10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017
	or
¨	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: 001-35170

JetPay Corporation

(Exact name of registrant as specified in its charter)

Delaware	90-0632274
(State or other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

3939 West Drive, Center Valley, PA 18034

(Address of principal executive offices) (Zip code)

Registrant's Telephone Number, including area code: (610) 797-9500

(Former Name or Former Address, if Changed Since Last Report)

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 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 ¨

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

Large accelerated filer	¨	Smaller reporting company	x
Non-accelerated filer	¨	Accelerated filer	¨
(Do not check if a smaller reporting company)		Emerging growth company	¨

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. ¨ 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨  No x

As of August 9, 2017, there were 15,673,534 shares of the registrant’s common stock, par value $.001 per share, outstanding.

JetPay Corporation

Form 10-Q

Quarter Ended June 30, 2017

Table of Contents

		Page
PART I - FINANCIAL INFORMATION
Item 1 -	Financial Statements
	Consolidated Balance Sheets – June 30, 2017 (Unaudited) and December 31, 2016 (Audited)	1
	Consolidated Statements of Operations (Unaudited) for the three months ended June 30, 2017 and 2016	2
	Consolidated Statements of Operations (Unaudited) for the six months ended June 30, 2017 and 2016	3
	Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the six months ended June 30, 2017	4
	Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016	5
	Notes to the Consolidated Financial Statements (Unaudited)	7
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3 -	Quantitative and Qualitative Disclosures about Market Risks	45
Item 4 -	Controls and Procedures	45
PART II - OTHER INFORMATION
Item 1 -	Legal Proceedings	46
Item 1A -	Risk Factors	46
Item 2 -	Unregistered Sales of Equity Securities	46
Item 3 -	Defaults Upon Senior Securities	46
Item 4 -	Mine Safety Disclosures	46
Item 5 -	Other Information	46
Item 6 -	Exhibits	47
Signatures		48

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

JetPay Corporation

Consolidated Balance Sheets

(In thousands, except share and par value information)

	June 30, 2017			December 31, 2016
	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	8,477		$	12,584
Restricted cash		1,903			2,129
Accounts receivable, less allowance for doubtful accounts		3,336			4,677
Settlement processing assets and funds		53,962			35,240
Prepaid expenses and other current assets		1,224			5,849
Current assets before funds held for clients		68,902			60,479
Funds held for clients		48,066			49,154
Total current assets		116,968			109,633
Property and equipment, net		2,858			2,125
Goodwill		48,978			48,978
Identifiable intangible assets, net of accumulated amortization of $12,675 at June 30, 2017 and $10,926 at December 31, 2016		24,341			26,090
Other assets		393			384
Total assets	$	193,538		$	187,210
LIABILITIES
Current liabilities:
Current portion of long-term debt and capital lease obligations	$	3,189		$	8,074
Accounts payable and accrued expenses		12,120			10,821
Settlement processing liabilities		52,246			35,079
Deferred revenue		298			502
Other current liabilities		54			985
Current liabilities before client fund obligations		67,907			55,461
Client fund obligations		48,066			49,154
Total current liabilities		115,973			104,615
Long-term debt and capital lease obligations, net of current portion and unamortized discounts and financing costs of $348 and $339 at June 30, 2017 and December 31, 2016, respectively		13,088			13,794
Deferred income taxes		520			520
Other liabilities		1,136			1,228
Total liabilities		130,717			120,157
Commitments and Contingencies
Redeemable Convertible Preferred Stock;
Redeemable convertible Series A and Series A-1 preferred stock, $0.001 par value per share, 142,333 and 139,498 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively (liquidation preference of $85,400 at June 30, 2017)		54,059			53,324
Common Stock, subject to possible redemption (1,625,000 shares at June 30, 2017, and December 31, 2016)		3,520			3,520
Stockholders’ Equity
Preferred stock, $0.001 par value
Authorized 1,000,000 shares, none issued (which excludes 142,333 and 139,498 shares of Series A and Series A-1 redeemable convertible preferred stock at June 30, 2017 and December 31, 2016, respectively)		-			-
Common stock, $0.001 par value
Authorized 100,000,000 shares; 17,788,984 and 17,737,504 issued at June 30, 2017 and December 31, 2016, respectively (which includes 1,625,000 shares subject to possible redemption at June 30, 2017 and December 31, 2016) and 15,588,984 and 17,737,504 outstanding at June 30, 2017 and December 31, 2016, respectively		18			18
Additional paid-in capital		40,254			38,778
Treasury stock, 2,200,000 shares at cost		(4,950	)		-
Accumulated deficit		(30,080	)		(28,587	)
Total Stockholders’ Equity		5,242			10,209
Total Liabilities and Stockholders’ Equity	$	193,538		$	187,210

The accompanying notes are an integral part of these consolidated financial statements.

1

JetPay Corporation

Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share information)

	For the Three Months Ended June 30,
	2017			2016
Processing revenues	$	18,777		$	12,212
Cost of processing revenues		13,049			8,306
Gross profit		5,728			3,906
Selling, general and administrative expenses		5,056			3,774
Settlement of legal matters		747			6,140
Change in fair value of contingent consideration liability		(257	)		(216	)
Amortization of intangibles		875			779
Depreciation		248			188
Operating loss		(941	)		(6,759	)
Other expenses (income)
Interest expense		276			258
Non-cash interest costs		33			27
Amortization of debt discounts		-			50
Other income		(5	)		(1	)
Loss before income taxes		(1,245	)		(7,093	)
Income tax expense (benefit)		81			(1,527	)
Net loss		(1,326	)		(5,566	)
Accretion of convertible preferred stock		(2,652	)		(1,453	)
Net loss applicable to common stockholders	$	(3,978	)	$	(7,019	)
Basic and diluted loss per share applicable to common stockholders	$	(0.26	)	$	(0.45	)
Weighted average shares outstanding:
Basic and diluted		15,588,984			15,445,741

The accompanying notes are an integral part of these consolidated financial statements.

2

JetPay Corporation

Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share information)

	For the Six Months Ended June 30,
	2017			2016
Processing revenues	$	37,719		$	23,855
Cost of processing revenues		25,634			15,706
Gross profit		12,085			8,149
Selling, general and administrative expenses		10,012			7,581
Settlement of legal matters		747			6,140
Change in fair value of contingent consideration liability		(183	)		(170	)
Amortization of intangibles		1,749			1,512
Depreciation		479			367
Operating loss		(719	)		(7,281	)
Other expenses (income)
Interest expense		571			511
Non-cash interest costs		67			118
Amortization of debt discounts		-			138
Other income		(7	)		(3	)
Loss before income taxes		(1,350	)		(8,045	)
Income tax expense (benefit)		143			(1,474	)
Net loss		(1,493	)		(6,571	)
Accretion of convertible preferred stock		(4,775	)		(2,867	)
Net loss applicable to common stockholders	$	(6,268	)	$	(9,438	)
Basic and diluted loss per share applicable to common stockholders	$	(0.39	)	$	(0.63	)
Weighted average shares outstanding:
Basic and diluted		16,134,808			14,923,611

The accompanying notes are an integral part of these consolidated financial statements.

3

JetPay Corporation

Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)

(In thousands, except share information)

	Common Stock				Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Total Stockholders’ Equity
	Shares		Amount
Balance at December 31, 2016		17,737,504	$	18	$	38,778		$	-		$	(28,587	)	$	10,209
Common stock issued under employee stock purchase plan		51,480		-		104			-			-			104
Common stock released from escrow to satisfy contingent consideration obligation		-		-		525			-			-			525
Repurchase of shares into treasury		-		-		-			(4,950	)		-			(4,950	)
Warrants issued for settlement of legal matter		-		-		373			-						373
Employee stock purchase plan expense		-		-		23			-			-			23
Stock-based compensation expense		-		-		361			-			-			361
Beneficial conversion feature on convertible preferred stock		-		-		4,865			-			-			4,865
Accretion of convertible preferred stock to redemption value		-		-		(4,775	)		-			-			(4,775	)
Net loss		-		-		-			-			(1,493	)		(1,493	)
Balance at June 30, 2017		17,788,984	$	18	$	40,254		$	(4,950	)	$	(30,080	)	$	5,242

The accompanying notes are an integral part of these consolidated financial statements.

4

JetPay Corporation

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	For the Six Months Ended June 30,
	2017			2016
Operating Activities
Net loss	$	(1,493	)	$	(6,571	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		479			367
Stock-based compensation		361			164
Employee stock purchase plan expense		23			12
Amortization of intangibles		1,749			1,512
Non-cash interest costs		67			118
Amortization of debt discounts		-			138
Change in fair value of contingent consideration liability		(183	)		(170	)
Loss on disposal of fixed assets		110			30
Deferred income taxes		-			(1,602	)
Change in operating assets and liabilities:
Restricted cash		226			(20	)
Accounts receivable		1,341			1,010
Settlement processing assets, funds and obligations, net		(1,555	)		248
Prepaid expenses and other current assets		(325	)		(4,411	)
Other assets		(9	)		4,389
Deferred revenue		(204	)		(264	)
Accounts payable, accrued expenses and other liabilities		1,671			6,745
Net cash provided by operating activities		2,258			1,695
Investing Activities
Net decrease in restricted cash and cash equivalents held to satisfy client fund obligations		1,088			1,061
Cash acquired in acquisition		-			519
Purchase of property and equipment		(1,004	)		(305	)
Investment in acquired technology		-			(87	)
Net cash provided by investing activities		84			1,188
Financing Activities
Payments on long-term debt and capital lease obligations		(6,300	)		(1,610	)
Proceeds from issuance of common stock, net of issuance costs		104			64
Proceeds from notes payable		400			1,970
Proceeds from sale of preferred stock, net of issuance costs		825			-
Restricted cash reserve		-			(1,900	)
Payment of deferred financing fees associated with new borrowings		(76	)		(112	)
Payment of deferred and contingent acquisition consideration		(314	)		(1,386	)
Net decrease in client funds obligations		(1,088	)		(1,061	)
Net cash used in financing activities		(6,449	)		(4,035	)
Net decrease in cash and cash equivalents		(4,107	)		(1,152	)
Cash and cash equivalents, beginning		12,584			5,594
Cash and cash equivalents, ending	$	8,477		$	4,442

The accompanying notes are an integral part of these consolidated financial statements.

5

JetPay Corporation

Consolidated Statements of Cash Flows (continued)

(Unaudited)

(In thousands)

	For the Six Months Ended June 30,
	2017		2016
Supplement disclosure of cash flow information:
Cash paid for interest	$	703	$	443
Cash paid for taxes	$	245	$	216
Supplemental disclosure of non-cash investing and financing activity:
Acquisition of equipment under capital lease	$	318	$	103
Treasury stock reclassification	$	4,950	$	-
Issuance of warrants for settlement of legal matter	$	373	$	-
Beneficial conversion feature on convertible preferred stock	$	4,865	$	-
Accretion of convertible preferred stock	$	4,775	$	2,867
Release of common stock held in escrow	$	525	$	-
Summary of non-cash investing and financing activities:
Fair value of assets acquired	$	-	$	23,969
Fair value of company stock issued	$	-	$	(7,040	)
Fair value of contingent consideration	$	-	$	(1,975	)
Fair value of private stock purchase rights	$	-	$	(153	)
Fair value of deferred consideration	$	-	$	(143	)
Fair value of liabilities assumed	$	-	$	14,658

The accompanying notes are an integral part of these consolidated financial statements.

6

JetPay Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 1.   Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for fair presentation of the consolidated financial statements of JetPay Corporation and its subsidiaries (collectively, the “Company” or “JetPay”) as of June 30, 2017. The results of operations for the three and six months ended June 30, 2017 and 2016 are not necessarily indicative of the operating results for the full year. It is recommended that these consolidated financial statements be read in conjunction with the consolidated financial statements and related disclosures for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2017.

Note 2.   Organization and Business Operations

The Company was incorporated in Delaware on November 12, 2010 as Universal Business Payment Solutions Acquisition Corporation, a blank check company whose objective was to acquire, through a merger, share exchange, asset acquisition, stock purchase, plan of arrangement, recapitalization, reorganization or other similar business combination, one or more operating businesses. Until December 28, 2012, the Company’s efforts were limited to organizational activities, its initial public offering and the search for suitable business acquisition transactions.

Effective August 2, 2013, Universal Business Payment Solutions Acquisition Corporation changed its name to JetPay Corporation with the filing of its Amended and Restated Certificate of Incorporation. The Company’s ticker symbol on the Nasdaq Capital Market (“NASDAQ”) changed from “UBPS” to “JTPY” effective August 12, 2013.

The Company currently operates in two business segments: the JetPay Payment Services Segment and the JetPay HR & Payroll Segment. The JetPay Payment Services Segment is an end-to-end processor of credit and debit card and automated clearing house (“ACH”) payment transactions that focuses on processing omni-channel (internet, mobile, and point-of-sale) transactions and recurring billings for traditional retailers, government and utility, and service providers. The JetPay HR & Payroll Segment provides human capital management (“HCM”) services, including full-service payroll and related payroll tax payment processing, time and attendance, HCM services, low-cost money management and payment services to unbanked and underbanked employees through prepaid debit cards, and services under the Patient Protection and Affordable Care Act (the “Affordable Care Act”).

The Company entered the payment processing and the payroll processing businesses upon consummation of the acquisitions of JetPay Payment Services, TX, LLC (f/k/a JetPay, LLC) (“JetPay Payments, TX”) and JetPay HR & Payroll Services, Inc. (f/k/a A. D. Computer Corporation) (“JetPay HR & Payroll Services”) on December 28, 2012. Additionally, on November 7, 2014, the Company acquired JetPay Payment Services, PA, LLC (f/k/a ACI Merchant Systems, LLC) (“JetPay Payments, PA”), an independent sales organization specializing in relationships with banks, credit unions and other financial institutions. On June 2, 2016, the Company acquired JetPay Payment Services, FL, LLC (f/k/a CollectorSolutions, Inc.) (“JetPay Payments, FL”), a payment processor specializing in the processing of payments in the government and utilities channels.

The Company believes that the investments made in its technology, infrastructure, and sales staff will help generate cash flows in the future sufficient to cover its working capital needs. The Company may from time to time determine that additional investments are prudent to maintain and increase stockholder value. In addition to funding ongoing working capital needs, the Company’s cash requirements for the next fifteen months ending September 30, 2018 include, but are not limited to, principal and interest payments on long-term debt and capital lease obligations of approximately $5.2 million and estimated capital expenditures of $3.5 million.

The Company expects to fund its cash needs for the next fifteen months, including debt service requirements, capital expenditures and possible future acquisitions, with cash flow from its operating activities, sales of equity securities, including the recent sale of preferred stock, and current and future borrowings.

7

As disclosed in Note 8. Redeemable Convertible Preferred Stock, between October 11, 2013 and October 18, 2016, the Company sold 99,666 shares of Series A Convertible Preferred Stock, par value $0.001 per share (“Series A Preferred”), to Flexpoint Fund II, L.P. (“Flexpoint”) for an aggregate of $29.9 million, less certain costs. Additionally, on October 18, 2016, the Company sold 33,667 shares of Series A Preferred to Sundara Investment Partners, LLC (“Sundara”) for $10.1 million, less certain costs. In connection with the sale of shares of Series A Preferred to Sundara, the Company also entered into a Loan and Security Agreement with LHLJ, Inc., an affiliate of Sundara, for a term loan in the principal amount of $9.5 million, with $5.175 million of the proceeds used to simultaneously satisfy the remaining balances of a term loan and a revolving credit note payable to First National Bank of Pennsylvania (“FNB”) (the “Prior HR & Payroll Services Credit Facility”). See Note 7. Long-Term Debt, Note Payable and Capital Lease Obligations. Both Sundara and LHLJ are owned and controlled by Laurence L. Stone, who was appointed as a director of the Company by the holders of Series A Preferred shares in October 2016 in connection with the transactions. These transactions provided approximately $14.0 million of net working capital, which the Company has used and expects to use for general working capital purposes, the payment of debt and for future capital needs, including a portion of the cost of potential future acquisitions. Finally, between May 5, 2014 and April 13, 2017, the Company sold 9,000 shares of Series A-1 Convertible Preferred Stock, par value $0.001 per share (“Series A-1 Preferred”), to an affiliate of Wellington Capital Management, LLP (“Wellington”) for an aggregate of $2.7 million.

In the past, the Company has been successful in obtaining loans and selling its equity securities. To fund the Company’s current debt service needs, expand its technology platforms for new business initiatives, and pursue possible future acquisitions, the Company may need to raise additional capital through loans or additional sales of equity securities. The Company continues to investigate the capital markets for sources of funding, which could take the form of additional debt, the restructuring of our current debt, or additional equity financing. The Company cannot provide any assurance that it will be successful in securing new financing or restructuring its current debt or that it will secure such future financing with commercially acceptable terms. If the Company is unable to raise additional capital, it may need to delay certain technology capital improvements, limit its planned level of capital expenditures and future growth plans or dispose of operating assets to generate cash to sustain operations and fund ongoing capital investments.

Note 3.   Business Acquisition

On June 2, 2016, JetPay completed its acquisition of CollectorSolutions, Inc. pursuant to the terms of the Agreement and Plan of Merger, dated February 22, 2016 (the “Merger Agreement”), by and among JetPay, CSI Acquisition Sub One, LLC, CSI Acquisition Sub Two, LLC, CollectorSolutions, Inc. and Gene M. Valentino, in his capacity as representative of the shareholders of CollectorSolutions, Inc. On October 21, 2016, the surviving entity of the merger changed its name to JetPay Payment Services, FL, LLC. The acquisition of JetPay Payments, FL provided the Company with additional expertise in selling debit and credit card processing services in the government and utilities channels through JetPay Payments, FL’s highly configurable payment gateway, added incremental debit, credit, and e-check processing volumes, and provided a base operation to sell the Company’s payroll, HCM, processing and prepaid card services to JetPay Payments, FL’s customer base. The consolidated financial statements include the accounts of JetPay Payments, FL since the acquisition date, June 2, 2016.

As consideration for the acquisition, the Company initially issued 3.25 million shares of its common stock to the stockholders of CollectorSolutions, Inc. and assumed approximately $1.0 million of CollectorSolutions, Inc.’s indebtedness. The 3.25 million shares of common stock issued in connection with closing, valued at $8.3 million at the date of acquisition, included: (i) 587,500 shares placed in escrow at closing as partial security for the indemnification obligations of the stockholders of CollectorSolutions, Inc. (the “Escrowed Shares”) and (ii) 500,000 shares placed in escrow at closing which would be released or cancelled if JetPay Payments, FL achieves certain gross profit performance targets in 2016 and 2017 (the “Earn-Out Shares”). In addition to the shares of its common stock issued at the date of acquisition, the Company issued an additional 54,601 shares on December 30, 2016 to the former stockholders of CollectorSolutions, Inc. in connection with a post-closing purchase price adjustment for working capital and debt levels as of the acquisition date pursuant to the Merger Agreement. JetPay Payments, FL’s former stockholders may also be entitled to receive warrants to purchase up to 500,000 shares of the Company’s common stock, each with a strike price of $4.00 per share and a 10-year term from its date of issuance, contingent upon JetPay Payments, FL achieving certain gross profit performance targets in 2018 and 2019. This contingent stock and warrant consideration, recorded as a liability, was valued at $1,975,000 at the date of acquisition utilizing a Monte Carlo simulation model. The fair value of the contingent consideration was $1,116,000 at June 30, 2017 (recorded within non-current other liabilities). See Note 4. Summary of Significant Accounting Policies.

Based upon the level of gross profit performance in 2016, on June 28, 2017, the Company released 250,000 Earn-Out Shares from escrow to the former shareholders of CollectorSolutions, Inc. In addition, pursuant to the merger agreement, on June 28, 2017, the Company released 587,500 Escrowed Shares held for indemnification purposes from escrow to the former shareholders of CollectorSolutions, Inc.

8

In connection with the acquisition, certain executives of JetPay Payments, FL were provided the right to purchase through a private placement, within twelve months after closing, up to 300,000 shares of common stock in the aggregate at a price equal to the higher of $3.00 per share and the volume-weighted average closing price of the stock of the Company for the twenty consecutive trading days ending three trading days prior to closing. This stock purchase right was valued at $152,000 utilizing a Black-Sholes option pricing model and was recorded as Additional Paid-In Capital at the date of acquisition. This purchase right was not exercised prior to its expiration on June 2, 2017.

In addition, the Company granted to each former stockholder of JetPay Payments, FL a right to require the Company to repurchase up to 50% of the shares of common stock issued in connection with the acquisition and continuously held by such stockholder if Flexpoint exercises its right to redeem its shares of Series A Preferred. In a buyback of up to 50% of the shares issued to JetPay Payments, FL’s former shareholders, the Company would purchase each share of common stock issued as transaction consideration for $4.00 per share. The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC 480 “Distinguishing Liabilities from Equity”. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The common stock issued to JetPay Payments, FL’s previous shareholders features certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at June 30, 2017, 50% of the estimated fair value of the common stock issued in connection with the acquisition, or $3.52 million, is presented as temporary equity, outside of the stockholders’ equity section of the Consolidated Balance Sheet.

The fair value of the identifiable assets acquired and liabilities assumed in the JetPay Payments, FL acquisition as of the acquisition date includes: (i) $520,000 of cash, (ii) $537,000 for accounts receivable; (iii) $113,000 for prepaid expenses and other assets; (iv) $10.6 million for settlement processing assets; (v) $93,000 for fixed assets; (vi) the assumption of $14.7 million of liabilities, including $9.95 million of settlement processing obligations and approximately $1.0 million of long term debt; and (vii) approximately $12.1 million allocated to goodwill and other identifiable intangible assets. Within the $12.1 million of acquired intangible assets, $7.2 million was assigned to goodwill, which is not subject to amortization under U.S. GAAP. The Company does not expect to deduct for tax purposes the goodwill related to the JetPay Payments, FL acquisition. The amount assigned to goodwill was deemed appropriate based on several factors, including: (i) the multiple paid by market participants for businesses in the merchant card processing business; (ii) levels of JetPay Payments, FL’s current and future projected cash flows; and (iii) the Company’s strategic business plan, which includes cross-marketing the Company’s payroll, HCM, processing and prepaid card services to JetPay Payments, FL’s customer base as well as offering merchant credit card processing services to the Company’s payroll and HCM customer base. The remaining intangible assets were assigned to customer relationships (for $4.1 million), software costs (for $710,000), and tradename (for $70,000). The Company determined that the fair value of non-compete agreements with certain employees of JetPay Payments, FL was immaterial. Customer relationships, software costs, and trade name were assigned a life of 12 years, 19 months, and 7 months, respectively.

Assets acquired and liabilities assumed in the JetPay Payments, FL acquisition were recorded on the Company’s Consolidated Balance Sheets as of the acquisition date based upon their estimated fair values at such date. The results of operations of the business acquired by the Company have been included in the Statements of Operations since the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying identifiable assets acquired and liabilities assumed was allocated to goodwill.

9

The allocation of the JetPay Payments, FL purchase price and the estimated fair market values of the JetPay Payments, FL assets acquired and liabilities assumed are shown below (in thousands):

Cash	$	520
Accounts receivable		537
Settlement processing assets		10,587
Prepaid expenses and other assets		113
Property and equipment, net		93
Goodwill		7,218
Identifiable intangible assets		4,881
Total assets acquired		23,949
Accounts payable and accrued expenses		1,794
Settlement processing obligations		9,951
Long term debt		1,049
Long term deferred tax liability		1,864
Total liabilities assumed		14,658
Net assets acquired	$	9,291

Unaudited pro forma results of operations for the three and six months ended June 30, 2016, as if the Company and JetPay Payments, FL had been combined on January 1, 2016, follow. The pro forma results include estimates and assumptions which management believes are reasonable. The pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the date indicated, or which may result in the future.

	Unaudited Pro Forma Results of Operations (In thousands, except per share information)
	For the Three Months			For the Six Months
	Ended June 30, 2016			Ended June 30, 2016
Revenues	$	15,144		$	31,529
Operating loss	$	(6,717	)	$	(7,042	)
Net loss	$	(5,533	)	$	(6,358	)
Net loss applicable to common stockholders	$	(6,986	)	$	(9,225	)
Net loss per share applicable to common stockholders	$	(0.40	)	$	(0.52	)

Note 4.   Summary of Significant Accounting Policies

Significant accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. The Company’s significant accounting policies are described below.

Use of Estimates, Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the accounting and disclosure rules and regulations of the SEC. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company’s financial statements. Such estimates include, but are not limited to, the value of purchase consideration of acquisitions; valuation of accounts receivable, reserves for chargebacks, goodwill, intangible assets, and other long-lived assets; legal contingencies; the fair value of equity instruments classified as liabilities; and assumptions used in the calculation of stock-based compensation and in the calculation of income taxes. Actual results may differ from these estimates under different assumptions or conditions. These consolidated financial statements include our accounts and those of our wholly-owned subsidiaries and all intercompany balances and transactions have been eliminated in consolidation.

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Revenue Recognition and Deferred Revenue

The Company recognizes revenue in general when the following criteria have been met: persuasive evidence of an arrangement exists, a customer contract or purchase order exists and the fees are fixed and determinable, no significant obligations remain and collection of the related receivable is reasonably assured. Allowances for chargebacks, discounts and other allowances are estimated and recorded concurrent with the recognition of revenue and are primarily based on historic rates.

Revenues from the Company’s credit and debit card processing operations are recognized in the period services are rendered as the Company processes credit and debit card transactions for its merchant customers or for merchant customers of its third party clients. Third party clients include Independent Sales Organizations (“ISOs”), Value Added Resellers (“VARs”), Independent Software Vendors (“ISVs”), and financial institutions. The majority of the Company’s revenue within its credit and debit card processing business is comprised of transaction-based fees, which typically constitute a percentage of dollar volume processed, or a fee per transaction processed. In the case where the Company is only the processor of transactions, it charges transaction fees only and records these fees as revenues. In the case of contracts pursuant to which the Company processes credit and debit card transactions for the third parties’ merchant customers, revenues are primarily comprised of fees charged to the merchant, as well as a percentage of the processed sale transaction. The Company’s contracts in most instances involve three parties: the Company, the merchant, and the sponsoring bank. Under certain of these sales arrangements, the Company’s sponsoring bank collects the gross revenue from the merchants, pays the interchange fees and assessments to the credit card associations, collects their fees and pays to the Company a net residual payment representing the Company’s fee for the services provided. Accordingly, under these arrangements, the Company records the revenue net of interchange, credit card association assessments and fees and the sponsoring bank’s fees. Under the majority of the Company’s sales arrangements, the Company is billed directly for certain fees by the credit card associations and the processing bank. In this instance, revenues and cost of revenues include the credit card association fees and assessments and the sponsoring bank’s fees which are billed to the Company and for which it assumes credit risk. In all of the above instances, the Company recognizes processing revenues net of interchange fees, which are assessed to its merchant and third party merchant customers on all processed transactions. Interchange rates and fees are not controlled by the Company. The Company effectively functions as a clearing house collecting and remitting interchange fee settlement on behalf of issuing banks, debit networks, credit card associations and their processing customers.

JetPay Payments, FL functions as the merchant of record and has the primary responsibility for providing end-to-end payment processing services for many of its clients. Clients contract with JetPay Payments, FL for all credit card processing services including transaction authorization, settlement, dispute resolution, security and risk management solutions, reporting and other value-added services. As such, JetPay Payments, FL is the principal obligor in these transactions and is solely responsible for all processing costs, including interchange fees. Further, JetPay Payments, FL sets prices as it deems reasonable for each merchant. The gross fees JetPay Payments, FL collects are intended to cover the interchange, assessments, and other processing fees and include JetPay Payments, FL’s margin on the transactions processed. For these reasons, JetPay Payments, FL is the principal obligor in the contractual relationship with its customers and therefore JetPay Payments, FL records its revenues, including interchange and assessments, on a gross basis. Revenues reported by JetPay Payments, FL include interchange fees of $2.5 million and $585,000 for the three months ended June 30, 2017 and 2016, respectively and $5.3 million and $585,000 for the six months ended June 30, 2017 and 2016, respectively. Other fees assessed by JetPay Payments, FL to certain customers and remitted to partner entities for web and IVR supporting services provided by JetPay Payments, FL’s partner entities are presented on a net basis. The Company follows the guidance provided in ASC Topic 605-45, Revenue Recognition - Principal Agent Considerations. ASC 605-45 states that whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors are considered in the evaluation.

Additionally, the Company’s direct merchant customers have the liability for any charges properly reversed by the cardholder. In the event, however, that the Company is not able to collect such amount from the merchants due to merchant fraud, insolvency, bankruptcy or any other reason, it may be liable for any such reversed charges. The Company in some instances requires cash deposits, guarantees, letters of credit and other types of collateral from certain merchants to minimize any such contingent liability, and it also utilizes a number of systems and procedures to manage merchant risk.

Revenues from the Company’s JetPay HR & Payroll Services operations are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Certain processing services are provided under annual service arrangements with revenue recognized over the service period based on when the efforts and costs are expended. The Company’s service revenues are largely attributable to payroll-related processing services where the fees are based on a fixed amount per processing period or a fixed amount per processing period plus a fee per employee or transaction processed. The revenues earned from delivery service for the distribution of certain client payroll checks and reports is included in processing revenues, and the costs for delivery are included in selling, general, and administrative expenses on the Consolidated Statements of Operations.

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Interest on funds held for clients is earned primarily on funds that are collected from clients before due dates for payroll tax administration services and for employee payment services, and invested until remittance to the applicable tax or regulatory agencies or client employee. These collections from clients are typically remitted between one (1) and thirty (30) days after receipt, with some items extending to ninety (90) days. The interest earned on these funds is included in total revenues on the Consolidated Statements of Operations because the collecting, holding, and remitting of these funds are critical components of providing these services.

Reserve for Chargeback Losses

Disputes between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer through the merchant’s bank and charged to the merchant. If the merchant has inadequate funds, the Company must bear the credit risk for the full amount of the transaction. The Company evaluates the risk for such transactions and estimates the potential loss for chargebacks based primarily on historical experience and records a loss reserve accordingly. The Company believes its reserve for chargeback losses is adequate to cover both the known probable losses and the incurred but not yet reported losses at the balance sheet dates. Chargeback reserves totaling $319,000 and $436,000 were recorded as of June 30, 2017 and December 31, 2016, respectively.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, restricted cash, settlement processing assets and liabilities, accounts receivable, funds held for clients, accounts payable and client fund obligations, approximated fair value as of the balance sheet dates presented, because of the relatively short maturity dates on these instruments. The carrying amounts of the financing arrangements approximate fair value as of the balance sheet dates presented, because interest rates on these instruments approximate market interest rates after consideration of stated interest rates, anti-dilution protection and associated warrants.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable, settlement processing assets and funds held for clients. The Company’s cash and cash equivalents are deposited with major financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount.

Accounts Receivable

The Company’s accounts receivable are due from its merchant credit card and its payroll customers. Credit is extended based on the evaluation of customers’ financial condition and, generally, collateral is not required. Payment terms vary but are typically collected via Automated Clearing House (“ACH”) payments originated by us two (2) to three (3) days following month end. Amounts due from customers are stated in the financial statements net of an allowance for doubtful accounts. Accounts which are outstanding longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivables when they are deemed uncollectible.

Settlement Processing Assets and Funds and Obligations

Funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. Depending on the type of transaction, either the credit card interchange system or the debit network is used to transfer the information and funds between the sponsoring bank and card issuing bank to complete the link between merchants and card issuers. In certain of our processing arrangements, merchant funding primarily occurs after the sponsoring bank receives the funds from the card issuer through the card networks, creating a net settlement obligation on the Company’s Consolidated Balance Sheet. In a limited number of other arrangements, the sponsoring bank funds the merchants before it receives the net settlement funds from the card networks, creating a net settlement asset on the Company’s Consolidated Balance Sheet. Additionally, certain of the Company’s sponsoring banks collect the gross revenue from the merchants, pay the interchange fees and assessments to the credit card associations, collect their fees for processing and pay the Company a net residual payment representing the Company’s fees for the services. In these instances, the Company does not reflect the related settlement processing assets and obligations in its Consolidated Balance Sheet.

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Timing differences in processing credit and debit card and ACH transactions, as described above, interchange expense collection, merchant reserves, sponsoring bank reserves, and exception items result in settlement processing assets and obligations. Settlement processing assets consist primarily of our portion of settlement assets due from customers and receivable from merchants for the portion of the discount fee related to reimbursement of the interchange expense, our receivable from the processing bank for transactions we have funded merchants in advance of receipt of card association funding, merchant reserves held, sponsoring bank reserves and exception items, such as customer chargeback amounts receivable from merchants. Settlement processing obligations consist primarily of merchant reserves, our liability to the processing bank for transactions for which we have received funding from the members but have not funded merchants and exception items.

Settlement assets, funds and obligations resulting from JetPay Payments, FL’s processing services and associated settlement activities include settlement receivables due from credit card associations and debit networks and certain cash accounts to which JetPay Payments, FL does not have legal ownership but has the right to use the accounts to satisfy the related settlement obligations. JetPay Payments, FL’s corresponding settlement obligations are for amounts payable to customers, net of processing fees earned by JetPay Payments, FL. Settlement receivables and payables for credit and debit card transactions are recorded at the gross transaction amounts. The gross amounts are then processed through JetPay Payments, FL’s settlement accounts, and JetPay Payments, FL retains its fees for the transactions upon settlement. Settlement receivables for e-check transactions consist of only JetPay Payments, FL’s fees for the transactions. Settlement receivables are generally collected within four (4) business days. Settlement obligations are generally paid within three (3) business days, regardless of when the related settlement receivables are collected.

Property and Equipment

Property and equipment acquired in the Company’s business acquisitions have been recorded at estimated fair value. The Company records all other property and equipment acquired in the normal course of business at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are generally as follows: leasehold improvements – shorter of economic life or initial term of the related lease; machinery and equipment – five (5) to fifteen (15) years; and furniture and fixtures – five (5) to ten (10) years. Significant additions or improvements extending assets’ useful lives are capitalized; normal maintenance and repair costs are expensed as incurred.

Goodwill

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s business combinations. The Company performs a goodwill impairment test on at least an annual basis. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which are dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company conducts its annual goodwill impairment test as of December 31 of each year or more frequently if indicators of impairment exist. The Company periodically analyzes whether any such indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained significant decline in our stock price and market capitalization, a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, adverse actions or assessments by a regulator, among others. The Company compares the fair value of its reporting unit to its respective carrying value, including related goodwill. Future changes in the industry could impact the results of future annual impairment tests. The Company’s annual goodwill impairment testing indicated there was no impairment as of December 31, 2016. Additionally, no indicators of impairment occurred in the six months ended June 30, 2017. There can be no assurance that future tests of goodwill impairment will not result in impairment charges.

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Identifiable Intangible Assets

Identifiable intangible assets consist primarily of customer relationships, software costs, and tradenames. Certain tradenames are considered to have indefinite lives, and as such, are not subject to amortization. These assets are tested for impairment using undiscounted cash flow methodology annually and whenever there is an impairment indicator. Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized. Several impairment indicators are beyond the Company’s control, and determining whether or not they will occur cannot be predicted with any certainty. Identifiable Intangible assets are amortized on a straight-line basis over their respective assigned estimated lives; customer relationships use eight (8) to fifteen (15) years; tradenames use one (1) to three (3) years; and software costs use one (1) to eight (8) years.

Impairment of Long–Lived Assets

The Company periodically reviews the carrying value of its long-lived assets held and used at least annually or when events and circumstances warrant such a review. If significant events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. Cash flow projections are sometimes based on a group of assets, rather than a single asset. If cash flows cannot be separately and independently identified for a single asset, the Company determines whether impairment has occurred for the group of assets for which it can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, it measures any impairment by comparing the fair value of the asset group to its carrying value. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in the amount of the difference is recorded. The Company’s annual testing indicated there was no impairment as of December 31, 2016. Additionally, no indicators of impairment occurred in the six months ended June 30, 2017.

Convertible Preferred Stock

The Company accounts for the redemption premium, beneficial conversion feature and issuance costs on or of its convertible preferred stock using the effective interest method, accreting such amounts to its convertible preferred stock from the date of issuance to the earliest date of redemption.

Share-Based Compensation

The Company expenses employee share-based payments under ASC Topic 718, Compensation-Stock Compensation, which requires compensation cost for the grant-date fair value of share-based payments to be recognized over the requisite service period. The Company estimates the grant date fair value of the share-based awards issued in the form of options using the Black-Scholes option pricing model.

Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. The dilutive effect of the conversion option in the shares of Series A Preferred and shares of Series A-1 Preferred of 16,949,152 and 1,102,041 shares of common stock, respectively, at June 30, 2017, the effect of 1,353,953 exercisable stock options granted under the Company’s Amended and Restated 2013 Stock Incentive Plan (the “2013 Stock Incentive Plan”) at June 30, 2017 and the effect of 266,667 exercisable warrants issued in connection with the Company’s purchase of treasury shares in February, 2017 have been excluded from the loss per share calculation for the three and six months ended June 30, 2017 in that the assumed conversion of these options would be anti-dilutive. For the three and six months ended June 30, 2016, the dilutive effect of the conversion option in the Flexpoint Series A Preferred and the Wellington Series A-1 Preferred of 9,448,241 and 616,500 shares of common stock, respectively, and the effect of 839,172 exercisable stock options granted under the Company’s 2013 Stock Incentive Plan at June 30, 2016 have been excluded from the loss per share calculation in that the assumed conversion of these options would be anti-dilutive.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company does review the terms of debt instruments it enters into to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single compound derivative instrument.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges recorded within other expenses (income), using the effective interest method.

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Fair Value Measurements

The Company accounts for fair value measurements in accordance with ASC Topic No. 820, Fair Value Measurements and Disclosures (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC Topic 820, assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement.

	Fair Value at June 30, 2017
	Total		Level 1		Level 2		Level 3
			(in thousands)
Contingent consideration	$	1,960	$	-	$	-	$	1,960

	Fair Value at December 31, 2016
	Total		Level 1		Level 2		Level 3
			(in thousands)
Contingent consideration	$	2,982	$	-	$	-	$	2,982

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The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Beginning balance	$	2,742		$	1,156		$	2,982		$	1,296
Addition of JetPay Payments, FL contingent consideration		-			1,975			-			1,975
JetPay Payments, FL contingent consideration shares released from escrow		(525	)		-			(525	)		-
Change in fair value of JetPay Payments, TX contingent consideration		(19	)		21			(54	)		57
Change in fair value of JetPay Payments, PA contingent consideration		-			10			-			20
Change in fair value of JetPay Payments, FL contingent consideration		(238	)		(247	)		(129	)		(247	)
Payment of JetPay Payments, PA contingent consideration		-			-			(314	)		(186	)
Totals	$	1,960		$	2,915		$	1,960		$	2,915

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the financial instrument. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, which reports to the Chief Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department with support from the Company’s outside consultants which are approved by the Chief Financial Officer. Level 3 financial liabilities for the relevant periods consist of contingent consideration related to the JetPay Payments, TX, JetPay Payments, PA and JetPay Payments, FL acquisitions for which there are no current markets such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy will be analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

In addition to the consideration paid upon closing of the JetPay Payments, TX acquisition, WLES, L.P. (“WLES”), through December 28, 2017, is entitled to receive 833,333 shares of common stock if the trading price of the common stock is at least $8.00 per share for any 20 trading days out of a 30 trading day period and $5.0 million in cash if the trading price of the common stock is at least $9.50 per share for any 20 trading days out of a 30 trading day period. This contingent consideration was valued at $1.54 million at the date of acquisition based on utilization of option pricing models and was recorded as a non-current other liability for $700,000 and as additional paid-in capital for $840,000 at December 31, 2012. The stock-based component value of $840,000 recorded at December 28, 2012 (the JetPay Payments, TX acquisition date), remains unchanged at June 30, 2017 as a result of this component being recorded as equity. The fair value at June 30, 2017 of the cash-based contingent consideration, valued at $4,000, recorded within other current liabilities, was determined using a binomial option pricing model. The following assumptions were utilized in the June 30, 2017 calculations: risk free interest rate: 1.14%; dividend yield: 0%; term of contingency of 0.5 years; and volatility: 76.1%.

