Item 1. Financial
Statements
PAYSIGN, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
MARCH 31, 2020 AND DECEMBER 31, 2019
|
|
March 31,
2020
(Unaudited)
|
|
|
December
31,
2019
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,424,385
|
|
|
$
|
9,663,746
|
|
Restricted cash
|
|
|
45,424,829
|
|
|
|
35,908,559
|
|
Accounts receivable
|
|
|
911,597
|
|
|
|
891,936
|
|
Prepaid expenses and other current assets
|
|
|
1,380,683
|
|
|
|
1,413,208
|
|
Total current assets
|
|
|
57,141,494
|
|
|
|
47,877,449
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
1,798,751
|
|
|
|
937,185
|
|
Intangible assets, net
|
|
|
3,948,413
|
|
|
|
3,816,232
|
|
Deferred tax asset
|
|
|
993,382
|
|
|
|
917,480
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
63,882,040
|
|
|
$
|
53,548,346
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,999,046
|
|
|
$
|
1,523,604
|
|
Customer card funding
|
|
|
40,292,331
|
|
|
|
32,723,227
|
|
Total current liabilities
|
|
|
42,291,377
|
|
|
|
34,246,831
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
42,291,377
|
|
|
|
34,246,831
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Preferred stock: $0.001 par value; 25,000,000 shares authorized; none issued and outstanding at March 31, 2020 and December 31, 2019
|
|
|
–
|
|
|
|
–
|
|
Common stock: $0.001 par value; 150,000,000 shares authorized, 49,016,270 and 48,577,712 issued at March 31, 2020 and December 31, 2019, respectively
|
|
|
49,016
|
|
|
|
48,578
|
|
Additional paid-in capital
|
|
|
12,062,197
|
|
|
|
11,577,539
|
|
Treasury stock at cost, 303,450 shares
|
|
|
(150,000
|
)
|
|
|
(150,000
|
)
|
Retained earnings
|
|
|
9,629,450
|
|
|
|
8,088,485
|
|
Total Paysign, Inc.'s stockholders' equity
|
|
|
21,590,663
|
|
|
|
19,564,602
|
|
Noncontrolling interest
|
|
|
–
|
|
|
|
(263,087
|
)
|
Total stockholders’ equity
|
|
|
21,590,663
|
|
|
|
19,301,515
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
63,882,040
|
|
|
$
|
53,548,346
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
PAYSIGN, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
2020 AND 2019
(UNAUDITED)
|
|
For
the three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
Plasma industry
|
|
$
|
7,343,410
|
|
|
$
|
5,884,577
|
|
Pharma industry
|
|
|
3,020,377
|
|
|
|
1,372,713
|
|
Other
|
|
|
212,686
|
|
|
|
–
|
|
Total revenues
|
|
|
10,576,473
|
|
|
|
7,257,290
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
4,855,520
|
|
|
|
3,482,136
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,720,953
|
|
|
|
3,775,154
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
3,827,324
|
|
|
|
2,704,949
|
|
Depreciation and amortization
|
|
|
502,376
|
|
|
|
333,761
|
|
Total operating expenses
|
|
|
4,329,700
|
|
|
|
3,038,710
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,391,253
|
|
|
|
736,444
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
62,161
|
|
|
|
119,173
|
|
Total other income, net
|
|
|
62,161
|
|
|
|
119,173
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit and noncontrolling interest
|
|
|
1,453,414
|
|
|
|
855,617
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(87,551
|
)
|
|
|
(15,490
|
)
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interest
|
|
|
1,540,965
|
|
|
|
871,107
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
–
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
1,540,965
|
|
|
$
|
871,671
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
Net income per common share - fully diluted
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
48,713,163
|
|
|
|
49,961,079
|
|
Weighted average common shares outstanding - fully diluted
|
|
|
54,688,066
|
|
|
|
54,508,835
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
PAYSIGN, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
2020
|
|
Stockholders'
Equity Attributable to Paysign, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Retained
|
|
|
controlling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
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.
