UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT
TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
or
o TRANSITION REPORT PURSUANT TO
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number:
000-30152
PAYMENT DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Nevada |
|
98-0190072 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
12500 San Pedro, Ste. 120, San Antonio, TX |
|
78216 |
(Address of principal executive offices) |
|
(Zip Code) |
(210) 249-4100
(Registrant’s telephone number, including area code)
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. þ Yes o
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 (§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). þ Yes o
No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
o |
Accelerated filer |
o |
Non-accelerated filer |
o |
Smaller reporting company |
þ |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). o Yes þ
No
As of November 9, 2015, 12,374,537 shares of the issuer’s
common stock, $0.001 par value, were outstanding.
PAYMENT DATA SYSTEMS, INC.
INDEX
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
PAYMENT DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| |
September 30, 2015 | |
December 31, 2014 |
| |
(Unaudited) | |
|
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 52,168,838 | | |
$ | 54,989,851 | |
Accounts receivable, net | |
| 881,405 | | |
| 1,037,208 | |
Deferred tax asset, current | |
| 773,000 | | |
| 773,000 | |
Prepaid expenses and other | |
| 155,921 | | |
| 129,258 | |
Total current assets | |
| 53,979,164 | | |
| 56,929,317 | |
| |
| | | |
| | |
Property and equipment, net | |
| 3,189,643 | | |
| 2,705,517 | |
| |
| | | |
| | |
Other assets: | |
| | | |
| | |
Intangibles, net | |
| 382,601 | | |
| 412,363 | |
Deferred tax asset, noncurrent | |
| 848,000 | | |
| 848,000 | |
Other assets | |
| 175,549 | | |
| 204,112 | |
Total other assets | |
| 1,406,150 | | |
| 1,464,475 | |
| |
| | | |
| | |
Total assets | |
$ | 58,574,957 | | |
$ | 61,099,309 | |
| |
| | | |
| | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 169,973 | | |
$ | 37,808 | |
Accrued expenses | |
| 1,357,638 | | |
| 1,851,033 | |
Customer deposits payable | |
| 48,396,754 | | |
| 52,186,396 | |
Total current liabilities | |
| 49,924,365 | | |
| 54,075,237 | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Common stock, $0.001 par value, 200,000,000 shares authorized; 12,372,037 and 9,848,072 issued, and 12,032,995 and 9,515,062 outstanding at September 30, 2015 and December 31, 2014, respectively (see Note 8) | |
| 185,565 | | |
| 184,177 | |
Additional paid-in capital | |
| 64,222,428 | | |
| 62,989,131 | |
Treasury stock, at cost; 339,042 and 333,010 shares at September 30, 2015 and December 31, 2014, respectively (see Note 8) | |
| (264,698 | ) | |
| (238,157 | ) |
Deferred compensation | |
| (6,272,862 | ) | |
| (5,839,992 | ) |
Accumulated deficit | |
| (49,219,841 | ) | |
| (50,071,087 | ) |
Total stockholders’ equity | |
| 8,650,592 | | |
| 7,024,072 | |
| |
| | | |
| | |
Total liabilities and stockholders’ equity | |
$ | 58,574,957 | | |
$ | 61,099,309 | |
See notes to interim consolidated financial statements.
PAYMENT DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
Three Months Ended
September 30, | |
Nine Months Ended
September 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Revenues | |
$ | 3,550,463 | | |
$ | 3,596,004 | | |
$ | 10,717,679 | | |
$ | 9,631,000 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of services | |
| 2,336,270 | | |
| 2,440,410 | | |
| 7,138,450 | | |
| 6,881,704 | |
Selling, general and administrative: | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| 338,488 | | |
| 72,995 | | |
| 965,544 | | |
| 223,985 | |
Cancellation of stock-based compensation | |
| - | | |
| - | | |
| (163,936 | ) | |
| - | |
Other expenses | |
| 758,573 | | |
| 395,623 | | |
| 1,695,415 | | |
| 1,180,882 | |
Depreciation and amortization | |
| 93,800 | | |
| 10,202 | | |
| 272,320 | | |
| 30,812 | |
Total operating expenses | |
| 3,527,131 | | |
| 2,919,230 | | |
| 9,907,793 | | |
| 8,317,383 | |
| |
| | | |
| | | |
| | | |
| | |
Operating income | |
| 23,332 | | |
| 676,774 | | |
| 809,886 | | |
| 1,313,617 | |
| |
| | | |
| | | |
| | | |
| | |
Other income and (expense): | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 20,097 | | |
| 18,642 | | |
| 58,455 | | |
| 47,729 | |
Other income (expense) | |
| 90,600 | | |
| 2,144 | | |
| 58,190 | | |
| 7,529 | |
Total other income and (expense), net | |
| 110,697 | | |
| 20,786 | | |
| 116,645 | | |
| 55,258 | |
| |
| | | |
| | | |
| | | |
| | |
Income before income taxes | |
| 134,029 | | |
| 697,560 | | |
| 926,531 | | |
| 1,368,875 | |
Income taxes | |
| 16,249 | | |
| 9,000 | | |
| 75,285 | | |
| 31,774 | |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
$ | 117,780 | | |
$ | 688,560 | | |
$ | 851,246 | | |
$ | 1,337,101 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per common share: | |
$ | 0.02 | | |
$ | 0.08 | | |
$ | 0.12 | | |
$ | 0.16 | |
Diluted earnings per common share: | |
$ | 0.01 | | |
$ | 0.08 | | |
$ | 0.07 | | |
$ | 0.15 | |
Weighted average common shares outstanding | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 7,373,656 | | |
| 8,334,303 | | |
| 7,373,656 | | |
| 8,334,065 | |
Diluted | |
| 12,057,255 | | |
| 8,941,209 | | |
| 12,057,255 | | |
| 8,871,865 | |
See notes to interim consolidated financial statements.
