Item 1. Financial Statements
PAYSIGN, INC.
(Formerly known as, 3PEA INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
|
|
September 30,
2019
(Unaudited)
|
|
|
December 31,
2018
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,988,803
|
|
|
$
|
5,615,073
|
|
Restricted cash
|
|
|
33,230,890
|
|
|
|
26,050,668
|
|
Accounts receivable
|
|
|
969,447
|
|
|
|
337,303
|
|
Prepaid expenses and other current assets
|
|
|
1,967,858
|
|
|
|
1,175,241
|
|
Total current assets
|
|
|
44,156,998
|
|
|
|
33,178,285
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
1,004,425
|
|
|
|
883,490
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
2,444,195
|
|
|
|
2,115,933
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
47,605,618
|
|
|
$
|
36,177,708
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,463,686
|
|
|
$
|
1,327,497
|
|
Customer card funding
|
|
|
29,565,027
|
|
|
|
25,960,974
|
|
Total current liabilities
|
|
|
31,028,713
|
|
|
|
27,288,471
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
31,028,713
|
|
|
|
27,288,471
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Preferred stock: $0.001 par value; 25,000,000 shares authorized; none issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
–
|
|
|
|
–
|
|
Common stock: $0.001 par value; 150,000,000 shares authorized, 48,095,192 and 46,440,765 issued at September 30, 2019 and December 31, 2018, respectively
|
|
|
48,095
|
|
|
|
46,441
|
|
Additional paid-in capital
|
|
|
10,737,190
|
|
|
|
8,620,144
|
|
Treasury stock at cost, 303,450 shares
|
|
|
(150,000
|
)
|
|
|
(150,000
|
)
|
Retained earnings
|
|
|
6,150,122
|
|
|
|
579,582
|
|
Total Paysign, Inc.'s stockholders' equity
|
|
|
16,785,407
|
|
|
|
9,096,167
|
|
Noncontrolling interest
|
|
|
(208,502
|
)
|
|
|
(206,930
|
)
|
Total equity
|
|
|
16,576,905
|
|
|
|
8,889,237
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
47,605,618
|
|
|
$
|
36,177,708
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
PAYSIGN, INC.
(Formerly known as, 3PEA INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2019 AND 2018
(UNAUDITED)
|
|
For the three months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
9,008,117
|
|
|
$
|
6,421,396
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (excluding depreciation and amortization)
|
|
|
3,641,595
|
|
|
|
3,376,753
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,366,522
|
|
|
|
3,044,643
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
318,508
|
|
|
|
284,124
|
|
Selling, general and administrative
|
|
|
2,765,961
|
|
|
|
1,996,957
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,084,469
|
|
|
|
2,281,081
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
2,282,053
|
|
|
|
763,562
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
113,667
|
|
|
|
36,683
|
|
Total other income, net
|
|
|
113,667
|
|
|
|
36,683
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit and noncontrolling interest
|
|
|
2,395,720
|
|
|
|
800,245
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(563,854
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interest
|
|
|
2,959,574
|
|
|
|
800,245
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
504
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
2,960,078
|
|
|
$
|
800,862
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
Net income per common share - fully diluted
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
47,371,083
|
|
|
|
45,460,902
|
|
Weighted average common shares outstanding - fully diluted
|
|
|
54,291,368
|
|
|
|
52,215,970
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
PAYSIGN, INC.
(Formerly known as, 3PEA INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2019 AND 2018
(UNAUDITED)
|
|
For the nine months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
24,901,678
|
|
|
$
|
16,558,438
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (excluding depreciation and amortization)
|
|
|
10,721,769
|
|
|
|
8,650,839
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,179,909
|
|
|
|
7,907,599
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,047,779
|
|
|
|
780,203
|
|
Selling, general and administrative
|
|
|
8,483,882
|
|
|
|
5,244,278
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,531,661
|
|
|
|
6,024,481
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,648,248
|
|
|
|
1,883,118
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
–
|
|
|
|
(31,125
|
)
|
Interest income
|
|
|
364,652
|
|
|
|
90,298
|
|
Total other income, net
|
|
|
364,652
|
|
|
|
59,173
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit and noncontrolling interest
|
|
|
5,012,900
|
|
|
|
1,942,291
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(556,068
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interest
|
|
|
5,568,968
|
|
|
|
1,942,291
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
1,572
|
|
|
|
3,134
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
5,570,540
|
|
|
$
|
1,945,425
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
$
|
0.12
|
|
|
$
|
0.04
|
|
Net income per common share - fully diluted
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
47,215,625
|
|
|
|
45,373,595
|
|
Weighted average common shares outstanding - fully diluted
|
|
|
54,588,470
|
|
|
|
51,985,074
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
PAYSIGN, INC.