|
|
|
–
|
|
|
|
–
|
|
|
|
(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
|
|
FOR THE THREE MONTHS ENDED MARCH 31,
2019
|
|
Stockholders'
Equity Attributable to Paysign, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Retained
|
|
|
controlling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Interest
|
|
|
Equity
|
|
Balance, December 31, 2018
|
|
|
46,440,765
|
|
|
$
|
46,441
|
|
|
$
|
8,620,144
|
|
|
$
|
(150,000
|
)
|
|
$
|
579,582
|
|
|
$
|
(206,930
|
)
|
|
$
|
8,889,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for previously vested stock-based compensation
|
|
|
291,147
|
|
|
|
291
|
|
|
|
(291
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
646,710
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
646,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
871,671
|
|
|
|
(564
|
)
|
|
|
871,107
|
|
Balance, March 31, 2019
|
|
|
46,731,912
|
|
|
$
|
46,732
|
|
|
$
|
9,266,563
|
|
|
$
|
(150,000
|
)
|
|
$
|
1,451,253
|
|
|
$
|
(207,494
|
)
|
|
$
|
10,407,054
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
PAYSIGN, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
2020 AND 2019
(UNAUDITED)
|
|
For
the three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
1,540,965
|
|
|
$
|
871,671
|
|
Adjustments to reconcile net income attributable to Paysign, Inc. to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Change in noncontrolling interest
|
|
|
–
|
|
|
|
(564
|
)
|
Depreciation and amortization
|
|
|
502,376
|
|
|
|
333,761
|
|
Stock-based compensation
|
|
|
724,183
|
|
|
|
646,710
|
|
Deferred taxes
|
|
|
(75,902
|
)
|
|
|
–
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change in accounts receivable
|
|
|
(19,661
|
)
|
|
|
(330,548
|
)
|
Change in prepaid expenses and other current assets
|
|
|
32,525
|
|
|
|
108,884
|
|
Change in accounts payable and accrued liabilities
|
|
|
475,442
|
|
|
|
(748,447
|
)
|
Change in customer card funding
|
|
|
7,569,104
|
|
|
|
19,151,504
|
|
Net cash provided by operating activities
|
|
|
10,749,032
|
|
|
|
20,032,971
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(953,894
|
)
|
|
|
(195,460
|
)
|
Increase in intangible assets
|
|
|
(542,229
|
)
|
|
|
(363,955
|
)
|
Net cash used in investing activities
|
|
|
(1,496,123
|
)
|
|
|
(559,415
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of options
|
|
|
24,000
|
|
|
|
–
|
|
Net cash provided by financing activities
|
|
|
24,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and restricted cash
|
|
|
9,276,909
|
|
|
|
19,473,556
|
|
Cash and restricted cash, beginning of period
|
|
|
45,572,305
|
|
|
|
31,665,741
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash, end of period
|
|
$
|
54,849,214
|
|
|
$
|
51,139,297
|
|
|
|
|
|
|
|
|
|
|
Cash and Restricted Cash Reconciliation:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,424,385
|
|
|
$
|
5,211,161
|
|
Restricted cash
|
|
|
45,424,829
|
|
|
|
45,928,136
|
|
Total cash and restricted cash
|
|
$
|
54,849,214
|
|
|
$
|
51,139,297
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
–
|
|
|
$
|
–
|
|
Income taxes paid
|
|
$
|
–
|
|
|
$
|
–
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
PAYSIGN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT POLICIES
The foregoing unaudited interim condensed
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated
by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the
disclosures required by GAAP for complete financial statements. These unaudited interim condensed financial statements should be
read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended December
31, 2019. In the opinion of management, the unaudited interim condensed financial statements furnished herein include all adjustments,
all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
The preparation of financial statements
in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported
amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are
inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial
position and results of operations.
Operating results for the three months
ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
About Paysign, Inc.
Paysign, Inc. (the “Company,”
“Paysign,” or “we”, formerly known as 3PEA International, Inc.) is a vertically integrated provider of
prepaid card products and processing services for corporate, consumer and government applications. The Company markets prepaid
card solutions under our PaySign® brand. As we are a payment processor and prepaid card program manager, we derive
revenue from all stages of the prepaid card lifecycle. We provide a card processing platform consisting of proprietary systems
and software applications based on the unique needs of our programs. We have extended our processing business capabilities through
our proprietary PaySign platform. We design and process prepaid programs that run on the platform through which customers can define
the services they wish to offer cardholders. Through the PaySign platform, we provide a variety of services including transaction
processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service.