PAYMENT DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Nine months Ended September 30, |
| |
2015 | |
2014 |
| |
| |
|
Operating activities: | |
| | | |
| | |
Net income | |
$ | 851,246 | | |
$ | 1,337,101 | |
Adjustments to reconcile net income to net cash (used) provided by operating activities: | |
| | | |
| | |
Depreciation | |
| 242,558 | | |
| 30,812 | |
Amortization | |
| 29,762 | | |
| - | |
Non-cash stock based compensation | |
| 965,544 | | |
| 223,985 | |
Cancellation of stock based compensation | |
| (163,936 | ) | |
| - | |
Changes in current assets and current liabilities: | |
| | | |
| | |
Accounts receivable | |
| 155,803 | | |
| (350,053 | ) |
Prepaid expenses and other | |
| (26,663 | ) | |
| (38,568 | ) |
Other assets | |
| 28,563 | | |
| (45,089 | ) |
Accounts payable and accrued expenses | |
| (361,231 | ) | |
| (87,500 | ) |
Customer deposits payable | |
| (3,789,642 | ) | |
| 33,166,643 | |
Net cash (used) provided by operating activities: | |
| (2,067,996 | ) | |
| 34,237,331 | |
| |
| | | |
| | |
| |
| | | |
| | |
Investing activities: | |
| | | |
| | |
Purchases of property and equipment | |
| (726,476 | ) | |
| (35,346 | ) |
Net cash (used) by investing activities: | |
| (726,476 | ) | |
| (35,346 | ) |
| |
| | | |
| | |
Financing activities: | |
| | | |
| | |
Purchase of treasury stock | |
| (26,541 | ) | |
| - | |
Net cash (used) by financing activities: | |
| (26,541 | ) | |
| - | |
| |
| | | |
| | |
Change in cash and cash equivalents | |
| (2,821,013 | ) | |
| 34,201,985 | |
Cash and cash equivalents, beginning of period | |
| 54,989,851 | | |
| 26,573,771 | |
| |
| | | |
| | |
Cash and cash equivalents, end of period | |
$ | 52,168,838 | | |
$ | 60,775,756 | |
| |
| | | |
| | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | - | | |
$ | - | |
Income taxes | |
$ | 32,369 | | |
$ | - | |
See notes to interim consolidated financial statements.
PAYMENT DATA SYSTEMS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Payment Data Systems, Inc. and its subsidiaries (the “Company”) have been prepared without audit, pursuant to the
instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Certain
information and footnote disclosures normally included in financial statements prepared in accordance with United States generally
accepted accounting principles have been omitted pursuant to such rules and regulations. In the opinion of management, the accompanying
interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to
present fairly the Company’s financial position, results of operations and cash flows for such periods. The accompanying
interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2014, as filed with
the SEC on March 30, 2015. Results of operations for interim periods are not necessarily indicative of results that may be expected
for any other interim periods or the full fiscal year.
Cash and Cash Equivalents: Cash and cash equivalents includes
cash and other money market instruments. The Company considers all highly liquid investments with an original maturity of 90 days
or less to be cash equivalents. Cash also includes customer deposits.
Customer Deposits: Customer deposits include security deposits
that may be required by the Company from certain customers and cash held in transit that we collected on behalf of all our customers
via our ACH processing service. The security deposit is used to offset any returned items or chargebacks to the Company and to
indemnify the Company against third-party claims and any expenses that may be created by the customer as a result of any claim
or fine. The Company may require the customer security deposit based on estimated transaction volumes, amounts, and chargebacks
and may revise the deposit based on periodic review of the same items. Repayment of the deposit to the customer is generally within
90 to 180 days beyond the date the last item is processed by the Company on behalf of the customer. The customer security deposit
does not accrue interest to the benefit of the customer.
Estimates: The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncement: In May 2014, the Financial
Accounting Standards Board issued a new accounting pronouncement regarding revenue from contracts with customers. This new standard
provides guidance on recognizing revenue, including a five step model to determine when revenue recognition is appropriate. The
standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Adoption of
the new standard is effective for reporting periods beginning after December 15, 2017. The Company is currently evaluating the
potential impact that the adoption of this standard will have on its financial position, results of operations, and related disclosures,
and will adopt the provisions of this new standard in the first quarter of 2018.
Reclassifications: Certain amounts from 2014 have been reclassified
for comparative purposes for 2015. These reclassifications have no impact on the Company’s previously reported results.
Note 2. Accrued Expenses
Accrued expenses consisted of the following balances:
| |
September 30, 2015 | |
December 31, 2014 |
| |
| | | |
| | |
Indemnification liability | |
$ | 450,000 | | |
$ | 450,000 | |
Accrued commissions | |
| 367,298 | | |
| 460,977 | |
Reserve for processing losses | |
| 248,868 | | |
| 272,365 | |
Accrued salaries | |
| 51,376 | | |
| 158,380 | |
Assumed liabilities | |
| 52,147 | | |
| 255,772 | |
Accrued taxes | |
| 57,984 | | |
| 125,194 | |
Other accrued expenses | |
| 129,965 | | |
| 128,345 | |
Total accrued expenses | |
$ | 1,357,638 | | |
$ | 1,851,033 | |
Note 3. Net Income Per Share
Basic earnings per share (EPS) were computed by dividing net income
by the weighted average number of shares of common stock outstanding during the period. Diluted EPS differs from basic EPS due
to the assumed conversion of potentially dilutive awards and options that were outstanding during the period. The following is
a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net income for the
three and nine months ended September 30, 2015 and 2014. Share numbers have been adjusted for the 1-for-15 reverse split effected
on July 23, 2015.