(Formerly known as, 3PEA INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2019
|
|
Stockholders' Equity
Attributable to Paysign, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Retained
|
|
|
controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Amount
|
|
|
Earnings
|
|
|
Interest
|
|
|
Equity
|
|
Balance, December 31, 2018
|
|
|
46,440,765
|
|
|
$
|
46,441
|
|
|
$
|
8,620,144
|
|
|
$
|
(150,000
|
)
|
|
$
|
579,582
|
|
|
$
|
(206,930
|
)
|
|
$
|
8,889,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for previously
vested stock based compensation
|
|
|
291,147
|
|
|
|
291
|
|
|
|
(291
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
646,710
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
646,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
871,671
|
|
|
|
(564
|
)
|
|
|
871,107
|
|
Balance, March 31, 2019
|
|
|
46,731,912
|
|
|
|
46,732
|
|
|
|
9,266,563
|
|
|
|
(150,000
|
)
|
|
|
1,451,253
|
|
|
|
(207,494
|
)
|
|
|
10,407,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for previously
vested stock based compensation
|
|
|
825,000
|
|
|
|
825
|
|
|
|
(825
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
567,910
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
567,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,738,791
|
|
|
|
(504
|
)
|
|
|
1,738,287
|
|
Balance, June 30, 2019
|
|
|
47,556,912
|
|
|
|
47,557
|
|
|
|
9,833,648
|
|
|
|
(150,000
|
)
|
|
|
3,190,044
|
|
|
|
(207,998
|
)
|
|
|
12,713,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for previously
vested stock based compensation
|
|
|
425,000
|
|
|
|
425
|
|
|
|
(425
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
651,267
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
651,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
exercises
|
|
|
113,280
|
|
|
|
113
|
|
|
|
252,700
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
252,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,960,078
|
|
|
|
(504
|
)
|
|
|
2,959,574
|
|
Balance, September 30, 2019
|
|
|
48,095,192
|
|
|
$
|
48,095
|
|
|
$
|
10,737,190
|
|
|
$
|
(150,000
|
)
|
|
$
|
6,150,122
|
|
|
$
|
(208,502
|
)
|
|
$
|
16,576,905
|
|
FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2018
|
|
Stockholders' Equity
Attributable to Paysign, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Accumulated
|
|
|
controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Amount
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
|
|
Balance, December 31, 2017
|
|
|
43,670,765
|
|
|
$
|
43,671
|
|
|
$
|
7,155,970
|
|
|
$
|
(150,000
|
)
|
|
$
|
(2,008,472
|
)
|
|
$
|
(200,117
|
)
|
|
$
|
4,841,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
137,401
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
137,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
412,507
|
|
|
|
(1,895
|
)
|
|
|
410,612
|
|
Balance, March 31, 2018
|
|
|
43,670,765
|
|
|
|
43,671
|
|
|
|
7,293,371
|
|
|
|
(150,000
|
)
|
|
|
(1,595,965
|
)
|
|
|
(202,012
|
)
|
|
|
5,389,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
212,181
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
212,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
732,056
|
|
|
|
(622
|
)
|
|
|
731,434
|
|
Balance, June 30, 2018
|
|
|
43,670,765
|
|
|
|
43,671
|
|
|
|
7,505,552
|
|
|
|
(150,000
|
)
|
|
|
(863,909
|
)
|
|
|
(202,634
|
)
|
|
|
6,332,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
exercised
|
|
|
200,000
|
|
|
|
200
|
|
|
|
99,800
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for services
|
|
|
230,000
|
|
|
|
230
|
|
|
|
59,959
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
60,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
345,732
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
345,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
800,862
|
|
|
|
(617
|
)
|
|
|
800,245
|
|
Balance, September 30,
2018
|
|
|
44,100,765
|
|
|
$
|
44,101
|
|
|
$
|
8,011,043
|
|
|
$
|
(150,000
|
)
|
|
$
|
(63,047
|
)
|
|
$
|
(203,251
|
)
|
|
$
|
7,638,846
|
|
See accompanying
notes to unaudited condensed consolidated financial statements.
PAYSIGN, INC.
(Formerly known as, 3PEA INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2019 AND 2018
(UNAUDITED)
|
|
For the nine months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
5,570,540
|
|
|
$
|
1,945,425
|
|
Adjustments to reconcile net income attributable to Paysign, Inc. to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Change in noncontrolling interest
|
|
|
(1,572
|
)
|
|
|
(3,134
|
)
|
Depreciation and amortization
|
|
|
1,047,779
|
|
|
|
780,203
|
|
Stock-based compensation
|
|
|
1,865,887
|
|
|
|
755,503
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change in accounts receivable
|
|
|
(632,144
|
)
|
|
|
(225,436
|
)
|
Change in prepaid expenses and other current assets
|
|
|
(792,617
|
)
|
|
|
(529,618
|
)
|
Change in accounts payable and accrued liabilities
|
|
|
136,189
|
|
|
|
(92,645
|
)
|
Change in customer card funding
|
|
|
3,604,053
|
|
|
|
6,019,925
|
|
Net cash provided by operating activities
|
|
|
10,798,115
|
|
|
|
8,650,223
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(351,345
|
)
|
|
|
(218,136
|
)
|
Increase in intangible assets
|
|
|
(1,145,631
|
)
|
|
|
(960,905
|
)
|
Net cash used in investing activities
|
|
|
(1,496,976
|
)
|
|
|
(1,179,041
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of options and warrants
|
|
|
252,813
|
|
|
|
100,000
|
|
Net cash provided by financing activities
|
|
|
252,813
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and restricted cash
|
|
|
9,553,952
|
|
|
|
7,571,182
|
|
Cash and restricted cash, beginning of period
|
|
|
31,665,741
|
|
|
|
17,164,757
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash, end of period
|
|
$
|
41,219,693
|
|
|
$
|
24,735,939
|
|
|
|
|
|
|
|
|
|
|
Cash and Restricted Cash Reconciliation:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,988,803
|
|
|
$
|
4,299,570
|
|
Restricted cash
|
|
|
33,230,890
|
|
|
|
20,436,369
|
|
Total cash and restricted cash
|
|
$
|
41,219,693
|
|
|
$
|
24,735,939
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
–
|
|
|
$
|
–
|
|
Income taxes paid
|
|
$
|
–
|
|
|
$
|
–
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
PAYSIGN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT POLICIES
The foregoing unaudited interim condensed
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated
by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the
disclosures required by GAAP for complete financial statements. These unaudited interim condensed financial statements should be
read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended December
31, 2018. In the opinion of management, the unaudited interim condensed financial statements furnished herein include all adjustments,
all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
The preparation of financial statements
in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported
amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are
inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial
position and results of operations.
