Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form FORM 10-Q

(Mark One)

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

For the quarterly period ended SeptemberJune 30, 20172023

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 000-54123001-38623

3PEA INTERNATIONAL,PAYSIGN, INC.

(Exact name of small business issuerregistrant as specified in its charter)

1700 W Horizon Ridge2615 St. Rose Parkway Suite 201,,

Henderson, Nevada 8901289052

(Address of principal executive offices) (Zip code)

(702)453-2221

(Issuer’sRegistrant’s telephone number, including area code)

_______________________________________________________ 

                           N/A                           

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

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

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. Yesx ☒ Noo ☐

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).xYes ☒ No ☐

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

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.oAct ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso ☐ Nox ☒

StateIndicate the number of shares outstanding of each of the issuer’s classes of common equity,stock, as of the latest practicable date: 43,660,765 52,753,374 shares as of November 1, 2017.August 4, 2023.

3PEA INTERNATIONAL,PAYSIGN, INC.

FORM 10-Q REPORT

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

3PEA INTERNATIONAL,PAYSIGN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2017 AND DECEMBER 31, 2016

See accompanying notes to unaudited condensed consolidated financial statements.

3PEA INTERNATIONAL,

PAYSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016OPERATIONS

(UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements.

3PEA INTERNATIONAL,PAYSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016STOCKHOLDERS’ EQUITY

(UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements.

3PEA INTERNATIONAL,PAYSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITYCASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017(UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements.

3PEA INTERNATIONAL,PAYSIGN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(UNAUDITED)

See accompanying notes to consolidated financial statements.

3PEA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.     BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT POLICIES

The foregoing unaudited interim condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted accounting principlesin the United States of America (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of AmericaGAAP for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended December 31, 2016.2022. In the opinion of management, the unaudited interim condensed consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.

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

Operating results for the three and ninesix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2023.

About 3PEA International,Paysign, Inc.

3PEA International,Paysign, Inc. (the “Company,” “Paysign,” “we” or “our”) was incorporated on August 24, 1995, and trades under the symbol PAYS on The Nasdaq Stock Market LLC. Paysign is a vertically integrated provider of innovative prepaid card programs, comprehensive patient affordability offerings, digital banking services and integrated payment processing servicesdesigned for corporate, consumerbusinesses, consumers and government applications. Ourinstitutions. Headquartered in Nevada, the company creates customized, innovative payment solutions are utilized by our customers as a means to increase customer loyalty, reduce administration costsfor clients across all industries, including pharmaceutical, healthcare, hospitality and streamline operations. Public sector organizations can utilize our solutions to disburse public benefits or for internal payments. We market our prepaid debit card solutions under our PaySign^® brand. As we are a payment processor and debit card program manager, we derive our revenue from all stages of the debit card lifecycle. We provide a card processing platform consisting of proprietary systems and innovative software applications based on the unique needs of our programs. We have extended our processing business capabilities through our proprietary PaySign platform. We provide a variety of services including transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service.retail.

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

Our proprietary PaySign^® platform was built on modern cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform allows 3PEA to significantly expand its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility and ease of customization. The PaySign platform delivers cost benefits and revenue building opportunities to our partners.

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

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

Use of estimatesEstimates – The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, and(ii) the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and (iii) the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents – The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents for the purposes of the statement of cash flows. The Company had no cash equivalents at June 30, 2023 and December 31, 2022.

Restricted Cash – At June 30, 2023 and December 31, 2022, restricted cash consisted of funds held specifically for our card product and pharma programs that are contractually restricted to use. The Company includes changes in restricted cash balances with cash and cash equivalents when reconciling the beginning and ending total amounts in our condensed consolidated statements of cash flows.

Restricted cashConcentrations of Credit Risk – Restricted cash is a cash account controlled byFinancial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and restricted cash. The Company maintains its cash and cash equivalents and restricted cash in various bank accounts primarily with one financial institution in the United States which fundsat times, may exceed federally insured limits. If this financial institution were to be placed into receivership, we may be unable to access the cash we have on deposit. If we are received relatedunable to the card programs fromaccess our customers.cash and cash equivalents as needed, our financial position and ability to operate our business could be adversely affected. The Company has recorded a corresponding customer card funding liability. Restricted cash is not availableexperienced, nor does it anticipate, any losses with respect to such accounts. As of June 30, 2023 and December 31, 2022, the company for corporate use.Company had approximately $38,206,698 and $43,516,155 in excess of federally insured bank account limits, respectively.

GoodwillAs of June 30, 2023, the Company also has a concentration of accounts receivable risk, as two pharma program customers associated with our pharma patient affordability programs each individually represent 35% and intangible14% of our accounts receivable balance. Two pharma program customers each individually represented 35% and 24% of our accounts receivable balance on December 31, 2022.

Fixed Assets – Fixed assets - Goodwill are stated at cost less accumulated depreciation. Depreciation is principally recorded using the purchase premium after adjusting forstraight-line method over the fair value of net assets acquired. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit level. A reporting unit, as defined under applicable accounting guidance, is a business segment or one level below a business segment. We may in any given period bypass the qualitative assessment and proceed directly to a two-step method to assess and measure impairmentestimated useful life of the reporting unit’s goodwill. We first assess qualitative factorsasset, which is generally 3 to determine whether it10 years. The cost of repairs and maintenance is more likely-than-not (i.e., a likelihoodcharged to expense as incurred. Leasehold improvements are capitalized and depreciated over the shorter of more than 50 percent) that the fair valueremaining lease term or the estimated useful life of the improvements. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a reporting unitdepreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is less than its carrying value. This step serves as the basis for determiningreflected in other income (expense).