| |
Three Months Ended September 30, | |
Nine Months Ended September 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Numerator for basic and diluted earnings per share, net income available to common shareholders | |
$ | 117,780 | | |
$ | 688,560 | | |
$ | 851,246 | | |
$ | 1,337,101 | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Denominator for basic earnings per share, weighted average shares outstanding | |
| 7,373,656 | | |
| 8,334,303 | | |
| 7,373,656 | | |
| 8,334,065 | |
Effect of dilutive securities | |
| 4,683,599 | | |
| 606,906 | | |
| 4,683,599 | | |
| 537,800 | |
Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion | |
| 12,057,255 | | |
| 8,941,209 | | |
| 12,057,255 | | |
| 8,871,865 | |
Basic earnings per common share | |
$ | 0.02 | | |
$ | 0.08 | | |
$ | 0.12 | | |
$ | 0.16 | |
Diluted earnings per common share and common share equivalent | |
$ | 0.01 | | |
$ | 0.08 | | |
$ | 0.07 | | |
$ | 0.15 | |
Note 4. Acquisition
On December 22, 2014, the Company acquired the assets of Akimbo
to increase market share of prepaid debit card services. The purchase price for the software, customer list, fixed assets
and goodwill was $3 million in common stock of the Company. The Akimbo operations are included in the Company’s consolidated
financial statements from the date of acquisition. The purchase price for Akimbo was allocated based on the fair values of
the assets at the date of acquisition as follows:
Software | |
$ | 2,585,385 | |
Equipment and other assets | |
| 2,252 | |
Customer list and contracts | |
| 396,824 | |
Goodwill | |
| 15,539 | |
Trade accounts payable | |
| (300,000 | ) |
Indemnification liability | |
| (450,000 | ) |
Total | |
$ | 2,250,000 | |
Goodwill is being amortized over 15 years for tax purposes.
Note 5. Income Taxes
The Company has recognized a deferred tax asset of $1.6 million
and has recorded a valuation allowance of $12.2 million to reduce the other deferred tax assets. The Company does not anticipate
there will be a significant change through the end of 2015. As such, management has determined that the assessment of the deferred
tax asset and valuation allowance will be made on an annual basis.
Note 6. Related Party Transactions
Herb Authier
During the nine months ending September 30, 2015 and the year ended
December 31, 2014, the Company paid Herb Authier a total of $36,299 and $42,000 in cash, respectively, for services related to
network engineering and administration that he provided to the Company. Mr. Authier is the father-in-law of Louis Hoch, the Company’s
President and Chief Operating Officer.
Nikole Hoch
During the nine months ending September 30, 2015 and the year ended
December 31, 2014, the Company purchased a total of $0 and $6,227, respectively, of corporate imprinted sportswear and caps from
Angry Pug Sportswear. Nikole Hoch, the spouse of our President and Chief Operating Officer Louis Hoch, is the sole owner of Angry
Pug Sportswear.
Note 7. Legal Proceedings
The Company was involved in a lawsuit with
a customer that alleged it did not warn or stop the processing of $181,709 in fraudulent credit transactions from occurring.
The Company believes that the customer breached the Company’s processing agreement and that a security breach occurred because
of the customer’s lack of controls over the login and password information utilized by the customer to process transactions
resulting in the customer becoming a victim of a malware attack. The agreement between the customer and the Company has a
limitation of liability provision that allows for the maximum liability of the Company to not exceed the amount of fees of a single
month of service. On April 29, 2015, Brightmoor Church filed a notice of voluntary dismissal, which the Court accepted on
April 30, 2015, and dismissed the lawsuit without prejudice. On November 3, 2015, the Company filed a lawsuit against Brightmoor
Church in the District Court for the judicial district of Bexar County, Texas, alleging a breach of contract by Brightmoor
Church resulting in the fraudulent credit transactions described before and demanding payment of damages.
On June 26, 2015, Michael McFarland, derivatively on behalf the
Company, and individually on behalf of himself and all other similarly situated shareholders of the Company, filed a class-action
lawsuit in United States District Court, District of Nevada. The suit alleges breach of fiduciary duties and unjust enrichment
by the Company’s Board of Directors and certain executive officers and directors in connection with excessive and unfair
compensation paid or awarded during fiscal years 2013 and 2014. The lawsuit seeks disgorgement of excessive compensation as well
as damages in an unspecified amount. As of November 11, 2015, the Company has not yet been served.
The Company believes the claims are without merit and it is unlikely
that a loss will be incurred, therefore the Company has not accrued for a potential loss. However, the outcomes of the disputes
are still uncertain and it is possible the Company may incur legal fees and losses in the future.
Aside from the lawsuits described above, the Company may be involved
in legal matters arising in the ordinary course of business from time to time. While the Company believes that such matters are
currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company
is or could become involved in litigation will not have a material adverse effect on the Company’s business, financial condition
or results of operations.
Note 8. Reverse Stock Split
On July 23, 2015, pursuant to shareholder and board approval, the
Company effected a 1-for-15 reverse stock split of the outstanding common stock by filing a certificate of change with the Secretary
of State of the State of Nevada and obtaining approval by the Financial Industry Regulatory Authority. The number of our authorized
common shares remained unchanged at 200,000,000 shares, par value $0.001 per share, after the reverse stock split. The number of
our authorized preferred stock remained unchanged at 10,000,000 shares, par value $0.01 per share.
The number of shares issued and outstanding prior to the reverse
split was 185,197,097 and 180,201,953, which converted to 12,346,557 and 12,013,547 on July 23, 2015, respectively. These were
calculated by dividing the pre-split number of shares by 15, and rounding up any fractional shares. The fractional shares issued
were 1,034.
The number of treasury shares was 4,995,144 on July 23, 2015 and
were converted to 333,010 treasury shares by dividing the pre-split number of shares by 15, and rounding up the fractional share.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS DISCLAIMER
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the words “anticipate,”
“suggest,” “estimate,” “plan,” “project,” “continue,” “ongoing,”
“potential,” “expect,” “predict,” “believe,” “intend,” “may,”
“will,” “should,” “could,” “would,” “proposal,” and similar expressions
are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could
cause our actual results to differ materially from those projected. These risks and uncertainties include, but are not limited
to the risks described in our Annual Report on Form 10-K including: the sufficiency of our security applications; our ability to
adapt to rapid technological change; our relationship with the Automated Clearing House network; the failure of our third-party
card processing providers or our bank sponsors to comply with the applicable requirements of Visa, MasterCard and Discover credit
card associations; our ability to comply with applicable requirements of the respective card networks; and our ability to comply
with federal and state regulation. These forward-looking statements speak only as of the date hereof. We expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect
any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement
is based, except as required by law.
