10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission File Number:000-30152

PAYMENT DATA SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Nevada	98-0190072
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

12500 San Pedro, Ste. 120, San Antonio, TX	78216
(Address of principal executive offices)	(Zip Code)

(210) 249-4100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [_] No

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

Large accelerated filer [_]	Accelerated filer [_]
Non-accelerated filer [_] (Do not check if a smaller reporting company)	Smaller reporting company [X]
	Emerging Growth Company [_]

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

[_] Yes [X] No

Indicate the number of shares of each of the issuer’s classes of common stock, as of the latest practicable date:

On May 9, 2018, the number of outstanding shares of the issuer's common stock, par value $0.001 per share, was 15,859,515.

PAYMENT DATA SYSTEMS, INC.

INDEX

		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements (Unaudited).	1
	Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	0
	Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2018 and 2017	2
	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2018 and 2017	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	15
Item 4.	Controls and Procedures.	15
PART II – OTHER INFORMATION		15
Item 1.	Legal Proceedings.	15
Item 1A.	Risk Factors.	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	17
Item 3.	Defaults Upon Senior Securities.	17
Item 4.	Mine Safety Disclosures (Not applicable).	17
Item 5.	Other Information.	17
Item 6.	Exhibits.	18

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

PAYMENT DATA SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2018			December 31, 2017
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	3,473,066		$	4,800,554
Accounts receivable, net	892,156			969,674
Settlement processing assets	37,751,361			38,027,984
Prepaid expenses and other	369,514			176,945
Notes receivable	150,000			150,000
Current assets before merchant reserves	42,636,097			44,125,157
Merchant reserves	15,080,233			14,977,468
Total current assets	57,716,330			59,102,625
Property and equipment, net	1,926,026			2,105,186
Other assets:
Intangibles, net	4,426,426			4,676,427
Deferred tax asset	1,394,000			1,394,000
Other assets	182,690			157,565
Total other assets	6,003,116			6,227,992
Total assets	$	65,645,472		$	67,435,803
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	225,757		$	300,736
Accrued expenses	1,007,080			1,006,262
Settlement processing obligations	37,751,361			38,027,984
Deferred revenues	90,250			—
Current liabilities before merchant reserve obligations	39,074,448			39,334,982
Merchant reserve obligations	15,080,233			14,977,468
Total current liabilities	54,154,681			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, respectively	—			—
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, respectively	186,368			186,299
Additional paid-in capital	74,188,314			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’ equity	11,490,791			13,123,353
Total liabilities and stockholders’ equity	$	65,645,472		$	67,435,803

1

See the accompanying notes to the condensed interim consolidated financial statements.

1

PAYMENT DATA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2018			2017
Revenues	$	5,843,665		$	2,810,744
Operating expenses:
Cost of services	4,572,758			1,867,945
Selling, general and administrative:
Stock-based compensation	374,378			207,920
Other expenses	1,498,651			828,272
Depreciation and amortization	458,663			228,545
Total operating expenses	6,904,450			3,132,682
Operating (loss)	(1,060,785		)	(321,938		)
Other income and (expense):
Interest income	11,521			33,816
Other income (expense)	(1,542		)	1,539
Other income and (expense), net	9,979			35,355
Income (loss) before income taxes	(1,050,806		)	(286,583		)
Income taxes	—			—
Net (loss)	$	(1,050,806	)	$	(286,583	)
Basic earnings (loss) per common share:	$	(0.09	)	$	(0.03	)
Diluted earnings (loss)per common share:	$	(0.09	)	$	(0.03	)
Weighted average common shares outstanding
Basic	12,026,622			8,485,183
Diluted	12,026,622			8,485,183

See the accompanying notes to the condensed interim consolidated financial statements.

2

PAYMENT DATA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2018			2017
Operating activities:
Net (loss)	$	(1,050,806	)	$	(286,583	)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Depreciation	208,662			187,760
Amortization	250,001			40,785
Non-cash stock based compensation	374,378			207,920
Changes in current assets and current liabilities:
Accounts receivable	77,518			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 reserves	102,765			(1,078,211		)
Deferred revenue	90,250			—
Net cash (used) by operating activities	(239,087		)	(839,628		)
Investing activities:
Purchases of property and equipment	(29,502		)	(210,052		)
Notes receivable	—			(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 period	19,778,022			19,924,379
Cash, cash equivalents and merchant reserves, end of period	$	18,553,299		$	18,343,735
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	—			—
Income taxes	—			—

See accompanying notes to the condensed interim consolidated financial statements.