The Company periodically evaluates whether it is necessary to perform the two-step quantitative impairment test. The first step of the quantitative impairment test involves a comparisonevents and circumstances have occurred that may warrant revision of the estimated fair valueuseful life of each reporting unit to its carrying amount, including goodwill. Iffixed assets or whether the estimated fair valueremaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the reporting unit exceeds its carrying amount, goodwillrelated undiscounted cash flows over the remaining life of the reporting unit is not impaired; however, if the carrying amount of the reporting unit exceeds its estimated fair value, then the second step of the quantitative impairment test must be performed. The second step compares the implied fair value of the reporting unit’s goodwill with its carrying amount to measure the amount of impairment loss, if any. The implied fair value of goodwill is determinedfixed assets in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.measuring their recoverability.

Intangible Assets – For intangible assets, we recognizethe Company recognizes an impairment loss if the carrying amount of the intangible asset is not recoverable and exceeds its fair value. The carrying amount of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. No impairment was deemed necessary in the three and nine month period ended September 30,2017.

Intangible assets with a finite liveslife are amortized on a straight-line basis over theirits estimated useful lives.life, which is generally 3 to 15 years.

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

PlatformFor computer software developed or obtained for internal use, costs that are incurred in the preliminary project and Licensespost implementation stages of software development are comprised ofexpensed as incurred. Costs incurred during the application and development stage are capitalized. Capitalized costs associated with our development and continual development of our platformare amortized using the straight-line method over a three year estimated useful life, beginning in the period in which includes direct development costs,the software and licenses.is available for use.

RevenueContract Assets- Incremental costs to obtain or fulfill a contract with a customer are capitalized. The Company determines the costs that are incremental by confirming the costs (i) are directly related to a customer’s contract, (ii) generate or enhance resources to fulfill contract performance obligations in the future, and expense recognition – We recognize revenue(iii) are recoverable. Amortization is on a straight-line basis generally over three to five years, beginning when (1) there is persuasive evidence of an arrangement existing, (2) delivery has occurred, (3) our pricegoods and services are transferred to the buyer is fixedcustomer or determinable and (4) collectabilitygroup of the receivables is reasonably assured. We recognize the costs of these revenues at the time revenue is recognized. Any fees paid up front are deferred until such time such services have been considered rendered.customers.

Customer Card Funding – As of SeptemberJune 30, 20172023 and December 31, 2016, there were no deferred revenues recorded.2022, customer card funding represents funds loaded or available to be loaded on cards for the Company’s card product programs.

We generate the following types of revenues:

The Company records all revenues on gross basis in accordance with ASC 605-45 since it is the primary obligor and establishes the price in the revenue arrangement. The Company is currently under no obligation for refunding any fees or has any obligations for disputed claim settlements.

Earnings (loss) per share-Per Share – Basic earnings (loss) per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings (loss) per share is computed using the weighted-average number of outstanding common stocksshares outstanding during the applicable period. Diluted earnings per share is computed using the weighted-average number of common and common stock equivalent shares outstanding during the period.period using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect on the diluted earnings per share calculation is antidilutive.anti-dilutive.

Revenue and Expense Recognition – In determining when and how revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (i) identification of contracts with customers, (ii) determination of performance obligations, (iii) measurement of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company generates revenues from plasma card programs through fees generated from cardholder fees and interchange fees. Revenues from pharma card programs are generated through card program management fees, transaction claims processing fees, interchange fees, and settlement income.

Plasma and pharma card program revenues include both fixed and variable components. Cardholder fees represent an obligation to the cardholder based on a per transaction basis and are recognized at a point in time when the performance obligation is fulfilled. Card program management fees and transaction claims processing fees include an obligation to our card program sponsors and are generally recognized when earned on a monthly basis and are typically due within 30 days pursuant to the contract terms which are generally multi-year contracts. The Company uses the output method to recognize card program management fee revenue at the amount of consideration to which an entity has a right to invoice. The performance obligation is satisfied when the services are transferred to the customer which the Company determined to be monthly, as the customer simultaneously receives and consumes the benefit from the Company’s performance. Interchange fees are earned when customer-issued cards are processed through card payment networks as the nature of our promise to the customer is that we stand ready to process transactions at the customer’s requests on a daily basis over the contract term. Since the timing and quantity of transactions to be processed by us are not determinable, we view interchange fees to comprise an obligation to stand ready to process as many transactions as the customer requests. Accordingly, the promise to stand ready is accounted for as a single series performance obligation. The Company uses the right to invoice practical expedient and recognizes interchange fee revenue concurrent with the processing of card transactions. Interchange fees are settled in accordance with the card payment network terms and conditions, which is typically within a few days.

The Company utilizes the remote method of revenue recognition for settlement income whereby the unspent balances will be recognized as revenue at the expiration of the cards and the respective program. This has historically been associated with the pharma prepaid business which ended in 2022. The Company records all revenue on a gross basis since it is the primary obligor and establishes the price in the contract arrangement with its customers. The Company is currently under no obligation to refund any fees, and the Company does not currently have any obligations for disputed claim settlements. Given the nature of the Company’s services and contracts, generally it has no contract assets.

Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, program management, application integration setup, and sales and commission expense. 

Operating Leases – The Company determines if a contract is or contains a leasing element at contract inception or the date in which a modification of an existing contract occurs. In order for a contract to be considered a lease, the contract must transfer the right to control the use of an identified asset for a period of time in exchange for consideration. Control is determined to have occurred if the lessee has the right to (i) obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use and (ii) direct the use of the identified asset.

In determining the present value of lease payments at lease commencement date, the Company utilizes its incremental borrowing rate based on the information available, unless the rate implicit in the lease is readily determinable. The liability for operating leases is based on the present value of future lease payments. Operating lease expenses are recorded as rent expense, which is included within selling, general and administrative expenses within the consolidated statements of operations and presented as operating cash outflows within the consolidated statements of cash flows.