The PaySign brand offers prepaid card based
solutions or “card products” for corporate incentive rewards and corporate expense, per diem and travel payments, healthcare
reimbursement payments, pharmaceutical co-pay assistance, donor compensation and clinical trials. We plan to expand our product
offering to include payroll cards, general purpose re-loadable cards, and others. Our cards are offered to end users through our
relationships with bank issuers.
Our proprietary PaySign platform was built
on modern cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform allows us to
expand our operational capabilities by facilitating entry into new markets within the payments space through its flexibility and
ease of customization. The PaySign platform delivers cost benefits and revenue building opportunities to our partners.
We manage all aspects of the debit card
lifecycle, from managing the card design and approval processes with partners and networks, to production, packaging, distribution,
and personalization. We oversee inventory and security controls, renewals, lost and stolen card management and replacement. We
deploy a fully staffed, in-house customer service department which utilizes bilingual customer service agents, Interactive Voice
Response (IVR), and two-way short message service (SMS) messaging and text alerts.
Principles of Consolidation –
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances
and transactions have been eliminated.
Use of Estimates – The preparation
of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Restricted Cash – At March
31, 2020 and December 31, 2019, 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 lives of the assets, which are 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 finite lives are
amortized on a straight-line basis over their estimated useful lives.
Internally Developed Software Costs
- Computer software development costs are expensed as incurred, except for internal use software or website development costs
that qualify for capitalization as described below, and include compensation and related expenses, costs of hardware and software,
and costs incurred in developing features and functionality.
For computer software developed or obtained
for internal use, costs that are incurred in the preliminary project and post implementation stages of software development are
expensed as incurred. Costs incurred during the application and development stage are capitalized. Capitalized costs are amortized
using the straight-line method over a three to five year estimated useful life, beginning in the period in which the software is
available for use.
Earnings Per Share– Basic
earnings per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings per common share
is computed using the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per common
share is computed using the weighted average number of common and common stock equivalent share outstanding during the period,
using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is antidilutive.
For the three months ended March 31, 2020 and 2019 there were no antidilutive common stock equivalent shares to be excluded.
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. All of the Company’s revenues are recognized over
time.
The Company generates revenue through fees
generated from cardholder transactions, interchange, card program management fees and settlement income. Revenue from cardholder
transactions, interchange and card program management is recorded when the performance obligation is fulfilled. Settlement income
is recognized and recorded ratably throughout the account and program life cycle. The Company records all revenue on a gross basis
since it is the primary obligor and establishes the price in the contract arrangement with its customers. The Company is currently
under no obligation for refunding any fees or has any obligations for disputed claim settlements. Given the nature of the Company’s
services and contracts, it has no contract assets.
Stock-Based Compensation –Stock
based compensation is accounted for using the Stock Based Compensation Topic of the FASB ASC. We use the fair value method for
equity instruments and use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair value
compensation is determined as of the date of the grant and is recognized as an expense over the requisite service periods, on a
straight-line basis.
New Accounting Pronouncements -
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU No. 2018-13 provide
clarification and modify the disclosure requirements on fair value measurement in Topic 820, Fair Value Measurement. The amendments
in this ASU No. 2018-13 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years, with early adoption permitted. The Company adopted this as of January 1, 2020 and there was
no material impact on the Company’s consolidated financial statements.
2. FIXED ASSETS, NET
Fixed assets consist of the following:
|
|
March 31,
2020
|
|
|
December
31,
2019
|
|
Equipment
|
|
$
|
2,119,533
|
|
|
$
|
2,026,549
|
|
Software
|
|
|
180,224
|
|
|
|
180,223
|
|
Furniture and fixtures
|
|
|
950,743
|
|
|
|
149,684
|
|
Website costs
|
|
|
65,071
|
|
|
|
34,971
|
|
Leasehold improvements
|
|
|
82,644
|
|
|
|
52,894
|
|
|
|
|
3,398,215
|
|
|
|
2,444,321
|
|
Less: accumulated depreciation
|
|
|
1,599,464
|
|
|
|
1,507,136
|
|
Fixed assets, net
|
|
$
|
1,798,751
|
|
|
$
|
937,185
|
|
3. INTANGIBLE ASSETS, NET
Intangible assets consist of the following:
|
|
March 31,
2020
|
|
|
December
31,
2019
|
|
Trademarks
|
|
$
|
39,053
|
|
|
$
|
39,053
|
|
Platform
|
|
|
6,083,238
|
|
|
|
5,598,136
|
|
Customer lists and contracts
|
|
|
1,177,200
|
|
|
|
1,177,200
|
|
Kiosk
|
|
|
64,802
|
|
|
|
64,802
|
|
Licenses
|
|
|
591,696
|
|
|
|
534,569
|
|
|
|
|
7,955,989
|
|
|
|
7,413,760
|
|
Less: accumulated amortization
|
|
|
4,007,576
|
|
|
|
3,597,528
|
|
Intangible assets, net
|
|
$
|
3,948,413
|
|
|
$
|
3,816,232
|
|
Intangible assets are amortized over their
useful lives ranging from periods of 3 to 5 years.
4. COMMON STOCK
At March 31, 2020, 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 49,016,270 shares of common stock issued and outstanding, and no shares of
preferred stock outstanding.
Stock-based compensation expense related
to Company grants for the three months ended March 31, 2020 was $724,183. Stock-based compensation expense for the three months
end March 31, 2019 was $646,710.
2020 Transactions:
During the three months ended March 31, 2020, the Company issued 500,000 stock options valued at $2.86 per share that
will vest over four years. The Company also issued 438,558 shares of common stock for restricted stock awards previously granted,
earned and vested, and for the exercise of vested stock options and received proceeds of $24,000.
2019 Transactions:
During the three months ended March 31, 2019, the Company issued 291,147 shares of common stock for restricted stock awards previously
granted, earned and vested.
5. BASIC
AND FULLY DILUTED NET INCOME PER COMMON SHARE
The following table sets forth the computation
of basic and fully diluted net income per common share for the three months ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
1,540,965
|
|
|
$
|
871,671
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
Denominator for basic calculation
|
|
|
48,713,163
|
|
|
|
46,961,079
|
|
Weighted average effects of potentially diluted common stock:
|
|
|
|
|
|
|
|
|
Stock options (calculated using the treasury method)
|
|
|
1,824,903
|
|
|
|
2,027,756
|
|
Unvested restricted stock grants
|
|
|
4,150,000
|
|
|
|
5,520,000
|
|
Denominator for fully diluted calculation
|
|
|
54,688,066
|
|
|
|
54,508,835
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
Fully diluted
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
6. COMMITMENTS
AND CONTINGENCIES
The Company has been named as a defendant
in three recent 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, Lorna Chase v. Paysign, Inc. et. al., filed on March 25, 2020 and Smith & Duvall v.
Paysign, Inc. et. al., filed on April 2, 2020 (collectively, the “Complaints”). All three complaints are putatively
class action lawsuits filed on behalf of a class of persons who acquired the Company’s common stock from March 12, 2020
through March 30, 2020, inclusive. The Complaints allege that the Company, Mark R. Newcomer, and Mark Attinger violated Section
10(b) of the Exchange Act, and 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 our internal control over financial reporting and our
financial statements. The Complaints seek certification as a class action, compensatory damages, and attorney’s fees and
costs. Paysign has not been served any of the complaints as of the date of this filing and cannot give any meaningful probability
of outcome or damages.
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. We have not seen a negative impact to our business, results of operations, and financial position, however the related
financial impact cannot be reasonably estimated at this time.
7. RELATED PARTY
A member of our Board of Directors is also a partner in a law
firm that the Company incurred $19,000 and $-0- during the three months ended March 31, 2020 and 2019, respectively.
8. SUBSEQUENT EVENTS
The Company has completed an evaluation
of all subsequent events through the issuance date of these financial statements and concluded that no other subsequent events
occurred that required recognition to the financial statements or disclosures in the Notes to Consolidated Financial Statements
or Cash Flows.
