~~losses generated in ~~382~~2018 ~~limitation from~~ ~~1999.~~and after.

Management is not aware of any tax positions that would have a significant impact on the Company’s financial position.

During the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and the year ended December 31, ~~2020~~2021, the Company purchased a total of ~~$3,957~~$19,929 and ~~$9,886,~~$4,009, respectively, of corporate imprinted sportswear and caps from Angry Pug Sportswear. Louis Hoch, the Company’s President and Chief Executive Officer, is a 50% owner of Angry Pug Sportswear.

On January 6, 2022, the Company repurchased 11,361 shares for $47,930 in a private transaction at the closing price on January 6, 2022 of $4.21 per share from Tom Jewell, the Company's Chief Financial Officer, to cover his share of taxes.

On January 6, 2021, the Company repurchased 11,860 shares of common stock at a closing price of $3.25 per share from Tom Jewell, the Company's Chief Financial Officer to cover taxes due.

On ~~January 6, 2020,~~ ~~the~~The Company ~~repurchased 11,860~~granted 319,900 shares of common stock with a 10-year vesting period and 141,900 restricted stock units (RSUs) with a 3-year vesting period to employees and Directors as a performance bonus on November 18, 2021 at ~~a closing~~an issue price of ~~$1.74~~$6.39 per ~~share from~~share. Executive officers and Directors included in the 10-year grant were Louis Hoch (100,000 shares), Tom Jewell (50,000 shares), Greg Carter (30,000 shares) and Houston Frost (25,000 shares). Executive officers and Directors included in the ~~Company's Chief Financial Officer to cover taxes due.~~RSU grant were Louis Hoch (30,000 shares), Tom Jewell (21,000 shares), Greg Carter (9,000 shares) Houston Frost (6,000 shares), Blaise Bender (12,000 RSUs), Brad Rollins (12,000 RSUs) and Ernesto Beyer (12,000 RSUs).

On April 1, 2021, the Company granted 1,444,000 shares of common stock with a 10-year vesting period and 103,000 restricted stock units (RSUs) with a 3-year vesting period to employees and Directors as a performance bonus at an issue price of $1.08 per share. Executive officers and Directors included in the grant were Louis Hoch (300,000 shares), Tom Jewell (200,000 shares), Blaise Bender (10,000 RSUs) and Brad Rollins (30,000 RSUs).

On ~~November 1, 2020,~~ as approved by the Company's Compensation Committee, the Company issued 136,891 shares of common stock to Mr. Louis Hoch, the Company's Chief Executive Officer, valued at $216,000 at the closing price of $1.5779 per share from ~~October 15, 2020~~ ~~in satisfaction of the terms of the additional bonus of his employment agreement. As part of the transaction, on~~ ~~November 1, 2020,~~ ~~the Company repurchased 54,756 shares from Mr. Hoch to cover withholding taxes due.~~

The ongoing COVID-19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic. There remain many uncertainties as a result of the pandemic. As a result of the spread of COVID-19, economic uncertainties could continue to impact our operations. Any potential incremental financial impact is unknown at this time.

~~At this time, certain states are considering reinstatement of select mandated operating restrictions and continued efforts are underway to provide vaccinations to as many people as possible.~~ During 2020 and 2021, the government issued several rounds of COVID-19 relief and stimulus payments and other programs to stimulate economic activity and facilitate an economic recovery.

In April and May of 2020, ~~our~~the Company's business was adversely affected as doctor's offices, dental offices, veterinarian offices and non-bank consumer lending accounts were ordered closed in connection with curbing the spread of the pandemic. As these doctors, dental and veterinarian offices re-opened, these businesses quickly recovered and returned to levels higher than pre-COVID. Consumer lending merchants were adversely affected by COVID relief payments made during the pandemic and a pause placed on past due amounts owed. The level of activity for consumer lending merchants ~~has somewhat returned~~continues to recover to pre-COVID levels. ~~We received~~The Company recorded an increase in revenues in ~~our~~its prepaid business line, as ~~we were~~it was able to work in conjunction with major cities across the U.S. to use ~~our~~its prepaid debit cards to facilitate the transfer of money via ~~our~~its debit cards from city foundations to the local residents in need of financial assistance. The efforts have included the disbursement of funds to encourage vaccinations.

The Company has recently experienced some difficulty in recruiting and retaining certain categories of employees due to limited ~~resource~~labor availability. The Company continues to monitor ~~resource~~labor availability and is taking necessary steps to retain employees and recruit employees to fill open positions.

Due to the COVID-19 pandemic and global economic challenges, supply chain issues have resulted in a reduced supply, and growing demand of paper and paper products utilized in our Output Solutions line of business. Sourcing inventory remains a key challenge to execute jobs and projects with existing and new customers. If the Company cannot continue to acquire sufficient inventory stock, the successful completion, margins, and growth of Output Solutions may be impacted.

The impacts and recovery from the COVID-19 pandemic are still a work in process. To date, ~~we have~~the Company has not been adversely impacted in the magnitude that other payment processors were, as our customer base had limited exposure to retail facing businesses. Within that framework, wethe Company will continue to monitor the overall impact on ~~our~~its operations and take necessary steps to ensure the safety of ~~our~~its employees and the well-being of ~~our~~its customers.

In early July, 2022, the Company's largest ACH customer filed chapter 11 bankruptcy and stopped processing transactions. The customer represented 49% of our total ACH transaction volume in 2021 and 8% of revenue for the Company. The Company's revenue and cash flows will be impacted if the customer does not resume full operations.

On ~~October 19, 2021,~~ ~~the Company entered into a lease amendment to the existing lease in San Antonio, Texas commencing on~~ ~~December 1, 2021~~ ~~and expiring on~~ ~~September 24, 2024~~ ~~running concurrently with the existing lease. The incremental space lease is 6,628 square feet. The incremental annual rent during the lease term ranges from $135,874 to $145,816.~~

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. If used in this report, the words "anticipate," "believe," "estimate," "intend," and other words or phrases of similar import are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our annual report on Form 10-K and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

This discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this report, and our annual report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, filed on March ~~30, 2021,~~17, 2022, including the audited consolidated financial statements and the notes contained therein.