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with the unaudited interim condensed consolidated financial statements
and the notes thereto included elsewhere in this quarterly report on Form 10-Q as of September 30, 2015, and our audited consolidated
financial statements and notes thereto for the fiscal year ended December 31, 2014 included in our annual report on Form 10-K,
filed with the Securities and Exchange Commission on March 30, 2015.
Overview
We provide integrated electronic payment processing services to
merchants and businesses, including all types of Automated Clearing House, or ACH, processing, credit, prepaid card and debit card-based
processing services. We also operate an online payment processing service, under the domain name www.billx.com, which allows consumers
to process online payments to pay any other individual, including family and friends. Through our recently acquired business Akimbo,
under the domain name www.akimbocard.com, we offer prepaid cards to consumers for use as a tool to stay on budget, manage allowances
and share money with family and friends. Since the Akimbo Acquisition, we have moved the Akimbo card program to operate on the
MasterCard and associated networks and to our existing sponsoring bank, Sunrise Banks, N.A. The Akimbo MasterCard program became
live on our processing platform in early April 2015. The Akimbo Visa card program was decommissioned of all services on May 30,
2015 and the card customers were transitioned to the Akimbo MasterCard card program.
Although we reported net income of $851,246 for the nine months
ended September 30, 2015 and $3,838,288 for the year ended December 31, 2014, we still had an accumulated deficit of $49,219,841
at September 30, 2015.
Total dollars processed for the third quarter
of 2015 exceeded $864,700,000 and is the highest for any quarter in our history. Credit card processing volumes for the third quarter
of 2015 were also the highest of any quarter in our history. Credit card dollars processed during third quarter of 2015 were up
14% over the same time period in 2014 while credit card transactions processed were also up 3% compared to the third quarter of
2014. Electronic check transaction volumes for the third quarter of 2015 were the third highest in our history and increased 6%
compared to the third quarter of 2014. Returned check transactions processed during the third quarter of 2015 were down 9% compared
to the same time period in 2014.
We expect to continue to see an increase in the number of our enrolled
merchant customers, for whom we provide processing for credit and debit card transactions, and we expect to add new clients to
our sales pipeline, which we believe will continue to create increased transaction volumes. We believe the profitability we experienced
in the first three quarters of 2015 and the year of 2014 will continue for the foreseeable future. However, it is possible that
we will not sustain profitability or we may incur future operating losses. To sustain profitability, we must, among other things,
grow and maintain our customer base, implement a successful marketing strategy, continue to maintain and upgrade our technology
and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and
motivate qualified personnel, and respond to unforeseen industry developments and other factors. We believe that our success will
depend in large part on our ability to (a) manage our operating expenses, (b) add quality customers to our client base, (c) meet
evolving customer requirements, and (d) adapt to technological changes in an emerging market. Accordingly, we intend to focus on
customer acquisition activities and outsource some of our processing services to third parties to allow us to maintain an efficient
operating infrastructure and expand our operations without significantly increasing our fixed operating expenses.
Critical Accounting Policies
General
Our management’s discussion and analysis of financial condition
and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the reported amounts of revenues
and expenses, reserve for losses, customer deposits, bad debt, intangible assets, computer software, income taxes, contingencies
and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions
or conditions. We consider the following accounting policies to be critical because the nature of the estimates or assumptions
is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility
of such matters to change or because the impact of the estimates and assumptions on financial condition or operating performance
is material.
Revenue Recognition
Revenue consists primarily of fees generated through the electronic
processing of payment transactions and related services, and is recognized as revenue during the period the transactions are processed
or when the related services are performed. Merchants may be charged for these processing services at a bundled rate based on a
percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. Certain
merchant customers are charged a flat fee per transaction, while others may also be charged miscellaneous fees, including fees
for chargebacks or returns, monthly minimums, and other miscellaneous services. Revenues derived from electronic processing of
credit, debit, and prepaid card transactions that are authorized and captured through third-party networks are reported gross of
amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations (Visa, MasterCard and Discover).
Revenue also includes any up-front fees for the work involved in implementing the basic functionality required to provide electronic
payment processing services to a customer. Revenue from such implementation fees is recognized over the term of the related service
contract. Sales taxes billed are reported directly as a liability to the taxing authority, and are not included in revenue.
Reserve for Processing Losses
If, due to insolvency or bankruptcy of one of our merchant customers,
or for any other reason, we are not able to collect amounts from our credit card, ACH or prepaid customers that have been properly
“charged back” by the customer, or if a prepaid cardholder incurs a negative balance, we must bear the credit risk
for the full amount of the transaction. We may require cash deposits and other types of collateral from certain merchants to minimize
any such risk. In addition, we utilize a number of systems and procedures to manage merchant risk. ACH, prepaid and credit card
merchant processing loss reserves are primarily determined by performing a historical analysis of our loss experience and considering
other factors that could affect that experience in the future, such as the types of transactions processed and nature of the merchant
relationship with its consumers and our relationship with our prepaid card holders. This reserve amount is subject to the risk
that actual losses may be greater than our estimates. We have not incurred any significant processing losses to date. Estimates
for processing losses are variable based on the volume of transactions processed and could increase or decrease accordingly. Our
reserve for processing losses was $248,868 at September 30, 2015 and $272,365 at December 31, 2014, respectively.
Customer Deposits
Customer deposits include security deposits that we may require
for certain customers and cash held in transit that we collected on behalf of all of our customers via our ACH processing service.
The security deposit is used to offset any returned items or chargebacks to us and to indemnify us against third-party claims and
any expenses that may be created by the customer as a result of any claim or fine. We may revise the customer security deposit
based on periodic review of transaction volumes, amounts and chargebacks. Repayment of the deposit to the customer is generally
made within 90 to 180 days after the date on which the last item is processed by us. The security deposit does not accrue interest
to the benefit of the customer.