Operating results for the three and nine
months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December
31, 2019.
About Paysign, Inc.
Paysign, Inc. (the “Company,”
“Paysign,” or “we”, formerly known as 3PEA International, Inc.) is a vertically integrated provider of
innovative prepaid card products and processing services for corporate, consumer and government applications. Our payment solutions
are utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence rate, reduce administration
costs and streamline operations. Public sector organizations can utilize our payment solutions to disburse public benefits or for
internal payments. The Company markets prepaid card solutions under our Paysign® brand. As we are both a payment
processor and prepaid card program manager, we derive revenue from all stages of the prepaid card lifecycle. We utilize our proprietary
Paysign platform consisting of proprietary systems and innovative software applications based on the unique needs of our programs.
We design and process prepaid card programs whereby customers can define the services they wish to offer cardholders. Through the
Paysign platform, we provide a variety of services including transaction processing, cardholder enrollment, value loading, cardholder
account management, reporting, and customer service.
The Paysign brand offers prepaid card based
solutions or “card products” for corporate incentive rewards and corporate expense, per diem and travel payments, healthcare
reimbursement payments, pharmaceutical co-pay assistance, donor compensation and clinical trials. We plan to expand our product
offering to include payroll cards, general purpose re-loadable cards, and others. Our cards are offered to end users through our
relationships with bank issuers.
The Paysign platform was built on modern
cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform allows us to significantly
expand our operational capabilities by facilitating entry into new markets within the payments space through its flexibility and
ease of customization. The Paysign platform delivers cost benefits and revenue building opportunities to our partners.
We manage all aspects of the debit card
lifecycle, from managing the card design and approval processes with partners and networks, to production, packaging, distribution,
and personalization. We oversee inventory and security controls, renewals, lost and stolen card management and replacement. We
deploy a fully staffed, in-house customer service department which utilizes bilingual customer service agents, Interactive Voice
Response (IVR), and two-way short message service (SMS) messaging and text alerts.
On March 4, 2019, our board of directors
and stockholders holding a majority of our outstanding common stock agreed to amend our articles of incorporation to change our
name from 3PEA International, Inc. to Paysign, Inc. As a result, we amended our articles of incorporation on April 23, 2019 for
such name change. Additionally, we changed our trading symbol on the Nasdaq Capital Market to “PAYS”.
Principles of consolidation –
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances
and transactions have been eliminated.
Use of estimates – The preparation
of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Restricted cash – At
September 30, 2019 and December 31, 2018, restricted cash consisted of funds held specifically for our card product programs
that are contractually restricted to use. Changes in cash restricted balances which represent customer deposits are included
in operating activities in our condensed consolidated statements of cash flows.
Intangible assets –Internally
Developed Software Costs - Computer software development costs are expensed as incurred, except for internal use software or
website development costs that qualify for capitalization as described below, and include compensation and related expenses, costs
of hardware and software, and costs incurred in developing features and functionality.
For computer software developed or obtained
for internal use, costs that are incurred in the preliminary project and post implementation stages of software development are
expensed as incurred. Costs incurred during the application and development stage are capitalized. Capitalized costs are amortized
using the straight-line method over a three to five year estimated useful life, beginning in the period in which the software is
available for use.
For intangible assets, we recognize an
impairment loss if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of
the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from
the use of the asset.
Intangible assets with finite lives are
amortized on a straight-line basis over their estimated useful lives.
Earnings per share– Basic
earnings per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings per common share
is computed using the weighted-average number of outstanding common stocks during the applicable period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other contracts to be issued common stock were exercised or converted
into common stock or resulted in the issuance of common stock that are then shared in the earnings of the Company. Common stock
equivalent shares are excluded from the computation if their effect is antidilutive.
Revenue and expense recognition (Adoption
of ASC 606, Revenue from Contracts with Customers) – In May 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers (ASC Topic 606), guidance on recognizing revenue from contracts with customers. The guidance
outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most
current revenue recognition guidance, including industry-specific guidance. The core principle of the model is that an entity recognizes
revenue to portray the transfer of goods and services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The standard also expands disclosure requirements regarding revenue
recognition. This guidance was effective for interim and annual reporting periods beginning after December 15, 2017 and may be
applied retrospectively to each prior period presented or using a modified retrospective approach with the cumulative effect recognized
as of the date of initial application. Early adoption was permitted for interim and annual reporting periods beginning after December
15, 2016. We adopted this guidance as of January 1, 2018 using the modified retrospective transition method. The adoption of the
guidance did not have a material impact on our financial condition and results of operations. The standard also requires new, expanded
disclosures regarding revenue recognition. Several ASU’s have been issued since the issuance of ASU 2014-09. These ASU’s,
which modify certain sections of ASU 2014-09 are intended to promote a more consistent interpretation and application of the principles
outlined in the standard.
