Item
1. Financial Statements
PAYSIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
| |
|
June 30,
2022
(Unaudited) |
|
|
December 31,
2021
(Audited) |
|
| ASSETS |
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
6,527,476 |
|
|
$ |
7,387,156 |
|
| Restricted cash |
|
|
76,967,850 |
|
|
|
61,283,914 |
|
| Accounts receivable |
|
|
3,488,759 |
|
|
|
3,393,940 |
|
| Other receivables |
|
|
1,439,251 |
|
|
|
1,019,218 |
|
| Prepaid expenses and other current assets |
|
|
1,754,140 |
|
|
|
1,242,967 |
|
| Total current assets |
|
|
90,177,476 |
|
|
|
74,327,195 |
|
| |
|
|
|
|
|
|
|
|
| Fixed assets, net |
|
|
1,410,947 |
|
|
|
1,642,981 |
|
| Intangible assets, net |
|
|
4,501,854 |
|
|
|
4,086,962 |
|
| Operating lease right-of-use asset |
|
|
3,806,793 |
|
|
|
3,993,655 |
|
| |
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
99,897,070 |
|
|
$ |
84,050,793 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
$ |
5,575,119 |
|
|
$ |
5,765,478 |
|
| Operating lease liability, current portion |
|
|
350,753 |
|
|
|
340,412 |
|
| Customer card funding |
|
|
76,967,850 |
|
|
|
61,283,914 |
|
| Total current liabilities |
|
|
82,893,722 |
|
|
|
67,389,804 |
|
| |
|
|
|
|
|
|
|
|
| Operating lease liability, long term portion |
|
|
3,495,185 |
|
|
|
3,673,186 |
|
| |
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
86,388,907 |
|
|
|
71,062,990 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and contingencies (Note 8) |
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
| Stockholders' equity |
|
|
|
|
|
|
|
|
| Preferred stock: $0.001 par value; 25,000,000 shares authorized; none issued and outstanding |
|
|
– |
|
|
|
– |
|
| Common stock; $0.001 par value; 150,000,000 shares authorized, 52,323,382 and 52,095,382 issued at June 30, 2022 and December 31, 2021, respectively |
|
|
52,323 |
|
|
|
52,095 |
|
| Additional paid-in capital |
|
|
17,917,680 |
|
|
|
16,860,119 |
|
| Treasury stock at cost, 303,450 shares |
|
|
(150,000 |
) |
|
|
(150,000 |
) |
| Accumulated deficit |
|
|
(4,311,840 |
) |
|
|
(3,774,411 |
) |
| Total stockholders' equity |
|
|
13,508,163 |
|
|
|
12,987,803 |
|
| |
|
|
|
|
|
|
|
|
| Total liabilities and stockholders' equity |
|
$ |
99,897,070 |
|
|
$ |
84,050,793 |
|
See accompanying notes to unaudited condensed consolidated
financial statements.
PAYSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| Plasma industry |
|
$ |
7,806,201 |
|
|
$ |
5,947,313 |
|
|
$ |
15,200,565 |
|
|
$ |
11,330,464 |
|
| Pharma industry |
|
|
773,311 |
|
|
|
641,037 |
|
|
|
1,579,879 |
|
|
|
1,523,867 |
|
| Other |
|
|
19,264 |
|
|
|
62,940 |
|
|
|
38,971 |
|
|
|
76,387 |
|
| Total revenues |
|
|
8,598,776 |
|
|
|
6,651,290 |
|
|
|
16,819,415 |
|
|
|
12,930,718 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of revenues |
|
|
3,900,965 |
|
|
|
3,498,723 |
|
|
|
7,123,355 |
|
|
|
6,946,345 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
|
4,697,811 |
|
|
|
3,152,567 |
|
|
|
9,696,060 |
|
|
|
5,984,373 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative |
|
|
4,255,976 |
|
|
|
3,474,562 |
|
|
|
8,896,888 |
|
|
|
7,339,548 |
|
| Depreciation and amortization |
|
|
713,180 |
|
|
|
614,182 |
|
|
|
1,392,351 |
|
|
|
1,210,030 |
|
| Total operating expenses |
|
|
4,969,156 |
|
|
|
4,088,744 |
|
|
|
10,289,239 |
|
|
|
8,549,578 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
|
(271,345 |
) |
|
|
(936,177 |
) |
|
|
(593,179 |
) |
|
|
(2,565,205 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income, net |
|
|
70,227 |
|
|
|
5,010 |
|
|
|
84,563 |
|
|
|
12,111 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before income tax provision |
|
|
(201,118 |
) |
|
|
(931,167 |
) |
|
|
(508,616 |
) |
|
|
(2,553,094 |
) |
| Income tax provision |
|
|
26,916 |
|
|
|
800 |
|
|
|
28,813 |
|
|
|
2,400 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(228,034 |
) |
|
$ |
(931,967 |
) |
|
$ |
(537,429 |
) |
|
$ |
(2,555,494 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.05 |
) |
| Diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.05 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
|
51,993,031 |
|
|
|
50,748,437 |
|
|
|
51,906,335 |
|
|
|
50,551,299 |
|
| Diluted |
|
|
51,993,031 |
|
|
|
50,748,437 |
|
|
|
51,906,335 |
|
|
|
50,551,299 |
|
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 | | |
Total Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Amount | | |
Deficit | | |
Equity | |
| Balance, December 31, 2021 | |
| 52,095,382 | | |
$ | 52,095 | | |
$ | 16,860,119 | | |
$ | (150,000 | ) | |
$ | (3,774,411 | ) | |
$ | 12,987,803 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock issued upon vesting of restricted stock | |