3

PAYMENT DATA SYSTEMS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis 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:

4

	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: 

5

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 CashFlows (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.

6

Note 2.  Acquisition 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.

Note 3. Notes 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.

7

Note 4. Accrued 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

Note 5. Net 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

8

Note 6. Income 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.

Note 7. Related 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.

9

Note 8. Legal 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.

10

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS DISCLAIMER

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. If used in this report, the words "anticipate," "believe," "estimate," "intend," and words or phases of similar import are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our annual report on Form 10-K and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

This discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this report, and our annual report on Form 10-K for the fiscal year ended December 31, 2017, filed on March 30, 2018, including the audited consolidated financial statements and the notes contained therein. 

Overview

We provide integrated electronic payment processing services to merchants and businesses, including all types of Automated Clearing House, or ACH, processing, credit, PINless debit, prepaid card and debit card-based processing services. We also operate an online payment processing service, under the domain name www.billx.com system, which allows consumers to process online payments to pay any other individual, including family and friends. Through Akimbo, under the domain name www.akimbocard.com, we offer MasterCard prepaid cards to consumers for use as a tool to stay on budget, manage allowances and share money with family and friends. We have further developed our Akimbo platform to include Akimbo Now for businesses, Akimbo Gift for consumers and support for Apple Pay®, Android Pay™ and Samsung Pay™.

On September 1, 2017, we closed the acquisition of Singular Payments, LLC. Singular Payments is a Fintech payments provider that relies upon innovative technology to process payments for merchants in healthcare and other niche markets nationwide. Singular is primarily focused on custom software integrations of their flat rate payment processing offerings and their proprietary, simple to use electronic bill payment presentment and payment platform which allows merchants to streamline the costly and labor-intensive process of invoicing and collections.

We reported a net loss of $1,050,806 for the three months ended March 31, 2018 and a net loss of $286,583 for the three months ended March 31, 2017.

During the first quarter of 2018, the volume of credit card transactions we processed increased by 307% compared to the first quarter of 2017.  Accordingly, the amount of credit card dollars processed during the first quarter of 2018 increased by 305% compared to the same time period in 2017. Credit card transactions processed during the first quarter of 2018 increased by 6% compared to the fourth quarter of 2017. Credit card dollars processed during the first quarter of 2018 increased by 5% compared to the fourth quarter of 2017. The growth in both the number of transactions processed and the dollar amounts processed is due to the acquisition of the business of Singular Payments on September 1, 2017.

ACH (eCheck) transaction volumes during the first quarter of 2018 increased by 5% compared to the fourth quarter of 2017, representing the third consecutive quarter of growth. eCheck volumes during the first quarter of 2018 were down 2% compared to the first quarter of 2017. Returned check transactions processed during the first quarter of 2018 increased 6% compared to the fourth quarter of 2017 and decreased by 2% compared to the first quarter of 2017.

Total dollars processed for the first quarter of 2018 exceeded $782 million.

For the second quarter of 2018, we expect to report significant revenue increases versus the comparable prior year period due to the business acquired as a part of the Singular Payments acquisition coupled with modest sequential growth versus the first quarter of 2018. We expect continued improvement in our ACH and returned check revenues versus the first quarter of 2018. We expect to see an increase in the number of enrolled merchant customers, for whom we provide processing for credit and debit card transactions, and we expect to add new clients from our sales pipeline, which we believe will create increased transaction volumes. Our prepaid credit card transactions should continue to grow modestly.

11

We may incur future operating losses. To regain and sustain profitability, we must, among other things, significantly grow and maintain our customer base, implement successful marketing strategies, continue to maintain and upgrade our technology and transaction-processing systems, provide superior customer service, respond to competitive developments, attract, retain and motivate qualified personnel, and respond to unforeseen industry developments and other factors.

We believe that our success will depend in large part on our ability to (a) grow revenues, (b) effectively manage our operating expenses, (c) add quality customers to our client base, (d) meet evolving customer requirements, (e) adapt to technological changes in an emerging market, and (f) properly assimilate current and future acquisitions of companies and customer portfolios. The acquisition of Singular Payments and their sales force complements our existing resources. The acquisition leverages our existing customer set and service offerings providing a near term impact on revenues and profits. We are focused on adding new software integrators and cross-selling incremental services to existing merchants. In addition to our near term growth opportunities, we are focused on leveraging and optimizing the infrastructure of the combined organization and continuing to leverage and outsource our data center operations allowing expansion of our payment processing capabilities without significantly increasing our operating costs.