Reclassification

Leases with an initial term of prior year presentation - Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect12 months or less are not recorded on the reported results of operations or cash flows. Duringbalance sheet, with lease expenses for these leases recognized on a straight-line basis over the first quarter of 2017, the Company concluded that it was appropriate to reclassify its customer service center costs from general and administration expense to cost of sales for the three and nine months ended September 30, 2016. In the second quarter of 2017, the company concluded that it was appropriate to reclassify stock payable from liabilities to additional paid in capital for the three and nine month period ended September 30, 2017. These changes in classification does not affect previously reported cash flows from operations in the Consolidated Statement of Cash Flows, and had no effect on the previously reported net income of the Consolidated Statement of Income for any period.lease term.

Recent Accounting PronouncementsStock-Based Compensation – In November 2016,The Company recognizes compensation expense for all restricted stock awards and stock options. The fair value of restricted stock awards is measured using the FASB issued Accounting Standards Update 2016-18, “Statementgrant date trading price of Cash Flows – Restricted Cashour stock. The fair value of stock options is estimated at the grant date using the Black-Scholes option-pricing model, and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. We have elected to recognize compensation expense for all options with graded vesting on a consensusstraight-line basis over the vesting period of the FASB Emerging Issues Task Force.” This standard requires restricted cashentire option. The determination of fair value using the Black-Scholes option pricing model is affected by our stock price as well as assumptions regarding a number of complex and cash equivalents to be included with cashsubjective variables, including expected stock price volatility and cash equivalents on the statement of cash flows under a retrospective transition approach. The guidance became effective for fiscal years beginning December 15, 2017 and interim periods within those fiscal years. The Company has retrospectively adopted ASU 2016-18.risk-free interest rate.

Recently Adopted Accounting Pronouncements – In May 2014,June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides updated guidance on how an entity should measure credit losses on all financial instruments carried at amortized cost (including loans held for investment and held-to-maturity debt securities, as well as trade receivables, reinsurance recoverables, and receivables that relate to repurchase agreements and securities lending agreements), a lessor’s net investments in leases, and off-balance sheet credit exposures not accounted for as insurance or as derivatives, including loan commitments, standby letters of credit, and financial guarantees. Subsequently, in November 2018 the FASB issued ASU No. 2014-09,2018-19, RevenueCodification Improvements to Topic 326, Financial Instruments–Credit Losses, which clarified that receivables arising from Contracts with Customers (Topic 606)("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or servicesoperating leases are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be requirednot within the revenue recognition process than are required under existing GAAP. ASU 2014-09, as amended by ASU 2015-14,Revenue from Contractsscope of Subtopic 326-20, but instead should be accounted for in accordance with Customers (Topic 606): Deferral of the Effective Date, is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for annual reporting periods beginning after December 15, 2016. The FASB has also issued a number of additional technical corrections since the initial ASU, all of which follow the effective dates of the new revenue recognition guidance under Topic 606. The amendment allows companies to use either a full retrospective or a modified retrospective approach to adopt this ASU. We have formed a project team and are currently assessing the impact of the adoption of this principle on our consolidated financial statements. We anticipate adopting this ASU on January 1, 2018 using the modified retrospective approach, however, may opt for the full retrospective method depending on the final outcome of our evaluation.

842, Leases. In February 2016,March 2022 the FASB issued Accounting Standards UpdateASU No. 2016-02, Leases.2022-02, Financial Instruments—Credit Losses: Troubled Debt Restructurings and Vintage Disclosures which clarified accounting treatment required for trouble debt restructurings by creditors and enhanced disclosures for write-offs. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard isrelated amendments are effective for fiscal years beginning after December 15, 2018,2022, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Management is currently assessing theWe adopted this guidance; however, there was no material impact of this pronouncementadoption on the Company’s consolidated financial statements.position, results of operations, or cash flows.

2.     FIXED ASSETS, NET

Fixed assets consist of the following:

Fixed assets are depreciated over their useful lives ranging from periods of 3 to 7 years.Depreciation expense for the three months ended June 30, 2023 and 2022 was $107,615 and $134,253, respectively. Depreciation expense for the six months ended June 30, 2023 and 2022 was $215,961 and $270,222, respectively.

3.     INTANGIBLE ASSETS, NET

Intangible assets consist of the following:

Intangible assets are amortized over their useful lives ranging from periods of 3 to 5 years.15 years. Amortization expense for the three months ended June 30, 2023 and 2022 was $850,386 and $578,927, respectively. Amortization expense for the six months ended June 30, 2023 and 2022 was $1,587,056 and $1,122,129, respectively.

4.     NOTES PAYABLELEASE

Notes payable consistThe Company entered into an operating lease for office space which became effective in June 2020. The lease term is 10 years from the effective date and allows for two optional extensions of five years each. The two optional extensions are not recognized as part of the following:

5.     COMMON STOCKright-of-use asset or lease liability since it is not reasonably certain that the Company will extend this lease. As of June 30, 2023, the remaining lease term was 6.91 years and the discount rate was 6%.

At SeptemberOperating lease cost included in selling, general and administrative expenses was $196,214 and $379,435 for the three and six months ended June 30, 2017,2023, respectively. Operating lease cost included in selling, general and administrative expenses was $184,329 and $367,550 for the Company's authorized capital stock was 150,000,000 shares of common stock, par value $0.001 per share,three and 10,000,000 shares of preferred stock, par value $0.001 per share. On that date, the Company had outstanding 43,660,765 shares of common stock, and no shares of preferred stock.six months ended June 30, 2022, respectively.

