USIO Payment Data Systems

Document And Entity Information

Document And Entity Information - shares3 Months Ended
Mar. 31, 2018May 09, 2018
Document And Entity Information
Entity Registrant NamePAYMENT DATA SYSTEMS INC
Entity Central Index Key1088034
Trading Symbolpyds
Current Fiscal Year End Date--12-31
Entity Filer CategorySmaller Reporting Company
Entity Current Reporting StatusYes
Entity Well-known Seasoned IssuerNo
Entity Common Stock, Shares Outstanding (in shares)15,859,515
Document Type10-Q
Document Period End DateMar. 31,
2018
Document Fiscal Year Focus2018
Document Fiscal Period FocusQ1
Amendment Flagfalse

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($)Mar. 31, 2018Dec. 31, 2017
Current assets:
Cash and cash equivalents $ 3,473,066 $ 4,800,554
Accounts receivable, net892,156 969,674
Settlement processing assets37,751,361 38,027,984
Prepaid expenses and other369,514 176,945
Notes receivable150,000 150,000
Current assets before merchant reserves42,636,097 44,125,157
Merchant reserves15,080,233 14,977,468
Total current assets57,716,330 59,102,625
Property and equipment, net1,926,026 2,105,186
Other assets:
Intangibles, net4,426,426 4,676,427
Deferred tax asset1,394,000 1,394,000
Other assets182,690 157,565
Total other assets6,003,116 6,227,992
Total assets65,645,472 67,435,803
Current liabilities:
Accounts payable225,757 300,736
Accrued expenses1,007,080 1,006,262
Settlement processing obligations37,751,361 38,027,984
Deferred revenues90,250 0
Current liabilities before merchant reserve obligations39,074,448 39,334,982
Merchant reserve obligations15,080,233 14,977,468
Total current liabilities54,154,681 54,312,450
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at March 31, 2018 (unaudited) and December 31, 2017, respectively0 0
Common stock, $0.001 par value, 200,000,000 shares authorized; 16,943,124 and 16,874,235 issued, and 15,859,515 and 16,201,634 outstanding at March 31, 2018 (unaudited) and December 31, 2017, respectively186,368 186,299
Additional paid-in capital74,188,314 74,041,083
Treasury stock, at cost; 1,070,539 and 672,601 shares at March 31, 2018 (unaudited) and December 31, 2017, respectively(1,787,193)(831,059)
Deferred compensation(6,785,466)(7,012,544)
Accumulated deficit(54,311,232)(53,260,426)
Total stockholders’ equity11,490,791 13,123,353
Total liabilities and stockholders’ equity $ 65,645,472 $ 67,435,803

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Parentheticals) - $ / sharesMar. 31, 2018Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares)10,000,000 10,000,000
Preferred stock, shares outstanding (in shares)0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares)200,000,000 200,000,000
Common stock, shares issued (in shares)16,943,124 16,874,235
Common stock, shares outstanding (in shares)15,859,515 16,201,634
Treasury stock, shares (in shares)1,070,539 672,601

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)3 Months Ended
Mar. 31, 2018Mar. 31, 2017
Income Statement [Abstract]
Revenues $ 5,843,665 $ 2,810,744
Operating expenses:
Cost of services4,572,758 1,867,945
Selling, general and administrative:
Stock-based compensation374,378 207,920
Other expenses1,498,651 828,272
Depreciation and amortization458,663 228,545
Total operating expenses6,904,450 3,132,682
Operating (loss)(1,060,785)(321,938)
Other income and (expense):
Interest income11,521 33,816
Other income (expense)(1,542)1,539
Other income and (expense), net9,979 35,355
Income (loss) before income taxes(1,050,806)(286,583)
Income taxes0 0
Net (loss) $ (1,050,806) $ (286,583)
Basic earnings per common share (in dollars per share) $ (0.09) $ (0.03)
Diluted earnings per common share (in dollars per share) $ (0.09) $ (0.03)
Weighted average common shares outstanding
Basic (in shares)12,026,622 8,485,183
Diluted (in shares)12,026,622 8,485,183