12

Critical Accounting Policies

Our management’s discussion and analysis of financial condition and results of operations is based upon our interim condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the reported amounts of revenues and expenses, bad debt, investments, intangible assets, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. We consider the following accounting policies to be critical because the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change or because the impact of the estimates and assumptions on financial condition or operating performance is material.

For a summary of Critical Accounting Policies, please refer to the Notes to Interim Condensed Consolidated Financial Statements, Note 1, Basis of Presentation.

Results of Operations

Revenues

Our revenues are principally derived from providing integrated electronic payment services to merchants and businesses, including credit and debit card-based processing services and transaction processing via the Automated Clearing House, or ACH, network and the program management and processing of prepaid debit cards. We also operate an online payment processing service for consumers under the domain name www.billx.com and sell this service as a private-label application to resellers.

Revenues for the quarter ended March 31, 2018 increased 108% to $5,843,665, as compared to $2,810,744 for the quarter ended March 31, 2017. The increase for the quarter ended March 31, 2018 versus the same period in 2017 was primarily due to acquisition of the business of Singular Payments, LLC on September 1, 2017 combined with organic growth.

Cost of Services

Cost of services includes the cost of personnel dedicated to the creation and maintenance of connections to third-party payment processors and the fees paid to such third-party providers for electronic payment processing services. Through our contractual relationships with our payment processors and sponsoring banks, we are able to process ACH and debit, credit or prepaid card transactions on behalf of our customers and their consumers. We pay volume-based fees for debit, credit, ACH and prepaid transactions initiated through these processors or sponsoring banks, and pay fees for other transactions such as returns, notices of change to bank accounts and file transmission.

Cost of services increased 145% to $4,572,758 for the quarter ended March 31, 2018, as compared to $1,867,945 for the same period in the prior year. The increase for the quarter ended March 31, 2018, as compared to the same period in the prior year, was primarily due to the increase in the volume of credit card processing transactions associated with the business acquired from the Singular Payments acquisition.

Stock-based Compensation

Stock-based compensation expenses were $374,378 and $207,920 for the quarters ended March 31, 2018 and 2017, respectively. The increase in stock-based compensation expense was due to the incremental expenses associated with the stock grants issued in November, 2017.

Other Selling, General and Administrative Expenses

Other selling, general and administrative expenses increased by 81% to $1,498,651 for the quarter ended March 31, 2018, as compared to $828,272 for the same period in the prior year. The increase in other selling, general and administrative expenses for the three months ended March 31, 2018, as compared to the same period in the prior year, was primarily attributable to employee salaries and other employee related expenses associated with the Singular Payments acquisition.

13

Depreciation and Amortization

Depreciation and amortization totaled $458,663 for the quarter ended March 31, 2018, compared to depreciation and amortization of $228,545 for the same period in 2017. Increased amortization expense was as a result of the Singular Payments acquisition in September, 2017.

Other Income (Expense)

Other income (expense) netted income of $9,979 for the quarter ended and March 31, 2018 compared to income of $35,355 for the quarter ended March 31, 2017, respectively. The decrease in other income is primarily due to lower interest-bearing cash balances.

Interest income was $11,521 and $33,816, for the quarters ended March 31, 2018 and March 31, 2017, respectively.

Net Loss

We reported a net loss of $1,050,806 for the quarter ended March 31, 2018, as compared to a net loss of $286,583 for the same period in the prior year. The key drivers in the decrease in profitability include efforts to expand our sales and marketing organization, higher employee and other employee related expenses and incremental amortization expense associated with the Singular Payments acquisition.

Liquidity and Capital Resources

At March 31, 2018, we had $3,473,066 of cash and cash equivalents, as compared to $4,800,554 of cash and cash equivalents at December 31, 2017. The decrease in cash for the quarter ended March 31, 2018 was primarily due to $239,087 of net funds used by operations for the period and $956,134 of treasury stock purchases to cover employee taxes associated with the January 9, 2018 stock vesting.

We reported a net loss of $1,050,806 for the quarter ended March 31, 2018 and a net loss of $286,583 for the quarter ended March 31, 2017. At March 31, 2018, we have an accumulated deficit of $54,311,232. Additionally, we have working capital of $3,561,649 and $4,790,175 at March 31, 2018 and December 31, 2017, respectively.