The fair value of the common stock was derived from the per share price of the common stock at the valuation date. Management determined that the results of its valuation were reasonable. The expected life represents the remaining contractual term of the derivative. The volatility rate was developed based on analysis of the historical volatility rates of similarly situated companies (using a number of observations that was at least equal to or exceeded the number of observations in the life of the derivative financial instrument at issue). The risk free interest rates were obtained from publicly available U.S. Treasury yield curve rates. The dividend yield is zero because the Company has not paid dividends and does not expect to pay dividends in the foreseeable future.

In addition to the consideration paid upon closing of the JetPay Payments, PA acquisition, the previous unitholders were entitled to receive up to an additional $500,000 if certain net revenue goals were achieved through October 31, 2016. This contingent consideration was valued at $400,000 at the date of acquisition, $314,000 at December 31, 2016, and $0 at June 30, 2017, with $186,000 earned and paid to the previous unitholders of JetPay Payments, PA in February 2016 and the remaining $314,000 paid on January 17, 2017.

16

In addition to the consideration paid upon closing of the JetPay Payments, FL acquisition, the previous shareholders are entitled to receive up to an additional 500,000 shares of common stock upon JetPay Payments, FL achieving certain gross profit performance targets in 2016 and 2017 and up to 500,000 warrants to purchase shares of common stock, each with a strike price of $4.00 per share and a 10-year term from its date of issuance, upon JetPay Payments, FL achieving certain gross profit performance targets in 2018 and 2019. This contingent consideration was valued at $1,975,000 at the date of acquisition, $1,770,000 at December 31, 2016 ($563,000 recorded within other current liabilities and $1.2 million recorded within non-current other liabilities), and $1,116,000 at June 30, 2017 (recorded within non-current other liabilities), based on utilization of a Monte Carlo simulation to estimate the variance and relative risk of achieving future gross profit performance targets. Contingent consideration liability of $525,000 was reclassified to additional paid-in capital in June 2017 with 250,000 shares of common stock issued at the closing of the acquisition released from escrow as a result of the 2016 gross profit performance targets being achieved. The key assumptions in applying the Monte Carlo simulation included expected gross profit growth rates, the expected standard deviation and serial correlation of expected net revenue growth rates as well as a normal distribution assumption.

The Company uses either a binomial option-pricing model with a Monte Carlo simulation or the Black-Scholes option valuation model to value Level 3 financial liabilities at inception and on subsequent valuation dates. These models incorporate transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility. A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement.

As of June 30, 2017, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

In accordance with the provisions of ASC Topic 815, Derivatives and Hedging Activities, the Company presented its derivative liability at fair value on its Consolidated Balance Sheets, with the corresponding change in fair value recorded in the Company’s Consolidated Statement of Operations for the applicable reporting periods.

Income Taxes

The Company accounts for income taxes under ASC Topic 740, Income Taxes (“ASC Topic 740”). ASC Topic 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryovers. Deferred income tax expense (benefit) represents the change during the period in the deferred income tax assets and deferred income tax liabilities. In establishing the provision for income taxes and determining deferred income tax assets and liabilities, the Company makes judgments and interpretations based on enacted laws, published tax guidance and estimates of future earnings. ASC Topic 740 additionally requires a valuation allowance to be established when, based on available evidence, it is more likely than not that some portion or the entire deferred income tax asset will not be realized.

ASC Topic 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file income tax returns in the United States (federal) and in various state and local jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions and deductions would be sustained upon examination and does not anticipate any adjustments that would result in material changes to its financial position.

The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of selling, general and administrative expense, respectively. There were no amounts accrued for penalties or interest as of or during the three and six months ended June 30, 2017 and 2016. Management does not expect any significant changes in its unrecognized tax benefits in the next year.

Subsequent Events

Management evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, management did not identify any recognized or non-recognized subsequent events which would have required an adjustment or disclosure in the financial statements, except as described in Note 14. Subsequent Events.

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Recently Adopted Accounting Standards

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The ASU simplifies the presentation of deferred income taxes under U.S. GAAP by requiring that all deferred tax assets and liabilities be classified as non-current. The guidance in ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance is to be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on the criteria for the specific amendments as outlined in the guidance. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company adopted this ASU and it did not have a material impact on the Company’s disclosures in the footnotes to its financial statements.

Recent Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. JetPay has not yet determined the effect of the adoption of this standard on JetPay’s consolidated financial position and results of operations.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU amends the principal versus agent guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was issued in May 2014 (“ASU 2014-09”). Further, in April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This ASU also amends ASU 2014-09 and is related to the identification of performance obligations and accounting for licenses. Most recently, in December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This amendment affects narrow aspects of the guidance issued in ASU 2014-09. The effective date and transition requirements for all of these amendments to ASU 2014-09 are the same as those of ASU 2014-09, which was deferred for one year by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. That is, the guidance under these standards is to be applied using a full retrospective method or a modified retrospective method, as outlined in the guidance, and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the provisions of each of these standards and assessing their impact on the Company’s financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 36): Measurement of Credit Losses on Financial Instruments, which provides guidance that will change the accounting for credit impairment. Under the new guidance, companies are required to measure all expected credit losses for financial instruments held at the reporting date based on historic experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposure. This new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

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In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18), which provides guidance that will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.   This ASU clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). This ASU simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test, which required computing the implied fair value of goodwill. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This new guidance will be effective January 1, 2020. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financial statements and disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies an entity’s ability to modify the terms or conditions of a share-based payment award presented. An entity should account for the effects of a modification unless all the following are met: the fair value of the modified award has not changed from the fair value on the date of issuance; the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and, the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This ASU clarifies the recognition, measurement, and effect on earnings per share of certain freestanding equity-classified financial instruments that include down round features affect entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. This new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

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Note 5.   Property and Equipment, net of Accumulated Depreciation

	June 30, 2017			December 31, 2016
	(in thousands)
Leasehold improvements	$	423		$	417
Equipment		2,201			1,710
Furniture and fixtures		351			330
Computer software		1,236			1,230
Vehicles		245			245
Assets in progress		771			83
Total property and equipment		5,227			4,015
Less: accumulated depreciation		(2,369	)		(1,890	)
Property and equipment, net	$	2,858		$	2,125

Property and equipment included $624,898 and $422,167 of computer equipment as of June 30, 2017 and December 31, 2016, respectively, net of accumulated depreciation of $388,312 and $272,729 as of June 30, 2017 and December 31, 2016, respectively, that is subject to capital lease obligations.

Assets in progress consist primarily of computer software for internal use that will be placed into service upon completion.

Depreciation expense was $248,000 and $188,000 for the three months ended June 30, 2017 and 2016, respectively, and $479,000 and $367,000 for the six months ended June 30, 2017 and 2016, respectively.

Note 6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following (in thousands):

	June 30, 2017		December 31, 2016
Trade accounts payable	$	3,182	$	3,438
ACH clearing liability		912		1,160
Accrued compensation		1,692		1,234
Accrued agent commissions		1,299		1,023
Related party payables		51		424
Accrued legal settlement		873		126
Other		4,111		3,416
Total	$	12,120	$	10,821

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Note 7.   Long-Term Debt, Notes Payable and Capital Lease Obligations

Long-term debt, notes payable and capital lease obligations consist of the following:

	June 30, 2017			December 31, 2016
	(in thousands)
Term loan payable to LHLJ, Inc., interest rate of 8% payable in monthly payments of $128,677, including principal and interest, beginning on October 18, 2016, maturing on October 31, 2021, collateralized by the assets and equity interests of JetPay HR & Payroll Services and JetPay Payments, FL. See Note 12. Related Party Transactions.	$	8,969		$	9,371
Term loan payable to FNB, interest rate of 5.25% payable in monthly principal payments of $104,167 plus interest beginning on November 30, 2015, maturing November 6, 2021, collateralized by the assets and equity interests of JetPay Payments, PA.		5,416			6,042
Term note payable to Fifth Third Bank, interest rate of 4% payable in monthly payments of $27,317, including principal and interest, beginning on July 1, 2016, maturing November 30, 2019, collateralized by the assets and equity interests of JetPay Payments, FL.		779			925
Credit agreement payable to Fifth Third Bank providing for a 12-month draw period through June 22, 2018 for up to $1.6 million, converting into a 36 month amortizing term note maturing June 22, 2021. The credit agreement bears interest at LIBOR plus 3% (4.0% at June 30, 2017), collateralized by the assets and equity interests of JetPay Payments, FL.		400			-
Master equipment capital lease agreement payable to Fifth Third Bank for up to $1.5 million of lease financing to JetPay Payments, FL for a 12-month draw period through June 30, 2018. Interim draws will have a term of up to 48 months and will bear interest at LIBOR plus 3% until termed at a fixed rate set forth in the lease agreement, collateralized by equipment.		-			-
Amended and restated revolving promissory note payable to Fifth Third Bank, interest rate of LIBOR plus 2.00% (3.0% at June 30, 2017), maturing on June 1, 2018.		20			20
Promissory note payable to Merrick, interest rate of 12% beginning October 14, 2016 payable on the promissory note maturing on January 11, 2017, collateralized by the 3,333,333 shares of JetPay common stock issued to WLES and held in escrow. Paid in full on January 15, 2017.		-			5,000
Unsecured promissory note payable to stockholder, interest rate of 4% payable at maturity, note principal due September 30, 2017, as extended. See Note 12. Related Party Transactions.		492			492
Capital lease obligations related to computer equipment and software at JetPay Payments, TX, interest rates of 5.55% to 8.55%, due in monthly lease payments of $30,144 in the aggregate maturing from December 2017 through April 2020 collateralized by equipment.		549			357
		16,625			22,207
Less current portion		(3,189	)		(8,074	)
Less unamortized deferred financing costs		(348	)		(339	)
	$	13,088		$	13,794

The FNB term loan agreement requires the Company to provide FNB with annual financial statements within 120 days of the Company’s year-end and quarterly financial statements within 60 days after the end of each quarter. The FNB agreement also contains certain annual financial covenants with which the Company was in compliance as of June 30, 2017.

On June 2, 2016, in connection with the closing of the Company’s acquisition of JetPay Payments, FL, JetPay Payments, FL entered into a credit agreement with Fifth Third Bank to obtain a $1,068,960 term loan and a revolving line of credit facility of $500,000, in each case secured by all of JetPay Payments, FL’s assets. The term note issued to Fifth Third Bank matures on November 30, 2019 and bears interest at 4.00%. The revolving note issued to Fifth Third Bank matured on June 2, 2017 and was renewed to June 1, 2018 and bears interest at a rate of 2.00% plus the LIBOR Rate for the applicable interest period. The term note and the revolving note are guaranteed by the Company. The underlying credit agreement with Fifth Third Bank contains certain customary covenants, including a financial covenant related to JetPay Payments, FL’s fixed charge coverage ratio, with which the Company was in compliance as of June 30, 2017. The credit agreement was amended on June 22, 2017 as provided below.

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On June 22, 2017, JetPay Payments, FL entered into a new Credit Agreement with Fifth Third Bank, which provides a $1,600,000 Draw/Term Note to finance software integration costs; an Amended and Restated Revolving Promissory Note for $1,000,000 (increasing the previous revolving promissory note for $500,000 and extending maturity to June 1, 2018); and a Second Modification of Credit Agreement. The Draw/Term Note provides for a 12 month draw period through June 22, 2018 (“the Conversion Date”), at which time the loan converts to a 36 month amortizing term loan which matures on June 22, 2021.The Draw/Term Note bears interest at the applicable LIBOR Rate plus 3%. The Draw/Term Note is payable in monthly installments beginning on the Conversion Date and can be prepaid without penalty or premium at any time. At June 30, 2017, $400,000 was outstanding against the $1,600,000 Draw/Term Note.

The Amended and Restated Revolving Promissory Note replaced and superseded the prior $500,000 Revolving Promissory Note payable to Fifth Third Bank, extending its maturity to June 1, 2018. It bears interest at a rate of 2.00% plus the LIBOR rate for the applicable interest period and is expected to be used to extend temporary credit to cover JetPay Payments, FL’s customers’ processing return items.

The Second Modification amends and restates an original term loan to JetPay Payments, FL dated June 2, 2016 in the original amount of $1,068,960.30 to incorporate certain terms in the new Credit Agreement, including incorporating revised debt covenants, financial reporting requirements, collateral requirements, modifications to parent guarantees, and representations and warranties of JetPay Payments, FL.

Additionally, JetPay Payments, FL entered into a Master Equipment Lease Agreement and related Interim Lease Funding Schedule with Fifth Third Bank to provide up to $1.5 million of lease financing for point-of-sale equipment related to certain JetPay Payments, FL customer contracts and other computer equipment. The Interim Lease Funding Schedule provides the details of the allowable equipment to finance and provides for an interim draw periods through June 30, 2018. Upon completion of an interim draw, the leases under the Master Lease Agreement will have a term not exceeding 48 months at an interest rate of LIBOR Rate plus 3% until termed out on a schedule, at which time such leases will amortize and bear interest at a fixed rate set forth in the applicable schedule.

On July 26, 2016, as part of its settlement of litigation with Merrick, the Company issued two promissory notes in favor of Merrick in the amounts of $3,850,000 (the “$3.85MM Note”) and $5,000,000 (the “$5MM Note” and, together with the $3.85MM Note, the “Notes”) to settle legal proceedings involving Merrick Bank. The $3.85MM Note was paid in full on October 21, 2016 and the $5.00MM Note was paid in full on January 11, 2017.

Maturities of long-term debt and capital lease obligations, excluding unamortized financing costs, are as follows for the years ending June 30: 2018 – $3.2 million; 2019 – $2.8 million; 2020 – $2.6 million; 2021 – $2.5 million; 2022 – $5.5 million; and $0 thereafter.

Note 8.    Redeemable Convertible Preferred Stock

Under a Securities Purchase Agreement entered into on August 22, 2013 (as amended, the “Series A Purchase Agreement”), the Company agreed to sell to Flexpoint, and Flexpoint agreed to purchase, upon satisfaction of certain conditions, up to 133,333 shares of Series A Preferred for an aggregate purchase price of up to $40.0 million in three tranches.  The shares of Series A Preferred had a purchase price of $300 per share.

On October 11, 2013, the Company issued 33,333 shares of Series A Preferred to Flexpoint for an aggregate of $10.0 million less certain agreed-upon reimbursable expenses of Flexpoint pursuant to the Series A Purchase Agreement. Additionally, the Company issued 4,667 shares of Series A Preferred to Flexpoint on April 14, 2014 for an aggregate of $1.4 million; 20,000 shares on November 7, 2014 for $6.0 million; 33,333 shares on December 28, 2014 for $10.0 million; and 8,333 shares on August 9, 2016 for $2.5 million. The proceeds of the initial $10.0 million investment were used to retire the note payable to Ten Lords, Ltd. of $5.9 million maturing in December 2013 with the remainder used for general corporate purposes. The proceeds of the April 14, 2014 $1.4 million investment were used to satisfy a portion of the Company’s liability to EarlyBirdCapital, Inc. arising from a March 3, 2014 arbitration decision. The proceeds of the November 7, 2014 $6.0 million investment were used as partial consideration for the acquisition of JetPay Payments, PA. The proceeds of the December 28, 2014 $10.0 million investment were used to redeem certain secured convertible preferred notes that matured on December 31, 2014. The proceeds of the August 9, 2016 $2.5 million investment were used for the payment of certain acquisition expenses related to the JetPay Payments, FL acquisition and for general corporate purposes.

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The Series A Preferred is convertible into shares of common stock.  Any holder of Series A Preferred may at any time convert such holder’s shares of Series A Preferred into that number of shares of common stock equal to the number of shares of Series A Preferred being converted multiplied by $300 and divided by the then-applicable conversion price, which was initially $3.00. Under the Series A Purchase Agreement, Flexpoint and Sundara Investment Partners, LLC are provided with certain indemnification rights in the event of the incurrence of certain losses and expenses by the Company. In April 2015, Flexpoint tendered to the Company a claim letter regarding an indemnification claim with respect to the EarlyBirdCapital matter. On August 6, 2015, in resolution of this claim, Flexpoint and the Company entered into a Letter Agreement, whereby the conversion price of any of the Series A Preferred held by Flexpoint was reduced from $3.00 per share to $2.90 per share. As a result of the settlement of the Direct Air Matter, see Note 11. Commitments and Contingencies, on March 23, 2017, the conversion price of Series A Preferred was further adjusted to $2.36 pursuant to the Series A Securities Purchase Agreement. Pursuant to an agreement by and among the Company, Flexpoint and Sundara, the Series A Preferred conversion price may be adjusted upward upon a successful recovery of funds in the Company’s lawsuit against Valley National Bank. The conversion price of the Series A Preferred continues to be subject to downward adjustment upon the occurrence of certain events.

On October 18, 2016, the Company amended and restated the Series A Purchase Agreement in part to facilitate the Company’s issuance and sale to Sundara of the 33,667 shares of Series A Preferred that had not yet been purchased by Flexpoint (the “Remaining Shares”). Flexpoint’s right to acquire the Remaining Shares was set to expire on October 11, 2016, but was extended until October 25, 2016 by an amendment to the Series A Purchase Agreement, dated October 10, 2016, by and between the Company and Flexpoint. Pursuant to the A&R Purchase Agreement, the Company and Flexpoint provided to Sundara the sole right to purchase the remaining 33,667 shares of Series A Preferred in a single transaction consummated at the signing of the amended and restated Series A Purchase Agreement, for a purchase price of $10,100,100. This issuance was completed on October 18, 2016.

The Series A Preferred has an initial liquidation preference of $600 per share (subject to adjustment for any stock split, stock dividend or other similar proportionate reduction or increase of the authorized number of shares of common stock) and will rank senior to the common stock with respect to distributions of assets upon the Company’s liquidation, dissolution or winding up. Holders of Series A Preferred have the right to request redemption of any shares of Series A Preferred issued at least five (5) years prior to the date of such request by delivering written notice to the Company at the then applicable liquidation value per share, unless holders of a majority of the outstanding Series A Preferred elect to waive such redemption request on behalf of all holders of Series A Preferred, subject to certain exceptions.

In addition to the foregoing, pursuant to a Securities Purchase Agreement (the “Series A-1 Purchase Agreement”) with Wellington dated May 1, 2014, the Company agreed to sell to Wellington, upon the satisfaction of certain conditions, up to 9,000 shares of Series A-1 Preferred at a purchase price of $300 per share for an aggregate purchase price of up to $2.7 million. On May 5, 2014, the Company issued 2,565 shares of Series A-1 Preferred to Wellington for an aggregate of $769,500, less certain agreed-upon reimbursable expenses of Wellington. Additionally, the Company issued to Wellington 1,350 shares of Series A-1 Preferred on November 20, 2014 for $405,000; 2,250 shares of Series A-1 Preferred on December 31, 2014 for $675,000; and 2,835 shares of Series A-1 Preferred on April 13, 2017 for $850,500. The proceeds of the total investment of $2.7 million by Wellington have been used for general corporate purposes.

Shares of Series A-1 Preferred are convertible into shares of the Company’s common stock or, in certain circumstances, Series A-2 Convertible Preferred Stock, par value $0.001 per share. Shares of Series A-1 Preferred may be converted into that number of shares of common stock equal to the number of shares of Series A-1 Preferred being converted multiplied by $300 and divided by the then-applicable conversion price, which initially was $3.00. As a result of the settlement of the Direct Air Matter, on March 23, 2017, the conversion price of Series A-1 Preferred was adjusted to $2.45 pursuant to the Series A-1 Securities Purchase Agreement. Pursuant to an agreement by and among Wellington, the Series A-1 Preferred conversion price may be adjusted upward upon a successful recovery of funds in the Company’s lawsuit against Valley National Bank. The conversion price of the Series A-1 Preferred is subject to further downward adjustment upon the occurrence of certain events as defined in the Series A-1 Purchase Agreement.

The Series A-1 Preferred has an initial liquidation preference of $600 per share and ranks senior to the Company’s common stock and pari passu with the Series A Preferred with respect to distributions of assets upon the Company’s liquidation, dissolution or winding up. Notwithstanding the above, no holder of the Series A-1 Preferred can convert if, as a result of such conversion, such holder would beneficially own 9.9% or more of the Company’s common stock. If at any time, no shares of Series A Preferred remain outstanding and shares of Series A-1 Preferred remain outstanding because of the limitation in the preceding sentence, all shares of Series A-1 Preferred shall automatically convert into shares of Series A-2 Preferred at a 1:1 ratio. Upon the occurrence of an Event of Noncompliance, as defined in the Series A-1 Purchase Agreement, the holders of a majority of the Series A-1 Preferred may demand immediate redemption of all or a portion of the Series A-1 Preferred at the then-applicable liquidation value.

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The Company considered the guidance of ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives, in determining the accounting treatment for its convertible preferred stock instruments. The Company considered the economic characteristics and the risks of the host contract based on the stated and implied substantive terms and features of the instruments; including, but not limited to, its redemption features, voting rights, and conversions rights; and determined that the terms of the preferred stock were more akin to an equity instrument than a debt instrument. Subject to certain exceptions applicable to Sundara, the shares of Series A Preferred and Series A-1 Preferred are subject to redemption, at the option of the holder, on or after the fifth anniversary of their original purchase. Accordingly, the convertible preferred stock has been classified as temporary equity in the Company’s Consolidated Balance Sheets.

Upon issuance of the 33,333 shares of the Series A Preferred, the Company recorded as a reduction to the Series A Preferred and as Additional Paid-In Capital a beneficial conversion feature of $1.5 million. The beneficial conversion feature represents the difference between the effective conversion price and the fair value of the Series A Preferred as of the commitment date. An additional beneficial conversion feature of $396,600 was recorded in August 2015 as a result of the change in conversion price per share from $3.00 to $2.90. Similarly, additional beneficial conversion features of $2.7 million and $2.2 million were recorded in March 2017 with respect to the shares of Series A Preferred issued and sold to Flexpoint in 2013 and the shares of Series A Preferred issued and sold to Sundara in 2016 as a result of the further change in conversion price per share of Series A Preferred from $2.90 to $2.36. There was no beneficial conversion feature related to the 2014, 2015 or the 2016 issuances and sales of shares of Series A Preferred to Flexpoint and shares of Series A-1 Preferred to Wellington as a result of the price of the Company’s common stock at the dates of the closings being below the effective adjusted conversion price of the preferred stock. The Company accounts for the beneficial conversion feature, the liquidation preference, and the issuance costs related to the Series A Preferred and Series A-1 Preferred using the effective interest method by accreting such amounts to its Series A Preferred and Series A-1 Preferred from the date of issuance to the earliest date of redemption as a reduction to its total permanent equity within the Company’s Consolidated Statement of Changes in Stockholders’ Equity as a charge to Additional Paid-In Capital. Any accretion recorded during the periods presented are also shown as a reduction to the income available to common stockholders in the Company’s Consolidated Statements of Operations when presenting basic and dilutive per share information. Accretion was $2.7 million and $1.5 million for the three months ended June 30, 2017 and 2016, respectively, and $4.8 million and $2.9 million for the six months ended June 30, 2017 and 2016, respectively.

Upon the occurrence of an Event of Noncompliance, the holders of a majority of the Series A Preferred may demand immediate redemption of all or a portion of the shares of Series A Preferred at the then-applicable liquidation value.  Such holders may also exercise a right to have the holders of the Series A Preferred elect a majority of the Board by increasing the size of the Board and filling such vacancies.  Such right to control a minimum majority of the Board would exist for so long as the Event of Noncompliance continues. An “Event of Noncompliance” shall have occurred if: (i) the Company fails to make any required redemption payment with respect to the Series A Preferred; (ii) the Company breaches the Series A Purchase Agreement and such breach has not been cured within thirty days after receipt of notice thereof; (iii) the Company or any subsidiary makes an assignment for the benefit of creditors, admits its insolvency or is the subject of an order, judgment or decree adjudicating such entity as insolvent, among other similar actions; (iv) a final judgment in excess of $5.0 million is rendered against the Company or any subsidiary that is not discharged within 60 days thereafter; or (v) an event of default has occurred under the Prior HR & Payroll Services Credit Facility, and such event of default has not been cured within thirty days after receipt of notice thereof.

Note 9.    Stockholders’ Equity

Common Stock

On January 22, 2016, the Company sold 37,037 shares of common stock to an additional investor at a purchase price of $2.70 per share for consideration of $100,000 prior to issuance costs of approximately $36,000.

On June 29, 2016, the Board of Directors approved an amendment and restatement of the JetPay Corporation 2013 Stock Incentive Plan, which was subsequently approved by the Company’s stockholders at the Company’s 2016 Annual Meeting of Stockholders held on August 2, 2016. The Amended and Restated 2013 Stock Incentive Plan (the “Amended and Restated 2013 Plan”) authorizes the availability of an additional 1,000,000 shares of common stock available for the grant of awards under the 2013 Stock Incentive Plan, for a total of 3,000,000 shares of common stock total available under the Plan.

On July 1, 2016, the Company issued 22,876 shares of common stock under its Employee Stock Purchase Plan and an additional 51,480 shares on January 5, 2017.

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Treasury Stock

On February 15, 2017, the Company repurchased 2.2 million shares of its common stock owned by WLES, which WLES had agreed to sell in connection with the Direct Air matter as part of the WLES Settlement Agreement dated July 26, 2016. JetPay had previously repaid a $5.0 million Note due to Merrick Bank in January 2017, which WLES had agreed to indemnify as part of the WLES Settlement Agreement by agreeing to sell the 2.2 million shares to satisfy JetPay’s obligations in relation to the $5.0 million Note. As a result, no additional consideration was due to WLES in connection with the stock buyback. Effective February 15, 2017 the 2.2 million shares of JetPay common stock were placed in treasury at a cost of $4.95 million and are available for issuance.

Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.001 per share with such designations, rights and preferences as may be determined from time to time by the Company’s Board of Directors.

As of June 30, 2017 and December 31, 2016, there were no shares of preferred stock issued or outstanding other than the Series A Preferred issued to Flexpoint and Sundara and the Series A-1 Preferred issued to Wellington described above.

Stock-Based Compensation

ASC Topic 718, Compensation-Stock Compensation, requires compensation expense for the grant-date fair value of share-based payments to be recognized over the requisite service period.

The Amended and Restated 2013 Plan had available 433,752 shares of common stock for the grant of awards as of June 30, 2017.

The Company granted options to purchase 340,000 and 380,000 shares of common stock under the Amended and Restated 2013 Stock Incentive Plan during the six months ended June 30, 2017 and 2016, respectively, all at an exercise price of $3.00 per share except for 250,000 options granted at $2.48 per share in May 2016, the closing price of the Company’s common stock on the date of grant. The grant date fair value of the options granted during the six months ended June 30, 2017 and 2016 were determined to be approximately $399,000 and $425,000, respectively, using the Black-Scholes option pricing model. Aggregated stock-based compensation expense was $190,000 and $93,000 for the three months ended June 30, 2017 and 2016, respectively, and $361,000 and $164,000 for the six months ended June 30, 2017 and 2016, respectively. Unrecognized compensation expense as of June 30, 2017 relating to non-vested common stock options was approximately $1.3 million and is expected to be recognized through 2021. During the six months ended June 30, 2017 and 2016, no options were exercised and 20,000 and 156,667 options, respectively, were forfeited.

The fair values of the Company’s options were estimated at the dates of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2017		2016	2017	2016
Expected term (years)		6.25	5.75 to 6.25	6.25	5.75 to 6.25
Risk-free interest rate		1.93%	1.36% to 1.50%	1.93% to 2.10%	1.36% to 1.50%
Volatility		65.6%	34.6% to 54.7%	62.3% to 65.6%	34.6% to 54.7%
Dividend yield		0%	0%	0%	0%

Expected term: The Company’s expected term is based on the period the options are expected to remain outstanding. The Company estimated this amount utilizing the “Simplified Method” in that the Company does not have sufficient historical experience to provide a reasonable basis to estimate an expected term.

Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.

Volatility: The Company calculates the volatility of the stock price based on historical value and corresponding volatility using a weighted average of both the Company’s stock price and the Company’s peer group stock price for a period consistent with the stock option expected term.

Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.

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A summary of stock option activity for the six months ended June 30, 2017 and the year ended December 31, 2016 is presented below:

	Number of Options			Weighted Average Exercise Price
Outstanding at December 31, 2015		1,717,082		$	3.02
Granted		905,000			2.70
Forfeited		(375,834	)		3.00
Exercised		-			-
Outstanding at December 31, 2016		2,246,248		$	2.89
Granted		340,000			3.00
Forfeited		(20,000	)		3.00
Exercised		-			-
Outstanding at June 30, 2017		2,566,248		$	2.90
Exercisable at June 30, 2017		1,353,953		$	2.93

The weighted average remaining life of options outstanding at June 30, 2017 was 8.04 years. The aggregate intrinsic value of the exercisable options at June 30, 2017 was $0.

Employee Stock Purchase Plan

On June 29, 2015, the Board of Directors adopted the JetPay Corporation Employee Stock Purchase Plan (the "Purchase Plan"), which was subsequently approved by the Company’s stockholders at the Company’s 2015 Annual Meeting of Stockholders. The Purchase Plan allows employees to contribute a percentage of their cash earnings, subject to certain maximum amounts, to be used to purchase shares of the Company’s common stock on each of two (2) semi-annual purchase dates. The purchase price is equal to 90% of the market value per share on either: (a) the date of grant of a purchase right under the Purchase Plan; or (b) the date on which such purchase right is deemed exercised, whichever is lower.

As of June 30, 2017, an aggregate of 300,000 shares of common stock were reserved for issuance under the Purchase Plan, of which 22,876 shares of common stock were issued on July 1, 2016, 51,480 issued on January 5, 2017 and 40,310 shares on July 12, 2017.

Note 10.    Income Taxes

The Company recorded income tax expense (benefit) of $81,000 and $(1.53) million for the three months ended June 30, 2017 and 2016, respectively, and $143,000 and $(1.47) million for the six months ended June 30, 2017 and 2016, respectively. Income tax expense (benefit) reflects the recording of federal and state income taxes. The effective tax rates were approximately (6.5)% and 21.5% for the three months ended June 30, 2017 and 2016, respectively, and (10.6)% and 18.3% for the six months ended June 30, 2017 and 2016, respectively. The effective rate differs from the federal statutory rate for each period, primarily due to state and local income taxes and changes to the valuation allowance.

As of June 30, 2016, due to the acquisition of JetPay Payments, FL and its related identifiable intangibles and the recording of an associated $1.86 million deferred tax liability, management believed that it was more likely than not that the benefit of a portion of its federal net deferred tax assets would be realized equal to the future source of taxable income created by the reversal of the book amortization of the JetPay Payments, FL fixed assets and identifiable intangible assets. Accordingly, management believes recording a partial reduction of the valuation allowance against its federal net deferred tax asset of $1.6 million is appropriate.

JetPay Payments, TX is subject to and pays the Texas Margin Tax which is considered to be an income tax in accordance with the provisions of the Income Taxes Topic in FASB, ASC and the associated interpretations. There are no significant temporary differences associated with the Texas Margin Tax.

As of December 31, 2016, the Company had U.S. federal net operating loss carryovers (“NOLs”) of approximately $25.9 million available to offset future taxable income. These NOLs, if not utilized, expire at various times through 2036. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s NOLs may be subject to an annual limitation in the event of a change in control.

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In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that a total valuation allowance of approximately $9.4 million at June 30, 2017 is appropriate, representing the amount of its deferred income tax assets in excess of certain of the Company’s deferred income tax liabilities. The deferred tax liability related to goodwill that is amortizable for tax purposes (“Intangibles”) will not reverse until such time, if any, that the goodwill, which is considered to be an asset with an indefinite life for financial reporting purposes, becomes impaired or sold. Due to the uncertain timing of this reversal, the temporary difference cannot be considered as future taxable income for purposes of determining a valuation allowance. Therefore, the deferred tax liability related to tax deductible goodwill Intangibles cannot be considered when determining the ultimate realization of deferred tax assets.

Note 11.   Commitments and Contingencies

On or about March 13, 2012, a merchant of JetPay, LLC, Direct Air, a charter travel company, abruptly ceased operations and filed for bankruptcy. Under United States Department of Transportation requirements, all charter travel company customer charges for travel are to be deposited into an escrow account in a bank under a United States Department of Transportation escrow program, and not released to the charter travel company until the travel has been completed. In the case of Direct Air, such funds had historically been deposited into such United States Department of Transportation escrow account at Valley National Bank in New Jersey, and continued to be deposited through the date Direct Air ceased operations. At the time Direct Air ceased operations, according to Direct Air’s bankruptcy trustee, there should have been in excess of $31.0 million in the escrow account. Instead there was approximately $1.0 million. As a result, Merrick Bank Corporation (“Merrick”), JetPay, LLC’s sponsor bank with respect to this particular merchant, incurred chargebacks in excess of $25.0 million. Merrick maintained insurance through a Chartis Insurance Policy for chargeback losses that named Merrick as the primary insured. The policy had a limit of $25.0 million and a deductible of $250,000. Merrick sued Chartis Insurance (“Chartis”) for payment under the claim. Under an agreement between Merrick and JetPay, LLC, JetPay, LLC had certain obligations to indemnify Merrick for losses realized from such chargebacks that Merrick was unable to recover from other parties. JetPay, LLC recorded a loss for all chargebacks in excess of $25.0 million, the $250,000 deductible on the Chartis insurance policy and $487,000 of legal fees charged against JetPay, LLC’s cash reserve account by Merrick, totaling $1.9 million in 2012, as well as an additional $597,000 in legal fees charged against JetPay, LLC’s cash reserve account by Merrick through September 30, 2013. In December 2013, Merrick, in addition to its suit against Chartis, also filed suit against Valley National Bank as escrow agent. In February 2015, JetPay joined that suit, along with American Express. During 2012 and 2013, Merrick required JetPay, LLC to maintain increased cash reserves in order to provide additional security for any obligations arising from the Direct Air situation. As of June 30, 2016, Merrick held approximately $4.4 million of total reserves related to the Direct Air matter, which amount was released in full to Merrick under the Merrick Settlement Agreement in July 2016, as more fully described below.

On August 7, 2013, JetPay Merchant Services, LLC (“JPMS”), then a wholly owned subsidiary of JetPay, LLC and indirect wholly-owned subsidiary of the Company, together with WLES (collectively, the “Plaintiffs”), filed suit in the United States District Court for the Northern District of Texas, Dallas Division, against Merrick, Royal Group Services, LTD, LLC and Gregory Richmond (collectively, the “Defendants”). The suit alleged that Merrick and Gregory Richmond (an agent of Royal Group Services) represented to JPMS that insurance coverage was arranged through Chartis Specialty Insurance Company to provide coverage for JPMS against potential chargeback losses related to certain of JPMS’s merchant customers, including Southern Sky Air Tours, d/b/a Direct Air. The complaint alleged several other causes of action against the Defendants, including violation of state insurance codes, negligence, fraud, breach of duty and breach of contract. Also, in August 2013, JPMS, JetPay, LLC, and JetPay ISO Services, LLC (“JetPay ISO”) filed the second amendment to a previously filed complaint against Merrick in the United States District Court for the District of Utah, adding to its initial complaint several causes of action related to actions Merrick allegedly took during JetPay, LLC’s transition to a new sponsoring bank in June 2013. Additionally, subsequent to this transition, Merrick invoiced the Company for legal fees incurred by Merrick totaling approximately $4.7 million. The Company did not believe it had a responsibility to reimburse Merrick for these legal fees and disputed these charges. Accordingly, the Company had not recorded an accrual for these legal fees as of June 30, 2016. These legal fees were eliminated as part of the Merrick Settlement Agreement, as described below.

As partial protection against any potential losses related to Direct Air, the Company required that, upon closing of the acquisition of JetPay, LLC, 3,333,333 shares of common stock that was to be paid to WLES as part of the JetPay, LLC acquisition be placed into an escrow account with JP Morgan Chase as the trustee. If JetPay, LLC suffered any liability as a result of the Direct Air matter, these shares would be used in partial payment for any such liability, with any remaining shares delivered to WLES.

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On July 26, 2016, we entered into two related settlement agreements: (i) a Settlement Agreement and Release by and among Merrick, the Company, certain subsidiaries of the Company and WLES (the “Merrick Settlement Agreement”) and (ii) a Settlement Agreement and Release by and among Trent Voigt, WLES and the Company (the “WLES Settlement Agreement”). In connection with the parties’ entry into the Merrick Settlement Agreement, the District Court for the District of Utah dismissed the Direct Air matter with prejudice on July 27, 2016.

As part of the Merrick Settlement Agreement, we agreed to release all claims to the $4.4 million held in reserve at Merrick. In addition, pursuant to the Merrick Settlement Agreement, we issued to Merrick the $3,850,000 note, bearing interest at a rate of 8% per annum, due December 28, 2017 (the “$3.85MM Note”) and a $5,000,000 note, bearing interest at a rate of 12% per annum, due January 11, 2017 (the “$5MM Note” and, together with the $3.85MM Note, the “Notes”) to Merrick. The Notes were secured by the 3,333,333 shares of JetPay’s common stock issued in the name of WLES and held in escrow.

In connection with its entry into the Merrick Settlement Agreement, JetPay executed three Stipulated and Confessed Judgments in favor of Merrick in the amounts of $32,500,000 (the “First Judgment”), $28,650,000 (the “Second Judgment”) and $27,500,000 (the “Third Judgment” and, together with the First Judgment and the Second Judgment, the “Judgments”), none of which would be of any effect unless and until JetPay failed to make any payment when due under the Notes. If JetPay failed to make payment when due under the Notes, Merrick, after a five (5) day cure period, would have been able to seek to obtain and/or enforce the applicable Judgments in the Federal District Court for Utah or in any court of competent jurisdiction. On October 21, 2016, the Company paid in full the $3.85MM Note and on January 11, 2017, the Company paid in full the $5.0MM Note. As a result, no Judgments are available for Merrick’s relief.