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)3 Months Ended
Mar. 31, 2018Mar. 31, 2017
Operating activities:
Net (loss) $ (1,050,806) $ (286,583)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Depreciation208,662 187,760
Amortization250,001 40,785
Non-cash stock based compensation374,378 207,920
Changes in current assets and current liabilities:
Accounts receivable77,518 56,918
Prepaid expenses and other(192,569)(130,557)
Other assets(25,125)(28,763)
Accounts payable and accrued expenses(74,161)191,103
Merchant reserves102,765 (1,078,211)
Deferred revenue90,250 0
Net cash (used) by operating activities(239,087)(839,628)
Investing activities:
Purchases of property and equipment(29,502)(210,052)
Notes receivable0 (500,000)
Net cash (used) by investing activities(29,502)(710,052)
Financing activities:
Purchases of treasury stock(956,134)(30,964)
Net cash (used) by financing activities(956,134)(30,964)
Change in cash, cash equivalents and merchant reserves(1,224,723)(1,580,644)
Cash, cash equivalents and merchant reserves, beginning of period19,778,022 19,924,379
Cash, cash equivalents and merchant reserves, end of period18,553,299 18,343,735
Supplemental disclosure of cash flow information:
Interest0 0
Income taxes $ 0 $ 0

Basis of Presentation

Basis of Presentation3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Basis of PresentationBasis of Presentation The accompanying unaudited interim condensed consolidated financial statements of Payment Data Systems, Inc. and its subsidiaries (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. 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 unaudited 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, 2017 , as filed with the Securities and Exchange Commission on March 30, 2018. 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. Use of 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. 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. The Company reports revenues as gross as a principal versus net as an agent. Although some of the Company's processing agreements vary with respect to specific credit risks, the Company has determined for each agreement it is acting in the principal role. 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. Sales taxes billed are reported directly as a liability to the taxing authority, and are not included in revenue. 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. Merchant Reserves : The Company has merchant reserve requirements associated with ACH transactions. The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability. Merchant Reserves are set for each merchant. Funds are collected from each merchant and held as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant agreement. While this cash is not restricted in its use, the Company believes that designating this cash to collateralize Merchant Reserves strengthens our fiduciary standing with the Company's member sponsors and is in accordance with the guidelines set by the card networks. The reconciliation of cash and cash equivalents to cash, cash equivalents, restricted cash and restricted cash equivalents is as follows: March 31, 2018 March 31, 2017 Beginning cash, cash equivalents and merchant reserves: Cash and cash equivalents $ 4,800,554 $ 4,120,738 Merchant reserves 14,977,468 15,803,641 Total $ 19,778,022 $ 19,924,379 Ending cash, cash equivalents and merchant reserves: Cash and cash equivalents $ 3,473,066 $ 3,618,305 Merchant reserves 15,080,233 14,725,430 Total $ 18,553,299 $ 18,343,735 Allowance for Estimated Losses: The Company maintains an allowance for estimated doubtful accounts resulting from the inability or failure of the Company’s customers to make required payments. The Company determines the allowance for estimated doubtful account losses 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 the Company due to bad debts have been within its expectations. If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional allowances might be required. Estimates for doubtful account losses are variable based on the volume of transactions processed and could increase or decrease accordingly. At March 31, 2018 and December 31, 2017 , the Company’s allowance for estimated doubtful accounts was $60,144 and $61,223 , respectively. Accounting for Internal Use Software: The Company capitalizes 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. The Company ceases capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose. In the three months ended March 31, 2018 , the Company capitalized $15,878 of such costs. Valuation of Long-Lived and Intangible Assets: The Company assesses the impairment of long-lived and intangible assets 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 under performance 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 2017 or during the three months ended March 31, 2018 . Management is not aware of any impairment changes that may currently be required; however, the Company cannot predict the occurrence of events that might adversely affect the reported values in the future. Reserve for Processing Losses: If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its credit card, ACH or prepaid customers that have been properly "charged back" by the customer, or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risk. In addition, the Company utilizes 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 the Company’s 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 the Company’s relationship with the Company’s prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates. The Company has 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. At March 31, 2018 and December 31, 2017, the Company’s reserve for processing losses was $172,832 . Recently Adopted Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (FASB) issued accounting standards update, ASU 2014-09 , “Revenue from Contracts with Customers (Topic 606)" and a subsequent amendment to the standard in March 2016, ASU 2016-08 “Revenue from Contracts with Customers, Principal versus Agent Consideration (Reporting Revenue Gross versus Net) ." The original 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. The amendment to the standard clarifies implementation guidance on principal versus agent considerations. Adoption of the new standards is effective for reporting periods beginning after December 15, 2017, with early adoption not permitted. The Company has evaluated the potential impact that the adoption of this standard will have on its financial position, results of operations, and related disclosures, and has adopted the provisions of this new standard in the first quarter of 2018. The Company functions as the merchant of record and has primary responsibility for providing end-to-end payment processing services for its clients. The Company's clients contract with the Company for all credit card processing services including transaction authorization, settlement, dispute resolution, security and risk management solutions, reporting and other value-added services. As such, the Company is the primary obliger in these transactions and is solely responsible for all processing costs, including interchange fees. Further, the Company sets prices as it deems reasonable for each merchant. The gross fees the Company collects are intended to cover the interchange, assessments and other processing fees and include the Company's margin on transactions processed. For these reasons, the Company is the principal obliger in the contractual relationship with its customers and therefor, the Company records its revenues, including interchange and assessments on a gross basis. The Company's existing revenue recognition process will remain intact and we will continue to record revenues at the gross amount billed due to the Company's primary responsibility for providing end-to-end payment processing services for its clients. In November 2016, the FASB issued ASU 2016-18 , Statement of Cash Flows (Topic 230) Restricted Cash ( " ASU 2016-18 " ) , which requires that the reconciliation of the beginning of period and end of period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. This guidance is required to be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As required, the Company applied the provisions of ASU 2016-18 as of January 1, 2018. As a result, the change in restricted cash has been included in the change in cash, cash equivalents and restricted cash and the prior period reported information has been recast to reflect the new presentation. New Accounting Pronouncement: In February 2016, the FASB issued, “ Leases (Topic 842), ” which is intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee will be required to recognize on the balance sheet an asset (right to use) and a liability (lease obligation) for leases with terms of more than 12 months. Accounting by lessors will remain largely unchanged from current U.S. generally accepted accounting principles. The new standard is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. Management does not expect that adopting this standard will have a significant impact on its financial statements and related disclosures.