Net cash used by operating activities including merchant reserve funds was $239,087 and $839,628 for the quarter ended March 31, 2018 and March 31, 2017, respectively. The decrease in net cash provided by operating activities for the quarter ended March 31, 2018 as compared to the same period in the prior year was attributable to a higher operating loss as we integrate the Singular Payments acquisition and incrementally grow our business.

Net cash used by investing activities was $29,502 for the quarter ended March 31, 2018, as compared to net cash used by investing activities of $710,052 for the same period in the prior year. The investing activities relate to normal asset purchases. Prior year investing activities included higher asset purchases and a note receivable associated with the Singular Payments acquisition on September 1, 2017.

Under a loan and security agreement dated February 2, 2016, our 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, we 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 $50,000 due April 30, 2018. FiCentive has issued a letter of default. In principle, FiCentive has agreed to extend the due date of the payment due April 30, 2018 to May 16, 2018. There are no assurances that we will be able to recover the remaining $150,000 principal and there are no assurances we 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, we have not recorded a loss reserve on the note receivable.

14

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

Item 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive and Chief Financial Officers, 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 amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, our Chief Executive and Chief Financial Officers concluded that our disclosure controls and procedures as of March 31, 2018 were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our evaluation of disclosure controls and procedures included an evaluation of certain components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

Under a loan and security agreement dated February 2, 2016, our 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, we 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 we will be able to recover the remaining $150,000 principal and there are no assurances we 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, we have 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.

15

Item 1A. RISK FACTORS.

There have been no material changes from risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 30, 2018.

16

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Recent Sales of Unregistered Securities

There were no issuances of unregistered equity securities during the quarter ended March 31, 2018.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On November 2, 2016, we announced that our Board of Directors authorized the repurchase of up to $1 million of our common stock from time to time on the open market, in block transactions, or in privately negotiated transactions. On January 9, 2018, the Board of Directors added an additional $2 million to the buyback plan. The funds available at December 31, 2017 were $455,030 and after the increase were $2,455,030. At March 31, 2018, $1,498,902 are available under the repurchase plan. The program began on November 16, 2016 and will be available until all funds are exhausted, or September 29, 2019, unless terminated earlier by us. The program may be used for purchases of stock from employees and directors; and for open-market purchases through a broker. During the three months ended March 31, 2018, we made the following stock repurchases:

Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
January 1 -31, 2018		397,845	$	2.40		720,914	$	1,498,902
Total		397,845

On January 8, 2018 and January 9, 2018, we repurchased 397,845 shares for $956,128 in a private transaction at the closing price on January 8 and January 9, 2018 from employees to cover the respective employee's share of taxes for shares that vested on that day, as approved by our Audit Committee and Board of Directors on the same day, with the respective directors recusing themselves. The share buyback included share purchases for Michael Long, Chairman of the Board, ($380,342), Louis Hoch, President and Chief Executive Officer, ($380,342), and Tom Jewell, Chief Financial Officer, ($32,650), as approved by the Audit Committee of the Board of Directors and the Board of Directors as of January 9, 2018.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. OTHER INFORMATION.

None.

17

Item 6. Exhibits.