The Company recognizes revenue when goods
or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange for
those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs
the following five-step analysis: (i) identification of contract with customers; (ii) determination of performance obligations;
(iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition
of revenue when (or as) the Company satisfies each performance obligations.
The Company generates revenue through fees
generated from cardholder transactions, interchange, expiring card balances, and card program management fees. Revenue from cardholder
transactions, interchange and card program management fees is recorded when the performance obligation is fulfilled. The Company
records all revenue on a gross basis since it is the primary obligor and establishes the price in the contract arrangement with
its customers. The Company is currently under no obligation for refunding any fees or has any obligations for disputed claim settlements.
Given the nature of the Company’s services and contracts, it has no contract assets.
Stock-Based Compensation –
We adopted the guidance in ASU 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based
Payment Accounting, on January 1, 2019. This ASU expands the scope to make the guidance for share-based payment awards
to nonemployees consistent with the guidance for share-based payment awards to employees. The adoption of ASU 2018-07 did not have
a material impact on the consolidated financial statements.
Prior to the adoption of ASU 2018-07, stock
based compensation for non-employees was accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC,
which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods
or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based
on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair
market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.
Stock based compensation for employees
is accounted for using the Stock Based Compensation Topic of the FASB ASC. We use the fair value method for equity instruments
granted to employees and will use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair
value compensation is determined as of the date of the grant or the date at which the performance of the services is completed
(measurement date) and is recognized over the requisite service periods, which are generally the vesting periods.
New accounting pronouncements -
In February 2016, the FASB issued ASU 2016-02, Leases. This update requires lessees to recognize at the lease commencement
date a lease liability which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified
asset for the lease term. Lessees will no longer be provided with a source of off-balance sheet financing. This update is effective
for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal
years. Early adoption is permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing
at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified
retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period
presented. Applying a full retrospective approach is not allowed. There was no material impact of this adoption on the Company’s
consolidated financial position, results of operations and cash flows.
2. FIXED ASSETS
Fixed assets consist of the following:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Equipment
|
|
$
|
1,912,151
|
|
|
$
|
1,586,954
|
|
Software
|
|
|
172,749
|
|
|
|
165,274
|
|
Furniture and fixtures
|
|
|
149,684
|
|
|
|
140,209
|
|
Website costs
|
|
|
44,475
|
|
|
|
25,467
|
|
Leasehold improvements
|
|
|
52,894
|
|
|
|
52,894
|
|
|
|
|
2,331,953
|
|
|
|
1,970,798
|
|
Less: accumulated depreciation and amortization
|
|
|
1,327,528
|
|
|
|
1,087,308
|
|
Fixed assets, net
|
|
$
|
1,004,425
|
|
|
$
|
883,490
|
|
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Trademarks
|
|
$
|
36,282
|
|
|
$
|
36,073
|
|
Platform
|
|
|
5,157,380
|
|
|
|
4,105,780
|
|
Kiosk
|
|
|
64,802
|
|
|
|
64,802
|
|
Licenses
|
|
|
517,697
|
|
|
|
433,685
|
|
|
|
|
5,776,161
|
|
|
|
4,640,340
|
|
Less: accumulated amortization
|
|
|
3,331,966
|
|
|
|
2,524,407
|
|
Intangible assets, net
|
|
$
|
2,444,195
|
|
|
$
|
2,115,933
|
|
Intangible assets are amortized over their
estimated useful lives ranging from 3 to 5 years.
4. COMMON STOCK
At September 30, 2019, the Company's authorized
capital stock was 150,000,000 shares of common stock, par value $0.001 per share, and 25,000,000 shares of preferred stock, par
value $0.001 per share. As of that date, the Company had 48,095,192 shares of common stock issued, and no shares of preferred stock.
2019 Transactions: During the three
and nine months ended September 30, 2019, the Company issued a total of 538,280 and 1,654,427, respectively, for restricted stock
awards previously granted, earned and vested, and for the exercise of vested stock options.
During the third quarter of 2019, the Company
issued 113,280 shares of common stock related to the exercise of vested stock options and received proceeds of $252,813.
During the third quarter of 2019, the Company
issued a total of 425,000 shares of common stock to certain individuals for stock awards previously granted, earned and vested.
2018 Transactions: During the three
and nine months ended September 30, 2018, the Company issued the following shares of common stock:
|
·
|
In August 2018, the Company issued 100,000
shares of common stock for stock-based compensation to a consultant for services rendered.
|
|
·
|
In August 2018, the Company issued 130,000
shares of common stock for stock-based compensation to a consultant for services to be rendered.
|
|
·
|
In September 2018, the Company issued
200,000 shares of common stock related to an exercise of a warrant with an exercise price of $0.50 per share for total cash proceed
of $100,000.
|
Stock and Warrant Grants:
In July and August 2019, the Company granted
three employees a total of 45,000 shares of common stock. The shares were valued for a total of $621,450 based on the average closing
stock price per share of $13.81 at the date of grants. The 45,000 shares have an annual vesting period of five years with the first
vesting period occurring on July 31, 2020 with the first vesting start date for the grants of August 1, 2019.
In May and June 2019, the Company granted
three employees a total of 145,000 shares of common stock. The shares were valued for a total of $1,426,450 based on the average
closing stock price per share of $9.84 at the date of grants. The 145,000 shares have an annual vesting period of five years with
the first vesting period occurring on June 30, 2020 with vesting start date for each grant of July 1, 2019.