Acquisition of Singular Payment

Acquisition of Singular Payments, LLC3 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]
Acquisition of Singular Payments, LLCAcquisition of Singular Payments, LLC On September 1, 2017, the Company entered into a membership interest purchase agreement with Singular Payments, LLC (“Singular Payments”), a Florida limited liability company in the business of credit card processing, pursuant to which the Company agreed to purchase all of the membership interest in Singular Payments, LLC. The aggregate purchase price was $5,000,000 and consisted of a cash payment of $1,500,000 at closing, minus the balance on the outstanding note receivable of $600,000 and subject to adjustment based on net working capital, and $3,500,000 in shares of common stock, or 1,515,152 shares of the Company's common stock, $0.001 par value per share, valued at $2.31 per share. Such shares are unregistered and subject to a lock-up agreement of 24 months. The final number of shares issued, and the related value per each such share, was determined using the volume-weighted average daily closing price for the shares of common stock for the 5 business days immediately preceding September 1, 2017, or $2.31 . The purchase price was allocated to the net assets acquired based upon their estimated fair values as follows: Estimated Fair Value Estimated Useful Life Customer list $ 5,000,000 5 years Total $ 5,000,000 The unaudited proforma results including the effects of the Singular Payments acquisition as if it had been consummated on January 1, 2016 were included in a Form 8-K/A filed November 17, 2017 and summarized in the Form 10-K filed March 30, 2018.

Notes Receivable

Notes Receivable3 Months Ended
Mar. 31, 2018
Receivables [Abstract]
Notes ReceivableNotes Receivable Under a loan and security agreement dated February 2, 2016, the Company's wholly-owned subsidiary FiCentive, Inc. loaned a principal amount of $200,000 to C2Go, Inc. with an interest rate of 10% per annum for a term of 18 months. The loan was secured by a first lien on all assets of C2Go. C2Go defaulted under the note by failing to repay the loan plus interest on August 2, 2017. A lawsuit filed by FiCentive is pending in Bexar County, San Antonio, Texas. On December 7, 2017, the Company entered into a note purchase and settlement agreement with C2Go and Mercury Investment Partners LLC. Pursuant to the note purchase and settlement agreement Mercury Investment Partners agreed to purchase the note and the rights secured by the security agreement with all rights and obligations and pay to FiCentive a sum of $200,000 in three installments. The first installment of $50,000 was paid on December 7, 2017. The second installment of $50,000 was due on April 30, 2018, and the remaining amount of $100,000 is due on October 31, 2018. In return, FiCentive agreed to waive all interest due and payable under the terms of the C2Go loan. Mercury Investment Partners has not paid the amount due on April 30, 2018. FiCentive has issued a letter of default. In principle, FiCentive has agreed to extend the due date of the $50,000 payment due April 30, 2018 to May 16, 2018. There are no assurances that the Company will be able to recover the remaining $150,000 principal due and there are no assurances the Company will be able to recover any value from our lien on all the assets of C2Go, Inc. if payment in full of the obligation is not made. Due to the uncertainty of the situation and “more likely than not” recognition threshold as of March 31, 2018 , the Company has not recorded a loss reserve on the note receivable. On March 7, 2017, the Company agreed to provide $500,000 to Singular Payments, LLC, a Florida limited liability company, under a secured line of credit promissory note. Interest on the note did not accrue until the earlier of August 31, 2017, the date of closing and funding the Company’s proposed acquisition of Singular Payments or the termination of a non-binding letter of intent regarding the proposed acquisition; or until such mutually agreed upon extended date. The loan was increased to $600,000 on August 2, 2017. The Singular Payments, LLC acquisition closed on September 1, 2017. The note receivable was applied to the cash purchase price as part of the Purchase Agreement.