Exhibit
Number	Description
3.1	Amended and Restated Articles of Incorporation (included as exhibit 3.1 to the Form 10-KSB filed March 31, 2006, and incorporated herein by reference).
3.2	Amendment to Restated Articles of Incorporation (included as exhibit A to the Schedule 14C filed April 18, 2007, and incorporated herein by reference).
3.3	Certificate of Change Filed Pursuant to NRS 78.209 (included as exhibit 3.1 to the Form 8-K filed July 23, 2015, and incorporated herein by reference).
3.4	Amended and Restated By-laws (included as exhibit 3.2 to the Form 10-KSB filed March 31, 2006, and incorporated herein by reference).
4.1	1999 Employee Stock Purchase Plan (included as exhibit 4.3 to the Form S-8, File No. 333-30958, filed February 23, 2000, and incorporated herein by reference).
10.1	Lease Agreement between the Company and Frost National Bank, Trustee for a Designated Trust, dated August 22, 2003 (included as exhibit 10.3 to the Form 10-Q filed November 14, 2003, and incorporated herein by reference).
10.2	Employment Agreement between the Company and Michael R. Long, dated February 27, 2007 (included as exhibit 10.1 to the Form 8-K filed March 2, 2007, and incorporated herein by reference).
10.3	Employment Agreement between the Company and Louis A. Hoch, dated February 27, 2007 (included as exhibit 10.2 to the Form 8-K filed March 2, 2007, and incorporated herein by reference).
10.4	First Amendment to Employment Agreement between the Company and Michael R. Long, dated November 12, 2009 (included as exhibit 10.15 to the Form 10-Q filed November 16, 2009, and incorporated herein by reference).
10.5	First Amendment to Employment Agreement between the Company and Louis A. Hoch, dated November 12, 2009 (included as exhibit 10.16 to the Form 10-Q filed November 16, 2009, and incorporated herein by reference).
10.6	Second Amendment to Employment Agreement between the Company and Michael R. Long, dated April 12, 2010 (included as exhibit 10.16 to the Form 10-K filed April 15, 2010, and incorporated herein by reference).
10.7	Second Amendment to Employment Agreement between the Company and Louis A. Hoch, dated April 12, 2010 (included as exhibit 10.17 to the Form 10-K filed April 15, 2010, and incorporated herein by reference).
10.8	Bank Sponsorship Agreement between the Company and University National Bank, dated August 29, 2011 (included as exhibit 10.18 to the Form 10-K filed April 3, 2012, and incorporated herein by reference).
10.9	Third Amendment to Employment Agreement between the Company and Michael R. Long, dated January 14, 2011 (included as exhibit 10.19 to the Form 10-K filed April 3, 2012, and incorporated herein by reference).
10.10	Third Amendment to Employment Agreement between the Company and Louis A. Hoch, dated January 14, 2011 (included as exhibit 10.20 to the Form 10-K filed April 3, 2012, and incorporated herein by reference).
10.11	Fourth Amendment to Employment Agreement between the Company and Michael R. Long, dated July 2, 2012 (included as exhibit 10.18 to the Form 10-Q filed August 20, 2012, and incorporated herein by reference).
10.12	Fourth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated July 2, 2012 (included as exhibit 10.19 to the Form 10-Q filed August 20, 2012, and incorporated herein by reference).

18

10.13	First Amendment to Lease Agreement dated August 22, 2003 between the Company and Frost National Bank, Trustee for a Designated Trust, dated February 6, 2006 (included as exhibit 10.17 to the Form 10-K filed April 1, 2013 and incorporated herein by reference).
10.14	Second Amendment to Lease Agreement dated August 22, 2003 between the Company and Frost National Bank, Trustee for a Designated Trust, dated October 7, 2009 (included as exhibit 10.18 to the Form 10-K filed April 1, 2013 and incorporated herein by reference).
10.15	Third Amendment to Lease Agreement dated August 22, 2003 between the Company and Frost National Bank, Trustee for a Designated Trust, dated October 12, 2013 (included as exhibit 10.19 to the Form 10-K filed April 1, 2013 and incorporated herein by reference).
10.16	Asset Purchase Agreement, dated December 22, 2014, by and between Akimbo Financial, Inc. and Payment Data Systems, Inc. (included as exhibit 10.1 to the Form 8-K filed December 24, 2014, and incorporated herein by reference).
10.17	Transition Services Agreement, dated December 22, 2014, by and between Akimbo Financial, Inc. and Payment Data Systems, Inc. (included as exhibit 10.2 to the Form 8-K filed December 24, 2014, and incorporated herein by reference).
10.18	Fourth Amendment to Lease Agreement, dated August 22, 2003, by and between Payment Data Systems, Inc. and Domicilio OC, LLC as successor-in-interest to Frost National Bank, dated February 12, 2015 (included as exhibit 10.24 to the Form 10-K filed March 30, 2015, and incorporated herein by reference).
10.19	Lease Agreement, dated February 12, 2015, by and between FiCentive, Inc. and Domicilio OC, LLC (included as exhibit 10.25 to the Form 10-K filed March 30, 2015, and incorporated herein by reference).
10.20	Bank Sponsorship Agreement between the Company and Metropolitan Commercial Bank, dated December 11, 2014 (included as exhibit 10.26 to the Form 10-K filed March 30, 2015, and incorporated herein by reference).
10.21	Independent Director Agreement, dated April 24, 2015, by and between Payment Data Systems, Inc. and Miguel A. Chapa (included as exhibit 10.29 to the Form 10-Q filed August 14, 2015, and incorporated herein by reference).
10.22	Loan and Security Agreement, dated February 2, 2016, by and between C2Go, Inc., as Debtor and FiCentive, Inc., as Lender (included as exhibit 10.1 to the Form 8-K filed February 8, 2016, and incorporated herein by reference).
10.23†	Prepaid Card Marketing and Processing Agreement, dated February 2, 2016, by and between FiCentive, Inc. and C2Go, Inc. (included as exhibit 10.2 to the Form 8-K filed February 8, 2016, and incorporated herein by reference).
10.24	Fifth Amendment to Employment Agreement between the Company and Michael R. Long, dated August 3, 2016 (included as exhibit 10.1 to the Form 8-K filed August 9, 2016, and incorporated herein by reference).
10.25	Fifth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated August 3, 2016 (included as exhibit 10.2 to the Form 8-K filed August 9, 2016, and incorporated herein by reference).
10.26	Sixth Amendment to Employment Agreement between the Company and Michael R. Long, dated September 8, 2016 (included as exhibit 10.1 to the Form 8-K filed September 14, 2016, and incorporated herein by reference).
10.27	Sixth Amendment to Employment Agreement between the Company and Louis A. Hoch, dated September 8, 2016 (included as exhibit 10.2 to the Form 8-K filed September 14, 2016, and incorporated herein by reference).
10.28	Employment agreement between Tom Jewell and Payment Data Systems, Inc., dated January 6, 2017 (included as exhibit 10.1 to the Form 8-K filed January 6, 2017, and incorporated herein by reference).
10.29	Line of Credit Promissory Note, dated March 7, 2017, by and between Singular Payments, LLC, as Borrower and Payment Data Systems, Inc., as Lender (included as exhibit 10.1 to the Form 8-K filed March 13, 2017, and incorporated herein by reference).