2017 Transactions: DuringThe following is the nine months ended Septemberlease maturity analysis of our operating lease as of June 30, 2017, the Company issued shares of common stock as follows:2023:

Year ending December 31,

2016 Transactions: During5.     CUSTOMER CARD FUNDING LIABILITY

The Company issues prepaid cards with various provisions for cardholder fees or expiration. Revenue generated from cardholder transactions and interchange fees are recognized when the nineCompany’s performance obligation is fulfilled. Unspent balances left on pharma cards are recognized as settlement income at the expiration of the cards and the program. Contract liabilities related to prepaid cards represent funds on card and client funds held to be loaded to card before the amounts are ultimately spent by the cardholders or recognized as revenue by the Company. Contract liabilities related to prepaid cards are reported as Customer card funding liability on the condensed consolidated balance sheet.

The opening and closing balances of the Company's contract liabilities are as follows:

The amount of revenue recognized during the six months ended SeptemberJune 30, 2016,2023 and 2022 that was included in the Company issuedopening contract liability for prepaid cards was $2,020,224 and $1,485,005 respectively.

6.     COMMON STOCK

At June 30, 2023, the Company's authorized capital stock was 150,000,000 shares of common stock, as follows:

Stock and Warrant Grants:25,000,000 shares of preferred stock, par value $0.001 per share. On that date, the Company had 52,842,382 shares of common stock issued and 52,219,374 shares of common stock outstanding, and no shares of preferred stock outstanding.

In July 2017 theStock-based compensation expense related to Company granted 200,000 shares of restricted common stock to an employee of the Company with a total value of $84,400 or $0.422 per share. These shares have been issued. Concurrently, the Company also granted the employee four equal tranches of 200,000 restricted common shares, each valued at $84,400 which will vest in equal amounts over a four year period on the last day of each quarter, commencing December 31, 2017. None of these shares have been issued.

In November 2016, the Company granted a total of 5,000,000 shares to certain officers and directors of the Company with a total value of $787,950 or $0.15759 per share (including a 15% discount of fair market value due to these shares being restricted and lacking market liquidity). The 5,000,000 shares have a quarterly vesting period of five years with the first vesting period occurring on December 31, 2016. The approximate value vestedgrants for the three and ninesix months ended SeptemberJune 30, 20172023 was $39,397 $830,426 and $118,191$1,448,670, respectively. As of September 30, 2017, none of the shares have been issued.

In November 2016, the Company granted 210,000 shares to a consultant. The shares were valued at $33,094 or $0.15759 per share (including a 15% discount of fair market value due to these shares being restricted and lacking market liquidity). The 210,000 shares have a quarterly vesting period of three years with the first vesting period occurring on December 31, 2016. The approximate value vestedStock-based compensation expense for the three and ninesix months ended SeptemberJune 30, 20172022 was $2,758$488,287 and $8,274,$1,057,789, respectively. The approximate value vested for 2016 is $2,758. As of September 30, 2017, none of the shares have been issued.

In March 2015,2023 Transactions: During the three and six months ended June 30, 2023 the Company granted 200,000issued 74,000 and 192,000 shares of common stock along with 200,000 warrants tofor vested stock awards and the exercise of stock options. The Company received proceeds of $9,600 for the exercise of stock options.

During the three and six months ended June 30, 2023 the Company repurchased 119,558 and 319,558 shares of its common stock at a consultant. The shares were valued at $30,600cost of $311,649 or $0.16weighted average price of $2.61 and $977,667 or weighted average price of $3.06 per share, (including a 15% discount of fair market value due to these shares beingrespectively.

The Company also granted 80,000 and 350,000 restricted and lacking market liquidity). The warrants were valued at $34,611, usingstock awards during the Black-Scholes options pricing model under the following assumptions: stock price at issuance of $0.18 per share; exercise price of $0.50, 3 year life; discount rate of 2.00%;three and volatility rate of 245%. The 200,000 shares and 200,000 warrants granted have a vesting period of six months and were fully vested as of March 31, 2016. As of March 31, 2017, the 200,000 shares have been issued and the warrants for 200,000 shares were granted.ended June 30, 2023.

In August 2014,2022 Transactions: During the three and six months ended June 30, 2022 the Company granted 150,000issued 105,000 and 228,000 shares, respectively, of common stock to a consultant with a total valuefor vested stock awards and received proceeds of $25,500 or $0.17 per share (including a 15% discount of fair market value due to these shares being$0 and $0, respectively.

The Company also granted 0 and 100,000 restricted and lacking market liquidity). The 150,000 shares granted have a vesting period of three years and is fully vested as of September 30, 2017. The approximate value vested forstock awards during the three and ninesix months ended SeptemberJune 30, 2017 and 2016 was $2,100, and $6,300, respectively. As of September 30, 2017, 100,000 shares granted have been issued.

In September 2014, the Company granted 150,000 shares of common stock along with 150,000 Class A warrants and 150,000 Class B warrants to an advisory board member. The shares were valued at $19,250 or $0.13 per share (including a 15% discount of fair market value due to these shares being restricted and lacking market liquidity. The warrants were valued at $42,761, using the Black-Scholes options pricing model under the following assumptions: stock price at issuance of $0.15 per share; exercise price of $0.25 for the Class A warrants and $0.50 for the Class B warrants; 3 year life; discount rate of 2.00%; and volatility rate of 245%. The 150,000 shares and 300,000 warrants granted vest over a 3 year period, at 50,000 shares and 100,000 warrants per year of which thirty-six months had vested as of September 30, 2017. The approximate value vested for the three months ended September 30, 2017 and 2016 $5,100 respectively and for the nine months ended September 30, 2017 and 2016 was $14,200 and $15,300, respectively. As of September 30, 2017, all of the 150,000 shares were issued and the 300,000 warrants granted have expired.