Item
2. Management’s discussion and analysis of financial condition and results of operations.
Disclosure Regarding Forward Looking
Statements
This Quarterly Report on Form 10-Q includes
forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (“Forward Looking Statements”). All statements other than statements of
historical fact included in this report are Forward Looking Statements. In the normal course of our business, we, in an effort
to help keep our shareholders and the public informed about our operations, may from time-to-time issue certain statements, either
in writing or orally, that contains or may contain Forward Looking Statements. Although we believe that the expectations reflected
in such Forward Looking Statements are reasonable, we can give no assurance that such expectations will prove to have been correct.
Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of
such plans or strategies, past and possible future, of acquisitions and projected or anticipated benefits from acquisitions made
by or to be made by us, or projections involving anticipated revenues, earnings, levels of capital expenditures or other aspects
of operating results. All phases of our operations are subject to a number of uncertainties, risks and other influences, many of
which are outside of our control and any one of which, or a combination of which, could materially affect the results of our proposed
operations and whether Forward Looking Statements made by us ultimately prove to be accurate. Such important factors (“Important
Factors”) and other factors could cause actual results to differ materially from our expectations are disclosed in this report,
including those factors discussed in “Item 1A. Risk Factors.” All prior and subsequent written and oral Forward
Looking Statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Important
Factors described below that could cause actual results to differ materially from our expectations as set forth in any Forward
Looking Statement made by or on behalf of us.
Overview
We are a vertically integrated provider
of prepaid card programs and processing services for corporate, consumer and government applications. Our payment solutions are
utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence rates, reduce administration
costs and streamline operations. Public sector organizations can utilize our payment solutions to disburse public benefits or for
internal payments. We market our prepaid card solutions under our PaySign brand. As we are a payment processor and prepaid card
program manager, we derive our revenue from all stages of the prepaid card lifecycle. We provide a card processing platform consisting
of proprietary systems and software applications based on the unique needs of our clients. We have extended our processing business
capabilities through our proprietary PaySign platform. Through the PaySign platform, we provide a variety of services including
transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service. The
PaySign platform was built on modern cross-platform architecture and designed to be highly flexible, scalable and customizable.
The platform has allowed the Company to significantly expand its operational capabilities by facilitating our entry into new markets
within the payments space through its flexibility and ease of customization. The PaySign platform delivers cost benefits and revenue
building opportunities to our partners.
We have developed prepaid card programs
for corporate incentive and rewards including, but not limited to, consumer rebates and rewards, donor compensation, healthcare
reimbursement payments and pharmaceutical payment assistance. We have expanded our product offerings to include additional corporate
incentive products and demand deposit accounts accessible with a debit card. In the future we expect to further expand our product
offerings into payroll cards, travel cards, and expense reimbursement cards. Our cards are sponsored by our issuing bank partners.
Our revenues include fees generated from
cardholder transactions, interchange, card program management fees and settlement income. Revenue from cardholder transactions,
interchange and card program management fees is recorded when the performance obligation is fulfilled. Settlement income is recorded
ratably throughout the program life cycle.
We have two categories for our prepaid
debit cards: corporate and consumer reloadable, and non-reloadable cards.
Reloadable Cards: These types of cards
are generally 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 semi-closed 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. Semi-closed loop cards can be used
at several merchants, such as all merchants at a specific shopping mall.
The prepaid card market is one of the fastest
growing segments of the payments industry in the U.S. This market has experienced significant growth in recent years due to consumers
and merchants embracing improved technology, greater convenience, more product choices and greater flexibility. Prepaid cards have
also proven to be an attractive alternative to traditional bank accounts for certain segments of the population, particularly those
without, or who could not qualify for, a checking or savings account.
We manage all aspects of the debit card
lifecycle, from managing the card design and approval processes with partners and networks, to production, packaging, distribution,
and personalization. We also oversee inventory and security controls, renewals, lost and stolen card management and replacement.
We deploy a fully staffed, in-house customer service department which utilizes bilingual customer service representatives, Interactive
Voice Response (“IVR”), and two-way short message service (“SMS”) messaging.
