See accompanying notes to unaudited condensed consolidated
financial statements.
See accompanying notes to unaudited condensed consolidated
financial statements.
See accompanying notes to unaudited condensed consolidated
financial statements.
See accompanying notes to unaudited condensed consolidated
financial statements.
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, 2021. 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 three months ended March
31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Impact of COVID-19 Pandemic
The coronavirus (COVID-19) pandemic, which started
in late 2019 and reached the United States in early 2020, continues to significantly impact the economy of the United States and the rest
of the world. While the disruption appears to be mitigating due to the availability of vaccines and other factors, the ultimate duration
and severity of the pandemic remain uncertain, particularly given the development of new variants that continue to spread. The COVID-19
outbreak caused plasma center closures, and the stimulus packages signed into law during 2020 and 2021 reduced the incentive for individuals
to donate plasma for supplementary income. Those developments have had and will continue to have an adverse impact on the Company’s
results of operations. While we remain cautiously optimistic and have seen improvements in our operating results on an aggregated basis,
we cannot foresee how long it may take the Company to attain pre-pandemic operating levels on a per plasma donation center basis as COVID-19
related labor shortages at plasma donation centers, border closures, and other effects continue to weigh on the Company’s results
of operations. 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 at this time estimate with reasonable accuracy COVID-19’s
further impact on the Company’s results of operations, cash flows or financial condition.
Under the provisions of the Coronavirus Aid, Relief,
and Economic Security Act (the “CARES Act”) signed into law in 2020 and the subsequent extension of the CARES Act through
September 30, 2021, the Company was eligible for a refundable employee retention credit subject to certain criteria. The Company has elected
an accounting policy to recognize the government assistance when it is probable that the Company is eligible to receive the assistance
and present the credit be as a reduction of the related expense. As of March 31, 2022 and December 31, 2021 the Company has recorded $876,456
in other receivables on the condensed consolidated balance sheet related to refunds filed in the fourth quarter of 2021.
About Paysign, Inc.
Paysign, Inc. (the “Company,” “Paysign,”
“we” or “our”) was incorporated on August 24, 1995, and trades under the symbol PAYS on The Nasdaq Stock Market
LLC. Paysign. 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. Headquartered in Nevada, the company creates customized,
innovative payment solutions for clients across all industries, including pharmaceutical, healthcare, hospitality and retail.
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.
Reclassifications – Certain accounts
and financial statement captions in the prior periods have been reclassified to conform to the current period financial statement presentations.
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.
Cash and Cash Equivalents – The Company
considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash
equivalents for the purposes of the statement of cash flows. The Company had no cash equivalents at March 31, 2022 and 2021.
Restricted Cash – At March 31, 2022
and December 31, 2021, 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.
Concentrations of Credit Risk – Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and
restricted cash. Paysign maintains its cash and cash equivalents and restricted cash in various bank accounts that, at times, may exceed
federally insured limits. Paysign has not experienced, nor does it anticipate, any losses with respect to such accounts. At March 31, 2022
and December 31, 2021, the Company had approximately $29,195,396 and $31,828,826 in excess of federally insured bank account limits, respectively.
The Company also has a concentration of accounts
receivable risk at March 31, 2022 as two Pharma program customers associated with our Pharma copay programs each individually represent
51% and 15% of our accounts receivable balance. Two Pharma program customers each individually represented 52% and 17% of our accounts
receivable balance at December 31, 2021.
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, the Company recognizes 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 are 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.
Customer Card Funding – At March
31, 2022 and December 31, 2021, customer card funding represents funds loaded on our prepaid card programs.
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 anti-dilutive.
Revenue and Expense Recognition –
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. 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 and paid typically due within 30 days pursuant to the contract terms
which are generally multi-year contracts. The Company uses the output method to recognize card program management fee revenue at the amount
of consideration to which an entity has a right to invoice. The performance obligation is satisfied when the services are transferred
to the customer which the Company determined to be monthly, as the customers simultaneously receives and consumes the benefit from the
Company’s performance. 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 interchange
fee revenue concurrent with the processing of card transactions. Interchange fees are settled in accordance with the card payment network
terms and conditions, which is typically within a few days.
The Company 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.
Leases with an initial term of 12 months or less
are not recorded on the balance sheet, with lease expense for these leases recognized on a straight-line basis over the lease term.