In September 2014, the Company granted 200,000 shares of common stock along with 200,000 warrants to a consultant. The shares were valued at $30,600 or $0.16 per share (including a 15% discount of fair market value due to these shares being restricted and lacking market liquidity). The warrants were valued at $34,611, using the Black-Scholes options pricing model under the following assumptions: stock price at issuance of $0.18 per share; exercise price of $0.25; 3 year life; discount rate of 2.00%; and volatility rate of 245%. The 200,000 shares and 200,000 warrants granted had a vesting period of nine months and were fully vested as March 31, 2015. During the three months ended March 31, 2016 the company had issued the 200,000 shares and warrant for 200,000 shares of common stock. As of September 30, 2017, warrants relating to 200,000 shares have been exercised for total proceeds of $50,000.2022.

In October 2014, the Company granted 150,000 shares of common stock to an advisory board member with a total value of $32,400 or $0.21 per share (including a 10% discount of fair market value due to these shares being restricted and lacking market liquidity). The 150,000 shares granted will vest over a 3 year period, at 50,000 shares per year and is fully vested as of September 30, 2017. The approximate value vested for the three months and nine months ended September 30, 2017 and 2016 was $2,700 and $8,100, respectively. As of September 30, 2017, all 150,000 of the shares have been issued.7.     BASIC AND FULLY DILUTED NET LOSS PER COMMON SHARE

In November 2014,The following table sets forth the Company issued a warrant for 100,000 sharescomputation of basic and fully diluted net loss per common stock as part of an issuance of note payable totaling $100,000. The warrant has an exercise price of $0.50 per share and life of three years.

In October 2013, the Company granted 300,000 shares of common stock to an employee of the Company with a total value of $38,250 or $0.15 per share (including a 15% discount of fair market value due to these shares being restricted and lacking market liquidity). The 300,000 shares granted have a vesting period of three years and was fully vested as of October 2016. The approximate value vested for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022:

The potential common share equivalents are not added to the denominator for three and six months ended June 30, 2023 and 2022 because the inclusion was $0.00anti-dilutive, and $3,200, respectively. Astherefore, all such shares were excluded from the computation of March 31, 2017, all 300,000diluted weighted average shares granted have been issued.outstanding for both periods.

6.     LEGAL SETTLEMENT PAYABLE8.     COMMITMENTS AND CONTINGENCIES

On August 11, 2015, PSKW, LLC (“PSKW”) servedFrom time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

The Company withhas been named as a complaint titledPSKW, LLC v. 3Pea International, Inc.,defendant in three complaints filed in the United States District Court for the Northern District of California, Case No. 5:15-cv-03576-RMW, San Jose Division (the “Action”Nevada: Yilan Shi v. Paysign, Inc. et. al., filed on March 19, 2020 (“Shi”), Lorna Chase v. Paysign, Inc. et. al., filed on March 25, 2020 (“Chase”), and Smith & Duvall v. Paysign, Inc. et. al., filed on April 2, 2020 (collectively, the “Complaints” or “Securities Class Action”). InSmith & Duvall v. Paysign, Inc. et. al. was voluntarily dismissed on May 21, 2020. On May 18, 2020, the Action, PSKW asserted claims againstShi plaintiffs and another entity called the Paysign Investor Group each filed a motion to consolidate the remaining Shi and Chase actions and to be appointed lead plaintiff. The Complaints are putative class actions filed on behalf of a class of persons who acquired the Company’s common stock from March 19, 2019 through March 31, 2020, inclusive. The Complaints generally allege that the Company, for $5,800,000 for marketing fees allegedly due by the Company. The Company contended, among other things, that PSKW breached its agreement with the Company, for which the Company was damaged in an amount in excessMark R. Newcomer, and Mark Attinger violated Section 10(b) of the amount which PSKW claimed was owed by the Company to PSKW. The parties each denied liability,Exchange Act, and entered into a Settlement Agreementthat Messrs. Newcomer and Release on October 2, 2015 whereby the Company agreed to pay $2,500,000 to PSKW in full settlementAttinger violated Section 20(a) of the Action.Exchange Act, by making materially false or misleading statements, or failing to disclose material facts, regarding the Company’s internal control over financial reporting and its financial statements. The settlement amount was payable byComplaints seek class action certification, compensatory damages, and attorney’s fees and costs. On December 2, 2020, the Court consolidated Shi and Chase as In re Paysign, Inc. Securities Litigation and appointed the Paysign Investor Group as lead plaintiff. On January 12, 2021, Plaintiffs filed an initial payment of $1,000,000Amended Complaint in the consolidated action. Defendants filed a Motion to Dismiss the Amended Complaint on March 15, 2021, which was paidPlaintiffs opposed via an opposition brief filed on April 29, 2021, to which Defendants replied on June 1, 2021. On February 9, 2023, the Court granted in October 2015, with the balance of $1,500,000 being payablepart and denied in equal monthly installments over 18 months with interest at 3% per annum commencing on November 1, 2015. The Court dismissed the Action with prejudice, but retained jurisdictionpart Defendants’ Motion to enforce the Settlement Agreement. 3Pea Technologies, Inc., a wholly-owned subsidiary of the Company, guaranteed the amount due under the Settlement Agreement. The Company expensed the entire $2,500,000 settlement during the year ended December 31, 2015 since the principal terms of the Settlement Agreement had been agreed to as of that date.Dismiss. As of March 31, 2017, the settlement was paid in full.

7.    SUBSEQUENT EVENTS

There were no reportable subsequent events after September 30, 2017 through the date of this filing.filing, the Company cannot give any meaningful estimate of likely outcome or damages.