In April 2019, the Company granted an employee
a total of 50,000 shares of common stock. The shares were valued at $377,000 based on the closing stock price per share of $7.54
at the date of grant. The 50,000 shares have an annual vesting period of five years with the first vesting period occurring on
April 30, 2020.
From 2016 to 2018, excluding employee terminations,
the Company granted a total of 8,690,000 shares of common stock and 2,688,000 stock options. The shares were valued at $6,419,849
or an average price per share of $.74. The stock options were valued at $4,172,996 an average price per share of $1.55, collectively
vesting over a three to five year period.
Stock-based compensation expense related
to Company grants for the three and nine months ended September 30, 2019 was $651,267 and $1,865,887, respectively. Stock-based
compensation expense for the three and nine months end September 30, 2018 was $405,921 and $755,503, respectively.
5. BASIC
AND FULLY DILUTED NET INCOME PER COMMON SHARE
The following table sets forth the computation
of basic and fully diluted net income per common share for the three months ended September 30, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
2,960,078
|
|
|
$
|
800,862
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
Denominator for basic calculation
|
|
|
47,371,083
|
|
|
|
45,460,902
|
|
Weighted average effects of potentially diluted common stock:
|
|
|
|
|
|
|
|
|
Stock options (calculated using the treasury method)
|
|
|
2,060,285
|
|
|
|
1,125,068
|
|
Unvested restricted stock grants
|
|
|
4,860,000
|
|
|
|
5,630,000
|
|
Denominator for fully diluted calculation
|
|
|
54,291,368
|
|
|
|
52,215,970
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
Fully diluted
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
The following table sets forth the computation
of basic and fully diluted net income per common share for the nine months ended September 30, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
5,570,540
|
|
|
$
|
1,945,425
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
Denominator for basic calculation
|
|
|
47,215,625
|
|
|
|
45,373,595
|
|
Weighted average effects of potentially diluted common stock:
|
|
|
|
|
|
|
|
|
Stock options (calculated using the treasury method)
|
|
|
2,125,263
|
|
|
|
732,578
|
|
Unvested restricted stock grants
|
|
|
5,247,582
|
|
|
|
5,878,901
|
|
Denominator for fully diluted calculation
|
|
|
54,588,470
|
|
|
|
51,985,074
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
0.04
|
|
Fully diluted
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
6. SUBSEQUENT EVENTS
The Company has completed an evaluation
of all subsequent events through the issuance date of these financial statements and concluded that no other subsequent events
occurred that required recognition to the financial statements or disclosures in the Notes to Consolidated Financial Statements
or Cash Flows.
Item 2. Management’s
discussion and analysis of financial condition and results of operations.
Disclosure Regarding Forward Looking
Statements
This Quarterly Report on Form 10-Q includes
forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (“Forward Looking Statements”). All statements other than statements of
historical fact included in this report are Forward Looking Statements. In the normal course of our business, we, in an effort
to help keep our shareholders and the public informed about our operations, may from time-to-time issue certain statements, either
in writing or orally, that contains or may contain Forward Looking Statements. Although we believe that the expectations reflected
in such Forward Looking Statements are reasonable, we can give no assurance that such expectations will prove to have been correct.
Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of
such plans or strategies, past and possible future, of acquisitions and projected or anticipated benefits from acquisitions made
by or to be made by us, or projections involving anticipated revenues, earnings, levels of capital expenditures or other aspects
of operating results. All phases of our operations are subject to a number of uncertainties, risks and other influences, many of
which are outside of our control and any one of which, or a combination of which, could materially affect the results of our proposed
operations and whether Forward Looking Statements made by us ultimately prove to be accurate. Such important factors (“Important
Factors”) and other factors could cause actual results to differ materially from our expectations are disclosed in this report,
including those factors discussed in “Item 1A. Risk Factors.” All prior and subsequent written and oral Forward
Looking Statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Important
Factors described below that could cause actual results to differ materially from our expectations as set forth in any Forward
Looking Statement made by or on behalf of us.
Overview
On March 4, 2019, our board of directors
and stockholders holding a majority of our outstanding common stock agreed to amend our articles of incorporation to change our
name from 3PEA International, Inc. to Paysign, Inc. As a result, we amended our articles of incorporation on April 23, 2019 for
such name change. Additionally, we changed our trading symbol on the Nasdaq Capital Market to “PAYS”.
We are a vertically integrated provider
of innovative prepaid card products and processing services for corporate, consumer and government applications. Our payment solutions
are utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence rates, reduce administration
costs and streamline operations. Public sector organizations can utilize our payment solutions to disburse public benefits or for
internal payments. We market our prepaid card solutions under our Paysign brand. As we are a payment processor and prepaid card
program manager, we derive our revenue from all stages of the prepaid card lifecycle. We provide a card processing platform consisting
of proprietary systems and innovative software applications based on the specific needs of our clients. We have extended our processing
business capabilities through our proprietary Paysign platform. Through the Paysign platform, we provide a variety of services
including transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer
service.
We have developed prepaid card programs
for corporate incentive and rewards including, but not limited to, consumer rebates and rewards, donor compensation, healthcare
reimbursement payments and pharmaceutical payment assistance. We are expanding our product offerings to include additional corporate
incentive products, payroll cards, demand deposit accounts accessible with a debit card, travel cards, and expense reimbursement
cards. Our cards are sponsored by our issuing bank partners.