Bad Debts
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability or failure of our customers to make required payments. We determine the allowance for doubtful accounts
based on an account-by-account review, taking into consideration such factors as the age of the outstanding balance, historical
pattern of collections and financial condition of the customer. Past losses incurred by us due to bad debts have been within our
expectations. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to
make contractual payments, additional allowances might be required. Estimates for bad debt losses are variable based on the volume
of transactions processed and could increase or decrease accordingly. At September 30, 2015 and December 31, 2014, our allowance
for doubtful accounts was $37,029 and $45,663, respectively.
Valuation of Long-Lived and Intangible Assets
We assess the impairment of long-lived and intangible assets periodically,
or at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Factors considered important, which could trigger an impairment review, include the following: significant underperformance relative
to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy of the overall
business; and significant negative industry trends. When management determines that the carrying value of long-lived and intangible
assets may not be recoverable, impairment is measured as the excess of the assets’ carrying value over the estimated fair
value. No impairment losses were recorded in 2014 or during the nine months ended September 30, 2015. Management is
not aware of any impairment changes that may currently be required; however, we cannot predict the occurrence of events that might
adversely affect the reported values in the future.
Computer Software
We capitalize the costs associated with software being developed
or obtained for internal use when both the preliminary project stage is completed and it is probable that computer software being
developed will be completed and placed-in service. Capitalized costs include only (i) external direct costs of materials and services
consumed in developing or obtaining internal-use software, (ii) payroll and other related costs for employees who are directly
associated with and who devote time to the internal-use software project, and (iii) interest costs incurred, when material, while
developing internal-use software. We cease capitalization of such costs no later than the point at which the project is substantially
complete and ready for its intended purpose.
The unamortized amount of capitalized software was $504,845 as of
September 30, 2015 and $0 as of December 31, 2014. We amortize the software costs for internal use using the straight line method
over the expected life of the software, usually 3-5 years. Accumulated amortization of capitalized software was $0 at September
30, 2015 and $0 at December 31, 2014.
Income Taxes
Deferred tax assets and liabilities are recorded based on the difference
between financial reporting and tax bases of assets and liabilities and are measured by the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that
they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future
periods requires a great deal of judgment by management. U.S. generally accepted accounting principles prescribe a recognition
threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Income tax benefits that
meet the “more likely than not” recognition threshold should be recognized. Goodwill is amortized over 15 years for
tax purposes.
At December 31, 2014, we had available net operating loss carryforwards
of approximately $40.8 million, which expire beginning in the year 2020. Approximately $0.4 million of the total net operating
loss is subject to an IRS Section 382 limitation from 1999. However, we cannot predict with reasonable certainty that all of the
available net operating loss carryforwards will be realized in future periods. Accordingly, we recorded a valuation allowance of
$12.2 million. As of December 31, 2014 we recognized net deferred tax assets of $1.6 million.
Management does not anticipate a significant change in the 12 months
after the assessment and will review the deferred tax asset balance at December 31, 2015.
Management is not aware of any tax positions that would have a significant
impact on our financial position.
Results of Operations
Our revenues are principally derived from providing integrated electronic
payment services to merchants and businesses, including credit and debit card-based processing services and transaction processing
via the Automated Clearing House, or ACH, network and the program management and processing of prepaid debit cards. We also operate
an online payment processing service for consumers under the domain name www.billx.com and sell this service as a private-label
application to resellers. Revenues for the quarter ended September 30, 2015 decreased 1% to $3,550,463, as compared to $3,596,004
for the quarter ended September 30, 2014. Revenues for the nine months ended September 30, 2015 increased 11% to $10,717,679, as
compared to $9,631,000 for the nine months ended September 30, 2014. The decrease for the quarter ended September 30, 2015, as
compared to the same periods in the prior year, was due to fewer return transactions processed. The increase for the nine months
ended September 30, 2015, as compared to the same periods in the prior year, was due to the increases in the volume of credit card
and debit card processing transactions, ACH processing transactions, and return transactions processed.
Cost of services includes the cost of personnel dedicated to the creation
and maintenance of connections to third-party payment processors and the fees paid to such third-party providers for electronic
payment processing services. Through our contractual relationships with our payment processors and sponsoring banks, we are able
to process ACH and debit, credit or prepaid card transactions on behalf of our customers and their consumers. We pay volume-based
fees for debit, credit, ACH and prepaid transactions initiated through these processors or sponsoring banks, and pay fees for other
transactions such as returns, notices of change to bank accounts and file transmission. Cost of services decreased 4% to $2,336,270
for the quarter ended September 30, 2015, as compared to $2,440,410 for the same period in the prior year. Cost of services
increased 4% to $7,138,450 for the nine months ended September 30, 2015, as compared to $6,881,704 for the same period in the prior
year. The decrease for the quarter ended September 30, 2015, as compared to the same periods in the prior year, was due to the
decreases in the volume of credit card and debit card processing transactions, ACH processing transactions, and return transactions
processed. The increase for the nine months ended September 30, 2015, as compared to the same periods in the prior year, was due
to the increases in the volume of credit card and debit card processing transactions, and ACH processing transactions.
Stock-based compensation expenses were $338,488 and $965,544, respectively,
for the quarter and nine months ended September 30, 2015, and $72,995 and $223,985 for the same periods in the prior year. These
stock-based compensation expenses primarily represent the amortization of deferred compensation expenses related to incentive stock
awards granted to employees, officers, and directors. When Miguel Chapa and Kirk Taylor joined the Company as independent directors
on April 24, 2015 they were granted 500,000 shares each, which vest over 3 years.
Other expenses increased 92% to $758,573 for the quarter ended September
30, 2015, as compared to $395,623 for the same period in the prior year. Other expenses increased 44% to $1,695,415
for the nine months ended September 30, 2014, as compared to $1,180,882 for the same period in the prior year. The increase in
other selling, general and administrative expenses for the nine months ended September 30, 2015, as compared to the same period
in the prior year, represented an increase in legal and accounting fees of $150,000, salaries of approximately $120,000, costs
related to NASDAQ listing of approximately $90,000, employee bonus compensation of approximately $89,000, office rent expense of
approximately $24,000, director compensation of $23,000 and other expenses of approximately $14,000. The increase in other selling,
general and administrative expenses for the three months ended September 30, 2015, as compared to the same period in the prior
year, represented an increase in legal and accounting fees of $59,000, salaries of approximately $100,000, costs related to NASDAQ
listing of approximately $74,000, employee bonus compensation of approximately $46,000, office rent expense of approximately $10,000,
and other expenses of approximately $73,000.