Accrued Expenses

Accrued Expenses3 Months Ended
Mar. 31, 2018
Payables and Accruals [Abstract]
Accrued ExpensesAccrued Expenses Accrued expenses consisted of the following balances: March 31, 2018 December 31, 2017 Accrued commissions $ 222,439 $ 331,214 Reserve for merchant losses 172,832 172,832 Other accrued expenses 437,714 387,882 Accrued taxes 46,448 45,129 Accrued salaries 127,647 69,205 Total accrued expenses $ 1,007,080 $ 1,006,262

Net Earnings (Loss) Per Share

Net Earnings (Loss) Per Share3 Months Ended
Mar. 31, 2018
Earnings Per Share [Abstract]
Net Earnings (Loss) Per ShareNet Earnings (Loss) Per Share Basic earnings (loss) per share (EPS) were computed by dividing net (loss) 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 (loss) for the three months ended March 31, 2018 and March 31, 2017 . Three Months Ended March 31, 2018 2017 Numerator: Numerator for basic and diluted earnings per share, net income (loss) available to common shareholders $ (1,050,806 ) $ (286,583 ) Denominator: Denominator for basic earnings per share, weighted average shares outstanding 12,026,622 8,485,183 Effect of dilutive securities — — Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion 12,026,622 8,485,183 Basic earnings (loss) per common share $ (0.09 ) $ (0.03 ) Diluted earnings (loss) per common share and common share equivalent $ (0.09 ) $ (0.03 ) The awards and options to purchase shares of common stock that were outstanding at March 31, 2018 and March 31, 2017 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows: Three Months Ended March 31, 2018 2017 Anti-dilutive awards and options 3,877,750 3,357,831

Income Taxes

Income Taxes3 Months Ended
Mar. 31, 2018
Income Tax Disclosure [Abstract]
Income TaxesIncome Taxes Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis 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. The Company has recognized a deferred tax asset of approximately $1.4 million and has recorded a valuation allowance of approximately $8.2 million to reduce the other deferred tax assets. The Company reviews the assessment of the deferred tax asset and valuation allowance on an annual basis or more often when events indicate a change to the valuation allowance may be warranted. At December 31, 2017, the Company had available net operating loss carryforwards of approximately $41.3 million , which expire beginning in the year 2021. Approximately $0.1 million of the total net operating loss carryforward is subject to an IRS Section 382 limitation from 1999. Management is not aware of any tax positions that would have a significant impact on the Company’s financial position.

Related Party Transactions

Related Party Transactions3 Months Ended
Mar. 31, 2018
Related Party Transactions [Abstract]
Related Party TransactionsRelated Party Transactions Louis Hoch During the three months ended March 31, 2018 and the year ended December 31, 2017 , the Company purchased a total of $0 and $1,826 , respectively, of corporate imprinted sportswear and caps from Angry Pug Sportswear. Louis Hoch, the Company’s President and Chief Executive Officer, is a 50% owner of Angry Pug Sportswear. Miguel Chapa During the three months ended March 31, 2018 and the year ended December 31, 2017 , the Company received $7,709 and $29,555 , respectively, in revenue from Lush Rooftop. Miguel Chapa, a member of the Company’s Board of Directors, is an owner of Lush Rooftop. Louis Hoch, the Company’s President and Chief Executive Officer, is also a minority owner in Lush Rooftop. Directors and Officers On January 8, 2018 and January 9, 2018, the Company repurchased 397,845 shares for $956,128 in a private transaction at the closing price on January 8, 2018 and January 9, 2018 from officers, employees and director's to cover the respective employees', officers' and directors' share of taxes for shares that vested on that day, as approved by the Audit Committee and the Board of Directors on the same day, with the respective officers and directors recusing themselves. In particular, the Company repurchased the following shares from Named Executive Officers and directors: • Michael Long (Chairman of the Board): 158,476 shares valued at $2.40 per share or total of $380,342 ; • Louis Hoch (President and Chief Executive Officer): 158,476 shares valued at $2.40 per share or total of $380,342 ; and • Tom Jewell (Chief Financial Officer): 13,060 shares valued at $2.50 per share or total of $32,650 .