Effective on June 26, 2019, we changed our corporate name from Payment Data Systems, Inc. to Usio, Inc.

We provide integrated ~~electronic~~ payment processing services to merchants and businesses, including all types of Automated Clearing House, or ACH, processing, credit, ~~card, PINless debit,~~ prepaid card and debit card-based processing services and statement preparation, presentment and mailing services. ~~Through Akimbo, under the domain name www.akimbocard.com, we~~

We offer ~~MasterCard~~customizable prepaid cards companies use for expense management, incentives, refunds, claims and disbursements, unique forms of compensation like per diems, government disbursements, and more. We also offer prepaid cards to consumers for use as a tool to stay on budget, to manage allowances and to share money with family and friends. ~~We have further developed our Akimbo~~UsioCard platform ~~to include Akimbo Now for businesses, Akimbo Gift for consumers and support for~~supports Apple Pay®, ~~Android~~Samsung Pay™ and ~~Samsung~~Google Pay™. ~~With the acquisition of the assets of IMS~~Our PIN-less debit product allows merchants to debit and credit accounts in ~~December 2020,~~real-time. In our over 20-year history, we ~~now offer additional~~have created a loyal customer base that relies on us for our convenient, secure, innovative and adaptive services ~~relating to electronic bill presentment, document composition, document decomposition~~ and ~~printing~~technology, and ~~mailing services.~~we have built long-standing and valuable relationships with premier banking institutions such as Fifth-Third Bank, Sunrise Bank, and Wells Fargo Bank.

During the ~~third~~second quarter of ~~2021,~~2022, the amount of credit card transactions processed increased by ~~76%~~35% versus the ~~third~~second quarter of ~~2020.~~2021. The volume of credit card dollars processed during the ~~third~~second quarter of ~~2021~~2022 increased by ~~43%~~9% compared to the same time period in ~~2020.~~2021. Both credit card transactions processed and dollars processed were the highest in our history. The continued growth in credit card metrics was primarily attributable to our PayFac growth initiatives driving increased penetration across multiple industries including healthcare and legal.

ACH (eCheck) transaction counts during the ~~third~~second quarter of ~~2021 increased~~2022 decreased by ~~86%~~8% compared to the ~~third~~second quarter of ~~2020.~~2021. Returned check transactions processed during the ~~third~~second quarter of ~~2021~~2022 increased by ~~100%~~39% compared to the ~~third~~second quarter of ~~2020.~~2021. Electronic check dollars processed during the ~~third~~second quarter of ~~2021 increased~~2022 decreased by ~~100%~~16% compared to the ~~third~~second quarter of ~~2020.~~2021. The ~~increases~~decreases in eCheck ~~transactions, returned check~~ transactions and electronic check dollar volumes processed were primarily attributable to significant higher cryptocurrency activity levels ~~primarily~~ in the ~~cryptocurrency and FinTech~~prior year period versus the current year period. Increases in returned check transactions was primarily attributable to the continued recovery of the consumer lending ~~industries.~~ market following its decline due to COVID-19.

Prepaid card load volumes processed during the ~~third~~second quarter of ~~2021~~2022 increased by 2%81% compared to the ~~third~~second quarter of ~~2020.~~2021. Prepaid card transaction counts processed during the ~~third~~second quarter of ~~2021~~2022 increased by ~~115%~~190% compared to the ~~third~~second quarter of ~~2020.~~2021. Prepaid card purchase volume during the ~~third~~second quarter of ~~2021~~2022 increased by ~~18%~~139% compared to the ~~third~~second quarter of ~~2020.~~2021. These increases occurred primarily due to the continued associations with many government assistance programs including organizations such as New York City Economic Development Corporation, City of Houston, Harris County, TX, Open Society International (City of Baltimore), and Greater Washington Community Foundation (Washington DC) with their vaccine incentive and cash disbursement programs. We also continue to support numerous guaranteed income programs including the Arlington Community Foundation, E.A.T (Equity and Transformation) Chicago, and Hudson UP, the City of Denver's Basic Income Project.

Total dollar volumes processed ~~for~~across all business lines in the ~~third~~second quarter of ~~2021~~2022 were ~~$2.1~~$2.4 billion compared to ~~$852 million~~$2.7 billion processed in the ~~third~~second quarter of ~~2020.~~2021.

Our management’s discussion and analysis of our financial condition and results of operations is based upon our interim condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues 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, bad debt, investments, intangible assets, income taxes, and 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 the accounting policies described in Note 1 to the Notes to the Interim Condensed Consolidated Financial Statements 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.

For a summary of Critical Accounting Policies, please refer to the Notes to Interim Condensed Consolidated Financial Statements, Note 1, Basis of Presentation.

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 Automated Clearing House, or ACH, network and the program management and processing of prepaid debit cards. With the acquisition of the assets of IMS in December 2020, we now offer additional services relating to electronic bill presentment, document composition, document decomposition and printing and mailing services through our Output Solutions entity.

	Three Months Ended September 30,									Three Months Ended June 30,
	2021		2020		$ Change		% Change			2022		2021		$ Change			% Change

ACH and complementary service revenue	$	3,733,453	$	2,063,458	$	1,669,995		80.9	%	$	3,899,612	$	4,001,897	$	(102,285	)		(3	)%
Credit card revenue		6,509,344		5,076,591		1,432,753		28.2	%		6,885,697		6,558,076		327,621			5	%
Prepaid card services revenue		2,004,657		997,028		1,007,629		101.1	%		1,388,110		1,077,531		310,579			29	%
Output solutions revenue		3,573,616		—		3,573,616		100.0	%		4,042,267		3,595,637		446,630			12	%
Total Revenue	$	15,821,070	$	8,137,077	$	7,683,993		94.4	%	$	16,215,686	$	15,233,141	$	982,545			6	%

	Nine Months Ended September 30,									Six Months Ended June 30,
	2021		2020		$ Change		% Change			2022		2021		$ Change		% Change

