Item
1. Financial Statements
PAYSIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
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June 30,
2021
(Unaudited)
|
|
|
December 31,
2020
(Audited)
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|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,615,180
|
|
|
$
|
7,829,453
|
|
Restricted cash
|
|
|
65,755,562
|
|
|
|
48,100,951
|
|
Accounts receivable
|
|
|
947,954
|
|
|
|
654,859
|
|
Prepaid expenses and other current assets
|
|
|
1,741,866
|
|
|
|
1,375,364
|
|
Total current assets
|
|
|
75,060,562
|
|
|
|
57,960,627
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
1,757,518
|
|
|
|
1,849,164
|
|
Intangible assets, net
|
|
|
3,842,205
|
|
|
|
3,699,033
|
|
Operating lease right-of-use asset
|
|
|
4,113,275
|
|
|
|
4,324,682
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
84,773,560
|
|
|
$
|
67,833,506
|
|
|
|
|
|
|
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|
LIABILITIES AND STOCKHOLDERS' EQUITY
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|
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Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
2,863,837
|
|
|
$
|
2,162,256
|
|
Operating lease, current portion
|
|
|
330,376
|
|
|
|
320,636
|
|
Customer card funding
|
|
|
65,755,562
|
|
|
|
48,100,951
|
|
Total current liabilities
|
|
|
68,949,775
|
|
|
|
50,583,843
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability, long term portion
|
|
|
3,845,938
|
|
|
|
4,013,598
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
72,795,713
|
|
|
|
54,597,441
|
|
Commitments and contingencies (Note 8)
|
|
|
–
|
|
|
|
–
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|
Stockholders' equity
|
|
|
|
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|
Preferred stock: $0.001 par value; 25,000,000 shares authorized; none issued and outstanding
|
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|
–
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|
–
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|
Common stock; $0.001 par value; 150,000,000 shares authorized, 51,143,382 and 50,251,607 issued at June 30, 2021 and December 31, 2020, respectively
|
|
|
51,143
|
|
|
|
50,252
|
|
Additional paid-in capital
|
|
|
15,685,275
|
|
|
|
14,388,890
|
|
Treasury stock at cost, 303,450 shares
|
|
|
(150,000
|
)
|
|
|
(150,000
|
)
|
Accumulated deficit
|
|
|
(3,608,571
|
)
|
|
|
(1,053,077
|
)
|
Total stockholders' equity
|
|
|
11,977,847
|
|
|
|
13,236,065
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
84,773,560
|
|
|
$
|
67,833,506
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
PAYSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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|
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Three Months Ended
June 30,
|
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|
Six Months Ended
June 30,
|
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2021
|
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2020
|
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2021
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2020
|
|
Revenues
|
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|
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Plasma industry
|
|
$
|
5,947,313
|
|
|
$
|
4,572,439
|
|
|
$
|
11,330,464
|
|
|
$
|
11,915,849
|
|
Pharma industry
|
|
|
641,037
|
|
|
|
1,768,565
|
|
|
|
1,523,867
|
|
|
|
4,788,942
|
|
Other
|
|
|
62,940
|
|
|
|
102,061
|
|
|
|
76,387
|
|
|
|
314,747
|
|
Total revenues
|
|
|
6,651,290
|
|
|
|
6,443,065
|
|
|
|
12,930,718
|
|
|
|
17,019,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Cost of revenues
|
|
|
3,498,723
|
|
|
|
3,138,350
|
|
|
|
6,946,345
|
|
|
|
7,993,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross profit
|
|
|
3,152,567
|
|
|
|
3,304,715
|
|
|
|
5,984,373
|
|
|
|
9,025,668
|
|
|
|
|
|
|
|
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Operating expenses
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|
|
|
|
|
|
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Selling, general and administrative
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|
3,474,562
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|
|
|
3,401,501
|
|
|
|
7,339,548
|
|
|
|
7,228,825
|
|
Loss on abandonment of assets
|
|
|
–
|
|
|
|
42,898
|
|
|
|
–
|
|
|
|
42,898
|
|
Depreciation and amortization
|
|
|
614,182
|
|
|
|
506,477
|
|
|
|
1,210,030
|
|
|
|
1,008,853
|
|
Total operating expenses
|
|
|
4,088,744
|
|
|
|
3,950,876
|
|
|
|
8,549,578
|
|
|
|
8,280,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(936,177
|
)
|
|
|
(646,161
|
)
|
|
|
(2,565,205
|
)
|
|
|
745,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Other income
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
5,010
|
|
|
|
3,130
|
|
|
|
12,111
|
|
|
|
65,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision (benefit)
|
|
|
(931,167
|
)
|
|
|
(643,031
|
)
|
|
|
(2,553,094
|
)
|
|
|
810,383
|
|
Income tax provision (benefit)
|
|
|
800
|
|
|
|
(423,797
|
)
|
|
|
2,400
|
|
|
|
(511,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(931,967
|
)
|
|
$
|
(219,234
|
)
|
|
$
|
(2,555,494
|
)
|
|
$
|
1,321,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,748,437
|
|
|
|
49,015,686
|
|
|
|
50,551,299
|
|
|
|
48,864,424
|
|
Diluted
|
|
|
50,748,437
|
|
|
|
49,015,686
|
|
|
|
50,551,299
|
|
|
|
54,542,458
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
PAYSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Treasury
Stock
|
|
|
Accumulated
|
|
|
Non-controlling
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Amount
|
|
|
Deficit
|
|
|
Interest
|
|
Equity
|
|
Balance, December 31, 2020
|
|
|
50,251,607
|
|
|
$
|
50,252
|
|
|
$
|
14,388,890
|
|
|
$
|
(150,000
|
)
|
|
$
|
(1,053,077
|
)
|
|
|
–
|
|
|
$
|
13,236,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for previously vested stock-based compensation
|
|
|
466,689
|
|
|
|
467
|
|
|
|
(467
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercise of stock options
|
|
|
32,586
|
|
|
|
32
|
|
|
|
110,434
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
110,466
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
636,214
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
636,214
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,623,527
|
)
|
|
|
–
|
|
|
|
(1,623,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
50,750,882
|
|
|
|
50,751
|
|
|
|
15,135,071
|
|
|
|
(150,000
|
)
|
|
|
(2,676,604
|
)
|
|
|
–
|
|
|
|
12,359,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for previously vested stock-based compensation
|
|
|
390,000
|
|
|
|
390
|
|
|
|
(390
