10-Q 1 paysign_10q-093019.htm FORM 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

or

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to __________

 

Commission file number 000-54123

 

PAYSIGN, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 95-4550154
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

1700 W Horizon Ridge Parkway, Suite 200,

Henderson, Nevada 89012

(Address of principal executive offices)

 

(702) 453-2221

(Issuer’s telephone number, including area code)

 

                    N/A                    

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class Trading Symbol Name of each exchange on which registered
Common Stock, $0.001 par value per share PAYS

The Nasdaq Stock Market LLC

(The Nasdaq Capital Market)

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company under Rule 12b-2 of the Exchange Act. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o Accelerated filer x
Non-accelerated filer o Smaller reporting company x
  Emerging growth company x 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 47,923,762 shares as of October 28, 2019.

 

 

 

   
 

 

PAYSIGN, INC.

 

FORM 10-Q REPORT

INDEX

 

PART I. FINANCIAL INFORMATION 3
   
Item 1. Financial Statements. 3
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 14
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 20
   
Item 4. Controls and Procedures. 20
   
PART II. OTHER INFORMATION. 21
   
Item 1. Legal Proceedings. 21
   
Item 1A. Risk Factors. 21
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 21
   
Item 6. Exhibits. 21
   
SIGNATURES 22

 

 

 

 

 

 2 
 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PAYSIGN, INC.

(Formerly known as, 3PEA INTERNATIONAL, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2019 AND DECEMBER 31, 2018

 

   September 30,
2019
(Unaudited)		   December 31,
2018
(Audited)		 
ASSETS          
           
Current assets          
Cash  $7,988,803   $5,615,073 
Restricted cash   33,230,890    26,050,668 
Accounts receivable   969,447    337,303 
Prepaid expenses and other current assets   1,967,858    1,175,241 
Total current assets   44,156,998    33,178,285 
           
Fixed assets, net   1,004,425    883,490 
           
Intangible assets, net   2,444,195    2,115,933 
           
Total assets  $47,605,618   $36,177,708 
           
LIABILITIES AND EQUITY          
           
Current liabilities          
Accounts payable and accrued liabilities  $1,463,686   $1,327,497 
Customer card funding   29,565,027    25,960,974 
Total current liabilities   31,028,713    27,288,471 
           
Total liabilities   31,028,713    27,288,471 
           
Equity          
Preferred stock: $0.001 par value; 25,000,000 shares authorized; none issued and outstanding at September 30, 2019 and December 31, 2018   –    – 
Common stock: $0.001 par value; 150,000,000 shares authorized, 48,095,192 and 46,440,765 issued at September 30, 2019 and December 31, 2018, respectively   48,095    46,441 
Additional paid-in capital   10,737,190    8,620,144 
Treasury stock at cost, 303,450 shares   (150,000)   (150,000)
Retained earnings   6,150,122    579,582 
Total Paysign, Inc.'s stockholders' equity   16,785,407    9,096,167 
Noncontrolling interest   (208,502)   (206,930)
Total equity   16,576,905    8,889,237 
           
Total liabilities and equity  $47,605,618   $36,177,708 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 3 
 

 

PAYSIGN, INC.

(Formerly known as, 3PEA INTERNATIONAL, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

 

   For the three months ended
September 30,		 
   2019   2018 
Revenues  $9,008,117   $6,421,396 
           
Cost of revenues (excluding depreciation and amortization)   3,641,595    3,376,753 
           
Gross profit   5,366,522    3,044,643 
           
Operating expenses          
Depreciation and amortization   318,508    284,124 
Selling, general and administrative   2,765,961    1,996,957 
           
Total operating expenses   3,084,469    2,281,081 
           
Income from operations   2,282,053    763,562 
           
Other income (expense)          
Interest income   113,667    36,683 
Total other income, net   113,667    36,683 
           
Income before income tax benefit and noncontrolling interest   2,395,720    800,245 
           
Income tax benefit   (563,854)   – 
           
Net income before noncontrolling interest   2,959,574    800,245 
           
Net loss attributable to noncontrolling interest   504    617 
           
Net income attributable to Paysign, Inc.  $2,960,078   $800,862 
           
Net income per common share - basic  $0.06   $0.02 
Net income per common share - fully diluted  $0.05   $0.02 
           
Weighted average common shares outstanding - basic   47,371,083    45,460,902 
Weighted average common shares outstanding - fully diluted   54,291,368    52,215,970 

  

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 4 
 

 

PAYSIGN, INC.

(Formerly known as, 3PEA INTERNATIONAL, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

 

   For the nine months ended
September 30,		 
   2019   2018 
Revenues  $24,901,678   $16,558,438 
           
Cost of revenues (excluding depreciation and amortization)   10,721,769    8,650,839 
           
Gross profit   14,179,909    7,907,599 
           
Operating expenses          
Depreciation and amortization   1,047,779    780,203 
Selling, general and administrative   8,483,882    5,244,278 
           
Total operating expenses   9,531,661    6,024,481 
           
Income from operations   4,648,248    1,883,118 
           
Other income (expense)          
Other expense   –    (31,125)
Interest income   364,652    90,298 
Total other income, net   364,652    59,173 
           
Income before income tax benefit and noncontrolling interest   5,012,900    1,942,291 
           
Income tax benefit   (556,068)   – 
           
Net income before noncontrolling interest   5,568,968    1,942,291 
           
Net loss attributable to noncontrolling interest   1,572    3,134 
           
Net income attributable to Paysign, Inc.  $5,570,540   $1,945,425 
           
Net income per common share - basic  $0.12   $0.04 
Net income per common share - fully diluted  $0.10   $0.04 
           
Weighted average common shares outstanding - basic   47,215,625    45,373,595 
Weighted average common shares outstanding - fully diluted   54,588,470    51,985,074 

  

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 5 
 

 

PAYSIGN, INC.