Under the terms of the WLES Settlement Agreement, WLES agreed to transfer the indebtedness represented by that certain promissory note, dated December 28, 2012 (the “WLES Note”), in the original principal amount of $2,331,369 issued by JetPay in favor of WLES to Merrick. In addition, WLES agreed to amend that certain promissory note, dated June 7, 2013, as amended, in the original principal amount of $491,693 issued by JetPay, LLC in favor of Trent Voigt in order to (a) extend its maturity date from September 30, 2016 to September 30, 2017 and (b) waive all interest payments for the period from September 30, 2016 to September 30, 2017. This note in favor of Mr. Voigt shall become due and payable immediately should Mr. Voigt’s employment with JetPay be terminated other than for cause.

The WLES Settlement Agreement also provides for the allocation of any recoveries by JPMS in connection with the claims brought by JMPS in American Express Travel Related Services and JetPay Merchant Services, LLC v. Valley National Bank, Civil Action No. 2:14-cv-7827 (D. N.J.) between the Company and WLES. On February 15, 2017, 2,200,000 of the WLES escrowed shares were transferred to JetPay and placed into Treasury to satisfy WLES’ indemnification under the Merrick and WLES Settlement Agreements.

The Company has recorded a Settlement of Legal Matter charge of $6.19 million for the year ended December 31, 2016 based on the terms of the Merrick Settlement Agreement and the WLES Settlement Agreement. The loss includes: (i) a charge of $4.4 million related to the Company’s release of all claims to the $4.4 million held in reserve at Merrick; (ii) a charge of $1.4 million related to the Company’s issuance of the $3.85MM Note, less WLES’s agreement to transfer the WLES Note (recorded at $2,036,511, net of an unamortized discount of $294,858) and accrued interest on the WLES Note of $414,466; (iii) a charge of $50,000 representing the Company’s issuance of the $5.0MM Note less the estimated value as of July 26, 2016 of the escrowed shares; and (iv) a charge for $373,334 representing the fair value of the issuance of warrants to WLES as described in the WLES Settlement Agreement.

At the time of the acquisition of JetPay, LLC, the Company entered into an Amendment, Guarantee, and Waiver Agreement (the “Agreement”), dated December 28, 2012, between the Company, Ten Lords, Ltd. (“Ten Lords”) and JetPay, LLC (n/k/a JetPay Payment Services, TX, LLC). Under the Agreement, Ten Lords agreed to extend payment of a $6.0 million note remaining outstanding at the date of acquisition for up to twelve months. The terms of the Agreement required that the Company provide the owners of Ten Lords and Providence Interactive Capital, LLC (together with Ten Lords, the “Plaintiffs”) with a “true up” payment meant to put them in the same after-tax economic position as they would have been had the note been paid in full on December 28, 2012. The Company calculated this true-up payment to be $222,310 and paid such amount in August 2015. In addition to the $222,310 paid in 2015, the Company recorded an additional loss accrual of $125,500 relating to this matter. Subsequent to the Company’s payment, the Company received notice on October 5, 2015 that Plaintiffs filed a lawsuit (the “Lawsuit”) against JetPay, LLC and the Company disputing the true up payment. Since 2015, the Company and JetPay, LLC have been defendants in the Lawsuit in the 429th Judicial District Court of Collin County, Texas (the “Court”) styled Ten Lords, Ltd. and Providence Interactive Capital, LLC, Cause No. 429-04140-2015. The Lawsuit was tried in the Court on May 2, 2017 and the Court granted a judgment to Plaintiffs in the amount of $793,000 plus attorneys’ fees of $134,075, which judgment was entered by the Court on May 15, 2017 (the “Judgment”). On July 3, 2017, the Company and JetPay, LLC successfully settled the Lawsuit by entering into a Compromise Settlement Agreement and Mutual Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid to Plaintiffs the sum of $872,500 on July 3, 2017 and the parties released one another and their respective affiliates from all claims arising out of the matters described in the Lawsuit and the Judgment. In connection with this settlement, the Company recorded an additional loss of $747,000 in the three months ended June 30, 2017.

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In December 2015, Harmony Press Inc. (“Harmony”), a customer of ADC and PTFS, filed a suit against an employee of Harmony for theft by that employee of over $628,000. JetPay, ADC, and PTFS as well as several financial institution service providers to Harmony were also named in that suit for alleged negligence. The Company believes that the allegations in the suit regarding JetPay, ADC, and PTFS are groundless and has turned the matter over to the Company’s insurance carrier who is defending the suit. The Company is subject to a $50,000 deductible under its insurance policy. The Company has not recorded an accrual for any potential loss related to this matter as of June 30, 2017 and has incurred legal expense of $50,000 applied against its deductible, through June 30, 2017.

The Company is a party to various other legal proceedings related to its ordinary business activities. In the opinion of the Company’s management, none of these proceedings are material in relation to our results of operations, liquidity, cash flows, or financial condition.

Note 12.    Related Party Transactions

JetPay Payroll Services’ headquarters are located in Center Valley, Pennsylvania and consist of approximately 22,500 square feet leased from C. Nicholas Antich and Carol A. Antich. Mr. Antich is the former President of JetPay HR & Payroll Services. The rent is currently $45,163 per month. The office lease had an initial 10-year term which expired on May 31, 2016 and was extended through August 31, 2017. Rent expense under this lease was $135,500 and $131,250 for the three months ended June 30, 2017 and 2016, respectively, and $270,978 and $260,400 for the six months ended June 30, 2017 and 2016. The Company is currently evaluating its future space needs and reviewing several alternatives, including a possible further extension or amendment to the current lease.

JetPay Payments, TX retains a backup center in Sunnyvale, Texas consisting of 1,600 square feet, rented from JT Holdings, an entity controlled by Trent Voigt, the previous Chief Executive Officer of JetPay Payments, TX. The prior lease expired on January 31, 2016. Rent expense was $12,000 and $30,000 for the three months ended June 30, 2017 and 2016, respectively and $47,000 and $53,000 for the six months ended June 30, 2017 and 2016, respectively. As a part of current negotiations with Mr. Voigt regarding the property and other related matters, the Company and JT Holdings entered into an agreement to extend the lease for twelve months beginning on July 1, 2017 at a monthly rate of $6,000 plus utilities and certain other costs.

In connection with the closing of the Company’s acquisition of JetPay Payments, TX, the Company entered into a Note and Indemnity Side Agreement with JP Merger Sub, LLC, WLES and Trent Voigt (the “Note and Indemnity Side Agreement”) dated as of December 28, 2012. Pursuant to the Note and Indemnity Side Agreement, the Company issued a promissory note in the amount of $2,331,369 in favor of WLES. Interest accrued on amounts due under the note at a rate of 5% per annum, and is payable quarterly. Interest expense was $29,500 and $59,000 or the three and six months ended June 30, 2016, respectively. Under the terms of the WLES Settlement Agreement, WLES transferred the WLES Note and related accrued interest to Merrick. See Note 11. Commitments and Contingencies.

On August 22, 2013, JetPay Payments, TX entered into a Master Service Agreement with JetPay Solutions, LTD, a United Kingdom based entity 75% owned by WLES, an entity owned by Trent Voigt. The Company initiated transaction business under this agreement beginning in April 2014 with revenue earned from JetPay Solutions, LTD of $9,000 and $6,000 for the three months ended June 30, 2017 and 2016, respectively, and $35,000 and $11,000 for the six months ended June 30, 2017 and 2016, respectively.

On June 7, 2013, the Company issued an unsecured promissory note to Trent Voigt, the then Chief Executive Officer of JetPay Payments, TX, in the amount of $491,693. The note matures on September 30, 2017, as extended by the WLES Settlement Agreement dated July 26, 2016, see Note 11. Commitments and Contingencies, and beared interest at an annual rate of 4% with interest expense of $4,900 and $9,800 recorded for the three and six months ended June 30, 2016, respectively. The transaction was approved upon resolution and review by the Company’s Audit Committee of the terms of the note to ensure that such terms were no less favorable to the Company than those that would be available with respect to such transactions from unaffiliated third parties. See Note 7. Long-Term Debt, Notes Payable and Capital Lease Obligations.

On May 6, 2015, the Company issued an unsecured promissory note to C. Nicholas Antich, the then President of JetPay HR & Payroll Services, and Carol A. Antich in the amount of $350,000 to satisfy the remaining balance of the $2.0 million deferred consideration. The promissory note bore interest at an annual rate of 4% and was scheduled to mature on May 6, 2017, payable in two equal installments of $175,000, with the first paid on May 6, 2016 and the second due on May 6, 2017. The promissory note was paid in full on December 31, 2016. Interest expense related to this promissory note was $2,500 and $6,100 for the three and six months ended June 30, 2016, respectively. The promissory note was approved upon resolution and review by the Company’s Audit Committee of the terms of the promissory note to ensure that such terms were no less favorable to the Company than those that would be available with respect to such transactions from unaffiliated third parties.

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On December 22, 2015, the Company entered into securities purchase agreements (the “Insider Common Stock SPAs”) with each of certain investors, including Bipin C. Shah, its Chairman and then Chief Executive Officer, Robert B. Palmer, Director and Chair of the Audit Committee, and Jonathan M. Lubert, Director. Pursuant to the Insider Common Stock SPAs, Messrs. Shah, Palmer and Lubert each agreed to purchase 20,000 shares, or an aggregate of 60,000 shares, of the Company’s common stock at a purchase price of $2.70 per share (a price greater than the closing bid price of the common stock on December 21, 2015, which was the last closing bid price preceding the Company’s execution of each of the Insider Common Stock SPAs), for aggregate consideration of $162,000, prior to issuance costs.

On January 15, 2016, the Company issued the Promissory Notes in favor of each of Bipin C. Shah, Jonathan Lubert and Flexpoint. Amounts outstanding under the Promissory Notes accrued interest at a rate of 12% per annum and carried a default interest rate upon the occurrence of certain events of default, including failure to make payment under the applicable Promissory Note or a sale of the Company. Interest expense related to the Promissory Notes was $177,000 for the year ended December 31, 2016. The maturity date of the Promissory Notes was extended to July 31, 2016 through an extension executed on April 11, 2016. On July 26, 2016, Jonathan Lubert and Flexpoint agreed to further extend their Promissory Notes to September 30, 2016 or the occurrence of an event of a default that is not properly cured or waived. Additionally, Flexpoint increased the principal amount of its expiring Promissory Note from $1,000,000 to $1,400,000, the proceeds of which increase were used to pay off the outstanding balance of the promissory note issued to Bipin C. Shah due on July 31, 2016. Finally, on September 30, 2016, Jonathan Lubert and Flexpoint agreed to further extend their Promissory Notes to October 31, 2016. The promissory notes in favor of Mr. Lubert and Flexpoint were paid in full on October 21, 2016.

Finally, on October 18, 2016, the Company entered into the amended and restated Series A Purchase Agreement with Flexpoint and Sundara, a Delaware limited liability company wholly-owned by Laurence L. Stone. Pursuant to the amended and restated Series A Purchase Agreement, Sundara acquired 33,667 shares of Series A Preferred for $10.1 million. In connection with the Company’s entry into the amended and restated Series A Purchase Agreement, Mr. Stone was appointed as a director of the Company by holders of Series A Preferred shares. In addition, on October 18, 2016, the Company entered into a loan and security agreement with JetPay HR & Payroll Services and PTFS, as borrowers, the Company and JetPay Payments, FL, as guarantors, and LHLJ, Inc., an entity wholly-owned by Laurence L. Stone, as lender. Pursuant to the loan and security agreement, LHLJ, Inc., LHLJ, Inc. provided JetPay HR & Payroll Services and PTFS a term loan of $9.5 million. The loan carries an interest rate of 8% and matures on October 18, 2021. Interest expense related to this promissory note was $184,000 and $370,000 for the three and six months ended June 30, 2017. In connection with the parties’ entry into the loan and security agreement, the borrowers paid LHLJ, Inc. a non-refundable closing fee of $190,000.

Note 13.    Segments

The Company currently operates in two business segments, the JetPay Payment Services Segment, which is an end-to-end processor of credit and debit card and ACH payment transactions to businesses with a focus on those processing internet transactions and recurring billings, and the JetPay HR & Payroll Segment, which is a full-service payroll and related payroll tax payment processor.

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Segment operating results are presented below (in thousands). The results reflect revenues and expenses directly related to each segment. The activity within JetPay Card Services was included in JetPay HR & Payroll for the three and six months ended June 30, 2017 and 2016, and in Corporate, for the three and six months ended June 30, 2017 and 2016 in the tables below.

	For the Three Months Ended June 30, 2017
	JetPay Payment Services		JetPay HR & Payroll Services			General/ Corporate			Total
Processing revenues	$	14,988	$	3,789		$	-		$	18,777
Cost of processing revenues		10,874		2,175			-			13,049
Selling, general and administrative expenses		3,047		1,507			502			5,056
Settlement of legal matter		-		-			747			747
Change in fair value of contingent consideration liability		-		-			(257	)		(257	)
Amortization of intangibles and depreciation		795		327			1			1,123
Other expenses		88		212			4			304
Income (loss) before income taxes	$	184	$	(432	)	$	(997	)	$	(1,245	)

	For the Three Months Ended June 30, 2016
	JetPay Payment Services			JetPay HR & Payroll Services			General/ Corporate			Total
Processing revenues	$	8,830		$	3,368		$	14		$	12,212
Cost of processing revenues		6,471			1,816			19			8,306
Selling, general and administrative expenses		2,125			1,211			438			3,774
Settlement of legal matter		6,140			-			-			6,140
Change in fair value of contingent consideration liability		-			-			(216	)		(216	)
Amortization of intangibles and depreciation		626			340			1			967
Other expenses		160			67			107			334
Loss before income taxes	$	(6,692	)	$	(66	)	$	(335	)	$	(7,093	)

	For the Six Months Ended June 30, 2017
	JetPay Payment Services		JetPay HR & Payroll Services			General/ Corporate			Total
Processing revenues	$	29,292	$	8,427		$	-		$	37,719
Cost of processing revenues		21,216		4,418			-			25,634
Selling, general and administrative expenses		5,675		3,001			1,336			10,012
Settlement of legal matter		-		-			747			747
Change in fair value of contingent consideration liability		-		-			(183	)		(183	)
Amortization of intangibles and depreciation		1,578		648			2			2,228
Other expenses		179		426			26			631
Income (loss) before income taxes	$	644	$	(66	)	$	(1,928	)	$	(1,350	)
Total property and equipment, net	$	2,314	$	514		$	30		$	2,858
Property and equipment additions	$	1,213	$	106		$	3		$	1,322
Intangible assets and goodwill	$	57,143	$	16,176		$	-		$	73,319
Total segment assets	$	122,086	$	68,778		$	2,674		$	193,538

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	For the Six Months Ended June 30, 2016
	JetPay Payment Services			JetPay HR & Payroll Services		General/ Corporate			Total
Processing revenues	$	16,163		$	7,663	$	29		$	23,855
Cost of processing revenues		11,762			3,886		58			15,706
Selling, general and administrative expenses		3,828			2,530		1,223			7,581
Settlement of legal matter		6,140			-		-			6,140
Change in fair value of contingent consideration liability		-			-		(170	)		(170	)
Amortization of intangibles and depreciation		1,197			679		3			1,879
Other expenses		311			140		313			764
Income (loss) before income taxes	$	(7,075	)	$	428	$	(1,398	)	$	(8,045	)
Total property and equipment, net	$	1,550		$	502	$	32		$	2,084
Property and equipment additions	$	409		$	93	$	-		$	502
Intangible assets and goodwill	$	59,065		$	17,214	$	-		$	76,279
Total segment assets	$	100,293		$	68,556	$	420		$	169,269

Note 14.    Subsequent Events

On July 3, 2017, the Company and JetPay, LLC successfully settled that lawsuit captioned Ten Lords, Ltd. and Providence Interactive Capital, LLC in the 429^th Judicial District Court of Collin County by entering into a Compromise Settlement Agreement and Mutual Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid to Plaintiffs the sum of $872,500 and the parties to the lawsuit released one another and their respective affiliates from all claims related to the lawsuit.

On July 12, 2017, the Company issued 40,310 shares of common stock under the Company’s Employee Stock Purchase Plan.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto included in this Quarterly Report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

As used in this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the references to “our company,” “the Company,” “JetPay,” “us,” “we” and “our” refer to JetPay Corporation.

This report and other written or oral statements made from time to time by us may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can sometimes identify forward looking-statements by our use of the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “forecast,” “guidance” and similar expressions. Some of the statements we use in this report contain forward-looking statements concerning our business operations, economic performance and financial condition, including in particular: our business strategy and means to implement the strategy; measures of future results of operations, such as revenue, expenses, operating margins, income tax rates, and earnings per share; other operating metrics such as shares outstanding and capital expenditures; our success and timing in developing and introducing new products or services and expanding our business; and the successful integration of future acquisitions.

Although we believe that the plans and expectations reflected in or suggested by our forward-looking statements are reasonable, those statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, many of which are beyond our control, cannot be foreseen and reflect future business decisions that are subject to change. Accordingly, we cannot guarantee you that our plans and expectations will be achieved. Our actual revenues, revenue growth rates and margins, other results of operations and shareholder values could differ materially from those anticipated in our forward-looking statements as a result of known and unknown factors, many of which are beyond our ability to predict or control. These factors include, but are not limited to, those set forth in Item 1A - Risk Factors of this report and in our Annual Report on Form 10-K, those set forth elsewhere in this report and those set forth in our press releases, reports and other filings made with the SEC. These cautionary statements qualify all of our forward-looking statements, and you are cautioned not to place undue reliance on these forward-looking statements.

Our forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date. While we may elect to update or revise forward-looking statements at some time in the future, we specifically disclaim any obligation to publicly release the results of any revisions to our forward-looking statements.

Overview

We were incorporated on November 12, 2010 as a blank check company to serve as a vehicle to acquire through a merger, share exchange, asset acquisition, stock purchase, plan of arrangement, recapitalization, reorganization or other similar business combination, one or more operating businesses. As previously disclosed, we completed the acquisitions of JetPay Payments, TX (f/k/a JetPay, LLC) and JetPay HR & Payroll (f/k/a A. D. Computer Corporation), on December 28, 2012, JetPay Payments, PA (f/k/a ACI Merchant Systems, LLC) on November 7, 2014, and JetPay Payments, FL (f/k/a CollectorSolutions, Inc.) on June 2, 2016.

We are a provider of debit and credit card processing, payroll and HCM services, and prepaid card services to businesses and their employees throughout the United States. We provide these services through four wholly-owned subsidiaries: JetPay Payments, TX, which provides debit and credit card processing and ACH payment services to businesses with a focus on processing omni-channel (internet, mobile, and point-of-sale) transactions and recurring billings; JetPay Payments, PA, an independent sales organization specializing in relationships with banks, credit unions, other financial institutions and strategic partners; JetPay Payments, FL, a debit and credit card processor specializing in providing services to government agencies and utilities; and JetPay HR & Payroll Services, which provides HCM services, including, payroll, tax filing, time and attendance, HR services, and Affordable Care Act and related services to small and medium-sized employers.  We also provide prepaid card services within our HR & Payroll Services Segment.

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Our overall business strategy is to provide payment processing services to small to large-sized businesses with a high percentage of our revenues consisting of recurring revenues with strong margins and with relatively low capital requirements. Our corporate strategy is to increase our revenues through a combination of organic growth and acquisitions. Our organic growth strategy is focused on developing and increasing our current marketing and sales staff at JetPay Payment Services and JetPay HR & Payroll Services to penetrate new customer niches and geographic markets. Our organic growth strategy also includes cross marketing initiatives to sell credit and debit card processing services to JetPay HR & Payroll Services’ payroll customers and payroll processing services to JetPay Payment Services’ credit and debit card processing customers. Additionally, we will be seeking additional debt and/or equity capital to acquire additional credit and debit card processors, ISVs, ISOs and/or payroll processors to integrate into our JetPay Payment Services and JetPay HR & Payroll Services operations. Our acquisition strategy is focused on identifying small to medium-sized companies that either provide services similar to ours or services that expand our product and service offerings and/or our geographic reach.  Both our JetPay Payment Services and our JetPay HR & Payroll Services operations have significant under-utilized processing capacity, which can be leveraged to create additional processing revenues without significant cost increases.   Our overall strategy also includes looking for cost synergies as we continue to integrate the JetPay Payment Services and JetPay HR & Payroll Services operations in such areas as insurance costs, banking costs, employee benefit costs, and other selling, general and administrative cost as well as operating cost areas.

JetPay Payment Services Segment

Revenues

JetPay Payments, TX and JetPay Payments, PA’s revenues fall into two categories: transaction processing revenues and merchant discount revenues. As such, our two primary drivers are the number of transactions and merchant dollar volume. A third measure related to merchant dollar volume, for those merchants where we charge a percentage of the sale amount, is the average size of the transaction, as costs for processing the transaction tend to be fixed, so that the higher the average ticket, the more revenue we earn for a fixed cost. JetPay’s discount revenues are generally a fixed percentage of the merchant’s dollar volume, with interchange and other third-party fees passed through to the merchant without markup. Our billings to merchants primarily consist of these transaction fees and discount fees, as well as pass-through fees for other miscellaneous services, such as handling chargebacks. Interchange costs are set by the card networks, and are paid directly by the sponsoring bank to the credit card associations based upon a percentage of transaction amounts and/or a fixed price per transaction. JetPay Payment Services refers to the ratio of processing revenues to the dollar amount of card transactions processed as the “margin.” If margin increases, processing revenues will tend to increase accordingly. Further, both the number of merchants who process transactions, and the average dollar amount of transactions processed per merchant, will impact the total transaction volume and thus the total processing revenues. As such, growth in JetPay’s merchant count and/or growth in the same store transaction volume will also drive JetPay’s processing revenue growth.

JetPay Payments, FL generates substantially all of its revenues from transaction fees for processing payment transactions. For credit card transactions, our fee may be charged as a fixed fee or as a percentage of the dollars processed. As such, the two primary factors affecting our processing revenue from accepting and processing credit card payments are the number of transactions and the average dollar volume of the transaction. Accordingly, growth in JetPay Payments, FL’s client count and growth in the “same client” transaction dollar volume impact JetPay Payments FL’s processing revenue growth. In the case of e-check (ACH) payments, typically our fees are charged as a fixed fee per transaction regardless of the payment amount.

 Expenses

The most significant components of operating expenses are credit card association fees and assessments; residual payments to ISOs / VARs / ISVs, strategic partners, and financial institutions; and salaries and other employment costs. Salaries and other employment costs are largely fixed in nature, increasing slightly with the growth in numbers of customers, but tending to grow with inflation. Credit card fees and assessments and bank sponsorship costs are generally a percentage of card volume. Bank sponsorship costs and processing fees are largely based upon transaction counts and volumes. Selling, general and administrative expenses include stable costs such as occupancy and office costs, outside services, and depreciation and amortization expense, which is recognized on a straight-line basis over the estimated useful life of the assets. Cost of processing revenues also includes chargeback losses, which vary over the long term based upon transaction volume processed by JetPay’s merchants, but can vary from period to period depending upon specific events in that period. JetPay Payment Services has experienced higher than normal professional fees due to the Direct Air matter.

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JetPay HR & Payroll Segment 

Revenues

The majority of revenues from JetPay HR & Payroll Services have traditionally been derived from its payroll processing operations, which includes the calculation, preparation, collection and delivery of employer payroll obligations and the production of internal accounting records and management reports, and from services provided for the preparation of federal, state, and local payroll tax returns, including the collection and remittance of clients’ payroll tax obligations.  In 2016, JetPay Payroll & HR Services placed a significant emphasis on providing additional human capital management services that complement the core payroll and tax filing businesses, including onboarding, time and attendance, compliance, and other services that are becoming increasingly important to employers with fifty (50) or more employees. JetPay anticipates that these revenues will become an increasingly important incremental source of revenues. JetPay HR & Payroll Services experiences increased revenues in the fourth and first calendar quarters due to additional employer annual tax filing requirements. Payroll Tax Filing Services (“PTFS”) trust account earnings represent the interest earned on the funds held for clients trust balance.  Trust fund earnings can fluctuate based on the amount held in the trust account as well as fluctuations in interest rates. Over the past two years, JetPay HR & Payroll Services has seen a significant increase in revenue from its human capital management, Affordable Care Act and time and attendance services.

Expenses

JetPay HR & Payroll Services’ most significant cost of processing revenues is its payroll and related expenses, costs of third party service providers, and facility overhead costs.  These costs are largely fixed in nature, increasing slightly with the growth in numbers of customers and payrolls processed, and except for payroll costs, tend to grow with inflation. JetPay HR & Payroll Services’ selling, general, and administrative expenses include the costs of the administrative and sales staff, payroll delivery costs, outside services, rent, office expense, insurance, sales and marketing costs and professional services costs.

Results of Operations for the Three Months Ended June 30, 2017 and 2016

The following tables represent a comparison of the results of our operations for the three month periods ended June 30, 2017 and June 30, 2016 (in thousands):

	For the Three Months Ended June 30, 2017
	Consolidated			General/  Corporate			JetPay HR & Payroll Services			JetPay Payment Services
Processing revenues	$	18,777		$	-		$	3,789		$	14,988
Cost of processing revenues		13,049			-			2,175			10,874
Gross profit		5,728			-			1,614			4,114
Selling, general, and administrative expenses		5,056			502			1,507			3,047
Settlement of legal matter		747			747			-			-
Change in fair value of contingent consideration liability		(257	)		(257	)		-			-
Amortization of intangibles		875			-			259			616
Depreciation		248			1			68			179
Operating (loss) income		(941	)		(993	)		(220	)		272
Interest expense		276			-			184			92
Amortization of debt discounts and non-cash interest costs		33			4			28			1
Other income		(5	)		-			-			(5	)
(Loss) income before taxes		(1,245	)		(997	)		(432	)		184
Income tax expense		81			-			4			77
Net (loss) income		(1,326	)		(997	)		(436	)		107
Accretion of convertible preferred stock		(2,652	)		(2,652	)		-			-
Net loss applicable to common stockholders	$	(3,978	)	$	(3,649	)	$	(436	)	$	107

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	For the Three Months Ended June 30, 2016
	Consolidated			General/  Corporate			JetPay HR & Payroll Services			JetPay Payment Services
Processing revenues	$	12,212		$	14		$	3,368		$	8,830
Cost of processing revenues		8,306			19			1,816			6,471
Gross profit (loss)		3,906			(5	)		1,552			2,359
Selling, general, and administrative expenses		3,774			438			1,211			2,125
Settlement of legal matter		6,140			-			-			6,140
Change in fair value of contingent consideration liability		(216	)		(216	)		-			-
Amortization of intangibles		779			-			260			519
Depreciation		188			1			80			107
Operating (loss) income		(6,759	)		(228	)		1			(6,532	)
Interest expense		258			35			62			161
Amortization of debt discounts and non-cash interest costs		77			72			5			-
Other income		(1	)		-			-			(1	)
Loss before taxes		(7,093	)		(335	)		(66	)		(6,692	)
Income tax (benefit) expense		(1,527	)		(1,602	)		11			64
Net (loss) income		(5,566	)		1,267			(77	)		(6,756	)
Accretion of convertible preferred stock		(1,453	)		(1,453	)		-			-
Net loss applicable to common stockholders	$	(7,019	)	$	(186	)	$	(77	)	$	(6,756	)

Revenues

Revenues were $18.8 million and $12.2 million for the three months ended June 30, 2017 and 2016, respectively. Overall revenues increased $6.6 million, or 53.8%, in 2017 as compared to 2016. Of the $18.8 million of revenues for the three months ended June 30, 2017, $3.8 million, or 20.2%, was generated from our JetPay HR & Payroll Segment and $15.0 million, or 79.8%, from our JetPay Payment Services Segment. Of the $12.2 million of revenues for the three months ended June 30, 2016, $3.4 million, or 27.6%, was generated from our JetPay HR & Payroll Segment and $8.8 million, or 72.4%, from our JetPay Payment Services Segment.

JetPay Payment Services Segment’s revenues increased $6.2 million, or 69.7%, for the three months ended June 30, 2017 as compared to 2016. Revenues from our JetPay Payments, TX operation increased $1.9 million, or 35.8%, prior to eliminating inter-company revenues associated with JetPay Payments, FL of $507,000, in 2017 as compared to the same period in 2016, and our JetPay Payments, FL operation, acquired in June 2016, provided $5.6 million of revenues in 2017 as compared to $1.6 million for the same period in 2016.

JetPay HR & Payroll Segment’s revenues increased $421,000, or 12.5%, for the three months ended June 30, 2017 as compared to the same period in 2016. This increase was attributable to net growth in volume of payroll and related payroll taxes processed in addition to revenues generated from several new HR services introduced in 2015.

Cost of Processing Revenues

Cost of revenues were $13.0 million, or 69.5% of revenues, and $8.3 million, or 68.0% of revenues, for the three months ended June 30, 2017 and 2016, respectively. Of the $13.0 million cost of revenues for the three months ended June 30, 2017, $2.2 million, or 16.7%, related to our HR & Payroll Segment, and $10.9 million, or 83.3%, related to our Payment Services Segment. Of the $8.3 million cost of revenues for the three months ended June 30, 2016, $1.8 million, or 21.9%, related to our HR & Payroll Segment and $6.5 million, or 78.1%, related to our Payment Services Segment.

The cost of processing revenues within the Payment Services Segment increased from $6.5 million, or 73.3% of revenues in 2016 to $10.9 million, or 72.6% of revenues in 2017, an increase of $4.4 million, or 68.0%. The increase in cost of processing revenues was primarily related to the growth in our Payment Services Segment revenues, including the acquisition of JetPay Payments, FL which provided $4.0 million of cost of processing revenues. Cost of processing revenues was also impacted by increased card association and other direct processing costs with an increase in back-end settlement volumes. Overall gross profit margin as reported within our Payment Services Segment increased slightly from 26.7% in the three months ended June 30, 2016 to 27.4% for the same period in 2017 largely as a result of a larger increase in higher-margin direct merchant processing revenues than lower-margin third party ISO revenues, partially offset by the impact of lower margin JetPay Payments, FL revenues and the continued investments made in technology professionals.

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The cost of processing revenues within our JetPay HR & Payroll Segment increased $359,000, increasing as a percentage of revenues from 53.9% in 2016 to 57.4% in 2017 principally due to the increase in HR related service revenues and the continued investment in technology, customer service professionals and new product management. The effect of this increase in costs of processing revenues as a percentage of revenues was a decrease in gross profit margin within our JetPay HR & Payroll Segment from 46.1% in the three months ended June 30, 2016 to 42.6% for the same period in 2017.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses were $5.0 million, or 26.9% of revenues, for the three months ended June 30, 2017 as compared to $3.8 million, or 30.9% of revenues, for the same period in 2016.

SG&A expenses within the Payment Services Segment increased from $2.1 million or 24.1% of revenues in 2016, to $3.0 million, or 20.3% of revenues in 2017. This increase was largely the result of SG&A expenses related to JetPay Payments, FL of $898,000 and the continued increase in sales staff and marketing costs to attract new business.

SG&A expenses within our JetPay HR & Payroll Segment increased from $1.2 million in 2016 to $1.5 million in 2017, an increase of approximately $296,000, or 24.4%, largely due to an increase in payroll costs as additional sales and technology professionals were added to help develop new products and services and execute our HCM revenue growth strategies.

Additionally, we incurred corporate SG&A expenses of $502,000 for the three months ended June 30, 2017, including $450,000 of management fees received from the Company’s operating divisions as compared to corporate SG&A expenses of $438,000 in the same period of 2016, including $510,000 of management fees received from the operating divisions. Corporate SG&A expenses include, but are not limited to, the salaries of our executive officers, outside professional fees, acquisition costs, investor relations and other public company costs, and general corporate operating expenses. Corporate SG&A expenses for the three months ended June 30, 2017 included non-cash stock-based compensation expense of $190,000 as compared to $93,000 for the same period in 2016.

Settlement of Legal Matters

Settlement of Legal Matter charge in 2017 of $747,000 reflects the Company’s loss on the settlement of the Ten Lords matter, see Note 11. Commitments and Contingencies. On July 3, 2017, the Company and JetPay, LLC successfully settled a lawsuit with Ten Lords and Providence Interactive Capital (the “Plaintiffs”) by entering into a Compromise Settlement Agreement and Mutual Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid to Plaintiffs the sum of $872,500 on July 3, 2017 and the parties released one another and their respective affiliates from all claims arising out of the matters related to the lawsuit. In connection with this settlement, the Company recorded a loss accrual of $747,000 at June 30, 2017 in addition to a previously recorded $125,500 loss reserve.

Settlement of Legal Matter charge in 2016 of $6.19 million reflects the Company’s loss based on the terms of the Merrick Settlement Agreement and the WLES Settlement Agreement. The loss includes: (i) a charge of $4.4 million related to the Company’s release of all claims to the $4.4 million held in reserve at Merrick; (ii) a charge of $1.4 million related to the Company’s issuance of the $3.85MM Note, less WLES’ agreement to transfer to Merrick the WLES Note (recorded at $2,036,511 at June 30, 2016 net of an unamortized discount of $294,858) and accrued interest on the WLES Note of $414,466; (iii) a charge of $50,000 representing the Company’s issuance of the $5.0MM Note, less the estimated value as of July 26, 2016 of the escrowed shares; and (iv) a charge for $373,334 representing the fair market value of the issuance of warrants to WLES on February 15, 2017 as described in the WLES Settlement Agreement.

Depreciation and Amortization

Depreciation and amortization totaled $1.1 million and $967,000 for the three months ended June 30, 2017 and 2016, respectively. The increase in depreciation and amortization expense in 2017 as compared to 2016 was primarily related to increased depreciation expense on 2016 and 2017 capital expenditures and the amortization of JetPay Payments, FL’s intangible assets acquired on June 2, 2016.

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Interest Expense

Interest expense for the three months ended June 30, 2017 and 2016 was $276,000 and $258,000, respectively. The increase in interest expense in 2017 was primarily related to interest payments on the Fifth Third Bank term note issued on June 2, 2016 in connection with our acquisition of JetPay Payments, FL and a Note issued to Merrick on July 26, 2016.

Income Taxes

The Company recorded income tax (benefit) expense of $81,000 and $(1.53) million for the three months ended June 30, 2017 and 2016, respectively. Income tax expense reflects the recording of state income taxes. The effective tax rates were approximately (6.5)% and 21.5% for the three months ended June 30, 2017 and 2016, respectively. The effective rate differs from the federal statutory rate for each year, primarily due to state and local income taxes and changes to the valuation allowance.

Results of Operations for the Six Months Ended June 30, 2017 and 2016

The following tables represent a comparison of the results of our operations for the six month periods ended June 30, 2017 and June 30, 2016 (in thousands):

	For the Six Months Ended June 30, 2017
	Consolidated			General/ Corporate			JetPay HR & Payroll Services			JetPay Payment Services
Processing revenues	$	37,719		$	-		$	8,427		$	29,292
Cost of processing revenues		25,634			-			4,418			21,216
Gross profit		12,085			-			4,009			8,076
Selling, general, and administrative expenses		10,012			1,336			3,001			5,675
Settlement of a legal matter		747			747			-			-
Change in fair value of contingent consideration liability		(183	)		(183	)		-			-
Amortization of intangibles		1,749			-			519			1,230
Depreciation		479			2			129			348
Operating (loss) income		(719	)		(1,902	)		360			823
Interest expense		571			16			370			185
Amortization of debt discounts and non-cash interest costs		67			10			56			1
Other income		(7	)		-			-			(7	)
(Loss) income before taxes		(1,350	)		(1,928	)		(66	)		644
Income tax expense		143			-			8			135
Net (loss) income		(1,493	)		(1,928	)		(74	)		509
Accretion of convertible preferred stock		(4,775	)		(4,775	)		-			-
Net loss applicable to common stockholders	$	(6,268	)	$	(6,703	)	$	(74	)	$	509

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	For the Six Months Ended June 30, 2016
	Consolidated			General/ Corporate			JetPay HR & Payroll Services		JetPay Payment Services
Processing revenues	$	23,855		$	29		$	7,663	$	16,163
Cost of processing revenues		15,706			58			3,886		11,762
Gross profit (loss)		8,149			(29	)		3,777		4,401
Selling, general, and administrative expenses		7,581			1,223			2,530		3,828
Settlement of legal matter		6,140			-			-		6,140
Change in fair value of contingent consideration liability		(170	)		(170	)		-		-
Amortization of intangibles		1,512			-			519		993
Depreciation		367			3			160		204
Operating (loss) income		(7,281	)		(1,085	)		568		(6,764	)
Interest expense		511			69			128		314
Amortization of debt discounts and non-cash interest costs		256			244			12		-
Other income		(3	)		-			-		(3	)
(Loss) income before taxes		(8,045	)		(1,398	)		428		(7,075	)
Income tax (benefit) expense		(1,474	)		(1,602	)		23		105
Net (loss) income		(6,571	)		204			405		(7,180	)
Accretion of convertible preferred stock		(2,867	)		(2,867	)		-		-
Net (loss) income applicable to common stockholders	$	(9,438	)	$	(2,663	)	$	405	$	(7,180	)

Revenues

Revenues were $37.7 million and $23.9 million for the six months ended June 30, 2017 and 2016, respectively. Overall revenues increased $13.9 million, or 58.1%, in 2017 as compared to 2016. Of the $37.7 million of revenues for the six months ended June 30, 2017, $8.4 million, or 22.3%, was generated from our JetPay HR & Payroll Segment and $29.3 million, or 77.7%, from our JetPay Payment Services Segment. Of the $23.9 million of revenues for the six months ended June 30, 2016, $7.7 million, or 32.1%, was generated from our JetPay HR & Payroll Segment and $16.2 million, or 67.9%, from our JetPay Payment Services Segment.

JetPay Payment Services Segment’s revenues increased $13.1 million, or 81.2%, for the six months ended June 30, 2017 as compared to 2016. Revenues from our JetPay Payment, TX operation increased $3.1 million, or 28.7%, prior to eliminating inter-company revenues associated with JetPay Payments, FL of $1.0 million, in 2017 as compared to the same period in 2016, and our JetPay Payments, FL operation, acquired in June 2016, provided $11.2 million of revenues in 2017 as compared to $1.6 million the same period in 2016.

JetPay HR & Payroll Segment’s revenues increased $764,000, or 10.0%, for the six months ended June 30, 2017 as compared to the same period in 2016. This increase was attributable to net growth in volume of payroll and related payroll taxes processed in addition to revenues generated from several new HR services introduced in 2015.

Cost of Processing Revenues

Cost of revenues were $25.6 million, or 68.0% of revenues, and $15.7 million, or 65.8% of revenues, for the six months ended June 30, 2017 and 2016, respectively. Of the $25.6 million cost of revenues for the six months ended June 30, 2017, $4.4 million, or 17.2%, related to our HR & Payroll Segment, and $21.2 million, or 82.8%, related to our Payment Services Segment. Of the $15.7 million cost of revenues for the six months ended June 30, 2016, $3.9 million, or 24.7%, related to our HR & Payroll Segment and $11.8 million, or 75.3%, related to our Payment Services Segment.