Depreciation totaled $93,800 and $272,320 for the quarter and nine
months ended September 30, 2015, compared to $10,202 and $30,812 for the same periods in the prior year.
Other income (expense) were incomes $90,600 and $58,190 for the
quarter and nine months ended September 30, 2015 compared to incomes of $2,144 and $7,529 for the quarter and nine months ended
September 30, 2014. Other income (expense) primarily represented unrealized gains and (losses) on our marketable securities. In
the quarter ended September 30, 2015 we reversed an expense accrual of $91,598 because the statute of limitations had expired.
Interest income was $20,097 and $58,455, respectively, for the quarter
and nine months ended September 30, 2015, as compared to $18,642 and $47,729 for the same periods in the prior year. The increases
for the quarter and nine months ended September 30, 2015, as compared to the same periods in the prior year were primarily due
to the increase in interest earned on higher cash balances.
We reported net income of $117,780 and $851,246 for the quarter
and nine months ended September 30, 2015, as compared to net income of $688,560 and $1,337,101 for the same period in the prior
year.
Liquidity and Capital Resources
At September 30, 2015, we had $52,168,838 of cash and cash
equivalents, as compared to $54,989,851 of cash and cash equivalents at December 31, 2014. The decrease in cash for the nine
months ended September 30, 2015 was primarily due to customer deposit payables of $48,396,754 which represented a decrease of
$3,789,642 in customer deposit payables for 2015 that was due to reducing or eliminating cash reserve requirements we placed
on some of those customers.
Although we reported net income of $851,246 for the nine months
ended September 30, 2015 and $3,838,288 for year ended December 31, 2014 we still had an accumulated deficit of $49,219,841 at
September 30, 2015.
Additionally, we reported working capital of $4,054,799 and $2,854,080
at September 30, 2015 and December 31, 2014, respectively.
Net cash (used) provided by operating activities was $(2,067,996)
and $34,237,331 for the nine months ended September 30, 2015 and 2014, respectively. The decrease in net cash provided by operating
activities for the nine months ended September 30, 2015 as compared to the same period in the prior year was attributable to decrease
in cash provided by customer deposits of $36,996,285 which consisted of refunds of cash reserve requirements placed on certain
customers and net income of $851,246 as compared to $1,337,101 in 2014 and a non-cash expense of non-cash stock based compensation
of $965,544 as compared to $223,985.
Net cash used by investing activities was ($726,476) for the nine
months ended September 30, 2015, as compared to net cash used by investing activities of ($35,346) for the same period in the prior
year; the increase in net cash used for investing activities was due to investments made in internal use software. Net cash used
by financing activities was ($26,541) for the nine months ended September 30, 2015, as compared to net cash used by financing activities
of -0- for the same period in the prior year; the decrease in cash used for financing activities was used to purchase treasury
stock.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or
are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
As a smaller reporting company as defined by Rule 12b-2 of the Exchange
Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required
to provide the information requested by this Item.
Item 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period
covered by this quarterly report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officers
concluded that our disclosure controls and procedures as of September 30, 2015 were effective to ensure that information we are
required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure.
Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated
to our management. Our evaluation of disclosure controls and procedures included an evaluation of certain components of our internal
control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting
is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide
only reasonable, but not absolute, assurance that the control system's objectives will be met.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting
that occurred during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On December 18, 2014, Brightmoor Christian
Church filed a lawsuit in the United States District Court for the Eastern District of Michigan against us. The lawsuit alleged
that we did not warn or stop the processing of $181,709 in fraudulent credit transactions from occurring and Brightmoor incurred
losses. We believe that Brightmoor breached our processing agreement and that a security breach occurred because of the Brightmoor’s
lack of controls over the login and password information utilized by Brightmoor to process transactions, resulting in Brightmoor
becoming a victim of a malware attack. Our agreement with Brightmoor has a limitation of liability provision that allows
for our maximum liability to not exceed the amount of fees of a single month of service. Our unrecovered funds incurred
to-date for this dispute, not including attorney fees, are $13,710. On April 29, 2015, Brightmoor Church filed a notice of voluntary
dismissal, which the Court accepted on April 30, 2015, and dismissed the lawsuit without prejudice. On November 3, 2015, we filed
a lawsuit against Brightmoor Church in the District Court for the judicial district of Bexar County, Texas, alleging a breach
of contract by Brightmoor Church resulting in the fraudulent credit transactions described before and demanding payment of damages.
On June 26, 2015, Michael McFarland, derivatively
on behalf the Company, and individually on behalf of himself and all other similarly situated shareholders of the Company, filed
a class-action lawsuit in United States District Court, District of Nevada. The suit alleges breach of fiduciary duties and unjust
enrichment by the Company’s Board of Directors and certain executive officers and directors in connection with excessive
and unfair compensation paid or awarded during fiscal years 2013 and 2014. The lawsuit seeks disgorgement of excessive compensation
as well as damages in an unspecified amount. As of November 11, 2015, we have not yet been
served.
We believe the claims are without merit and it is unlikely that
a loss will be incurred, therefore we have not accrued for a potential loss. However, the outcomes of the disputes are still
uncertain and it is possible we may incur legal fees and losses in the future.
Aside from the lawsuits described above, we may be involved in legal
matters arising in the ordinary course of business from time to time. While we believe that such matters are currently not material,
there can be no assurance that matters arising in the ordinary course of business for which we are or could become involved in
litigation, will not have a material adverse effect on our business, financial condition or results of operations.
Item 1(A). RISK FACTORS.
Except as discussed below, there have been no material changes from
risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2014, as filed with
the Securities and Exchange Commission on March 30, 2015.
We are party to legal proceedings that could materially adversely
affect our financial condition and operating results if resolved unfavorably to us.