(Formerly known as, 3PEA INTERNATIONAL, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

  

   Stockholders' Equity Attributable to Paysign, Inc.         
           Additional   Treasury       Non-     
   Common Stock   Paid-in   Stock   Retained   controlling   Total 
   Shares   Amount   Capital   Amount   Earnings   Interest   Equity 
Balance, December 31, 2018   46,440,765   $46,441   $8,620,144   $(150,000)  $579,582   $(206,930)  $8,889,237 
                                    
Issuance of stock for previously vested stock based compensation   291,147    291    (291)   –    –    –    – 
                                    
Stock-based compensation   –    –    646,710    –    –    –    646,710 
                                    
Net income (loss)   –    –    –    –    871,671    (564)   871,107 
Balance, March 31, 2019   46,731,912    46,732    9,266,563    (150,000)   1,451,253    (207,494)   10,407,054 
                                    
Issuance of stock for previously vested stock based compensation   825,000    825    (825)   –    –    –    – 
                                    
Stock-based compensation   –    –    567,910    –    –    –    567,910 
                                    
Net income (loss)   –    –    –    –    1,738,791    (504)   1,738,287 
Balance, June 30, 2019   47,556,912    47,557    9,833,648    (150,000)   3,190,044    (207,998)   12,713,251 
                                    
Issuance of stock for previously vested stock based compensation   425,000    425    (425)   –    –    –    – 
                                    
Stock-based compensation   –    –    651,267    –    –    –    651,267 
                                    
Stock options and warrants exercises   113,280    113    252,700    –    –    –    252,813 
                                    
Net income (loss)   –    –    –    –    2,960,078    (504)   2,959,574 
Balance, September 30, 2019   48,095,192   $48,095   $10,737,190   $(150,000)  $6,150,122   $(208,502)  $16,576,905 

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

  

   Stockholders' Equity Attributable to Paysign, Inc.         
           Additional   Treasury       Non-     
   Common Stock   Paid-in   Stock   Accumulated   controlling   Total 
   Shares   Amount   Capital   Amount   Deficit   Interest   Equity 
Balance, December 31, 2017   43,670,765   $43,671   $7,155,970   $(150,000)  $(2,008,472)  $(200,117)  $4,841,052 
                                    
Stock-based compensation   –    –    137,401    –    –    –    137,401 
                                    
Net income (loss)   –    –    –    –    412,507    (1,895)   410,612 
Balance, March 31, 2018   43,670,765    43,671    7,293,371    (150,000)   (1,595,965)   (202,012)   5,389,065 
                                    
Stock-based compensation   –    –    212,181    –    –    –    212,181 
                                    
Net income (loss)   –    –    –    –    732,056    (622)   731,434 
Balance, June 30, 2018   43,670,765    43,671    7,505,552    (150,000)   (863,909)   (202,634)   6,332,680 
                                    
Stock options and warrants exercised   200,000    200    99,800    –    –    –    100,000 
                                    
Issuance of stock for services   230,000    230    59,959    –    –    –    60,189 
                                    
Stock-based compensation   –    –    345,732    –    –    –    345,732 
                                    
Net income (loss)   –    –    –    –    800,862    (617)   800,245 
Balance, September 30, 2018   44,100,765   $44,101   $8,011,043   $(150,000)  $(63,047)  $(203,251)  $7,638,846 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 6 
 

 

PAYSIGN, INC.

(Formerly known as, 3PEA INTERNATIONAL, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

  

   For the nine months ended
September 30,		 
   2019   2018 
Cash flows from operating activities:          
Net income attributable to Paysign, Inc.  $5,570,540   $1,945,425 
Adjustments to reconcile net income attributable to Paysign, Inc. to net cash provided by operating activities:          
Change in noncontrolling interest   (1,572)   (3,134)
Depreciation and amortization   1,047,779    780,203 
Stock-based compensation   1,865,887    755,503 
Changes in operating assets and liabilities:          
Change in accounts receivable   (632,144)   (225,436)
Change in prepaid expenses and other current assets   (792,617)   (529,618)
Change in accounts payable and accrued liabilities   136,189    (92,645)
Change in customer card funding   3,604,053    6,019,925 
Net cash provided by operating activities   10,798,115    8,650,223 
           
Cash flows from investing activities:          
Purchase of fixed assets   (351,345)   (218,136)
Increase in intangible assets   (1,145,631)   (960,905)
Net cash used in investing activities   (1,496,976)   (1,179,041)
           
Cash flows from financing activities:          
Proceeds from exercise of options and warrants   252,813    100,000 
Net cash provided by financing activities   252,813    100,000 
           
Net change in cash and restricted cash   9,553,952    7,571,182 
Cash and restricted cash, beginning of period   31,665,741    17,164,757 
           
Cash and restricted cash, end of period  $41,219,693   $24,735,939 
           
Cash and Restricted Cash Reconciliation:          
Cash  $7,988,803   $4,299,570 
Restricted cash   33,230,890    20,436,369 
Total cash and restricted cash  $41,219,693   $24,735,939 
           
Interest paid  $–   $– 
Income taxes paid  $–   $– 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 7 
 

 

PAYSIGN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

  

1.     BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT POLICIES

 

The foregoing unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by GAAP for complete financial statements. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended December 31, 2018. In the opinion of management, the unaudited interim condensed financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.

