Overview


On March 4, 2019, our board of directors and stockholders holding a majority of 
our outstanding common stock agreed to amend our articles of incorporation to 
change our name from 3PEA International, Inc. to Paysign, Inc. As a result, we 
amended our articles of incorporation on April 23, 2019 for such name change. 
Additionally, we changed our trading symbol on the NASDAQ Capital Market to 
“PAYS”.


We are a vertically integrated provider of innovative 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 innovative 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 has 
allowed us to significantly expand its operational capabilities by facilitating 
our entry into new markets within the payments space through its flexibility 
and ease of customization. The Paysign platform delivers cost benefits and 
revenue building opportunities to our partners.


We have developed prepaid card programs for corporate incentive and rewards 
including, but not limited to, consumer rebates and rewards, donor 
compensation, healthcare reimbursement payments and pharmaceutical payment 
assistance. We are expanding our product offerings to include additional 
corporate incentive products, payroll cards, demand deposit accounts accessible 
with a debit card, travel cards, and expense reimbursement cards. Our cards are 
sponsored by our issuing bank partners.



Our revenues include fees from program set-up; customization and development; 
data processing and report generation; card production and fulfillment; 
transaction fees and interchange derived from card usage; inactivity fees; card 
replacement fees program management fees and program administration fees. We 
provide an in-house customer service center which includes live bi-lingual 
phone operators staffed 24/7/365, for incoming calls. We also provide in house 
Interactive Voice Response and two-way SMS messaging platforms.



We divide prepaid cards into two general categories: corporate and consumer 
reloadable, and non-reloadable cards.


Reloadable Cards: These types of cards are generally incentive, payroll or 
considered general purpose reloadable (“GPR”) cards. Payroll cards are issued 
to an employee by an employer to receive the direct deposit of their payroll. 
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 gift or incentive cards. These cards may be open loop or closed loop. 
Normally these types of cards are used for purchase of goods or services at 
retail locations and cannot be used to receive cash.



These prepaid cards may be open loop, closed loop or semi-closed loop. Open 
loop cards can be used to receive cash at ATM locations or purchase goods or 
services by PIN or signature at retail locations. These cards can be used 
virtually anywhere that the network brand (Visa, MasterCard, Discover, etc.) is 
accepted. Closed loop cards can only be used at a specific merchant. 
Semi-closed loop cards can be used at several merchants such as a shopping 
mall.



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



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



Our products and services are aimed at capitalizing on the growing demand for 
stored value and reloadable ATM/prepaid card financial products in a variety of 
market niches. Our proprietary platform is scalable and customizable, 
delivering cost benefits and revenue building opportunities to partners. We 
manage all aspects of the debit card lifecycle, from managing the card design 
and approval processes with banking partners and card networks, to production, 
packaging, distribution, and personalization. We also oversee inventory and 
security controls, renewals, lost and stolen card management and replacement.



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 in emerging international markets.



We have devoted more extensive resources to sales and marketing activities as 
we have added essential personnel to our marketing and sales team. We sell our 
products directly to customers in the U.S. but may work with a small number of 
resellers and third parties in international markets to identify, sell and 
support targeted opportunities. We have also identified opportunities in the 
European Union and are pursuing those opportunities.



During 2019, we will continue to invest additional funds in technology 
improvements, sales and marketing, customer service, and regulatory compliance. 
We are considering 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, but our 
expansion will not be as rapid.



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 was 
$191 million and $127 million for the three months ended March 31, 2019 and 
2018, respectively. We use this metric to analyze the total amount of money 
moving into our prepaid card programs.



Conversion Rate on Gross Dollar Volume Loaded on Cards – Comprised of revenue, 
gross profit and net profit conversion rates of gross dollar volume loaded on 
cards. Our revenue conversion rate for the three months ended March 31, 2019 
and 2018 were 3.79% or 379 basis points (“bps”), and 368% or 368 bps, 
respectively, of gross dollar volume loaded on cards. Our gross profit 
conversion rate for the three months ended March 31, 2019 and 2018 were 1.97% 
or 197 bps, and 1.77% or 177 bps, respectively, of gross dollar volume loaded 
on cards. Our net profit conversion rate for the three months ended March 31, 
2019 and 2018 were 0.46% or 46 bps, and 0.32% or 32 bps, respectively, of gross 
dollar volume loaded on cards.



In addition, management reviews key performance indicators, such as revenue, 
gross profits, operational expense 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 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, earnings per share (basic and diluted) or net cash from operating 
activities as determined in accordance with GAAP.



Results of Operations



Three Months ended March 31, 2019 and 2018



Revenues for the three months ended March 31, 2019 were $7,257,290, an increase 
of $2,580,970 compared to the same period in the prior year, when revenues were 
$4,676,320. The increase in revenue approximating 55% was primarily due to an 
increase in the number of new corporate incentive prepaid card products and 
growth within our existing corporate incentive prepaid card products. We 
believe we will continue to experience equal or better revenue growth rate for 
the rest of 2019 as a result of growth in our existing and the expected 
addition of new card products in various market verticals.



Cost of revenues (excluding depreciation and amortization) for the three months 
ended March 31, 2019 were $3,482,136, an increase of $1,048,926 compared to the 
same period in the prior year, when cost of revenues were $2,433,210. Cost of 
revenues constituted approximately 48% and 52% of total revenues in 2019 and 
2018, respectively. Cost of revenues is comprised of transaction processing 
fees, data connectivity and data center expenses, network fees, bank fees, card 
production costs, customer service and program management expenses, application 
integration setup, and sales and commission expense. Our cost of revenues 
(excluding depreciation and amortization) as a percentage of revenues decreased 
due to improved network interchange margins and a favorable client mix. We 
believe our cost of revenues as a percentage of revenue will continue to 
decrease during 2019 as our revenues increase.


Gross profit for the three months ended March 31, 2019 was $3,775,154, an 
increase of $1,532,044 compared to the same period in the prior year, when 
gross profit was $2,243,110. Our overall gross margins were 52% and 48% during 
the fiscal years 2019 and 2018 which was consistent with our overall 
expectation and an improvement of 405 bps resulting from favorable client 
industry mix. We believe gross margin will further improve during 2019 as we 
continue to expand our Pharmaceutical business.



Depreciation and amortization for the three months ended March 31, 2019 were 
$333,761, an increase of $87,723 compared to the same period in the prior year, 
when depreciation and amortization were $246,038. The increase in depreciation 
and amortization was primarily due to continued capitalized enhancements to our 
platform which we expect to continue.



Selling, general and administrative expenses (“SG&A”) for the three months 
ended March 31, 2019 were, $2,704,949 an increase of $1,125,930 compared to the 
same period in the prior year, when selling, general and administrative 
expenses were $1,579,019. The increase in SG&A was primarily due to the 
continued ramp up of our investment in infrastructure, increased staffing, and 
increased stock based compensation as inducement grants. The increase in SG&A 
compared to the quarter ending 2018 was $77,749, resulting in a slower rate of 
increase.



In the three months ended March 31, 2019, we recorded operating income of 
$736,444 as compared to operating income of $418,053 in the three months ended 
March 31, 2018, an increase of $318,391 or 76%.



Our income tax benefit for the three months March 31, 2019 was $(15,490), as 
compared to $-0- for the three months ended March 31, 2018, a decrease of 
$15,490.



Other income (expense) including interest for the three months ended March 31, 
2019 was $119,173, as compared to other income (expense) of $(7,400) in three 
months ended March 31, 2018, which represents an increase in net other income 
(expense) of $126,573. We anticipate our other income to continue to increase 
during 2019 as result of interest earned from our increasing cash balances.



Our net income attributable to Paysign, Inc. for the three months ended March 
31, 2019 was $871,671 as compared to net income of $412,548 in the three months 
ended March 31, 2018, which represents an increase in net income of $459,123 or 
111%. The overall change in net income is attributable to the aforementioned 
factors.



Liquidity and Sources of Capital


Comparison of three months ended March 31, 2019 and 2018



During the three months ended March 31, 2019 and 2018, we financed our 
operations primarily through internally generated funds.



Operating activities provided $20,032,971 of cash in the three months ended 
March 31, 2019, as compared to $1,682,723 of cash provided by the same period 
in the prior year. Excluding the change in restricted cash, net cash provided 
by operating activities was $881,467 in the three months ended March 31, 2019, 
as compared to $(225,389) in the three months ended March 31, 2018, an 
improvement of $1,106,855. In 2019, $19,151,504 of cash was provided by change 
in customer card funding. Major non-cash items that affected our cash flow from 
operations in the three months ended March 31, 2019 were non-cash charges of 
$333,761 for depreciation and amortization, and stock-based compensation of 
$646,710. Our operating assets and liabilities, excluding customer card 
funding, used $970,111 of cash in the three months ended March 31, 2019, most 
of which resulted from a decrease in accounts payable and accrued expenses of 
$(748,447), and an increase in accounts receivable of $(330,548). Major 
non-cash items that affected our cash flow from operations in the three months 
ended March 31, 2018 were non-cash charges of $246,038 for depreciation and 
amortization, and stock-based compensation of $137,401. Our operating assets 
and liabilities in the three months ended March 31, 2018, excluding customer 
card funding, used $1,019,481 of cash, most of which resulted from a decrease 
in accounts payable of $(607,123) and an increase in prepaid expenses, accounts 
receivable and other assets of $(413,181).



Investing activities used $(559,415) of cash in 2019, as compared to $(352,533) 
of cash used in 2018, most of which related to the enhancement of the 
processing platform used in our business.


Sources of Financing



We believe that our available cash on hand, excluding restricted cash, at March 
31, 2019 of $5,211,161, combined with revenues and operating earnings 
anticipated for the remainder of 2019 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.


Quantitative and Qualitative Disclosures about Market Risk.



Because the Company is a smaller reporting company, it is not required to 
provide the information called for by this Item.