19

10.30	Security Agreement, dated March 7, 2017, by and between Singular Payments, LLC, as Debtor and Payment Data Systems, Inc., as Secured Party (included as exhibit 10.2 to the Form 8-K filed March 13, 2017, and incorporated herein by reference).
10.31	Membership Interest Pledge Agreement, dated March 7, 2017, by and between Vaden Landers as Pledgor and Payment Data Systems, Inc. (included as exhibit 10.3 to the Form 8-K filed March 13, 2017, and incorporated herein by reference).
10.32	Guaranty Agreement, dated March 7, 2017, by and between Vaden Landers as Guarantor and Payment Data Systems, Inc. (included as exhibit 10.4 to the Form 8-K filed March 13, 2017, and incorporated herein by reference).
10.33	Independent Director Agreement, dated November 11, 2016, by and between Payment Data Systems, Inc. and Steve Huffman (included as exhibit 10.41 to the Form 10-K, filed April 6, 2017, and incorporated herein by reference).
10.34	Independent Director Agreement, dated May 5, 2017, by and between Payment Data Systems, Inc. and Brad Rollins (included as exhibit 10.1 to the Form 8-K, filed May 11, 2017, and incorporated herein by reference).
10.35	Amendment No. 1 to Line of Credit Promissory Note, dated June 6, 2017, by and between Payment Data Systems, Inc. and Singular Payments, LLC (included as exhibit 10.1 to the Form 8-K, filed June 8, 2017, and incorporated herein by reference).
10.36	First Amended and Restated Line of Credit Promissory Note, dated August 2, 2017, by and between Payment Data Systems, Inc. and Singular Payments, LLC (included as exhibit 10.1 to the Form 8-K, filed August 7, 2017, and incorporated herein by reference).
10.37†	Membership Interest Purchase Agreement, dated September 1, 2017, by and among Payment Data Systems, Inc., Singular Payments, LLC and Vaden Landers (included as exhibit 10.1 to the Form 8-K, filed September 8, 2017, and incorporated herein by reference).
10.38	Employment Agreement, dated September 1, 2017, by and between Payment Data Systems, Inc. and Vaden Landers (included as exhibit 10.2 to the Form 8-K, filed September 8, 2017, and incorporated herein by reference).
10.39	First Amendment to Employment Agreement, dated November 27, 2017, by and between Payment Data Systems, Inc. and Tom Jewell (included as exhibit 10.1 to the Form 8-K, filed November 28, 2017, and incorporated herein by reference).
10.40	Placement Agency Agreement, dated December 21, 2017, by and between Payment Data Systems, Inc. and Maxim Group, LLC (included as exhibit 10.1 to the Form 8-K, filed December 22, 2017, and incorporated herein by reference).
10.41	Share Purchase Agreement, dated December 21, 2017, by and among Payment Data Systems, Inc., CVI Investments, Inc., Hudson Bay Maser Fund Ltd., Special Situations Fund III QP, L.P., Special Situations Private Equity Fund, L.P. and Special Situations Cayman Fund, L.P. (included as exhibit 10.2 to the Form 8-K, filed December 22, 2017, and incorporated herein by reference).
10.42	Settlement Agreement, dated December 7, 2017, by and among C2Go. Inc., FiCentive, Inc. and Mercury Investment Partners LLC (included as exhibit 10.42 to the Form 10-K, filed March 30, 2018, and incorporated herein by reference).
10.43	Lease Agreement dated February 9, 2018 between Payment Data Systems, Inc. and Blauners Paesanos Parkway LP (included as exhibit 10.43 to the Form 10-K, filed March 30, 2018, and incorporated herein by reference).
10.44	Lease Agreement between Payment Data Systems, Inc. and RP Circle 1 Building, LLC dated December 11, 2017 (included as exhibit 10.44 to the Form 10-K, filed March 30, 2018, and incorporated herein by reference).
14.1	Code of Ethics (included as exhibit 14.1 to the Form 10-K filed March 30, 2004, and incorporated herein by reference).
16.1	Letter from Ernst and Young LLP to the Securities and Exchange Commission dated February 10, 2004 (included as exhibit 16 to the Form 8-K filed February 11, 2004, and incorporated herein by reference).