| 123,000 | | |
| 123 | | |
| (123 | ) | |
| – | | |
| – | | |
| – | |
| Stock-based compensation | |
| – | | |
| – | | |
| 569,502 | | |
| – | | |
| – | | |
| 569,502 | |
| Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| (309,395 | ) | |
| (309,395 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, March 31, 2022 | |
| 52,218,382 | | |
$ | 52,218 | | |
$ | 17,429,498 | | |
$ | (150,000 | ) | |
$ | (4,083,806 | ) | |
$ | 13,247,910 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock issued upon vesting of restricted stock | |
| 105,000 | | |
| 105 | | |
| (105 | ) | |
| – | | |
| – | | |
| – | |
| Stock-based compensation | |
| – | | |
| – | | |
| 488,287 | | |
| – | | |
| – | | |
| – | |
| Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
$ | (228,034 | ) | |
$ | (228,034 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, June 30, 2022 | |
| 52,323,382 | | |
$ | 52,323 | | |
$ | 17,917,680 | | |
$ | (150,000 | ) | |
$ | (4,311,840 | ) | |
$ | 13,508,163 | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Common Stock | | |
Additional
Paid-in | | |
Treasury
Stock | | |
Accumulated | | |
Total Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Amount | | |
Deficit | | |
Equity | |
| Balance, December 31, 2020 | |
| 50,251,607 | | |
$ | 50,252 | | |
$ | 14,388,890 | | |
$ | (150,000 | ) | |
$ | (1,053,077 | ) | |
$ | 13,236,065 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock issued upon vesting of restricted stock | |
| 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 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock issued upon vesting of restricted stock | |
| 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 | |
See accompanying notes to unaudited condensed consolidated
financial statements.
PAYSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | |
| | |
| |
| | |
Six Months Ended
June 30, | |
| | |
2022 | | |
2021 | |
| Cash flows from operating activities: | |
| | | |
| | |
| Net loss | |
$ | (537,429 | ) | |
$ | (2,555,494 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | | |
| | |
| Stock-based compensation expense | |
| 1,057,789 | | |
| 1,210,030 | |
| Depreciation and amortization | |
| 1,392,351 | | |
| 1,177,135 | |
| Noncash lease expense | |
| 186,862 | | |
| 211,407 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (94,819 | ) | |
| (293,095 | ) |
| Other receivable | |
| (420,033 | ) | |
| – | |
| Prepaid expenses and other current assets | |
| (511,173 | ) | |
| (366,502 | ) |
| Accounts payable and accrued liabilities | |
| (190,359 | ) | |
| 701,581 | |
| Operating lease liability | |
| (167,660 | ) | |
| (157,920 | ) |
| Customer card funding | |
| 15,683,936 | | |
| 17,654,611 | |
| Net cash provided by operating activities | |
| 16,399,465 | | |
| 17,581,753 | |
| | |
| | | |
| | |
| Cash flows from investing activities: | |
| | | |
| | |
| Purchase of fixed assets | |
| (38,188 | ) | |
| (173,479 | ) |
| Capitalization of internally developed software | |
| (1,537,021 | ) | |
| (1,048,364 | ) |
| Purchase of intangible assets | |
| – | | |
| (39,713 | ) |
| Net cash used in investing activities | |
| (1,575,209 | ) | |
| (1,261,556 | ) |
| | |
| | | |
| | |
| Cash flows from financing activities: | |
| | | |
| | |
| Proceeds from exercise of stock options | |
| – | | |
| 120,141 | |
| Net cash provided by financing activities | |
| – | | |
| 120,141 | |
| | |
| | | |
| | |
| Net change in cash and restricted cash | |
| 14,824,256 | | |
| 16,440,338 | |
| Cash and restricted cash, beginning of period | |
| 68,671,070 | | |
| 55,930,404 | |
| | |
| | | |
| | |
| Cash and restricted cash, end of period | |
$ | 83,495,326 | | |
$ | 72,370,742 | |
| | |
| | | |
| | |
| Cash and restricted cash reconciliation: | |
| | | |
| | |
| Cash | |
| 6,527,476 | | |
| 6,615,180 | |
| Restricted cash | |
| 76,967,850 | | |
| 65,755,562 | |
| Total cash and restricted cash | |
$ | 83,495,326 | | |
$ | 72,370,742 | |
| | |
| | | |
| | |
| Supplemental cash flow information: | |
| | | |
| | |
| Non-cash financing activities | |
| | | |
| | |
| Cash paid for taxes | |
$ | 8,700 | | |
$ | 2,400 | |
| Interest paid | |
$ | 821 | | |
$ | 2,173 | |
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, 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 six months ended June
30, 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 direct disruption appears to have significantly mitigated 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, and the economic repercussions are still manifesting themselves. 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. Additionally, labor shortages at plasma donation centers and restrictions preventing Mexican nationals with tourist visas from