ACH and complementary service revenue	$	10,813,806	$	6,080,449	$	4,733,357		77.8	%	$	7,742,928	$	7,080,353	$	662,575		9	%
Credit card revenue		18,791,129		14,647,448		4,143,681		28.3	%		13,653,919		12,281,785		1,372,134		11	%
Prepaid card services revenue		3,968,764		2,141,412		1,827,352		85.3	%		4,156,557		1,964,107		2,192,450		112	%
Output solutions revenue		10,942,062		—		10,942,062		100.0	%		8,773,625		7,368,446		1,405,179		19	%
Total Revenue	$	44,515,761	$	22,869,309	$	21,646,452		94.7	%	$	34,327,029	$	28,694,691	$	5,632,338		20	%

Revenues for the quarter ended ~~September~~June 30, ~~2021~~2022 increased by ~~94.4%~~6% to ~~$15.8~~$16.2 million, as compared to ~~$8.1~~$15.2 million for the quarter ended ~~September~~June 30, ~~2020. Excluding the impact of the Output Solutions revenues, the organic~~2021 due to continued traction and growth ~~was 51% versus the same period last year. The revenue increases were across all business lines including incremental revenues from our Output Solutions plus double-digit gains~~ in our ~~other~~prepaid and PayFac lines of business, ~~lines as referenced above.~~despite a minor decline in our ACH and complimentary services business sector. This decline was a result of ACH competing against an outsized year ago quarter when cryptocurrency activity was at its peak. During the ~~third~~second quarter we saw continued growth in our ~~ACH~~prepaid card services category due to strong relationships with government and ~~complementary service category from strong transaction growth in our cryptocurrency and FinTech lending businesses.~~municipality card programs.

~~For~~Revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2021, revenues~~2022 increased by ~~95%~~20% to ~~$44.5~~$34.3 million, as compared to ~~$22.9~~$28.7 million for the ~~nine~~six months ended ~~September~~June 30, 2020. Excluding the impact of the Output Solutions revenues, the organic growth was 47% versus the same period last year. The revenue increases were across all business lines including incremental revenues from our Output Solutions plus double-digit gains in our other business lines as referenced above.2021.

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 service fees also include fees paid to referral agents and partners.

Cost of services increased by ~~$5.4~~$1.9 million, or ~~84%~~17%, to ~~$11.8~~$13.0 million for the quarter ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$6.4~~$11.1 million for the same period in the prior year.

Cost of services increased by ~~$15.5~~$5.9 million, or ~~87%~~27%, to ~~$33.4~~$27.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$17.9~~$21.7 million for the same period in the prior year. ~~The increases~~

Increases in ~~the quarter and nine-month period ended September 30, 2021, as compared to the same period in the prior year, were primarily~~cost of services are due to ~~the increased~~growing revenues and their associated costs, ~~associated with higher revenues plus incremental costs associated with the Output Solutions business.~~compounded by more significant revenue growth in lower margin lines of business, versus ACH, which is our most profitable business line.

Gross profits ~~increased~~decreased by ~~134%~~21% to ~~$4.0~~$3.3 million for the quarter ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$1.7~~$4.1 million for the same period in the prior year. ~~Gross profits~~Similarly, the gross margin percentage was 20.1% for the ~~nine months~~quarter ended ~~September~~June 30, ~~2021 increased by 124% to $11.1 million~~2022 as compared to ~~$4.9~~27.1% in the prior year period. The decrease in gross profits and margin percentage in the quarter ended June 30, 2022, as compared to the same period a prior year ago, is attributable to increased revenue contribution from business lines with lower profit margins, as well as decreased ACH and complementary service revenues, a high margin business.

Gross profits decreased by 4% to $6.8 million for the six months ended June 30, 2022, as compared to $7.0 million for the same period in the prior year. Similarly, the gross margin percentage was 19.7% for the six months ended June 30, 2022 as compared to 24.5% in the prior year period. The ~~increase~~decrease in gross ~~profit for~~profits and margin percentage in the ~~quarter and nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to the same period ~~in the~~a prior year ~~was primarily a result of incremental profits~~ago, is attributable to increased revenue contribution from ~~our existing~~ business lines plus the incremental profits of our Output Solutions business. The gross margin percentage was 25.5% for the quarter ended September 30, 2021 as compared to 21.2% in the prior year period. The gross margin percentage was 24.9% for the nine months ended September 30, 2021 as compared to 21.6% in the prior year period. The increase in gross margin percentage in the quarter and nine months ended September 30, 2021, as compared to the same periods in the prior year, are attributable to product mix shifts to higherwith lower profit ~~transactions plus overall margin improvements.~~margins.

Stock-based compensation expenses were ~~$343,567~~$0.5 million for the quarter ended ~~September~~June 30, ~~2021~~2022 as compared to ~~$267,223~~$0.3 million for the quarter ended ~~September~~June 30, ~~2020,~~2021, an increase of ~~28.6%~~49.3%. ~~The prior year period was lower than normal due the reversal of stock~~

Stock-based compensation ~~expense due to stock cancellations. Stock compensation expense~~expenses were $1.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 was $988,567~~2022 as compared to ~~$903,326~~$0.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, an increase of ~~9.4%~~58.8%.

Other selling, general and administrative expenses (other SG&A) were ~~$2.8~~$3.8 million for the quarter ended ~~September~~June 30, ~~2021~~2022 as compared to ~~$2.0~~$2.8 million in the prior year, a ~~44%~~35% increase versus the prior year period. ~~Other SG&A expenses for the nine months ended September 30, 2021 increased to $8.3 million from $6.0 million, a 40% increase.~~ The increase in other SG&A for the quarter ~~and nine months~~ ended ~~September~~June 30, ~~2021~~2022 reflects ~~the incremental costs associated with~~continued investments in our ACH, PayFac, Prepaid and Output Solutions business ~~and~~lines, a substantial portion of which represents an investment in strengthening our ~~continued investment~~infrastructure to support our current growth. These investments include preparation for increased service requirements for growing card holders in our prepaid line of business, security and IT infrastructure, as well as staffing and employee retention. Beginning in the third quarter, we believe expenses should start to decrease due to a reduction in customer service and other prepaid services expenses attributable to the loss of any existing or anticipated Voyager card programs.