We are party to legal proceedings as described in Part II. Item
1. “Legal Proceedings” in this quarterly report on Form 10-Q that have not yet been fully resolved, and additional
claims may arise in the future. Results of legal proceedings are subject to significant uncertainty and, regardless of the merit
of the claims, litigation may be expensive, time-consuming, disruptive to our operations, and distracting to management.
Although management considers the likelihood of such an outcome
to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess
of management’s expectations, our consolidated financial statements for that reporting period could be materially adversely
affected. Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement
of revenue or profits, remedial corporate measures or injunctive relief against the Company that could materially adversely affect
our financial condition and operating results.
Our stock price could be adversely affected by the sale of shares
of common stock by stockholders.
Our long-time shareholder, Mr. Robert Evans, passed away in May
2015. The Estate of Mr. Robert Evans contacted us on September 18, 2015 regarding the sale of the shares of our common stock held
by the Estate. We believe the Estate of Mr. Evans holds 934,667 shares, or 8% of our outstanding stock. We will not receive proceeds
from the sale or other disposition of these shares of common stock being sold by the Estate of Mr. Evans. The sale of any large
block of our shares could adversely affect our stock price.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS.
During the three months ended September 30, 2015 and through the
current date we did not issue or sell any unregistered equity securities.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Item 5. OTHER INFORMATION.
On September 10, 2015, we issued 11,112 and 13,334 shares (after
1-for-15 reverse split) to Kirk Taylor and Miguel Chapa, respectively, under our 2015 Equity Incentive Plan, that vested on April
24, 2015.
Item 6. Exhibits.
Exhibit
Number |
|
Description |
3.1 |
|
Amended and Restated Articles of Incorporation (included as exhibit 3.1 to the Form 10-KSB filed March 31, 2006, and incorporated herein by reference). |
3.2 |
|
Amended and Restated By-laws (included as exhibit 3.2 to the Form 10-KSB filed March 31, 2006, and incorporated herein by reference). |
3.3 |
|
Articles of Amendment to the Amended and Restated By-laws (included as exhibit A to the Schedule 14C filed April 18, 2007, and incorporated herein by reference). |
3.4 |
|
Certificate of Amendment of Restated Articles of Incorporation, as amended, (included as exhibit 3.1 to Current Report on Form 8-K filed July 23, 2015, and included herein by reference). |
4.1 |
|
Amended and Restated 1999 Employee Comprehensive Stock Plan (included as exhibit 4.1 to the Form S-8 filed May 25, 2006, and incorporated herein by reference). |
4.2 |
|
Amended and Restated 1999 Non-Employee Director Plan (included as exhibit 10.2 to the Form 8-K filed January 3, 2006, and incorporated herein by reference). |
4.3 |
|
Employee Stock Purchase Plan (included as exhibit 4.3 to the Form S-8, File No. 333-30958, filed February 23, 2000, and incorporated herein by reference). |
4.4 |
|
Payment Data Systems, Inc. 2015 Equity Incentive Plan (included as appendix B to our definitive proxy statement on Form 14A, filed June 5, 2015, and incorporated herein by reference). |
10.1 |
|
Lease Agreement between the Company and Frost National Bank, Trustee for a Designated Trust, dated August 22, 2003 (included as exhibit 10.3 to the Form 10-Q filed November 14, 2003, and incorporated herein by reference). |
10.2 |
|
Employment Agreement between the Company and Michael R. Long, dated February 27, 2007 (included as exhibit 10.1 to the Form 8-K filed March 2, 2007, and incorporated herein by reference). |
10.3 |
|
Employment Agreement between the Company and Louis A. Hoch, dated February 27, 2007 (included as exhibit 10.2 to the Form 8-K filed March 2, 2007, and incorporated herein by reference). |
10.4 |
|
Affiliate Office Agreement between the Company and Network 1 Financial, Inc. (included as exhibit 10.11 to the Form SB-2 filed April 28, 2004, and incorporated herein by reference). |
10.5 |
|
Stock Purchase Agreement between the Company and Robert D. Evans, dated January 18, 2007 (included as exhibit 10.1 to the Form 8-K filed January 23, 2007, and incorporated herein by reference). |
10.6 |
|
Stock Purchase Agreement between the Company and Robert D. Evans, dated March 1, 2007 (included as exhibit 10.1 to the Form 8-K filed March 5, 2007, and incorporated herein by reference). |
10.7 |
|
First Amendment to Employment Agreement between the Company and Michael R. Long, dated November 12, 2009 (included as exhibit 10.15 to the Form 10-Q filed November 16, 2009, and incorporated herein by reference). |
10.8 |
|
First Amendment to Employment Agreement between the Company and Louis A. Hoch, dated November 12, 2009 (included as exhibit 10.16 to the Form 10-Q filed November 16, 2009, and incorporated herein by reference). |
10.9 |
|
Second Amendment to Employment Agreement between the Company and Michael R. Long, dated April 12, 2010 (included as exhibit 10.16 to the Form 10-K filed April 15, 2010, and incorporated herein by reference). |
10.10 |
|
Second Amendment to Employment Agreement between the Company and Louis A. Hoch, dated April 12, 2010 (included as exhibit 10.17 to the Form 10-K filed April 15, 2010, and incorporated herein by reference). |
10.11 |
|
Bank Sponsorship Agreement between the Company and University National Bank, dated August 29, 2011 (included as exhibit 10.18 to the Form 10-K filed April 3, 2012, and incorporated herein by reference). |
10.12 |
|
Third Amendment to Employment Agreement between the Company and Michael R. Long, dated January 14, 2011 (included as exhibit 10.19 to the Form 10-K filed April 3, 2012, and incorporated herein by reference). |
10.13 |
|
Third Amendment to Employment Agreement between the Company and Louis A. Hoch, dated January 14, 2011 (included as exhibit 10.20 to the Form 10-K filed April 3, 2012, and incorporated herein by reference). |
10.14 |
|
Fourth Amendment to Employment Agreement between the Company and Michael R. Long, dated July 2, 2012 (included as exhibit 10.18 to the Form 10-Q filed August 20, 2012, and incorporated herein by reference). |
10.15 |
|
Fourth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated July 2, 2012 (included as exhibit 10.19 to the Form 10-Q filed August 20, 2012, and incorporated herein by reference). |
10.16 |
|
Confidential Compromise Settlement Agreement and Full and Final Release by and between FiCentive, Inc. and SmartCard Marketing Systems, Inc., dated November 20, 2012 (included as exhibit 10.1 to the Form 8-K filed November 28, 2012). |
10.17 |
|