being compensated for donating plasma, have further impacted donations. Those developments have had, and are expected to continue to have,
an adverse impact on the Company’s results of operations. Offsetting those headwinds, inflationary pressures for food, gasoline,
and other products and services appear to be driving individuals back into the plasma donation centers based upon the increase we experienced
in the number of loads per average donation center in the second quarter of 2022 versus the first quarter of 2022. 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. 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. During the quarter ended June 30, 2022 the Company filed for a refund
and recorded $459,755 related to the employee retention credit. As of June 30, 2022 and December 31, 2021, the Company has $1,296,488
and $876,456, respectively in other receivables on the condensed consolidated balance sheet related to refunds.
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
– In our cash flows statement, certain accounts related to the lease accounting 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 six 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 June 30, 2022 and December 31, 2021.
Restricted Cash – At June 30, 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 June 30, 2022
and December 31, 2021, the Company had approximately $37,047,586 and $31,828,826 in excess of federally insured bank account limits, respectively.
The Company also has a concentration of accounts
receivable risk at June 30, 2022 as two Pharma program customers associated with our Pharma copay programs each individually represent
51% and 11% 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, which is generally 3 to 15 years.
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 3three
year estimated useful life, beginning in the period in which the software is available for use.
Customer Card Funding – At June 30,
2022 and December 31, 2021, customer card funding represents funds loaded or available to be loaded on cards for 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 on the diluted earnings per share calculation 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, transaction claims processing 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 are
recognized at a point in time when the performance obligation is fulfilled. Card program management fees and transaction claims processing
fees include an obligation to our card program sponsors and are generally recognized when earned on a monthly basis and are 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 customer 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 are 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, 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, 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 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. 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 | |
| | |
| |
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Equipment | |
$ | 2,098,522 | | |
$ | 2,067,834 | |
| Software | |
| 323,355 | | |
| 315,855 | |
| Furniture and fixtures | |
| 757,662 | | |
| 757,662 | |
| Website costs | |
| 69,881 | | |
| 69,881 | |
| Leasehold improvements | |
| 229,772 | | |
| 229,772 | |
| | |
| 3,479,192 | | |
| 3,441,004 | |
| Less: accumulated depreciation | |
| 2,068,245 | | |
| 1,798,023 | |
| Fixed assets, net | |
$ | 1,410,947 | | |
$ | 1,642,981 | |
Depreciation expense for the three months ended
June 30, 2022 and 2021 was $134,253 and $133,174, respectively. Depreciation expense for the six months ended June 30, 2022 and 2021 was
$270,222 and $265,125, respectively.
3. INTANGIBLE ASSETS, NET
Intangible assets consist of the following:
| Schedule of intangible assets | |
| | |
| |
| | |
June 30,
2022 | | |
December 31,
2021 | |
| Patents and trademarks | |
$ | 38,186 | | |
$ | 38,186 | |
| Platform | |
| 11,391,538 | | |
| 9,853,823 | |
| Customer lists and contracts | |
| 1,177,200 | | |
| 1,177,200 | |
| Licenses | |
| 209,282 | | |
| 209,282 | |
| | |
| 12,816,206 | | |
| 11,278,491 | |
| Less: accumulated amortization | |
| 8,314,352 | | |
| 7,191,529 | |
| Intangible assets, net | |
$ | 4,501,854 | | |
$ | 4,086,962 | |
Intangible assets are amortized over their useful
lives ranging from periods of 3
to 15 years. Amortization expense for the three months ended June 30, 2022 and 2021 was $578,927
and $481,008, respectively.