Other selling, general and administrative expenses (other SG&A) were $7.6 million for the six months ended June 30, 2022 as compared to $5.5 million in the prior year, a 39% increase versus the prior year period. The increase in other SG&A for the six months ended June 30, 2022 reflects continued investments in our ACH, PayFac, ~~growth initiatives.~~ Prepaid and Output Solutions business lines, a substantial portion of which represents an investment in strengthening our infrastructure to support our current growth. These investments include preparation for increased service requirements for growing card holders in our prepaid line of business, security and IT infrastructure, as well as staffing and employee retention. Beginning in the third quarter, we believe expenses should start to decrease due to a reduction in customer service and other prepaid services expenses attributable to the loss of any existing or anticipated Voyager card programs.

Depreciation and amortization totaled ~~$0.6~~$0.8 million and ~~$0.4~~$0.6 million for the quarters ended ~~September~~June 30, 2022 and June 30, 2021, respectively.

Depreciation and ~~September 30, 2020, respectively and $1.9~~amortization totaled $1.5 million and $1.2 million for the ~~nine~~six months ended ~~September~~June 30, 2022 and June 30, 2021, ~~and September 30, 2020,~~ respectively. ~~The incremental expense was primarily associated with the amortization of the IMS customer list asset.~~

Other income and expense, net was ~~$287~~$82 for the quarter ended ~~September~~June 30, ~~2021~~2022 compared to ~~other income of $10,343~~$685 for the quarter ended ~~September~~June 30, ~~2020. For the nine months ended September 30, 2021 and September 30, 2020, respectively, other income and expense, net was $3,439 and $23,712, respectively.~~2021. Lower interest-bearing merchant reserves and lower interest rates drove the lower interest income as well as interest expense associated with our equipment loan.

Other income and ~~reflects~~expense, net was ($554) for the six months ended June 30, 2022 compared to $3,152 for the six months ended June 30, 2021. Lower interest-bearing merchant reserves and lower interest rates drove the lower interest income as well as interest expense associated with our equipment loan.

We reported a net ~~income~~loss of ~~$0.1~~$1.9 million for the quarter ended ~~September~~June 30, ~~2021,~~2022, as compared to a net ~~loss~~income of ~~$0.9 million for the same period in the prior year. We reported a net loss of $0.4 million for the nine months ended September 30, 2021 compared to a net loss of $3.1~~$0.2 million for the same period in the prior year. The increase in net ~~income improvement~~loss in the current quarter ~~and the nine month periods~~ was attributable to increases in ~~revenues and profits~~SG&A combined with reduced profit margins.

We reported a net loss of $3.6 million for the ~~entity.~~six months ended June 30, 2022, as compared to a net loss of $0.5 million for the same period in the prior year. The increase in net loss in the current quarter was attributable to increases in SG&A combined with reduced profit margins.

We may incur future operating losses. To maintain, grow and sustain profitability, we must, among other things, continue to incrementally grow and maintain our customer base, sell our ACH, credit card, prepaid product offerings and output solutions offerings to existing and new customers, implement successful marketing strategies, maintain and upgrade our technology and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and motivate personnel, and respond to unforeseen industry developments among other factors.

We believe that our success will continue to depend in large part on our ability to (a) grow revenues, (b) manage our operating expenses, (c) add quality customers to our client base, (d) meet evolving customer requirements, (e) adapt to technological changes in an emerging market, and (f) assimilate current and future acquisitions of companies and customer portfolios. We will continue to invest in our sales force and technology platforms to drive revenue growth. In particular, we are focused on growing our ACH merchants, adding new software integrators, growing our electronic bill presentment, document composition, document decomposition, printing and mailing services business while providing incremental services to existing merchants. In addition to our near-term growth opportunities, we are focused on leveraging and optimizing the infrastructure of the organization allowing expansion of our payment processing and mail and printing capabilities without significantly increasing our operating costs.

At ~~September~~June 30, ~~2021,~~2022, we had ~~$5.9~~$5.1 million of cash and cash equivalents, as compared to ~~$5.0~~$7.3 million of cash and cash equivalents at December 31, ~~2020.~~

We received funding under the Paycheck Protection Program, or PPP, as part of the Coronas Aid, Relief and Economic Security Act, or CARES Act, administered by the U.S. Small Business Administration. We received total proceeds of $813,500 bearing interest at a rate of 1% per annum with a maturity date of April 15, 2022. We used the proceeds for payroll costs and other permitted expenses. Under the terms of the PPP, the principal could be forgiven if the loan proceeds were used for qualifying expenses as described in the CARES act, such as for payroll costs, benefits, rents and utilities. The Company's loan forgiveness was approved in full by the U.S. Small Business Administration on December 14, 2020 and was accounted for as income in 2020 under FASB ASC 470.

On July 1, 2020, Topline Capital Partners, LP purchased 1,796,407 unregistered shares of common stock at an offering price of $1.67 per share in a private offering. The gross proceeds to us from the private offering were $3.0 million.

On September 25, 2020, we entered into a placement agency agreement with Ladenburg Thalmann & Company Inc. for the issuance and sale of an aggregate of 4,705,883 shares of common stock at an offering price of $1.70 per share in a public offering. We agreed to pay Ladenburg a cash fee of equal to $0.12325 per share of common stock sold in the offering as well as legal fees and expenses of up to $100,000. The net proceeds to the Company from the public offering were $7.4 million, after deducting the offering expenses and fees payable by the Company.2021.

We reported a net ~~income~~loss of ~~$0.1~~$1.9 million for the quarter ended ~~September~~June 30, ~~2021 and a net loss of $0.4 million for the nine months ended September~~2022. At June 30, ~~2021. At September 30, 2021,~~2022, we had an accumulated deficit of ~~$65.4~~$68.9 million. Additionally, we had working capital of ~~$6.9~~$6.8 million and ~~$5.6~~$8.8 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Net cash ~~provided~~used by operating activities, including merchant reserve funds, prepaid card load assets, customer deposits and net operating lease assets for the six months ended June 30, 2022 was ~~$8.7~~$22.1 million, and ~~$4.6 million~~net cash provided for the ~~nine~~six months ended ~~September~~June 30, 2021 ~~and September 30, 2020, respectively.~~was $2.6 million. Excluding merchant reserves, prepaid card load assets, customer deposits and lease right-of-use assets and liabilities, our cash used by operating activities was $1.2 million and cash provided by operating activities was ~~$2.0 million and cash used by operating activities was $1.0~~$1.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, respectively. We continue to invest resources and infrastructure in our business to achieve scale across all business lines.