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercise of stock options
|
|
|
2,500
|
|
|
|
2
|
|
|
|
9,673
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
9,675
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
540,921
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
540,921
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(931,967
|
)
|
|
|
–
|
|
|
|
(931,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021
|
|
|
51,143,382
|
|
|
$
|
51,143
|
|
|
$
|
15,685,275
|
|
|
$
|
(150,000
|
)
|
|
$
|
(3,608,571
|
)
|
|
|
–
|
|
|
$
|
11,977,847
|
|
|
|
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, 2019
|
|
|
48,577,712
|
|
|
$
|
48,578
|
|
|
$
|
11,577,539
|
|
|
$
|
(150,000
|
)
|
|
$
|
8,088,485
|
|
|
$
|
(263,087
|
)
|
|
$
|
19,301,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for previously vested stock-based compensation
|
|
|
428,558
|
|
|
|
428
|
|
|
|
(428
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercise of stock options
|
|
|
10,000
|
|
|
|
10
|
|
|
|
23,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
724,183
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
724,183
|
|
Dissolution of Paysign, Ltd. Subsidiary
|
|
|
|
|
|
|
|
|
|
|
(263,087
|
)
|
|
|
|
|
|
|
|
|
|
|
263,087
|
|
|
|
–
|
|
Net income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,540,965
|
|
|
|
|
|
|
|
1,540,965
|
|
Balance, March 31, 2020
|
|
|
49,016,270
|
|
|
|
49,016
|
|
|
|
12,062,197
|
|
|
|
(150,000
|
)
|
|
|
9,629,450
|
|
|
|
–
|
|
|
|
21,590,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for previously vested stock-based compensation
|
|
|
337,437
|
|
|
|
338
|
|
|
|
(338
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Repurchase of employee common stock for taxes withheld
|
|
|
–
|
|
|
|
–
|
|
|
|
(245,425
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(245,425
|
)
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
600,775
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
600,775
|
|
Issuance of stock for acquisition of contract assets
|
|
|
20,000
|
|
|
|
20
|
|
|
|
177,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,200
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(219,234
|
)
|
|
|
–
|
|
|
|
(219,234
|
)
|
Balance, June 30, 2020
|
|
|
49,373,707
|
|
|
$
|
49,374
|
|
|
$
|
12,594,389
|
|
|
$
|
(150,000
|
)
|
|
$
|
9,410,216
|
|
|
$
|
–
|
|
|
$
|
21,903,979
|
|
See accompanying notes to unaudited condensed consolidated
financial statements.
PAYSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,555,494
|
)
|
|
$
|
1,321,731
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,210,030
|
|
|
|
1,008,853
|
|
Stock-based compensation expense
|
|
|
1,177,135
|
|
|
|
1,324,958
|
|
Amortization of lease right-of-use asset
|
|
|
353,747
|
|
|
|
59,889
|
|
Loss on abandonment of assets
|
|
|
–
|
|
|
|
42,898
|
|
Deferred income taxes
|
|
|
–
|
|
|
|
(499,699
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(293,095
|
)
|
|
|
228,352
|
|
Prepaid expenses and other current assets
|
|
|
(366,502
|
)
|
|
|
(85,801
|
)
|
Accounts payable and accrued liabilities
|
|
|
687,305
|
|
|
|
(259,625
|
)
|
Operating lease
|
|
|
(285,984
|
)
|
|
|
–
|
|
Customer card funding
|
|
|
17,654,611
|
|
|
|
1,122,393
|
|
Net cash provided by operating activities
|
|
|
17,581,753
|
|
|
|
4,263,949
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(173,479
|
)
|
|
|
(1,054,342
|
)
|
Capitalization of internally developed software
|
|
|
(1,048,364
|
)
|
|
|
(949,028
|
)
|
Purchase of intangible assets
|
|
|
(39,713
|
)
|
|
|
(57,127
|
)
|
Net cash used in investing activities
|
|
|
(1,261,556
|
)
|
|
|
(2,060,497
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
120,141
|
|
|
|
24,000
|
|
Repurchase of employee common stock for taxes withheld
|
|
|
–
|
|
|
|
(245,425
|
)
|
Net cash provided by (used in) financing activities
|
|
|
120,141
|
|
|
|
(221,425
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and restricted cash
|
|
|
16,440,338
|
|
|
|
1,982,027
|
|
Cash and restricted cash, beginning of period
|
|
|
55,930,404
|
|
|
|
45,572,305
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash, end of period
|
|
$
|
72,370,742
|
|
|
$
|
47,554,332
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
2,400
|
|
|
$
|
–
|
|
Cash paid for interest
|
|
$
|
2,173
|
|
|
$
|
–
|
|
Operating lease right-of-use asset
|
|
$
|
–
|
|
|
$
|
4,455,271
|
|
Issuance of stock for asset acquisition
|
|
$
|
–
|
|
|
$
|
177,200
|
|
Dissolution of noncontrolling interest
|
|
$
|
–
|
|
|
$
|
263,087
|
|
|
|
|
June 30, 2021
|
|
|
|
June 30, 2020
|
|
Cash and restricted cash reconciliation:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,615,180
|
|
|
$
|
7,633,149
|
|
Restricted cash
|
|
|
65,755,562
|
|
|
|
39,921,183
|
|
Total cash and restricted cash
|
|
$
|
72,370,742
|
|
|
$
|
47,554,332
|
|
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 consolidated
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 consolidated 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, 2020. In the opinion of management,
the unaudited interim condensed consolidated 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 six months ended June
30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Impact
of COVID-19 Pandemic
The outbreak
of a novel coronavirus and the incidence of the related disease (COVID-19) starting in late 2019 has continued, spreading throughout
the United States and much of the world beginning in the first quarter of 2020. In March 2020, the World Health Organization declared
the outbreak as a pandemic. While the disruption is currently expected to be temporary, there is uncertainty around the duration given
the development of new variants that appear to be spreading. The COVID-19 outbreak and the new stimulus packages signed into law
during 2020 and 2021 have had, and will continue to have, an adverse effect on the Company's results
of operations. While we remain cautiously optimistic and have seen improvements in our operating results, we are not back to pre-pandemic
operating levels. Given the uncertainty around the extent and timing of the potential future spread
or mitigation of COVID-19 and variants and around the imposition or relaxation of protective measures, management cannot reasonably estimate
the impact to the Company's future results of operations, cash flows, or financial condition.
About Paysign, Inc.
Paysign, Inc. (the “Company,” “Paysign,”
or “we,” formerly known as 3PEA International, Inc.) is a provider of prepaid card programs, comprehensive patient affordability
offerings, digital banking services and integrated payment processing designed for businesses, consumers and government institutions.