Amortization expense for the six months ended June 30, 2022 and 2021 was $1,122,129
and $944,905, 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, 2022, the remaining lease term was 7.9 years and the discount
rate was 6%.
Operating lease cost included in selling, general and administrative
expenses was $184,329 and $367,550 for the three and six months ended June 30, 2022, respectively. 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.
The following is the lease maturity analysis of our operating lease
as of June 30, 2022:
Year ending December 31,
| Schedule of operating lease liabilities | |
| |
| 2022 (excluding the six months ended June 30, 2022) | |
$ | 285,984 | |
| 2023 | |
| 571,968 | |
| 2024 | |
| 571,968 | |
| 2025 | |
| 612,006 | |
| 2026 | |
| 640,604 | |
| Thereafter | |
| 2,188,731 | |
| Total lease payments | |
| 4,871,261 | |
| Less: Imputed interest | |
| (1,025,323 | ) |
| Present value of future lease payments | |
| 3,845,938 | |
| Less: current portion of lease liability | |
| (350,753 | ) |
| Long-term portion of lease liability | |
$ | 3,495,185 | |
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, | |
| | |
2022 | | |
2021 | |
| Beginning balance | |
$ | 61,283,914 | | |
$ | 48,100,951 | |
| Increase, net | |
| 15,683,936 | | |
| 17,654,611 | |
| Ending balance | |
$ | 76,967,850 | | |
$ | 65,755,562 | |
The amount of revenue recognized during the six
months ended June 30, 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 June 30, 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 52,323,382 shares of common stock issued and 52,019,932 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, 2022 was $488,287 and $1,057,789, respectively. Stock-based compensation expense for
the three and six months ended June 30, 2021 was $540,921 and $1,777,135, respectively.
2022 Transactions:
During the three and six months ended June 30, 2022 the Company issued 105,000 and 228,000 shares, respectively, of common stock for
vested stock awards and the exercise of stock options and received proceeds of $0 and $0, 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.
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 and six months ended June 30, 2022 and 2021:
| Schedule of computation of earnings per share | |
| | |
| | |
| | |
| |
| | |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Numerator: | |
| | |
| | |
| | |
| |
| Net loss | |
$ | (228,034 | ) | |
$ | (931,967 | ) | |
$ | (537,429 | ) | |
$ | (2,555,494 | ) |
| Denominator: | |
| | | |
| | | |
| | | |
| | |
| Weighted average common shares: | |
| | | |
| | | |
| | | |
| | |
| Denominator for basic calculation | |
| 51,993,031 | | |
| 50,748,437 | | |
| 51,906,335 | | |
| 50,551,299 | |
| Weighted average effects of potentially diluted common stock: | |
| | | |
| | | |
| | | |
| | |
| Stock options (calculated using the treasury method) | |
| – | | |
| – | | |
| – | | |
| – | |
| Unvested restricted stock grants | |
| – | | |
| – | | |
| – | | |
| – | |
| Denominator for fully diluted calculation | |
| 51,993,031 | | |
| 50,748,437 | | |
| 51,906,335 | | |
| 50,551,299 | |
| Net loss per common share: | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | (0.00 | ) | |
$ | (0.02 | ) | |
$ | (0.01 | ) | |
$ | (0.05 | ) |
| Fully diluted | |
$ | (0.00 | ) | |
$ | (0.02 | ) | |
$ | (0.01 | ) | |
$ | (0.05 | ) |
Due to the
net loss for the three and six months ended June 30, 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 both periods. For the
three and six months ended June 30, 2022, the amount of potential common share equivalents excluded were 1,884,400 for stock options and
1,064,000 for unvested restricted stock awards. 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.
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. On June 3, 2022, 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 $41,019 and $81,753 during the three and six months ended June 30, 2022, respectively, with the related party law
firm. During the three and six months ended June 30, 2021 the Company incurred legal expense of $390,172 and $410,884, respectively, 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 (13.4%) for the three months ended June 30, 2022, as compared to
(0.1%) for the three months ended June 30, 2021. The effective tax rate was (5.7%) and (0.1%) for the six months ended June 30, 2022 and
2021, 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. These Forward-Looking Statements are based on our current expectations, assumptions, estimates
and projections about our business and our industry. Words such as "believe," "anticipate," "expect," "intend,"
"plan," “propose,” "may," and other similar expressions identify 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. In addition, any statements that refer to expectations, projections, estimates, forecasts, or other characterizations
of future events or circumstances are Forward-Looking Statements. These Forward-Looking Statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those reflected in the Forward-Looking Statements. Such important factors (“Important
Factors”) and other factors 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. You are cautioned not to place undue reliance
on these Forward-Looking Statements, which relate only to events as of the date on which the statements are made. We undertake no obligation
to publicly revise these Forward-Looking Statements to reflect events or circumstances that arise after the date hereof. You should refer
to and carefully review the information in future documents we file with the Securities and Exchange Commission.