The cost of processing revenues within the Payment Services Segment increased from $11.8 million, or 72.8% of revenues in 2016 to $21.2 million, or 72.4% of revenues in 2017, an increase of $9.4 million, or 80.4%. The increase in cost of processing revenues was primarily related to the growth in our Payment Services Segment revenues, including the acquisition of JetPay Payments, FL which provided $8.1 million of cost of processing revenues. Cost of processing revenues was also impacted by increased card association and other direct processing costs with an increase in back-end settlement volumes. Overall gross profit margin as reported within our Payment Services Segment increased slightly from 27.2% in the six months ended June 30, 2016 to 27.6% for the same period in 2017 largely as a result of a larger increase in higher-margin direct merchant processing only revenues than third party ISO revenues, partially offset by the impact of lower margin JetPay Payments, FL revenues and the continued investments made in technology professionals.

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The cost of processing revenues within our JetPay HR & Payroll Segment increased $532,000, increasing as a percentage of revenues from 50.7% in 2016 to 52.4% in 2017 principally due to the increase in HR related service revenues and the continued investment in technology, customer service professionals and new product management. The effect of this increase in costs of processing revenues as a percentage of revenues was a decrease in gross profit margin within our JetPay HR & Payroll Segment from 49.3% in the six months ended June 30, 2016 to 47.6% for the same period in 2017.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses were $10.0 million, or 26.5% of revenues, for the six months ended June 30, 2017 as compared to $7.6 million, or 31.8% of revenues, for the same period in 2016.

SG&A expenses within the Payment Services Segment increased from $3.8 million or 23.7% of revenues in 2016, to $5.7 million, or 19.4% of revenues in 2017. This increase was largely the result of SG&A expenses related to JetPay Payments, FL of $1.8 million and the continued increase in sales staff and marketing costs to attract new business.

SG&A expenses within our JetPay HR & Payroll Segment increased from $2.5 million in 2016 to $3.0 million in 2017, an increase of approximately $471,000, or 18.6%, largely due to an increase in payroll costs as additional sales and technology professionals were added to help develop new products and services and execute our HCM revenue growth strategies.

Additionally, we incurred corporate SG&A expenses of $1.3 million for the six months ended June 30, 2017, including $900,000 of management fees received from the Company’s operating divisions, as compared to corporate SG&A expenses of $1.2 million in the same period of 2016, including $960,000 of management fees received from the operating divisions. Corporate SG&A expenses include, but are not limited to, the salaries of our executive officers, outside professional fees, acquisition costs, investor relations and other public company costs, and general corporate operating expenses. Corporate SG&A expenses for the six months ended June 30, 2017 included non-cash stock-based compensation expense of $361,000 as compared to $164,000 for the same period in 2016.

Settlement of Legal Matters

Settlement of Legal Matter charge in 2017 of $747,000 reflects the Company’s loss on the settlement of the Ten Lords matter, see Note 11. Commitments and Contingencies. On July 3, 2017, the Company and JetPay, LLC successfully settled a lawsuit with Ten Lords and Providence Interactive Capital (the “Plaintiffs”) by entering into a Compromise Settlement Agreement and Mutual Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid to Plaintiffs the sum of $872,500 on July 3, 2017 and the parties released one another and their respective affiliates from all claims arising out of the matters related to the lawsuit. In connection with this settlement, the Company recorded a loss accrual of $747,000 at June 30, 2017 in addition to a previously recorded $125,500 loss reserve.

Settlement of Legal Matter charge in 2016 of $6.19 million reflects the Company’s loss based on the terms of the Merrick Settlement Agreement and the WLES Settlement Agreement. The loss includes: (i) a charge of $4.4 million related to the Company’s release of all claims to the $4.4 million held in reserve at Merrick; (ii) a charge of $1.4 million related to the Company’s issuance of the $3.85MM Note, less WLES’ agreement to transfer to Merrick the WLES Note (recorded at $2,036,511 at June 30, 2016 net of an unamortized discount of $294,858) and accrued interest on the WLES Note of $414,466; (iii) a charge of $50,000 representing the Company’s issuance of the $5.0MM Note, less the estimated value as of July 26, 2016 of the escrowed shares; and (iv) a charge for $373,334 representing the fair market value of the issuance of warrants to WLES on February 15, 2017 as described in the WLES Settlement Agreement.

Depreciation and Amortization

Depreciation and amortization totaled $2.2 million and $1.9 million for the six months ended June 30, 2017 and 2016, respectively. The increase in depreciation and amortization expense in 2017 as compared to 2016 was primarily related to increased depreciation expense on 2016 and 2017 capital expenditures and the amortization of JetPay Payments, FL’s intangible assets acquired on June 2, 2016.

Interest Expense

Interest expense for the six months ended June 30, 2017 and 2016 was $571,000 and $511,000, respectively. The increase in interest expense in 2017 was primarily related to interest payments on the Fifth Third Bank term note issued on June 2, 2016 in connection with our acquisition of JetPay Payments, FL and a Note issued to Merrick on July 26, 2016.

Income Taxes

The Company recorded income tax (benefit) expense of $143,000 and $(1.47) million for the six months ended June 30, 2017 and 2016, respectively. Income tax (benefit) expense reflects the recording of state income taxes. The effective tax rates were approximately (10.6)% and 18.3% for the six months ended June 30, 2017 and 2016, respectively. The effective rate differs from the federal statutory rate for each year, primarily due to state and local income taxes and changes to the valuation allowance.

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Liquidity and Capital Resources

Cash and cash equivalents were $8.5 million at June 30, 2017, excluding $1.9 million of cash deposited into restricted cash accounts. The ratio of our total debt to total capitalization, which consists of total debt, convertible preferred stock, and stockholders’ equity, was 21% and 25% at June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017, we had working capital, excluding funds held for clients and client funds obligations, of approximately $1.0 million.

We expect to fund our cash needs, including capital required for acquisitions, with cash flow from our operating activities, sales of equity securities and borrowings. Additionally, we will require approximately $5.2 million to cover our interest and principal payments on our existing debt for the fifteen months ending September 30, 2018, and capital expenditures of $3.5 million. We expect to fund our cash needs for the next fifteen months, including debt service requirements, capital expenditures and possible future acquisitions, with cash flow from its operating activities, sales of equity securities (including the recent sale of preferred stock and borrowings, see below) and through new borrowings. As disclosed in Note 8. Redeemable Convertible Preferred Stock, from October 11, 2013 to October 18, 2016, we sold 99,666 shares of Series A Convertible Preferred Stock, par value $0.001 per share (“Series A Preferred”), to Flexpoint for an aggregate of $29.9 million, less certain costs. Additionally, on October 18, 2016, we sold 33,667 shares of Series A Preferred to Sundara for $10.1 million, less certain costs. In connection with the sale of shares of Series A Preferred to Sundara, we also entered into a Loan and Security Agreement with LHLJ, Inc., an affiliate of Sundara, for a term loan in the principal amount of $9.5 million, with $5.175 million of the proceeds used to simultaneously satisfy the remaining balances of a term loan and a revolving credit note payable to First National Bank of Pennsylvania (f/k/a Metro Bank) (“FNB”) (the “Prior JetPay HR & Payroll Services Credit Facility”). See Note 7. Long-Term debt, Note Payable and Capital Lease Obligations. Both Sundara and LHLJ are owned and controlled by Laurence L. Stone, who was appointed as a director of the Company by the holders of the Series A Preferred shares in October 18, 2016. These two transactions provided approximately $14.0 million of net working capital that we used and expect to use for general working capital needs, the payment of other debt instruments, and for future capital needs, including a portion of the cost of potential future acquisitions. Finally, from May 5, 2014 to April 13, 2017, we sold 9,000 shares of Series A-1 Convertible Preferred Stock, par value $0.001 per share (“Series A-1 Preferred”), to an affiliate of Wellington Capital Management, LLP (“Wellington”) for an aggregate of $2.7 million. Additionally, as disclosed in Note 9. Stockholders’ Equity, from December 22, 2015 to January 22, 2016, we sold to certain accredited investors, including Bipin C. Shah, Robert B. Palmer, and Jonathan M. Lubert, an aggregate of 517,037 shares of the Company’s common stock at a purchase price of $2.70 per share for aggregate consideration of $1,396,000, prior to issuance costs.

Capital expenditures, including equipment financed through capital leases, were $943,000 and $265,000 for the three months ended June 30, 2017 and 2016, respectively, and $1.3 million and $408,000 for the six months ended June 30 2017, and 2016, respectively. We currently estimate capital expenditures, including equipment potentially financed through capital leases, for all of our ongoing operations, including JetPay Payment Services and JetPay HR & Payroll Services, at approximately $1.7 million to $2.6 million for the remainder of 2017, principally related to technology improvements and the implementation of major new customer contracts. Our capital requirements include working capital for daily operations, including expenditures to maintain and upgrade our technology platforms and to purchase point-of-sale equipment as required under certain customer contracts. Our operations currently generate sufficient cash flow to satisfy our current operating needs and our routine debt service requirements.

In the past, we have been successful in obtaining financing by obtaining loans and selling shares of our equity securities, including the sale of shares Series A Preferred to Flexpoint and Sundara and the sale of shares of Series A-1 Preferred to Wellington. To fund and integrate future acquisitions or expand our technology platforms for new business initiatives, we will need to raise additional capital through loans or other sales of equity securities. In addition, we continue to investigate the capital markets for sources of funding, which could take the form of additional debt or equity financing. We cannot provide any assurance that we will be successful in securing new financing or restructuring our current debt, or that we will secure such future financing with commercially acceptable terms. If we are unable to raise additional capital, we may need to delay certain technology capital improvements, limit our planned level of capital expenditures and future growth plans or dispose of operating assets to generate cash to sustain operations and fund ongoing capital investments.

41

Debt Capitalization and Other Financing Arrangements

At June 30, 2017, we had borrowings of approximately $16.3 million net of unamortized deferred financing costs of $348,000.

In connection with the closing of our acquisitions of JetPay Payments, TX and JetPay HR & Payroll Services, we entered into a Note and Indemnity Side Agreement. Pursuant to the Note and Indemnity Side Agreement, we agreed to issue the WLES Note in the original principal amount of $2,331,369. Interest accrued on amounts due under the WLES Note at a rate of 5% per annum. Under the terms of the WLES Settlement Agreement, WLES transferred the WLES Note to Merrick on July 26, 2016. See Note 11. Commitments and Contingencies.

JetPay Payments, PA, as borrower, and the Company and JetPay HR & Payroll Services, as guarantors, entered into a Loan and Security Agreement on November 7, 2014 with FNB (as amended, the “JetPay Payments, PA Credit Facility”) and obtained a term loan with a principal amount of $7.5 million. Amounts outstanding under the loan accrue interest at a rate of 5.25% per annum. The loan matures on November 6, 2021 and amortizes in equal monthly installments of $104,167. The principal balance of this term loan was $5.4 million at June 30, 2017. Additional principal payments may be required at the end of each fiscal year based on a free cash flow calculation set forth in the Loan and Security Agreement.

On June 2, 2016, in connection with the closing of the JetPay Payments, FL acquisition, JetPay Payments, FL and the Company entered into a credit agreement with Fifth Third Bank. In connection with the credit agreement, JetPay Payments, FL issued in favor of Fifth Third Bank a term note with a principal amount of $1,068,960 and a $500,000 revolving note to refinance certain credit arrangements of JetPay Payments, FL in place at another financial institution prior to the closing of the transaction. The term note matures on November 30, 2019 and bears interest at 4.00%. The revolving note matures on June 2, 2018, as amended on June 22, 2017, and the bears interest at a rate of 2.00% plus the LIBOR Rate for the applicable interest period. The term note and the revolving note are secured by the assets of JetPay Payments, FL and guaranteed by JetPay. On March 23, 2016 and June 22, 2017, the Company entered into a Modification of Credit Agreement and Other Loan Documents that amended the definition of “fixed charge coverage ratio” to account for expected capital expenditures with respect to the Company’s “Magic Platform.” The credit agreement contains certain customary covenants, including a financial covenant related to JetPay Payments, FL’s fixed charge coverage ratio, which the Company was in compliance as of June 30, 2017.

On June 22, 2017, JetPay Payments, FL entered into a credit agreement (the “Credit Agreement”) with Fifth Third Bank, which provides a $1,600,000 Draw/Term Note to finance software integration costs, an Amended and Restated Revolving Promissory Note for $1,000,000 (increased from a previous revolving promissory note for $500,000), and a Second Modification of Credit Agreement.

The Draw/Term Note provides for a twelve (12) month draw period through June 22, 2018 (“the Conversion Date”), at which time the loan converts to a 36 month amortizing term loan which matures on June 22, 2021. The Draw/Term Note bears interest at the applicable LIBOR Rate plus 3%. The Draw/Term Note is payable in monthly installments beginning on the Conversion Date and can be prepaid without penalty or premium at any time.

The $1,000,000 Amended and Restated Revolving Promissory Note renews, amends, replaces and supersedes the original $500,000 Revolving Promissory Note, extending maturity to June 1, 2018 and bears interest at a rate of 2.00% plus the LIBOR Rate for the Interest Period. The Amended and Restate Revolving Promissory Note is expected to be used to extend temporary credit to cover JetPay Payments, FL’s customers’ processing return items.

The Second Modification amends and restates the original term loan to JetPay Payments, FL dated June 2, 2016 in the original principal amount of $1,068,960 to incorporate certain terms in the new Credit Agreement, including incorporating revised debt covenants, financial reporting requirements, collateral requirements, modifications to parent guarantees, and representations and warranties of Borrower. Additionally, JetPay Payments, FL entered into a Master Equipment Lease Agreement and related Interim Lease Funding Schedule with the Lender to provide up to $1.5 million of lease financing for certain point-of-sale equipment related to certain JetPay Payments, FL customer contracts and other computer equipment. The Interim Lease Funding Schedule provides the details of the allowable equipment to finance and provides for an interim draw periods through June 30, 2018. Upon completion of an interim draw, the leases under Master Lease Agreement will have a term not exceeding 48 months at an interest rate of LIBOR Rate plus 3% until termed out on a schedule, at which time such leases will amortize and bear interest at a fixed rate set forth in the applicable schedule. The Term Notes, the Revolving Note and the Master Lease Agreement are guaranteed by JetPay Corporation pursuant to a guaranty dated June 22, 2017, by and between JetPay Corporation and Fifth Third Bank in respect of the Term Notes and Master Lease Agreement and the guaranty, dated June 22, 2017, by and between the JetPay Corporation and Lender in respect of the Revolving Note (collectively, the “Guaranty Agreements”). The Guaranty Agreement requires that the Company maintain a $2,000,000 minimum liquidity level while there outstanding amounts owed under the various credit arrangements.

42

On October 18, 2016, JetPay HR & Payroll Services and PTFS, as borrowers, entered into a Loan and Security Agreement (the “Loan Agreement”) with LHLJ, Inc., a Delaware corporation controlled by Laurence L. Stone, as lender, for a term loan in the principal amount of $9.5 million (the “LHLJ Debt Investment”). The underlying promissory note bears interest at 8%. The loan matures on October 18, 2021 and is payable in equal monthly installments of principal and interest of $128,677 with a final payment of $4.75 million at maturity. The obligations of the borrowers under the Loan Agreement are guaranteed by the Company and JetPay Payments, FL, and are secured by all of the assets of JetPay HR & Payroll Services, PTFS and JetPay Payments, FL, as well as a pledge by the Company of its ownership interests in JetPay HR & Payroll Services and PTFS. The Loan Agreement contains affirmative and negative covenants, including limitations on the incurrence of indebtedness, liens, transactions with affiliates and other customary restrictions for loans of this type and size. The borrowers are also subject to financial covenants relating to their debt coverage ratio and total leverage ratio during the term of the loan. The Company was in compliance with these covenants as of December 31, 2016. The principal balance of this term loan was $8.97 million at June 30, 2017.

A portion of the proceeds of the LHLJ Debt Investment was used to simultaneously satisfy the remaining balance of $4.175 million outstanding under the Prior JetPay HR & Payroll Services Credit Facility. In connection with the satisfaction of the Borrowers’ obligations under the Prior JetPay HR & Payroll Services Credit Facility, JetPay Payments, PA, JetPay HR & Payroll Services, the Company and FNB entered into an amendment to the JetPay Payments, PA Credit Facility to release JetPay HR & Payroll Services’s guaranty of the obligations of JetPay Payments, PA under the JetPay Payments, PA Credit Facility and to eliminate provisions relating to the cross-collateralization.

Our ongoing ability to comply with the debt covenants under our credit arrangements and to refinance our debt depends largely on the achievement of adequate levels of cash flow. If our future cash flows are less than expected or our debt service, including interest expense, increases more than expected, causing us to default on any of the loan covenants in the future, we will need to obtain amendments or waivers from the applicable lender. In the event that non-compliance with the debt covenants should occur in the future, we would pursue various alternatives in an attempt to successfully resolve the non-compliance, which might include, among other things, seeking additional debt covenant waivers or amendments or refinancing debt with other financial institutions. There can be no assurance that debt covenant waivers or amendments would be obtained, if needed, or that the debt could be refinanced with other financial institutions on favorable terms.

Additionally, in connection with the December 2012 $9.0 million term loan, the November 2014 $7.5 million term loan, and the May 2015 Revolving Note, all payable to FNB, we incurred $23,000, $76,000, and $40,000 of deferred financing costs, respectively. Finally, we incurred (i) $95,000 of deferred financing fees related to the issuance of the promissory notes and (ii) $16,600 of deferred financing fees related to JetPay Payments, FL’s term note and revolving note, each in favor of Fifth Third Bank, and $310,000 of deferred financing fees related to the LHLJ, Inc. Loan Agreement. Unamortized deferred financing costs were $348,000 at June 30, 2017.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements as of June 30, 2017 consisted of an outstanding letter of credit in the amount of $100,000, which represents collateral with respect to a front-end processing relationship with a credit card company.

Contractual Obligations

We are obligated under various operating leases, primarily for office space and certain equipment related to our operations. Certain of these leases contain purchase options, renewal provisions, and contingent rentals for our proportionate share of taxes, utilities, insurance, and annual cost of living increases.

The following are summaries of our contractual obligations and other commercial commitments at June 30, 2017, excluding fair value and conversion option debt discounts and the effect of the refinancing subsequent to June 30, 2017 (in thousands):

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	Payments Due By Period
	Total		Less than One Year		One to Three Years		Three to Five Years		More than 5 years
Contractual obligations (1)
Long-term debt and capital lease obligations (1)	$	16,625	$	3,189	$	5,428	$	8,008	$	-
Minimum operating lease payments		422		348		74		-		-
Total	$	17,047	$	3,537	$	5,502	$	8,008	$	-

	Amounts Expiring Per Period
	Total		Less than One Year		One to Three Years		Three to Five Years		More than 5 years
Other Commercial Commitments
Standby letters of credit (2)	$	100	$	100	$	-	$	-	$	-

(1) Related interest obligations have been excluded from this maturity schedule. Our interest payments for the next twelve-month period, based on current market rates, are expected to be approximately $1.1 million.

(2) Outstanding letter of credit of $100,000, which represents collateral for a front-end processing relationship with a credit card company.

Cash Flow

Operating Activities. Net cash provided by operating activities totaled $2.26 million for the six months ended June 30, 2017. Cash provided by operating activities in this period was primarily due to a net loss of $1.5 million, an increase in settlement processing assets, funds, and liabilities of $1.56 million, and a change in the fair value of contingent liability of $183,000, all offset by non-cash depreciation and amortization relating to fixed assets, intangible assets and non-cash interest costs of $2.3 million, stock based compensation expenses of $384,000, and a decrease in accounts receivable of $1.3 million.

Net cash provided by operating activities totaled $1.7 million for the six months ended June 30, 2016. Cash provided by operating activities in this period was primarily due to a net loss of $6.6 million, a decrease in deferred revenue of $264,000, and a change in fair value of contingent consideration liability of $170,000, all offset by a decrease in accounts receivable of $1.0 million, an increase in accounts payable, accrued expenses and other liabilities of $6.7 million, non-cash depreciation and amortization relating to fixed assets, intangible assets, non-interest interest costs and debt discounts of $2.1 million, stock based compensation expenses of $176,000, a net increase in settlement processing assets and liabilities of $248,000.

Investing Activities. Cash provided by investing activities totaled $84,000 for the six months ended June 30, 2017, including a decrease of $1.1 million in restricted cash and equivalents held to satisfy client obligations, partially offset by the purchases of property and equipment of $1.0 million.

Cash provided by investing activities totaled $1.2 million for the six months ended June 30, 2016, including a decrease of $1.1 million in restricted cash and equivalents held to satisfy client obligations and cash acquired in the JetPay Payments, FL acquisition of $519,000, partially offset by the purchase of property and equipment of $305,000 and an investment in acquired JetPay Payments, FL technology of $87,000.

Financing Activities. Cash used in financing activities totaled $6.5 million for the six months ended June 30, 2017, which included a decrease of $1.1 million in client fund obligations, $6.3 million of cash used for payments on long-term debt, and payment of deferred and contingent acquisition consideration of $314,000, partially offset by proceeds from notes payable of $400,000, and issuance of common stock and sale of preferred stock of $929,000.

Cash used in financing activities totaled $4.0 million for the six months ended June 30, 2016, which included proceeds from notes payable of $2.0 million, and proceeds from issuance of common stock, net of issuance costs, of $64,000, all offset by a decrease of $1.1 million in client fund obligations, $1.6 million of cash used for routine payments on long-term debt, an increase in restricted cash reserves of $1.9 million, payment of deferred and contingent acquisition consideration of $1.4 million, and payment of deferred financing fees associated with new borrowings of $112,000.

44

Seasonality

JetPay Payments, TX’s and JetPay Payments, PA’s revenues and earnings are impacted by the volume of consumer usage of credit and debit cards. For example, JetPay Payments, TX and JetPay Payments, PA have experienced increased purchase activity during the first and second quarters due to seasonal volumes of some merchants in their portfolio. Revenues during the first and second quarters tend to increase in comparison to the remaining two quarters of JetPay Payment Services’ fiscal year on a same store basis.

JetPay Payments, FL’s has generally experienced increased revenues during the first and fourth quarters due to seasonal volumes of certain government and utility clients and their billing cycles.

JetPay HR & Payroll Services’ revenues are recognized in the period services are rendered and earned. JetPay HR & Payroll Services experiences increased revenues during the fourth and first quarters due to the processing of additional year-end tax filing requirements. Accordingly, revenues and earnings are greater in the fourth and first quarter than in the second and third quarters.

Effects of Inflation

JetPay Payment Services’ and JetPay HR & Payroll Services’ monetary assets, consisting primarily of cash and receivables, are not significantly affected by inflation. Non-monetary assets, consisting primarily of property and equipment, are not affected by inflation. We believe that replacement costs of equipment, furniture and leasehold improvements will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and other operating expenses, which may not be readily recoverable in the price of services offered by us. The rate of inflation can also affect our revenues by affecting our client’s payroll processing volumes and our merchant charge volume and corresponding changes to processing revenues. While these can be positive or negative, since a portion of JetPay Payment Services’ revenues are derived as a percentage of dollar volume processed, JetPay Payment Services’ revenues will generally rise when inflation rises. Additionally, JetPay HR & Payroll Services’ revenues include the interest earned on the funds held for clients’ investment trust account balance.  Trust fund earnings can fluctuate based on the amount held in the trust account as well as fluctuations in interest rates.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

We are a smaller reporting company. As a result, we are not required to report the information required by Item 305 of Regulation S-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO, we completed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the CEO and the CFO concluded that the Company’s disclosure controls and procedures, including the accumulation and communication of disclosures to the Company’s CEO and CFO as appropriate to allow timely decisions regarding required disclosure, were effective as of June 30, 2017 to provide reasonable assurance that information that is required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Changes in Internal Control

There has been no change in our internal controls over financial reporting as defined in Rule 13a-15(f) under the Exchange Act identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during our quarter ended June 30, 2017 that are reasonably likely to materially affect our internal control over financial reporting.

45

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

See Note 11. Commitments and Contingencies to our consolidated financial statements in Part I, Item 1 of this report.

Item 1A. Risk Factors

There have been no material changes in our risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

46

Item 6. Exhibits

Exhibits:
10.1	Credit Agreement, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.1 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.2	Promissory Note, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.2 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.3	Second Modification of Credit Agreement and Other Loan Documents, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.3 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.4	Security Agreement, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.4 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.5	Guaranty Agreement, dated June 22, 2017, by and between JetPay Corporation and Fifth Third Bank (incorporated by reference to Exhibit 10.5 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.6	Amended and Restated Revolving Promissory Note, dated June 22, 2017, by and among JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.6 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.7	Master Equipment Lease Agreement, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.7 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
31.1**	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer 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 Taxonomy Extension Schema Document.
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document.
	** Filed herewith

47

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

JetPay Corporation
By:	/s/ Diane (Vogt) Faro
Diane (Vogt) Faro, Chief Executive Officer
(Principal Executive Officer)
By:	/s/ Gregory M. Krzemien
Gregory M. Krzemien, Chief Financial Officer
and Chief Accounting Officer
(Principal Financial Officer)

DATE:  August 11, 2017

48

EXHIBIT INDEX

Exhibit No.	Description
10.1	Credit Agreement, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.1 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.2	Promissory Note, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.2 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.3	Second Modification of Credit Agreement and Other Loan Documents, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.3 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.4	Security Agreement, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.4 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.5	Guaranty Agreement, dated June 22, 2017, by and between JetPay Corporation and Fifth Third Bank (incorporated by reference to Exhibit 10.5 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.6	Amended and Restated Revolving Promissory Note, dated June 22, 2017, by and among JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.6 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
10.7	Master Equipment Lease Agreement, dated June 22, 2017, by and between JetPay Payment Services, FL, LLC and Fifth Third Bank (incorporated by reference to Exhibit 10.7 on the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2017).
31.1**	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer 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 Taxonomy Extension Schema Document.
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document.
	** Filed herewith

49

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Diane (Vogt) Faro, certify that:

1. I have reviewed this quarterly report on Form 10-Q of JetPay Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a transition report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2017	/s/ Diane (Vogt) Faro
	Diane (Vogt) Faro
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Gregory M. Krzemien, certify that:

1. I have reviewed this quarterly report on Form 10-Q of JetPay Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a transition report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2017	/s/ Gregory M. Krzemien
	Gregory M. Krzemien
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

In connection with the quarterly report on Form 10-Q of JetPay Corporation (the “Company”) for the quarter ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Diane (Vogt) Faro, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 11, 2017	/s/ Diane (Vogt) Faro
	Diane (Vogt) Faro
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION

In connection with the quarterly report on Form 10-Q of JetPay Corporation (the “Company”) for the quarter ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory M. Krzemien, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 11, 2017	/s/ Gregory M. Krzemien
	Gregory M. Krzemien
	Chief Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 09, 2017
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Entity Registrant Name	JetPay Corp
Entity Central Index Key	0001507986
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	JTPY
Entity Common Stock, Shares Outstanding		15,673,534

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 8,477	$ 12,584
Restricted cash	1,903	2,129
Accounts receivable, less allowance for doubtful accounts	3,336	4,677
Settlement processing assets and funds	53,962	35,240
Prepaid expenses and other current assets	1,224	5,849
Current assets before funds held for clients	68,902	60,479
Funds held for clients	48,066	49,154
Total current assets	116,968	109,633
Property and equipment, net	2,858	2,125
Goodwill	48,978	48,978
Identifiable intangible assets, net of accumulated amortization of $12,675 at June 30, 2017 and $10,926 at December 31, 2016	24,341	26,090
Other assets	393	384
Total assets	193,538	187,210
Current liabilities:
Current portion of long-term debt and capital lease obligations	3,189	8,074
Accounts payable and accrued expenses	12,120	10,821
Settlement processing liabilities	52,246	35,079
Deferred revenue	298	502
Other current liabilities	54	985
Current liabilities before client fund obligations	67,907	55,461
Client fund obligations	48,066	49,154
Total current liabilities	115,973	104,615
Long-term debt and capital lease obligations, net of current portion and unamortized discounts and financing costs of $348 and $339 at June 30, 2017 and December 31, 2016, respectively	13,088	13,794
Deferred income taxes	520	520
Other liabilities	1,136	1,228
Total liabilities	130,717	120,157
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $0.001 par value Authorized 1,000,000 shares, none issued (which excludes 142,333 and 139,498 shares of Series A and Series A-1 redeemable convertible preferred stock at June 30, 2017 and December 31, 2016, respectively)	0	0
Common stock, $0.001 par value Authorized 100,000,000 shares; 17,788,984 and 17,737,504 issued at June 30, 2017 and December 31, 2016, respectively (which includes 1,625,000 shares subject to possible redemption at June 30, 2017 and December 31, 2016) and 15,588,984 and 17,737,504 outstanding at June 30, 2017 and December 31, 2016, respectively	18	18
Additional paid-in capital	40,254	38,778
Treasury stock, 2,200,000 shares at cost	(4,950)	0
Accumulated deficit	(30,080)	(28,587)
Total Stockholders’ Equity	5,242	10,209
Total Liabilities and Stockholders’ Equity	193,538	187,210
Common Stock [Member]
Redeemable Convertible Preferred Stock;
Temporary Equity, Carrying Amount, Attributable to Parent	3,520	3,520
Stockholders’ Equity
Total Stockholders’ Equity	18	18
Redeemable Convertible Preferred Stock [Member]
Redeemable Convertible Preferred Stock;
Temporary Equity, Carrying Amount, Attributable to Parent	$ 54,059	$ 53,324

XML

Consolidated Balance Sheets [Parenthetical] - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Finite-Lived Intangible Assets, Accumulated Amortization	$ 12,675	$ 10,926
Debt Issuance Costs, Noncurrent, Net	$ 348	$ 339
Temporary Equity, Par or Stated Value Per Share (in dollars per share)	$ 0.001	$ 0.001
Temporary Equity, Shares Issued	142,333	139,498
Temporary Equity, Shares Outstanding	142,333	139,498
Temporary Equity, Liquidation Preference	$ 85,400
Redeemable Noncontrolling Interest Number Of Shares Subject To Possible Redemption	1,625,000	1,625,000
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	17,788,984	17,737,504
Common stock, shares outstanding	15,588,984	17,737,504
Treasury Stock, Shares	2,200,000

XML

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Processing revenues	$ 18,777	$ 12,212	$ 37,719	$ 23,855
Cost of processing revenues	13,049	8,306	25,634	15,706
Gross profit	5,728	3,906	12,085	8,149
Selling, general and administrative expenses	5,056	3,774	10,012	7,581
Settlement of legal matters	747	6,140	747	6,140
Change in fair value of contingent consideration liability	(257)	(216)	(183)	(170)
Amortization of intangibles	875	779	1,749	1,512
Depreciation	248	188	479	367
Operating loss	(941)	(6,759)	(719)	(7,281)
Other expenses (income)
Interest expense	276	258	571	511
Non-cash interest costs	33	27	67	118
Amortization of debt discounts	0	50	0	138
Other income	(5)	(1)	(7)	(3)
Loss before income taxes	(1,245)	(7,093)	(1,350)	(8,045)
Income tax expense (benefit)	81	(1,527)	143	(1,474)
Net loss	(1,326)	(5,566)	(1,493)	(6,571)
Accretion of convertible preferred stock	(2,652)	(1,453)	(4,775)	(2,867)
Net loss applicable to common stockholders	$ (3,978)	$ (7,019)	$ (6,268)	$ (9,438)
Basic and diluted loss per share applicable to common stockholders	$ (0.26)	$ (0.45)	$ (0.39)	$ (0.63)
Weighted average shares outstanding:
Basic and diluted	15,588,984	15,445,741	16,134,808	14,923,611

XML

Consolidated Statement of Changes in Stockholders' Equity - 6 months ended Jun. 30, 2017 - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2016	$ 10,209	$ 18	$ 38,778	$ (28,587)	$ 0
Balance (in shares) at Dec. 31, 2016		17,737,504
Common stock issued under employee stock purchase plan	104	$ 0	104	0	0
Common stock issued under employee stock purchase plan (in shares)		51,480
Common stock released from escrow to satisfy contingent consideration obligation	525	$ 0	525	0	0
Repurchase of shares into treasury	(4,950)	$ 0	0	0	(4,950)
Repurchase of shares into treasury (in shares)		0
Warrants issued for settlement of legal matter	373	$ 0	373		0
Employee stock purchase plan expense	23	0	23	0	0
Stock-based compensation expense	361	0	361	0	0
Beneficial conversion feature on convertible preferred stock	4,865	0	4,865	0	0
Accretion of convertible preferred stock to redemption value	(4,775)	0	(4,775)	0	0
Net loss	(1,493)	0	0	(1,493)	0
Balance at Jun. 30, 2017	$ 5,242	$ 18	$ 40,254	$ (30,080)	$ (4,950)
Balance (in Shares) at Jun. 30, 2017		17,788,984

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Operating Activities
Net loss	$ (1,493)	$ (6,571)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	479	367
Stock-based compensation	361	164
Employee stock purchase plan expense	23	12
Amortization of intangibles	1,749	1,512
Non-cash interest costs	67	118
Amortization of debt discounts	0	138
Change in fair value of contingent consideration liability	(183)	(170)
Loss on disposal of fixed assets	110	30
Deferred income taxes	0	(1,602)
Change in operating assets and liabilities:
Restricted cash	226	(20)
Accounts receivable	1,341	1,010
Settlement processing assets, funds and obligations, net	(1,555)	248
Prepaid expenses and other current assets	(325)	(4,411)
Other assets	(9)	4,389
Deferred revenue	(204)	(264)
Accounts payable, accrued expenses and other liabilities	1,671	6,745
Net cash provided by operating activities	2,258	1,695
Investing Activities
Net decrease in restricted cash and cash equivalents held to satisfy client fund obligations	1,088	1,061
Cash acquired in acquisition	0	519
Purchase of property and equipment	(1,004)	(305)
Investment in acquired technology	0	(87)
Net cash provided by investing activities	84	1,188
Financing Activities
Payments on long-term debt and capital lease obligations	(6,300)	(1,610)
Proceeds from issuance of common stock, net of issuance costs	104	64
Proceeds from notes payable	400	1,970
Proceeds from sale of preferred stock, net of issuance costs	825	0
Restricted cash reserve	0	(1,900)
Payment of deferred financing fees associated with new borrowings	(76)	(112)
Payment of deferred and contingent acquisition consideration	(314)	(1,386)
Net decrease in client funds obligations	(1,088)	(1,061)
Net cash used in financing activities	(6,449)	(4,035)
Net decrease in cash and cash equivalents	(4,107)	(1,152)
Cash and cash equivalents, beginning	12,584	5,594
Cash and cash equivalents, ending	8,477	4,442
Supplement disclosure of cash flow information:
Cash paid for interest	703	443
Cash paid for taxes	245	216
Supplemental disclosure of non-cash investing and financing activity:
Acquisition of equipment under capital lease	318	103
Treasury stock reclassification	4,950	0
Issuance of warrants for settlement of legal matter	373	0
Beneficial conversion feature on convertible preferred stock	4,865	0
Accretion of convertible preferred stock	4,775	2,867
Release of common stock held in escrow	525	0
Summary of non-cash investing and financing activities:
Fair value of assets acquired	0	23,969
Fair value of company stock issued	0	(7,040)
Fair value of contingent consideration	0	(1,975)
Fair value of private stock purchase rights	0	(153)
Fair value of deferred consideration	0	(143)
Fair value of liabilities assumed	$ 0	$ 14,658

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Basis of Presentation

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Note 1.   Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for fair presentation of the consolidated financial statements of JetPay Corporation and its subsidiaries (collectively, the “Company” or “JetPay”) as of June 30, 2017. The results of operations for the three and six months ended June 30, 2017 and 2016 are not necessarily indicative of the operating results for the full year. It is recommended that these consolidated financial statements be read in conjunction with the consolidated financial statements and related disclosures for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2017.

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Organization and Business Operations

6 Months Ended

Jun. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 2.   Organization and Business Operations

The Company was incorporated in Delaware on November 12, 2010 as Universal Business Payment Solutions Acquisition Corporation, a blank check company whose objective was to acquire, through a merger, share exchange, asset acquisition, stock purchase, plan of arrangement, recapitalization, reorganization or other similar business combination, one or more operating businesses. Until December 28, 2012, the Company’s efforts were limited to organizational activities, its initial public offering and the search for suitable business acquisition transactions.

Effective August 2, 2013, Universal Business Payment Solutions Acquisition Corporation changed its name to JetPay Corporation with the filing of its Amended and Restated Certificate of Incorporation. The Company’s ticker symbol on the Nasdaq Capital Market (“NASDAQ”) changed from “UBPS” to “JTPY” effective August 12, 2013.

The Company currently operates in two business segments: the JetPay Payment Services Segment and the JetPay HR & Payroll Segment. The JetPay Payment Services Segment is an end-to-end processor of credit and debit card and automated clearing house (“ACH”) payment transactions that focuses on processing omni-channel (internet, mobile, and point-of-sale) transactions and recurring billings for traditional retailers, government and utility, and service providers. The JetPay HR & Payroll Segment provides human capital management (“HCM”) services, including full-service payroll and related payroll tax payment processing, time and attendance, HCM services, low-cost money management and payment services to unbanked and underbanked employees through prepaid debit cards, and services under the Patient Protection and Affordable Care Act (the “Affordable Care Act”).

The Company entered the payment processing and the payroll processing businesses upon consummation of the acquisitions of JetPay Payment Services, TX, LLC (f/k/a JetPay, LLC) (“JetPay Payments, TX”) and JetPay HR & Payroll Services, Inc. (f/k/a A. D. Computer Corporation) (“JetPay HR & Payroll Services”) on December 28, 2012. Additionally, on November 7, 2014, the Company acquired JetPay Payment Services, PA, LLC (f/k/a ACI Merchant Systems, LLC) (“JetPay Payments, PA”), an independent sales organization specializing in relationships with banks, credit unions and other financial institutions.  On June 2, 2016, the Company acquired JetPay Payment Services, FL, LLC (f/k/a CollectorSolutions, Inc.) (“JetPay Payments, FL”), a payment processor specializing in the processing of payments in the government and utilities channels.

The Company believes that the investments made in its technology, infrastructure, and sales staff will help generate cash flows in the future sufficient to cover its working capital needs. The Company may from time to time determine that additional investments are prudent to maintain and increase stockholder value. In addition to funding ongoing working capital needs, the Company’s cash requirements for the next fifteen months ending September 30, 2018 include, but are not limited to, principal and interest payments on long-term debt and capital lease obligations of approximately $5.2 million and estimated capital expenditures of $3.5 million.

The Company expects to fund its cash needs for the next fifteen months, including debt service requirements, capital expenditures and possible future acquisitions, with cash flow from its operating activities, sales of equity securities, including the recent sale of preferred stock, and current and future borrowings.