The Paysign platform was built on modern
cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform has allowed us to significantly
expand its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility
and ease of customization. The Paysign platform delivers cost benefits and revenue building opportunities to our partners.
Our revenues include fees generated from
cardholder transactions, interchange and card program management fees. Revenue from cardholder transactions, interchange and card
program management fees is recorded when the performance obligation is fulfilled. We provide an in-house customer service center
which includes live bi-lingual phone operators staffed 24/7/365, for incoming calls. We also provide in house Interactive Voice
Response and two-way SMS messaging platforms.
We have two categories for our prepaid
debit cards: corporate and consumer reloadable, and non-reloadable cards.
Reloadable Cards: These types of cards
are generally incentive, payroll or considered general purpose reloadable (“GPR”) cards. Payroll cards are issued to
an employee by an employer to receive the direct deposit of their payroll. GPR cards can also be issued to a consumer at a retail
location or mailed to a consumer after completing an on-line application. GPR cards can be reloaded multiple times with a consumer’s
payroll, government benefit, a federal or state tax refund or through cash reload networks located at retail locations. Reloadable
cards are generally open loop cards as described below.
Non-Reloadable Cards: These are generally
one-time use cards that are only active until the funds initially loaded to the card are spent. These types of cards are gift or
incentive cards. These cards may be open loop or closed loop. Normally these types of cards are used for purchase of goods or services
at retail locations and cannot be used to receive cash.
These prepaid cards may be open loop, closed
loop or semi-closed loop. Open loop cards can be used to receive cash at ATM locations or purchase goods or services by PIN or
signature at retail locations. These cards can be used virtually anywhere that the network brand (Visa, MasterCard, Discover, etc.)
is accepted. Closed loop cards can only be used at a specific merchant. Semi-closed loop cards can be used at several merchants
such as a shopping mall.
The prepaid card market is one of the fastest
growing segments of the payments industry in the U.S. This market has experienced significant growth in recent years due to consumers
and merchants embracing improved technology, greater convenience, more product choices and greater flexibility. Prepaid cards have
also proven to be an attractive alternative to traditional bank accounts for certain segments of the population, particularly those
without, or who could not qualify for, a checking or savings account.
We have developed prepaid card products
for healthcare reimbursement payments, pharmaceutical assistance, donor compensation, corporate and incentive rewards and expense
reimbursement cards. We plan to expand our product offering to include payroll cards, general purpose re-loadable cards and travel
cards. Our cards are offered to end users through our relationships with bank issuers.
Our products and services are aimed at
capitalizing on the growing demand for stored value and reloadable ATM/prepaid card financial products in a variety of market niches.
Our proprietary platform is scalable and customizable, delivering cost benefits and revenue building opportunities to partners.
We manage all aspects of the debit card lifecycle, from managing the card design and approval processes with banking partners and
card networks, to production, packaging, distribution, and personalization. We also oversee inventory and security controls, renewals,
lost and stolen card management and replacement.
Currently, we are focusing our marketing
efforts on corporate incentive and expense prepaid card products, in various market verticals including but not limited to general
corporate expense, healthcare related markets including co-pay assistance, clinical trials and donor compensation, loyalty rewards
and incentive cards.
As part of our continuing platform expansion
process, we evaluate current and emerging technologies for applicability to our existing and future software platform. To this
end, we engage with various hardware and software vendors in evaluation of various infrastructure components. Where appropriate,
we use third-party technology components in the development of our software applications and service offerings. Third-party software
may be used for highly specialized business functions, which we may not be able to develop internally within time and budget constraints.
Our principal target markets for processing services include prepaid card issuers, retail and private-label issuers, small third-party
processors, and small and mid-size financial institutions in the United States and in emerging international markets.
We have devoted more extensive resources
to sales and marketing activities as we have added essential personnel to our marketing and sales team. We sell our products directly
to customers in the U.S. but may work with a small number of resellers and third parties in international markets to identify,
sell and support targeted opportunities. We have also identified opportunities in the European Union and are pursuing those opportunities.
During 2019, we will continue to invest
additional funds in technology improvements, sales and marketing, customer service, and regulatory compliance. We are considering
raising capital to enable us to diversify into new market verticals. If we do not raise new capital, we believe that we will still
be able to expand into new markets using internally generated funds, but our expansion will not be as rapid.
Key Performance Indicators and Non-GAAP Measures
Management reviews a number of metrics
to help us monitor the performance of and identify trends affecting our business. We believe the following measures are the significant
indicators of our quarterly and annual revenues:
Gross Dollar Volume Loaded on Cards –
Represents the total dollar volume of funds loaded to all of our prepaid card programs. Our gross dollar volume was $210 million
and $172 million for the three months ended September 30, 2019 and 2018, respectively. Our gross dollar volume was $607 million
and $449 million for the nine months ended September 30, 2019 and 2018, respectively. We use this metric to analyze the total amount
of money moving into our prepaid card programs.
Conversion Rate on Gross Dollar Volume
Loaded on Cards – Comprised of revenues, gross profit and net profit conversion rates of gross dollar volume loaded on cards.
Our revenue conversion rate for the three months ended September 30, 2019 and 2018 were 4.29% or 429 basis points (“bps”),
and 3.72% or 372 bps, respectively, of gross dollar volume loaded on cards. Our gross profit conversion rate for the three months
ended September 30, 2019 and 2018 were 2.55% or 255 bps, and 1.77% or 177 bps, respectively, of gross dollar volume loaded on cards.