Net cash used by investing activities was ~~$999,493~~$411,818 and ~~$582,347~~$533,854 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, respectively. The primary drivers of our investing activities were capital expenditures associated with capitalized software development costs and other capital investments associated with growing our business lines and associated employee counts.

Net cash used by financing activities for the six months ended June 30, 2022 was $573,699 and net cash provided by financing activities for the three months ended June 30, 2021 was $73,511, respectively. The 2021 cash provided by financing activities was from net proceeds from our equipment loan offset by treasury stock transactions.

Net cash used by financing activities for the nine months ended September 30, 2021 was $58,800 and net cash provided by financing activities for the nine months ended September 30, 2020 was $10,891,114, respectively. The 2021 cash used by financing activities was net proceeds from our equipment loan offset by treasury stock transactions. The 2020 net funds provided by financing activities was the net proceeds from our public and private stock offerings plus proceeds from our PPP loan.

Please refer to Note 9 of our financial statements included in this report that describe certain risks in connection with the Covid-19 ~~risks described in Note 10 to our financial statements.~~pandemic.

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

Our management evaluated, with the participation of our Chief Executive and Chief Financial Officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, our Chief Executive and Chief Financial Officers concluded that our disclosure controls and procedures as of ~~September~~June 30, ~~2021~~2022 were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our evaluation of disclosure controls and procedures included an evaluation of certain components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.

There was no change in our internal control over financial reporting that occurred during the quarter ended ~~September~~June 30, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~On January 19, 2021, we initiated a lawsuit in Bexar County, Texas against our former Chief Revenue Officer, Vaden Landers. In the lawsuit, which is styled:~~ ~~Usio, Inc. v. Vaden Landers~~, Cause No. 2021CI01069, 407th Judicial District Court, Bexar County, Texas, we allege that Mr. Landers violated the provisions of his employment agreement dated September 1, 2017 - specifically that Mr. Landers violated his non-compete obligations. The state court lawsuit only seeks injunctive relief against Mr. Landers. We also instituted an action before the American Arbitration Association on February 2, 2021.

Mr. Landers initially refused to participate in the arbitration proceeding. After hearings in Bexar County state court proceeding, all of the parties' claims, excluding Mr. Lander's claims for defamation and tortious interference with contract, were ordered to be heard by the American Arbitration Association. We deny Mr. Landers’ allegations and do not believe that his counterclaims have any merit.

On or about April 27, 2021, Mr. Landers filed his answering statement and counterclaim against us in the arbitration proceeding. Therein, Mr. Landers alleged a variety of defenses to our claim that Landers violated the non-compete provisions of his employment agreement. Mr. Landers also asserted a counterclaim for a declaratory judgment finding the non-compete provisions are unenforceable. Mr. Landers further alleged that we breached the terms of his employment agreement because Mr. Landers' resignation was for good reason thus entitling Mr. Landers to deferred compensation. We deny Mr. Landers' allegations.

Through our investigation, we have learned that Mr. Landers committed other violations of his employment agreement and we intend to pursue those claims in arbitration. Both the state court litigation and the arbitration are in their initial stages. We have obtained certain documents from Mr. Landers in the state court proceeding. Additional written discovery will be required before any depositions are taken in the state court litigation.

In the arbitration, the parties have both submitted motions to the arbitration panel on the initial legal question of whether the non-compete is enforceable. On September 16, 2021, the arbitration panel ruled the non-competition provisions in Mr. Landers' employment agreement were enforceable. The panel reserved ruling on the scope of the restrictions contained therein pending discovery. The arbitration panel held that the non-compete provisions need to be reformed to more specifically set forth the competition restrictions applicable to Mr. Landers. The parties attempted to confer on a mutually agreeable reformation, but were unable to reach an agreement. The parties are now engaging in written discovery both as to the anticipated reformation on the non-compete provision and the ultimate merits of the case.

~~The state court case involving Mr. Landers is still in discovery phase. There is no current trial setting.~~

On July 21, 2021, a lawsuit was filed against us in Bexar County, Texas by two former merchants, World Health Merchants, LLC and Laitan Group, LLC. Three additional defendants were named in the lawsuit: Central Bank of St. Louis, Allied Platforms LLC, and Heriberto Cepeda.

The World Health lawsuit concerns the processing of certain transactions by us for the plaintiff merchants, which were referred to us by Allied Platforms, LLC, and defendant Mr. Cepeda pursuant to a referral agent agreement by and between us and Allied Platforms, LLC. After initial concerns arose regarding the Plaintiffs’ transactions, we, pursuant to the applicable sub merchant processing agreement, terminated the processing of transactions for Plaintiffs. Pursuant to the same agreement, we retained certain funds for the purposes of processing returns.

After termination of the sub merchant processing agreement, Plaintiffs repeatedly demanded the return of all monies, which are in the custody of defendant, Central Bank of St. Louis. We requested documentation from plaintiffs to substantiate the true nature of the transactions. The initial documentation provided to us raised additional concerns regarding the transactions.

After we retained counsel, additional demands were made for the return of the subject funds. However, additional concerns arose regarding ownership of the dispute funds. Based on the conflicting demands and claims of ownership, we retained the funds pending further information. Our counsel requested additional information from various attorneys claiming to represent plaintiffs. No further information or documents were provided, and plaintiff subsequently filed the lawsuit.

We settled the case without prejudice on September 16, 2021. The confidential settlement agreement provides for a release of funds by Central Bank of St. Louis to the Plaintiff. We received certain risk mitigation payments totaling $156,166 pursuant to the settlement agreement. We also received $15,000 for our reasonable and necessary attorney fees incurred in the matter.

On September 1, 2021, KDHM, LLC sued PDS Acquisition Corp, now known as ~~USIO~~Usio Output Solutions, Inc., claiming a breach of the asset purchase agreement executed by the parties on December ~~14th,~~14, 2020. The lawsuit alleges that due to a mistake, accident, or inadvertence, certain customer deposits in the amount of $317,000 were improperly transferred ~~two~~to us.

We believe that plaintiff's claims in the lawsuit have no merit and contradict the express terms of the asset purchase agreement. As a result of this post sale dispute, we discovered that KDHM, LLC, and its principals, made certain misrepresentations and breached the terms of the asset purchase agreement.