 

The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial position and results of operations.

 

Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

 

About Paysign, Inc.

 

Paysign, Inc. (the “Company,” “Paysign,” or “we”, formerly known as 3PEA International, Inc.) is a vertically integrated provider of innovative prepaid card products and processing services for corporate, consumer and government applications. Our payment solutions are utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence rate, reduce administration costs and streamline operations. Public sector organizations can utilize our payment solutions to disburse public benefits or for internal payments. The Company markets prepaid card solutions under our Paysign® brand. As we are both a payment processor and prepaid card program manager, we derive revenue from all stages of the prepaid card lifecycle. We utilize our proprietary Paysign platform consisting of proprietary systems and innovative software applications based on the unique needs of our programs. We design and process prepaid card programs whereby customers can define the services they wish to offer cardholders. Through the Paysign platform, we provide a variety of services including transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service.

 

The Paysign brand offers prepaid card based solutions or “card products” for corporate incentive rewards and corporate expense, per diem and travel payments, healthcare reimbursement payments, pharmaceutical co-pay assistance, donor compensation and clinical trials. We plan to expand our product offering to include payroll cards, general purpose re-loadable cards, and others. Our cards are offered to end users through our relationships with bank issuers.

 

The Paysign platform was built on modern cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform allows us to significantly expand our operational capabilities by facilitating entry into new markets within the payments space through its flexibility and ease of customization. The Paysign platform delivers cost benefits and revenue building opportunities to our partners.

 

We manage all aspects of the debit card lifecycle, from managing the card design and approval processes with partners and networks, to production, packaging, distribution, and personalization. We oversee inventory and security controls, renewals, lost and stolen card management and replacement. We deploy a fully staffed, in-house customer service department which utilizes bilingual customer service agents, Interactive Voice Response (IVR), and two-way short message service (SMS) messaging and text alerts.

 

 

 

 

 8 
 

 

On March 4, 2019, our board of directors and stockholders holding a majority of our outstanding common stock agreed to amend our articles of incorporation to change our name from 3PEA International, Inc. to Paysign, Inc. As a result, we amended our articles of incorporation on April 23, 2019 for such name change. Additionally, we changed our trading symbol on the Nasdaq Capital Market to “PAYS”.

 

Principles of consolidation – The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

 

Use of estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Restricted cash – At September 30, 2019 and December 31, 2018, restricted cash consisted of funds held specifically for our card product programs that are contractually restricted to use. Changes in cash restricted balances which represent customer deposits are included in operating activities in our condensed consolidated statements of cash flows.

 

Intangible assets –Internally Developed Software Costs - Computer software development costs are expensed as incurred, except for internal use software or website development costs that qualify for capitalization as described below, and include compensation and related expenses, costs of hardware and software, and costs incurred in developing features and functionality.

 

For computer software developed or obtained for internal use, costs that are incurred in the preliminary project and post implementation stages of software development are expensed as incurred. Costs incurred during the application and development stage are capitalized. Capitalized costs are amortized using the straight-line method over a three to five year estimated useful life, beginning in the period in which the software is available for use.

 

For intangible assets, we recognize an impairment loss if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.

 

Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.

 

Earnings per share– Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings per common share is computed using the weighted-average number of outstanding common stocks during the applicable period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to be issued common stock were exercised or converted into common stock or resulted in the issuance of common stock that are then shared in the earnings of the Company. Common stock equivalent shares are excluded from the computation if their effect is antidilutive.

 

Revenue and expense recognition (Adoption of ASC 606, Revenue from Contracts with Customers) – In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606), guidance on recognizing revenue from contracts with customers. The guidance outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the model is that an entity recognizes revenue to portray the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also expands disclosure requirements regarding revenue recognition. This guidance was effective for interim and annual reporting periods beginning after December 15, 2017 and may be applied retrospectively to each prior period presented or using a modified retrospective approach with the cumulative effect recognized as of the date of initial application. Early adoption was permitted for interim and annual reporting periods beginning after December 15, 2016. We adopted this guidance as of January 1, 2018 using the modified retrospective transition method. The adoption of the guidance did not have a material impact on our financial condition and results of operations. The standard also requires new, expanded disclosures regarding revenue recognition. Several ASU’s have been issued since the issuance of ASU 2014-09. These ASU’s, which modify certain sections of ASU 2014-09 are intended to promote a more consistent interpretation and application of the principles outlined in the standard.

 

 

 

 9 
 

 

The Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contract with customers; (ii) determination of performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligations.

