# Paysign, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Paysign, Inc.](/companies/pays.md) (CIK 1496443)
- Form: 10-Q
- Filed: 2022-11-09
- Accepted by EDGAR: Nov 9, 2022, 12:32 ET
- Period: 2022-09-30
- Accession: 0001683168-22-007406
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1496443/000168316822007406/paysign_i10q-093022.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1496443/000168316822007406/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $10.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $27.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $4.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $12.0m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $5.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $15.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $4.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $13.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $623.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $29.8k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $36.2k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $65.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $852.1k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 53,365,025 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 52,676,707 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $31.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $75.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $8.0m | us-gaap:Cash |
| Current assets | at 2022-09-30 | $104.5m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $114.4m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $96.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $99.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $14.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,839 characters.

### Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Forward-Looking Statements”). All statements other than statements of historical fact included in this report are Forward-Looking Statements. 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 contain, 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. In addition, any statements that refer to expectations, projections, estimates, forecasts, or other characterizations of future events or circumstances are Forward-Looking Statements. These Forward-Looking Statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the Forward-Looking Statements. Such important factors (“Important Factors”) and other factors are disclosed in this report, including those factors discussed in “Part II - Item 1A. Risk Factors.” All prior and subsequent written and oral Forward-Looking Statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Important Factors described below that could cause actual results to differ materially from our expectations as set forth in any Forward-Looking Statement made by or on behalf of us. 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

Paysign, Inc. (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. Paysign is a vertically integrated provider of prepaid card products and processing services for corporate, consumer and government applications. Our payment solutions are utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence rates, reduce administration costs and streamline operations. Public sector organizations can utilize our payment solutions to disburse public benefits or for internal payments. We market our prepaid card solutions under our Paysign® brand. As we are a payment processor and prepaid card program manager, we derive our revenue from all stages of the prepaid card lifecycle.

We provide a card processing platform consisting of proprietary systems and software applications based on the unique needs of our clients. We have extended our processing business capabilities through our proprietary Paysign platform. Through the Paysign platform, we provide a variety of services including transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service. The Paysign platform was built on modern cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform’s flexibility and ease of customization has allowed us to expand our operational capabilities by facilitating our entry into new markets within the payments space. The Paysign platform delivers cost benefits and revenue building opportunities to our partners.

We have developed prepaid card programs for corporate incentive and rewards including, but not limited to, consumer rebates and rewards, donor compensation, clinical trials, healthcare reimbursement payments and pharmaceutical payment assistance. We have expanded our product offerings to include additional corporate incentive products and demand deposit accounts accessible with a debit card. In the third quarter of 2022 we expanded our prepaid product offering to include payroll cards. In the future, we expect to further expand our product offerings into other prepaid card offerings such as travel cards and expense reimbursement cards. Our cards are sponsored by our issuing bank partners.

Our revenues include fees generated from cardholder fees, interchange, card program management fees, transaction claims processing fees, and settlement income. Revenue from cardholder fees, interchange, card program management fees, and transaction claims processing fees is recorded when the performance obligation is fulfilled. Settlement income is recorded at the expiration of the card program.

We have two categories for our prepaid debit cards: (1) corporate and consumer reloadable cards, and (2) non-reloadable cards.

Reloadable Cards: These types of cards are generally classified as payroll or considered general purpose reloadable (“GPR”) cards. Payroll cards are issued by an employer to an employee in order to allow the employee to access payroll amounts that are deposited into an account linked to their 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-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. Normally these types of cards are used for purchase of goods or services at retail locations and cannot be used to receive cash.

Both reloadable and non-reloadable cards may be open-loop, closed-loop, or restricted-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 virtually anywhere that the network brand (American Express, Discover, Mastercard, Visa, etc.) is accepted. Closed-loop cards can only be used at a specific merchant. Restricted-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 in the U.S. 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 manage all aspects of the prepaid card lifecycle, from managing the card design and approval processes with partners and 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 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 co-pay assistance, clinical trials and donor compensation, loyalty rewards, and incentive cards.

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

We have devoted more extensive resources to sales and marketing activities as we have added essential personnel to our marketing and sales team. We market our Paysign payment solutions through direct marketing by the Company’s sales team. Our primary market focus is on companies and municipalities 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 may, at times, utilize independent contractors who make direct sales and are paid commissions and/or restricted stock awards. We market our Paysign Premier product through existing communication channels to a 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 focus on long term users of our product.

