UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K/A
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  September 1, 2017
 
PAYMENT DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
000-30152
 
98-0190072
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of incorporation)
 
File Number)
 
Identification No.)
 
12500 San Pedro, Suite 120, San Antonio, TX
 
78,216
(Address of principal executive offices)
 
(Zip Code)
 
(210) 249-4100
(Registrant’s telephone number, including area code)
 
Not applicable.
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
 
 
o              Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o              Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o              Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o              Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






Explanatory Note

As previously reported under items 1.01, 2.01, and 3.02 in our Current Report on Form 8-K, filed on September 8, 2017, we entered into a membership interest purchase agreement with Singular Payments, LLC, a Florida limited liability company in the business of credit card processing, pursuant to which we agreed to purchase all of the membership interest in and to Singular Payments, LLC.

This Current Report on Form 8-K/A amends the previously filed Current Report on Form 8-K by adding the financial information required by items 9.01(a) and 9.02(b) as permitted by item 9.01(a)(4) and 9.01(b)(2), respectively.


Item 9.01
Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The audited financial statements of Singular Payments, LLC at December 31, 2016 and December 31, 2015, and unaudited financial statements at August 31, 2017 are attached as Exhibit 99.1 to this Current Report on Form 8-K/A.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed consolidated financial information of Payment Data Systems, Inc. at September 30, 2017 and December 31, 2016 reflecting the acquisition of Singular Payments, LLC are attached as Exhibit 99.2 to this Current Report on Form 8-K/A.

(d) Exhibits.



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 hereunto duly authorized.
 
 
PAYMENT DATA SYSTEMS, INC.
 
 
 
 
 
Date: November 17, 2017
By:
/s/ Louis A. Hoch
 
 
Name:
Louis A. Hoch
 
 
Title:
Chief Executive Officer
 
 
 
 
 





Exhibit 23.1
 
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Current Report on Form 8-K/A of Payment Data Systems, Inc. of our report dated July 28, 2017, relating to our audit of Singular Payments LLC as of December 31, 2016 and 2015 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.



/s/ Henderson Hutcherson & McCullough PLLC
Henderson Hutcherson & McCullough PLLC
Chattanooga, Florida
November 17, 2017





Exhibit 99.1

SINGULAR PAYMENTS, LLC


FINANCIAL STATEMENTS


DECEMBER 31, 2016 AND 2015


SINGULAR PAYMENTS, LLC

INDEX TO REPORT

DECEMBER 31, 2016 AND 2015
________________________________________________________________________________


PAGE

INDEPENDENT AUDITOR’S REPORT    1-2


BALANCE SHEETS    3


STATEMENTS OF OPERATIONS AND MEMBER’S EQUITY (DEFICIT)    4


STATEMENTS OF CASH FLOWS    5


NOTES TO FINANCIAL STATEMENTS    6-8






INDEPENDENT AUDITOR’S REPORT




To the Members
Singular Payments, LLC
Franklin, Tennessee

Report on the Financial Statements

We have audited the accompanying financial statements of Singular Payments, LLC, which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of operations and member’s equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


1


Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Singular Payments, LLC as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Chattanooga, Tennessee
July 28, 2017
     NOTESTOFINANCIALSTATE_IMAGE1.GIF


2


SINGULAR PAYMENTS, LLC
 
BALANCE SHEETS
 
DECEMBER 31, 2016 AND 2015
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
2016
 
2015
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
58,277

 
$
40,360

Trade receivables, net of allowance for bad debt
75,999

 
232,132

 
 
 
 
Total current assets
134,276

 
272,492

 
 
 
 
PROPERTY AND EQUIPMENT
 
 
 
Leasehold improvements
13,388

 
13,388

Furniture and equipment
116,085

 
113,412

Accumulated depreciation
(76,962)

 
(63,649)

 
 
 
 
Cost less accumulated depreciation
52,511

 
63,151

 
 
 
 
TOTAL ASSETS
$
186,787

 
$
335,643

 
 
 
 
 
 
 
 
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
 
 
 
 
 
2016
 
2015
CURRENT LIABILITIES
 
 
 
Line of Credit
$ -

 
$
430,997

Accounts payable
25,262

 
49,357

Other current liabilities
184

 
27

Credit card payable
22,562

 
19,295

 
 
 
 
Total current liabilities
48,008

 
499,676

 
 
 
 
LONG-TERM LIABILITIES
-

 
-

 
 
 
 
MEMBER'S EQUITY (DEFICIT)
138,779

 
(164,033)

 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
$
186,787

 
$
335,643

 
 
 
 

The accompanying notes are an integral part of these financial statements.

3



SINGULAR PAYMENTS, LLC
 
STATEMENTS OF OPERATIONS AND MEMBER'S EQUITY (DEFICIT)
 
YEARS ENDED DECEMBER 31, 2016 AND 2015
 
 
 
 
 
 
2016
 
2015
REVENUES
 
 
 
Residual Income
$
1,719,086

 
$
1,678,886

Service Income
700

 
-

Customer refunds
(40,077)

 
(16,079)

 
 
 
 
Total revenue
1,679,709

 
1,662,807

 
 
 
 
OPERATING EXPENSE
 
 
 