As disclosed in Note 8. Redeemable Convertible Preferred Stock, between October 11, 2013 and October 18, 2016, the Company sold 99,666 shares of Series A Convertible Preferred Stock, par value $0.001 per share (“Series A Preferred”), to Flexpoint Fund II, L.P. (“Flexpoint”) for an aggregate of $29.9 million, less certain costs. Additionally, on October 18, 2016, the Company sold 33,667 shares of Series A Preferred to Sundara Investment Partners, LLC (“Sundara”) for $10.1 million, less certain costs. In connection with the sale of shares of Series A Preferred to Sundara, the Company also entered into a Loan and Security Agreement with LHLJ, Inc., an affiliate of Sundara, for a term loan in the principal amount of $9.5 million, with $5.175 million of the proceeds used to simultaneously satisfy the remaining balances of a term loan and a revolving credit note payable to First National Bank of Pennsylvania (“FNB”) (the “Prior HR & Payroll Services Credit Facility”). See Note 7. Long-Term Debt, Note Payable and Capital Lease Obligations. Both Sundara and LHLJ are owned and controlled by Laurence L. Stone, who was appointed as a director of the Company by the holders of Series A Preferred shares in October 2016 in connection with the transactions. These transactions provided approximately $14.0 million of net working capital, which the Company has used and expects to use for general working capital purposes, the payment of debt and for future capital needs, including a portion of the cost of potential future acquisitions. Finally, between May 5, 2014 and April 13, 2017, the Company sold 9,000 shares of Series A-1 Convertible Preferred Stock, par value $0.001 per share (“Series A-1 Preferred”), to an affiliate of Wellington Capital Management, LLP (“Wellington”) for an aggregate of $2.7 million.

In the past, the Company has been successful in obtaining loans and selling its equity securities. To fund the Company’s current debt service needs, expand its technology platforms for new business initiatives, and pursue possible future acquisitions, the Company may need to raise additional capital through loans or additional sales of equity securities. The Company continues to investigate the capital markets for sources of funding, which could take the form of additional debt, the restructuring of our current debt, or additional equity financing. The Company cannot provide any assurance that it will be successful in securing new financing or restructuring its current debt or that it will secure such future financing with commercially acceptable terms. If the Company is unable to raise additional capital, it may need to delay certain technology capital improvements, limit its planned level of capital expenditures and future growth plans or dispose of operating assets to generate cash to sustain operations and fund ongoing capital investments.

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Business Acquisition

6 Months Ended

Jun. 30, 2017

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 3.   Business Acquisition

On June 2, 2016, JetPay completed its acquisition of CollectorSolutions, Inc. pursuant to the terms of the Agreement and Plan of Merger, dated February 22, 2016 (the “Merger Agreement”), by and among JetPay, CSI Acquisition Sub One, LLC, CSI Acquisition Sub Two, LLC, CollectorSolutions, Inc. and Gene M. Valentino, in his capacity as representative of the shareholders of CollectorSolutions, Inc. On October 21, 2016, the surviving entity of the merger changed its name to JetPay Payment Services, FL, LLC. The acquisition of JetPay Payments, FL provided the Company with additional expertise in selling debit and credit card processing services in the government and utilities channels through JetPay Payments, FL’s highly configurable payment gateway, added incremental debit, credit, and e-check processing volumes, and provided a base operation to sell the Company’s payroll, HCM, processing and prepaid card services to JetPay Payments, FL’s customer base. The consolidated financial statements include the accounts of JetPay Payments, FL since the acquisition date, June 2, 2016.

 

As consideration for the acquisition, the Company initially issued 3.25 million shares of its common stock to the stockholders of CollectorSolutions, Inc. and assumed approximately $1.0 million of CollectorSolutions, Inc.’s indebtedness. The 3.25 million shares of common stock issued in connection with closing, valued at $8.3 million at the date of acquisition, included: (i) 587,500 shares placed in escrow at closing as partial security for the indemnification obligations of the stockholders of CollectorSolutions, Inc. (the “Escrowed Shares”) and (ii) 500,000 shares placed in escrow at closing which would be released or cancelled if JetPay Payments, FL achieves certain gross profit performance targets in 2016 and 2017 (the “Earn-Out Shares”). In addition to the shares of its common stock issued at the date of acquisition, the Company issued an additional 54,601 shares on December 30, 2016 to the former stockholders of CollectorSolutions, Inc. in connection with a post-closing purchase price adjustment for working capital and debt levels as of the acquisition date pursuant to the Merger Agreement. JetPay Payments, FL’s former stockholders may also be entitled to receive warrants to purchase up to 500,000 shares of the Company’s common stock, each with a strike price of $4.00 per share and a 10-year term from its date of issuance, contingent upon JetPay Payments, FL achieving certain gross profit performance targets in 2018 and 2019. This contingent stock and warrant consideration, recorded as a liability, was valued at $1,975,000 at the date of acquisition utilizing a Monte Carlo simulation model. The fair value of the contingent consideration was $1,116,000 at June 30, 2017 (recorded within non-current other liabilities). See Note 4. Summary of Significant Accounting Policies.

 

Based upon the level of gross profit performance in 2016, on June 28, 2017, the Company released 250,000 Earn-Out Shares from escrow to the former shareholders of CollectorSolutions, Inc. In addition, pursuant to the merger agreement, on June 28, 2017, the Company released 587,500 Escrowed Shares held for indemnification purposes from escrow to the former shareholders of CollectorSolutions, Inc.

In connection with the acquisition, certain executives of JetPay Payments, FL were provided the right to purchase through a private placement, within twelve months after closing, up to 300,000 shares of common stock in the aggregate at a price equal to the higher of $3.00 per share and the volume-weighted average closing price of the stock of the Company for the twenty consecutive trading days ending three trading days prior to closing. This stock purchase right was valued at $152,000 utilizing a Black-Sholes option pricing model and was recorded as Additional Paid-In Capital at the date of acquisition. This purchase right was not exercised prior to its expiration on June 2, 2017.

In addition, the Company granted to each former stockholder of JetPay Payments, FL a right to require the Company to repurchase up to 50% of the shares of common stock issued in connection with the acquisition and continuously held by such stockholder if Flexpoint exercises its right to redeem its shares of Series A Preferred. In a buyback of up to 50% of the shares issued to JetPay Payments, FL’s former shareholders, the Company would purchase each share of common stock issued as transaction consideration for $4.00 per share. The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC 480 “Distinguishing Liabilities from Equity”.  Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The common stock issued to JetPay Payments, FL’s previous shareholders features certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at June 30, 2017, 50% of the estimated fair value of the common stock issued in connection with the acquisition, or $3.52 million, is presented as temporary equity, outside of the stockholders’ equity section of the Consolidated Balance Sheet.

 

The fair value of the identifiable assets acquired and liabilities assumed in the JetPay Payments, FL acquisition as of the acquisition date includes: (i) $520,000 of cash, (ii) $537,000 for accounts receivable; (iii) $113,000 for prepaid expenses and other assets; (iv) $10.6 million for settlement processing assets; (v) $93,000 for fixed assets; (vi) the assumption of $14.7 million of liabilities, including $9.95 million of settlement processing obligations and approximately $1.0 million of long term debt; and (vii) approximately $12.1 million allocated to goodwill and other identifiable intangible assets. Within the $12.1 million of acquired intangible assets, $7.2 million was assigned to goodwill, which is not subject to amortization under U.S. GAAP. The Company does not expect to deduct for tax purposes the goodwill related to the JetPay Payments, FL acquisition. The amount assigned to goodwill was deemed appropriate based on several factors, including: (i) the multiple paid by market participants for businesses in the merchant card processing business; (ii) levels of JetPay Payments, FL’s current and future projected cash flows; and (iii) the Company’s strategic business plan, which includes cross-marketing the Company’s payroll, HCM, processing and prepaid card services to JetPay Payments, FL’s customer base as well as offering merchant credit card processing services to the Company’s payroll and HCM customer base. The remaining intangible assets were assigned to customer relationships (for $4.1 million), software costs (for $710,000), and tradename (for $70,000). The Company determined that the fair value of non-compete agreements with certain employees of JetPay Payments, FL was immaterial. Customer relationships, software costs, and trade name were assigned a life of 12 years, 19 months, and 7 months, respectively.

 

Assets acquired and liabilities assumed in the JetPay Payments, FL acquisition were recorded on the Company’s Consolidated Balance Sheets as of the acquisition date based upon their estimated fair values at such date. The results of operations of the business acquired by the Company have been included in the Statements of Operations since the date of acquisition. The excess of the purchase price over the estimated fair values of the underlying identifiable assets acquired and liabilities assumed was allocated to goodwill.

The allocation of the JetPay Payments, FL purchase price and the estimated fair market values of the JetPay Payments, FL assets acquired and liabilities assumed are shown below (in thousands):

Cash	$	520
Accounts receivable		537
Settlement processing assets		10,587
Prepaid expenses and other assets		113
Property and equipment, net		93
Goodwill		7,218
Identifiable intangible assets		4,881
Total assets acquired		23,949
Accounts payable and accrued expenses		1,794
Settlement processing obligations		9,951
Long term debt		1,049
Long term deferred tax liability		1,864
Total liabilities assumed		14,658
Net assets acquired	$	9,291

Unaudited pro forma results of operations for the three and six months ended June 30, 2016, as if the Company and JetPay Payments, FL had been combined on January 1, 2016, follow. The pro forma results include estimates and assumptions which management believes are reasonable. The pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the date indicated, or which may result in the future.

	Unaudited Pro Forma Results of Operations (In thousands, except per share information)
	For the Three Months		For the Six Months
	Ended June 30, 2016		Ended June 30, 2016
Revenues	$	15,144	$	31,529
Operating loss	$	(6,717)	$	(7,042)
Net loss	$	(5,533)	$	(6,358)
Net loss applicable to common stockholders	$	(6,986)	$	(9,225)
Net loss per share applicable to common stockholders	$	(0.40)	$	(0.52)

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

Note 4.   Summary of Significant Accounting Policies

Significant accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. The Company’s significant accounting policies are described below.

Use of Estimates, Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the accounting and disclosure rules and regulations of the SEC. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company’s financial statements. Such estimates include, but are not limited to, the value of purchase consideration of acquisitions; valuation of accounts receivable, reserves for chargebacks, goodwill, intangible assets, and other long-lived assets; legal contingencies; the fair value of equity instruments classified as liabilities; and assumptions used in the calculation of stock-based compensation and in the calculation of income taxes. Actual results may differ from these estimates under different assumptions or conditions. These consolidated financial statements include our accounts and those of our wholly-owned subsidiaries and all intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition and Deferred Revenue

The Company recognizes revenue in general when the following criteria have been met: persuasive evidence of an arrangement exists, a customer contract or purchase order exists and the fees are fixed and determinable, no significant obligations remain and collection of the related receivable is reasonably assured. Allowances for chargebacks, discounts and other allowances are estimated and recorded concurrent with the recognition of revenue and are primarily based on historic rates.

Revenues from the Company’s credit and debit card processing operations are recognized in the period services are rendered as the Company processes credit and debit card transactions for its merchant customers or for merchant customers of its third party clients. Third party clients include Independent Sales Organizations (“ISOs”), Value Added Resellers (“VARs”), Independent Software Vendors (“ISVs”), and financial institutions. The majority of the Company’s revenue within its credit and debit card processing business is comprised of transaction-based fees, which typically constitute a percentage of dollar volume processed, or a fee per transaction processed. In the case where the Company is only the processor of transactions, it charges transaction fees only and records these fees as revenues. In the case of contracts pursuant to which the Company processes credit and debit card transactions for the third parties’ merchant customers, revenues are primarily comprised of fees charged to the merchant, as well as a percentage of the processed sale transaction. The Company’s contracts in most instances involve three parties: the Company, the merchant, and the sponsoring bank. Under certain of these sales arrangements, the Company’s sponsoring bank collects the gross revenue from the merchants, pays the interchange fees and assessments to the credit card associations, collects their fees and pays to the Company a net residual payment representing the Company’s fee for the services provided. Accordingly, under these arrangements, the Company records the revenue net of interchange, credit card association assessments and fees and the sponsoring bank’s fees. Under the majority of the Company’s sales arrangements, the Company is billed directly for certain fees by the credit card associations and the processing bank. In this instance, revenues and cost of revenues include the credit card association fees and assessments and the sponsoring bank’s fees which are billed to the Company and for which it assumes credit risk. In all of the above instances, the Company recognizes processing revenues net of interchange fees, which are assessed to its merchant and third party merchant customers on all processed transactions. Interchange rates and fees are not controlled by the Company. The Company effectively functions as a clearing house collecting and remitting interchange fee settlement on behalf of issuing banks, debit networks, credit card associations and their processing customers.

JetPay Payments, FL functions as the merchant of record and has the primary responsibility for providing end-to-end payment processing services for many of its clients. Clients contract with JetPay Payments, FL for all credit card processing services including transaction authorization, settlement, dispute resolution, security and risk management solutions, reporting and other value-added services. As such, JetPay Payments, FL is the principal obligor in these transactions and is solely responsible for all processing costs, including interchange fees. Further, JetPay Payments, FL sets prices as it deems reasonable for each merchant. The gross fees JetPay Payments, FL collects are intended to cover the interchange, assessments, and other processing fees and include JetPay Payments, FL’s margin on the transactions processed. For these reasons, JetPay Payments, FL is the principal obligor in the contractual relationship with its customers and therefore JetPay Payments, FL records its revenues, including interchange and assessments, on a gross basis. Revenues reported by JetPay Payments, FL include interchange fees of $2.5 million and $585,000 for the three months ended June 30, 2017 and 2016, respectively and $5.3 million and $585,000 for the six months ended June 30, 2017 and 2016, respectively. Other fees assessed by JetPay Payments, FL to certain customers and remitted to partner entities for web and IVR supporting services provided by JetPay Payments, FL’s partner entities are presented on a net basis. The Company follows the guidance provided in ASC Topic 605-45, Revenue Recognition - Principal Agent Considerations. ASC 605-45 states that whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors are considered in the evaluation.

 

Additionally, the Company’s direct merchant customers have the liability for any charges properly reversed by the cardholder. In the event, however, that the Company is not able to collect such amount from the merchants due to merchant fraud, insolvency, bankruptcy or any other reason, it may be liable for any such reversed charges. The Company in some instances requires cash deposits, guarantees, letters of credit and other types of collateral from certain merchants to minimize any such contingent liability, and it also utilizes a number of systems and procedures to manage merchant risk.

Revenues from the Company’s JetPay HR & Payroll Services operations are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Certain processing services are provided under annual service arrangements with revenue recognized over the service period based on when the efforts and costs are expended. The Company’s service revenues are largely attributable to payroll-related processing services where the fees are based on a fixed amount per processing period or a fixed amount per processing period plus a fee per employee or transaction processed. The revenues earned from delivery service for the distribution of certain client payroll checks and reports is included in processing revenues, and the costs for delivery are included in selling, general, and administrative expenses on the Consolidated Statements of Operations.

Interest on funds held for clients is earned primarily on funds that are collected from clients before due dates for payroll tax administration services and for employee payment services, and invested until remittance to the applicable tax or regulatory agencies or client employee. These collections from clients are typically remitted between one (1) and thirty (30) days after receipt, with some items extending to ninety (90) days. The interest earned on these funds is included in total revenues on the Consolidated Statements of Operations because the collecting, holding, and remitting of these funds are critical components of providing these services.

Reserve for Chargeback Losses

Disputes between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer through the merchant’s bank and charged to the merchant. If the merchant has inadequate funds, the Company must bear the credit risk for the full amount of the transaction. The Company evaluates the risk for such transactions and estimates the potential loss for chargebacks based primarily on historical experience and records a loss reserve accordingly. The Company believes its reserve for chargeback losses is adequate to cover both the known probable losses and the incurred but not yet reported losses at the balance sheet dates. Chargeback reserves totaling $319,000 and $436,000 were recorded as of June 30, 2017 and December 31, 2016, respectively.

 

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, restricted cash, settlement processing assets and liabilities, accounts receivable, funds held for clients, accounts payable and client fund obligations, approximated fair value as of the balance sheet dates presented, because of the relatively short maturity dates on these instruments. The carrying amounts of the financing arrangements approximate fair value as of the balance sheet dates presented, because interest rates on these instruments approximate market interest rates after consideration of stated interest rates, anti-dilution protection and associated warrants.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable, settlement processing assets and funds held for clients. The Company’s cash and cash equivalents are deposited with major financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount.

Accounts Receivable

The Company’s accounts receivable are due from its merchant credit card and its payroll customers. Credit is extended based on the evaluation of customers’ financial condition and, generally, collateral is not required. Payment terms vary but are typically collected via Automated Clearing House (“ACH”) payments originated by us two (2) to three (3) days following month end. Amounts due from customers are stated in the financial statements net of an allowance for doubtful accounts. Accounts which are outstanding longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivables when they are deemed uncollectible.

Settlement Processing Assets and Funds and Obligations

Funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. Depending on the type of transaction, either the credit card interchange system or the debit network is used to transfer the information and funds between the sponsoring bank and card issuing bank to complete the link between merchants and card issuers. In certain of our processing arrangements, merchant funding primarily occurs after the sponsoring bank receives the funds from the card issuer through the card networks, creating a net settlement obligation on the Company’s Consolidated Balance Sheet. In a limited number of other arrangements, the sponsoring bank funds the merchants before it receives the net settlement funds from the card networks, creating a net settlement asset on the Company’s Consolidated Balance Sheet. Additionally, certain of the Company’s sponsoring banks collect the gross revenue from the merchants, pay the interchange fees and assessments to the credit card associations, collect their fees for processing and pay the Company a net residual payment representing the Company’s fees for the services. In these instances, the Company does not reflect the related settlement processing assets and obligations in its Consolidated Balance Sheet.

Timing differences in processing credit and debit card and ACH transactions, as described above, interchange expense collection, merchant reserves, sponsoring bank reserves, and exception items result in settlement processing assets and obligations. Settlement processing assets consist primarily of our portion of settlement assets due from customers and receivable from merchants for the portion of the discount fee related to reimbursement of the interchange expense, our receivable from the processing bank for transactions we have funded merchants in advance of receipt of card association funding, merchant reserves held, sponsoring bank reserves and exception items, such as customer chargeback amounts receivable from merchants. Settlement processing obligations consist primarily of merchant reserves, our liability to the processing bank for transactions for which we have received funding from the members but have not funded merchants and exception items.

Settlement assets, funds and obligations resulting from JetPay Payments, FL’s processing services and associated settlement activities include settlement receivables due from credit card associations and debit networks and certain cash accounts to which JetPay Payments, FL does not have legal ownership but has the right to use the accounts to satisfy the related settlement obligations. JetPay Payments, FL’s corresponding settlement obligations are for amounts payable to customers, net of processing fees earned by JetPay Payments, FL. Settlement receivables and payables for credit and debit card transactions are recorded at the gross transaction amounts. The gross amounts are then processed through JetPay Payments, FL’s settlement accounts, and JetPay Payments, FL retains its fees for the transactions upon settlement. Settlement receivables for e-check transactions consist of only JetPay Payments, FL’s fees for the transactions. Settlement receivables are generally collected within four (4) business days. Settlement obligations are generally paid within three (3) business days, regardless of when the related settlement receivables are collected.

Property and Equipment

Property and equipment acquired in the Company’s business acquisitions have been recorded at estimated fair value. The Company records all other property and equipment acquired in the normal course of business at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are generally as follows: leasehold improvements – shorter of economic life or initial term of the related lease; machinery and equipment – five (5) to fifteen (15) years; and furniture and fixtures – five (5) to ten (10) years. Significant additions or improvements extending assets’ useful lives are capitalized; normal maintenance and repair costs are expensed as incurred.

Goodwill

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s business combinations. The Company performs a goodwill impairment test on at least an annual basis. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which are dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company conducts its annual goodwill impairment test as of December 31 of each year or more frequently if indicators of impairment exist. The Company periodically analyzes whether any such indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained significant decline in our stock price and market capitalization, a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, adverse actions or assessments by a regulator, among others. The Company compares the fair value of its reporting unit to its respective carrying value, including related goodwill. Future changes in the industry could impact the results of future annual impairment tests. The Company’s annual goodwill impairment testing indicated there was no impairment as of December 31, 2016. Additionally, no indicators of impairment occurred in the six months ended June 30, 2017. There can be no assurance that future tests of goodwill impairment will not result in impairment charges.

Identifiable Intangible Assets

Identifiable intangible assets consist primarily of customer relationships, software costs, and tradenames. Certain tradenames are considered to have indefinite lives, and as such, are not subject to amortization. These assets are tested for impairment using undiscounted cash flow methodology annually and whenever there is an impairment indicator. Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized. Several impairment indicators are beyond the Company’s control, and determining whether or not they will occur cannot be predicted with any certainty. Identifiable Intangible assets are amortized on a straight-line basis over their respective assigned estimated lives; customer relationships use eight (8) to fifteen (15) years; tradenames use one (1) to three (3) years; and software costs use one (1) to eight (8) years.

Impairment of Long–Lived Assets

The Company periodically reviews the carrying value of its long-lived assets held and used at least annually or when events and circumstances warrant such a review. If significant events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. Cash flow projections are sometimes based on a group of assets, rather than a single asset. If cash flows cannot be separately and independently identified for a single asset, the Company determines whether impairment has occurred for the group of assets for which it can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, it measures any impairment by comparing the fair value of the asset group to its carrying value. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in the amount of the difference is recorded. The Company’s annual testing indicated there was no impairment as of December 31, 2016. Additionally, no indicators of impairment occurred in the six months ended June 30, 2017.

Convertible Preferred Stock

The Company accounts for the redemption premium, beneficial conversion feature and issuance costs on or of its convertible preferred stock using the effective interest method, accreting such amounts to its convertible preferred stock from the date of issuance to the earliest date of redemption.

Share-Based Compensation

The Company expenses employee share-based payments under ASC Topic 718, Compensation-Stock Compensation, which requires compensation cost for the grant-date fair value of share-based payments to be recognized over the requisite service period. The Company estimates the grant date fair value of the share-based awards issued in the form of options using the Black-Scholes option pricing model.

Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. The dilutive effect of the conversion option in the shares of Series A Preferred and shares of Series A-1 Preferred of 16,949,152 and 1,102,041 shares of common stock, respectively, at June 30, 2017, the effect of 1,353,953 exercisable stock options granted under the Company’s Amended and Restated 2013 Stock Incentive Plan (the “2013 Stock Incentive Plan”) at June 30, 2017 and the effect of 266,667 exercisable warrants issued in connection with the Company’s purchase of treasury shares in February, 2017 have been excluded from the loss per share calculation for the three and six months ended June 30, 2017 in that the assumed conversion of these options would be anti-dilutive. For the three and six months ended June 30, 2016, the dilutive effect of the conversion option in the Flexpoint Series A Preferred and the Wellington Series A-1 Preferred of 9,448,241 and 616,500 shares of common stock, respectively, and the effect of 839,172 exercisable stock options granted under the Company’s 2013 Stock Incentive Plan at June 30, 2016 have been excluded from the loss per share calculation in that the assumed conversion of these options would be anti-dilutive.

 

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company does review the terms of debt instruments it enters into to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single compound derivative instrument.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges recorded within other expenses (income), using the effective interest method.

Fair Value Measurements

The Company accounts for fair value measurements in accordance with ASC Topic No. 820, Fair Value Measurements and Disclosures (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC Topic 820, assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement.

	Fair Value at June 30, 2017
	Total		Level 1		Level 2		Level 3
			(in thousands)
Contingent consideration	$	1,960	$	-	$	-	$	1,960

	Fair Value at December 31, 2016
	Total		Level 1		Level 2		Level 3
			(in thousands)
Contingent consideration	$	2,982	$	-	$	-	$	2,982

The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
Beginning balance	$	2,742	$	1,156	$	2,982	$	1,296
Addition of JetPay Payments, FL contingent consideration		-		1,975		-		1,975
JetPay Payments, FL contingent consideration shares released from escrow		(525)		-		(525)		-
Change in fair value of JetPay Payments, TX contingent consideration		(19)		21		(54)		57
Change in fair value of JetPay Payments, PA contingent consideration		-		10		-		20
Change in fair value of JetPay Payments, FL contingent consideration		(238)		(247)		(129)		(247)
Payment of JetPay Payments, PA contingent consideration		-		-		(314)		(186)
Totals	$	1,960	$	2,915	$	1,960	$	2,915

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the financial instrument. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, which reports to the Chief Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department with support from the Company’s outside consultants which are approved by the Chief Financial Officer. Level 3 financial liabilities for the relevant periods consist of contingent consideration related to the JetPay Payments, TX, JetPay Payments, PA and JetPay Payments, FL acquisitions for which there are no current markets such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy will be analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

In addition to the consideration paid upon closing of the JetPay Payments, TX acquisition, WLES, L.P. (“WLES”), through December 28, 2017, is entitled to receive 833,333 shares of common stock if the trading price of the common stock is at least $8.00 per share for any 20 trading days out of a 30 trading day period and $5.0 million in cash if the trading price of the common stock is at least $9.50 per share for any 20 trading days out of a 30 trading day period. This contingent consideration was valued at $1.54 million at the date of acquisition based on utilization of option pricing models and was recorded as a non-current other liability for $700,000 and as additional paid-in capital for $840,000 at December 31, 2012. The stock-based component value of $840,000 recorded at December 28, 2012 (the JetPay Payments, TX acquisition date), remains unchanged at June 30, 2017 as a result of this component being recorded as equity. The fair value at June 30, 2017 of the cash-based contingent consideration, valued at $4,000, recorded within other current liabilities, was determined using a binomial option pricing model. The following assumptions were utilized in the June 30, 2017 calculations: risk free interest rate: 1.14%; dividend yield: 0%; term of contingency of 0.5 years; and volatility: 76.1%.

 

The fair value of the common stock was derived from the per share price of the common stock at the valuation date. Management determined that the results of its valuation were reasonable. The expected life represents the remaining contractual term of the derivative. The volatility rate was developed based on analysis of the historical volatility rates of similarly situated companies (using a number of observations that was at least equal to or exceeded the number of observations in the life of the derivative financial instrument at issue). The risk free interest rates were obtained from publicly available U.S. Treasury yield curve rates. The dividend yield is zero because the Company has not paid dividends and does not expect to pay dividends in the foreseeable future.

In addition to the consideration paid upon closing of the JetPay Payments, PA acquisition, the previous unitholders were entitled to receive up to an additional $500,000 if certain net revenue goals were achieved through October 31, 2016. This contingent consideration was valued at $400,000 at the date of acquisition, $314,000 at December 31, 2016, and $0 at June 30, 2017, with $186,000 earned and paid to the previous unitholders of JetPay Payments, PA in February 2016 and the remaining $314,000 paid on January 17, 2017.

 

In addition to the consideration paid upon closing of the JetPay Payments, FL acquisition, the previous shareholders are entitled to receive up to an additional 500,000 shares of common stock upon JetPay Payments, FL achieving certain gross profit performance targets in 2016 and 2017 and up to 500,000 warrants to purchase shares of common stock, each with a strike price of $4.00 per share and a 10-year term from its date of issuance, upon JetPay Payments, FL achieving certain gross profit performance targets in 2018 and 2019. This contingent consideration was valued at $1,975,000 at the date of acquisition, $1,770,000 at December 31, 2016 ($563,000 recorded within other current liabilities and $1.2 million recorded within non-current other liabilities), and $1,116,000 at June 30, 2017 (recorded within non-current other liabilities), based on utilization of a Monte Carlo simulation to estimate the variance and relative risk of achieving future gross profit performance targets. Contingent consideration liability of $525,000 was reclassified to additional paid-in capital in June 2017 with 250,000 shares of common stock issued at the closing of the acquisition released from escrow as a result of the 2016 gross profit performance targets being achieved. The key assumptions in applying the Monte Carlo simulation included expected gross profit growth rates, the expected standard deviation and serial correlation of expected net revenue growth rates as well as a normal distribution assumption.

 

The Company uses either a binomial option-pricing model with a Monte Carlo simulation or the Black-Scholes option valuation model to value Level 3 financial liabilities at inception and on subsequent valuation dates. These models incorporate transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility. A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement.

As of June 30, 2017, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

In accordance with the provisions of ASC Topic 815,  Derivatives and Hedging Activities, the Company presented its derivative liability at fair value on its Consolidated Balance Sheets, with the corresponding change in fair value recorded in the Company’s Consolidated Statement of Operations for the applicable reporting periods.

Income Taxes

The Company accounts for income taxes under ASC Topic 740,  Income Taxes (“ASC Topic 740”). ASC Topic 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryovers. Deferred income tax expense (benefit) represents the change during the period in the deferred income tax assets and deferred income tax liabilities. In establishing the provision for income taxes and determining deferred income tax assets and liabilities, the Company makes judgments and interpretations based on enacted laws, published tax guidance and estimates of future earnings. ASC Topic 740 additionally requires a valuation allowance to be established when, based on available evidence, it is more likely than not that some portion or the entire deferred income tax asset will not be realized.

ASC Topic 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file income tax returns in the United States (federal) and in various state and local jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions and deductions would be sustained upon examination and does not anticipate any adjustments that would result in material changes to its financial position.

The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of selling, general and administrative expense, respectively. There were no amounts accrued for penalties or interest as of or during the three and six months ended June 30, 2017 and 2016. Management does not expect any significant changes in its unrecognized tax benefits in the next year.

Subsequent Events

Management evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, management did not identify any recognized or non-recognized subsequent events which would have required an adjustment or disclosure in the financial statements, except as described in Note 14. Subsequent Events. 

Recently Adopted Accounting Standards

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The ASU simplifies the presentation of deferred income taxes under U.S. GAAP by requiring that all deferred tax assets and liabilities be classified as non-current. The guidance in ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09,  Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance is to be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on the criteria for the specific amendments as outlined in the guidance. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company adopted this ASU and it did not have a material impact on the Company’s disclosures in the footnotes to its financial statements.

Recent Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. JetPay has not yet determined the effect of the adoption of this standard on JetPay’s consolidated financial position and results of operations.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU amends the principal versus agent guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was issued in May 2014 (“ASU 2014-09”). Further, in April 2016, the FASB issued ASU No. 2016-10,  Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This ASU also amends ASU 2014-09 and is related to the identification of performance obligations and accounting for licenses. Most recently, in December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This amendment affects narrow aspects of the guidance issued in ASU 2014-09. The effective date and transition requirements for all of these amendments to ASU 2014-09 are the same as those of ASU 2014-09, which was deferred for one year by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. That is, the guidance under these standards is to be applied using a full retrospective method or a modified retrospective method, as outlined in the guidance, and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the provisions of each of these standards and assessing their impact on the Company’s financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13,  Financial Instruments-Credit Losses (Topic 36): Measurement of Credit Losses on Financial Instruments, which provides guidance that will change the accounting for credit impairment. Under the new guidance, companies are required to measure all expected credit losses for financial instruments held at the reporting date based on historic experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposure. This new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18), which provides guidance that will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.    This ASU clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). This ASU simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test, which required computing the implied fair value of goodwill. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This new guidance will be effective January 1, 2020. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financial statements and disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting.  This ASU clarifies an entity’s ability to modify the terms or conditions of a share-based payment award presented. An entity should account for the effects of a modification unless all the following are met: the fair value of the modified award has not changed from the fair value on the date of issuance; the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and, the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This ASU clarifies the recognition, measurement, and effect on earnings per share of certain freestanding equity-classified financial instruments that include down round features affect entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. This new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

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Property and Equipment, net of Accumulated Depreciation

6 Months Ended

Jun. 30, 2017

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

Note 5.   Property and Equipment, net of Accumulated Depreciation

	June 30, 2017		December 31, 2016
	(in thousands)
Leasehold improvements	$	423	$	417
Equipment		2,201		1,710
Furniture and fixtures		351		330
Computer software		1,236		1,230
Vehicles		245		245
Assets in progress		771		83
Total property and equipment		5,227		4,015
Less: accumulated depreciation		(2,369)		(1,890)
Property and equipment, net	$	2,858	$	2,125

Property and equipment included $624,898 and $422,167 of computer equipment as of June 30, 2017 and December 31, 2016, respectively, net of accumulated depreciation of $388,312 and $272,729 as of June 30, 2017 and December 31, 2016, respectively, that is subject to capital lease obligations.

 

Assets in progress consist primarily of computer software for internal use that will be placed into service upon completion.

Depreciation expense was $248,000 and $188,000 for the three months ended June 30, 2017 and 2016, respectively, and $479,000 and $367,000 for the six months ended June 30, 2017 and 2016, respectively.

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Accounts Payable and Accrued Expenses

6 Months Ended

Jun. 30, 2017

Payables and Accruals [Abstract]

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

Note 6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following (in thousands):

	June 30, 2017		December 31, 2016
Trade accounts payable	$	3,182	$	3,438
ACH clearing liability		912		1,160
Accrued compensation		1,692		1,234
Accrued agent commissions		1,299		1,023
Related party payables		51		424
Accrued legal settlement		873		126
Other		4,111		3,416
Total	$	12,120	$	10,821

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Long-Term Debt, Notes Payable and Capital Lease Obligations

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 7.   Long-Term Debt, Notes Payable and Capital Lease Obligations

Long-term debt, notes payable and capital lease obligations consist of the following:

	June 30, 2017		December 31, 2016
	(in thousands)
Term loan payable to LHLJ, Inc., interest rate of 8% payable in monthly payments of $128,677, including principal and interest, beginning on October 18, 2016, maturing on October 31, 2021, collateralized by the assets and equity interests of JetPay HR & Payroll Services and JetPay Payments, FL. See Note 12. Related Party Transactions.	$	8,969	$	9,371
Term loan payable to FNB, interest rate of 5.25% payable in monthly principal payments of $104,167 plus interest beginning on November 30, 2015, maturing November 6, 2021, collateralized by the assets and equity interests of JetPay Payments, PA.		5,416		6,042
Term note payable to Fifth Third Bank, interest rate of 4% payable in monthly payments of $27,317, including principal and interest, beginning on July 1, 2016, maturing November 30, 2019, collateralized by the assets and equity interests of JetPay Payments, FL.		779		925
Credit agreement payable to Fifth Third Bank providing for a 12-month draw period through June 22, 2018 for up to $1.6 million, converting into a 36 month amortizing term note maturing June 22, 2021. The credit agreement bears interest at LIBOR plus 3% (4.0% at June 30, 2017), collateralized by the assets and equity interests of JetPay Payments, FL.		400		-
Master equipment capital lease agreement payable to Fifth Third Bank for up to $1.5 million of lease financing to JetPay Payments, FL for a 12-month draw period through June 30, 2018. Interim draws will have a term of up to 48 months and will bear interest at LIBOR plus 3% until termed at a fixed rate set forth in the lease agreement, collateralized by equipment.		-		-
Amended and restated revolving promissory note payable to Fifth Third Bank, interest rate of LIBOR plus 2.00% (3.0% at June 30, 2017), maturing on June 1, 2018.		20		20
Promissory note payable to Merrick, interest rate of 12% beginning October 14, 2016 payable on the promissory note maturing on January 11, 2017, collateralized by the 3,333,333 shares of JetPay common stock issued to WLES and held in escrow. Paid in full on January 15, 2017.		-		5,000
Unsecured promissory note payable to stockholder, interest rate of 4% payable at maturity, note principal due September 30, 2017, as extended. See Note 12. Related Party Transactions.		492		492
Capital lease obligations related to computer equipment and software at JetPay Payments, TX, interest rates of 5.55% to 8.55%, due in monthly lease payments of $30,144 in the aggregate maturing from December 2017 through April 2020 collateralized by equipment.		549		357
		16,625		22,207
Less current portion		(3,189)		(8,074)
Less unamortized deferred financing costs		(348)		(339)
	$	13,088	$	13,794

The FNB term loan agreement requires the Company to provide FNB with annual financial statements within 120 days of the Company’s year-end and quarterly financial statements within 60 days after the end of each quarter. The FNB agreement also contains certain annual financial covenants with which the Company was in compliance as of June 30, 2017.

On June 2, 2016, in connection with the closing of the Company’s acquisition of JetPay Payments, FL, JetPay Payments, FL entered into a credit agreement with Fifth Third Bank to obtain a $1,068,960 term loan and a revolving line of credit facility of $500,000, in each case secured by all of JetPay Payments, FL’s assets. The term note issued to Fifth Third Bank matures on November 30, 2019 and bears interest at 4.00%. The revolving note issued to Fifth Third Bank matured on June 2, 2017 and was renewed to June 1, 2018 and bears interest at a rate of 2.00% plus the LIBOR Rate for the applicable interest period. The term note and the revolving note are guaranteed by the Company. The underlying credit agreement with Fifth Third Bank contains certain customary covenants, including a financial covenant related to JetPay Payments, FL’s fixed charge coverage ratio, with which the Company was in compliance as of June 30, 2017. The credit agreement was amended on June 22, 2017 as provided below.

 

On June 22, 2017, JetPay Payments, FL entered into a new Credit Agreement with Fifth Third Bank, which provides a $1,600,000 Draw/Term Note to finance software integration costs; an Amended and Restated Revolving Promissory Note for $1,000,000 (increasing the previous revolving promissory note for $500,000 and extending maturity to June 1, 2018); and a Second Modification of Credit Agreement. The Draw/Term Note provides for a 12 month draw period through June 22, 2018 (“the Conversion Date”), at which time the loan converts to a 36 month amortizing term loan which matures on June 22, 2021.The Draw/Term Note bears interest at the applicable LIBOR Rate plus 3%. The Draw/Term Note is payable in monthly installments beginning on the Conversion Date and can be prepaid without penalty or premium at any time. At June 30, 2017, $400,000 was outstanding against the $1,600,000 Draw/Term Note.

The Amended and Restated Revolving Promissory Note replaced and superseded the prior $500,000 Revolving Promissory Note payable to Fifth Third Bank, extending its maturity to June 1, 2018. It bears interest at a rate of 2.00% plus the LIBOR rate for the applicable interest period and is expected to be used to extend temporary credit to cover JetPay Payments, FL’s customers’ processing return items.

The Second Modification amends and restates an original term loan to JetPay Payments, FL dated June 2, 2016 in the original amount of $1,068,960.30 to incorporate certain terms in the new Credit Agreement, including incorporating revised debt covenants, financial reporting requirements, collateral requirements, modifications to parent guarantees, and representations and warranties of JetPay Payments, FL.

Additionally, JetPay Payments, FL entered into a Master Equipment Lease Agreement and related Interim Lease Funding Schedule with Fifth Third Bank to provide up to $1.5 million of lease financing for point-of-sale equipment related to certain JetPay Payments, FL customer contracts and other computer equipment. The Interim Lease Funding Schedule provides the details of the allowable equipment to finance and provides for an interim draw periods through June 30, 2018. Upon completion of an interim draw, the leases under the Master Lease Agreement will have a term not exceeding 48 months at an interest rate of LIBOR Rate plus 3% until termed out on a schedule, at which time such leases will amortize and bear interest at a fixed rate set forth in the applicable schedule.