Legal Proceedings

Legal Proceedings3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
Legal ProceedingsLegal Proceedings Under a loan and security agreement dated February 2, 2016, the Company's wholly-owned subsidiary FiCentive, Inc. loaned a principal amount of $200,000 to C2Go, Inc. with an interest rate of 10% per annum for a term of 18 months. The loan was secured by a first lien on all assets of C2Go. C2Go defaulted under the note by failing to repay the loan plus interest on August 2, 2017. A lawsuit filed by FiCentive is pending in Bexar County, San Antonio, Texas. On December 7, 2017, the Company entered into a note purchase and settlement agreement with C2Go and Mercury Investment Partners LLC. Pursuant to the note purchase and settlement agreement Mercury Investment Partners agreed to purchase the note and the rights secured by the security agreement with all rights and obligations and pay to FiCentive a sum of $200,000 in three installments. The first installment of $50,000 was paid on December 7, 2017. The second installment of $50,000 was due on April 30, 2018, and the remaining amount of $100,000 is due on October 31, 2018. In return, FiCentive agreed to waive all interest due and payable under the terms of the C2Go loan. Mercury Investment Partners has not paid the amount due April 30, 2018. FiCentive has issued a letter of default. In principle, FiCentive has agreed to extend the due date of the $50,000 payment due April 30, 2018 to May 16, 2018. There are no assurances that the Company will be able to recover the remaining $150,000 principal and there are no assurances there will be any assets for the Company to recover from our lien on all the assets of C2Go, Inc. if payment in full of the obligation is not made. Due to the uncertainty of the situation and “more likely than not” recognition threshold as of March 31, 2018 , the Company has not recorded a loss reserve on the note receivable. Aside from the lawsuit 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 our business, financial condition or results of operations.

Basis of Presentation (Policies

Basis of Presentation (Policies)3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Basis of PresentationBasis of Presentation The accompanying unaudited interim condensed consolidated financial statements of Payment Data Systems, Inc. and its subsidiaries (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. 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 unaudited 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, 2017 , as filed with the Securities and Exchange Commission on March 30, 2018. 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.
Use of EstimatesUse of 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.
Revenue RecognitionRevenue 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. The Company reports revenues as gross as a principal versus net as an agent. Although some of the Company's processing agreements vary with respect to specific credit risks, the Company has determined for each agreement it is acting in the principal role. 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. Sales taxes billed are reported directly as a liability to the taxing authority, and are not included in revenue.
Cash and Cash EquivalentsCash 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.
Merchant ReservesMerchant Reserves : The Company has merchant reserve requirements associated with ACH transactions. The merchant reserve assets are carried on the Company's balance sheet with a corresponding liability. Merchant Reserves are set for each merchant. Funds are collected from each merchant and held as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant agreement. While this cash is not restricted in its use, the Company believes that designating this cash to collateralize Merchant Reserves strengthens our fiduciary standing with the Company's member sponsors and is in accordance with the guidelines set by the card networks.
Allowance for Estimated LossesAllowance for Estimated Losses: The Company maintains an allowance for estimated doubtful accounts resulting from the inability or failure of the Company’s customers to make required payments. The Company determines the allowance for estimated doubtful account losses 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 the Company due to bad debts have been within its expectations. If the financial conditions of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make contractual payments, additional allowances might be required. Estimates for doubtful account losses are variable based on the volume of transactions processed and could increase or decrease accordingly.
Accounting for Internal Use SoftwareAccounting for Internal Use Software: The Company capitalizes 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. The Company ceases capitalization of such costs no later than the point at which the project is substantially complete and ready for its intended purpose.
Valuation of Long-Lived and Intangible AssetsValuation of Long-Lived and Intangible Assets: The Company assesses the impairment of long-lived and intangible assets 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 under performance 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 2017 or during the three months ended March 31, 2018 . Management is not aware of any impairment changes that may currently be required; however, the Company cannot predict the occurrence of events that might adversely affect the reported values in the future.
Reserve for Processing LossesReserve for Processing Losses: If, due to insolvency or bankruptcy of one of the Company’s merchant customers, or for any other reason, the Company is not able to collect amounts from its credit card, ACH or prepaid customers that have been properly "charged back" by the customer, or if a prepaid cardholder incurs a negative balance, the Company must bear the credit risk for the full amount of the transaction. The Company may require cash deposits and other types of collateral from certain merchants to minimize any such risk. In addition, the Company utilizes 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 the Company’s 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 the Company’s relationship with the Company’s prepaid card holders. This reserve amount is subject to the risk that actual losses may be greater than the Company’s estimates. The Company has 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.
Recently Adopted and New Accounting PronouncementRecently Adopted Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (FASB) issued accounting standards update, ASU 2014-09 , “Revenue from Contracts with Customers (Topic 606)" and a subsequent amendment to the standard in March 2016, ASU 2016-08 “Revenue from Contracts with Customers, Principal versus Agent Consideration (Reporting Revenue Gross versus Net) ." The original 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. The amendment to the standard clarifies implementation guidance on principal versus agent considerations. Adoption of the new standards is effective for reporting periods beginning after December 15, 2017, with early adoption not permitted. The Company has evaluated the potential impact that the adoption of this standard will have on its financial position, results of operations, and related disclosures, and has adopted the provisions of this new standard in the first quarter of 2018. The Company functions as the merchant of record and has primary responsibility for providing end-to-end payment processing services for its clients. The Company's clients contract with the Company for all credit card processing services including transaction authorization, settlement, dispute resolution, security and risk management solutions, reporting and other value-added services. As such, the Company is the primary obliger in these transactions and is solely responsible for all processing costs, including interchange fees. Further, the Company sets prices as it deems reasonable for each merchant. The gross fees the Company collects are intended to cover the interchange, assessments and other processing fees and include the Company's margin on transactions processed. For these reasons, the Company is the principal obliger in the contractual relationship with its customers and therefor, the Company records its revenues, including interchange and assessments on a gross basis. The Company's existing revenue recognition process will remain intact and we will continue to record revenues at the gross amount billed due to the Company's primary responsibility for providing end-to-end payment processing services for its clients. In November 2016, the FASB issued ASU 2016-18 , Statement of Cash Flows (Topic 230) Restricted Cash ( " ASU 2016-18 " ) , which requires that the reconciliation of the beginning of period and end of period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. This guidance is required to be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. As required, the Company applied the provisions of ASU 2016-18 as of January 1, 2018. As a result, the change in restricted cash has been included in the change in cash, cash equivalents and restricted cash and the prior period reported information has been recast to reflect the new presentation. New Accounting Pronouncement: In February 2016, the FASB issued, “ Leases (Topic 842), ” which is intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee will be required to recognize on the balance sheet an asset (right to use) and a liability (lease obligation) for leases with terms of more than 12 months. Accounting by lessors will remain largely unchanged from current U.S. generally accepted accounting principles. The new standard is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. Management does not expect that adopting this standard will have a significant impact on its financial statements and related disclosures.