 

The Company generates revenue through fees generated from cardholder transactions, interchange, expiring card balances, and card program management fees. Revenue from cardholder transactions, interchange and card program management fees is recorded when the performance obligation is fulfilled. The Company records all revenue on a gross basis since it is the primary obligor and establishes the price in the contract arrangement with its customers. The Company is currently under no obligation for refunding any fees or has any obligations for disputed claim settlements. Given the nature of the Company’s services and contracts, it has no contract assets.

 

Stock-Based Compensation – We adopted the guidance in ASU 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, on January 1, 2019. This ASU expands the scope to make the guidance for share-based payment awards to nonemployees consistent with the guidance for share-based payment awards to employees. The adoption of ASU 2018-07 did not have a material impact on the consolidated financial statements.

 

Prior to the adoption of ASU 2018-07, stock based compensation for non-employees was accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

  

Stock based compensation for employees is accounted for using the Stock Based Compensation Topic of the FASB ASC. We use the fair value method for equity instruments granted to employees and will use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the requisite service periods, which are generally the vesting periods.

 

New accounting pronouncements - In February 2016, the FASB issued ASU 2016-02, Leases. This update requires lessees to recognize at the lease commencement date a lease liability which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees will no longer be provided with a source of off-balance sheet financing. This update is effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Applying a full retrospective approach is not allowed. There was no material impact of this adoption on the Company’s consolidated financial position, results of operations and cash flows.

 

 

 

 

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2.     FIXED ASSETS

 

Fixed assets consist of the following:

 

   September 30,
2019		   December 31,
2018		 
Equipment  $1,912,151   $1,586,954 
Software   172,749    165,274 
Furniture and fixtures   149,684    140,209 
Website costs   44,475    25,467 
Leasehold improvements   52,894    52,894 
    2,331,953    1,970,798 
Less: accumulated depreciation and amortization   1,327,528    1,087,308 
Fixed assets, net  $1,004,425   $883,490 

 

3.     INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

   September 30,
2019		   December 31,
2018		 
Trademarks  $36,282   $36,073 
Platform   5,157,380    4,105,780 
Kiosk   64,802    64,802 
Licenses   517,697    433,685 
    5,776,161    4,640,340 
Less: accumulated amortization   3,331,966    2,524,407 
Intangible assets, net  $2,444,195   $2,115,933 

 

Intangible assets are amortized over their estimated useful lives ranging from 3 to 5 years.

 

4.     COMMON STOCK

 

At September 30, 2019, the Company's authorized capital stock was 150,000,000 shares of common stock, par value $0.001 per share, and 25,000,000 shares of preferred stock, par value $0.001 per share. As of that date, the Company had 48,095,192 shares of common stock issued, and no shares of preferred stock.

 

2019 Transactions: During the three and nine months ended September 30, 2019, the Company issued a total of 538,280 and 1,654,427, respectively, for restricted stock awards previously granted, earned and vested, and for the exercise of vested stock options.

 

During the third quarter of 2019, the Company issued 113,280 shares of common stock related to the exercise of vested stock options and received proceeds of $252,813.

 

During the third quarter of 2019, the Company issued a total of 425,000 shares of common stock to certain individuals for stock awards previously granted, earned and vested.

 

 

 

 

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2018 Transactions: During the three and nine months ended September 30, 2018, the Company issued the following shares of common stock:

 

·In August 2018, the Company issued 100,000 shares of common stock for stock-based compensation to a consultant for services rendered.
·In August 2018, the Company issued 130,000 shares of common stock for stock-based compensation to a consultant for services to be rendered.
·In September 2018, the Company issued 200,000 shares of common stock related to an exercise of a warrant with an exercise price of $0.50 per share for total cash proceed of $100,000.

 

Stock and Warrant Grants:

 

In July and August 2019, the Company granted three employees a total of 45,000 shares of common stock. The shares were valued for a total of $621,450 based on the average closing stock price per share of $13.81 at the date of grants. The 45,000 shares have an annual vesting period of five years with the first vesting period occurring on July 31, 2020 with the first vesting start date for the grants of August 1, 2019.

 

In May and June 2019, the Company granted three employees a total of 145,000 shares of common stock. The shares were valued for a total of $1,426,450 based on the average closing stock price per share of $9.84 at the date of grants. The 145,000 shares have an annual vesting period of five years with the first vesting period occurring on June 30, 2020 with vesting start date for each grant of July 1, 2019.

 

In April 2019, the Company granted an employee a total of 50,000 shares of common stock. The shares were valued at $377,000 based on the closing stock price per share of $7.54 at the date of grant. The 50,000 shares have an annual vesting period of five years with the first vesting period occurring on April 30, 2020.

 

From 2016 to 2018, excluding employee terminations, the Company granted a total of 8,690,000 shares of common stock and 2,688,000 stock options. The shares were valued at $6,419,849 or an average price per share of $.74. The stock options were valued at $4,172,996 an average price per share of $1.55, collectively vesting over a three to five year period.

 

Stock-based compensation expense related to Company grants for the three and nine months ended September 30, 2019 was $651,267 and $1,865,887, respectively. Stock-based compensation expense for the three and nine months end September 30, 2018 was $405,921 and $755,503, respectively.  