Our net profit conversion rate for the three months ended September 30, 2019 and 2018 were 1.41% or 142 bps, and 0.46% or 46 bps,
respectively, of gross dollar volume loaded on cards. Our revenue conversion rate for the nine months ended September 30, 2019
and 2018 were 4.10% or 410 basis points (“bps”), and 3.69% or 369 bps, respectively, of gross dollar volume loaded
on cards. Our gross profit conversion rate for the nine months ended September 30, 2019 and 2018 were 2.34% or 234 bps, and 1.76%
or 176 bps, respectively, of gross dollar volume loaded on cards. Our net profit conversion rate for the nine months ended September
30, 2019 and 2018 were 0.92% or 92 bps, and 0.43% or 43 bps, respectively, of gross dollar volume loaded on cards.
Management also reviews key performance
indicators, such as revenues, gross profit, operational expenses as a percent of revenues, and cardholder participation. In addition,
we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating
performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets.
This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment
and investment in new card programs. These adjusted metrics are consistent with how management views our business and are used
to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP
and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or
net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may
not be comparable to similarly titled measures reported by other companies, to be key performance indicators:
“EBITDA” defined as earnings
before interest, income taxes, depreciation and amortization expense and "Adjusted EBITDA" reflects the adjustment to
EBITDA to exclude stock-based compensation expense.
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Reconciliation of adjusted EBITDA to net income:
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
2,960,078
|
|
|
$
|
800,862
|
|
Income tax benefit
|
|
|
(563,854
|
)
|
|
|
–
|
|
Interest income
|
|
|
(113,667
|
)
|
|
|
(36,683
|
)
|
Depreciation and amortization
|
|
|
318,508
|
|
|
|
284,124
|
|
EBITDA
|
|
|
2,601,065
|
|
|
|
1,048,303
|
|
Stock-based compensation
|
|
|
651,267
|
|
|
|
405,921
|
|
Adjusted EBITDA
|
|
$
|
3,252,332
|
|
|
$
|
1,454,224
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Reconciliation of adjusted EBITDA to net income:
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
5,570,540
|
|
|
$
|
1,945,425
|
|
Income tax benefit
|
|
|
(556,068
|
)
|
|
|
–
|
|
Interest income
|
|
|
(364,652
|
)
|
|
|
(90,298
|
)
|
Depreciation and amortization
|
|
|
1,047,779
|
|
|
|
780,203
|
|
EBITDA
|
|
|
5,697,599
|
|
|
|
2,635,330
|
|
Stock-based compensation
|
|
|
1,865,887
|
|
|
|
755,503
|
|
Adjusted EBITDA
|
|
$
|
7,563,486
|
|
|
$
|
3,390,833
|
|
Results of Operations
Three Months ended September 30, 2019
and 2018
Revenues for the three months ended September
30, 2019 were $9,008,117, an increase of $2,586,721 compared to the same period in the prior year, when revenues were $6,421,396.
The increase in revenue approximating 40% was primarily due to an increase in new clients, new industry verticals and new card
programs with existing clients. We believe with the addition of the new card programs added September 30th, the fourth
quarter will experience a comparable or better rate of growth in comparison to the prior year.
Cost of revenues (excluding depreciation
and amortization) for the three months ended September 30, 2019 were $3,641,595, an increase of $264,842 compared to the same period
in the prior year, when cost of revenues were $3,376,753. Cost of revenues constituted approximately 40% and 53% of total revenues
for the three months ended September 30, 2019 and 2018, respectively. Cost of revenues is comprised of transaction processing fees,
data connectivity and data center expenses, network fees, bank fees, card production costs, customer service and program management
expenses, application integration setup, and sales and commission expense. Our cost of revenues (excluding depreciation and amortization)
as a percentage of revenues decreased due to improved network interchange margins and a favorable client mix.
Gross profit for the three months ended
September 30, 2019 was $5,366,522, an increase of $2,321,879 compared to the same period in the prior year, when gross profit was
$3,044,643. Our overall gross margins were 60% and 47% during the three months ended September 30, 2019 and 2018, respectively,
and an improvement of 1216 bps resulting from favorable client industry mix.
Depreciation and amortization for the three
months ended September 30, 2019 were $318,508, an increase of $34,384 compared to the same period in the prior year, when depreciation
and amortization were $284,124. The increase in depreciation and amortization was primarily due to continued capitalized enhancements
to our platform which we expect to continue. Additionally, investments in fixed assets and software licensing contributed to the
variance.
Selling, general and administrative expenses
(“SG&A”) for the three months ended September 30, 2019 were, $2,765,961 an increase of $769,004 or 39% compared
to the same period in the prior year, when SG&A were $1,996,957. The increase in SG&A was primarily due to increased investments
in infrastructure, staffing and stock-based compensation.
In the three months ended September 30,
2019, we recorded operating income of $2,282,053 as compared to operating income of $763,562 in the three months ended September
30, 2018, an increase of $1,518,491 or 199%.
Other income, net for the three months
ended September 30, 2019 was $113,667, as compared to other income, net of $36,683 in three months ended September 30, 2018, which
represents an increase in net other income, net of $76,984. The increase in our other income, net is attributable to increased
interest earnings on our cash balances.
Our income tax benefit for the three months
September 30, 2019 was $563,864, while there was none for the three months ended September 30, 2018. The increase from prior year
is a result of the tax benefit related to our stock-based compensation.