Basis of Presentation (Tables)

Basis of Presentation (Tables)3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Schedule of cash and cash equivalentsThe reconciliation of cash and cash equivalents to cash, cash equivalents, restricted cash and restricted cash equivalents is as follows: March 31, 2018 March 31, 2017 Beginning cash, cash equivalents and merchant reserves: Cash and cash equivalents $ 4,800,554 $ 4,120,738 Merchant reserves 14,977,468 15,803,641 Total $ 19,778,022 $ 19,924,379 Ending cash, cash equivalents and merchant reserves: Cash and cash equivalents $ 3,473,066 $ 3,618,305 Merchant reserves 15,080,233 14,725,430 Total $ 18,553,299 $ 18,343,735
Restrictions on cash and cash equivalentsThe reconciliation of cash and cash equivalents to cash, cash equivalents, restricted cash and restricted cash equivalents is as follows: March 31, 2018 March 31, 2017 Beginning cash, cash equivalents and merchant reserves: Cash and cash equivalents $ 4,800,554 $ 4,120,738 Merchant reserves 14,977,468 15,803,641 Total $ 19,778,022 $ 19,924,379 Ending cash, cash equivalents and merchant reserves: Cash and cash equivalents $ 3,473,066 $ 3,618,305 Merchant reserves 15,080,233 14,725,430 Total $ 18,553,299 $ 18,343,735

Acquisition of Singular Payme16

Acquisition of Singular Payments, LLC (Tables)3 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]
Schedule of acquisition purchase priceThe purchase price was allocated to the net assets acquired based upon their estimated fair values as follows: Estimated Fair Value Estimated Useful Life Customer list $ 5,000,000 5 years Total $ 5,000,000

Accrued Expenses (Tables)

Accrued Expenses (Tables)3 Months Ended
Mar. 31, 2018
Payables and Accruals [Abstract]
Schedule of accrued expensesAccrued expenses consisted of the following balances: March 31, 2018 December 31, 2017 Accrued commissions $ 222,439 $ 331,214 Reserve for merchant losses 172,832 172,832 Other accrued expenses 437,714 387,882 Accrued taxes 46,448 45,129 Accrued salaries 127,647 69,205 Total accrued expenses $ 1,007,080 $ 1,006,262