In 2022, we plan to continue to invest additional funds in technology improvements, sales and marketing, fraud and disputes, customer service, and regulatory compliance. 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 expand into new markets using internally generated funds.

The coronavirus (“COVID-19”) pandemic, which started in late 2019 and reached the United States in early 2020, continues to significantly impact the economy of the United States and the rest of the world. While the direct disruption appears to have abated due to the availability of vaccines and other factors, the ultimate duration and severity of the pandemic remain uncertain, particularly given the development of new variants that continue to spread, and the economic repercussions are still manifesting themselves. The COVID-19 outbreak caused plasma center closures, and the stimulus packages signed into law during 2020 and 2021 reduced the incentive for individuals to donate plasma for supplementary income. Additionally, labor shortages at plasma donation centers and restrictions preventing Mexican nationals with tourist visas from being compensated for donating plasma, have further impacted donations. Those developments have had an adverse impact on the Company’s historical results of operations. On September 16, 2022, the United States District Court issued a preliminary injunction preventing the United States Customs and Border Protection from continuing to enforce its ban on plasma donations by Mexican nationals. Since then, we have seen an increase in donation activity from Mexican nationals, primarily in our plasma donation centers along the U.S.-Mexico border. Additionally, inflationary pressures for food, gasoline, rent, and other products and services appear to be driving individuals back into the plasma donation centers based upon the increase we experienced in the number of loads per average donation center in the third quarter of 2022 as compared to all preceding quarters in 2022 and 2021. While we remain cautiously optimistic and have seen improvements in donation activity and our operating results on an aggregated basis, we cannot foresee what potential issues may impact our operating results as new COVID-19 variants continue to evolve. Given the uncertainty around the extent and timing of the potential future spread or mitigation of COVID-19 and variants and around the imposition or relaxation of protective measures, management cannot at this time estimate with reasonable accuracy COVID-19’s further impact on the Company’s results of operations, cash flows or financial condition.

### Results of Operations

#### Three Months Ended September 30, 2022 and 2021

The following table summarizes our consolidated financial results:

| Revenues | Three Months Ended September 30, (Unaudited) 2022 | 2021 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Plasma industry | $9,829,811 | $7,035,546 | $2,794,265 | 39.7% |
| Pharma industry | 693,353 | 660,331 | 33,022 | 5.0% |
| Other | 73,264 | 71,312 | 1,952 | 2.7% |
| **Total revenues** | 10,596,428 | 7,767,189 | 2,829,239 | 36.4% |
| **Cost of revenues** | 4,847,780 | 3,797,919 | 1,049,861 | 27.6% |
| **Gross profit** | 5,748,648 | 3,969,270 | 1,779,378 | 44.8% |
| **Gross margin %** | 54.3% | 51.1% |  |  |
| **Operating expenses** |  |  |  |  |
| Selling, general and administrative | 4,386,757 | 3,618,071 | 768,686 | 21.2% |
| Depreciation and amortization | 738,883 | 628,324 | 110,559 | 17.6% |
| **Total operating expenses** | 5,125,640 | 4,246,395 | 879,245 | 20.7% |
| **Income (loss) from operations** | $623,008 | $(277,125) | $900,133 | (324.8%) |
| **Net income (loss)** | $852,109 | $(271,006) | $1,123,115 | (414.4%) |
| **Net margin %** | 8.0% | (3.5%) |  |  |

17

The increase in total revenues of $2,829,239 for the three months ended September 30, 2022 compared to the same period in the prior year consisted primarily of a $2,794,265 increase in Plasma revenue, a $33,022 increase in Pharma revenue, and a $1,952 increase in Other revenue. The increase in Plasma revenue was primarily due to an increase in the number of plasma centers and donations, and, consequently, dollars loaded to cards, cardholder fees, and interchange, as COVID-19 restrictions such as donation center closures, mobility restrictions and Federal government stimulus measures were relaxed compared to the prior year period. The increase in Pharma revenue was primarily due to the launch of new Pharma copay programs offset by the end of a number of Pharma prepaid programs. The increase in Other revenue was primarily due to the launch of a new payroll program.