Stock-Based Compensation – The Company
recognizes compensation expense for all restricted stock awards and stock options. The fair value of restricted stock awards is measured
using the grant date trading price of our stock. The fair value of stock options 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.
Recently Issued Accounting Pronouncements
– In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments–Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides updated
guidance on how an entity should measure credit losses on all financial instruments carried at amortized cost (including loans held for
investment and held-to-maturity debt securities, as well as trade receivables, reinsurance recoverables, and receivables that relate to
repurchase agreements and securities lending agreements), a lessor’s net investments in leases, and off-balance sheet credit exposures
not accounted for as insurance or as derivatives, including loan commitments, standby letters of credit, and financial guarantees. Subsequently,
in November 2018 the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments–Credit Losses
(“ASU 2018-19”), which clarified that receivables arising from operating leases are not within the scope of Subtopic 326-20,
but instead should be accounted for in accordance with Topic 842, Leases. In March 2022 the FASB issued ASU No. 2022-02, Financial
Instruments—Credit Losses: Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) which clarified
accounting treatment required for trouble debt restructurings by creditors and enhanced disclosures for write-offs. The new standard and
related amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
We are currently evaluating the impact of adopting this guidance on our Financial Statements; however, we do not expect it to have a material
impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU No.
2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
(“ASU 2021-08”). This ASU requires contract assets and contract liabilities acquired in a business combination to be recognized
and measured by the acquirer on the acquisition date in accordance with ASU No. 2016-10, Revenue from Contracts with Customers (Topic
606). This guidance is effective for the Company beginning on January 1, 2023 and is not expected to have a material impact on the
Company’s consolidated financial statements.
2. FIXED ASSETS, NET
Fixed assets consist of the following:
Schedule of fixed assets | |
| | | |
| | |
| |
March 31, 2022 | | |
December 31, 2021 | |
Equipment | |
$ | 2,080,621 | | |
$ | 2,067,834 | |
Software | |
| 315,855 | | |
| 315,855 | |
Furniture and fixtures | |
| 757,662 | | |
| 757,662 | |
Website costs | |
| 69,881 | | |
| 69,881 | |
Leasehold improvements | |
| 229,772 | | |
| 229,772 | |
| |
| 3,453,791 | | |
| 3,441,004 | |
Less: accumulated depreciation | |
| 1,933,992 | | |
| 1,798,023 | |
Fixed assets, net | |
$ | 1,519,799 | | |
$ | 1,642,981 | |
Depreciation expense for the three months ended
March 31, 2022 and 2021 was $135,969 and $131,951, respectively.
3. INTANGIBLE ASSETS, NET
Intangible assets consist of the following:
Schedule of intangible assets | |
| | | |
| | |
| |
March 31, 2022 | | |
December 31, 2021 | |
Patents and trademarks | |
$ | 38,186 | | |
$ | 38,186 | |
Platform | |
| 10,515,896 | | |
| 9,853,823 | |
Customer lists and contracts | |
| 1,177,200 | | |
| 1,177,200 | |
Licenses | |
| 209,282 | | |
| 209,282 | |
| |
| 11,940,564 | | |
| 11,278,491 | |
Less: accumulated amortization | |
| 7,734,731 | | |
| 7,191,529 | |
Intangible assets, net | |
$ | 4,205,833 | | |
$ | 4,086,962 | |
Amortization expense for the three months ended
March 31, 2022 and 2021 was $543,202 and $463,897, 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 March 31, 2022, the remaining lease term was 8.2 years and the discount
rate was 6%.
Operating lease cost included in selling, general
and administrative expenses was $183,241 and $215,144 for the three months ended March 31, 2022 and 2021, respectively. Cash paid
for the operating lease was $142,992 for both the three months ended March 31, 2022 and 2021.
The following is the lease maturity analysis of our operating lease
as of March 31, 2022:
Twelve months ending March 31,
Schedule of operating lease liabilities | |
| | |
2023 | |
$ | 571,968 | |
2024 | |
| 571,968 | |
2025 | |
| 571,968 | |
2026 | |
| 629,165 | |
2027 | |
| 640,604 | |
Thereafter | |
| 2,028,580 | |
Total lease payments | |
| 5,014,253 | |
Less: Imputed interest | |
| (1,083,858 | ) |
Present value of future lease payments | |
| 3,930,395 | |
Less: current portion of lease liability | |
| (345,544 | ) |
Long-term portion of lease liability | |
$ | 3,584,851 | |
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 | |
| | | |
| | |
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Beginning balance | |
$ | 61,283,914 | | |
$ | 48,100,951 | |
Increase (decrease), net | |
| 3,393,769 | | |
| 10,672,537 | |
Ending balance | |
$ | 64,677,683 | | |
$ | 58,773,488 | |
The amount of revenue recognized during the three
months ended March 31, 2022 and 2021 that was included in the opening contract liability for prepaid cards was $1,485,005 and $1,023,055,
respectively.