Net Earnings (Loss) Per Share (

Net Earnings (Loss) Per Share (Tables)3 Months Ended
Mar. 31, 2018
Earnings Per Share [Abstract]
Schedule of the numerators and the denominators of the basic and diluted per share computations for net (loss)The following is a reconciliation of the numerators and the denominators of the basic and diluted per share computations for net (loss) for the three months ended March 31, 2018 and March 31, 2017 . Three Months Ended March 31, 2018 2017 Numerator: Numerator for basic and diluted earnings per share, net income (loss) available to common shareholders $ (1,050,806 ) $ (286,583 ) Denominator: Denominator for basic earnings per share, weighted average shares outstanding 12,026,622 8,485,183 Effect of dilutive securities — — Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion 12,026,622 8,485,183 Basic earnings (loss) per common share $ (0.09 ) $ (0.03 ) Diluted earnings (loss) per common share and common share equivalent $ (0.09 ) $ (0.03 )
Schedule of the awards and options to purchase shares of common stock that were outstandingThe awards and options to purchase shares of common stock that were outstanding at March 31, 2018 and March 31, 2017 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive, are as follows: Three Months Ended March 31, 2018 2017 Anti-dilutive awards and options 3,877,750 3,357,831

Basis of Presentation (Details)

Basis of Presentation (Details) - USD ($)3 Months Ended12 Months Ended
Mar. 31, 2018Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Allowance for estimated doubtful accounts $ 60,144 $ 61,223
Capitalized computer software, additions15,878
Asset impairment charges0 0
Reserve for processing losses $ 172,832 $ 172,832

Basis of Presentation - Reconci

Basis of Presentation - Reconciliation of Cash and Cash Equivalents to Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents (Details) - USD ($)Mar. 31, 2018Dec. 31, 2017Mar. 31, 2017Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash and cash equivalents $ 3,473,066 $ 4,800,554 $ 3,618,305 $ 4,120,738
Merchant reserves15,080,233 14,977,468 14,725,430 15,803,641
Total $ 18,553,299 $ 19,778,022 $ 18,343,735 $ 19,924,379

Acquisition of Singular Payme21

Acquisition of Singular Payments, LLC (Details) - USD ($)Sep. 01, 2017Mar. 31, 2018Dec. 31, 2017
Business Acquisition [Line Items]
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Singular Payments, LLC
Business Acquisition [Line Items]
Aggregate purchase price $ 5,000,000
Cash payments to acquire businesses1,500,000
Outstanding balance of note receivable assumed600,000
Equity interest issued or issuable, value $ 3,500,000
Equity interest issued or issuable, number of shares (in shares)1,515,152
Common stock, par value (in dollars per share) $ 0.001
Share price (in dollars per share) $ 2.31
Equity interest issued, lock-up agreement, term24 months
Equity interest issued, basis for determining value, number of business days preceding September 1, 20175 days

Acquisition of Singular Payme22

Acquisition of Singular Payments, LLC - Purchase Price (Details) - Singular Payments, LLCSep. 01, 2017USD ($)
Business Acquisition [Line Items]
Total $ 5,000,000
Customer List
Business Acquisition [Line Items]
Customer list $ 5,000,000
Estimated Useful Life5 years

Notes Receivable (Details)

Notes Receivable (Details)Dec. 07, 2017USD ($)installmentFeb. 02, 2016USD ($)Oct. 31, 2018USD ($)Apr. 30, 2018USD ($)Mar. 31, 2018USD ($)Dec. 31, 2017USD ($)Aug. 02, 2017USD ($)Mar. 07, 2017USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes receivable $ 150,000 $ 150,000
Defaults Of Mutual Loan And Security Agreement | Pending Litigation | FiCentive, Inc. V. C2Go, Inc.
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of installments | installment3
Gain related to litigation settlement $ 50,000
Unrecorded amount $ 150,000
Defaults Of Mutual Loan And Security Agreement | Pending Litigation | FiCentive, Inc. V. C2Go, Inc. | Scenario, Forecast
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unrecorded amount $ 100,000 $ 50,000
C2Go Loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes receivable $ 200,000
Notes receivable, stated interest rate10.00%
Notes receivable, term18 months
C2Go Loan | Defaults Of Mutual Loan And Security Agreement | Pending Litigation | FiCentive, Inc. V. C2Go, Inc.
Accounts, Notes, Loans and Financing Receivable [Line Items]
Amount awarded from other party $ 200,000
Singular Payments, LLC
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes receivable $ 600,000 $ 500,000

Accrued Expenses (Details)

Accrued Expenses (Details) - USD ($)Mar. 31, 2018Dec. 31, 2017
Payables and Accruals [Abstract]
Accrued commissions $ 222,439 $ 331,214
Reserve for merchant losses172,832 172,832
Other accrued expenses437,714 387,882
Accrued taxes46,448 45,129
Accrued salaries127,647 69,205
Total accrued expenses $ 1,007,080 $ 1,006,262