 

5.        BASIC AND FULLY DILUTED NET INCOME PER COMMON SHARE

 

The following table sets forth the computation of basic and fully diluted net income per common share for the three months ended September 30, 2019 and 2018:

 

   2019   2018 
Numerator:          
Net income attributable to Paysign, Inc.  $2,960,078   $800,862 
Denominator:          
Weighted average common shares:          
Denominator for basic calculation   47,371,083    45,460,902 
Weighted average effects of potentially diluted common stock:          
Stock options (calculated using the treasury method)   2,060,285    1,125,068 
Unvested restricted stock grants   4,860,000    5,630,000 
Denominator for fully diluted calculation   54,291,368    52,215,970 
Net income per common share:          
Basic  $0.06   $0.02 
Fully diluted  $0.05   $0.02 

 

 

 

 

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The following table sets forth the computation of basic and fully diluted net income per common share for the nine months ended September 30, 2019 and 2018:

 

   2019   2018 
Numerator:          
Net income attributable to Paysign, Inc.  $5,570,540   $1,945,425 
Denominator:          
Weighted average common shares:          
Denominator for basic calculation   47,215,625    45,373,595 
Weighted average effects of potentially diluted common stock:          
Stock options (calculated using the treasury method)   2,125,263    732,578 
Unvested restricted stock grants   5,247,582    5,878,901 
Denominator for fully diluted calculation   54,588,470    51,985,074 
Net income per common share:          
Basic  $0.12   $0.04 
Fully diluted  $0.10   $0.04 

 

6. SUBSEQUENT EVENTS

 

The Company has completed an evaluation of all subsequent events through the issuance date of these financial statements and concluded that no other subsequent events occurred that required recognition to the financial statements or disclosures in the Notes to Consolidated Financial Statements or Cash Flows.

 

 

 

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Item 2. Management’s discussion and analysis of financial condition and results of operations.

 

Disclosure Regarding Forward Looking Statements

 

This Quarterly Report on Form 10-Q includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Forward Looking Statements”). All statements other than statements of historical fact included in this report are Forward Looking Statements. In the normal course of our business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time-to-time issue certain statements, either in writing or orally, that contains or may contain Forward Looking Statements. Although we believe that the expectations reflected in such Forward Looking Statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, past and possible future, of acquisitions and projected or anticipated benefits from acquisitions made by or to be made by us, or projections involving anticipated revenues, earnings, levels of capital expenditures or other aspects of operating results. All phases of our operations are subject to a number of uncertainties, risks and other influences, many of which are outside of our control and any one of which, or a combination of which, could materially affect the results of our proposed operations and whether Forward Looking Statements made by us ultimately prove to be accurate. Such important factors (“Important Factors”) and other factors could cause actual results to differ materially from our expectations are disclosed in this report, including those factors discussed in “Item 1A. Risk Factors.” All prior and subsequent written and oral Forward Looking Statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Important Factors described below that could cause actual results to differ materially from our expectations as set forth in any Forward Looking Statement made by or on behalf of us.

 

Overview

 

On March 4, 2019, our board of directors and stockholders holding a majority of our outstanding common stock agreed to amend our articles of incorporation to change our name from 3PEA International, Inc. to Paysign, Inc. As a result, we amended our articles of incorporation on April 23, 2019 for such name change. Additionally, we changed our trading symbol on the Nasdaq Capital Market to “PAYS”.

 

We are a vertically integrated provider of innovative prepaid card products and processing services for corporate, consumer and government applications. Our payment solutions are utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence rates, reduce administration costs and streamline operations. Public sector organizations can utilize our payment solutions to disburse public benefits or for internal payments. We market our prepaid card solutions under our Paysign brand. As we are a payment processor and prepaid card program manager, we derive our revenue from all stages of the prepaid card lifecycle. We provide a card processing platform consisting of proprietary systems and innovative software applications based on the specific needs of our clients. We have extended our processing business capabilities through our proprietary Paysign platform. Through the Paysign platform, we provide a variety of services including transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service.

 

We have developed prepaid card programs for corporate incentive and rewards including, but not limited to, consumer rebates and rewards, donor compensation, healthcare reimbursement payments and pharmaceutical payment assistance. We are expanding our product offerings to include additional corporate incentive products, payroll cards, demand deposit accounts accessible with a debit card, travel cards, and expense reimbursement cards. Our cards are sponsored by our issuing bank partners.

 

The Paysign platform was built on modern cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform has allowed us to significantly expand its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility and ease of customization. The Paysign platform delivers cost benefits and revenue building opportunities to our partners.

 

 

 

 

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Our revenues include fees generated from cardholder transactions, interchange and card program management fees. Revenue from cardholder transactions, interchange and card program management fees is recorded when the performance obligation is fulfilled. We provide an in-house customer service center which includes live bi-lingual phone operators staffed 24/7/365, for incoming calls. We also provide in house Interactive Voice Response and two-way SMS messaging platforms.

 

We have two categories for our prepaid debit cards: corporate and consumer reloadable, and non-reloadable cards.

 

Reloadable Cards: These types of cards are generally incentive, payroll or considered general purpose reloadable (“GPR”) cards. Payroll cards are issued to an employee by an employer to receive the direct deposit of their payroll. GPR cards can also be issued to a consumer at a retail location or mailed to a consumer after completing an on-line application. GPR cards can be reloaded multiple times with a consumer’s payroll, government benefit, a federal or state tax refund or through cash reload networks located at retail locations. Reloadable cards are generally open loop cards as described below.