Currently, we are focusing our marketing
efforts on corporate incentive and expense prepaid card products, in various market verticals including but not limited to general
corporate expense, healthcare related markets including co-pay assistance, clinical trials and donor compensation, loyalty rewards
and incentive cards.
As part of our continuing platform expansion
process, we evaluate current and emerging technologies for applicability to our existing and future software platform. To this
end, we engage with various hardware and software vendors in evaluation of various infrastructure components. Where appropriate,
we use third-party technology components in the development of our software applications and service offerings. Third-party software
may be used for highly specialized business functions, which we may not be able to develop internally within time and budget constraints.
Our principal target markets for processing services include prepaid card issuers, retail and private-label issuers, small third-party
processors, and small and mid-size financial institutions in the United States and in emerging international markets.
We have devoted more extensive resources
to sales and marketing activities as we have added essential personnel to our marketing and sales team. We sell our products directly
to customers in the U.S. but may work with a small number of resellers and third parties in international markets to identify,
sell and support targeted opportunities. We have also identified opportunities in the European Union and are pursuing those opportunities.
In 2020, we plan to continue to invest
additional funds in technology improvements, sales and marketing, customer service, and regulatory compliance. We are considering
raising capital to enable us to diversify into new market verticals. If we do not raise new capital, we believe that we will still
be able to expand into new markets using internally generated funds, but our expansion will not be as rapid.
Key Performance Indicators and Non-GAAP Measures
Management reviews a number of metrics
to help us monitor the performance of and identify trends affecting our business. We believe the following measures are the 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 was $326 million
and $215 million for the three months ended March 31, 2020 and 2019, respectively. We use this metric to analyze the total amount
of money moving into our prepaid card programs.
Conversion Rate on Gross Dollar Volume
Loaded on Cards – Comprised of revenues, gross profit and net profit conversion rates of gross dollar volume loaded on cards.
Our revenue conversion rate for the three months ended March 31, 2020 and 2019 were 3.24% or 324 basis points (“bps”),
and 3.38% or 338 bps, respectively, of gross dollar volume loaded on cards. Our gross profit conversion rate for the three months
ended March 31, 2020 and 2019 were 1.76% or 176 bps, and the same 1.76% or 176 bps, respectively, of gross dollar volume loaded
on cards. Our net profit conversion rate for the three months ended March 31, 2020 and 2019 were 0.47% or 47 bps, and 0.41% or
41 bps, respectively, of gross dollar volume loaded on cards.
Management also reviews key performance
indicators, such as revenues, gross profit, operational expenses as a percent of revenues, and cardholder participation. In addition,
we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating
performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets.
This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment
and investment in new card programs. These adjusted metrics are consistent with how management views our business and are used
to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP
and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or
net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may
not be comparable to similarly titled measures reported by other companies, to be key performance indicators:
“EBITDA” defined as earnings
before interest, income taxes, depreciation and amortization expense and "Adjusted EBITDA" reflects the adjustment to
EBITDA to exclude stock-based compensation expense.
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Reconciliation of adjusted EBITDA to net income:
|
|
|
|
|
|
|
Net income attributable to Paysign, Inc.
|
|
$
|
1,540,965
|
|
|
$
|
871,671
|
|
Income tax benefit
|
|
|
(87,551
|
)
|
|
|
(15,490
|
)
|
Interest income
|
|
|
(62,161
|
)
|
|
|
(119,173
|
)
|
Depreciation and amortization
|
|
|
502,376
|
|
|
|
333,761
|
|
EBITDA
|
|
|
1,893,629
|
|
|
|
1,070,769
|
|
Stock-based compensation
|
|
|
724,183
|
|
|
|
646,710
|
|
Adjusted EBITDA
|
|
$
|
2,617,812
|
|
|
$
|
1,717,479
|
|
Results of Operations
Three Months ended March 31, 2020 and
2019
Revenues for the three months ended March
31, 2020 were $10,576,473, an increase of $3,319,183 compared to the same period in the prior year, when revenues were $7,257,290.