Net Earnings (Loss) Per Share -

Net Earnings (Loss) Per Share - Earnings per Share Numerator and Denominator (Details) - USD ($)3 Months Ended
Mar. 31, 2018Mar. 31, 2017
Numerator:
Numerator for basic and diluted earnings per share, net income (loss) available to common shareholders $ (1,050,806) $ (286,583)
Denominator:
Denominator for basic earnings per share, weighted average shares outstanding (in shares)12,026,622 8,485,183
Effect of dilutive securities (in shares)0 0
Denominator for diluted earnings per share, adjust weighted average shares and assumed conversion (in shares)12,026,622 8,485,183
Basic earnings (loss) per common share (in dollars per share) $ (0.09) $ (0.03)
Diluted earnings (loss) per common share and common share equivalent (in dollars per share) $ (0.09) $ (0.03)

Net Earnings (Loss) Per Share26

Net Earnings (Loss) Per Share - Antidilutive Securities Excluded from Calculation of EPS (Details) - shares3 Months Ended
Mar. 31, 2018Mar. 31, 2017
Earnings Per Share [Abstract]
Anti-dilutive awards and options (in shares)3,877,750 3,357,831

Income Taxes (Details)

Income Taxes (Details) - USD ($) $ in Millions3 Months Ended
Mar. 31, 2018Dec. 31, 2017
Income Tax Disclosure [Abstract]
Goodwill amortization period15 years
Deferred tax assets, net $ 1.4
Deferred tax assets, valuation allowance $ 8.2
Income Tax Contingency [Line Items]
Operating loss carryforwards $ 41.3
Portion subject to an IRS Section 382 limitation from 1999
Income Tax Contingency [Line Items]
Operating loss carryforwards $ 0.1

Related Party Transactions (Det

Related Party Transactions (Details) - USD ($)Jan. 09, 2018Mar. 31, 2018Dec. 31, 2017
Louis Hoch
Related Party Transaction [Line Items]
Treasury stock acquired (in shares)158,476
Treasury stock, value, acquired $ 380,342
Treasury stock acquired, average cost per share (in dollars per share) $ 2.40
Louis Hoch | Ownership of Angry Pug Sportswear
Related Party Transaction [Line Items]
Purchases from related party $ 0 $ 1,826
Ownership percentage50.00%
Miguel Chapa | Ownership of Lush Rooftop
Related Party Transaction [Line Items]
Revenue from related parties $ 7,709 $ 29,555
Officers, Employees and Directors
Related Party Transaction [Line Items]
Treasury stock acquired (in shares)397,845
Treasury stock, value, acquired $ 956,128
Michael Long
Related Party Transaction [Line Items]
Treasury stock acquired (in shares)158,476
Treasury stock, value, acquired $ 380,342
Treasury stock acquired, average cost per share (in dollars per share) $ 2.40
Tom Jewell
Related Party Transaction [Line Items]
Treasury stock acquired (in shares)13,060
Treasury stock, value, acquired $ 32,650
Treasury stock acquired, average cost per share (in dollars per share) $ 2.50

Legal Proceedings (Details)

Legal Proceedings (Details)Dec. 07, 2017USD ($)installmentFeb. 02, 2016USD ($)Oct. 31, 2018USD ($)Apr. 30, 2018USD ($)Mar. 31, 2018USD ($)Dec. 31, 2017USD ($)
Loss Contingencies [Line Items]
Notes receivable $ 150,000 $ 150,000
Defaults Of Mutual Loan And Security Agreement | FiCentive, Inc. V. C2Go, Inc. | Pending Litigation
Loss Contingencies [Line Items]
Number of installments | installment3
Gain related to litigation settlement $ 50,000
Unrecorded amount $ 150,000
Defaults Of Mutual Loan And Security Agreement | FiCentive, Inc. V. C2Go, Inc. | Pending Litigation | Scenario, Forecast
Loss Contingencies [Line Items]
Unrecorded amount $ 100,000 $ 50,000
Defaults Of Mutual Loan And Security Agreement | FiCentive, Inc. V. C2Go, Inc. | Pending Litigation | Subsequent Event
Loss Contingencies [Line Items]
Unrecorded amount $ 50,000
C2Go Loan
Loss Contingencies [Line Items]
Notes receivable $ 200,000
Notes receivable, stated interest rate10.00%
Notes receivable, term18 months
C2Go Loan | Defaults Of Mutual Loan And Security Agreement | FiCentive, Inc. V. C2Go, Inc. | Pending Litigation
Loss Contingencies [Line Items]
Amount awarded from other party $ 200,000