 

Non-Reloadable Cards: These are generally one-time use cards that are only active until the funds initially loaded to the card are spent. These types of cards are gift or incentive cards. These cards may be open loop or closed loop. Normally these types of cards are used for purchase of goods or services at retail locations and cannot be used to receive cash.

 

These prepaid cards may be open loop, closed loop or semi-closed loop. Open loop cards can be used to receive cash at ATM locations or purchase goods or services by PIN or signature at retail locations. These cards can be used virtually anywhere that the network brand (Visa, MasterCard, Discover, etc.) is accepted. Closed loop cards can only be used at a specific merchant. Semi-closed loop cards can be used at several merchants such as a shopping mall.

 

The prepaid card market is one of the fastest growing segments of the payments industry in the U.S. This market has experienced significant growth in recent years due to consumers and merchants embracing improved technology, greater convenience, more product choices and greater flexibility. Prepaid cards have also proven to be an attractive alternative to traditional bank accounts for certain segments of the population, particularly those without, or who could not qualify for, a checking or savings account.

 

We have developed prepaid card products for healthcare reimbursement payments, pharmaceutical assistance, donor compensation, corporate and incentive rewards and expense reimbursement cards. We plan to expand our product offering to include payroll cards, general purpose re-loadable cards and travel cards. Our cards are offered to end users through our relationships with bank issuers.

 

Our products and services are aimed at capitalizing on the growing demand for stored value and reloadable ATM/prepaid card financial products in a variety of market niches. Our proprietary platform is scalable and customizable, delivering cost benefits and revenue building opportunities to partners. We manage all aspects of the debit card lifecycle, from managing the card design and approval processes with banking partners and card networks, to production, packaging, distribution, and personalization. We also oversee inventory and security controls, renewals, lost and stolen card management and replacement.

 

Currently, we are focusing our marketing efforts on corporate incentive and expense prepaid card products, in various market verticals including but not limited to general corporate expense, healthcare related markets including co-pay assistance, clinical trials and donor compensation, loyalty rewards and incentive cards.

 

As part of our continuing platform expansion process, we evaluate current and emerging technologies for applicability to our existing and future software platform. To this end, we engage with various hardware and software vendors in evaluation of various infrastructure components. Where appropriate, we use third-party technology components in the development of our software applications and service offerings. Third-party software may be used for highly specialized business functions, which we may not be able to develop internally within time and budget constraints. Our principal target markets for processing services include prepaid card issuers, retail and private-label issuers, small third-party processors, and small and mid-size financial institutions in the United States and in emerging international markets.

 

 

 

 

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We have devoted more extensive resources to sales and marketing activities as we have added essential personnel to our marketing and sales team. We sell our products directly to customers in the U.S. but may work with a small number of resellers and third parties in international markets to identify, sell and support targeted opportunities. We have also identified opportunities in the European Union and are pursuing those opportunities.

 

During 2019, we will continue to invest additional funds in technology improvements, sales and marketing, customer service, and regulatory compliance. We are considering raising capital to enable us to diversify into new market verticals. If we do not raise new capital, we believe that we will still be able to expand into new markets using internally generated funds, but our expansion will not be as rapid.

 

Key Performance Indicators and Non-GAAP Measures

 

Management reviews a number of metrics to help us monitor the performance of and identify trends affecting our business. We believe the following measures are the significant indicators of our quarterly and annual revenues:

 

Gross Dollar Volume Loaded on Cards – Represents the total dollar volume of funds loaded to all of our prepaid card programs. Our gross dollar volume was $210 million and $172 million for the three months ended September 30, 2019 and 2018, respectively. Our gross dollar volume was $607 million and $449 million for the nine months ended September 30, 2019 and 2018, respectively. We use this metric to analyze the total amount of money moving into our prepaid card programs.

 

Conversion Rate on Gross Dollar Volume Loaded on Cards – Comprised of revenues, gross profit and net profit conversion rates of gross dollar volume loaded on cards. Our revenue conversion rate for the three months ended September 30, 2019 and 2018 were 4.29% or 429 basis points (“bps”), and 3.72% or 372 bps, respectively, of gross dollar volume loaded on cards. Our gross profit conversion rate for the three months ended September 30, 2019 and 2018 were 2.55% or 255 bps, and 1.77% or 177 bps, respectively, of gross dollar volume loaded on cards. Our net profit conversion rate for the three months ended September 30, 2019 and 2018 were 1.41% or 142 bps, and 0.46% or 46 bps, respectively, of gross dollar volume loaded on cards. Our revenue conversion rate for the nine months ended September 30, 2019 and 2018 were 4.10% or 410 basis points (“bps”), and 3.69% or 369 bps, respectively, of gross dollar volume loaded on cards. Our gross profit conversion rate for the nine months ended September 30, 2019 and 2018 were 2.34% or 234 bps, and 1.76% or 176 bps, respectively, of gross dollar volume loaded on cards. Our net profit conversion rate for the nine months ended September 30, 2019 and 2018 were 0.92% or 92 bps, and 0.43% or 43 bps, respectively, of gross dollar volume loaded on cards.