Overview
Paysign, Inc. (the “Company,” “Paysign,”
“we” or “our”), headquartered in Nevada, was incorporated on August 24, 1995, and trades under the symbol PAYS
on The Nasdaq Stock Market LLC. Paysign is a vertically integrated provider of prepaid card products and processing services for corporate,
consumer and government applications. Our payment solutions are utilized by our corporate customers as a means to increase customer loyalty,
increase patient adherence rates, reduce administration costs and streamline operations. Public sector organizations can utilize our payment
solutions to disburse public benefits or for internal payments. We market our prepaid card solutions under our Paysign® brand. As
we are a payment processor and prepaid card program manager, we derive our revenue from all stages of the prepaid card lifecycle.
We provide a card processing platform consisting
of proprietary systems and 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’s flexibility and
ease of customization has allowed us to expand our operational capabilities by facilitating our entry into new markets within the payments
space. 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, clinical trials, 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 other
prepaid card offerings such as payroll cards, travel cards, and expense reimbursement cards. Our cards are sponsored by our issuing bank
partners.
Our revenues include fees generated from cardholder
fees, interchange, card program management fees, transaction claims processing fees, and settlement income. Revenue from cardholder fees,
interchange, card program management fees, and transaction claims processing 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.
We manage all aspects of the prepaid 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,
and two-way short message service messaging and text alerts.
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 market our Paysign payment solutions
through direct marketing by the Company’s sales team. Our primary market focus is on companies and municipalities that require a
streamlined payment solution for rewards, rebates, payment assistance, and other payments to their customers, employees, agents and others.
To reach these markets, we focus our sales efforts on direct contact with our target market and attendance at various industry specific
conferences. We may, at times, utilize independent contractors who make direct sales and are paid on a commission basis only. We market
our Paysign Premier product through existing communication channels to a targeted segment of our existing cardholders, as well as to a
broad group of individuals, ranging from non-banked to fully banked consumers with a focus on long term users of our product.
In 2022, we plan to continue to invest additional
funds in technology improvements, sales and marketing, fraud and disputes, 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 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 direct disruption appears to have significantly mitigated 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, and the economic repercussions are still manifesting themselves. 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. Additionally, labor shortages at plasma donation centers and restrictions preventing Mexican nationals with tourist visas from
being compensated for donating plasma, have further impacted donations. Those developments have had, and are expected to continue to have,
an adverse impact on the Company’s results of operations. Offsetting those headwinds, inflationary pressures for food, gasoline,
and other products and services appear to be driving individuals back into the plasma donation centers based upon the increase we experienced
in the number of loads per average donation center in the second quarter of 2022 versus the first quarter of 2022. 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. 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.
Results of Operations
Three Months Ended June 30, 2022 and 2021
The following table summarizes our consolidated financial results:
| | |
Three Months Ended June 30, (unaudited) | | |
Variance | |
| | |
2022 | | |
2021 | | |
$ | | |
% | |
| Revenues | |
| | |
| | |
| | |
| |
| Plasma industry | |
$ | 7,806,201 | | |
$ | 5,947,313 | | |
$ | 1,858,888 | | |
| 31.3% | |
| Pharma industry | |
| 773,311 | | |
| 641,037 | | |
| 132,274 | | |
| 20.6% | |
| Other | |
| 19,264 | | |
| 62,940 | | |
| (43,676 | ) | |
| (69.4% | ) |
| Total revenues | |
| 8,598,776 | | |
| 6,651,290 | | |
| 1,947,486 | | |
| 29.3% | |
| Cost of revenues | |
| 3,900,965 | | |
| 3,498,723 | | |
| 402,242 | | |
| 11.5% | |
| Gross profit | |
| 4,697,811 | | |
| 3,152,567 | | |
| 1,545,244 | | |
| 49.0% | |
| Gross margin % | |
| 54.6% | | |
| 47.4% | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses | |
| | | |
| | | |
| | | |
| | |
| Selling, general and administrative | |
| 4,255,976 | | |
| 3,474,562 | | |
| 781,414 | | |
| 22.5% | |
| Depreciation and amortization | |
| 713,180 | | |
| 614,182 | | |
| 98,998 | | |
| 16,1% | |
| Total operating expenses | |
| 4,969,156 | | |
| 4,088,744 | | |
| 880,412 | | |
| 21.5% | |
| Loss from operations | |
$ | (271,345 | ) | |
$ | (936,177 | ) | |
$ | 664,832 | | |
| (71.0% | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
$ | (228,034 | ) | |
$ | (931,967 | ) | |
$ | 703,933 | | |
| (75.5% | ) |
| Net margin % | |
| (2.7% | ) | |
| (14.0% | ) | |
| | | |
| | |
The increase in total revenues of $1,947,486 for
the three months ended June 30, 2022 compared to the same period in the prior year consisted primarily of a $1,858,888 increase in Plasma
revenue and a $132,274 increase in Pharma revenue, offset by a $43,676 decrease in Other revenue. The increase in Plasma revenue was primarily
due to an increase in the number of plasma centers and donations, and, consequently, dollars loaded to cards, cardholder fees, and interchange,
as COVID-19 restrictions such as donation center closures, mobility restrictions and Federal government stimulus measures were relaxed
compared to the prior year period. The increase in Pharma revenue was primarily due to the launch of new Pharma copay programs offset
by the end of a number of Pharma prepaid programs. The decrease in Other revenue was primarily due to the recognition of settlement income
from a rewards program that terminated in the second quarter of 2021.
Cost of revenues for the three months ended June
30, 2022 increased $402,242 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 during the second quarter of 2022 primarily
due to the increase in cardholder usage activity, the increase in plastics, collateral and postage related to upfront costs associated
with new openings and competitive conversion of 62 plasma donation centers, the increase in network expenses related to our Pharma copay
business, and the increase in customer service expenses, offset by a decline in sales commissions related to the restructuring of an agreement
in the first quarter of 2022.
Gross profit for the three months ended June 30,
2022 increased $1,545,244 compared to the same period in the prior year resulting from the increase in Plasma revenue, the restructuring
of an agreement mentioned above, and the beneficial impact of a variable cost structure 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. The increase
in gross profit was offset by the upfront costs associated with the 62 new plasma donation centers that were added during the quarter
and the increase in customer service expenses relating to the overall growth of our business. The increase in gross margin resulted from
the aforementioned factors.
Selling, general and administrative expenses (“SG&A”)
for the three months ended June 30, 2022 increased $781,414 or 22.5% compared to the same period in the prior year and consisted primarily
of an increase in compensation and benefits of $890,000, a decrease in stock-based compensation of $52,600, a decrease in outside professional
services for legal, tax, accounting and consultants of $151,400, a decrease in insurance of $15,000, an increase in technologies and telecom
of $237,000, a decrease in rent, utilities, and maintenance of $14,100, an increase in travel and entertainment of $57,200, and an increase
in other operating expenses of $210,000. The remainder of the difference is primarily related to an increase in capitalized software development
costs.
Depreciation and amortization expense for the
three months ended June 30, 2022 increased $98,998 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, and continued enhancements to our platform.
For the three months ended June 30, 2022 we recorded
a loss from operations of $271,345 representing a net increase of $664,832 compared to the same period last year related to the aforementioned
factors.
Other income for the three months ended June 30,
2022 increased $65,217 related to an increase in interest rates and the associated interest income received on higher bank account balances
at our sponsor bank and lower interest expense related to the financing of insurance premiums.
We recorded an income tax expense of $26,916
for the three months ended June 30, 2022, which equates to an effective tax rate of (13.4%)
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 period. We recorded an income tax expense of $800 for the
three months ended June 30, 2021 due to estimated state tax payments.
The net loss for the three months ended June 30,
2022 was $228,034, an improvement of $703,933 compared to the net loss of $931,967 for the three months ended June 30, 2021. The overall
change in net loss relates to the aforementioned factors.