The increase in revenue approximating 46% was primarily due to an increase in new clients and new card programs with existing clients.
Cost of revenues for the three months ended
March 31, 2020 was $4,855,520, an increase of $1,373,384 compared to the same period in the prior year, when cost of revenues was
$3,482,136. Cost of revenues constituted approximately 46% and 48% of total revenues for the three months ended March 31, 2020
and 2019, respectively. Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses,
network fees, bank fees, card production costs, customer service and program management expenses, application integration setup,
and sales and commission expense. Our cost of revenues as a percentage of revenues decreased primarily due to improved network
interchange margins and a favorable client mix.
Gross profit for the three months ended
March 31, 2020 was $5,720,953 an increase of $1,945,799 compared to the same period in the prior year, when gross profit was $3,775,154.
Our overall gross margins were 54% and 52% during the three months ended March 31, 2020 and 2019, respectively, and an improvement
of 207 bps resulting from favorable client industry mix.
Selling, general and administrative expenses
(“SG&A”) for the three months ended March 31, 2020 was, $3,827,324, an increase of $1,122,375 or 41% compared to
the same period in the prior year, when SG&A was $2,704,949. The increase in SG&A was primarily due to increased investments
in technologies, sales and marketing staff; and increased stock-based compensation expense.
Depreciation and amortization for the three
months ended March 31, 2020 was $502,376, an increase of $168,615 compared to the same period in the prior year, when depreciation
and amortization was $333,761. The increase in depreciation and amortization was primarily due to continued capitalization of new
technologies and enhancements to our platform which we expect to continue.
In the three months ended March 31, 2020,
we recorded operating income of $1,391,253 as compared to operating income of $736,444 in the three months ended March 31,
2019, an increase of $654,809 or 89%.
Other income for the three months ended
March 31, 2020 was $62,161, as compared to $119,173 in three months ended March 31, 2019, which represents a decrease of $57,012
primarily related to a decrease in interest income resulting from lower interest rates.
Our income tax benefit for the three months
March 31, 2020 and 2019 was $87,551 and $15,490, respectively. The increase from prior year is a result of the tax benefit related
to our stock-based compensation.
Net income attributable to Paysign, Inc.
for the three months ended March 31, 2020 was $1,540,965 as compared to $871,671 in the three months ended March 31, 2019,
which represents an increase of $669,294 or 77%. The overall change in net income attributable to Paysign, Inc. relates to the
aforementioned factors.
Liquidity and Capital Resources
The following table sets forth the major
sources and uses of cash for the three months ended March 31, 2020 and 2019:
|
|
Three
months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash provided by operating activities
|
|
$
|
10,749,032
|
|
|
$
|
20,032,971
|
|
Net cash used in investing activities
|
|
|
(1,496,123
|
)
|
|
|
(559,415
|
)
|
Net cash provided by financing activities
|
|
|
24,000
|
|
|
|
–
|
|
Net increase in cash and restricted cash
|
|
$
|
9,276,909
|
|
|
$
|
19,473,556
|
|
Comparison of three months ended March
31, 2020 and 2019
During the three months ended March 31,
2020 and 2019, we financed our operations through internally generated funds.
Cash provided by operating activities decreased
$9,283,939 in the three months ended March 31, 2020, as compared to the same period in the prior year. The decrease is primarily
related to a $11,582,400 decrease in the change in customer card funding, offset by a $669,294 increase in net income and a $1,223,889
change in accounts payable and accrued liabilities as compared to the prior year period.
Cash used in investing activities increased
$936,708 in the three months ended March 31, 2020, as compared to the same period in 2019, with the difference primarily attributed
to an increase in fixed assets during the current period and enhancements to our processing platform.
Cash provided by financing activities was
$24,000 in the three months ended March 31, 2020 as compared to $-0- for the three months ended March 31, 2019. In 2020, financing
activities consisted of cash provided from exercises of stock options.
Sources of Liquidity
We believe that our available cash on hand,
excluding restricted cash, at March 31, 2020 of $9,424,385, along with anticipated revenues and operating profits anticipated for
the remainder of 2020 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, 2019.
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 will be based on our experience
and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results
may differ significantly from our estimates.