On September 28, 2021, we filed an answer generally denying plaintiff’s allegations. On October 5, 2021, we filed a counterclaim and third-party petition. Therein, we allege that neither KDHM nor its principals disclosed that KDHM was not accounting for the customer deposits in accordance with Generally Accepted Accounting Principles. Yet, KDHM, and third-party defendants its principals Henry Minten and Thomas Dowe, affirmatively represented and warranted in section 3.1(e) of the agreement that “[t]Annual Financial Statements and the Interim Financial Statements have been prepared from the books and records of Seller in accordance with GAAP applied on a consistent basis.”

We also discovered that KDHM by and through its principals failed to disclose that $305,000 in additional customer deposits existed and these deposits were not conveyed to us as required by the agreement. KDHM, Minten and Dowe provided us with fraudulent and misleading profit and loss statements that did not disclose these additional customer deposits. KDHM and the defendants do not dispute that these additional customer deposits exist and that they were purchased by Usio. However, despite a written representation that these funds would be returned, KDHM and its principal have held these funds hostage. Section 2.1(b)(x) of the agreement provides that the purchased assets includes “All of Seller’s deposits from its customer, including without limitation, those customer deposits listed on Schedule 2.1(b)(xi) of the Disclosure Schedules.” Finally, we discovered that KDHM did not provide us with all customer lists, which are identified as purchased asset under the agreement. We demanded the missing customer lists, but they have yet to be provided to us per the agreement.

In our counterclaims and third-party petition, we assert causes of action for fraud, breach of contract and conversion. At this time, the parties have not engaged in any written discovery or depositions and no trial date has been set.

Aside from ~~these~~the proceedings described above, we may be involved in legal matters arising in the ordinary course of business from time to time. While we believe that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which we are or could become involved in litigation will not have a material adverse effect on our business, financial condition or results of operations.

There have been no material changes from risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, as filed with the Securities and Exchange Commission on March ~~30, 2021.~~17, 2022.

~~On September 1, 2021, we issued 19,950 shares of common stock to University FanCards, LLC in a cashless exercise at $5.97 per common share in exchange for 30,000 warrants exercised by FanCards, LLC.~~

We ~~relied on~~did not issue unregistered securities during the Section 4(a)(2) exemption from securities registration under the federal securities laws for transactions not involving any public offering. No advertising or general solicitation was employed in offering the securities. The securities were issued to an accredited investor. The securities were offered for investment purposes only and not for the purpose of resale or distribution. The transfer thereof was appropriately restricted by us. quarter ended June 30, 2022.

On November 2, 2016, we announced that our Board of Directors authorized the repurchase of up to $1 million of our common shares from time to time on the open market, in block transactions, or in privately negotiated transactions. On January 9, 2018, the Board of Directors added an additional $2 million to the buyback plan. The program began on November 16, 2016 and ended on September 29, 2019. At September 29, 2019 when the program ended, $1,374,049 was available under the repurchase plan. On November 7, 2019, the Board of Directors approved the renewal of the share buy-back program. The Board approved a limit of $1,420,000 which was rolled over from the prior ~~buyback~~buy-back program with a three-year duration. On May 13, 2022, 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. The new buyback program terminates on the earliest of ~~September 30, 2022,~~May 15, 2025, the date the funds are exhausted, or the date the Board of Directors, at its sole discretion, terminates or suspends the program. The program is used for the purchase of stock from employees and directors, and for open-market purchases through a broker. During the three months ended ~~September~~June 30, ~~2021,~~2022, we made the following stock repurchases:

On January 6, 2021, we repurchased 11,860 shares for $38,545 in a private transaction at a closing price on January 6, 2021 of $3.25 per share from Tom Jewell, our Chief Financial Officer to cover his share of taxes.

Copies of above exhibits not contained herein are available to any stockholder, upon written request to: Chief Financial Officer, Usio, Inc., 3611 Paesanos Parkway, Suite 300, San Antonio, TX 78231.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Page
PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited).	1

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021	1

	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	2

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	3

	Condensed Consolidated Statements of Stockholders' Equity for the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1112

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	1415

Item 4.	Controls and Procedures.	1415

PART II – OTHER INFORMATION		1516

Item 1.	Legal Proceedings.	1516

Item 1A.	Risk Factors.	1516

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	1617

Item 3.	Defaults Upon Senior Securities.	1617

Item 4.	Mine Safety Disclosures (Not applicable).	1617

Item 5.	Other Information.	1617

Item 6.	Exhibits.	1718

	Estimated Fair		Estimated Useful
	Value		Life (in years)

Accounts receivable	$	683,736
Inventory		168,138
Fixed assets		1,211,225		5
Prepaid expenses		29,849
Other assets		7,408
Customer list		3,807,052		5
Total Cash Consideration	$	5,907,408

Customer list	$	552,283
Total Warrant Consideration	$	552,283

Total Purchase Price	$	6,459,691

2021 (excluding the nine months ended September 30, 2021)	$	154,018
2022		621,802
2023		554,916
2024		518,935
2025		414,138
Thereafter		1,331,219
Total minimum lease payments		3,595,028
Less imputed interest		(493,336	)
Total lease liabilities	$	3,101,692

	*September 30, 2021*		*December 31, 2020*

Accrued commissions	$	699,942	$	373,154
Reserve for merchant losses		608,149		515,199
Other accrued expenses		80,935		225,412
Accrued taxes		270,136		132,363
Accrued salaries		87,064		217,816
Total accrued expenses	$	1,746,226	$	1,463,944

	*June 30, 2022*		*December 31, 2021*

Accrued commissions	$	745,210	$	879,120
Reserve for processing losses		689,494		623,494
Other accrued expenses		255,775		226,888
Accrued taxes		185,995		298,168
Accrued salaries		300,526		297,995
Total accrued expenses	$	2,177,000	$	2,325,665

Tax Year End	NOL		Expiration
2002	$	9,109,774		2022
2004		1,621,096		2024
2005		1,788,157		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	$	20,041,484

Tax Year End	NOL
2018	$	4,410,916
2019		2,730,461
2020		2,272,315
Total	$	9,413,692
Total loss carryforwards	$	29,455,176

Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs

July 1 - July 31, 2021		4,152	$	5.98		961,163	$	1,010,546
August 1 - August 31, 2021		14,715	$	5.56		975,878	$	928,757
September 1 - September 30, 2021		2,077	$	6.01		977,878	$	916,265
Total		20,944					$	916,265

Exhibit
Number		Description

3.1		Amended and Restated Articles of Incorporation (included as exhibit 3.1 to the Form 10-KSB filed March 31, 2006, and incorporated herein by reference).