The Company has also been named as a nominal defendant in two stockholder derivative actions in the United States District Court for the District of Nevada. The first derivative action is entitled Andrzej Toczek, derivatively on behalf of Paysign, Inc. v. Mark R. Newcomer, et al. and was filed on September 17, 2020. This action alleges violations of Section 14(a) of the Exchange Act, breach of fiduciary duty, unjust enrichment, and waste, largely in connection with the failure to correct information technology controls over financial reporting alleged in the Securities Class Action, thereby causing the Company to face exposure in the Securities Class Action. The complaint also alleges insider trading violations against certain individual defendants. On December 16, 2020, the Court approved a stipulation staying the action until the Court in the consolidated Securities Class Action issues a ruling on the Motion to Dismiss. The second derivative action is entitled John K. Gray, derivatively on behalf of Paysign, Inc. v. Mark Attinger, et al. and was filed on May 9, 2022. This action involves the same alleged conduct raised in the Toczek action and asserts claims for breach of fiduciary duty in connection with financial reporting, breach of fiduciary duty in connection with alleged insider trading against certain individual defendants, and unjust enrichment. On June 3, 2022, the Court approved a stipulation staying the action until the Court in the consolidated Securities Class Action issues a ruling on the Motion to Dismiss. On May 10, 2023, the Toczek and Gray actions were consolidated. The Company anticipates filing motions to dismiss given the ruling on the Motion to Dismiss in the consolidated cases. As of the date of this filing, the Company cannot give any meaningful estimate of likely outcome or damages.

9.     RELATED PARTY

A former member of our Board of Directors who served through December 31, 2022 is also a partner in a law firm that the Company engages for services to review regulatory filings and for various other legal matters. During the three and six months ended June 30, 2022, the Company incurred legal expenses of $41,019 and 81,753, respectively, with the related party law firm.

10.   INCOME TAX

The effective tax rate (income tax provision as a percentage of loss before income tax provision) was (126.3%) for the three months ended June 30, 2023, as compared to (13.4%) for the three months ended June 30, 2022. The effective tax rate was (29.2%) and (5.7%) for the six months ended June 30, 2023 and 2022, respectively. The effective tax rates vary, primarily as a result of the full valuation on our deferred tax asset in the current year and the tax benefit related to our stock-based compensation expense and a pretax loss in the prior year period.

Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law in 2020 and the subsequent extension of the CARES Act through September 30, 2021, the Company was eligible for a refundable employee retention credit subject to certain criteria. The Company has elected an accounting policy to recognize the government assistance when it is probable that the Company is eligible to receive the assistance and present the credit as a reduction of the related expense. As of June 30, 2023 and December 31, 2022, the Company recorded $836,734 and $1,296,488, respectively in other receivables on the condensed consolidated balance sheet related to U.S. Federal Government refunds.

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

Disclosure Regarding Forward LookingForward-Looking Statements

This Quarterly Report on Form 10-Q includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Forward LookingForward-Looking Statements”). All statements other than statements of historical fact included in this report are Forward LookingForward-Looking Statements. These Forward-Looking Statements are based on our current expectations, assumptions, estimates and projections about our business and our industry. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “propose,” “may,” and other similar expressions identify Forward-Looking statements. In the normal course of our business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time-to-time issue certain statements, either in writing or orally, that containscontain, or may contain, Forward-Looking Statements. Although we believe that the expectations reflected in such Forward-Looking Statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Generally, theseIn addition, any statements relatethat refer to business plans or strategies, projected or anticipated benefitsexpectations, projections, estimates, forecasts, or other consequencescharacterizations of such plansfuture events or strategies, past and possible future, of acquisitions and projected or anticipated benefits from acquisitions made by or to be made by us, or projections involving anticipated revenues, earnings, levels of capital expenditures or other aspects of operating results. All phases of our operationscircumstances are Forward-Looking Statements. These Forward-Looking Statements are subject to a number of uncertainties,certain risks and other influences, many of which are outside of our control and any one of which, or a combination of which,uncertainties that could cause actual results to differ materially affectfrom those reflected in the results of our proposed operations and whether Forward Looking Statements made by us ultimately prove to be accurate.Forward-Looking Statements. Such important factors (“Important Factors”) and other factors could cause actual results to differ materially from our expectations are disclosed in this report, including those factors discussed in “Item“Part II - Item 1A. Risk Factors.” All prior and subsequent written and oral Forward LookingForward-Looking Statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Important Factors described below that could cause actual results to differ materially from our expectations as set forth in any Forward LookingForward-Looking Statement made by or on behalf of us. You are cautioned not to place undue reliance on these Forward-Looking Statements, which relate only to events as of the date on which the statements are made. We undertake no obligation to publicly revise these Forward-Looking Statements to reflect events or circumstances that arise after the date hereof. You should refer to and carefully review the information in future documents we file with the Securities and Exchange Commission.

Overview

Overview

3PEA International,Paysign, Inc. is(the “Company,” “Paysign,” “we” or “our”), headquartered in Nevada, was incorporated on August 24, 1995, and trades under the symbol PAYS on The Nasdaq Stock Market LLC. We are a vertically integrated provider of innovative prepaid card programsproducts and processing services for corporate, consumer and government applications. Our payment solutions are utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence rates, reduce administration costs and streamline operations. Public sector organizations can utilize theour payment solutions to disburse public benefits or for internal payments. We market our prepaid debit card solutions under our PaySignPaysign® brand. As we are a payment processor and debitprepaid card program manager, we derive our revenue from all stages of the debitprepaid card lifecycle.

We operate on a powerful, high-availability payments platform with cutting-edge fintech capabilities that can be seamlessly integrated with our clients’ systems. This distinctive positioning allows us to provide a card processing platform consisting of proprietary systems and innovative software applications based on the unique needs of our programs. We have extended our processing business capabilities through our proprietary PaySign platform. Through the PaySign platform, we provide a variety of services includingend-to-end technologies that securely manage transaction processing, cardholder enrollment, value loading, cardholder account management, reporting,data and analytics, and customer service. Our architecture is known for its cross-platform compatibility, flexibility, and scalability – allowing our clients and partners to leverage these advantages for cost savings and revenue opportunities.