On July 26, 2016, as part of its settlement of litigation with Merrick, the Company issued two promissory notes in favor of Merrick in the amounts of $3,850,000 (the “$3.85MM Note”) and $5,000,000 (the “$5MM Note” and, together with the $3.85MM Note, the “Notes”) to settle legal proceedings involving Merrick Bank. The $3.85MM Note was paid in full on October 21, 2016 and the $5.00MM Note was paid in full on January 11, 2017.

 

Maturities of long-term debt and capital lease obligations, excluding unamortized financing costs, are as follows for the years ending June 30: 2018 – $3.2 million; 2019 – $2.8 million; 2020 – $2.6 million; 2021 – $2.5 million; 2022 – $5.5 million; and $0 thereafter.

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Redeemable Convertible Preferred Stock

6 Months Ended

Jun. 30, 2017

Convertible Preferred Stock [Abstract]

Convertible Preferred Stock [Text Block]

Note 8.    Redeemable Convertible Preferred Stock

Under a Securities Purchase Agreement entered into on August 22, 2013 (as amended, the “Series A Purchase Agreement”), the Company agreed to sell to Flexpoint, and Flexpoint agreed to purchase, upon satisfaction of certain conditions, up to 133,333 shares of Series A Preferred for an aggregate purchase price of up to $40.0 million in three tranches.  The shares of Series A Preferred had a purchase price of $300 per share.

On October 11, 2013, the Company issued 33,333 shares of Series A Preferred to Flexpoint for an aggregate of $10.0 million less certain agreed-upon reimbursable expenses of Flexpoint pursuant to the Series A Purchase Agreement. Additionally, the Company issued 4,667 shares of Series A Preferred to Flexpoint on April 14, 2014 for an aggregate of $1.4 million; 20,000 shares on November 7, 2014 for $6.0 million; 33,333 shares on December 28, 2014 for $10.0 million; and 8,333 shares on August 9, 2016 for $2.5 million. The proceeds of the initial $10.0 million investment were used to retire the note payable to Ten Lords, Ltd. of $5.9 million maturing in December 2013 with the remainder used for general corporate purposes. The proceeds of the April 14, 2014 $1.4 million investment were used to satisfy a portion of the Company’s liability to EarlyBirdCapital, Inc. arising from a March 3, 2014 arbitration decision. The proceeds of the November 7, 2014 $6.0 million investment were used as partial consideration for the acquisition of JetPay Payments, PA. The proceeds of the December 28, 2014 $10.0 million investment were used to redeem certain secured convertible preferred notes that matured on December 31, 2014. The proceeds of the August 9, 2016 $2.5 million investment were used for the payment of certain acquisition expenses related to the JetPay Payments, FL acquisition and for general corporate purposes.

The Series A Preferred is convertible into shares of common stock.  Any holder of Series A Preferred may at any time convert such holder’s shares of Series A Preferred into that number of shares of common stock equal to the number of shares of Series A Preferred being converted multiplied by $300 and divided by the then-applicable conversion price, which was initially $3.00. Under the Series A Purchase Agreement, Flexpoint and Sundara Investment Partners, LLC are provided with certain indemnification rights in the event of the incurrence of certain losses and expenses by the Company. In April 2015, Flexpoint tendered to the Company a claim letter regarding an indemnification claim with respect to the EarlyBirdCapital matter.  On August 6, 2015, in resolution of this claim, Flexpoint and the Company entered into a Letter Agreement, whereby the conversion price of any of the Series A Preferred held by Flexpoint was reduced from $3.00 per share to $2.90 per share. As a result of the settlement of the Direct Air Matter, see Note 11. Commitments and Contingencies, on March 23, 2017, the conversion price of Series A Preferred was further adjusted to $2.36 pursuant to the Series A Securities Purchase Agreement. Pursuant to an agreement by and among the Company, Flexpoint and Sundara, the Series A Preferred conversion price may be adjusted upward upon a successful recovery of funds in the Company’s lawsuit against Valley National Bank. The conversion price of the Series A Preferred continues to be subject to downward adjustment upon the occurrence of certain events.

On October 18, 2016, the Company amended and restated the Series A Purchase Agreement in part to facilitate the Company’s issuance and sale to Sundara of the 33,667 shares of Series A Preferred that had not yet been purchased by Flexpoint (the “Remaining Shares”). Flexpoint’s right to acquire the Remaining Shares was set to expire on October 11, 2016, but was extended until October 25, 2016 by an amendment to the Series A Purchase Agreement, dated October 10, 2016, by and between the Company and Flexpoint. Pursuant to the A&R Purchase Agreement, the Company and Flexpoint provided to Sundara the sole right to purchase the remaining 33,667 shares of Series A Preferred in a single transaction consummated at the signing of the amended and restated Series A Purchase Agreement, for a purchase price of $10,100,100. This issuance was completed on October 18, 2016.

The Series A Preferred has an initial liquidation preference of $600 per share (subject to adjustment for any stock split, stock dividend or other similar proportionate reduction or increase of the authorized number of shares of common stock) and will rank senior to the common stock with respect to distributions of assets upon the Company’s liquidation, dissolution or winding up. Holders of Series A Preferred have the right to request redemption of any shares of Series A Preferred issued at least five (5) years prior to the date of such request by delivering written notice to the Company at the then applicable liquidation value per share, unless holders of a majority of the outstanding Series A Preferred elect to waive such redemption request on behalf of all holders of Series A Preferred, subject to certain exceptions.

In addition to the foregoing, pursuant to a Securities Purchase Agreement (the “Series A-1 Purchase Agreement”) with Wellington dated May 1, 2014, the Company agreed to sell to Wellington, upon the satisfaction of certain conditions, up to 9,000 shares of Series A-1 Preferred at a purchase price of $300 per share for an aggregate purchase price of up to $2.7 million. On May 5, 2014, the Company issued 2,565 shares of Series A-1 Preferred to Wellington for an aggregate of $769,500, less certain agreed-upon reimbursable expenses of Wellington. Additionally, the Company issued to Wellington 1,350 shares of Series A-1 Preferred on November 20, 2014 for $405,000; 2,250 shares of Series A-1 Preferred on December 31, 2014 for $675,000; and 2,835 shares of Series A-1 Preferred on April 13, 2017 for $850,500. The proceeds of the total investment of $2.7 million by Wellington have been used for general corporate purposes.

Shares of Series A-1 Preferred are convertible into shares of the Company’s common stock or, in certain circumstances, Series A-2 Convertible Preferred Stock, par value $0.001 per share.  Shares of Series A-1 Preferred may be converted into that number of shares of common stock equal to the number of shares of Series A-1 Preferred being converted multiplied by $300 and divided by the then-applicable conversion price, which initially was $3.00. As a result of the settlement of the Direct Air Matter, on March 23, 2017, the conversion price of Series A-1 Preferred was adjusted to $2.45 pursuant to the Series A-1 Securities Purchase Agreement. Pursuant to an agreement by and among Wellington, the Series A-1 Preferred conversion price may be adjusted upward upon a successful recovery of funds in the Company’s lawsuit against Valley National Bank. The conversion price of the Series A-1 Preferred is subject to further downward adjustment upon the occurrence of certain events as defined in the Series A-1 Purchase Agreement.

The Series A-1 Preferred has an initial liquidation preference of $600 per share and ranks senior to the Company’s common stock and pari passu with the Series A Preferred with respect to distributions of assets upon the Company’s liquidation, dissolution or winding up. Notwithstanding the above, no holder of the Series A-1 Preferred can convert if, as a result of such conversion, such holder would beneficially own 9.9% or more of the Company’s common stock. If at any time, no shares of Series A Preferred remain outstanding and shares of Series A-1 Preferred remain outstanding because of the limitation in the preceding sentence, all shares of Series A-1 Preferred shall automatically convert into shares of Series A-2 Preferred at a 1:1 ratio. Upon the occurrence of an Event of Noncompliance, as defined in the Series A-1 Purchase Agreement, the holders of a majority of the Series A-1 Preferred may demand immediate redemption of all or a portion of the Series A-1 Preferred at the then-applicable liquidation value.

The Company considered the guidance of ASC Topic 480,  Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives, in determining the accounting treatment for its convertible preferred stock instruments. The Company considered the economic characteristics and the risks of the host contract based on the stated and implied substantive terms and features of the instruments; including, but not limited to, its redemption features, voting rights, and conversions rights; and determined that the terms of the preferred stock were more akin to an equity instrument than a debt instrument. Subject to certain exceptions applicable to Sundara, the shares of Series A Preferred and Series A-1 Preferred are subject to redemption, at the option of the holder, on or after the fifth anniversary of their original purchase. Accordingly, the convertible preferred stock has been classified as temporary equity in the Company’s Consolidated Balance Sheets.

Upon issuance of the 33,333 shares of the Series A Preferred, the Company recorded as a reduction to the Series A Preferred and as Additional Paid-In Capital a beneficial conversion feature of $1.5 million. The beneficial conversion feature represents the difference between the effective conversion price and the fair value of the Series A Preferred as of the commitment date. An additional beneficial conversion feature of $396,600 was recorded in August 2015 as a result of the change in conversion price per share from $3.00 to $2.90. Similarly, additional beneficial conversion features of $2.7 million and $2.2 million were recorded in March 2017 with respect to the shares of Series A Preferred issued and sold to Flexpoint in 2013 and the shares of Series A Preferred issued and sold to Sundara in 2016 as a result of the further change in conversion price per share of Series A Preferred from $2.90 to $2.36. There was no beneficial conversion feature related to the 2014, 2015 or the 2016 issuances and sales of shares of Series A Preferred to Flexpoint and shares of Series A-1 Preferred to Wellington as a result of the price of the Company’s common stock at the dates of the closings being below the effective adjusted conversion price of the preferred stock. The Company accounts for the beneficial conversion feature, the liquidation preference, and the issuance costs related to the Series A Preferred and Series A-1 Preferred using the effective interest method by accreting such amounts to its Series A Preferred and Series A-1 Preferred from the date of issuance to the earliest date of redemption as a reduction to its total permanent equity within the Company’s Consolidated Statement of Changes in Stockholders’ Equity as a charge to Additional Paid-In Capital. Any accretion recorded during the periods presented are also shown as a reduction to the income available to common stockholders in the Company’s Consolidated Statements of Operations when presenting basic and dilutive per share information. Accretion was $2.7 million and $1.5 million for the three months ended June 30, 2017 and 2016, respectively, and $4.8 million and $2.9 million for the six months ended June 30, 2017 and 2016, respectively.

Upon the occurrence of an Event of Noncompliance, the holders of a majority of the Series A Preferred may demand immediate redemption of all or a portion of the shares of Series A Preferred at the then-applicable liquidation value.  Such holders may also exercise a right to have the holders of the Series A Preferred elect a majority of the Board by increasing the size of the Board and filling such vacancies.  Such right to control a minimum majority of the Board would exist for so long as the Event of Noncompliance continues. An “Event of Noncompliance” shall have occurred if: (i) the Company fails to make any required redemption payment with respect to the Series A Preferred; (ii) the Company breaches the Series A Purchase Agreement and such breach has not been cured within thirty days after receipt of notice thereof; (iii) the Company or any subsidiary makes an assignment for the benefit of creditors, admits its insolvency or is the subject of an order, judgment or decree adjudicating such entity as insolvent, among other similar actions; (iv) a final judgment in excess of $5.0 million is rendered against the Company or any subsidiary that is not discharged within 60 days thereafter; or (v) an event of default has occurred under the Prior HR & Payroll Services Credit Facility, and such event of default has not been cured within thirty days after receipt of notice thereof.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2017

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 9.    Stockholders’ Equity

Common Stock

On January 22, 2016, the Company sold 37,037 shares of common stock to an additional investor at a purchase price of $2.70 per share for consideration of $100,000 prior to issuance costs of approximately $36,000.

On June 29, 2016, the Board of Directors approved an amendment and restatement of the JetPay Corporation 2013 Stock Incentive Plan, which was subsequently approved by the Company’s stockholders at the Company’s 2016 Annual Meeting of Stockholders held on August 2, 2016. The Amended and Restated 2013 Stock Incentive Plan (the “Amended and Restated 2013 Plan”) authorizes the availability of an additional 1,000,000 shares of common stock available for the grant of awards under the 2013 Stock Incentive Plan, for a total of 3,000,000 shares of common stock total available under the Plan.

On July 1, 2016, the Company issued 22,876 shares of common stock under its Employee Stock Purchase Plan and an additional 51,480 shares on January 5, 2017.

 

Treasury Stock

On February 15, 2017, the Company repurchased  2.2 million shares of its common stock owned by WLES, which WLES had agreed to sell in connection with the Direct Air matter as part of the WLES Settlement Agreement dated July 26, 2016. JetPay had previously repaid a $5.0 million Note due to Merrick Bank in January 2017, which WLES had agreed to indemnify as part of the WLES Settlement Agreement by agreeing to sell the 2.2 million shares to satisfy JetPay’s obligations in relation to the $5.0 million Note. As a result, no additional consideration was due to WLES in connection with the stock buyback. Effective February 15, 2017 the 2.2 million shares of JetPay common stock were placed in treasury at a cost of $4.95 million and are available for issuance.

 

Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.001 per share with such designations, rights and preferences as may be determined from time to time by the Company’s Board of Directors.

 

As of June 30, 2017 and December 31, 2016, there were no shares of preferred stock issued or outstanding other than the Series A Preferred issued to Flexpoint and Sundara and the Series A-1 Preferred issued to Wellington described above.

Stock-Based Compensation

ASC Topic 718, Compensation-Stock Compensation, requires compensation expense for the grant-date fair value of share-based payments to be recognized over the requisite service period.

The Amended and Restated 2013 Plan had available 433,752 shares of common stock for the grant of awards as of June 30, 2017.

 

The Company granted options to purchase 340,000 and 380,000 shares of common stock under the Amended and Restated 2013 Stock Incentive Plan during the six months ended June 30, 2017 and 2016, respectively, all at an exercise price of $3.00 per share except for 250,000 options granted at $2.48 per share in May 2016, the closing price of the Company’s common stock on the date of grant. The grant date fair value of the options granted during the six months ended June 30, 2017 and 2016 were determined to be approximately $399,000 and $425,000, respectively, using the Black-Scholes option pricing model. Aggregated stock-based compensation expense was $190,000 and $93,000 for the three months ended June 30, 2017 and 2016, respectively, and $361,000 and $164,000 for the six months ended June 30, 2017 and 2016, respectively. Unrecognized compensation expense as of June 30, 2017 relating to non-vested common stock options was approximately $1.3 million and is expected to be recognized through 2021. During the six months ended June 30, 2017 and 2016, no options were exercised and 20,000 and 156,667 options, respectively, were forfeited.

 

The fair values of the Company’s options were estimated at the dates of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
Expected term (years)		6.25		5.75 to 6.25		6.25		5.75 to 6.25
Risk-free interest rate		1.93%		1.36% to 1.50%		1.93% to 2.10%		1.36% to 1.50%
Volatility		65.6%		34.6% to 54.7%		62.3% to 65.6%		34.6% to 54.7%
Dividend yield		0%		0%		0%		0%

Expected term: The Company’s expected term is based on the period the options are expected to remain outstanding. The Company estimated this amount utilizing the “Simplified Method” in that the Company does not have sufficient historical experience to provide a reasonable basis to estimate an expected term.

Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.

Volatility: The Company calculates the volatility of the stock price based on historical value and corresponding volatility using a weighted average of both the Company’s stock price and the Company’s peer group stock price for a period consistent with the stock option expected term.

Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.

 

A summary of stock option activity for the six months ended June 30, 2017 and the year ended December 31, 2016 is presented below:

	Number of Options		Weighted Average Exercise Price
Outstanding at December 31, 2015		1,717,082	$	3.02
Granted		905,000		2.70
Forfeited		(375,834)		3.00
Exercised		-		-
Outstanding at December 31, 2016		2,246,248	$	2.89
Granted		340,000		3.00
Forfeited		(20,000)		3.00
Exercised		-		-
Outstanding at June 30, 2017		2,566,248	$	2.90
Exercisable at June 30, 2017		1,353,953	$	2.93

The weighted average remaining life of options outstanding at June 30, 2017 was 8.04 years. The aggregate intrinsic value of the exercisable options at June 30, 2017 was $0.

 

Employee Stock Purchase Plan

On June 29, 2015, the Board of Directors adopted the JetPay Corporation Employee Stock Purchase Plan (the "Purchase Plan"), which was subsequently approved by the Company’s stockholders at the Company’s 2015 Annual Meeting of Stockholders. The Purchase Plan allows employees to contribute a percentage of their cash earnings, subject to certain maximum amounts, to be used to purchase shares of the Company’s common stock on each of two (2) semi-annual purchase dates. The purchase price is equal to 90% of the market value per share on either: (a) the date of grant of a purchase right under the Purchase Plan; or (b) the date on which such purchase right is deemed exercised, whichever is lower.

 

As of June 30, 2017, an aggregate of 300,000 shares of common stock were reserved for issuance under the Purchase Plan, of which 22,876 shares of common stock were issued on July 1, 2016, 51,480 issued on January 5, 2017 and 40,310 shares on July 12, 2017.

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Income Taxes

6 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 10.    Income Taxes

The Company recorded income tax expense (benefit) of $81,000 and $(1.53) million for the three months ended June 30, 2017 and 2016, respectively, and $143,000 and $(1.47) million for the six months ended June 30, 2017 and 2016, respectively. Income tax expense (benefit) reflects the recording of federal and state income taxes. The effective tax rates were approximately (6.5)% and 21.5% for the three months ended June 30, 2017 and 2016, respectively, and (10.6)% and 18.3% for the six months ended June 30, 2017 and 2016, respectively. The effective rate differs from the federal statutory rate for each period, primarily due to state and local income taxes and changes to the valuation allowance.

As of June 30, 2016, due to the acquisition of JetPay Payments, FL and its related identifiable intangibles and the recording of an associated $1.86 million deferred tax liability, management believed that it was more likely than not that the benefit of a portion of its federal net deferred tax assets would be realized equal to the future source of taxable income created by the reversal of the book amortization of the JetPay Payments, FL fixed assets and identifiable intangible assets. Accordingly, management believes recording a partial reduction of the valuation allowance against its federal net deferred tax asset of $1.6 million is appropriate.

JetPay Payments, TX is subject to and pays the Texas Margin Tax which is considered to be an income tax in accordance with the provisions of the Income Taxes Topic in FASB, ASC and the associated interpretations. There are no significant temporary differences associated with the Texas Margin Tax.

As of December 31, 2016, the Company had U.S. federal net operating loss carryovers (“NOLs”) of approximately $25.9 million available to offset future taxable income. These NOLs, if not utilized, expire at various times through 2036. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s NOLs may be subject to an annual limitation in the event of a change in control.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that a total valuation allowance of approximately $9.4 million at June 30, 2017 is appropriate, representing the amount of its deferred income tax assets in excess of certain of the Company’s deferred income tax liabilities. The deferred tax liability related to goodwill that is amortizable for tax purposes (“Intangibles”) will not reverse until such time, if any, that the goodwill, which is considered to be an asset with an indefinite life for financial reporting purposes, becomes impaired or sold. Due to the uncertain timing of this reversal, the temporary difference cannot be considered as future taxable income for purposes of determining a valuation allowance. Therefore, the deferred tax liability related to tax deductible goodwill Intangibles cannot be considered when determining the ultimate realization of deferred tax assets.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Note 11.   Commitments and Contingencies

On or about March 13, 2012, a merchant of JetPay, LLC, Direct Air, a charter travel company, abruptly ceased operations and filed for bankruptcy. Under United States Department of Transportation requirements, all charter travel company customer charges for travel are to be deposited into an escrow account in a bank under a United States Department of Transportation escrow program, and not released to the charter travel company until the travel has been completed. In the case of Direct Air, such funds had historically been deposited into such United States Department of Transportation escrow account at Valley National Bank in New Jersey, and continued to be deposited through the date Direct Air ceased operations. At the time Direct Air ceased operations, according to Direct Air’s bankruptcy trustee, there should have been in excess of $31.0 million in the escrow account. Instead there was approximately $1.0 million. As a result, Merrick Bank Corporation (“Merrick”), JetPay, LLC’s sponsor bank with respect to this particular merchant, incurred chargebacks in excess of $25.0 million. Merrick maintained insurance through a Chartis Insurance Policy for chargeback losses that named Merrick as the primary insured. The policy had a limit of $25.0 million and a deductible of $250,000. Merrick sued Chartis Insurance (“Chartis”) for payment under the claim. Under an agreement between Merrick and JetPay, LLC, JetPay, LLC had certain obligations to indemnify Merrick for losses realized from such chargebacks that Merrick was unable to recover from other parties. JetPay, LLC recorded a loss for all chargebacks in excess of $25.0 million, the $250,000 deductible on the Chartis insurance policy and $487,000 of legal fees charged against JetPay, LLC’s cash reserve account by Merrick, totaling $1.9 million in 2012, as well as an additional $597,000 in legal fees charged against JetPay, LLC’s cash reserve account by Merrick through September 30, 2013. In December 2013, Merrick, in addition to its suit against Chartis, also filed suit against Valley National Bank as escrow agent. In February 2015, JetPay joined that suit, along with American Express. During 2012 and 2013, Merrick required JetPay, LLC to maintain increased cash reserves in order to provide additional security for any obligations arising from the Direct Air situation. As of June 30, 2016, Merrick held approximately $4.4 million of total reserves related to the Direct Air matter, which amount was released in full to Merrick under the Merrick Settlement Agreement in July 2016, as more fully described below.

On August 7, 2013, JetPay Merchant Services, LLC (“JPMS”), then a wholly owned subsidiary of JetPay, LLC and indirect wholly-owned subsidiary of the Company, together with WLES (collectively, the “Plaintiffs”), filed suit in the United States District Court for the Northern District of Texas, Dallas Division, against Merrick, Royal Group Services, LTD, LLC and Gregory Richmond (collectively, the “Defendants”). The suit alleged that Merrick and Gregory Richmond (an agent of Royal Group Services) represented to JPMS that insurance coverage was arranged through Chartis Specialty Insurance Company to provide coverage for JPMS against potential chargeback losses related to certain of JPMS’s merchant customers, including Southern Sky Air Tours, d/b/a Direct Air. The complaint alleged several other causes of action against the Defendants, including violation of state insurance codes, negligence, fraud, breach of duty and breach of contract. Also, in August 2013, JPMS, JetPay, LLC, and JetPay ISO Services, LLC (“JetPay ISO”) filed the second amendment to a previously filed complaint against Merrick in the United States District Court for the District of Utah, adding to its initial complaint several causes of action related to actions Merrick allegedly took during JetPay, LLC’s transition to a new sponsoring bank in June 2013. Additionally, subsequent to this transition, Merrick invoiced the Company for legal fees incurred by Merrick totaling approximately $4.7 million. The Company did not believe it had a responsibility to reimburse Merrick for these legal fees and disputed these charges. Accordingly, the Company had not recorded an accrual for these legal fees as of June 30, 2016. These legal fees were eliminated as part of the Merrick Settlement Agreement, as described below.

As partial protection against any potential losses related to Direct Air, the Company required that, upon closing of the acquisition of JetPay, LLC, 3,333,333 shares of common stock that was to be paid to WLES as part of the JetPay, LLC acquisition be placed into an escrow account with JP Morgan Chase as the trustee. If JetPay, LLC suffered any liability as a result of the Direct Air matter, these shares would be used in partial payment for any such liability, with any remaining shares delivered to WLES.

On July 26, 2016, we entered into two related settlement agreements: (i) a Settlement Agreement and Release by and among Merrick, the Company, certain subsidiaries of the Company and WLES (the “Merrick Settlement Agreement”) and (ii) a Settlement Agreement and Release by and among Trent Voigt, WLES and the Company (the “WLES Settlement Agreement”). In connection with the parties’ entry into the Merrick Settlement Agreement, the District Court for the District of Utah dismissed the Direct Air matter with prejudice on July 27, 2016.

As part of the Merrick Settlement Agreement, we agreed to release all claims to the $4.4 million held in reserve at Merrick. In addition, pursuant to the Merrick Settlement Agreement, we issued to Merrick the $3,850,000 note, bearing interest at a rate of 8% per annum, due December 28, 2017 (the “$3.85MM Note”) and a $5,000,000 note, bearing interest at a rate of 12% per annum, due January 11, 2017 (the “$5MM Note” and, together with the $3.85MM Note, the “Notes”) to Merrick. The Notes were secured by the 3,333,333 shares of JetPay’s common stock issued in the name of WLES and held in escrow.

In connection with its entry into the Merrick Settlement Agreement, JetPay executed three Stipulated and Confessed Judgments in favor of Merrick in the amounts of $32,500,000 (the “First Judgment”), $28,650,000 (the “Second Judgment”) and $27,500,000 (the “Third Judgment” and, together with the First Judgment and the Second Judgment, the “Judgments”), none of which would be of any effect unless and until JetPay failed to make any payment when due under the Notes. If JetPay failed to make payment when due under the Notes, Merrick, after a five (5) day cure period, would have been able to seek to obtain and/or enforce the applicable Judgments in the Federal District Court for Utah or in any court of competent jurisdiction. On October 21, 2016, the Company paid in full the $3.85MM Note and on January 11, 2017, the Company paid in full the $5.0MM Note. As a result, no Judgments are available for Merrick’s relief.

Under the terms of the WLES Settlement Agreement, WLES agreed to transfer the indebtedness represented by that certain promissory note, dated December 28, 2012 (the “WLES Note”), in the original principal amount of $2,331,369 issued by JetPay in favor of WLES to Merrick. In addition, WLES agreed to amend that certain promissory note, dated June 7, 2013, as amended, in the original principal amount of $491,693 issued by JetPay, LLC in favor of Trent Voigt in order to (a) extend its maturity date from September 30, 2016 to September 30, 2017 and (b) waive all interest payments for the period from September 30, 2016 to September 30, 2017. This note in favor of Mr. Voigt shall become due and payable immediately should Mr. Voigt’s employment with JetPay be terminated other than for cause.

The WLES Settlement Agreement also provides for the allocation of any recoveries by JPMS in connection with the claims brought by JMPS in American Express Travel Related Services and JetPay Merchant Services, LLC v. Valley National Bank, Civil Action No. 2:14-cv-7827 (D. N.J.) between the Company and WLES. On February 15, 2017, 2,200,000 of the WLES escrowed shares were transferred to JetPay and placed into Treasury to satisfy WLES’ indemnification under the Merrick and WLES Settlement Agreements.

The Company has recorded a Settlement of Legal Matter charge of $6.19 million for the year ended December 31, 2016 based on the terms of the Merrick Settlement Agreement and the WLES Settlement Agreement. The loss includes: (i) a charge of $4.4 million related to the Company’s release of all claims to the $4.4 million held in reserve at Merrick; (ii) a charge of $1.4 million related to the Company’s issuance of the $3.85MM Note, less WLES’s agreement to transfer the WLES Note (recorded at $2,036,511, net of an unamortized discount of $294,858) and accrued interest on the WLES Note of $414,466; (iii) a charge of $50,000 representing the Company’s issuance of the $5.0MM Note less the estimated value as of July 26, 2016 of the escrowed shares; and (iv) a charge for $373,334 representing the fair value of the issuance of warrants to WLES as described in the WLES Settlement Agreement.

At the time of the acquisition of JetPay, LLC, the Company entered into an Amendment, Guarantee, and Waiver Agreement (the “Agreement”), dated December 28, 2012, between the Company, Ten Lords, Ltd. (“Ten Lords”) and JetPay, LLC (n/k/a JetPay Payment Services, TX, LLC). Under the Agreement, Ten Lords agreed to extend payment of a $6.0 million note remaining outstanding at the date of acquisition for up to twelve months. The terms of the Agreement required that the Company provide the owners of Ten Lords and Providence Interactive Capital, LLC (together with Ten Lords, the “Plaintiffs”) with a “true up” payment meant to put them in the same after-tax economic position as they would have been had the note been paid in full on December 28, 2012. The Company calculated this true-up payment to be $222,310 and paid such amount in August 2015. In addition to the $222,310 paid in 2015, the Company recorded an additional loss accrual of $125,500 relating to this matter. Subsequent to the Company’s payment, the Company received notice on October 5, 2015 that Plaintiffs filed a lawsuit (the “Lawsuit”) against JetPay, LLC and the Company disputing the true up payment. Since 2015, the Company and JetPay, LLC have been defendants in the Lawsuit in the 429th Judicial District Court of Collin County, Texas (the “Court”) styled Ten Lords, Ltd. and Providence Interactive Capital, LLC, Cause No. 429-04140-2015. The Lawsuit was tried in the Court on May 2, 2017 and the Court granted a judgment to Plaintiffs in the amount of $793,000 plus attorneys’ fees of $134,075, which judgment was entered by the Court on May 15, 2017 (the “Judgment”). On July 3, 2017, the Company and JetPay, LLC successfully settled the Lawsuit by entering into a Compromise Settlement Agreement and Mutual Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid to Plaintiffs the sum of $872,500 on July 3, 2017 and the parties released one another and their respective affiliates from all claims arising out of the matters described in the Lawsuit and the Judgment. In connection with this settlement, the Company recorded an additional loss of $747,000 in the three months ended June 30, 2017.

In December 2015, Harmony Press Inc. (“Harmony”), a customer of ADC and PTFS, filed a suit against an employee of Harmony for theft by that employee of over $628,000. JetPay, ADC, and PTFS as well as several financial institution service providers to Harmony were also named in that suit for alleged negligence. The Company believes that the allegations in the suit regarding JetPay, ADC, and PTFS are groundless and has turned the matter over to the Company’s insurance carrier who is defending the suit. The Company is subject to a $50,000 deductible under its insurance policy. The Company has not recorded an accrual for any potential loss related to this matter as of June 30, 2017 and has incurred legal expense of $50,000 applied against its deductible, through June 30, 2017.

The Company is a party to various other legal proceedings related to its ordinary business activities. In the opinion of the Company’s management, none of these proceedings are material in relation to our results of operations, liquidity, cash flows, or financial condition.

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Related Party Transactions

6 Months Ended

Jun. 30, 2017

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Note 12.    Related Party Transactions

JetPay Payroll Services’ headquarters are located in Center Valley, Pennsylvania and consist of approximately 22,500 square feet leased from C. Nicholas Antich and Carol A. Antich. Mr. Antich is the former President of JetPay HR & Payroll Services. The rent is currently $45,163 per month. The office lease had an initial 10-year term which expired on May 31, 2016 and was extended through August 31, 2017. Rent expense under this lease was $135,500 and $131,250 for the three months ended June 30, 2017 and 2016, respectively, and $270,978 and $260,400 for the six months ended June 30, 2017 and 2016. The Company is currently evaluating its future space needs and reviewing several alternatives, including a possible further extension or amendment to the current lease.

JetPay Payments, TX retains a backup center in Sunnyvale, Texas consisting of 1,600 square feet, rented from JT Holdings, an entity controlled by Trent Voigt, the previous Chief Executive Officer of JetPay Payments, TX. The prior lease expired on January 31, 2016. Rent expense was $12,000 and $30,000 for the three months ended June 30, 2017 and 2016, respectively and $47,000 and $53,000 for the six months ended June 30, 2017 and 2016, respectively. As a part of current negotiations with Mr. Voigt regarding the property and other related matters, the Company and JT Holdings entered into an agreement to extend the lease for twelve months beginning on July 1, 2017 at a monthly rate of $6,000 plus utilities and certain other costs.

In connection with the closing of the Company’s acquisition of JetPay Payments, TX, the Company entered into a Note and Indemnity Side Agreement with JP Merger Sub, LLC, WLES and Trent Voigt (the “Note and Indemnity Side Agreement”) dated as of December 28, 2012. Pursuant to the Note and Indemnity Side Agreement, the Company issued a promissory note in the amount of $2,331,369 in favor of WLES. Interest accrued on amounts due under the note at a rate of 5% per annum, and is payable quarterly. Interest expense was $29,500 and $59,000 or the three and six months ended June 30, 2016, respectively. Under the terms of the WLES Settlement Agreement, WLES transferred the WLES Note and related accrued interest to Merrick. See  Note 11. Commitments and Contingencies.

On August 22, 2013, JetPay Payments, TX entered into a Master Service Agreement with JetPay Solutions, LTD, a United Kingdom based entity 75% owned by WLES, an entity owned by Trent Voigt. The Company initiated transaction business under this agreement beginning in April 2014 with revenue earned from JetPay Solutions, LTD of $9,000 and $6,000 for the three months ended June 30, 2017 and 2016, respectively, and $35,000 and $11,000 for the six months ended June 30, 2017 and 2016, respectively.

On June 7, 2013, the Company issued an unsecured promissory note to Trent Voigt, the then Chief Executive Officer of JetPay Payments, TX, in the amount of $491,693. The note matures on September 30, 2017, as extended by the WLES Settlement Agreement dated July 26, 2016, see Note 11. Commitments and Contingencies, and beared interest at an annual rate of 4% with interest expense of $4,900 and $9,800 recorded for the three and six months ended June 30, 2016, respectively. The transaction was approved upon resolution and review by the Company’s Audit Committee of the terms of the note to ensure that such terms were no less favorable to the Company than those that would be available with respect to such transactions from unaffiliated third parties. See Note 7. Long-Term Debt, Notes Payable and Capital Lease Obligations.

On May 6, 2015, the Company issued an unsecured promissory note to C. Nicholas Antich, the then President of JetPay HR & Payroll Services, and Carol A. Antich in the amount of $350,000 to satisfy the remaining balance of the $2.0 million deferred consideration. The promissory note bore interest at an annual rate of 4% and was scheduled to mature on May 6, 2017, payable in two equal installments of $175,000, with the first paid on May 6, 2016 and the second due on May 6, 2017. The promissory note was paid in full on December 31, 2016. Interest expense related to this promissory note was $2,500 and $6,100 for the three and six months ended June 30, 2016, respectively. The promissory note was approved upon resolution and review by the Company’s Audit Committee of the terms of the promissory note to ensure that such terms were no less favorable to the Company than those that would be available with respect to such transactions from unaffiliated third parties.

On December 22, 2015, the Company entered into securities purchase agreements (the “Insider Common Stock SPAs”) with each of certain investors, including Bipin C. Shah, its Chairman and then Chief Executive Officer, Robert B. Palmer, Director and Chair of the Audit Committee, and Jonathan M. Lubert, Director. Pursuant to the Insider Common Stock SPAs, Messrs. Shah, Palmer and Lubert each agreed to purchase 20,000 shares, or an aggregate of 60,000 shares, of the Company’s common stock at a purchase price of $2.70 per share (a price greater than the closing bid price of the common stock on December 21, 2015, which was the last closing bid price preceding the Company’s execution of each of the Insider Common Stock SPAs), for aggregate consideration of $162,000, prior to issuance costs.

On January 15, 2016, the Company issued the Promissory Notes in favor of each of Bipin C. Shah, Jonathan Lubert and Flexpoint. Amounts outstanding under the Promissory Notes accrued interest at a rate of 12% per annum and carried a default interest rate upon the occurrence of certain events of default, including failure to make payment under the applicable Promissory Note or a sale of the Company. Interest expense related to the Promissory Notes was $177,000 for the year ended December 31, 2016. The maturity date of the Promissory Notes was extended to July 31, 2016 through an extension executed on April 11, 2016. On July 26, 2016, Jonathan Lubert and Flexpoint agreed to further extend their Promissory Notes to September 30, 2016 or the occurrence of an event of a default that is not properly cured or waived. Additionally, Flexpoint increased the principal amount of its expiring Promissory Note from $1,000,000 to $1,400,000, the proceeds of which increase were used to pay off the outstanding balance of the promissory note issued to Bipin C. Shah due on July 31, 2016. Finally, on September 30, 2016, Jonathan Lubert and Flexpoint agreed to further extend their Promissory Notes to October 31, 2016. The promissory notes in favor of Mr. Lubert and Flexpoint were paid in full on October 21, 2016.

Finally, on October 18, 2016, the Company entered into the amended and restated Series A Purchase Agreement with Flexpoint and Sundara, a Delaware limited liability company wholly-owned by Laurence L. Stone. Pursuant to the amended and restated Series A Purchase Agreement, Sundara acquired 33,667 shares of Series A Preferred for $10.1 million. In connection with the Company’s entry into the amended and restated Series A Purchase Agreement, Mr. Stone was appointed as a director of the Company by holders of Series A Preferred shares. In addition, on October 18, 2016, the Company entered into a loan and security agreement with JetPay HR & Payroll Services and PTFS, as borrowers, the Company and JetPay Payments, FL, as guarantors, and LHLJ, Inc., an entity wholly-owned by Laurence L. Stone, as lender. Pursuant to the loan and security agreement, LHLJ, Inc., LHLJ, Inc. provided JetPay HR & Payroll Services and PTFS a term loan of $9.5 million. The loan carries an interest rate of 8% and matures on October 18, 2021. Interest expense related to this promissory note was $184,000 and $370,000 for the three and six months ended June 30, 2017. In connection with the parties’ entry into the loan and security agreement, the borrowers paid LHLJ, Inc. a non-refundable closing fee of $190,000.

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Segments

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note 13.    Segments

The Company currently operates in two business segments, the JetPay Payment Services Segment, which is an end-to-end processor of credit and debit card and ACH payment transactions to businesses with a focus on those processing internet transactions and recurring billings, and the JetPay HR & Payroll Segment, which is a full-service payroll and related payroll tax payment processor.

Segment operating results are presented below (in thousands). The results reflect revenues and expenses directly related to each segment. The activity within JetPay Card Services was included in JetPay HR & Payroll for the three and six months ended June 30, 2017 and 2016, and in Corporate, for the three and six months ended June 30, 2017 and 2016 in the tables below.