Six Months Ended June 30, 2022 and 2021
The following table summarizes our consolidated financial results:
| | |
Six Months Ended June 30, (unaudited) | | |
Variance | |
| | |
2022 | | |
2021 | | |
$ | | |
% | |
| Revenues | |
| | |
| | |
| | |
| |
| Plasma industry | |
$ | 15,200,565 | | |
$ | 11,330,464 | | |
$ | 3,870,101 | | |
| 34.2% | |
| Pharma industry | |
| 1,579,879 | | |
| 1,523,867 | | |
| 56,012 | | |
| 3.7% | |
| Other | |
| 38,971 | | |
| 76,387 | | |
| (37,416 | ) | |
| (49.0% | ) |
| Total revenues | |
| 16,819,415 | | |
| 12,930,718 | | |
| 3,888,697 | | |
| 30.1% | |
| Cost of revenues | |
| 7,123,355 | | |
| 6,946,345 | | |
| 177,010 | | |
| 2.5% | |
| Gross profit | |
| 9,696,060 | | |
| 5,984,373 | | |
| 3,711,687 | | |
| 62.0% | |
| Gross margin % | |
| 57.6% | | |
| 46.3% | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses | |
| | | |
| | | |
| | | |
| | |
| Selling, general and administrative | |
| 8,896,888 | | |
| 7,339,548 | | |
| 1,557,340 | | |
| 21.2% | |
| Depreciation and amortization | |
| 1,392,351 | | |
| 1,210,030 | | |
| 182,321 | | |
| 15.1% | |
| Total operating expenses | |
| 10,289,239 | | |
| 8,549,578 | | |
| 1,739,661 | | |
| 20.3% | |
| Loss from operations | |
$ | (593,179 | ) | |
$ | (2,565,205 | ) | |
$ | 1,972,026 | | |
| (76.9% | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
$ | (537,429 | ) | |
$ | (2,555,494 | ) | |
$ | 2,018,065 | | |
| (79.0% | ) |
| Net margin % | |
| (3.2% | ) | |
| (19.8% | ) | |
| | | |
| | |
The increase in total revenues of $3,888,697 for
the six months ended June 30, 2022 compared to the same period in the prior year consisted primarily of a $3,870,101 increase in Plasma
revenue and a $56,012 increase in Pharma revenue, offset by a $37,416 decrease in Other revenue. The increase in Plasma revenue was primarily
due to an increase in the number of plasma centers and donations, and, consequently, dollars loaded to cards, cardholder fees, and interchange,
as COVID-19 restrictions such as donation center closures, mobility restrictions and Federal government stimulus measures were relaxed
compared to the prior year period. The increase in Pharma revenue was primarily due to the launch of new Pharma copay programs offset
by the end of a number of Pharma prepaid programs. The decrease in Other revenue was primarily driven by the recognition of settlement
income from a rewards program that ended during the second quarter of 2021.
Cost of revenues for the six months ended June
30, 2022 increased $177,010 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 during the six months of 2022 primarily due
to the increase in cardholder usage activity, the increase in plastics, collateral and postage related to upfront costs associated with
the de novo opening or competitive conversion of 71 plasma donation centers that we service, the increase in network expenses related
to our Pharma copay business, and the increase in customer service expenses, offset by a decline in sales commissions related to the restructuring
of an agreement in the first quarter of 2022.
Gross profit for the six months ended June 30,
2022 increased $3,711,687 compared to the same period in the prior year resulting from the increase in Plasma revenue, the restructuring
of an agreement mentioned above, and the beneficial impact of a variable cost structure as many of the Plasma transaction costs are provided
by third parties who charge us based on the number of transactions that occurred during the period, with a lower per-transaction cost
at larger numbers of transactions. The increase in Gross profit was offset by the upfront costs associated with the 71 new plasma donation
centers that were added during the six month period and the increase in customer service expenses relating to the overall growth of our
business. The increase in gross margin resulted from the aforementioned factors.
SG&A
for the six months ended June 30, 2022 increased $1,557,340 or 21.2% compared to the same period in the prior year and consisted primarily
of an increase in compensation and benefits of $1,294,200, a decrease in stock-based compensation of $119,300, a decrease in outside professional
services for legal, tax, accounting and consultants of $245,800, an increase in legal settlements of $354,000, an increase in insurance
of $95,800, an increase in technologies and telecom of $415,100, a decrease in rent, utilities, and maintenance of $43,900, an increase
in travel and entertainment of $131,800, and an increase in other operating expenses of $375,100. The remainder of the difference is primarily
related to an increase in capitalized software development costs.
Depreciation and amortization expense for the
six months ended June 30, 2022 increased $182,300 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 and continued enhancements to our platform.
For the six months ended June 30, 2022 we recorded
a loss from operations of $593,179 representing a net increase of $1,972,026 compared to the same period last year related to the aforementioned
factors.
Other income for the six months ended June 30,
2022 increased $72,452 related to an increase in interest rates and the associated interest income received on higher bank account balances
at our sponsor bank and lower interest expense related to the financing of insurance premiums.
We recorded an income tax expense of $28,813 for
the six months ended June 30, 2022, which equates to an effective tax rate of (5.7%) percent 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 period. We recorded an income tax expense of $2,400
for the six months ended June 30, 2021 due to estimated state tax payments.