The PaySign platform was built on modern cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform has allowed 3PEA to significantly expand its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility and easeOur suite of customization. The PaySign platform delivers cost benefits and revenue building opportunities to our partners.

We have developed prepaid card programsproduct offerings include solutions for corporate and incentive rewards, including, but not limited toprepaid gift cards, general purpose reloadable debit cards, employee incentives, consumer rebates, donor compensation, clinical trials, healthcare reimbursement payments and pharmaceutical co-paypayment assistance, donor compensation and automobile dealership incentives. We are expandingdemand deposit accounts accessible with a debit card. In the future, we expect to further expand our product offering to include additional corporate incentive products, payroll cards, general purpose re-loadable cards,into other prepaid card offerings such as travel cards and expense reimbursement cards. Our cards are offered to end users throughsponsored by our relationships withissuing bank issuers.partners.

We are a vertically integrated payment processor and debitOur revenues include fees generated from cardholder fees, interchange, card program manager offering innovative payment solutions to corporations, government agencies, universitiesmanagement fees, transaction claims processing fees, and other organizations. Our payment solutions are utilized by our customers as a means to increase customer loyalty, reduce administration costs and streamline operations. We market our prepaid debit card solutions under our PaySign brand. As we are a payment processor and debitsettlement income. Revenue from cardholder fees, interchange, card program manager, we derive our revenue from all stagesmanagement fees, and transaction claims processing fees is recorded when the performance obligation is fulfilled. Settlement income is recorded at the expiration of the debit card lifecycle. These revenues can include fees from program set-up; customization and development; data processing and report generation; card production and fulfillment; transaction fees derived from card usage; inactivity fees; card replacement fees and program administration fees. We provide an in-house customer service centerrelates solely to our pharma prepaid business which includes live bi-lingual phone operators staffed 24/7, for incoming calls. We also provideended in house Interactive Voice Response (IVR), SMS alerts and two way SMS messaging platforms.2022.

We are a vertically integrated payment processor and debit card program manager offering innovative payment solutions to corporations, government agencies, universities and other organizations. Our payment solutions are utilized by our customers as a means to increase customer loyalty, reduce administration costs and streamline operations. We markethave two categories for our prepaid debit card solutions under our PaySign brand. As we are a payment processor and debit card program manager, we derive our revenue from all stages of the debit card lifecycle. These revenues can include fees from program set-up; customization and development; data processing and report generation; card production and fulfillment; transaction fees derived from card usage; inactivity fees; card replacement fees and program administration fees. We provide an in-house customer service center which includes live bi-lingual phone operators staffed 24/7, for incoming calls. We also provide in house Interactive Voice Response and two way SMS messaging platforms.

The Company divides prepaid cards into two general categories:cards: (1) corporate and consumer reloadable cards, and (2) non-reloadable cards.

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

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

These prepaidBoth reloadable and non-reloadable cards may be open loop, closed loopopen-loop, closed-loop, or semi-closed loop. Open looprestricted-loop. Open-loop cards can be used to receive cash at ATM locations by PIN; or purchase goods or services by PIN or signature at retail locations. These cards can be usedlocations virtually anywhere that the network brand (Visa, MasterCard,(American Express, Discover, Mastercard, Visa, etc.) is accepted. Closed loopClosed-loop cards can only be used at a specific merchant. Semi-closed loopRestricted-loop cards can be used at several merchants, or a defined group of merchants, such as all merchants at a specific shopping mall.

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

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

Our products and services are aimed at capitalizing on the growing demand for stored value and reloadable ATM/prepaid card financial products in a variety of market niches. Our proprietary platform is scalable and customizable, delivering cost benefits and revenue building opportunities to partners. We manage all aspects of the debitprepaid card lifecycle, from managing the card design and approval processes with banking partners and card associations,networks, to production, packaging, distribution, and personalization. We also oversee inventory and security controls, renewals, lost and stolen card management, and replacement. We deploy a 24/7/365 fully staffed, in-house customer service department which utilizes bilingual customer service representatives, Interactive Voice Response, and two-way short message service messaging and text alerts.

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

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

The Company is devotingWe have devoted more extensive resources to sales and marketing activities as we have added essential personnel to our marketing, sales and support teams. We market our Paysign payment solutions through direct marketing by the Company’s sales department.team. Our primary market focus is on companies that require a streamlined payment solution for rewards, rebates, payment assistance, and other payments to their customers, employees, agents and others. To reach these markets, we focus our sales efforts on direct contact with our target market and attendance at various industry specific conferences. We sellmay, at times, utilize independent contractors who make direct sales and are paid commissions and/or restricted stock awards. We market our products directlyPaysign Premier product through existing communication channels to customers in the U.S. but may worka targeted segment of our existing cardholders, as well as to a broad group of individuals, ranging from non-banked to fully banked consumers with a small numberfocus on long term users of resellers and third parties in international markets to identify, sell and support targeted opportunities.

our product.

In orderFor the remainder of 2023, we plan to expand into new markets, we will needcontinue to invest additional funds in technology improvements, sales and marketing, expenses,customer service, and regulatory compliance costs. We are consideringcompliance. From time to time, we evaluate raising capital to enable us to diversify into new market verticals. If we do not raise new capital, we believe that we will still be able to support our existing business and expand into new vertical markets using internally generated funds, but our expansion will not be as rapid.funds.