Our net income attributable to Paysign,
Inc. for the three months ended September 30, 2019 was $2,960,078 as compared to net income of $800,862 in the three months ended
September 30, 2018, which represents an increase in net income of $2,159,216 or 270%. The overall change in net income is attributable
to the aforementioned factors.
Nine Months ended September 30, 2019
and 2018
Revenues for the nine months ended September
30, 2019 were $24,901,678, an increase of $8,343,240 compared to the same period in the prior year, when revenues were $16,558,438.
The increase in revenue approximating 50% was primarily due to the addition of new prepaid card industry verticals, new clients
and new prepaid card programs for existing clients. We believe we will continue to experience a strong rate of growth rate for
the remainder of 2019 and into 2020.
Cost of revenues (excluding depreciation
and amortization) for the nine months ended September 30, 2019 were $10,721,769, an increase of $2,070,930 compared to the same
period in the prior year, when cost of revenues was $8,650,839. Cost of revenues constituted approximately 43% and 52% of total
revenues for the nine months ended September 30, 2019 and 2018, respectively. Cost of revenues is comprised of transaction processing
fees, data connectivity and data center expenses, network fees, bank fees, card production costs, customer service and program
management expenses, application integration setup, and sales and commission expense. Our cost of revenues (excluding depreciation
and amortization) as a percentage of revenues has decreased due to improved network interchange margins and a favorable client
mix.
Gross profit for the nine months ended
September 30, 2019 was $14,179,909, an increase of $6,272,310 compared to the same period in the prior year, when gross profit
was $7,907,599. Our overall gross margins were 57% and 48% during the nine months ended September 30, 2019 and 2018 which for the
current year has run slightly better than management’s projections, and has improved 919 bps, resulting from favorable
client industry mix. Given expectations about new business and the effect of seasonality on industry mix, management expects that
gross margins are likely to maintain this trend, or slightly lower, in the next quarter.
Depreciation and amortization for the nine
months ended September 30, 2019 were $1,047,779, an increase of $267,576 compared to the same period in the prior year, when depreciation
and amortization were $780,203. The increase in depreciation and amortization was primarily due to continued capitalized enhancements
to our platform which we expect to continue.
SG&A for the nine months ended September
30, 2019 were, $8,483,882 an increase of $3,239,604 compared to the same period in the prior year, when SG&A were $5,244,278.
The increase in SG&A was primarily due to investments in infrastructure, increased staffing, and increased stock based compensation
expense.
In the nine months ended September 30,
2019, we recorded operating income of $4,648,248 as compared to operating income of $1,883,118 in the nine months ended September
30, 2018, an increase of $2,765,130 or 147%.
Other income, net for the nine months ended
September 30, 2019 was $364,652, as compared to other income, net of $59,173 in nine months ended September 30, 2018, which represents
an increase in net other income, net of $305,479. The increase in our other income, net is attributable to increased interest earnings
on our cash balances, which we expect to continue in future periods.
Our income tax benefit for the nine months
September 30, 2019 was $556,068, while there was none for the nine months ended September 30, 2018. The increase from prior year
is a result of the tax benefit related to our stock-based compensation.
Our net income attributable to Paysign,
Inc. for the nine months ended September 30, 2019 was $5,570,540 as compared to net income of $1,945,425 in the nine months ended
September 30, 2018, which represents an increase in net income of $3,625,115 or 186%. The overall change in net income is attributable
to the aforementioned factors.
Liquidity and Sources of Capital
The following table sets forth the major
sources and uses of cash for the nine months ended September 30, 2019 and 2018:
|
|
Nine months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net cash provided by operating activities
|
|
$
|
10,798,115
|
|
|
$
|
8,650,223
|
|
Net cash used in investing activities
|
|
|
(1,496,976
|
)
|
|
|
(1,179,041
|
)
|
Net cash provided by financing activities
|
|
|
252,813
|
|
|
|
100,000
|
|
Net increase in cash and restricted cash
|
|
$
|
9,553,952
|
|
|
$
|
7,571,182
|
|
Comparison of nine months ended September
30, 2019 and 2018
During the nine months ended September
30, 2019 and 2018, we financed our operations primarily through internally generated funds.
Cash provided by operating activities increased
$2,147,892 in the nine months ended September 30, 2019, as compared to the same period in the prior year. The increase is primarily
related to a $3,625,115 increase in net income and a $1,110,384 increase in stock based compensation for the period partially offset
by a $2,415,872 decrease in customer card funding as compared to the prior year period.
Cash used in investing activities increased
$317,935 in the nine months ended September 30, 2019, as compared to the same period in 2018, with the difference primarily attributed
to an increase in enhancements to our processing platform and investments in our telephone and equipment infrastructure during
the current year.
Cash provided by financing activities was
$252,813 in the nine months ended September 30, 2019 as compared to $100,000 for the nine months ended September 30, 2018. In 2019,
financing activities consisted of cash provided from exercises of stock options. In 2018, financing activities consisted of $100,000
in cash provided from an exercise of a stock warrant.
Sources of Financing
We believe that our available cash on hand,
excluding restricted cash, at September 30, 2019 of $7,988,803, combined with revenues and operating earnings anticipated for the
remainder of 2019 will be sufficient to sustain our operations for the next twelve months.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Estimates
Our significant accounting policies are
described in Note 1 of the Notes to Financial Statements and our Annual Report on Form 10-K for the fiscal year ended December
31, 2018.
Any estimates we make will be based on
our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects.
Actual results may differ significantly from our estimates.