Founded in 2001 and headquartered in southern Nevada, the company creates customized, innovative payment solutions for clients across
all industries, including pharmaceutical, healthcare, hospitality and retail. By using Paysign solutions, clients enjoy benefits such
as lower administrative costs, streamlined operations, increased revenues, accelerated product adoption, and improved customer, employee
and partner loyalty.
Built on the foundation of a powerful and reliable
payments platform, Paysign’s end-to-end technologies securely enable a wide range of services, including transaction processing,
cardholder enrollment, value loading, cardholder account management, reporting and customer care. The modern cross-platform architecture
is designed to be highly flexible, scalable and customizable, which delivers cost benefits and revenue-building opportunities to clients
and partners.
As a full-service program manager, Paysign manages
all aspects of the prepaid card lifecycle, from card design and bank approvals, production, packaging, distribution and personalization,
to inventory and security controls, renewals, lost and stolen cards and card replacement. The company’s in-house, bilingual customer
care is available 24/7/365 through live agents, interactive voice response (IVR), and two-way SMS alerts.
For more than 20 years major pharmaceutical and
healthcare companies and multinational enterprises have relied on Paysign to provide full-service programs tailored to their unique requirements.
The Company has designed and launched prepaid card programs for corporate rewards, employee incentives, consumer rebates, donor compensation,
clinical trials, healthcare reimbursement payments and copay assistance.
Paysign’s expanded product offerings now
include additional corporate incentive products and demand deposit accounts accessible with a debit card.
Principles of Consolidation – The
condensed 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 the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements and (iii) the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Restricted Cash – At June 30, 2021
and December 31, 2020, restricted cash consisted of funds held specifically for our card product programs that are contractually restricted
to use. The Company includes changes in restricted cash balances with cash and cash equivalents when reconciling the beginning and ending
total amounts in our condensed consolidated statements of cash flows.
Fixed Assets – Fixed assets are stated
at cost less accumulated depreciation. Depreciation is principally recorded on the straight-line method over the estimated useful life
of the asset, which is generally 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Leasehold improvements
are capitalized and depreciated over the shorter of the remaining lease term or the estimated useful life of the improvements. Expenditures
for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation
are removed from the accounts and any gain or loss is reflected in other income (expense).
The Company periodically evaluates whether events
and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets or whether the remaining balance
of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over
the remaining life of the fixed assets in measuring their recoverability.
Intangible Assets – 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 a finite life is amortized
on a straight-line basis over its estimated useful life.
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 3 to 5 year estimated useful life, beginning in the period in which the software is available for use.
Earnings Per Share – Basic earnings
per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is computed using the weighted
average number of common and common stock equivalent shares outstanding during the period, using the treasury stock method. Common stock
equivalent shares are excluded from the computation if their effect is antidilutive.
Revenue and Expense Recognition –
In May 2014, the Financial Accounting Standards Board (“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. 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.
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 contracts 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 obligation.
The Company generates revenues from Plasma card
programs through fees generated from cardholder fees and interchange fees. Revenues from Pharma card programs are generated through card
program management fees, interchange fees, and settlement income.
Plasma and Pharma card program revenues include
both fixed and variable components. Our cardholder fees represent an obligation to the cardholder based on a per transaction basis and
recognized at a point in time when the performance obligation is fulfilled. Card program management fees include an obligation to our
card program sponsors and are generally recognized when earned on a monthly basis pursuant to the contract terms which are generally multi-year
contracts. Interchange fees are earned when customer-issued cards are processed through card payment networks as the nature of our promise
to the customer is that we stand ready to process transactions at the customer’s requests on a daily basis over the contract term.
Since the timing and quantity of transactions to be processed by us is not determinable, we view interchange fees to comprise an obligation
to stand ready to process as many transactions as the customer requests. Accordingly, the promise to stand ready is accounted for as a
single series performance obligation. The company uses the right to invoice practical expedient and recognizes revenue concurrent with
the processing of card transactions.
Prior to September 30, 2020, settlement income
from Pharma programs was recognized and recorded, after giving consideration to any revenue constraints, ratably throughout the program
lifecycle based on the Company’s estimate of the unspent balances to be remaining on the card at program expiration. During 2020,
the Company observed substantially different performance indicators, current trends in the industry regarding program management by third
parties, and new information available in dollar loads and spending patterns compared to historical experience. As a result, the Company
changed its estimate of breakage for recognizing settlement income for Pharma programs resulting in the Company constraining revenue on
all Pharma programs in accordance with applicable accounting guidance. Based on the change in facts and circumstances during 2020, the
Company now utilizes the remote method of revenue recognition for settlement income whereby the unspent balances will be recognized as
revenue at the expiration of the cards and the respective program. 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, and the Company does not currently have any obligations for disputed claim settlements. Given the nature of the Company’s
services and contracts, it has no contract assets.
Cost of revenues is comprised of transaction processing
fees, data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, program
management, application integration setup, and sales and commission expense.
Operating leases
– The Company determines if a contract is or contains a leasing element at contract inception or the date in which a modification
of an existing contract occurs. In order for a contract to be considered a lease, the contract must transfer the right to control the
use of an identified asset for a period of time in exchange for consideration. Control is determined to have occurred if the lessee has
the right to (i) obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use and
(ii) direct the use of the identified asset.
In determining the present
value of lease payments at lease commencement date, the Company utilizes its incremental borrowing rate based on the information available,
unless the rate implicit in the lease is readily determinable. The liability for operating leases is based on the present value of future
lease payments. Operating lease expenses are recorded as rent expense, which is included within selling, general and administrative expenses
within the consolidated statements of operations and presented as operating cash outflows within the consolidated statements of cash flows.
Stock-Based Compensation – The Company
recognizes compensation expense for all restricted stock and stock option awards. The fair value of restricted stock is measured using
the grant date trading price of our stock. The fair value of stock option awards is estimated at the grant date using the Black-Scholes
option-pricing model, and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service
period. We have elected to recognize compensation expense for all options with graded vesting on a straight-line basis over the vesting
period of the entire option. The determination of fair value using the Black-Scholes pricing model is affected by our stock price as well
as assumptions regarding a number of complex and subjective variables, including expected stock price volatility and the risk-free interest
rate.
New Accounting Pronouncements – In
December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which
intends to simplify the guidance by removing certain exceptions to the general principles and clarifying or amending existing guidance.
ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The
Company adopted this new standard on January 1, 2021 and there was no material impact on its condensed consolidated financial statements.
2. FIXED ASSETS, NET
Fixed assets consist of the following:
Schedule of fixed assets
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Equipment
|
|
$
|
2,030,385
|
|
|
$
|
1,888,640
|
|
Software
|
|
|
200,282
|
|
|
|
200,282
|
|
Furniture and fixtures
|
|
|
757,662
|
|
|
|
752,212
|
|
Website costs
|
|
|
67,816
|
|
|
|
67,816
|
|
Leasehold improvements
|
|
|
229,772
|
|
|
|
203,488
|
|
|
|
|
3,285,917
|
|
|
|
3,112,438
|
|
Less: accumulated depreciation
|
|
|
1,528,399
|
|
|
|
1,263,274
|
|
Fixed assets, net
|
|
$
|
1,757,518
|
|
|
$
|
1,849,164
|
|
Depreciation expense for the three months ended
June 30, 2021 and 2020 was $133,174 and $102,933, respectively. Depreciation expense for the six months ended June 30, 2021 and 2020 was
$265,125 and $195,261, respectively. During the three months ended June 30, 2020 the Company relocated its corporate headquarters and
recognized a $42,898 loss on abandonment of assets primarily related to leasehold improvements.
3. INTANGIBLE ASSETS, NET
Intangible assets consist of the following:
Schedule of intangible assets
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Platform
|
|
$
|
8,526,784
|
|
|
$
|
7,478,419
|
|
Customer lists and contracts
|
|
|
1,177,200
|
|
|
|
1,177,200
|
|
Licenses
|
|
|
273,995
|
|
|
|
234,282
|
|
Trademarks
|
|
|
38,186
|
|
|
|
38,186
|
|
|
|
|
10,016,165
|
|
|
|
8,928,087
|
|
Less: accumulated amortization
|
|
|
6,173,960
|
|
|
|
5,229,054
|
|
Intangible assets, net
|
|
$
|
3,842,205
|
|
|
$
|
3,699,033
|
|
Intangible assets are amortized over their useful
lives ranging from periods of 3 to 5 years. Amortization expense for the three months ended June 30, 2021 and 2020 was $481,008 and $403,544,
respectively. Amortization expense for the six months ended June 30, 2021 and 2020 was $944,905 and $813,592, respectively.
4. LEASE
The Company entered into an operating lease for
office space which became effective in June 2020. The lease term is 10 years from the effective date and allows for two optional extensions
of five years each. The two optional extensions are not recognized as part of the right-of-use asset or lease liability since it is not
reasonably certain that the Company will extend this lease. As of June 30, 2021, the remaining lease term was 8.9 years and the discount
rate was 6%. The lease for our previous office space was accounted for as a short-term lease.
Operating lease cost included in selling, general
and administrative expenses was $209,056 and $424,200 for the three and six months ended June 30, 2021, respectively. Operating lease
cost included in selling, general and administrative expenses was $59,889 for both the three and six months ended June 30, 2020. Short-term
lease cost included in selling, general and administrative expense was $61,327 and $143,768 for the three and six months ended June 30,
2020, respectively.
The following is the lease maturity analysis of our operating lease
as of June 30, 2021:
Twelve months ending June 30,
Schedule of operating lease liabilities
|
|
|
|
|
2022
|
|
$
|
571,968
|
|
2023
|
|
|
571,968
|
|
2024
|
|
|
571,968
|
|
2025
|
|
|
577,688
|
|
2026
|
|
|
640,604
|
|
Thereafter
|
|
|
2,509,033
|
|
Total lease payments
|
|
|
5,443,229
|
|
Less: Imputed interest
|
|
|
(1,266,915
|
)
|
Present value of future lease payments
|
|
|
4,176,314
|
|
Less: current portion of lease liability
|
|
|
(330,376
|
)
|
Long-term portion of lease liability
|
|
$
|
3,845,938
|
|
5. CUSTOMER CARD FUNDING LIABILITY
The Company issues prepaid cards with various
provisions for cardholder fees or expiration. Revenue generated from cardholder transactions and interchange fees are recognized when
the Company’s performance obligation is fulfilled. Unspent balances left on Pharma cards are recognized as settlement income at
the expiration of the cards and the program. Contract liabilities related to prepaid cards represent funds on card and client funds held
to be loaded to card before the amounts are ultimately spent by the cardholders or recognized as revenue by the Company. Contract liabilities
related to prepaid cards are reported as Customer card funding liability on the condensed consolidated balance sheet.
The opening and closing balances of the Company's contract liabilities
are as follows:
Schedule of contract liabilities
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Beginning balance
|
|
$
|
48,100,951
|
|
|
$
|
32,723,227
|
|
Increase (decrease), net
|
|
|
17,654,611
|
|
|
|
1,122,393
|
|
Ending balance
|
|
$
|
65,755,562
|
|
|
$
|
33,845,620
|
|
The amount of revenue recognized during the six
months ended June 30, 2021 and 2020 that was included in the opening contract liability for prepaid cards was $1,023,055 and $844,514,
respectively.
6. COMMON STOCK
At June 30, 2021, 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. On that date, the Company had 51,143,382 shares of common stock issued and 50,839,932 shares of common stock outstanding, and no
shares of preferred stock outstanding.
Stock-based compensation expense related to Company
grants for the three and six months ended June 30, 2021 was $540,921 and $1,777,135, respectively. Stock-based compensation expense for
the three and six months ended June 30, 2020 was $600,775 and $1,324,958, respectively.
2021 Transactions:
During the three and six months ended June 30, 2021 the Company issued 392,500 and 891,775 shares, respectively, of common stock for
vested stock awards and the exercise of stock options and received proceeds of $9,675 and $120,141, respectively.
2020
Transactions: During the three and six months ended June 30, 2020, the Company issued -0-
and 500,000
stock options valued at $2.86 per
share that will vest over 4 four years. The assumptions used in the Black Scholes option-pricing model for the 2020 options was a
risk-free interest rate of 0.38%, expected volatility of 100%, dividend yield of -0- and a weighted-average expected life of 5
years. During the three and six months ended June 30, 2020 the Company also issued 337,437 and 775,995 shares of common stock,
respectively, for vested stock awards and the exercise of stock options and received proceeds of $24,000. In addition, for the three
months ended June 30, 2020, the Company issued 20,000 shares of common stock related to the acquisition of customer lists and
contracts.