20

31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of the Chief Executive Officer and the /Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS	XBRL Instance Document (filed herewith).
101.SCH	XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PRE	XBRL Taxonomy Presentation Linkbase Document (filed herewith).
†	Confidential treatment has been granted for portions of this agreement.

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PAYMENT DATA SYSTEMS, INC
Date: May 15, 2018	By:	/s/ Louis A. Hoch
		Louis A. Hoch
		Chief Executive Officer
		(Principal Executive Officer)
Date: May 15, 2018	By:	/s/ Tom Jewell
		Tom Jewell
		Chief Financial Officer
		(Principal Accounting Officer)

22

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Louis A. Hoch, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Payment Data Systems, Inc. for the quarter ended March 31, 2018;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. As the registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. As the registrant’s certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2018
	By:	/s/ Louis A. Hoch Louis A. Hoch Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Tom Jewell, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Payment Data Systems, Inc. for the quarter ended March 31, 2018;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. As the registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. As the registrant’s certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2018
	By:	/s/ Tom Jewell Tom Jewell Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officers of Payment Data Systems, Inc., a Nevada corporation (the “Company”), do hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2018
	By:	/s/ Louis A. Hoch Louis A. Hoch Chief Executive Officer (Principal Executive Officer)
Date: May 15, 2018
	By:	/s/ Tom Jewell Tom Jewell Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 09, 2018
Document And Entity Information
Entity Registrant Name	PAYMENT DATA SYSTEMS INC
Entity Central Index Key	0001088034
Trading Symbol	pyds
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		15,859,515
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 3,473,066	$ 4,800,554
Accounts receivable, net	892,156	969,674
Settlement processing assets	37,751,361	38,027,984
Prepaid expenses and other	369,514	176,945
Notes receivable	150,000	150,000
Current assets before merchant reserves	42,636,097	44,125,157
Merchant reserves	15,080,233	14,977,468
Total current assets	57,716,330	59,102,625
Property and equipment, net	1,926,026	2,105,186
Other assets:
Intangibles, net	4,426,426	4,676,427
Deferred tax asset	1,394,000	1,394,000
Other assets	182,690	157,565
Total other assets	6,003,116	6,227,992
Total assets	65,645,472	67,435,803
Current liabilities:
Accounts payable	225,757	300,736
Accrued expenses	1,007,080	1,006,262
Settlement processing obligations	37,751,361	38,027,984
Deferred revenues	90,250	0
Current liabilities before merchant reserve obligations	39,074,448	39,334,982
Merchant reserve obligations	15,080,233	14,977,468
Total current liabilities	54,154,681	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, respectively	0	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, respectively	186,368	186,299
Additional paid-in capital	74,188,314	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’ equity	11,490,791	13,123,353
Total liabilities and stockholders’ equity	$ 65,645,472	$ 67,435,803

XML

Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares	Mar. 31, 2018	Dec. 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

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Statement [Abstract]
Revenues	$ 5,843,665	$ 2,810,744
Operating expenses:
Cost of services	4,572,758	1,867,945
Selling, general and administrative:
Stock-based compensation	374,378	207,920
Other expenses	1,498,651	828,272
Depreciation and amortization	458,663	228,545
Total operating expenses	6,904,450	3,132,682
Operating (loss)	(1,060,785)	(321,938)
Other income and (expense):
Interest income	11,521	33,816
Other income (expense)	(1,542)	1,539
Other income and (expense), net	9,979	35,355
Income (loss) before income taxes	(1,050,806)	(286,583)
Income taxes	0	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