The net loss for the six months ended June 30,
2022 was $537,429, an improvement of $2,018,065 compared to the net loss of $2,555,494 for the six months ended June 30, 2021. The overall
change in net 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 $376 million
and $267 million for the three months ended June 30, 2022 and 2021, respectively. That gross dollar volume was $699 million and $546 million
for the six months ended June 30, 2022 and 2021, 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 – Equals revenues, gross profit or 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, 2022 and 2021 were 2.29% or 229 basis points (“bps”), and
2.49% or 249 bps, respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the three months ended
June 30, 2022 and 2021 were 1.25% or 125 bps, and 1.18% or 118 bps, respectively, of gross dollar volume loaded on cards. Our net income
conversion rates for the three months ended June 30, 2022 and 2021 were (0.06)% or (6) bps, and (0.35)% or (35) bps, respectively, of
gross dollar volume loaded on cards. Our total revenue conversion rates for the six months ended June 30, 2022 and 2021 were 2.41% or
241 bps, and 2.37% or 237 bps, respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the six
months ended June 30, 2022 and 2021 were 1.39% or 139 bps, and 1.10% or 110 bps, respectively, of gross dollar volume loaded on cards.
Our net income conversion rates for the six months ended June 30, 2022 and 2021 were (0.08)% or (8) bps, and (0.47)% or (47) 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. A reconciliation of net loss to Adjusted EBITDA is provided in the table below.
| | |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Reconciliation of Adjusted EBITDA to net loss: | |
| | |
| | |
| | |
| |
| Net loss | |
$ | (228,034 | ) | |
$ | (931,967 | ) | |
$ | (537,429 | ) | |
$ | (2,555,494 | ) |
| Income tax provision | |
| 26,916 | | |
| 800 | | |
| 28,813 | | |
| 2,400 | |
| Interest income | |
| (70,227 | ) | |
| (5,010 | ) | |
| (84,563 | ) | |
| (12,111 | ) |
| Depreciation and amortization | |
| 713,180 | | |
| 614,182 | | |
| 1,392,351 | | |
| 1,210,030 | |
| EBITDA | |
| 441,835 | | |
| (321,995 | ) | |
| 799,172 | | |
| (1,355,175 | ) |
| Stock-based compensation | |
| 488,287 | | |
| 540,921 | | |
| 1,057,789 | | |
| 1,177,135 | |
| Adjusted EBITDA | |
$ | 930,122 | | |
$ | 218,926 | | |
$ | 1,856,961 | | |
$ | (178,040 | ) |
Liquidity and Capital Resources
The following table sets forth the major sources
and uses of cash:
| | |
Six Months Ended June 30, (unaudited) | |
| | |
2022 | | |
2021 | |
| Net cash provided by operating activities | |
$ | 16,399,465 | | |
$ | 17,581,753 | |
| Net cash used in investing activities | |
| (1,575,209 | ) | |
| (1,261,556 | ) |
| Net cash provided by financing activities | |
| – | | |
| 120,141 | |
| Net increase in cash and restricted cash | |
$ | 14,824,256 | | |
$ | 16,440,338 | |
Comparison of Six Months Ended June 30, 2022
and 2021
During the six months ended June 30, 2022 and
2021, we financed our operations through internally generated funds.
Cash provided by operating activities decreased
$1,182,288 for the six months ended June 30, 2022, as compared to the same period in the prior year. The decrease is primarily due to
changes in cash flows from operating assets and liabilities, particularly decreases in cash flows from other receivables of $420,033 related
to employee retention credits recorded in the current year, accounts payable and accrued liabilities of $891,940 associated with the timing
of a payment due to a third-party service provider, and customer card funding of $1,970,675 primarily related to the return of restricted
cash associated with the end of a number of Pharma prepaid programs. These decreases were partially offset by an improvement in net loss
from operations of $2,018,065, a decrease in cash flows from stock-based compensation of $119,346 and an increase in cash flows from depreciation
and amortization of $182,321.
Cash used in investing activities increased $313,653
for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The change between periods was primarily attributed
to an increase in the capitalization of internally developed software as we continue to invest in our technology platform.
Cash provided by financing activities was zero
for the six months ended June 30, 2022 as compared to cash provided by financing activities of $120,141 for the six months ended June
30, 2021. Cash provided by financing activities in the 2021 period consisted of cash received from the exercise of employee stock options
totaling $120,141.
Sources of Liquidity
We believe that our available cash on hand, excluding
restricted cash, at June 30, 2022 of $6,527,476, along with our forecast for revenues and cash flows for the remainder of the year and
for 2023, 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,
2021.
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.