	For the Three Months Ended June 30, 2017
	JetPay Payment Services		JetPay HR & Payroll Services		General/ Corporate		Total
Processing revenues	$	14,988	$	3,789	$	-	$	18,777
Cost of processing revenues		10,874		2,175		-		13,049
Selling, general and administrative expenses		3,047		1,507		502		5,056
Settlement of legal matter		-		-		747		747
Change in fair value of contingent consideration liability		-		-		(257)		(257)
Amortization of intangibles and depreciation		795		327		1		1,123
Other expenses		88		212		4		304
Income (loss) before income taxes	$	184	$	(432)	$	(997)	$	(1,245)

	For the Three Months Ended June 30, 2016
	JetPay Payment Services		JetPay HR & Payroll Services		General/ Corporate		Total
Processing revenues	$	8,830	$	3,368	$	14	$	12,212
Cost of processing revenues		6,471		1,816		19		8,306
Selling, general and administrative expenses		2,125		1,211		438		3,774
Settlement of legal matter		6,140		-		-		6,140
Change in fair value of contingent consideration liability		-		-		(216)		(216)
Amortization of intangibles and depreciation		626		340		1		967
Other expenses		160		67		107		334
Loss before income taxes	$	(6,692)	$	(66)	$	(335)	$	(7,093)

	For the Six Months Ended June 30, 2017
	JetPay Payment Services		JetPay HR & Payroll Services		General/ Corporate		Total
Processing revenues	$	29,292	$	8,427	$	-	$	37,719
Cost of processing revenues		21,216		4,418		-		25,634
Selling, general and administrative expenses		5,675		3,001		1,336		10,012
Settlement of legal matter		-		-		747		747
Change in fair value of contingent consideration liability		-		-		(183)		(183)
Amortization of intangibles and depreciation		1,578		648		2		2,228
Other expenses		179		426		26		631
Income (loss) before income taxes	$	644	$	(66)	$	(1,928)	$	(1,350)
Total property and equipment, net	$	2,314	$	514	$	30	$	2,858
Property and equipment additions	$	1,213	$	106	$	3	$	1,322
Intangible assets and goodwill	$	57,143	$	16,176	$	-	$	73,319
Total segment assets	$	122,086	$	68,778	$	2,674	$	193,538

	For the Six Months Ended June 30, 2016
	JetPay Payment Services		JetPay HR & Payroll Services		General/ Corporate		Total
Processing revenues	$	16,163	$	7,663	$	29	$	23,855
Cost of processing revenues		11,762		3,886		58		15,706
Selling, general and administrative expenses		3,828		2,530		1,223		7,581
Settlement of legal matter		6,140		-		-		6,140
Change in fair value of contingent consideration liability		-		-		(170)		(170)
Amortization of intangibles and depreciation		1,197		679		3		1,879
Other expenses		311		140		313		764
Income (loss) before income taxes	$	(7,075)	$	428	$	(1,398)	$	(8,045)
Total property and equipment, net	$	1,550	$	502	$	32	$	2,084
Property and equipment additions	$	409	$	93	$	-	$	502
Intangible assets and goodwill	$	59,065	$	17,214	$	-	$	76,279
Total segment assets	$	100,293	$	68,556	$	420	$	169,269

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Subsequent Events

6 Months Ended

Jun. 30, 2017

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 14.    Subsequent Events

On July 3, 2017, the Company and JetPay, LLC successfully settled that lawsuit captioned Ten Lords, Ltd. and Providence Interactive Capital, LLC in the 429^th Judicial District Court of Collin County by entering into a Compromise Settlement Agreement and Mutual Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid to Plaintiffs the sum of $872,500 and the parties to the lawsuit released one another and their respective affiliates from all claims related to the lawsuit.

On July 12, 2017, the Company issued 40,310 shares of common stock under the Company’s Employee Stock Purchase Plan.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates, Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the accounting and disclosure rules and regulations of the SEC. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company’s financial statements. Such estimates include, but are not limited to, the value of purchase consideration of acquisitions; valuation of accounts receivable, reserves for chargebacks, goodwill, intangible assets, and other long-lived assets; legal contingencies; the fair value of equity instruments classified as liabilities; and assumptions used in the calculation of stock-based compensation and in the calculation of income taxes. Actual results may differ from these estimates under different assumptions or conditions. These consolidated financial statements include our accounts and those of our wholly-owned subsidiaries and all intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition, Deferred Revenue [Policy Text Block]

Revenue Recognition and Deferred Revenue

The Company recognizes revenue in general when the following criteria have been met: persuasive evidence of an arrangement exists, a customer contract or purchase order exists and the fees are fixed and determinable, no significant obligations remain and collection of the related receivable is reasonably assured. Allowances for chargebacks, discounts and other allowances are estimated and recorded concurrent with the recognition of revenue and are primarily based on historic rates.

Revenues from the Company’s credit and debit card processing operations are recognized in the period services are rendered as the Company processes credit and debit card transactions for its merchant customers or for merchant customers of its third party clients. Third party clients include Independent Sales Organizations (“ISOs”), Value Added Resellers (“VARs”), Independent Software Vendors (“ISVs”), and financial institutions. The majority of the Company’s revenue within its credit and debit card processing business is comprised of transaction-based fees, which typically constitute a percentage of dollar volume processed, or a fee per transaction processed. In the case where the Company is only the processor of transactions, it charges transaction fees only and records these fees as revenues. In the case of contracts pursuant to which the Company processes credit and debit card transactions for the third parties’ merchant customers, revenues are primarily comprised of fees charged to the merchant, as well as a percentage of the processed sale transaction. The Company’s contracts in most instances involve three parties: the Company, the merchant, and the sponsoring bank. Under certain of these sales arrangements, the Company’s sponsoring bank collects the gross revenue from the merchants, pays the interchange fees and assessments to the credit card associations, collects their fees and pays to the Company a net residual payment representing the Company’s fee for the services provided. Accordingly, under these arrangements, the Company records the revenue net of interchange, credit card association assessments and fees and the sponsoring bank’s fees. Under the majority of the Company’s sales arrangements, the Company is billed directly for certain fees by the credit card associations and the processing bank. In this instance, revenues and cost of revenues include the credit card association fees and assessments and the sponsoring bank’s fees which are billed to the Company and for which it assumes credit risk. In all of the above instances, the Company recognizes processing revenues net of interchange fees, which are assessed to its merchant and third party merchant customers on all processed transactions. Interchange rates and fees are not controlled by the Company. The Company effectively functions as a clearing house collecting and remitting interchange fee settlement on behalf of issuing banks, debit networks, credit card associations and their processing customers.

JetPay Payments, FL functions as the merchant of record and has the primary responsibility for providing end-to-end payment processing services for many of its clients. Clients contract with JetPay Payments, FL for all credit card processing services including transaction authorization, settlement, dispute resolution, security and risk management solutions, reporting and other value-added services. As such, JetPay Payments, FL is the principal obligor in these transactions and is solely responsible for all processing costs, including interchange fees. Further, JetPay Payments, FL sets prices as it deems reasonable for each merchant. The gross fees JetPay Payments, FL collects are intended to cover the interchange, assessments, and other processing fees and include JetPay Payments, FL’s margin on the transactions processed. For these reasons, JetPay Payments, FL is the principal obligor in the contractual relationship with its customers and therefore JetPay Payments, FL records its revenues, including interchange and assessments, on a gross basis. Revenues reported by JetPay Payments, FL include interchange fees of $2.5 million and $585,000 for the three months ended June 30, 2017 and 2016, respectively and $5.3 million and $585,000 for the six months ended June 30, 2017 and 2016, respectively. Other fees assessed by JetPay Payments, FL to certain customers and remitted to partner entities for web and IVR supporting services provided by JetPay Payments, FL’s partner entities are presented on a net basis. The Company follows the guidance provided in ASC Topic 605-45, Revenue Recognition - Principal Agent Considerations. ASC 605-45 states that whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors are considered in the evaluation.

 

Additionally, the Company’s direct merchant customers have the liability for any charges properly reversed by the cardholder. In the event, however, that the Company is not able to collect such amount from the merchants due to merchant fraud, insolvency, bankruptcy or any other reason, it may be liable for any such reversed charges. The Company in some instances requires cash deposits, guarantees, letters of credit and other types of collateral from certain merchants to minimize any such contingent liability, and it also utilizes a number of systems and procedures to manage merchant risk.

Revenues from the Company’s JetPay HR & Payroll Services operations are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Certain processing services are provided under annual service arrangements with revenue recognized over the service period based on when the efforts and costs are expended. The Company’s service revenues are largely attributable to payroll-related processing services where the fees are based on a fixed amount per processing period or a fixed amount per processing period plus a fee per employee or transaction processed. The revenues earned from delivery service for the distribution of certain client payroll checks and reports is included in processing revenues, and the costs for delivery are included in selling, general, and administrative expenses on the Consolidated Statements of Operations.

Interest on funds held for clients is earned primarily on funds that are collected from clients before due dates for payroll tax administration services and for employee payment services, and invested until remittance to the applicable tax or regulatory agencies or client employee. These collections from clients are typically remitted between one (1) and thirty (30) days after receipt, with some items extending to ninety (90) days. The interest earned on these funds is included in total revenues on the Consolidated Statements of Operations because the collecting, holding, and remitting of these funds are critical components of providing these services.

Contingent Liability Reserve Estimate, Policy [Policy Text Block]

Reserve for Chargeback Losses

Disputes between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer through the merchant’s bank and charged to the merchant. If the merchant has inadequate funds, the Company must bear the credit risk for the full amount of the transaction. The Company evaluates the risk for such transactions and estimates the potential loss for chargebacks based primarily on historical experience and records a loss reserve accordingly. The Company believes its reserve for chargeback losses is adequate to cover both the known probable losses and the incurred but not yet reported losses at the balance sheet dates. Chargeback reserves totaling $319,000 and $436,000 were recorded as of June 30, 2017 and December 31, 2016, respectively.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, restricted cash, settlement processing assets and liabilities, accounts receivable, funds held for clients, accounts payable and client fund obligations, approximated fair value as of the balance sheet dates presented, because of the relatively short maturity dates on these instruments. The carrying amounts of the financing arrangements approximate fair value as of the balance sheet dates presented, because interest rates on these instruments approximate market interest rates after consideration of stated interest rates, anti-dilution protection and associated warrants.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable, settlement processing assets and funds held for clients. The Company’s cash and cash equivalents are deposited with major financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount.

Receivables, Policy [Policy Text Block]

Accounts Receivable

The Company’s accounts receivable are due from its merchant credit card and its payroll customers. Credit is extended based on the evaluation of customers’ financial condition and, generally, collateral is not required. Payment terms vary but are typically collected via Automated Clearing House (“ACH”) payments originated by us two (2) to three (3) days following month end. Amounts due from customers are stated in the financial statements net of an allowance for doubtful accounts. Accounts which are outstanding longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivables when they are deemed uncollectible.

Unsettled Merchant Accounts [Policy Text Block]

Settlement Processing Assets and Funds and Obligations

Funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. Depending on the type of transaction, either the credit card interchange system or the debit network is used to transfer the information and funds between the sponsoring bank and card issuing bank to complete the link between merchants and card issuers. In certain of our processing arrangements, merchant funding primarily occurs after the sponsoring bank receives the funds from the card issuer through the card networks, creating a net settlement obligation on the Company’s Consolidated Balance Sheet. In a limited number of other arrangements, the sponsoring bank funds the merchants before it receives the net settlement funds from the card networks, creating a net settlement asset on the Company’s Consolidated Balance Sheet. Additionally, certain of the Company’s sponsoring banks collect the gross revenue from the merchants, pay the interchange fees and assessments to the credit card associations, collect their fees for processing and pay the Company a net residual payment representing the Company’s fees for the services. In these instances, the Company does not reflect the related settlement processing assets and obligations in its Consolidated Balance Sheet.

Timing differences in processing credit and debit card and ACH transactions, as described above, interchange expense collection, merchant reserves, sponsoring bank reserves, and exception items result in settlement processing assets and obligations. Settlement processing assets consist primarily of our portion of settlement assets due from customers and receivable from merchants for the portion of the discount fee related to reimbursement of the interchange expense, our receivable from the processing bank for transactions we have funded merchants in advance of receipt of card association funding, merchant reserves held, sponsoring bank reserves and exception items, such as customer chargeback amounts receivable from merchants. Settlement processing obligations consist primarily of merchant reserves, our liability to the processing bank for transactions for which we have received funding from the members but have not funded merchants and exception items.

Settlement assets, funds and obligations resulting from JetPay Payments, FL’s processing services and associated settlement activities include settlement receivables due from credit card associations and debit networks and certain cash accounts to which JetPay Payments, FL does not have legal ownership but has the right to use the accounts to satisfy the related settlement obligations. JetPay Payments, FL’s corresponding settlement obligations are for amounts payable to customers, net of processing fees earned by JetPay Payments, FL. Settlement receivables and payables for credit and debit card transactions are recorded at the gross transaction amounts. The gross amounts are then processed through JetPay Payments, FL’s settlement accounts, and JetPay Payments, FL retains its fees for the transactions upon settlement. Settlement receivables for e-check transactions consist of only JetPay Payments, FL’s fees for the transactions. Settlement receivables are generally collected within four (4) business days. Settlement obligations are generally paid within three (3) business days, regardless of when the related settlement receivables are collected.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment acquired in the Company’s business acquisitions have been recorded at estimated fair value. The Company records all other property and equipment acquired in the normal course of business at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are generally as follows: leasehold improvements – shorter of economic life or initial term of the related lease; machinery and equipment – five (5) to fifteen (15) years; and furniture and fixtures – five (5) to ten (10) years. Significant additions or improvements extending assets’ useful lives are capitalized; normal maintenance and repair costs are expensed as incurred.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s business combinations. The Company performs a goodwill impairment test on at least an annual basis. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which are dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company conducts its annual goodwill impairment test as of December 31 of each year or more frequently if indicators of impairment exist. The Company periodically analyzes whether any such indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained significant decline in our stock price and market capitalization, a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, adverse actions or assessments by a regulator, among others. The Company compares the fair value of its reporting unit to its respective carrying value, including related goodwill. Future changes in the industry could impact the results of future annual impairment tests. The Company’s annual goodwill impairment testing indicated there was no impairment as of December 31, 2016. Additionally, no indicators of impairment occurred in the six months ended June 30, 2017. There can be no assurance that future tests of goodwill impairment will not result in impairment charges.

Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]

Identifiable Intangible Assets

Identifiable intangible assets consist primarily of customer relationships, software costs, and tradenames. Certain tradenames are considered to have indefinite lives, and as such, are not subject to amortization. These assets are tested for impairment using undiscounted cash flow methodology annually and whenever there is an impairment indicator. Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized. Several impairment indicators are beyond the Company’s control, and determining whether or not they will occur cannot be predicted with any certainty. Identifiable Intangible assets are amortized on a straight-line basis over their respective assigned estimated lives; customer relationships use eight (8) to fifteen (15) years; tradenames use one (1) to three (3) years; and software costs use one (1) to eight (8) years.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long–Lived Assets

The Company periodically reviews the carrying value of its long-lived assets held and used at least annually or when events and circumstances warrant such a review. If significant events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. Cash flow projections are sometimes based on a group of assets, rather than a single asset. If cash flows cannot be separately and independently identified for a single asset, the Company determines whether impairment has occurred for the group of assets for which it can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, it measures any impairment by comparing the fair value of the asset group to its carrying value. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in the amount of the difference is recorded. The Company’s annual testing indicated there was no impairment as of December 31, 2016. Additionally, no indicators of impairment occurred in the six months ended June 30, 2017.

Convertible Preferred Stock [Policy Text Block]

Convertible Preferred Stock

The Company accounts for the redemption premium, beneficial conversion feature and issuance costs on or of its convertible preferred stock using the effective interest method, accreting such amounts to its convertible preferred stock from the date of issuance to the earliest date of redemption.

Share-Based Compensation [Policy Text Block]

Share-Based Compensation

The Company expenses employee share-based payments under ASC Topic 718, Compensation-Stock Compensation, which requires compensation cost for the grant-date fair value of share-based payments to be recognized over the requisite service period. The Company estimates the grant date fair value of the share-based awards issued in the form of options using the Black-Scholes option pricing model.

Earnings Per Share, Policy [Policy Text Block]

Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. The dilutive effect of the conversion option in the shares of Series A Preferred and shares of Series A-1 Preferred of 16,949,152 and 1,102,041 shares of common stock, respectively, at June 30, 2017, the effect of 1,353,953 exercisable stock options granted under the Company’s Amended and Restated 2013 Stock Incentive Plan (the “2013 Stock Incentive Plan”) at June 30, 2017 and the effect of 266,667 exercisable warrants issued in connection with the Company’s purchase of treasury shares in February, 2017 have been excluded from the loss per share calculation for the three and six months ended June 30, 2017 in that the assumed conversion of these options would be anti-dilutive. For the three and six months ended June 30, 2016, the dilutive effect of the conversion option in the Flexpoint Series A Preferred and the Wellington Series A-1 Preferred of 9,448,241 and 616,500 shares of common stock, respectively, and the effect of 839,172 exercisable stock options granted under the Company’s 2013 Stock Incentive Plan at June 30, 2016 have been excluded from the loss per share calculation in that the assumed conversion of these options would be anti-dilutive.

Derivatives, Policy [Policy Text Block]

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company does review the terms of debt instruments it enters into to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single compound derivative instrument.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges recorded within other expenses (income), using the effective interest method.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

The Company accounts for fair value measurements in accordance with ASC Topic No. 820, Fair Value Measurements and Disclosures (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC Topic 820, assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement.

	Fair Value at June 30, 2017
	Total		Level 1		Level 2		Level 3
			(in thousands)
Contingent consideration	$	1,960	$	-	$	-	$	1,960

	Fair Value at December 31, 2016
	Total		Level 1		Level 2		Level 3
			(in thousands)
Contingent consideration	$	2,982	$	-	$	-	$	2,982

The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
Beginning balance	$	2,742	$	1,156	$	2,982	$	1,296
Addition of JetPay Payments, FL contingent consideration		-		1,975		-		1,975
JetPay Payments, FL contingent consideration shares released from escrow		(525)		-		(525)		-
Change in fair value of JetPay Payments, TX contingent consideration		(19)		21		(54)		57
Change in fair value of JetPay Payments, PA contingent consideration		-		10		-		20
Change in fair value of JetPay Payments, FL contingent consideration		(238)		(247)		(129)		(247)
Payment of JetPay Payments, PA contingent consideration		-		-		(314)		(186)
Totals	$	1,960	$	2,915	$	1,960	$	2,915

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the financial instrument. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, which reports to the Chief Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department with support from the Company’s outside consultants which are approved by the Chief Financial Officer. Level 3 financial liabilities for the relevant periods consist of contingent consideration related to the JetPay Payments, TX, JetPay Payments, PA and JetPay Payments, FL acquisitions for which there are no current markets such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy will be analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

In addition to the consideration paid upon closing of the JetPay Payments, TX acquisition, WLES, L.P. (“WLES”), through December 28, 2017, is entitled to receive 833,333 shares of common stock if the trading price of the common stock is at least $8.00 per share for any 20 trading days out of a 30 trading day period and $5.0 million in cash if the trading price of the common stock is at least $9.50 per share for any 20 trading days out of a 30 trading day period. This contingent consideration was valued at $1.54 million at the date of acquisition based on utilization of option pricing models and was recorded as a non-current other liability for $700,000 and as additional paid-in capital for $840,000 at December 31, 2012. The stock-based component value of $840,000 recorded at December 28, 2012 (the JetPay Payments, TX acquisition date), remains unchanged at June 30, 2017 as a result of this component being recorded as equity. The fair value at June 30, 2017 of the cash-based contingent consideration, valued at $4,000, recorded within other current liabilities, was determined using a binomial option pricing model. The following assumptions were utilized in the June 30, 2017 calculations: risk free interest rate: 1.14%; dividend yield: 0%; term of contingency of 0.5 years; and volatility: 76.1%.

 

The fair value of the common stock was derived from the per share price of the common stock at the valuation date. Management determined that the results of its valuation were reasonable. The expected life represents the remaining contractual term of the derivative. The volatility rate was developed based on analysis of the historical volatility rates of similarly situated companies (using a number of observations that was at least equal to or exceeded the number of observations in the life of the derivative financial instrument at issue). The risk free interest rates were obtained from publicly available U.S. Treasury yield curve rates. The dividend yield is zero because the Company has not paid dividends and does not expect to pay dividends in the foreseeable future.

In addition to the consideration paid upon closing of the JetPay Payments, PA acquisition, the previous unitholders were entitled to receive up to an additional $500,000 if certain net revenue goals were achieved through October 31, 2016. This contingent consideration was valued at $400,000 at the date of acquisition, $314,000 at December 31, 2016, and $0 at June 30, 2017, with $186,000 earned and paid to the previous unitholders of JetPay Payments, PA in February 2016 and the remaining $314,000 paid on January 17, 2017.

 

In addition to the consideration paid upon closing of the JetPay Payments, FL acquisition, the previous shareholders are entitled to receive up to an additional 500,000 shares of common stock upon JetPay Payments, FL achieving certain gross profit performance targets in 2016 and 2017 and up to 500,000 warrants to purchase shares of common stock, each with a strike price of $4.00 per share and a 10-year term from its date of issuance, upon JetPay Payments, FL achieving certain gross profit performance targets in 2018 and 2019. This contingent consideration was valued at $1,975,000 at the date of acquisition, $1,770,000 at December 31, 2016 ($563,000 recorded within other current liabilities and $1.2 million recorded within non-current other liabilities), and $1,116,000 at June 30, 2017 (recorded within non-current other liabilities), based on utilization of a Monte Carlo simulation to estimate the variance and relative risk of achieving future gross profit performance targets. Contingent consideration liability of $525,000 was reclassified to additional paid-in capital in June 2017 with 250,000 shares of common stock issued at the closing of the acquisition released from escrow as a result of the 2016 gross profit performance targets being achieved. The key assumptions in applying the Monte Carlo simulation included expected gross profit growth rates, the expected standard deviation and serial correlation of expected net revenue growth rates as well as a normal distribution assumption.

 

The Company uses either a binomial option-pricing model with a Monte Carlo simulation or the Black-Scholes option valuation model to value Level 3 financial liabilities at inception and on subsequent valuation dates. These models incorporate transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility. A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement.

As of June 30, 2017, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

In accordance with the provisions of ASC Topic 815,  Derivatives and Hedging Activities, the Company presented its derivative liability at fair value on its Consolidated Balance Sheets, with the corresponding change in fair value recorded in the Company’s Consolidated Statement of Operations for the applicable reporting periods.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company accounts for income taxes under ASC Topic 740,  Income Taxes (“ASC Topic 740”). ASC Topic 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryovers. Deferred income tax expense (benefit) represents the change during the period in the deferred income tax assets and deferred income tax liabilities. In establishing the provision for income taxes and determining deferred income tax assets and liabilities, the Company makes judgments and interpretations based on enacted laws, published tax guidance and estimates of future earnings. ASC Topic 740 additionally requires a valuation allowance to be established when, based on available evidence, it is more likely than not that some portion or the entire deferred income tax asset will not be realized.

ASC Topic 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file income tax returns in the United States (federal) and in various state and local jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions and deductions would be sustained upon examination and does not anticipate any adjustments that would result in material changes to its financial position.

The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of selling, general and administrative expense, respectively. There were no amounts accrued for penalties or interest as of or during the three and six months ended June 30, 2017 and 2016. Management does not expect any significant changes in its unrecognized tax benefits in the next year.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

Management evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, management did not identify any recognized or non-recognized subsequent events which would have required an adjustment or disclosure in the financial statements, except as described in Note 14. Subsequent Events. 

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The ASU simplifies the presentation of deferred income taxes under U.S. GAAP by requiring that all deferred tax assets and liabilities be classified as non-current. The guidance in ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09,  Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance is to be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on the criteria for the specific amendments as outlined in the guidance. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company adopted this ASU and it did not have a material impact on the Company’s disclosures in the footnotes to its financial statements.

Recent Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. JetPay has not yet determined the effect of the adoption of this standard on JetPay’s consolidated financial position and results of operations.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU amends the principal versus agent guidance in ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was issued in May 2014 (“ASU 2014-09”). Further, in April 2016, the FASB issued ASU No. 2016-10,  Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This ASU also amends ASU 2014-09 and is related to the identification of performance obligations and accounting for licenses. Most recently, in December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This amendment affects narrow aspects of the guidance issued in ASU 2014-09. The effective date and transition requirements for all of these amendments to ASU 2014-09 are the same as those of ASU 2014-09, which was deferred for one year by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. That is, the guidance under these standards is to be applied using a full retrospective method or a modified retrospective method, as outlined in the guidance, and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the provisions of each of these standards and assessing their impact on the Company’s financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13,  Financial Instruments-Credit Losses (Topic 36): Measurement of Credit Losses on Financial Instruments, which provides guidance that will change the accounting for credit impairment. Under the new guidance, companies are required to measure all expected credit losses for financial instruments held at the reporting date based on historic experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposure. This new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18), which provides guidance that will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.    This ASU clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). This ASU simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test, which required computing the implied fair value of goodwill. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This new guidance will be effective January 1, 2020. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s consolidated financial statements and disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting.  This ASU clarifies an entity’s ability to modify the terms or conditions of a share-based payment award presented. An entity should account for the effects of a modification unless all the following are met: the fair value of the modified award has not changed from the fair value on the date of issuance; the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and, the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This ASU clarifies the recognition, measurement, and effect on earnings per share of certain freestanding equity-classified financial instruments that include down round features affect entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. This new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those periods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

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Business Acquisition (Tables)

6 Months Ended

Jun. 30, 2017

Business Combinations [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

The allocation of the JetPay Payments, FL purchase price and the estimated fair market values of the JetPay Payments, FL assets acquired and liabilities assumed are shown below (in thousands):

Cash	$	520
Accounts receivable		537
Settlement processing assets		10,587
Prepaid expenses and other assets		113
Property and equipment, net		93
Goodwill		7,218
Identifiable intangible assets		4,881
Total assets acquired		23,949
Accounts payable and accrued expenses		1,794
Settlement processing obligations		9,951
Long term debt		1,049
Long term deferred tax liability		1,864
Total liabilities assumed		14,658
Net assets acquired	$	9,291

Condensed Income Statement [Table Text Block]

Unaudited pro forma results of operations for the three and six months ended June 30, 2016, as if the Company and JetPay Payments, FL had been combined on January 1, 2016, follow. The pro forma results include estimates and assumptions which management believes are reasonable. The pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the date indicated, or which may result in the future.

	Unaudited Pro Forma Results of Operations (In thousands, except per share information)
	For the Three Months		For the Six Months
	Ended June 30, 2016		Ended June 30, 2016
Revenues	$	15,144	$	31,529
Operating loss	$	(6,717)	$	(7,042)
Net loss	$	(5,533)	$	(6,358)
Net loss applicable to common stockholders	$	(6,986)	$	(9,225)
Net loss per share applicable to common stockholders	$	(0.40)	$	(0.52)

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Fair Value, Liabilities Measured On Recurring Basis [Table Text Block]

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC Topic 820, assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement.

	Fair Value at June 30, 2017
	Total		Level 1		Level 2		Level 3
			(in thousands)
Contingent consideration	$	1,960	$	-	$	-	$	1,960

	Fair Value at December 31, 2016
	Total		Level 1		Level 2		Level 3
			(in thousands)
Contingent consideration	$	2,982	$	-	$	-	$	2,982

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
Beginning balance	$	2,742	$	1,156	$	2,982	$	1,296
Addition of JetPay Payments, FL contingent consideration		-		1,975		-		1,975
JetPay Payments, FL contingent consideration shares released from escrow		(525)		-		(525)		-
Change in fair value of JetPay Payments, TX contingent consideration		(19)		21		(54)		57
Change in fair value of JetPay Payments, PA contingent consideration		-		10		-		20
Change in fair value of JetPay Payments, FL contingent consideration		(238)		(247)		(129)		(247)
Payment of JetPay Payments, PA contingent consideration		-		-		(314)		(186)
Totals	$	1,960	$	2,915	$	1,960	$	2,915

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Property and Equipment, net of Accumulated Depreciation (Tables)

6 Months Ended

Jun. 30, 2017

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

	June 30, 2017		December 31, 2016
	(in thousands)
Leasehold improvements	$	423	$	417
Equipment		2,201		1,710
Furniture and fixtures		351		330
Computer software		1,236		1,230
Vehicles		245		245
Assets in progress		771		83
Total property and equipment		5,227		4,015
Less: accumulated depreciation		(2,369)		(1,890)
Property and equipment, net	$	2,858	$	2,125

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Accounts Payable and Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2017

Payables and Accruals [Abstract]

Accrued Expenses and Other Current Liabilities [Table Text Block]

Accounts payable and accrued expenses consist of the following (in thousands):

	June 30, 2017		December 31, 2016
Trade accounts payable	$	3,182	$	3,438
ACH clearing liability		912		1,160
Accrued compensation		1,692		1,234
Accrued agent commissions		1,299		1,023
Related party payables		51		424
Accrued legal settlement		873		126
Other		4,111		3,416
Total	$	12,120	$	10,821

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Long-Term Debt, Notes Payable and Capital Lease Obligations (Tables)

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments [Table Text Block]

Long-term debt, notes payable and capital lease obligations consist of the following:

	June 30, 2017		December 31, 2016
	(in thousands)
Term loan payable to LHLJ, Inc., interest rate of 8% payable in monthly payments of $128,677, including principal and interest, beginning on October 18, 2016, maturing on October 31, 2021, collateralized by the assets and equity interests of JetPay HR & Payroll Services and JetPay Payments, FL. See Note 12. Related Party Transactions.	$	8,969	$	9,371
Term loan payable to FNB, interest rate of 5.25% payable in monthly principal payments of $104,167 plus interest beginning on November 30, 2015, maturing November 6, 2021, collateralized by the assets and equity interests of JetPay Payments, PA.		5,416		6,042
Term note payable to Fifth Third Bank, interest rate of 4% payable in monthly payments of $27,317, including principal and interest, beginning on July 1, 2016, maturing November 30, 2019, collateralized by the assets and equity interests of JetPay Payments, FL.		779		925
Credit agreement payable to Fifth Third Bank providing for a 12-month draw period through June 22, 2018 for up to $1.6 million, converting into a 36 month amortizing term note maturing June 22, 2021. The credit agreement bears interest at LIBOR plus 3% (4.0% at June 30, 2017), collateralized by the assets and equity interests of JetPay Payments, FL.		400		-
Master equipment capital lease agreement payable to Fifth Third Bank for up to $1.5 million of lease financing to JetPay Payments, FL for a 12-month draw period through June 30, 2018. Interim draws will have a term of up to 48 months and will bear interest at LIBOR plus 3% until termed at a fixed rate set forth in the lease agreement, collateralized by equipment.		-		-
Amended and restated revolving promissory note payable to Fifth Third Bank, interest rate of LIBOR plus 2.00% (3.0% at June 30, 2017), maturing on June 1, 2018.		20		20
Promissory note payable to Merrick, interest rate of 12% beginning October 14, 2016 payable on the promissory note maturing on January 11, 2017, collateralized by the 3,333,333 shares of JetPay common stock issued to WLES and held in escrow. Paid in full on January 15, 2017.		-		5,000
Unsecured promissory note payable to stockholder, interest rate of 4% payable at maturity, note principal due September 30, 2017, as extended. See Note 12. Related Party Transactions.		492		492
Capital lease obligations related to computer equipment and software at JetPay Payments, TX, interest rates of 5.55% to 8.55%, due in monthly lease payments of $30,144 in the aggregate maturing from December 2017 through April 2020 collateralized by equipment.		549		357
		16,625		22,207
Less current portion		(3,189)		(8,074)
Less unamortized deferred financing costs		(348)		(339)
	$	13,088	$	13,794

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2017

Stockholders' Equity Note [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The fair values of the Company’s options were estimated at the dates of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
Expected term (years)		6.25		5.75 to 6.25		6.25		5.75 to 6.25
Risk-free interest rate		1.93%		1.36% to 1.50%		1.93% to 2.10%		1.36% to 1.50%
Volatility		65.6%		34.6% to 54.7%		62.3% to 65.6%		34.6% to 54.7%
Dividend yield		0%		0%		0%		0%

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

A summary of stock option activity for the six months ended June 30, 2017 and the year ended December 31, 2016 is presented below:

	Number of Options		Weighted Average Exercise Price
Outstanding at December 31, 2015		1,717,082	$	3.02
Granted		905,000		2.70
Forfeited		(375,834)		3.00
Exercised		-		-
Outstanding at December 31, 2016		2,246,248	$	2.89
Granted		340,000		3.00
Forfeited		(20,000)		3.00
Exercised		-		-
Outstanding at June 30, 2017		2,566,248	$	2.90
Exercisable at June 30, 2017		1,353,953	$	2.93

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Segments (Tables)

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

The activity within JetPay Card Services was included in JetPay HR & Payroll for the three and six months ended June 30, 2017 and 2016, and in Corporate, for the three and six months ended June 30, 2017 and 2016 in the tables below.

	For the Three Months Ended June 30, 2017
	JetPay Payment Services		JetPay HR & Payroll Services		General/ Corporate		Total
Processing revenues	$	14,988	$	3,789	$	-	$	18,777
Cost of processing revenues		10,874		2,175		-		13,049
Selling, general and administrative expenses		3,047		1,507		502		5,056
Settlement of legal matter		-		-		747		747
Change in fair value of contingent consideration liability		-		-		(257)		(257)
Amortization of intangibles and depreciation		795		327		1		1,123
Other expenses		88		212		4		304
Income (loss) before income taxes	$	184	$	(432)	$	(997)	$	(1,245)

	For the Three Months Ended June 30, 2016
	JetPay Payment Services		JetPay HR & Payroll Services		General/ Corporate		Total
Processing revenues	$	8,830	$	3,368	$	14	$	12,212
Cost of processing revenues		6,471		1,816		19		8,306
Selling, general and administrative expenses		2,125		1,211		438		3,774
Settlement of legal matter		6,140		-		-		6,140
Change in fair value of contingent consideration liability		-		-		(216)		(216)
Amortization of intangibles and depreciation		626		340		1		967
Other expenses		160		67		107		334
Loss before income taxes	$	(6,692)	$	(66)	$	(335)	$	(7,093)

	For the Six Months Ended June 30, 2017
	JetPay Payment Services		JetPay HR & Payroll Services		General/ Corporate		Total
Processing revenues	$	29,292	$	8,427	$	-	$	37,719
Cost of processing revenues		21,216		4,418		-		25,634
Selling, general and administrative expenses		5,675		3,001		1,336		10,012
Settlement of legal matter		-		-		747		747
Change in fair value of contingent consideration liability		-		-		(183)		(183)
Amortization of intangibles and depreciation		1,578		648		2		2,228
Other expenses		179		426		26		631
Income (loss) before income taxes	$	644	$	(66)	$	(1,928)	$	(1,350)
Total property and equipment, net	$	2,314	$	514	$	30	$	2,858
Property and equipment additions	$	1,213	$	106	$	3	$	1,322
Intangible assets and goodwill	$	57,143	$	16,176	$	-	$	73,319
Total segment assets	$	122,086	$	68,778	$	2,674	$	193,538

	For the Six Months Ended June 30, 2016
	JetPay Payment Services		JetPay HR & Payroll Services		General/ Corporate		Total
Processing revenues	$	16,163	$	7,663	$	29	$	23,855
Cost of processing revenues		11,762		3,886		58		15,706
Selling, general and administrative expenses		3,828		2,530		1,223		7,581
Settlement of legal matter		6,140		-		-		6,140
Change in fair value of contingent consideration liability		-		-		(170)		(170)
Amortization of intangibles and depreciation		1,197		679		3		1,879
Other expenses		311		140		313		764
Income (loss) before income taxes	$	(7,075)	$	428	$	(1,398)	$	(8,045)
Total property and equipment, net	$	1,550	$	502	$	32	$	2,084
Property and equipment additions	$	409	$	93	$	-	$	502
Intangible assets and goodwill	$	59,065	$	17,214	$	-	$	76,279
Total segment assets	$	100,293	$	68,556	$	420	$	169,269

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Organization and Business Operations (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2017	Apr. 13, 2017	Dec. 31, 2016	Oct. 18, 2016	Aug. 09, 2016	Dec. 31, 2014	Dec. 28, 2014	Apr. 14, 2014
Organization and Business Operations [Line Items]
Preferred Stock, Shares Issued	0		0
Preferred Stock, Value, Issued	$ 0		$ 0		$ 2,500		$ 10,000	$ 1,400
Preferred Stock, Par or Stated Value Per Share	$ 0.001		$ 0.001
Long-term Debt and Capital Lease Obligations, Repayments of Principal in Next Twelve Months				$ 5,175
Payments for Capital Improvements	$ 3,500
Series A-1 Preferred stock [Member]
Organization and Business Operations [Line Items]
Preferred Stock, Shares Issued						2,835
Series A Preferred Stock [Member]
Organization and Business Operations [Line Items]
Preferred Stock, Shares Issued	33,333
Preferred Stock, Value, Issued								$ 1,400
Flexpoint [Member] | Series A Preferred Stock [Member]
Organization and Business Operations [Line Items]
Preferred Stock, Shares Issued				99,666
Preferred Stock, Value, Issued				$ 29,900
Preferred Stock, Par or Stated Value Per Share				$ 0.001
Wellington [Member]
Organization and Business Operations [Line Items]
Preferred Stock Value Reserved for Future Issuance		$ 2,700
Wellington [Member] | Series A-1 Preferred stock [Member]
Organization and Business Operations [Line Items]
Preferred Stock, Shares Issued		9,000
Preferred Stock, Par or Stated Value Per Share		$ 0.001
Sundara Investment Partners Llc [Member]
Organization and Business Operations [Line Items]
Debt Instrument, Face Amount				$ 9,500
Net Working Capital				$ 14,000
Sundara Investment Partners Llc [Member] | Series A Preferred Stock [Member]
Organization and Business Operations [Line Items]
Preferred Stock, Shares Issued				33,667
Preferred Stock, Value, Issued				$ 10,100
Merrick Bank [Member]
Organization and Business Operations [Line Items]
Long-term Debt and Capital Lease Obligations, Repayments of Principal in Next Twelve Months	$ 5,200

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Business Acquisition (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Jun. 30, 2016
Business Acquisition [Line Items]
Cash	$ 520
Accounts receivable	537
Settlement processing assets	10,587
Prepaid expenses and other assets	113
Property and equipment, net	93
Goodwill	7,218
Identifiable intangible assets	4,881
Total assets acquired	23,949
Accounts payable and accrued expenses	1,794
Settlement processing obligations	9,951
Long term debt	1,049
Long term deferred tax liability	1,864	$ 1,860
Total liabilities assumed	14,658
Net assets acquired	$ 9,291

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Business Acquisition (Details 1) - Consolidated Entities [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016
Business Acquisition [Line Items]
Revenues	$ 15,144	$ 31,529
Operating income	(6,717)	(7,042)
Net loss	(5,533)	(6,358)
Net loss applicable to common stockholders	$ (6,986)	$ (9,225)
Net loss per share applicable to common stockholders	$ (0.40)	$ (0.52)