Cost of revenues for the three months ended September 30, 2022 increased $1,049,861 compared to the same period in the prior 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, program management, application integration setup, and sales and commission expense. Cost of revenues increased during the third quarter of 2022 primarily due to an increase in cardholder usage activity, an increase in plastics, collateral and postage, an increase in network expenses related to our Pharma copay business, a new direct network connection with Mastercard, and an increase in customer service expenses, offset by a decline in sales commissions related to the restructuring of an agreement in the first quarter of 2022.

Gross profit for the three months ended September 30, 2022 increased $1,779,378 compared to the same period in the prior year resulting from the increase in Plasma revenue, the restructuring of an agreement mentioned above, 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 transactions that occurred during the period. The increase in gross profit was offset by an increase in network expenses related to our Pharma copay business, a new direct network connection with Mastercard, and an increase in customer service expenses relating to the overall growth of our business. The increase in gross margin resulted from the aforementioned factors.

Selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2022 increased $768,686 or 21.2% compared to the same period in the prior year and consisted primarily of an increase in compensation and benefits of approximately $537,000, due to continued hiring to support the company’s growth, a tight labor market and increased personnel insurance costs, and an increase in technologies and telecom of approximately $224,000.

Depreciation and amortization expense for the three months ended September 30, 2022 increased $110,559 compared to the same period in the prior year. The increase in depreciation and amortization expense was primarily due to continued capitalization of new software and equipment, and continued enhancements to our platform.

For the three months ended September 30, 2022, we recorded income from operations of $623,008 representing a net increase of $900,133 compared to the same period last year related to the aforementioned factors.

Other income for the three months ended September 30, 2022, increased $259,165 related to an increase in interest rates and the associated interest income received on higher bank account balances at our sponsor bank and lower interest expense related to the financing of insurance premiums.

We recorded an income tax expense of $36,183 for the three months ended September 30, 2022, which equates to an effective tax rate of 4.1% primarily as a result of the full valuation on our deferred tax asset in both the current and prior period and the tax benefit related to our stock-based compensation and a pretax loss in the prior period. We did not record an income tax expense for the three months ended September 30, 2021.

The net income for the three months ended September 30, 2022 was $852,109, an improvement of $1,123,115 compared to the net loss of $271,006 for the three months ended September 30, 2021. The overall change in net income relates to the aforementioned factors.

#### Nine Months Ended September 30, 2022 and 2021

The following table summarizes our consolidated financial results:

| Revenues | Nine Months Ended September 30, (Unaudited) 2022 | 2021 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Plasma industry | $25,030,376 | $18,366,010 | $6,664,366 | 36.3% |
| Pharma industry | 2,273,232 | 2,184,198 | 89,034 | 4.1% |
| Other | 112,235 | 147,699 | (35,464) | (24.0%) |
| **Total revenues** | 27,415,843 | 20,697,907 | 6,717,936 | 32.5% |
| **Cost of revenues** | 11,971,135 | 10,744,264 | 1,226,871 | 11.4% |
| **Gross profit** | 15,444,708 | 9,953,643 | 5,491,065 | 55.2% |
| **Gross margin %** | 56.3% | 48.1% |  |  |
| **Operating expenses** |  |  |  |  |
| Selling, general and administrative | 13,283,645 | 10,957,619 | 2,326,026 | 21.2% |
| Depreciation and amortization | 2,131,234 | 1,838,354 | 292,880 | 15.9% |
| **Total operating expenses** | 15,414,879 | 12,795,973 | 2,618,906 | 20.5% |
| **Income (loss) from operations** | $29,829 | $(2,842,330) | $2,872,159 | (101.0%) |
| **Net income (loss)** | $314,680 | $(2,826,500) | $3,141,180 | (111.1%) |
| **Net margin %** | 1.1% | (13.7%) |  |  |

The increase in total revenues of $6,717,936 for the nine months ended September 30, 2022 compared to the same period in the prior year consisted primarily of a $6,664,366 increase in Plasma revenue and a $89,034 increase in Pharma revenue, offset by a $35,464 decrease in Other revenue. The increase in Plasma revenue was primarily due to an increase in the number of plasma centers and donations, and, consequently, dollars loaded to cards, cardholder fees, and interchange, as COVID-19 restrictions such as donation center closures, mobility restrictions and Federal government stimulus measures were relaxed compared to the prior year period. The increase in Pharma revenue was primarily due to the launch of new Pharma copay programs offset by the end of a number of Pharma prepaid programs. The decrease in Other revenue was primarily driven by the recognition of settlement income from a rewards program that ended during the second quarter of 2021.