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Operating activities:
Net (loss)	$ (1,050,806)	$ (286,583)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Depreciation	208,662	187,760
Amortization	250,001	40,785
Non-cash stock based compensation	374,378	207,920
Changes in current assets and current liabilities:
Accounts receivable	77,518	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 reserves	102,765	(1,078,211)
Deferred revenue	90,250	0
Net cash (used) by operating activities	(239,087)	(839,628)
Investing activities:
Purchases of property and equipment	(29,502)	(210,052)
Notes receivable	0	(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 period	19,778,022	19,924,379
Cash, cash equivalents and merchant reserves, end of period	18,553,299	18,343,735
Supplemental disclosure of cash flow information:
Interest	0	0
Income taxes	$ 0	$ 0

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis 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 CashFlows (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.

XML

Acquisition of Singular Payments, LLC

3 Months Ended

Mar. 31, 2018

Business Combinations [Abstract]

Acquisition of Singular Payments, LLC

Acquisition 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.

XML

Notes Receivable

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

Notes Receivable

Notes 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.

XML

Accrued Expenses

3 Months Ended

Mar. 31, 2018

Payables and Accruals [Abstract]

Accrued Expenses

Accrued 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

XML

Net Earnings (Loss) Per Share

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Net Earnings (Loss) Per Share

Net 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

XML

Income Taxes

3 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income 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.

XML

Related Party Transactions

3 Months Ended

Mar. 31, 2018

Related Party Transactions [Abstract]

Related Party Transactions

Related 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.

XML

Legal Proceedings

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Legal Proceedings

Legal 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.

XML

Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis 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

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 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: 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

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.

Allowance for Estimated Losses

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.

Accounting for Internal Use Software

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.

Valuation of Long-Lived and Intangible Assets

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

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.

Recently Adopted and New Accounting Pronouncement

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 CashFlows (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.

XML

Basis of Presentation (Tables)

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of cash and cash equivalents

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

Restrictions on cash and cash equivalents

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

XML

Acquisition of Singular Payments, LLC (Tables)

3 Months Ended

Mar. 31, 2018

Business Combinations [Abstract]

Schedule of acquisition purchase price

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

XML

Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2018

Payables and Accruals [Abstract]

Schedule of accrued 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

XML

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 outstanding

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

XML

Basis of Presentation (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Allowance for estimated doubtful accounts	$ 60,144	$ 61,223
Capitalized computer software, additions	15,878
Asset impairment charges	0	0
Reserve for processing losses	$ 172,832	$ 172,832

XML

Basis of Presentation - Reconciliation of Cash and Cash Equivalents to Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Dec. 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 reserves	15,080,233	14,977,468	14,725,430	15,803,641
Total	$ 18,553,299	$ 19,778,022	$ 18,343,735	$ 19,924,379

XML

Acquisition of Singular Payments, LLC (Details) - USD ($)	Sep. 01, 2017	Mar. 31, 2018	Dec. 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 businesses	1,500,000
Outstanding balance of note receivable assumed	600,000
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, term	24 months
Equity interest issued, basis for determining value, number of business days preceding September 1, 2017	5 days

XML

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

XML

Notes Receivable (Details)	Dec. 07, 2017 USD ($) installment	Feb. 02, 2016 USD ($)	Oct. 31, 2018 USD ($)	Apr. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Aug. 02, 2017 USD ($)	Mar. 07, 2017 USD ($)
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 | installment	3
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 rate		10.00%
Notes receivable, term		18 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

XML

Accrued Expenses (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Payables and Accruals [Abstract]
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

XML

Net Earnings (Loss) Per Share - Earnings per Share Numerator and Denominator (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 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)

XML

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

XML

Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Goodwill amortization period	15 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

XML

Related Party Transactions (Details) - USD ($)		3 Months Ended	12 Months Ended
	Jan. 09, 2018	Mar. 31, 2018	Dec. 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 percentage		50.00%
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

XML

Legal Proceedings (Details)	Dec. 07, 2017 USD ($) installment	Feb. 02, 2016 USD ($)	Oct. 31, 2018 USD ($)	Apr. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
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 | installment	3
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 rate		10.00%
Notes receivable, term		18 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