6. COMMON STOCK
At March 31, 2022, 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 52,218,382 shares of common stock issued and 51,914,932 shares of common stock outstanding, and no
shares of preferred stock outstanding.
Stock-based compensation expense related to Company
grants for the three months ended March 31, 2022 was $569,502. Stock-based compensation expense for the three months ended March 31, 2021
was $636,214.
2022 Transactions: During the three months
ended March 31, 2022 the Company issued 123,000 shares of common stock for vested stock awards.
2021 Transactions: During the three months
ended March 31, 2021 the Company issued 499,275 shares of common stock for vested stock awards and the exercise of stock options and received
proceeds of $110,466.
7. BASIC
AND FULLY DILUTED NET LOSS PER COMMON SHARE
The following table sets forth the computation
of basic and fully diluted net loss per common share for the three months ended March 31, 2022 and 2021:
Computation of earnings per share | |
| | | |
| | |
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Numerator: | |
| | | |
| | |
Net loss | |
$ | (309,395 | ) | |
$ | (1,623,527 | ) |
Denominator: | |
| | | |
| | |
Weighted average common shares: | |
| | | |
| | |
Denominator for basic calculation | |
| 51,818,676 | | |
| 50,351,971 | |
Weighted average effects of potentially diluted common stock: | |
| | | |
| | |
Stock options (calculated using the treasury method) | |
| – | | |
| – | |
Unvested restricted stock grants | |
| – | | |
| – | |
Denominator for fully diluted calculation | |
| 51,818,676 | | |
| 50,351,971 | |
Net loss per common share: | |
| | | |
| | |
Basic | |
$ | (0.01 | ) | |
$ | (0.03 | ) |
Fully diluted | |
$ | (0.01 | ) | |
$ | (0.03 | ) |
Due to the net loss for the three months
ended March 31, 2022, 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 that period. For the three months ended March 31, 2022,
the amount of potential common share equivalents excluded were 1,891,800
for stock options and 1,254,000
for unvested restricted stock awards. Due to the net loss for the three months ended March 31, 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 that period. For the three months ended March 31, 2021, the amount of potential common share
equivalents excluded were 2,241,014
for stock options and 1,975,000
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 Newcomer, and Mark Attinger violated Section
10(b) of the Securities Exchange Act of 1934 (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 two stockholder derivative actions in the United States District Court for the District of Nevada. The first derivative
action is entitled Andrzej Toczek, derivatively on behalf of Paysign, Inc. v. Mark R. Newcomer, et al. and was 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 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. The second derivative action is entitled John K. Gray, derivatively
on behalf of Paysign, Inc. v. Mark Attinger, et al. and was filed on May 9, 2022. This action involves the same alleged conduct
raised in the Toczek action and asserts claims for breach of fiduciary duty in connection with financial reporting, breach of fiduciary
duty in connection with alleged insider trading against certain individual defendants, and unjust enrichment. The Gray action has not
yet been served on the Company, and thus no response date is currently pending. 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 $40,734 during the three months ended March 31, 2022 with the related party law firm. During the three months ended
March 31, 2021 the Company incurred legal expense of $252,836, with the related party law firm.
10. INCOME TAX PROVISION
The effective tax rate (income tax provision as
a percentage of loss before income tax provision) was (0.6%) for the three months ended March 31, 2022, as compared to (0.1%) for the
three months ended March 31, 2021. The effective tax rate for the three months ended March 31, 2022 varies from the three months ended
March 31, 2021 primarily as a result of the full valuation on our deferred tax asset in both the current and prior period and the tax
benefit related to our stock-based compensation and a pretax loss in the prior year period. As of March 31, 2022, management believes
that its more-likely-than-not that the Company’s net deferred tax assets would not be realized in the near future, thus a full valuation
allowance on its deferred tax assets remains in place.
11. SUBSEQUENT EVENT
Except for the matter disclosed in Note 8, management has not identified
any additional material subsequent events to disclose.