Cost of revenues for the nine months ended September 30, 2022 increased $1,226,871 compared to the same period in the prior 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, program management, application integration setup, and sales and commission expense. Cost of revenues increased during the nine months of 2022 primarily due to the increase in cardholder usage activity, an increase in plastics, collateral and postage related to the launch of new plasma donation centers that we service, an increase in network expenses related to our Pharma copay business, a new direct network connection with Mastercard, and an increase in customer service expenses, offset by a decline in sales commissions related to the restructuring of an agreement in the first quarter of 2022.

Gross profit for the nine months ended September 30, 2022 increased $5,491,065 compared to the same period in the prior year resulting from the increase in Plasma revenue, the restructuring of an agreement mentioned above, and the beneficial impact of a variable cost structure as many of the Plasma transaction costs are provided by third parties who charge us based on the number of transactions that occurred during the period, with a lower per-transaction cost at larger numbers of transactions. The increase in Gross profit was offset by the upfront costs associated with the launch of new plasma donation centers and an increase in customer service expenses relating to the overall growth of our business. The increase in gross margin resulted from the aforementioned factors.

SG&A for the nine months ended September 30, 2022 increased $2,326,026 or 21.2% compared to the same period in the prior year and consisted primarily of an increase in compensation and benefits of $1,650,000, due to continued hiring to support the company’s growth, a tight labor market and increased personnel insurance costs, an increase in travel and entertainment of $149,000, and an increase in other operating expenses of $478,000.

Depreciation and amortization expense for the nine months ended September 30, 2022 increased $292,880 compared to the same period in the prior year. The increase in depreciation and amortization expense was primarily due to continued capitalization of new software and equipment and continued enhancements to our platform.

For the nine months ended September 30, 2022, we recorded income from operations of $29,829 representing a net increase of $2,872,159 compared to the same period last year related to the aforementioned factors.

Other income for the nine months ended September 30, 2022 increased $331,617 related to an increase in interest rates and the associated interest income received on higher bank account balances at our sponsor bank and lower interest expense related to the financing of insurance premiums.

We recorded an income tax expense of $64,996 for the nine months ended September 30, 2022, which equates to an effective tax rate of 17.1% primarily as a result of the full valuation on our deferred tax asset in both the current and prior period and the tax benefit related to our stock-based compensation and a pretax loss in the prior period. We recorded an income tax expense of $2,400 for the nine months ended September 30, 2021 due to estimated state tax payments.

The net income for the nine months ended September 30, 2022 was $314,680, an improvement of $3,141,180 compared to the net loss of $2,826,500 for the nine months ended September 30, 2021. The overall change in net income relates to the aforementioned factors.

### Key Performance Indicators and Non-GAAP Measures

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

Gross Dollar Volume Loaded on Cards – Represents the total dollar volume of funds loaded to all of our prepaid card programs. Our gross dollar volume loaded on cards was $462 million and $293 million for the three months ended September 30, 2022 and 2021, respectively. That gross dollar volume was $1,161 million and $839 million for the nine months ended September 30, 2022 and 2021, respectively. We use this metric to analyze the total amount of money moving into our prepaid card programs.

Conversion Rates on Gross Dollar Volume Loaded on Cards – Equals revenues, gross profit or net income conversion rates of gross dollar volume loaded on cards which are calculated by taking our total revenues, gross profit or net income (loss), respectively, as a numerator and dividing by the gross dollar volume loaded on cards as a denominator. As we derive a number of our financial results from cardholder fees, we utilize these metrics as an indication of the amount of money that is added to cards and will eventually be converted to revenues, gross profit and net income. Our total revenue conversion rates for the three months ended September 30, 2022 and 2021 were 2.29% or 229 basis points (“bps”), and 2.65% or 265 bps, respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the three months ended September 30, 2022 and 2021 were 1.24% or 124 bps, and 1.35% or 135 bps, respectively, of gross dollar volume loaded on cards. Our net income conversion rates for the three months ended September 30, 2022 and 2021 were 0.18% or 18 bps, and (0.09)% or (9) bps, respectively, of gross dollar volume loaded on cards. Our total revenue conversion rates for the nine months ended September 30, 2022 and 2021 were 2.36% or 236 bps, and 2.47% or 247 bps, respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the nine months ended September 30, 2022 and 2021 were 1.33% or 133 bps, and 1.19% or 119 bps, respectively, of gross dollar volume loaded on cards. Our net income conversion rates for the nine months ended September 30, 2022 and 2021 were 0.03% or 3 bps, and (0.34)% or (34) bps, respectively, of gross dollar volume loaded on cards.