7. BASIC
AND FULLY DILUTED NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation
of basic and fully diluted net income (loss) per common share for the six months ended June 30, 2021 and 2020:
Computation of earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(931,967
|
)
|
|
$
|
(219,234
|
)
|
|
$
|
(2,555,494
|
)
|
|
$
|
1,321,731
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic calculation
|
|
|
50,748,437
|
|
|
|
49,015,686
|
|
|
|
50,551,299
|
|
|
|
48,864,424
|
|
Weighted average effects of potentially diluted common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options (calculated using the treasury method)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,901,813
|
|
Unvested restricted stock grants
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,776,221
|
|
Denominator for fully diluted calculation
|
|
|
50,748,437
|
|
|
|
49,015,686
|
|
|
|
50,551,299
|
|
|
|
54,542,458
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
Fully diluted
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
Due to the net loss for the three and six months ended June 30, 2021, the effect of all potential common share equivalents was anti-dilutive, and therefore, all such shares were excluded from the computation of diluted weighted average shares outstanding for both periods. For the three and six months ended June 30, 2021, the amount of potential common share equivalents excluded were 1,997,350 for stock options and 1,868,000 for unvested restricted stock awards. Due to the net loss for the three months ended June 30, 2020, the effect of all potential common share equivalents was anti-dilutive, and therefore, all such shares were excluded from the computation of diluted weighted average shares outstanding for the period. For the three months ended June 30, 2020, the amount of potential common share equivalents excluded were 2,868,800 for stock options and 3,428,500 for unvested restricted stock awards.
8. COMMITMENTS AND CONTINGENCIES
From time to time, we may become involved in various
lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that may harm our business.
The Company has been named as a defendant in three
complaints filed in the United States District Court for the District of Nevada: Yilan Shi v. Paysign, Inc. et. al., filed on March 19,
2020 (“Shi”), Lorna Chase v. Paysign, Inc. et. al., filed on March 25, 2020 (“Chase”), and Smith &
Duvall v. Paysign, Inc. et. al., filed on April 2, 2020 (collectively, the “Complaints” or “Securities Class Action”).
Smith & Duvall v. Paysign, Inc. et al. was voluntarily dismissed on May 21, 2020. On May 18, 2020, the Shi plaintiffs and another
entity called the Paysign Investor Group each filed a motion to consolidate the remaining Shi and Chase actions and to be appointed lead
plaintiff. The Complaints are putative class actions filed on behalf of a class of persons who acquired the Company’s common stock
from March 19, 2019 through March 31, 2020, inclusive. The Complaints generally allege that the Company, Mark R. Newcomer, and Mark Attinger
violated Section 10(b) of the Exchange Act, and that Messrs. Newcomer and Attinger violated Section 20(a) of the Exchange Act, by making
materially false or misleading statements, or failing to disclose material facts, regarding the Company’s internal control over
financial reporting and its financial statements. The Complaints seek class action certification, compensatory damages, and attorney’s
fees and costs. On December 2, 2020, the Court consolidated Shi and Chase as In re Paysign, Inc. Securities Litigation and appointed the
Paysign Investor Group as lead plaintiff. On January 12, 2021, Plaintiffs filed an Amended Complaint in the consolidated action. Defendants
filed a Motion to Dismiss the Amended Complaint on March 15, 2021, which Plaintiffs opposed via an opposition brief filed on April 29,
2021, to which Defendants replied on June 1, 2021. Thus, the motion is now fully briefed. The Court has not set a hearing date on the
motion, or informed the parties whether it intends to entertain oral argument or rule upon the papers filed. As of the date of this filing,
Paysign cannot give any meaningful estimate of likely outcome or damages.
The Company has also been named as a nominal defendant
in a stockholder derivative action in the United States District Court for the District of Nevada: Andrzej Toczek, derivatively on behalf
of Paysign, Inc. v. Mark, R. Newcomer, et. al., filed on September 17, 2020. This action alleges violations of Section 14(a) of the Exchange
Act, breach of fiduciary duty, unjust enrichment, and waste, largely in connection with the failure to correct information technology
controls over financial reporting alleged in the Securities Class Action, thereby causing the Company to face exposure in the Securities
Class Action. The derivative complaint also alleges insider trading, violations against certain individual defendants. On December 16,
2020, the Court approved a stipulation staying the action until the Court in the consolidated Securities Class Action issues a ruling
on the Motion to Dismiss. As of the date of this filing, Paysign cannot give any meaningful estimate of likely outcome or damages.
9. RELATED PARTY
A member of our Board of Directors is also a partner
in a law firm that the Company engages for services to review regulatory filings and for various other legal matters. The Company incurred
legal expense of $390,172 and $410,884 during the three and six months ended June 30, 2021, respectively, with the related party
law firm. During each of the three and six months ended June 30, 2020 the Company incurred legal expense of $96,755 and $115,488, respectively,
with the related party law firm.
10. INCOME TAX BENEFIT
The effective tax rate (income
tax provision (benefit) as a percentage of income (loss) before income tax provision (benefit)) was (0.1%) for the three months ended
June 30, 2021, as compared to 65.9% for the three months ended June 30, 2020. The effective tax rate was (0.1%) and (63.1%) for the six
months ended June 30, 2021 and 2020, respectively. The effective tax rates vary, primarily as a result of the full valuation on
our deferred tax asset in the current year and the tax benefit related to our stock-based compensation and a pretax loss in the prior
year period.
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 contain, 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 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 “Part II - 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
We are a provider of prepaid card programs, comprehensive
patient affordability offerings, digital banking services and integrated payment processing designed for businesses, consumers and government
institutions. Founded in 2001 and headquartered in southern Nevada, the company creates customized, innovative payment solutions for clients
across all industries, including pharmaceutical, healthcare, hospitality and retail. By using Paysign solutions, clients enjoy benefits
such as lower administrative costs, streamlined operations, increased revenues, accelerated product adoption, and improved customer, employee
and partner loyalty.
Built on the foundation of a powerful and reliable
payments platform, Paysign’s end-to-end technologies securely enable a wide range of services, including transaction processing,
cardholder enrollment, value loading, cardholder account management, reporting and customer care. The modern cross-platform architecture
is designed to be highly flexible, scalable and customizable, which delivers cost benefits and revenue-building opportunities to clients
and partners.
As a full-service program manager, Paysign manages
all aspects of the prepaid card lifecycle, from card design and bank approvals, production, packaging, distribution and personalization,
to inventory and security controls, renewals, lost and stolen cards and card replacement. The company’s in-house, bilingual customer
care is available 24/7/365 through live agents, interactive voice response (IVR), and two-way SMS alerts.
For more than 20 years major pharmaceutical and
healthcare companies and multinational enterprises have relied on Paysign to provide full-service programs tailored to their unique requirements.
The Company has designed and launched prepaid card programs for corporate rewards, employee incentives, consumer rebates, donor compensation,
clinical trials, healthcare reimbursement payments and copay assistance.
Paysign’s expanded product offerings now
include additional corporate incentive products and demand deposit accounts accessible with a debit card.
Our revenues include fees generated from cardholder
fees, interchange, card program management fees, and settlement income. Revenue from cardholder fees, interchange and card program management
fees is recorded when the performance obligation is fulfilled. Settlement income is recorded at the expiration of the card program.
We have two categories for our prepaid debit cards:
(1) corporate and consumer reloadable cards, and (2) non-reloadable cards.
Reloadable Cards: These types of cards are generally
classified as payroll or considered general purpose reloadable (“GPR”) cards. Payroll cards are issued by an employer to an
employee in order to allow the employee to access payroll amounts that are deposited into an account linked to their card. 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 generally used as gift
or incentive cards. Normally these types of cards are used for purchase of goods or services at retail locations and cannot be used to
receive cash.
Both reloadable and non-reloadable cards may be
open-loop, closed-loop, or restricted-loop. Open-loop cards can be used to receive cash at ATM locations by PIN; or purchase goods or
services by PIN or signature at retail locations virtually anywhere that the network brand (American Express, Discover, MasterCard, Visa,
etc.) is accepted. Closed-loop cards can only be used at a specific merchant. Restricted-loop cards can be used at several merchants,
or a defined group of merchants, such as all merchants at a specific shopping mall.
The prepaid card market in the U.S. 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.
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 Mexico.
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.
In 2021, we plan to continue to invest additional
funds in technology improvements, sales and marketing, customer service, and regulatory compliance. From time to time, we evaluate 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.
The outbreak
of a novel coronavirus and the incidence of the related disease (COVID-19) starting in late 2019 has continued, spreading throughout
the United States and much of the world beginning in the first quarter of 2020. In March 2020, the World Health Organization declared
the outbreak as a pandemic. While the disruption is currently expected to be temporary, there is uncertainty around the duration given
the development of new variants that appear to be spreading. The COVID-19 outbreak and the new stimulus packages signed into law
during 2020 and 2021 have had, and will continue to have, an adverse effect on the Company's results
of operations. While we remain cautiously optimistic and have seen improvements in our operating results, we are not back to pre-pandemic
operating levels. Given the uncertainty around the extent and timing of the potential future spread or mitigation of COVID-19 and variants
and around the imposition or relaxation of protective measures, management cannot reasonably estimate the impact to the Company's future
results of operations, cash flows, or financial condition.
Results of Operations
Three Months Ended June 30, 2021 and 2020
The following table summarizes our consolidated financial results:
|
|
Three Months Ended
June 30,
(unaudited)
|
|
|
Variance
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Plasma industry
|
|
$
|
5,947,313
|
|
|
$
|
4,572,439
|
|
|
$
|
1,374,874
|
|
|
|
30.1%
|
|
Pharma industry
|
|
|
641,037
|
|
|
|
1,768,565
|
|
|
|
(1,127,528
|
)
|
|
|
(63.8%
|
)
|
Other
|
|
|
62,940
|
|
|
|
102,061
|
|
|
|
(39,121
|
)
|
|
|
(38.3%
|
)
|
Total revenues
|
|
|
6,651,290
|
|
|
|
6,443,065
|
|
|
|
208,225
|
|
|
|
3.2%
|
|
Cost of revenues
|
|
|
3,498,723
|
|
|
|
3,138,350
|
|
|
|
360,373
|
|
|
|
11.5%
|
|
Gross profit
|
|
|
3,152,567
|
|
|
|
3,304,715
|
|
|
|
(152,148
|
)
|
|
|
(4.6%
|
)
|
Gross margin %
|
|
|
47.4%
|
|
|
|
51.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
3,474,562
|
|
|
|
3,401,501
|
|
|
|
73,061
|
|
|
|
2.1%
|
|
Loss on abandonment of assets
|
|
|
–
|
|
|
|
42,898
|
|
|
|
(42,898
|
)
|
|
|
N/A
|
|
Depreciation and amortization
|
|
|
614,182
|
|
|
|
506,477
|
|
|
|
107,705
|
|
|
|
21.3%
|
|
Total operating expenses
|
|
|
4,088,744
|
|
|
|
3,950,876
|
|
|
|
137,868
|
|
|
|
3.5%
|
|
Loss from operations
|
|
$
|
(936,177
|
)
|
|
$
|
(646,161
|
)
|
|
$
|
(290,016
|
)
|
|
|
(44.9%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(931,967
|
)
|
|
$
|
(219,234
|
)
|
|
$
|
(712,733
|
)
|
|
|
325.1%
|
|
Net margin %
|
|
|
(14.0%
|
)
|
|
|
(3.4%
|
)
|
|
|
|
|
|
|
|
|
The increase in total revenues of $208,225 for
the three months ended June 30, 2021 compared to the same period in the prior year consisted primarily of a $1,374,874 increase in Plasma
revenue and a $1,127,528 reduction in Pharma revenue. The increase in Plasma revenue was primarily due to an increase in plasma donations,
and, consequently, dollars loaded to cards, cardholder fees, and interchange, as COVID-19 restrictions such as donation center closures
and mobility restrictions were relaxed compared to the prior year period. Pharma revenue decreased $1,127,528 primarily due to the constraining
of revenue on all Pharma programs for settlement income whereby the unspent balances will be recognized as revenue at the expiration
of the cards and the respective program.
Cost of revenues for the three months ended June
30, 2021 increased $360,373 compared to the same period in the prior year. Cost of revenues is comprised of transaction processing fees,
data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, program management,
application integration setup, and sales and commission expense. Cost of revenues increased primarily due to the increase in Plasma transactions
as many of the Plasma transaction costs are variable in nature which are provided by third parties who charge us based on the number of
transactions that occurred during the period.
Gross profit for the three months ended June 30,
2021 decreased $152,148 compared to the same period in the prior year resulting from the reduction in Pharma revenue, offset by an increase
in Plasma revenue and the impact of a variable cost structure as described above. The decrease in gross margin resulted from a higher
mix of Pharma settlement income recorded in the prior year, offset by an increase in Plasma gross margin.
Selling, general and administrative expenses (“SG&A”)
for the three months ended June 30, 2021 increased $73,061 or 2.1% compared to the same period in the prior year and consisted primarily
of an increase in compensation and benefits of $80,500, a decrease in stock-based compensation of $60,000, an increase in outside professional
services for tax, audit and consultants of $40,000, an increase in licensing and insurance of $97,000, a decrease in technologies and
telecom of $40,000, an increase in rent, utilities, and maintenance of $94,000 related to a new office lease entered into in June 2020,
an increase in travel of $68,000, and a decrease in other operating expenses of $56,700.
Depreciation and amortization expense for the
three months ended June 30, 2021 increased $107,705 compared to the same period in the prior year. The increase in depreciation and amortization
expense was primarily due to continued capitalization of new software and equipment, continued enhancements to our platform, and new furniture
and fixtures and leasehold improvements associated with the new building we moved into in June 2020.
For the three months ended June 30, 2021 we recorded
a loss from operations of $936,177 representing a net decrease of $290,016 compared to the same period last year related to the aforementioned
factors.
Other income for the three months ended June 30,
2021 increased $1,880 related to an increase in interest income due to higher average outstanding restricted cash bank balances primarily
from the increase in our Plasma business.
The effective tax rate was
(0.1%) and 65.9% for the three months ended June 30, 2021 and 2020, respectively.
The effective tax rates vary, primarily as a result of the full valuation on our deferred tax asset in the current year and the
tax benefit related to our stock-based compensation and a pretax loss in the prior year period.
The net loss for the three months ended June 30,
2021 was $931,967, a $712,733 greater loss compared to the net loss of $219,234 for the three months ended June 30, 2020. The overall
change in net loss relates to the aforementioned factors.
Six Months Ended June 30, 2021 and 2020
The following table summarizes our consolidated financial results:
|
|
Six Months Ended
June 30,
(unaudited)
|
|
|
Variance
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Plasma industry
|
|
$
|
11,330,464
|
|
|
$
|
11,915,849
|
|
|
$
|
(585,385
|
)
|
|
|
(4.9%
|
)
|
Pharma industry
|
|
|
1,523,867
|
|
|
|
4,788,942
|
|
|
|
(3,265,075
|
)
|
|
|
(68.2%
|
)
|
Other
|
|
|
76,387
|
|
|
|
314,747
|
|
|
|
(238,360
|
)
|
|
|
(75.7%
|
)
|
Total revenues
|
|
|
12,930,718
|
|
|
|
17,019,538
|
|
|
|
(4,088,820
|
)
|
|
|
(24.0%
|
)
|
Cost of revenues
|
|
|
6,946,345
|
|
|
|
7,993,870
|
|
|
|
(1,047,525
|
)
|
|
|
(13.1%
|
)
|
Gross profit
|
|
|
5,984,373
|
|
|
|
9,025,668
|
|
|
|
(3,041,295
|
)
|
|
|
(33.7%
|
)
|
Gross margin %
|
|
|
46.3%
|
|
|
|
53.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
7,339,548
|
|
|
|
7,228,825
|
|
|
|
110,723
|
|
|
|
1.5%
|
|
Loss on abandonment of assets
|
|
|
–
|
|
|
|
42,898
|
|
|
|
(42,898
|
)
|
|
|
N/A
|
|
Depreciation and amortization
|
|
|
1,210,030
|
|
|
|
1,008,853
|
|
|
|
201,177
|
|
|
|
19.9%
|
|
Total operating expenses
|
|
|
8,549,578
|
|
|
|
8,280,576
|
|
|
|
269,002
|
|
|
|
3.2%
|
|
Income (loss) from operations
|
|
$
|
(2,565,205
|
)
|
|
$
|
745,092
|
|
|
$
|
(3,310,297
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,555,494
|
)
|
|
$
|
1,321,731
|
|
|
$
|
(712,733
|
)
|
|
|
N/A
|
|
Net margin %
|
|
|
(19.8%
|
)
|
|
|
7.8%
|
|
|
|
|
|
|
|
|
|
The decrease in total revenues of $4,088,820 for
the six months ended June 30, 2021 compared to the same period in the prior year consisted primarily of a $585,385 reduction in Plasma
revenue and a $3,265,075 reduction in Pharma revenue. The decrease in Plasma revenue was primarily due to a decrease in plasma donations,
and, consequently, dollars loaded to cards and cardholder fees, which were significantly impacted by COVID-19 related donation center
closures and mobility restrictions during the first quarter of 2021 compared to the same period in the prior year. Pharma revenue decreased
$3,265,075 primarily due to the constraining of revenue on all Pharma programs for settlement income
whereby the unspent balances will be recognized as revenue at the expiration of the cards and the respective program. In addition, Pharma
programs were also negatively impacted by COVID-19 as new pharmaceutical medicines were delayed and individuals limited their exposure
to pharmacies and doctor offices.
Cost of revenues for the six months ended June
30, 2021 decreased $1,047,525 compared to the same period in the prior year. Cost of revenues is comprised of transaction processing fees,
data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, program management,
application integration setup, and sales and commission expense. Cost of revenues decreased primarily due to the decline in Plasma transactions
during the first quarter of 2021 compared to the same period in the prior year as many of the Plasma transaction costs are variable in
nature which are provided by third-parties who charge us based on the number of transactions that occurred during the period.
Gross profit for the six months ended June 30,
2021 decreased $3,041,295 compared to the same period in the prior year resulting from the reduction in Plasma and Pharma revenue, and
the associated cost of sales as described above. The decrease in gross margin resulted from the lower revenue conversion rate and an unfavorable
cost of revenue rate variance resulting from the portion of our cost of revenues that are fixed in nature.
SG&A for the six months ended June 30, 2021
increased $110,723 or 1.5% compared to the same period in the prior year and consisted primarily of an increase in compensation and benefits
of $255,000, a decrease in stock-based compensation of $148,000, an increase in professional services for tax, audit and consultants of
$139,000, an increase in licensing and insurance of $97,000, a decrease in technologies and telecom of $91,000, an increase in rent, utilities,
and maintenance of $235,000 related to a new office lease entered into in June 2020, a decrease in travel of $21,500, and a decrease in
other operating expenses of $203,000.
Depreciation and amortization expense for the
six months ended June 30, 2021 increased $201,177 compared to the same period in the prior year. The increase in depreciation and amortization
expense was primarily due to continued capitalization of new software and equipment, continued enhancements to our platform, and new furniture
and fixtures and leasehold improvements associated with the new building we moved into in June 2020.
For the six months ended June 30, 2021 we recorded
a loss from operations of $2,565,205 representing a net decrease of $3,310,297 compared to the same period last year related to the aforementioned
factors.
Other income for the six months ended June 30,
2021 decreased $53,180 related to a decrease in interest income primarily from lower average outstanding restricted cash bank balances
due to a decline in our Plasma business and better program management by third parties on our Pharma programs.
The effective tax rate was
(0.1%) and (63.1%) for the six months ended June 30, 2021 and 2020, respectively.
The effective tax rates vary, primarily as a result of the full valuation on our deferred tax asset in the current year and the
tax benefit related to our stock-based compensation and a pretax loss in the prior year period.
The net loss for the six months ended June 30,
2021 was $2,555,494 compared to net income of $1,321,731 for the six months ended June 30, 2020, a $3,877,225 decrease. The overall change
in net income (loss) relates to the aforementioned factors.
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 primary 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 loaded on cards was $246 million
and $183 million for the three months ended June 30, 2021 and 2020, respectively. That gross dollar volume was $523 million and $509 million
for the six months ended June 30, 2021 and 2020, respectively. We use this metric to analyze the total amount of money moving into our
prepaid card programs.
Conversion Rates on Gross Dollar Volume Loaded
on Cards – Comprised of revenues, gross profit and net income conversion rates of gross dollar volume loaded on cards which are
calculated by taking our total revenues, gross profit or net income (loss), respectively, as a numerator and dividing by the gross dollar
volume loaded on cards as a denominator. As we derive a number of our financial results from cardholder fees, we utilize these metrics
as an indication of the amount of money that is added to cards and will eventually be converted to revenues, gross profit and net income.
Our total revenue conversion rates for the three months ended June 30, 2021 and 2020 were 2.70% or 270 basis points (“bps”),
and 3.52% or 352 bps, respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the three months
ended June 30, 2021 and 2020 were 1.28% or 128 bps, and 1.81% or 181 bps, respectively, of gross dollar volume loaded on cards. Our net
income conversion rates for the three months ended June 30, 2021 and 2020 were (0.38)% or (38) bps, and (0.12)% or (12) bps, respectively,
of gross dollar volume loaded on cards. Our total revenue conversion rates for the six months ended June 30, 2021 and 2020 were 2.47%
or 247 bps, and 3.34% or 334 bps, respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the
six months ended June 30, 2021 and 2020 were 1.14% or 114 bps, and 1.77% or 177 bps, respectively, of gross dollar volume loaded on cards.
Our net income conversion rates for the six months ended June 30, 2021 and 2020 were (0.49)% or (49) bps, and 0.26% or 26 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 financial 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 (loss), earnings (loss) 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” is defined as earnings before
interest, income taxes, and depreciation and amortization expense and "Adjusted EBITDA" reflects the adjustment to EBITDA to
exclude stock-based compensation expense and loss on abandonment of assets. A reconciliation of net income (loss) to Adjusted EBITDA is
provided in the table below.
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Reconciliation of adjusted EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(931,967
|
)
|
|
$
|
(219,234
|
)
|
|
$
|
(2,555,494
|
)
|
|
$
|
1,321,731
|
|
Income tax provision (benefit)
|
|
|
800
|
|
|
|
(423,797
|
)
|
|
|
2,400
|
|
|
|
(511,348
|
)
|
Interest income
|
|
|
(5,010
|
)
|
|
|
(3,130
|
)
|
|
|
(12,111
|
)
|
|
|
(65,291
|
)
|
Depreciation and amortization
|
|
|
614,182
|
|
|
|
506,477
|
|
|
|
1,210,030
|
|
|
|
1,008,853
|
|
EBITDA
|
|
|
(321,995
|
)
|
|
|
(139,684
|
)
|
|
|
(1,355,175
|
)
|
|
|
1,753,945
|
|
Loss on abandonment of assets
|
|
|
–
|
|
|
|
42,898
|
|
|
|
–
|
|
|
|
42,898
|
|
Stock-based compensation
|
|
|
540,921
|
|
|
|
600,775
|
|
|
|
1,177,135
|
|
|
|
1,324,958
|
|
Adjusted EBITDA
|
|
$
|
218,926
|
|
|
$
|
503,989
|
|
|
$
|
(178,040
|
)
|
|
$
|
3,121,801
|
|
Liquidity and Capital Resources
The following table sets forth the major sources
and uses of cash:
|
|
Six Months Ended June 30,
(unaudited)
|
|
|
|
2021
|
|
|
2020
|
|
Net cash provided by operating activities
|
|
$
|
17,581,753
|
|
|
$
|
4,263,949
|
|
Net cash used in investing activities
|
|
|
(1,261,556
|
)
|
|
|
(2,060,497
|
)
|
Net cash provided by (used in) financing activities
|
|
|
120,141
|
|
|
|
(221,425
|
)
|
Net increase in cash and restricted cash
|
|
$
|
16,440,338
|
|
|
$
|
1,982,027
|
|
Comparison of Six Months Ended June 30, 2021
and 2020
During the six months ended June 30, 2021 and
2020, we financed our operations through internally generated funds.
Cash provided by operating activities increased
$13,317,804 for the six months ended June 30, 2021, as compared to the same period in the prior year. The increase is primarily due to
an increase in cash flows from changes in operating assets and liabilities, particularly the customer card funding liability, offset by
the decrease in net income (loss). The increase in the cash provided by the customer card funding liability is mainly due to the increase
in customer card funding restricted cash during the period.
Cash used in investing activities decreased $798,941
for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The change between periods was primarily
attributed to a decrease in purchases of fixed assets during the current period. Fixed asset purchases in the prior year period were related
to our office relocation.
Cash provided by financing activities was $120,141
for the six months ended June 30, 2021 as compared to cash used in financing activities of $221,425 the six months ended June 30, 2020.
Cash provided by financing activities in the 2021 period consisted of cash received from the exercise of employee stock options totaling
$120,141. Cash used in financing activities for the 2020 period related to $245,425 for the repurchase of stock for taxes withheld offset
by cash received from the exercise of stock options totaling $24,000.
Sources of Liquidity
We believe that our available cash on hand, excluding
restricted cash, at June 30, 2021 of $6,615,180, along with our forecast for revenues and cash flows for the remainder of the year and
for 2022, 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 Policies and Estimates
Our significant accounting policies are described
in Note 1 of the Notes to Consolidated Financial Statements and our Annual Report on Form 10-K for the fiscal year ended December 31,
2020.
The preparation of consolidated financial statements
in conformity with 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 consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Our estimates are 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.