First Amendment to Lease Agreement dated August 22, 2003 between the Company and Frost National Bank, Trustee for a Designated Trust, dated February 6, 2006 (included as exhibit 10.17 to the Form 10-K filed April 1, 2013 and incorporated herein by reference). |
10.18 |
|
Second Amendment to Lease Agreement dated August 22, 2003 between the Company and Frost National Bank, Trustee for a Designated Trust, dated October 7, 2009 (included as exhibit 10.18 to the Form 10-K filed April 1, 2013 and incorporated herein by reference). |
10.19 |
|
Third Amendment to Lease Agreement dated August 22, 2003 between the Company and Frost National Bank, Trustee for a Designated Trust, dated October 12, 2013 (included as exhibit 10.19 to the Form 10-K filed April 1, 2013 and incorporated herein by reference). |
10.20 |
|
Asset Purchase Agreement, dated December 22, 2014, by and between Akimbo Financial, Inc. and Payment Data Systems, Inc. (included as exhibit 10.1 to the Form 8-K filed December 23, 2014, and incorporated herein by reference). |
10.21 |
|
Transition Agreement, dated December 22, 2014, by and between Akimbo Financial, Inc. and Payment Data Systems, Inc. (included as exhibit 10.2 to the Form 8-K filed December 23, 2014, and incorporated herein by reference). |
10.22 |
|
Employment Agreement, dated December 23, 2014, by and between Payment Data Systems, Inc. and Houston Frost (included as exhibit 10.3 to the Form 8-K filed December 23, 2014, and incorporated herein by reference). |
10.23 |
|
Employment Agreement, dated March 3, 2015, by and between Payment Data Systems, Inc. and Habib Yunus (included as exhibit 10.1 to the Form 8-K filed March 6, 2015, and incorporated herein by reference). |
10.24 |
|
Fourth Amendment to Lease Agreement, dated August 22, 2003, by and between Payment Data Systems, Inc. and Domicilio OC, LLC as successor-in-interest to Frost National Bank, dated February 12 2015 (included as exhibit 10.24 to the Form 10-K filed March 30, 2015, and incorporated herein by reference). |
10.25 |
|
Lease Agreement, dated February 12, 2015, by and between FiCentive, Inc. and Domicilio OC, LLC (included as exhibit 10.25 to the Form 10-K filed March 30, 2015, and incorporated herein by reference). |
10.26 |
|
Bank Sponsorship Agreement between the Company and Metropolitan Commercial Bank, dated December 11, 2014 (included as exhibit 10.26 to the Form 10-K filed March 30, 2015, and incorporated herein by reference). |
10.27 |
|
Independent Director Agreement, dated April 24, 2015, by and between Payment Data Systems, Inc. and Kirk Taylor (included as exhibit 10.27 to the Form 10-Q filed August 14, 2015, and incorporated herein by reference). |
10.28 |
|
Independent Director Agreement, dated April 24, 2015, by and between Payment Data Systems, Inc. and Dr. Peter Kirby (included as exhibit 10.28 to the Form 10-Q filed August 14, 2015, and incorporated herein by reference). |
10.29 |
|
Independent Director Agreement, dated April 24, 2015, by and between Payment Data Systems, Inc. and Miguel A. Chapa (included as exhibit 10.29 to the Form 10-Q filed August 14, 2015, and incorporated herein by reference). |
14.1 |
|
Code of Ethics (included as exhibit 14.1 to the Form 10-Q filed August 14, 2015, and incorporated herein by reference). |
16.1 |
|
Letter from Ernst and Young LLP to the Securities and Exchange Commission dated February 10, 2004 (included as exhibit 16 to the Form 8-K filed February 11, 2004, and incorporated herein by reference). |
31.1 |
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
31.2 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
32.1 |
|
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
101.INS |
XBRL Instance Document (filed herewith). |
101.SCH |
XBRL Taxonomy Extension Schema (filed herewith). |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase (filed herewith). |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase (filed herewith). |
101.LAB |
XBRL Taxonomy Extension Label Linkbase (filed herewith). |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase (filed herewith). |
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.
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Payment Data Systems, Inc. |
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Date: November 16, 2015 |
By: |
/s/ Michael R. Long |
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Michael R. Long |
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Chief Executive Officer |
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(Principal Executive Officer) |
21
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, Michael R. Long, certify that:
1. | | I have reviewed this Quarterly Report on Form 10-Q of Payment Data Systems, Inc. for
the quarter ended September 30, 2015; |
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. | | As the registrant’s certifying officer, I am 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 my supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to me 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 my 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 my 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 an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and |
5. | | As the registrant’s certifying officer, I have disclosed, based on my 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: November 16, 2015 |
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By: |
/s/ Michael R. Long
Michael R. Long
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, Habib Yunus, certify that:
1. | | I have reviewed this Quarterly Report on Form 10-Q of Payment Data Systems, Inc. for
the quarter ended September 30, 2015; |
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. | | As the registrant’s certifying officer, I am 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 my supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to me 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 my 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 my 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 an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and |
5. | | As the registrant’s certifying officer, I have disclosed, based on my 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: November 16, 2015 |
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By: |
/s/ Habib Yunus
Habib Yunus
Chief Financial Officer
(Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Payment Data Systems, Inc.,
a Nevada corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended September
30, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: November 16, 2015 |
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By: |
/s/ Michael R. Long
Michael R. Long
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
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Date: November 16, 2015 |
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By: |
/s/ Habib Yunus
Habib Yunus
Chief Financial Officer
(Principal Financial and Accounting Officer) |
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