Results of Operations

Comparison of the Three Months ended SeptemberEnded June 30, 2017 and 20162023 to the Three Months Ended June 30, 2022

RevenuesThe following table summarizes our consolidated financial results for the three months ended SeptemberJune 30, 2017 were $4,001,991, an2023 in comparison to the three months ended June 30, 2022:

The increase in total revenues of $1,189,455$2,442,275 for the three months ended June 30, 2023 compared to the same period in the prior year when revenues were $2,812,536.consisted primarily of a $2,208,260 increase in Plasma revenue, a $44,075 decrease in Pharma revenue, and a $278,090 increase in Other revenue. The increase in Plasma revenue iswas primarily due to an increase in the number of plasma centers and donations, and, consequently, dollars loaded to cards, cardholder fees, and interchange, as there continues to be an increase in demand for plasma driven by global increases of plasma protein therapies. The decrease in Pharma revenue was primarily due to the end of our pharma prepaid programs in 2022, offset by the launch of new corporate incentivepharma patient affordability programs. The increase in Other revenue was primarily due to the launch of new payroll, retail programs, and other prepaid card products and growth within our existing corporate incentive prepaid card products. However, our revenue during this period was slightly impacted by diminished card usage in areas affected by hurricanes in Texas and Florida. As of September 30, 2017, we managed 175 card programs with over 1,390,000 participating cardholders.disbursement programs.

The Company expects revenues to continue to trend upwards for the foreseeable future as we expect to onboard over 35 additional corporate incentive card programs in the fourth quarter of 2017.

Cost of revenues for the three months ended SeptemberJune 30, 2017 were $2,145,621, an increase of $623,1632023 increased $1,524,346 compared to the same period in the prior year, when cost of revenues was $1,522,458. Cost of revenues constituted approximately 54% and 54% of total revenues in the same quarter 2017 and 2016, respectively. Although cost of revenues remained relatively constant when compared to the same period in the previous year, cost of revenue in the period ended September 30, 2017 was impacted by costs associated with program set up and launch.year. Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, and program management, expenses, application integration setup, and sales and commission expense. Cost of revenues increased during the second quarter of 2023 primarily due to an increase in cardholder usage activity and associated network expenses such as interchange and ATM costs, an increase in plastics and collateral related to an increase in the number of unique card loads, an increase in network expenses and sales commissions related to the growth in our pharma patient affordability business, a new direct network connection with Mastercard, and an increase in customer service expenses associated with wage inflation pressures and the overall growth in our business, offset by a decline in postage.

Gross profit for the three months ended SeptemberJune 30, 2017 was $1,856,370, an increase of $566,2922023 increased $917,929 compared to the same period in the prior year whenresulting primarily from the increase in Plasma revenue and the beneficial impact of a variable cost structure as many of the plasma transaction costs are variable in nature which are provided by third parties who charge us based on the number of active cards outstanding and the number of transactions that occurred during the period. The increase in gross profit was $1,290,078. Our overall gross profit percentage approximated 46%offset by the termination of our pharma prepaid business in 2022, price increases by many of our third party service providers, a new direct network connection with Mastercard, and 46% during the second quarters of 2017 and 2016 which is consistent with our overall expectations.

Depreciation and amortization for the three months ended September 30, 2017 were $276,533, an increase of $127,191 compared to the same period prior year of $149,342. Overall increase in depreciation and amortization was primarily a result of an increase in depreciation related to an increasecustomer service expenses mentioned above. The decrease in capital expenditures and amortization expense related to additional capitalized platform costs.gross margin resulted from the aforementioned factors.

Selling, general and administrative expenses (“SG&A”) for the three months ended SeptemberJune 30, 2017 were $1,104,280, an increase of $443,7242023 increased $1,048,649 compared to the same period in the prior year when selling, general and administrative expenses were $660,556. Theconsisted primarily of an increase in selling, generalcompensation and administrative expenses wasbenefits of approximately $690,000 due to increasescontinued hiring to support the Company’s growth, a tight labor market and increased personnel insurance costs, an increase in staff as we experiencedstock based compensation expense of approximately $340,000, and an accelerated rateincrease in non-IT outside professional services of new card product launchesapproximately $235,000. This increase was offset by a $210,000 increase in the second halfamount of 2017.capitalized platform development costs and a decrease in all other operating expenses of approximately $8,000.

InDepreciation and amortization expense for the three months ended SeptemberJune 30, 2017, we recorded operating income of $475,557, as2023 increased $244,821 compared to $480,180 in the same period in the prior year,year. The increase in depreciation and amortization expense was primarily due to continued capitalization of new software development costs and equipment purchases related to the continued enhancements to our processing platform.

For the three months ended June 30, 2023, we recorded a loss from operations of $646,886 representing a decrease in operating incomedecline of $(4,623).$375,541 compared to a loss from operations of $271,345 during the same period last year related to the aforementioned factors.

Other income (expense) for the three months ended SeptemberJune 30, 2016 was $14,3982023, increased $530,640 primarily related to an increase in interest rates and the associated interest income received on higher bank account balances at our sponsor bank.

We recorded an income tax expense of $58,137 for the three months ended June 30, 2023, which equates to an effective tax rate of (126.3%) primarily as a result of state taxes, the full valuation on our deferred tax asset, the tax benefit related to our stock-based compensation expense and the pretax loss during the period. We recorded an income tax expense of $26,916 for the three months ended June 30, 2022, which equates to an effective tax rate of (13.4%) primarily as a result of the full valuation on our deferred tax asset, the tax benefit related to our stock-based compensation expense and the pretax loss during the period.

The net other income (expense)loss for the three months ended June 30, 2023 was $104,156, an improvement of $29,895$123,878 compared to the net loss of $228,034 for the three months ended June 30, 2022. The overall change in net loss relates to the aforementioned factors.

Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022

The following table summarizes our consolidated financial results for the six months ended June 30, 2023 in comparison to the six months ended June 30, 2022: