EX-99.2 4 pyds_exhibit992.htm EXHIBIT 99.2 Exhibit


Exhibit 99.2
 
Unaudited Pro Forma Condensed Combined Financial Information

Payment Data Systems, Inc. (the Company) acquired the membership interests of Singular Payments, LLC (Singular Payments) for total consideration of $5,000,000 consisting of $1,500,000 cash, minus the balance of the outstanding note receivable of $600,000, and common stock valued at $3,500,000 on September 1, 2017. The Company financed the acquisition by issuing new common shares and utilizing existing cash generated from operations.

The unaudited pro forma condensed consolidated financial statements set forth below are based on the audited financial statements of Payment Data Systems, Inc. as of and for the year ended December 31, 2016 and the audited financial statements of Singular Payments, LLC as of and for the year ended December 31, 2016.

The following unaudited pro forma condensed consolidated financial statements are based on our historical consolidated financial statements and Singular Payments, LLC historical consolidated financial statements as adjusted to give effect to the Company's acquisition of Singular Payments. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2017 and the year ended December 31, 2016 give effect to the transaction as if it had occurred on January 1, 2016.

The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed financial statements should be read together with the Company's historical financial statements, which are included in the Company's latest annual report on Form 10-K and quarterly report on Form 10-Q, and Singular Payments, LLC historical financial information included herein.

The unaudited pro forma condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC for the preparation of pro forma financial statements.  They are based upon available information, preliminary estimates and certain assumptions that we believe are reasonable and are described in the accompanying notes to the unaudited pro forma condensed consolidated financial statements.  We emphasize, however, that the unaudited pro forma condensed consolidated financial statements are provided for illustrative purposes only and are subject to a number of uncertainties and assumptions and do not purport to represent what Payment Data Systems, Inc.’s actual combined performance or financial position would have been had the transactions occurred on the dates indicated and do not purport to indicate financial position or results of operations as of any future date or for any future period.
































Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2016

 
 
Payment
Data
Systems, Inc.
Historical
 
Singular Payments, LLC (Acquiree) Historical
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
Combined
ASSETS
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
4,120,738

 
$
58,277

 
$
(1,500,000
)
 
(a)
 
$
2,620,738

 
 
 
 
 
 
(58,277
)
 
(c)
 
 
Accounts receivable, net
 
907,750

 
75,999

 
(75,999
)
 
(c)
 
907,750

Settlement processing assets
 
43,851,311

 
—

 
—

 
 
 
43,851,311

Prepaid expenses and other
 
142,029

 
—

 
—

 
 
 
142,029

Notes receivable
 
200,000

 
—

 
—

 
 
 
200,000

Current assets before restricted cash
 
49,221,828

 
134,276

 
(1,634,276
)
 
 
 
47,721,828

Settlement processing assets
 
15,803,641

 
—

 
—

 
 
 
15,803,641

Total current assets
 
65,025,469

 
134,276

 
(1,634,276
)
 
 
 
63,525,469

 
 
 

 
 

 
 

 
 
 
 

Property and equipment, net
 
2,494,510

 
52,511

 
(52,511
)
 
(c)
 
2,494,510

 
 
 

 
 

 
 
 
 
 
 

Other Assets:
 
 

 
 

 
 

 
 
 
 

Intangibles, net
 
172,899

 
—

 
5,000,000

 
(b)
 
5,172,899

Deferred tax asset
 
1,621,000

 
—

 
—

 
 
 
1,621,000

Other assets
 
200,808

 
—

 
—

 
 
 
200,808

Total other assets
 
1,994,707

 
—

 
5,000,000

 
 
 
6,994,707

Total Assets
 
$
69,514,686

 
$
186,787

 
$
3,313,213

 
 
 
$
73,014,686

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS'
 
 

 
 

 
 
 
 

EQUITY
 
 

 
 

 
 

 
 
 
 

Current Liabilities:
 
 

 
 

 
 

 
 
 
 

Accounts payable
 
$
145,044

 
$
47,824

 
$
(47,824
)
 
(c)
 
$
145,044

Accrued expenses
 
703,322

 
184

 
(184
)
 
(c)
 
703,322

Settlement processing obligations
 
43,851,311

 
—

 
—

 
 
 
43,851,311

Current liabilities before restricted cash
 
44,699,677

 
48,008

 
(48,008
)
 
 
 
44,699,677

Restricted cash
 
15,803,641

 
—

 
—

 
 
 
15,803,641

Total current liabilities
 
60,503,318

 
48,008

 
(48,008
)
 
 
 
60,503,318

Stockholders' Equity:
 
 

 
 

 
 

 
 
 
 

Preferred stock
 
—

 
—

 
—

 
 
 
—

Common stock
 
181,818

 
—

 
1,515

 
(a)
 
183,333

Additional paid-in capital
 
63,881,365

 
—

 
3,498,485

 
(a)
 
67,379,850

Treasury stock
 
(718,149
)
 
—

 
—

 
 
 
(718,149
)
Deferred compensation
 
(4,082,025
)
 
—

 
—

 
 
 
(4,082,025
)
Accumulated deficit
 
(50,251,641
)
 
138,779

 
(138,779
)
 
(d)
 
(50,251,641
)
Total stockholders' equity
 
9,011,368

 
138,779

 
3,361,221

 
 
 
12,511,368

Total Liabilities and Stockholders' Equity
 
$
69,514,686

 
$
186,787

 
$
3,313,213

 
 
 
$
73,014,686

 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information





Unaudited Pro Forma Condensed Combined Statements of Operations
Year Ended December 31, 2016
 
 
 
Payment
Data
Systems, Inc.
Historical
 
Singular Payments, LLC
Historical
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
Combined
Revenues
 
$
12,076,358

 
$
1,679,709

 
$
9,243,933

 
 (e)
 
$
23,000,000

Operating expenses:
 
 

 
 

 
 

 
 
 
 

Cost of services
 
8,293,354

 
316,388

 
9,243,933

 
(e)
 
17,853,675

Selling, general and administrative:
 
 

 
 

 
 

 
 
 
 

Stock-based compensation
 
1,314,778

 
—

 
131,670

 
(f)
 
1,446,448

Cancellation of stock-based compensation
 
(261,208
)
 
—

 
—

 
 
 
(261,208
)
Other expenses
 
3,188,407

 
1,603,083

 
—

 
 
 
4,791,490

Depreciation and amortization
 
901,600

 
19,313

 
(19,313
)
 
(h)
 
1,901,600

 
 
 
 
 
 
1,000,000

 
(g)
 
 
Total operating expense
 
13,436,931

 
1,938,784

 
10,356,290

 
 
 
25,732,005

Operating income (loss)
 
(1,360,573
)
 
(259,075
)
 
(1,112,357
)
 
 
 
(2,732,005
)
 
 
 
 
 
 
 
 
 
 
 
Other income and (expenses)
 
 

 
 

 
 

 
 
 
 

Interest income
 
97,322

 
—

 
—

 
 
 
97,322

Other income (expense)
 
99,277

 
4,301,887

 
(4,301,887
)
 
(h)
 
99,277

      Other income (expenses), net
 
196,599

 
4,301,887

 
(4,301,887
)
 
 
 
196,599

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(1,163,974
)
 
4,042,812

 
(5,414,244
)
 
 
 
(2,535,406
)
Income taxes
 
32,668

 
—

 
—

 
 
 
32,668

Net Income (Loss)
 
$
(1,196,642
)
 
$
4,042,812

 
$
(5,414,244
)
 
 
 
$
(2,568,074
)
 
 
 
 
 
 
 
 
 
 
 
Basic (loss) per common share
 
$
(0.15
)
 
 
 
 
 
 
 
$
(0.27
)
Diluted (loss) per common share
 
$
(0.15
)
 
 
 
 
 
 
 
$
(0.27
)
Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
  Basic
 
7,838,197

 
 
 
1,515,152

 
(i)
 
9,353,349

  Diluted
 
7,838,197

 
 
 
1,515,152

 
(i)
 
9,353,349

 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information





















Unaudited Pro Forma Condensed Combined Statements of Operations
Nine Months ended September 30, 2017
 
 
 
Payment
Data
Systems, Inc.
Historical
 
Singular Payments, LLC
Historical
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
Combined
Revenues
 
$
8,950,038

 
$
886,086

 
$
6,622,000

 
 (e)
 
$
16,458,124

Operating expenses:
 
 

 
 

 
 

 
 
 
 

Cost of services
 
6,486,587

 
132,805

 
6,622,000

 
(e)
 
13,241,392

Selling, general and administrative:
 
 

 
 

 
 

 
 
 
 

Stock-based compensation
 
655,885

 
—

 
87,780

 
(f)
 
743,665

Cancellation of stock-based compensation
 
—

 
—

 
—

 
 
 
—

Other expenses
 
2,800,033

 
1,021,749

 
—

 
 
 
3,821,782

Depreciation and amortization
 
770,607

 
—

 
666,667

 
(b)
 
1,437,274

Total operating expense
 
10,713,112

 
1,154,554

 
7,376,447

 
 
 
19,244,113

Operating income (loss)
 
(1,763,074
)
 
(268,468
)
 
(754,447
)
 
 
 
(2,785,989
)
 
 
 
 
 
 
 
 
 
 
 
Other income and (expenses):
 
 

 
 

 
 

 
 
 
 

Interest income
 
88,927

 
—

 
—

 
 
 
88,927

Other income (expense)
 
(121
)
 
—

 
—

 
 
 
(121
)
      Other income (expenses), net
 
88,806

 
—

 
—

 
 
 
88,806

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(1,674,268
)
 
(268,468
)
 
(754,447
)
 
 
 
(2,697,183
)
Income taxes
 
36,677

 
—

 
—

 
 
 
36,677

Net Income (Loss)
 
$
(1,710,945
)
 
$
(268,468
)
 
$
(754,447
)
 
 
 
$
(2,733,860
)
 
 
 
 
 
 
 
 
 
 
 
Basic (loss) per common share
 
$
(0.20
)
 
 
 
 
 
 
 
$
(0.27
)
Diluted (loss) per common share
 
$
(0.20
)
 
 
 
 
 
 
 
$
(0.27
)
Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
  Basic
 
8,637,169

 
 
 
1,350,462

 
(i)
 
9,987,631

  Diluted
 
8,637,169

 
 
 
1,350,462

 
(i)
 
9,987,631

 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information



















Notes to the Unaudited Pro Forma Condensed Financial Information

Note 1 - Basis of presentation

The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma effects that are 1) directly attributable to the business combination, 2) factually supportable and 3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.

The business combination was accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of Singular Payments assets acquired and liabilities assumed and conformed the accounting policies of Singular Payments to its own accounting policies.

The pro forma combined financial statements do not necessarily reflect what the combined company's financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

Note 2 - Financing transactions

The Company completed the acquisition of Singular Payment for total consideration of $5,000,000 consisting of $1,500,000 in cash, minus the balance of the outstanding note receivable of $600,000, and $3,500,000 in shares of common stock, or 1,515,152 shares of the Company's common stock, $0.001 par value, valued at $2.31. The final number of shares issued 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.

Note 3 - Purchase price allocation

The Company has performed a valuation analysis of the fair market value of Singular Payments assets and liabilities. The following table summarizes the allocation of the purchase price as of September 1, 2017.

Customer list                            $5,000,000
Total Consideration                        $5,000,000

The purchase price allocation has been used to prepare pro forma adjustments to the pro forma balance sheet and income statement.

Note 4 - Pro forma adjustments

The pro forma adjustments are based upon our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

a.
Represents the payment of $1,500,000 in cash and $3,500,000 in common stock (total consideration of $5,000,000) related to acquisition of Singular Payments.
b.
Reflects the adjustment of historical intangible assets acquired by the Company to their estimated fair value. As a part of the valuation analysis, the Company identified intangible assets, including customer lists. The fair value of identifiable intangible assets is determined primarily using the "income approach" which requires a forecast of all of the future cash flows.




 
 
 
Year Ended
Nine Months Ended
 
 
Estimated
December 31, 2016
September 30, 2017
 
Estimated
Useful Life in
Amortization
Amortization
 
Fair Value
Years
Expense
Expense
 
 
 
 
 
Customer list
$5,000,000
5.0

$1,000,000
$750,000
September adjustment
 
 
 
$83,333
Pro forma expense adjustment
 
 
$1,000,000
$666,667
 
 
 
 
 

            
    
c.
Reflects working capital adjustments based upon the membership interest purchase price agreement.
d.
Reflects the elimination of Singular Payments equity.    
e.
Singular Payments recorded net commissions as revenues and accepted no risk on the transaction. Payment Data Systems assumes all risk associated with credit card transactions and in accordance with ASC 605 records revenues as gross. The adjustment reflects the difference in accounting from Singular Payments to Payment Data Systems.
f.
Reflects the incremental stock compensation expense award as a part of the employment agreement of Vaden Landers.
g.
Reflects the incremental amortization expense as a result of the acquisition of Singular Payments.    
h.
Eliminates income and expenses that are no longer applicable to Payment Data Systems.
i.
Adjusts outstanding weighted average shares as though the acquisition occurred at January 1, 2016.