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

“EBITDA” is defined as earnings before interest, income taxes, and depreciation and amortization expense and "Adjusted EBITDA" reflects the adjustment to EBITDA to exclude stock-based compensation expense. A reconciliation of net income (loss) to Adjusted EBITDA is provided in the table below.

| Reconciliation of Adjusted EBITDA to net income (loss): | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| **Net income (loss)** | $852,109 | $(271,006) | $314,680 | $(2,826,500) |
| Income tax provision | 36,183 | – | 64,996 | 2,400 |
| Interest income, net | (265,284) | (6,119) | (349,847) | (18,230) |
| Depreciation and amortization | 738,883 | 628,324 | 2,131,234 | 1,838,354 |
| **EBITDA** | 1,361,891 | 351,199 | 2,161,063 | (1,003,976) |
| Stock-based compensation | 566,205 | 603,591 | 1,623,994 | 1,780,726 |
| **Adjusted EBITDA** | $1,928,096 | $954,790 | $3,785,057 | $776,750 |

21

### Liquidity and Capital Resources

The following table sets forth the major sources and uses of cash:

|  | Nine Months Ended September 30, (Unaudited) 2022 | 2021 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $30,954,307 | $16,031,596 |
| Net cash used in investing activities | (2,584,009) | (1,966,681) |
| Net cash provided by financing activities | – | 192,141 |
| Net increase in cash and restricted cash | $28,370,298 | $14,257,056 |

#### Comparison of Nine Months Ended September 30, 2022 and 2021

During the nine months ended September 30, 2022 and 2021, we financed our operations through internally generated funds.

Cash provided by operating activities increased $14,922,711 for the nine months ended September 30, 2022, as compared to the same period in the prior year. The increase in cash flow is primarily due to an improvement in net income from operations of $3,141,180, increased customer card funding of $12,615,961 related to growth in our existing businesses and launch of new plasma and pharma programs, increased amount of depreciation and amortization of $292,880, and favorable collections in accounts receivable of $386,537. Offsetting positive cash flow was a decrease in stock-based compensation of $156,732, accounts payable and accrued liabilities of $344,249 primarily associated with the timing of payments due to third-party service providers, other receivables of $420,033 related to employee retention credits posted in the current period, and an increase of $543,194 in prepaid expenses and other current assets related to inventory for new plasma donation centers, software licenses, and insurance.

Cash used in investing activities increased $617,328 for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. The change between periods was primarily attributed to an increase in the capitalization of internally developed software as we continue to invest in our technology platform.

Cash provided by financing activities was zero for the nine months ended September 30, 2022 as compared to cash provided by financing activities of $192,141 for the nine months ended September 30, 2021. Cash provided by financing activities in the 2021 period consisted of cash received from the exercise of employee stock options totaling $192,141.

#### Sources of Liquidity

We believe that our available cash on hand, excluding restricted cash, at September 30, 2022 of $7,981,953, along with our forecast for revenues and cash flows for the remainder of the year and for 2023, will be sufficient to sustain our operations for the next twelve months.

### Off-Balance Sheet Arrangements

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

### Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The preparation of consolidated financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Our estimates are based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates.

## Controls and procedures

As filed, 1,516 characters.

#### Disclosure Controls and Procedures.

Disclosure controls and procedures means controls and other procedures that are designed to ensure that the information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2022. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2022, the end of the period covered by this Quarterly Report on Form 10-Q.

#### Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2022, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 9, 2022.
Source: SEC EDGAR, the filing index for accession 0001683168-22-007406. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.