3.2		Amendment to Restated Articles of Incorporation (included as exhibit A to the Schedule 14C filed April 18, 2007, and incorporated herein by reference).

3.3		Certificate of Change Filed Pursuant to NRS 78.209 (included as exhibit 3.1 to the Form 8-K filed July 23, 2015, and incorporated herein by reference).

3.4		Articles of Amendment of Restated Articles of Incorporation of Usio, Inc., as amended, effective June 26, 2019 (included as exhibit 3.1 to the Form 8-K filed July 1, 2019, and incorporated herein by reference).

3.5		Amended and Restated By-laws (included as exhibit 3.2 to the Form 10-KSB filed March 31, 2006, and incorporated herein by reference).

3.6		Amendment to the Amended and Restated By-laws (included as exhibit A to Schedule 14C filed April 18, 2007, and incorporated herein by reference).

10.1		Employment Agreement between the Company and Michael R. Long, dated February 27, 2007 (included as exhibit 10.1 to the Form 8-K filed March 2, 2007, and incorporated herein by reference).

10.2		Employment Agreement between the Company and Louis A. Hoch, dated February 27, 2007 (included as exhibit 10.2 to the Form 8-K filed March 2, 2007, and incorporated herein by reference).

10.3		First Amendment to Employment Agreement between the Company and Michael R. Long, dated November 12, 2009 (included as exhibit 10.15 to the Form 10-Q filed November 16, 2009, and incorporated herein by reference).

10.4		First Amendment to Employment Agreement between the Company and Louis A. Hoch, dated November 12, 2009 (included as exhibit 10.16 to the Form 10-Q filed November 16, 2009, and incorporated herein by reference).

10.5		Second Amendment to Employment Agreement between the Company and Michael R. Long, dated April 12, 2010 (included as exhibit 10.16 to the Form 10-K filed April 15, 2010, and incorporated herein by reference).

10.6		Second Amendment to Employment Agreement between the Company and Louis A. Hoch, dated April 12, 2010 (included as exhibit 10.17 to the Form 10-K filed April 15, 2010, and incorporated herein by reference).

10.7		Bank Sponsorship Agreement between the Company and University National Bank, dated August 29, 2011 (included as exhibit 10.18 to the Form 10-K filed April 3, 2012, and incorporated herein by reference).

10.8		Third Amendment to Employment Agreement between the Company and Michael R. Long, dated January 14, 2011 (included as exhibit 10.19 to the Form 10-K filed April 3, 2012, and incorporated herein by reference).

10.9		Third Amendment to Employment Agreement between the Company and Louis A. Hoch, dated January 14, 2011 (included as exhibit 10.20 to the Form 10-K filed April 3, 2012, and incorporated herein by reference).

10.10		Fourth Amendment to Employment Agreement between the Company and Michael R. Long, dated July 2, 2012 (included as exhibit 10.18 to the Form 10-Q filed August 20, 2012, and incorporated herein by reference).

10.11		Fourth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated July 2, 2012 (included as exhibit 10.19 to the Form 10-Q filed August 20, 2012, and incorporated herein by reference).

10.12		Asset Purchase Agreement, dated December 22, 2014, by and between Akimbo Financial, Inc. and Payment Data Systems, Inc. (included as exhibit 10.1 to the Form 8-K filed December 24, 2014, and incorporated herein by reference).

10.13		Bank Sponsorship Agreement between the Company and Metropolitan Commercial Bank, dated December 11, 2014 (included as exhibit 10.26 to the Form 10-K filed March 30, 2015, and incorporated herein by reference).


10.14		Fifth Amendment to Employment Agreement between the Company and Michael R. Long, dated August 3, 2016 (included as exhibit 10.1 to the Form 8-K filed August 9, 2016, and incorporated herein by reference).

10.15		Fifth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated August 3, 2016 (included as exhibit 10.2 to the Form 8-K filed August 9, 2016, and incorporated herein by reference).

10.16		Sixth Amendment to Employment Agreement between the Company and Michael R. Long, dated September 8, 2016 (included as exhibit 10.1 to the Form 8-K filed September 14, 2016, and incorporated herein by reference).

10.17		Sixth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated September 8, 2016 (included as exhibit 10.2 to the Form 8-K filed September 14, 2016, and incorporated herein by reference).

10.18		Employment agreement between Tom Jewell and Payment Data Systems, Inc., dated January 6, 2017 (included as exhibit 10.1 to the Form 8-K filed January 6, 2017, and incorporated herein by reference).

10.19		Independent Director Agreement, dated May 5, 2017, by and between Payment Data Systems, Inc. and Brad Rollins (included as exhibit 10.1 to the Form 8-K, filed May 11, 2017, and incorporated herein by reference).

10.20†		Membership Interest Purchase Agreement, dated September 1, 2017, by and among Payment Data Systems, Inc., Singular Payments, LLC and Vaden Landers (included as exhibit 10.1 to the Form 8-K, filed September 8, 2017, and incorporated herein by reference).

10.21		Employment Agreement, dated September 1, 2017, by and between Payment Data Systems, Inc. and Vaden Landers (included as exhibit 10.2 to the Form 8-K, filed September 8, 2017, and incorporated herein by reference).

~~10.22~~		First Amendment to Employment Agreement, dated November 27, 2017, by and between Payment Data Systems, Inc. and Tom Jewell (included as exhibit 10.1 to the Form 8-K, filed November 28, 2017, and incorporated herein by reference).

~~10.23~~10.22		Lease Agreement dated February 9, 2018 between Payment Data Systems, Inc. and Blauners Paesanos Parkway LP (included as exhibit 10.43 to the Form 10-K, filed March 30, 2018, and incorporated herein by reference).