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Business Acquisition (Details Textual) - USD ($)						1 Months Ended				6 Months Ended	12 Months Ended
	Jan. 05, 2017	Aug. 09, 2016	Jul. 02, 2016	Nov. 07, 2014	Apr. 14, 2014	Jun. 28, 2017	Oct. 18, 2016	Jul. 02, 2016	Jan. 22, 2016	Jun. 30, 2017	Dec. 31, 2016	May 31, 2016
Business Acquisition [Line Items]
Accounts Receivable, Net, Current, Total										$ 3,336,000	$ 4,677,000
Stock Issued During Period, Shares, New Issues	51,480	8,333	22,876	20,000	4,667		33,667,000	22,876	37,037	40,310
Shares Issued, Price Per Share									$ 2.70			$ 2.48
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities, Other										$ 9,951,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities, Long-term Debt										1,049,000
JetPay Payments, PA [Member]
Business Acquisition [Line Items]
Business Acquisitions Purchase Price Allocation Current Assets Cash And Cash Equivalents											520,000
Business Acquisitions Purchase Price Allocation Current Assets Prepaid Expense And Other Assets											113,000
Business Acquisitions Purchase Price Allocation Noncurrent Assets											93,000
Business Acquisition Purchase Price Allocation Funds											14,700,000
Business Acquisitions Purchase Price Allocation Goodwill Amount											7,200,000
Business Acquisitions Purchase Price Allocation Amortizable Intangible Assets											12,100,000
Accounts Receivable, Net, Current, Total											537,000
Business Combination, Consideration Transferred											$ 1,975,000
Business Combination Consideration Transferred Equity Interests Shares Issued And Issuable											3,250,000
Business Combination, Consideration Transferred, Liabilities Incurred											$ 1,000,000
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned											$ 8,300,000
Warrants Term											10 years
Business Acquisition, Equity Interest Issued Or Issuable, Number Of Shares											54,601
Class of Warrant or Right, Number of Securities Called by Warrants or Rights											500,000
Shares Issued, Price Per Share											$ 4.00
Business Combination, Contingent Consideration, Liability										$ 1,116,000
Fair Value Of Stock Purchase Rights											$ 152,000
Rights To Acquire Common Stock Maximum Percentage										50.00%
Percentage of Estimated Fair Value of Common Stock issued In Connection With Acquisition										50.00%
Shares Issued In Buyback Price Per Share										$ 4.00
Percentage Of Shares Issued In Buyback										50.00%
Temporary Equity, Stock Issued During Period, Value, New Issues										$ 3,520,000
Business Acquisitions Purchase Price Allocation Settlement Processing Assets											10,600,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities, Other											9,950,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities, Long-term Debt											$ 1,000,000
JetPay Payments, PA [Member] | Minimum [Member]
Business Acquisition [Line Items]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights											300,000
Business Acquisition, Share Price											$ 3.00
JetPay Payments, PA [Member] | Escrow Deposit One [Member]
Business Acquisition [Line Items]
Stock Issued During Period, Shares, New Issues						250,000					587,500
JetPay Payments, PA [Member] | Escrow Deposit Two [Member]
Business Acquisition [Line Items]
Stock Issued During Period, Shares, New Issues						587,500					500,000
Customer Relationships [Member] | JetPay Payments, PA [Member]
Business Acquisition [Line Items]
Business Acquisitions Purchase Price Allocation Amortizable Intangible Assets											$ 4,100,000
Business Combination, Consideration Transferred											$ 400,000
Business Acquisitions Purchase Price Allocation Assigned Life											12 years
Trade Names [Member] | JetPay Payments, PA [Member]
Business Acquisition [Line Items]
Business Acquisitions Purchase Price Allocation Amortizable Intangible Assets											$ 70,000
Business Acquisitions Purchase Price Allocation Assigned Life											7 months
Software [Member] | JetPay Payments, PA [Member]
Business Acquisition [Line Items]
Business Acquisitions Purchase Price Allocation Amortizable Intangible Assets											$ 710,000
Business Acquisitions Purchase Price Allocation Assigned Life											19 months

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Liabilities:
Contingent consideration	$ 1,960	$ 2,982
Fair Value, Inputs, Level 1 [Member]
Liabilities:
Contingent consideration	0	0
Fair Value, Inputs, Level 2 [Member]
Liabilities:
Contingent consideration	0	0
Fair Value, Inputs, Level 3 [Member]
Liabilities:
Contingent consideration	$ 1,960	$ 2,982

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Summary of Significant Accounting Policies (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Change in fair value of contingent consideration	$ (257)	$ (216)	$ (183)	$ (170)
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Beginning balance	2,742	1,156	2,982	1,296	$ 1,296
Totals	1,960	2,915	1,960	2,915	$ 2,982
Fair Value, Inputs, Level 3 [Member] | TX [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Change in fair value of contingent consideration	(19)	21	(54)	57
Fair Value, Inputs, Level 3 [Member] | PA [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Change in fair value of contingent consideration	0	10	0	20
Payment of JetPay Payments, PA contingent consideration	0	0	(314)	(186)
Fair Value, Inputs, Level 3 [Member] | FL [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Business Combination, Consideration Transferred, Liabilities Incurred	0	1,975	0	1,975
Contingent Consideration Shares Released From Escrow	(525)	0	(525)	0
Change in fair value of contingent consideration	$ (238)	$ (247)	$ (129)	$ (247)

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Summary of Significant Accounting Policies (Details Textual) - USD ($)		1 Months Ended			3 Months Ended		6 Months Ended		12 Months Ended
	Nov. 07, 2014	Jan. 17, 2017	Oct. 31, 2016	Feb. 28, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2012	Dec. 28, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Reserve for Losses and Loss Adjustment Expenses					$ 319,000		$ 319,000		$ 436,000
Common stock issued for acquisitions (in shares)							250,000
Contingent consideration					$ 1,960,000		$ 1,960,000		2,982,000
Share Price					$ 9.50		$ 9.50
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number					1,353,953		1,353,953
Payments to Acquire Businesses, Gross	$ 6,000,000
Class Of Warrant Or Right Warrants Term							6 months
JetPay Payments, PA [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration					$ 0		$ 0		314,000
Business Combination, Contingent Consideration, Liability, Noncurrent									1,200,000
Business Acquisition Contingent Consideration Potential Cash Receipt									1,770,000
Business Combination, Consideration Transferred									$ 1,975,000
Maximum Amount Of Consideration Right On Net Revenue			$ 500,000
Fees and Commissions, Credit and Debit Cards					2,500,000	$ 585,000	5,300,000	$ 585,000
Payments to Acquire Businesses, Gross		$ 314,000		$ 186,000
Business Acquisition Contingent Consideration Potential Cash Receipt					$ 1,116,000		$ 1,116,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights									500,000
Business Combination, Contingent Consideration, Liability, Current									$ 563,000
Class of Warrant or Right, Exercise Price of Warrants or Rights									$ 4.00
Class Of Warrant Or Right Warrants Term							10 years
JetPay Payments, PA [Member] | Customer Relationships [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Business Combination, Consideration Transferred									$ 400,000
Series A Preferred Stock [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount						9,448,241	16,949,152
Series A-1 Preferred stock [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount							1,102,041	616,500
Employee Stock Option [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount					1,353,953		1,353,953
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number						839,172		839,172
Warrant [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount					266,667		266,667
Wles [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Assumptions, Risk Free Interest Rate							1.14%
Fair Value Assumptions, Expected Dividend Rate							0.00%
Fair Value Assumptions, Expected Term							6 months
Fair Value Assumptions, Expected Volatility Rate							76.10%
Common stock issued for acquisitions (in shares)							833,333
Contingent consideration										$ 1,540,000
Business Combination, Contingent Consideration, Liability, Noncurrent					$ 4,000		$ 4,000			840,000	$ 840,000
Share Price					$ 8.00		$ 8.00
Stock Issued During Period, Value, Acquisitions							$ 5,000,000
Business Acquisition Contingent Consideration Potential Cash Receipt										$ 700,000

XML

Property and Equipment, net of Accumulated Depreciation (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 5,227	$ 4,015
Less: accumulated depreciation	(2,369)	(1,890)
Property and equipment, net	2,858	2,125	$ 2,084
Leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	423	417
Equipment [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	2,201	1,710
Furniture and fixtures [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	351	330
Computer software [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	1,236	1,230
Vehicles [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	245	245
Assets in progress [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 771	$ 83

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Property and Equipment, net of Accumulated Depreciation (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Property, Plant and Equipment [Line Items]
Depreciation expenses	$ 248,000	$ 188,000	$ 479,000	$ 367,000
Property, Plant and Equipment, Net, Total	2,858,000	$ 2,084,000	2,858,000	$ 2,084,000	$ 2,125,000
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	2,369,000		2,369,000		1,890,000
Computer Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Net, Total	624,898		624,898		422,167
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	$ 388,312		$ 388,312		$ 272,729

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Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Payables And Accruals [Line Items]
Trade accounts payable	$ 3,182	$ 3,438
ACH clearing liability	912	1,160
Accrued compensation	1,692	1,234
Accrued agent commissions	1,299	1,023
Related party payables	51	424
Accrued legal settlement	873	126
Other	4,111	3,416
Total	$ 12,120	$ 10,821

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Long-Term Debt, Notes Payable and Capital Lease Obligations (Details) - USD ($)	1 Months Ended	6 Months Ended
	Jan. 11, 2017	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		$ 16,625,000	$ 22,207,000
Less current portion		(3,189,000)	(8,074,000)
Less unamortized deferred financing costs		(348,000)	(339,000)
Long-term Debt and Capital Lease Obligations		13,088,000	13,794,000
Term Loan Payable To LHLJ [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		8,969,000	9,371,000
Term Loan Payable To FNB 1 [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		5,416,000	6,042,000
Term Note Payable To Fifth Third Bank [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		779,000	925,000
Revolving Promissory Note Payable To Fifth Third Bank [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		$ 20,000	20,000
Debt Instrument, Basis Spread on Variable Rate		2.00%
Promissory Note Payable To Merrick [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		$ 0	5,000,000
Unsecured Promissory Note Payable To Stockholder [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		492,000	492,000
Capital Lease Obligations To JetPay Payments [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		$ 549,000	357,000
Debt Instrument, Basis Spread on Variable Rate		3.00%
Credit Agreement To Fifth Third Bank [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		$ 400,000	0
Debt Instrument, Basis Spread on Variable Rate		3.00%
Capital Lease Obligation To Fifth Third Bank [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities		$ 0	$ 0
Debt Instrument, Face Amount		$ 1,500,000
Fifth Third Bank [Member] | Revolving Credit Note [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities				$ 1,068,960.30
Debt Instrument, Basis Spread on Variable Rate	2.00%

XML

Long-Term Debt, Notes Payable and Capital Lease Obligations (Details Textual) - USD ($)	1 Months Ended		6 Months Ended
	Jun. 22, 2017	Jan. 11, 2017	Jun. 30, 2017	Dec. 31, 2016	Jul. 26, 2016	Jun. 30, 2016	Dec. 28, 2012
Debt Instrument [Line Items]
Long-term Debt, Maturities, Repayments of Principal in Next Twelve Months			$ 3,200,000
Long-term Debt, Maturities, Repayments of Principal in Year Two			2,800,000
Long-term Debt, Maturities, Repayments of Principal in Year Three			2,600,000
Long-term Debt, Maturities, Repayments of Principal in Year Four			2,500,000
Long-term Debt, Maturities, Repayments of Principal in Year Five			5,500,000
Long-term Debt, Maturities, Repayments of Principal after Year Five			0
Long-term Debt and Capital Lease Obligations, Including Current Maturities			$ 16,625,000	$ 22,207,000
Term Loan Payable To FNB [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Nov. 06, 2021
Debt Instrument, Interest Rate, Effective Percentage			5.25%
Equal Monthly Installments			$ 104,167
Term Loan Payable To LHLJ [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Oct. 18, 2016
Debt Instrument, Interest Rate, Effective Percentage			8.00%
Equal Monthly Installments			$ 128,677
Long-term Debt and Capital Lease Obligations, Including Current Maturities			$ 8,969,000	9,371,000
Term Note Payable To Fifth Third Bank [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Nov. 30, 2019
Debt Instrument, Interest Rate, Effective Percentage			4.00%
Equal Monthly Installments			$ 27,317
Line of Credit Facility, Maximum Borrowing Capacity			1,068,960
Long-term Debt and Capital Lease Obligations, Including Current Maturities			$ 779,000	925,000
Revolving Promissory Note Payable To Fifth Third Bank [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Jun. 01, 2018
Debt Instrument, Interest Rate, Effective Percentage			3.00%
Debt Instrument, Basis Spread on Variable Rate			2.00%
Long-term Debt and Capital Lease Obligations, Including Current Maturities			$ 20,000	20,000
Promissory Note Payable To Merrick [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Jan. 11, 2017
Debt Instrument, Interest Rate, Effective Percentage			12.00%
Debt Instrument Collateral Shares Held In Escrow			3,333,333
Long-term Debt and Capital Lease Obligations, Including Current Maturities			$ 0	5,000,000
Unsecured Promissory Note Payable To Stockholder [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Sep. 30, 2017
Debt Instrument, Interest Rate, Effective Percentage			4.00%
Long-term Debt and Capital Lease Obligations, Including Current Maturities			$ 492,000	492,000
Capital Lease Obligations To JetPay Payments [Member]
Debt Instrument [Line Items]
Equal Monthly Installments			$ 30,144
Debt Instrument, Description of Variable Rate Basis	LIBOR Rate plus 3%
Debt Instrument, Basis Spread on Variable Rate			3.00%
Long-term Debt and Capital Lease Obligations, Including Current Maturities			$ 549,000	357,000
Credit Agreement To Fifth Third Bank [Member]
Debt Instrument [Line Items]
Debt Instrument, Interest Rate, Effective Percentage			4.00%
Debt Instrument, Description of Variable Rate Basis	LIBOR Rate plus 3%
Line of Credit Facility, Maximum Borrowing Capacity			$ 1,600,000
Debt Instrument, Basis Spread on Variable Rate			3.00%
Line of Credit Facility, Expiration Date	Jun. 22, 2021
Long-term Debt and Capital Lease Obligations, Including Current Maturities			$ 400,000	$ 0
Minimum [Member] | Capital Lease Obligations To JetPay Payments [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Apr. 30, 2020
Debt Instrument, Interest Rate, Effective Percentage			5.55%
Maximum [Member] | Capital Lease Obligations To JetPay Payments [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Dec. 31, 2017
Debt Instrument, Interest Rate, Effective Percentage			8.55%
3.85 MM Note [Member] | Merrick Settlement Agreement [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount					$ 3,850,000
5.00 MM Note [Member] | Merrick Settlement Agreement [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount					$ 5,000,000
Note and Indemnity Side Agreement [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount							$ 2,331,369
Fifth Third Bank [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date	Jun. 01, 2018		Nov. 30, 2019
Debt Instrument, Interest Rate, Effective Percentage			4.00%
Debt Instrument, Description of Variable Rate Basis	2.00% plus the LIBOR
Line of Credit Facility, Maximum Borrowing Capacity	$ 500,000		$ 500,000
Long-term Debt			$ 400,000
Fifth Third Bank [Member] | Revolving Promissory Note [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount	$ 1,000,000
Fifth Third Bank [Member] | Revolving Note Payable To Metro Bank [Member]
Debt Instrument [Line Items]
Debt Instrument, Maturity Date			Jun. 01, 2018
Debt Instrument, Basis Spread on Variable Rate		2.00%
Long-term Debt and Capital Lease Obligations, Including Current Maturities						$ 1,068,960.30

XML

Redeemable Convertible Preferred Stock (Details Textual) - USD ($)							1 Months Ended							3 Months Ended		6 Months Ended		12 Months Ended
	Jan. 05, 2017	Aug. 09, 2016	Jul. 02, 2016	Nov. 07, 2014	Apr. 14, 2014	Oct. 11, 2013	Oct. 18, 2016	Jul. 02, 2016	Jan. 22, 2016	Dec. 31, 2014	Dec. 28, 2014	Nov. 20, 2014	May 05, 2014	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2013	Apr. 13, 2017	Mar. 31, 2017	Mar. 23, 2017	Dec. 31, 2016	Aug. 31, 2015	Aug. 06, 2015	May 01, 2014
Convertible Preferred Stock [Line Items]
Stock Issued During Period, Shares, New Issues	51,480	8,333	22,876	20,000	4,667		33,667,000	22,876	37,037							40,310
Preferred Stock, Value, Issued		$ 2,500,000			$ 1,400,000						$ 10,000,000			$ 0		$ 0						$ 0
Preferred Stock, Shares Issued														0		0						0
Noncompliance Event Description																An Event of Noncompliance shall have occurred if: (i) the Company fails to make any required redemption payment with respect to the Series A Preferred; (ii) the Company breaches the Series A Purchase Agreement and such breach has not been cured within thirty days after receipt of notice thereof; (iii) the Company or any subsidiary makes an assignment for the benefit of creditors, admits its insolvency or is the subject of an order, judgment or decree adjudicating such entity as insolvent, among other similar actions; (iv) a final judgment in excess of $5.0 million is rendered against the Company or any subsidiary that is not discharged within 60 days thereafter; or (v) an event of default has occurred under the Prior HR & Payroll Services Credit Facility, and such event of default has not been cured within thirty days after receipt of notice thereof.
Preferred Stock, Par Or Stated Value Per Share														$ 0.001		$ 0.001						$ 0.001
Debt Instrument, Convertible, Beneficial Conversion Feature																$ 4,865,000	$ 0
Adjustments to Additional Paid in Capital, Increase in Carrying Amount of Redeemable Preferred Stock																$ 1,500,000
Payments to Acquire Businesses, Gross				$ 6,000,000
Repayments of Convertible Debt											$ 10,000,000
Ten Lords Ltd [Member]
Convertible Preferred Stock [Line Items]
Repayments of Notes Payable																		$ 5,900,000
Flexpoint [Member]
Convertible Preferred Stock [Line Items]
Sale of Stock, Price Per Share														300		$ 300
Wellington [Member] | Securities Purchase Agreement [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Value, Issued													$ 769,500												$ 2,700,000
Series A Preferred Stock [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Conversion Basis																The Series A Preferred is convertible into shares of common stock. Any holder of Series A Preferred may at any time convert such holders shares of Series A Preferred into that number of shares of common stock equal to the number of shares of Series A Preferred being converted multiplied by $300 and divided by the then-applicable conversion price, which was initially $3.00
Preferred Stock, Value, Issued					$ 1,400,000
Preferred Stock, Liquidation Preference Per Share														$ 600		$ 600
Preferred Stock, Shares Issued														33,333		33,333
Percentage Of Beneficially Own														9.90%		9.90%
Adjustments To Additional Paid In Capital Convertible Preferred Stock																							$ 396,600
Adjustments to Additional Paid in Capital, Increase in Carrying Amount of Redeemable Preferred Stock		$ 2,500,000												$ 2,700,000	$ 1,500,000	$ 4,800,000	$ 2,900,000
Series A Preferred Stock [Member] | Minimum [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Par Or Stated Value Per Share														$ 2.90		$ 2.90					$ 2.36		$ 3.00	$ 2.90
Series A Preferred Stock [Member] | Maximum [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Par Or Stated Value Per Share														$ 2.36		$ 2.36							$ 2.90	$ 3.00
Series A Preferred Stock [Member] | Flexpoint [Member]
Convertible Preferred Stock [Line Items]
Stock Issued During Period, Shares, New Issues						33,333
Preferred Stock, Value, Issued							$ 29,900,000
Preferred Stock, Shares Issued							99,666
Preferred Stock, Par Or Stated Value Per Share							$ 0.001
Adjustments To Additional Paid In Capital Convertible Preferred Stock																				$ 2,700,000
Stock Issued During Period, Value, New Issues				$ 6,000,000
Series A Preferred Stock [Member] | Wellington [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Conversion Basis																shares of Series A-1 Preferred being converted multiplied by $300 and divided by the then-applicable conversion price, which initially was $3.00
Series A Preferred Stock [Member] | Wellington [Member] | Securities Purchase Agreement [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Conversion Basis																Series A-1 Preferred at a purchase price of $300 per share
Series A Preferred Stock [Member] | Sundara Investment Partners Llc [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Value, Issued							$ 10,100,000
Preferred Stock, Shares Issued							33,667
Adjustments To Additional Paid In Capital Convertible Preferred Stock																				$ 2,200,000
Series A Preferred Stock [Member] | Flexpoint Securities Purchase Agreement [Member]
Convertible Preferred Stock [Line Items]
Stock Issued During Period, Shares, New Issues						33,333	33,667,000
Maximum Number Of Shares To Be Sold														133,333		133,333
Maximum Number Of Shares To Be Sold Value														$ 40,000,000		$ 40,000,000
Initial Proceeds From Sale Of Trading Securities						$ 10,000,000
Tranche A [Member] | Flexpoint Securities Purchase Agreement [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Value, Issued						$ 10,000,000
Series A-1 Preferred stock [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Liquidation Preference Per Share														$ 600		$ 600
Preferred Stock, Shares Issued										2,835
Series A-1 Preferred stock [Member] | Securities Purchase Agreement [Member]
Convertible Preferred Stock [Line Items]
Stock Issued During Period, Shares, New Issues												2,250
Stock Issued During Period, Value, New Issues										$ 675,000		$ 405,000
Series A-1 Preferred stock [Member] | Wellington [Member]
Convertible Preferred Stock [Line Items]
Stock Issued During Period, Shares, New Issues												1,350
Preferred Stock, Shares Issued																			9,000
Preferred Stock, Par Or Stated Value Per Share																			$ 0.001
Series A-1 Preferred stock [Member] | Wellington [Member] | Securities Purchase Agreement [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Shares Issued													2,565												9,000
Debt Instrument, Convertible, Beneficial Conversion Feature													$ 769,500
Payments to Acquire Businesses, Gross													2,700,000
Preferred Stock, Liquidation Preference, Value													$ 850,500
Series A Preferred Stock and Tranche C [Member]
Convertible Preferred Stock [Line Items]
Convertible Preferred Stock, Conversion Price																					$ 2.45
Series A Preferred Stock and Tranche C [Member] | Wellington [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Value, Issued																			$ 850,500
Series A Preferred Stock and Tranche C [Member] | Wellington [Member] | Securities Purchase Agreement [Member]
Convertible Preferred Stock [Line Items]
Preferred Stock, Value, Issued																			$ 2,700,000

XML

Stockholders' Equity (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Stockholders Equity Note [Line Items]
Expected term (years)	6 years 3 months		6 years 3 months
Risk-free interest rate	1.93%
Volatility	65.60%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Risk-free interest rate, Minimum		1.36%	1.93%	1.36%
Risk-free interest rate, Maximum		1.50%	2.10%	1.50%
Volatility, Minimum		34.60%	62.30%	34.60%
Volatility, Maximum		54.70%	65.60%	54.70%
Minimum [Member]
Stockholders Equity Note [Line Items]
Expected term (years)		5 years 9 months		5 years 9 months
Maximum [Member]
Stockholders Equity Note [Line Items]
Expected term (years)		6 years 3 months		6 years 3 months

XML

Stockholders' Equity (Details 1) - $ / shares	1 Months Ended	6 Months Ended	12 Months Ended
	May 31, 2016	Jun. 30, 2017	Dec. 31, 2016
Stockholders Equity Note [Line Items]
Outstanding Beginning - Number of Options (in shares)		2,246,248	1,717,082
Granted - Number of Options (in shares)	250,000	340,000	905,000
Forfeited - Number of Options (in shares)		(20,000)	(375,834)
Exercised - Number of Options (in shares)		0	0
Outstanding Ending - Number of Options (in shares)		2,566,248	2,246,248
Exercisable - Number of Options (in shares)		1,353,953
Outstanding Opending - Weighted Average Exercise Price (in dollars per share)		$ 2.89	$ 3.02
Granted - Weighted Average Exercise Price (in dollars per share)		3	2.7
Forfeited - Weighted Average Exercise Price (in dollars per share)		3	3
Exercised - Weighted Average Exercise Price (in dollars per share)		0	0
Outstanding Ending - Weighted Average Exercise Price (in dollars per share)		2.9	$ 2.89
Exercisable - Weighted Average Exercise Price (in dollars per share)		$ 2.93

XML

Stockholders' Equity (Details Textual) - USD ($)						1 Months Ended					3 Months Ended		6 Months Ended		12 Months Ended
	Jan. 05, 2017	Aug. 09, 2016	Jul. 02, 2016	Nov. 07, 2014	Apr. 14, 2014	Oct. 18, 2016	Jul. 02, 2016	Jun. 29, 2016	May 31, 2016	Jan. 22, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Feb. 15, 2017	Jan. 31, 2017
Stockholders Equity Note [Line Items]
Preferred Stock, Shares Authorized											1,000,000		1,000,000		1,000,000
Preferred Stock, Par or Stated Value Per Share											$ 0.001		$ 0.001		$ 0.001
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross									250,000				340,000		905,000
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Dividend Rate													0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price											$ 2.93		$ 2.93
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term													8 years 14 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value											$ 0		$ 0
Stock Issued During Period, Shares, New Issues	51,480	8,333	22,876	20,000	4,667	33,667,000	22,876			37,037			40,310
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent													90.00%
Shares Issued, Price Per Share									$ 2.48	$ 2.70
Payments of Stock Issuance Costs										$ 36,000
Treasury Stock, Shares											2,200,000		2,200,000			2,200,000
Treasury Stock, Value											$ 4,950,000		$ 4,950,000		$ 0	$ 4,950,000
Stock Incentive Plan 2013 [Member]
Stockholders Equity Note [Line Items]
Stock Issued During Period, Shares, New Issues								3,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant								1,000,000			433,752		433,752
JetPay Payments, PA [Member]
Stockholders Equity Note [Line Items]
Shares Issued, Price Per Share															$ 4.00
Treasury Stock, Shares																2,200,000
Treasury Stock, Value																	$ 5,000,000
Merrick Bank [Member]
Stockholders Equity Note [Line Items]
Treasury Stock, Shares																	2,200,000
Treasury Stock, Value																	$ 5,000,000
Stock Incentive Plan [Member]
Stockholders Equity Note [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross													340,000	380,000
Stock Issued During Period, Value, Stock Options Exercised													$ 399,000	$ 425,000
Allocated Share-based Compensation Expense											$ 190,000	$ 93,000	361,000	$ 164,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options											$ 1,300,000		$ 1,300,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price											$ 3.00		$ 3.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested Options Forfeited, Number of Shares													20,000	156,667
Common Stock [Member]
Stockholders Equity Note [Line Items]
Stock Issued During Period, Shares, New Issues													300,000
JetPay Corporation Employee Stock Purchase Plan [Member]
Stockholders Equity Note [Line Items]
Stock Issued During Period, Shares, New Issues	51,480

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Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Income Tax Expense (Benefit)	$ 81	$ (1,527)	$ 143	$ (1,474)
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	(6.50%)	21.50%	(10.60%)	18.30%
Deferred Tax Assets, Operating Loss Carryforwards, State and Local					$ 25,900
Operating Loss Carryforward Expiration Date					2036
Deferred Tax Assets, Valuation Allowance	$ 9,400		$ 9,400
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Deferred Tax Liabilities Noncurrent	$ 1,864	$ 1,860	$ 1,864	$ 1,860
Deferred Taxes, Business Combination, Valuation Allowance, Available to Reduce Intangible Assets		$ 1,600		$ 1,600

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Commitments and Contingencies (Details Textual) - USD ($)			1 Months Ended				3 Months Ended		6 Months Ended		12 Months Ended
	Jul. 03, 2017	May 02, 2017	Feb. 15, 2017	Jul. 26, 2016	Jul. 22, 2016	Sep. 30, 2013	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2015	Dec. 31, 2012	Dec. 31, 2016	Dec. 28, 2012
Commitments and Contingencies [Line Items]
Loss Contingency, Damages Sought, Value											$ 628,000
Legal Fees									$ 50,000
Payments for Legal Settlements											$ 222,310
Litigation Settlement, Expense							$ 747,000	$ 6,140,000	747,000	$ 6,140,000
Escrow Amount Before Direct Air Bankruptcy Filing												$ 31,000,000
Escrow Amount After Direct Air Bankruptcy Filing												1,000,000
Interest Expense, Other												25,000,000
Loss Contingency Accrual							125,500		125,500
Malpractice Insurance, Maximum Coverage Per Incident				$ 50,000					50,000
Less unamortized deferred financing costs							(348,000)		(348,000)				$ (339,000)
Loss Contingency Accrual, Provision							$ 747,000
Marrick Settlement Agreement [Member]
Commitments and Contingencies [Line Items]
Litigation Settlement, Expense				4,400,000					4,400,000
Debt Instrument Collateral Shares Held In Escrow					3,333,333
Marrick Settlement Agreement [Member] | First Judgment [Member]
Commitments and Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value				32,500,000
Marrick Settlement Agreement [Member] | Second Judgment [Member]
Commitments and Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value				28,650,000
Marrick Settlement Agreement [Member] | Third Judgment [Member]
Commitments and Contingencies [Line Items]
Loss Contingency, Damages Awarded, Value				27,500,000
Marrick Settlement Agreement [Member] | 3.85 MM Note [Member]
Commitments and Contingencies [Line Items]
Debt Instrument, Face Amount				$ 3,850,000
Debt Instrument, Interest Rate, Effective Percentage				8.00%
Debt Instrument, Maturity Date				Dec. 28, 2017
Marrick Settlement Agreement [Member] | 5.00 MM Note [Member]
Commitments and Contingencies [Line Items]
Debt Instrument, Face Amount				$ 5,000,000
Debt Instrument, Interest Rate, Effective Percentage				12.00%
Wles Settlement Agreement [Member]
Commitments and Contingencies [Line Items]
Debt Instrument, Face Amount				$ 491,693
Shares Held With Escrow			2,200,000
Warrant Issuance Expenses				373,334
Wles Settlement Agreement [Member] | WLES Note [Member]
Commitments and Contingencies [Line Items]
Debt Instrument, Face Amount				2,331,369
Notes Payable				2,036,511
Less unamortized deferred financing costs				294,858
Interest Payable, Current				$ 414,466
Series A Preferred Stock [Member]
Commitments and Contingencies [Line Items]
Other Commitment														$ 6,000,000
Subsequent Event [Member]
Commitments and Contingencies [Line Items]
Payments for Legal Settlements	$ 872,500
Merrick Bank [Member]
Commitments and Contingencies [Line Items]
Loss Contingency, Loss in Period												25,000,000
Legal Fees						$ 597,000						1,900,000
Legal Fees and Interest Costs									$ 4,700,000			487,000
Cash Reserve Deposit Required and Made								$ 4,400,000		$ 4,400,000
Jp Morgan Chase [Member] | Common Stock [Member]
Commitments and Contingencies [Line Items]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares)				3,333,333
Chartis Insurance [Member]
Commitments and Contingencies [Line Items]
Loss Contingency, Loss in Period												25,000,000
Deductible Policy Amount												$ 250,000
Ten Lords and Interactive Capital [Member]
Commitments and Contingencies [Line Items]
Legal Fees		$ 134,075
Loss Contingency, Damages Awarded, Value		$ 793,000

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Related Party Transactions (Details Textual)						1 Months Ended					3 Months Ended		6 Months Ended		12 Months Ended
	Jan. 05, 2017 shares	Aug. 09, 2016 USD ($) shares	Jul. 02, 2016 shares	Nov. 07, 2014 shares	Apr. 14, 2014 USD ($) shares	Jul. 31, 2017 USD ($)	Oct. 18, 2016 USD ($) shares	Jul. 02, 2016 shares	Jan. 22, 2016 $ / shares shares	Dec. 22, 2015 USD ($) $ / shares shares	Jun. 30, 2017 USD ($) a shares	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($) a shares	Jun. 30, 2016 USD ($)	Dec. 31, 2016 USD ($) shares	Jul. 26, 2016 USD ($)	May 31, 2016 $ / shares	May 06, 2016 USD ($)	Jan. 15, 2016	May 06, 2015 USD ($)	Dec. 28, 2014 USD ($)	Aug. 22, 2013	Jun. 07, 2013 USD ($)	Dec. 28, 2012 USD ($)
Related Party Transaction [Line Items]
Proceeds from Issuance of Common Stock													$ 104,000	$ 64,000
Revenues											$ 18,777,000	$ 12,212,000	$ 37,719,000	23,855,000
Stock Issued During Period, Shares, New Issues | shares	51,480	8,333	22,876	20,000	4,667		33,667,000	22,876	37,037				40,310
Shares Issued, Price Per Share | $ / shares									$ 2.70								$ 2.48
Preferred Stock, Shares Issued | shares											0		0		0
Preferred Stock, Value, Issued		$ 2,500,000			$ 1,400,000						$ 0		$ 0		$ 0						$ 10,000,000
Series A Preferred Stock [Member]
Related Party Transaction [Line Items]
Preferred Stock, Shares Issued | shares											33,333		33,333
Preferred Stock, Value, Issued					$ 1,400,000
Unsecured Debt [Member]
Related Party Transaction [Line Items]
Other Deferred Compensation Arrangements, Liability, Current																				$ 2,000,000
Unsecured Promissory Note [Member] | Unsecured Debt [Member]
Related Party Transaction [Line Items]
Debt Instrument, Face Amount																				$ 350,000
Promissory Note [Member]
Related Party Transaction [Line Items]
Debt Instrument, Interest Rate, Stated Percentage																			12.00%
Interest Expense, Debt															$ 177,000
Promissory Note [Member] | Flexpoint [Member] | Minimum [Member]
Related Party Transaction [Line Items]
Unsecured Debt																$ 1,000,000
Promissory Note [Member] | Flexpoint [Member] | Maximum [Member]
Related Party Transaction [Line Items]
Unsecured Debt																$ 1,400,000
Promissory Note [Member] | Unsecured Debt [Member]
Related Party Transaction [Line Items]
Unsecured Debt																		$ 175,000
Debt Instrument, Interest Rate, Effective Percentage																				4.00%
Interest Expense, Debt												2,500		6,100
Note and Indemnity Side Agreement [Member]
Related Party Transaction [Line Items]
Debt Instrument, Interest Rate, Stated Percentage																								5.00%
Debt Instrument, Face Amount																								$ 2,331,369
Interest Expense, Related Party												29,500		59,000
Jet Pay Solutions Ltd [Member]
Related Party Transaction [Line Items]
Operating Leases, Rent Expense											$ 12,000	30,000	$ 47,000	53,000
Business Acquisition, Percentage of Voting Interests Acquired																						75.00%
Subsequent Event [Member]
Related Party Transaction [Line Items]
Monthly Rent Expense						$ 6,000
Trent Voigt [Member] | Promissory Note [Member]
Related Party Transaction [Line Items]
Debt Instrument, Interest Rate, Stated Percentage																4.00%
Debt Instrument, Face Amount																							$ 491,693
Interest Expense, Related Party												4,900		9,800
Jetpay [Member]
Related Party Transaction [Line Items]
Revenues											$ 9,000	6,000	$ 35,000	11,000
JetPay Payroll Service [Member]
Related Party Transaction [Line Items]
Area of Land | a											22,500		22,500
Operating Leases, Rent Expense											$ 135,500	$ 131,250	$ 270,978	$ 260,400
Monthly Rent Expense													$ 45,163
Lease Term													10 years
Debt Instrument, Maturity Date													May 31, 2016
JetPay Payment Services [Member]
Related Party Transaction [Line Items]
Area of Land | a											1,600		1,600
Insider Common Stock Purchase Agreement [Member]
Related Party Transaction [Line Items]
Proceeds from Issuance of Common Stock										$ 162,000
Stock Issued During Period, Shares, New Issues | shares										60,000
Shares Issued, Price Per Share | $ / shares										$ 2.70
Insider Common Stock Purchase Agreement [Member] | Chief Executive Officer [Member]
Related Party Transaction [Line Items]
Stock Issued During Period, Shares, New Issues | shares										20,000
Sundara Investment Partners Llc [Member]
Related Party Transaction [Line Items]
Debt Instrument, Face Amount							$ 9,500,000
Sundara Investment Partners Llc [Member] | Series A Preferred Stock [Member]
Related Party Transaction [Line Items]
Preferred Stock, Shares Issued | shares							33,667
Preferred Stock, Value, Issued							$ 10,100,000
Sundara Investment Partners Llc [Member] | Term Loan [Member]
Related Party Transaction [Line Items]
Debt Instrument, Face Amount							$ 9,500,000
Debt Instrument, Maturity Date							Oct. 18, 2021
Debt Instrument, Interest Rate, Effective Percentage							8.00%
Debt Instrument, Non-Refundable Closing Fee Amount							$ 190,000
Sundara Investment Partners Llc [Member] | Promissory Note [Member]
Related Party Transaction [Line Items]
Interest Expense, Related Party											$ 184,000		$ 370,000

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Segments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Segment Reporting Information [Line Items]
Processing revenues	$ 18,777	$ 12,212	$ 37,719	$ 23,855
Cost of processing revenues	13,049	8,306	25,634	15,706
Selling, general and administrative expenses	5,056	3,774	10,012	7,581
Settlement of legal matter	747	6,140	747	6,140
Change in fair value of contingent consideration liability	(257)	(216)	(183)	(170)
Amortization of intangibles and depreciation	1,123	967	2,228	1,879
Other expenses	304	334	631	764
Income (loss) before income taxes	(1,245)	(7,093)	(1,350)	(8,045)
Total property and equipment, net	2,858	2,084	2,858	2,084	$ 2,125
Property and equipment additions			1,322	502
Intangible assets and goodwill	73,319	76,279	73,319	76,279
Total segment assets	193,538	169,269	193,538	169,269	$ 187,210
Payment Processing [Member]
Segment Reporting Information [Line Items]
Processing revenues	14,988	8,830	29,292	16,163
Cost of processing revenues	10,874	6,471	21,216	11,762
Selling, general and administrative expenses	3,047	2,125	5,675	3,828
Settlement of legal matter	0	6,140	0	6,140
Change in fair value of contingent consideration liability	0	0	0	0
Amortization of intangibles and depreciation	795	626	1,578	1,197
Other expenses	88	160	179	311
Income (loss) before income taxes	184	(6,692)	644	(7,075)
Total property and equipment, net	2,314	1,550	2,314	1,550
Property and equipment additions			1,213	409
Intangible assets and goodwill	57,143	59,065	57,143	59,065
Total segment assets	122,086	100,293	122,086	100,293
Payroll Service [Member]
Segment Reporting Information [Line Items]
Processing revenues	3,789	3,368	8,427	7,663
Cost of processing revenues	2,175	1,816	4,418	3,886
Selling, general and administrative expenses	1,507	1,211	3,001	2,530
Settlement of legal matter	0	0	0	0
Change in fair value of contingent consideration liability	0	0	0	0
Amortization of intangibles and depreciation	327	340	648	679
Other expenses	212	67	426	140
Income (loss) before income taxes	(432)	(66)	(66)	428
Total property and equipment, net	514	502	514	502
Property and equipment additions			106	93
Intangible assets and goodwill	16,176	17,214	16,176	17,214
Total segment assets	68,778	68,556	68,778	68,556
General/Corporate [Member]
Segment Reporting Information [Line Items]
Processing revenues	0	14	0	29
Cost of processing revenues	0	19	0	58
Selling, general and administrative expenses	502	438	1,336	1,223
Settlement of legal matter	747	0	747	0
Change in fair value of contingent consideration liability	(257)	(216)	(183)	(170)
Amortization of intangibles and depreciation	1	1	2	3
Other expenses	4	107	26	313
Income (loss) before income taxes	(997)	(335)	(1,928)	(1,398)
Total property and equipment, net	30	32	30	32
Property and equipment additions			3	0
Intangible assets and goodwill	0	0	0	0
Total segment assets	$ 2,674	$ 420	$ 2,674	$ 420

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Subsequent Events (Details Textual) - USD ($)		1 Months Ended	12 Months Ended
	Jul. 03, 2017	Jul. 12, 2017	Dec. 31, 2015
Subsequent Event [Line Items]
Payments for Legal Settlements			$ 222,310
Subsequent Event [Member]
Subsequent Event [Line Items]
Payments for Legal Settlements	$ 872,500
Stock Issued During Period, Shares, Employee Stock Purchase Plans		40,310