 

Management also reviews key performance indicators, such as revenues, gross profit, operational expenses as a percent of revenues, and cardholder participation. In addition, we consider certain non-GAAP (or "adjusted") measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment and investment in new card programs. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

 

 

 

 

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“EBITDA” defined as earnings before interest, income taxes, depreciation and amortization expense and "Adjusted EBITDA" reflects the adjustment to EBITDA to exclude stock-based compensation expense.

 

   Three Months Ended September 30, 
   2019   2018 
Reconciliation of adjusted EBITDA to net income:        
Net income attributable to Paysign, Inc.  $2,960,078   $800,862 
Income tax benefit   (563,854)   – 
Interest income   (113,667)   (36,683)
Depreciation and amortization   318,508    284,124 
EBITDA   2,601,065    1,048,303 
Stock-based compensation   651,267    405,921 
Adjusted EBITDA  $3,252,332   $1,454,224 

 

   Nine Months Ended September 30, 
   2019   2018 
Reconciliation of adjusted EBITDA to net income:        
Net income attributable to Paysign, Inc.  $5,570,540   $1,945,425 
Income tax benefit   (556,068)   – 
Interest income   (364,652)   (90,298)
Depreciation and amortization   1,047,779    780,203 
EBITDA   5,697,599    2,635,330 
Stock-based compensation   1,865,887    755,503 
Adjusted EBITDA  $7,563,486   $3,390,833 

 

Results of Operations

 

Three Months ended September 30, 2019 and 2018

 

Revenues for the three months ended September 30, 2019 were $9,008,117, an increase of $2,586,721 compared to the same period in the prior year, when revenues were $6,421,396. The increase in revenue approximating 40% was primarily due to an increase in new clients, new industry verticals and new card programs with existing clients. We believe with the addition of the new card programs added September 30th, the fourth quarter will experience a comparable or better rate of growth in comparison to the prior year.

 

Cost of revenues (excluding depreciation and amortization) for the three months ended September 30, 2019 were $3,641,595, an increase of $264,842 compared to the same period in the prior year, when cost of revenues were $3,376,753. Cost of revenues constituted approximately 40% and 53% of total revenues for the three months ended September 30, 2019 and 2018, respectively. Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses, network fees, bank fees, card production costs, customer service and program management expenses, application integration setup, and sales and commission expense. Our cost of revenues (excluding depreciation and amortization) as a percentage of revenues decreased due to improved network interchange margins and a favorable client mix.

 

Gross profit for the three months ended September 30, 2019 was $5,366,522, an increase of $2,321,879 compared to the same period in the prior year, when gross profit was $3,044,643. Our overall gross margins were 60% and 47% during the three months ended September 30, 2019 and 2018, respectively, and an improvement of 1216 bps resulting from favorable client industry mix.

 

 

 

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Depreciation and amortization for the three months ended September 30, 2019 were $318,508, an increase of $34,384 compared to the same period in the prior year, when depreciation and amortization were $284,124. The increase in depreciation and amortization was primarily due to continued capitalized enhancements to our platform which we expect to continue. Additionally, investments in fixed assets and software licensing contributed to the variance.

  

Selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2019 were, $2,765,961 an increase of $769,004 or 39% compared to the same period in the prior year, when SG&A were $1,996,957. The increase in SG&A was primarily due to increased investments in infrastructure, staffing and stock-based compensation.

 

In the three months ended September 30, 2019, we recorded operating income of $2,282,053 as compared to operating income of $763,562 in the three months ended September 30, 2018, an increase of $1,518,491 or 199%.

 

Other income, net for the three months ended September 30, 2019 was $113,667, as compared to other income, net of $36,683 in three months ended September 30, 2018, which represents an increase in net other income, net of $76,984. The increase in our other income, net is attributable to increased interest earnings on our cash balances.

 

Our income tax benefit for the three months September 30, 2019 was $563,864, while there was none for the three months ended September 30, 2018. The increase from prior year is a result of the tax benefit related to our stock-based compensation.

 

Our net income attributable to Paysign, Inc. for the three months ended September 30, 2019 was $2,960,078 as compared to net income of $800,862 in the three months ended September 30, 2018, which represents an increase in net income of $2,159,216 or 270%. The overall change in net income is attributable to the aforementioned factors.

 

Nine Months ended September 30, 2019 and 2018

 

Revenues for the nine months ended September 30, 2019 were $24,901,678, an increase of $8,343,240 compared to the same period in the prior year, when revenues were $16,558,438. The increase in revenue approximating 50% was primarily due to the addition of new prepaid card industry verticals, new clients and new prepaid card programs for existing clients. We believe we will continue to experience a strong rate of growth rate for the remainder of 2019 and into 2020.

 

Cost of revenues (excluding depreciation and amortization) for the nine months ended September 30, 2019 were $10,721,769, an increase of $2,070,930 compared to the same period in the prior year, when cost of revenues was $8,650,839. Cost of revenues constituted approximately 43% and 52% of total revenues for the nine months ended September 30, 2019 and 2018, respectively. Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses, network fees, bank fees, card production costs, customer service and program management expenses, application integration setup, and sales and commission expense. Our cost of revenues (excluding depreciation and amortization) as a percentage of revenues has decreased due to improved network interchange margins and a favorable client mix.