~~10.24~~10.23		Lease Agreement between Payment Data Systems, Inc. and RP Circle 1 Building, LLC dated December 11, 2017 (included as exhibit 10.44 to the Form 10-K, filed March 30, 2018, and incorporated herein by reference).

~~10.25~~10.24		Second Amendment to Employment Agreement between the Company and Tom Jewell, dated November 28, 2018 (included as exhibit 10.1 go the Form 8-K filed November 28, 2018, and incorporated herein by reference).

~~10.26~~10.25		Independent Director Agreement dated April 1, 2019, by and between Payment Data Systems, Inc. and Blaise Bender (included as exhibit 10.2 to the Form 8-K filed April 3, 2019, and incorporated herein by reference).

~~10.27+~~10.26+		Securities Purchase Agreement between Usio, Inc. and Topline Capital Partners, L.P. dated July 1, 2020 (included as exhibit 10.1 to the Form 8-K filed on July 6, 2020, and incorporated herein by reference).

~~10.28~~10.27		2015 Equity Incentive Plan ~~(included~~(included as Appendix B to the Definitive Proxy Statement filed June 5, 2015, and incorporated herein by reference).

~~10.29~~10.28		Warrant Agreement between the Company and University FanCards, LLC dated August 21, 2018 (included as exhibit 10.41 to the Form 10-Q filed on November 12, 2020, and incorporated herein by reference).

~~10.30~~10.29		Independent Director Agreement dated August 29, 2020, by and between the Company and Ernesto Beyer (included as exhibit 10.1 to the Form 8-K filed on August 31, 2020, and incorporated herein by reference).

~~10.31~~10.30		Underwriting Agreement between the Company and Ladenburg Thalmann & Co., Inc. as representative, dated September 23, 2020 (included as exhibit 1.1 to the Form 8-K filed on September 25, 2020, and incorporated herein by reference).

~~10.32~~10.31		Third Amendment to the Employment Agreement between the Company and Tom Jewell, effective October 12, 2020 (included as exhibit 10.1 to the Form 8-K filed on October 28, 2020, and incorporated herein by reference).

~~10.33+~~10.32+		Asset Purchase Agreement between the Company and Information Management Solutions, LLC dated December 15, 2020 (included as exhibit 10.2 to the Form 8-K filed on December 18, 2020, and incorporated herein by reference).

~~10.34+~~10.33+		Warrant Agreement between the Company and Information Management Solutions, LLC dated December 15, 2020 ~~(included~~(included as exhibit 10.2 to the Form 8-K filed on December 18, 2020, and incorporated herein by reference).


~~10.35~~10.34		Lease agreement between Information Management Systems, LLC and Industrial Properties Corp. dated June 16, 2011 (included as exhibit 10.40 to the Form 10-K filed on March 30, 2021, and incorporated herein by reference).

~~10.36~~10.35		First amendment to lease between Information Management Systems, LLC and Industrial Properties Corp. dated April 4, 2013 (included as exhibit 10.41 to the Form 10-K filed on March 30, 2021, and incorporated herein by reference).

~~10.37~~10.36		Second amendment to lease between Information Management Systems, LLC and Industrial Properties Corp. dated March 5, 2018 (included as exhibit 10.42 to the Form 10-K filed on March 30, 2021, and incorporated herein by reference).

~~10.38~~10.37		Third amendment to lease between the Company as successor to Information Management Systems, LLC and ICON IPC TX Property Owner Pool 6 West/Southwest, LLC, dated December 22, 2020 (included as exhibit 10.43 to the Form 10-K filed on March 30, 2021, and incorporated herein by reference).

~~10.39~~10.38		Lease agreement between the Company and Smartyfi, LLC for Austin offices dated January 1, 2021 (included as exhibit 10.44 to the Form 10-K filed on March 30, 2021, and incorporated herein by reference).

~~10.40~~10.39		First amendment to lease between the Company and Paesanos Office Building, LLC for San Antonio offices dated March 15, 2021 (included as exhibit 10.45 to the Form 10-K filed on March 30, 2021, and incorporated herein by reference).

~~10.41~~10.40		Seventh Amendment to Employment Agreement between Usio, Inc. and Louis A. Hoch, dated April 18, 2021 (included as exhibit 10.1 to the Form 8-K filed on April 21, 2021, and incorporated herein by reference).

~~10.42~~10.41		Fourth Amendment to Employment Agreement between Usio, Inc. and Tom Jewell, dated April 18, 2021 ~~(included~~(included as exhibit 10.2 to the Form 8-K filed on April 21, 2021, and incorporated herein by reference).

10.43*10.42		Second Amendment to lease between the Company and Paesanos Office Building, LLC for San Antonio offices, dated October ~~19,2021.~~19,2021 (included as exhibit 10.43 to the Form 10-Q filed on November 10, 2021, and incorporated herein by reference.

10.43		Securities Purchase Agreement between the Company and Voyager Digital Holdings, Inc. dated November 19, 2021 (included as exhibit 10.1 to the Form 8-K filed on November 23, 2021, and incorporated herein by reference).

10.44		Fifth Amendment to the Employment Agreement between the Company and Tom Jewell, dated November 22, 2021 (included as exhibit 10.2 to the Form 8-K filed on November 23, 2021, and incorporated herein by reference).

14.1		Code of Ethics (included as exhibit 14.1 to the Form 10-K filed March 30, 2004, and incorporated herein by reference).

16.1		Letter from Ernst and Young LLP to the Securities and Exchange Commission dated February 10, 2004 (included as exhibit 16 to the Form 8-K filed February 11, 2004, and incorporated herein by reference).

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of the Chief Executive Officer and the /Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101.INS		Inline XBRL Instance Document (filed herewith).

101.SCH		Inline XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE		Inline XBRL Taxonomy Presentation Linkbase Document (filed herewith).

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

†		Confidential treatment has been granted for portions of this agreement.
+		The schedules to the exhibit have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such schedules to the SEC upon request.
*		Filed herewith.

	USIO, INC


Date: ~~November 10, 2021~~August 11, 2022	By:	/s/ Louis A. Hoch
		Louis A. Hoch
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 10, 2021~~August 11, 2022	By:	/s/ Tom Jewell
		Tom Jewell
		Chief Financial Officer
		(Principal Accounting Officer)