 

Gross profit for the nine months ended September 30, 2019 was $14,179,909, an increase of $6,272,310 compared to the same period in the prior year, when gross profit was $7,907,599. Our overall gross margins were 57% and 48% during the nine months ended September 30, 2019 and 2018 which for the current year has run slightly better than management’s projections, and has improved 919 bps, resulting from favorable client industry mix. Given expectations about new business and the effect of seasonality on industry mix, management expects that gross margins are likely to maintain this trend, or slightly lower, in the next quarter.

 

Depreciation and amortization for the nine months ended September 30, 2019 were $1,047,779, an increase of $267,576 compared to the same period in the prior year, when depreciation and amortization were $780,203. The increase in depreciation and amortization was primarily due to continued capitalized enhancements to our platform which we expect to continue.

  

 

 

 

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SG&A for the nine months ended September 30, 2019 were, $8,483,882 an increase of $3,239,604 compared to the same period in the prior year, when SG&A were $5,244,278. The increase in SG&A was primarily due to investments in infrastructure, increased staffing, and increased stock based compensation expense.

 

In the nine months ended September 30, 2019, we recorded operating income of $4,648,248 as compared to operating income of $1,883,118 in the nine months ended September 30, 2018, an increase of $2,765,130 or 147%.

 

Other income, net for the nine months ended September 30, 2019 was $364,652, as compared to other income, net of $59,173 in nine months ended September 30, 2018, which represents an increase in net other income, net of $305,479. The increase in our other income, net is attributable to increased interest earnings on our cash balances, which we expect to continue in future periods.

 

Our income tax benefit for the nine months September 30, 2019 was $556,068, while there was none for the nine months ended September 30, 2018. The increase from prior year is a result of the tax benefit related to our stock-based compensation.

 

Our net income attributable to Paysign, Inc. for the nine months ended September 30, 2019 was $5,570,540 as compared to net income of $1,945,425 in the nine months ended September 30, 2018, which represents an increase in net income of $3,625,115 or 186%. The overall change in net income is attributable to the aforementioned factors.

 

Liquidity and Sources of Capital

 

The following table sets forth the major sources and uses of cash for the nine months ended September 30, 2019 and 2018:

 

   Nine months ended September 30, 
   2019   2018 
Net cash provided by operating activities  $10,798,115   $8,650,223 
Net cash used in investing activities   (1,496,976)   (1,179,041)
Net cash provided by financing activities   252,813    100,000 
Net increase in cash and restricted cash  $9,553,952   $7,571,182 

 

Comparison of nine months ended September 30, 2019 and 2018

 

During the nine months ended September 30, 2019 and 2018, we financed our operations primarily through internally generated funds.

 

Cash provided by operating activities increased $2,147,892 in the nine months ended September 30, 2019, as compared to the same period in the prior year. The increase is primarily related to a $3,625,115 increase in net income and a $1,110,384 increase in stock based compensation for the period partially offset by a $2,415,872 decrease in customer card funding as compared to the prior year period.

 

Cash used in investing activities increased $317,935 in the nine months ended September 30, 2019, as compared to the same period in 2018, with the difference primarily attributed to an increase in enhancements to our processing platform and investments in our telephone and equipment infrastructure during the current year.

 

Cash provided by financing activities was $252,813 in the nine months ended September 30, 2019 as compared to $100,000 for the nine months ended September 30, 2018. In 2019, financing activities consisted of cash provided from exercises of stock options. In 2018, financing activities consisted of $100,000 in cash provided from an exercise of a stock warrant.

 

 

 

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Sources of Financing

 

We believe that our available cash on hand, excluding restricted cash, at September 30, 2019 of $7,988,803, combined with revenues and operating earnings anticipated for the remainder of 2019 will be sufficient to sustain our operations for the next twelve months.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Critical Accounting Estimates

 

Our significant accounting policies are described in Note 1 of the Notes to Financial Statements and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

Any estimates we make will be based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Because the Company is a smaller reporting company, it is not required to provide the information called for by this Item.

  

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our chief executive officer and chief financial officer are responsible for establishing and maintaining our disclosure controls and procedures. Disclosure controls and procedures means controls and other procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in those reports is accumulated and communicated to the our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2019. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the evaluation date, such controls and procedures were effective.

 

Changes in internal controls

 

There were no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.

 

Item 1A. Risk Factors.

 

There have been no material changes with respect to the risk factors disclosed in Part I. Item 1A of our annual report on Form 10-K for the year ended December 31, 2018.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the quarter ending September 30, 2019, we issued a total of 425,000 shares of common stock for shares previously earned and vested as well as 113,280 shares of common stock for stock options exercised.

 

The shares were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933.

 

Item 6. Exhibits.

 

31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document
101.DEF XBRL Definition Linkbase Document

 

 

 

 

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   
  PAYSIGN, INC.
   
   
Date: November 6, 2019 /s/ Mark Newcomer
 

By: Mark Newcomer, Chief Executive Officer

(principal executive officer)

   
   
Date: November 6, 2019 /s/ Mark Attinger
 

By: Mark Attinger, Chief Financial Officer

(principal financial and accounting officer)

 

 

 

 

 

 

 

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