Cost of goods sold
316,388

 
215,871

Consulting
-

 
22,500

Dues and subscriptions
6,003

 
4,184

Employee Relations
1,506

 
5,590

Meals and entertainment
5,989

 
5,377

Travel
45,764

 
54,438

Insurance
27,544

 
28,797

Legal and professional fees
51,263

 
35,400

Marketing fees
156,548

 
112,843

Office expenses
38,631

 
99,211

Equipment rental
120,078

 
281,610

Salaries expense
1,125,214

 
1,131,054

Repairs and maintenance
120

 
872

Utilities expense
18,908

 
38,075

Depreciation
19,313

 
14,837

Other expenses
5,515

 
-

 
 
 
 
Total operating expense
1,938,784

 
2,050,659

 
 
 
 
Loss from operations
(259,075)

 
(387,852)

 
 
 
 
OTHER INCOME (EXPENSE)
 
 
 
Other income
4,305,870

 
97,572

Interest expense
(3,983)

 
-

 
 
 
 
Total other income (expense)
4,301,887

 
97,572

 
 
 
 
NET INCOME (LOSS)
4,042,812

 
(290,280)

Member's equity (deficit) - beginning of year
(164,033)

 
206,247

Member's draws
(3,740,000)

 
(80,000)

Member's equity (deficit) - end of year
$
138,779

 
$
(164,033
)
The accompanying notes are an integral part of these financial statements.

4



SINGULAR PAYMENTS, LLC
 
 
 
 
STATEMENTS OF CASH FLOWS
 
 
 
 
YEARS ENDED DECEMBER 31, 2016 AND 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
4,042,812

 
$
(290,280
)
Adjustments to reconcile net income (loss) to net cash from
 
 
 
operating activities:
 
 
 
Depreciation
19,313

 
14,837

Changes in operating assets and liabilities:
 
 
 
Decrease (increase) in:
 
 
 
Account receivables
156,133

 
(133,742)

Increase (decrease) in:
 
 
 
Accounts payable
(24,095)

 
29,447

Other current liabilities
157

 
27

Credit card payable
3,267

 
(3,231)

Net cash from operating activities
4,197,587

 
(382,942)

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Cash paid for purchase of property and equipment
(8,673)

 
(41,843)

Net cash from investing activities
(8,673)

 
(41,843)

 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net proceeds payments on line of credit
(430,997)

 
430,997

Member draws
(3,740,000)

 
(80,000)

Net cash from financing activities
(4,170,997)

 
350,997

 
 
 
 
CHANGE IN CASH AND CASH EQUIVALENTS
17,917

 
(73,788)

 
 
 
 
Cash and cash equivalents - beginning of year
40,360

 
114,148

 
 
 
 
Cash and cash equivalents - end of year
$
58,277

 
$
40,360

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
Cash paid during the year for:
 
 
 
Interest
$
3,983

 
$ -

 
 
 
 
Proceeds from note payable
$ -

 
$
430,997


The accompanying notes are an integral part of these financial statements.



5
SINGULAR PAYMENTS, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015
________________________________________________________________________________


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Singular Payments, LLC (the “Company”), a Florida limited liability company, was formed May 4, 2009. The Company has developed intellectual technology for credit card machines. The Company has sales representatives who sell terminals to companies that will use those terminals and the technology the Company has created. The Company has agreements with vendors as to how much they are paid per time that the client uses the terminals.

Cash and Cash Equivalents

The Company considers all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Trade receivables are stated at the amount management expects to collect from outstanding balances. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. Based on the Company’s assessment, there was not a reserve for uncollectable in 2016 and 2015.

Property and Equipment

Property and equipment are stated at cost. Major repairs and improvements are capitalized and normal maintenance and repairs are charged to expense as incurred. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets. Upon retirement or sale of an asset, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations. The estimated useful lives for significant property and equipment categories are as follows:
    
Leasehold improvements        7-15 years
Furniture and equipment            5-7 years
    
Revenue Recognition

Residual revenues are recognized when transactions occur and services have been rendered.

Advertising and Promotion Costs

Advertising and promotion costs are charged to operations as incurred. The Company recorded expenses for advertising and promotion costs of $156,548 and $112,843 for 2016 and 2015, respectively.

(Continued)
    

6
SINGULAR PAYMENTS, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015
________________________________________________________________________________



NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates

The preparation of financial statements 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.

Uncertain Tax Positions

The Company follows the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes , which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. The Company’s evaluation was performed for the tax years ended December 31, 2013 through December 31, 2016, for U.S. Federal Income Tax and for each state. These are the years which remain subject to examination by major tax jurisdictions as of December 31, 2016.

Taxes

The Company is a Limited Liability Company, taxed as a partnership, and therefore does not pay income tax at the entity level.

The taxable income will pass through to the sole member Vaden Landers on his K-1 and the taxes will be paid by him personally.

NOTE 2 – LINE OF CREDIT

The Company has an outstanding interest only line of credit payable which is secured by the Company’s accounts receivables. The note carries an interest rate of 4.75% and matures April 2020. The Company elected to pay the balance of the note in full in 2016. The outstanding loan balance was $- and $430,997 as of December 31, 2016 and 2015, respectively.

NOTE 3 – LEASES AND FUTURE MINIMUM LEASE PAYMENTS

The Company has three leases outstanding as follows:

Officer equipment leases for 5 years through October, 2017 and February, 2021 with payments of $800 and $599 per month, respectively.

Officer space lease for 5 years through July, 2017 with payments of $3,578.




7
SINGULAR PAYMENTS, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015
________________________________________________________________________________

NOTE 3 – LEASES AND FUTURE MINIMUM LEASE PAYMENTS (Continued)
    
Future minimum lease payments as of December 31, 2016 are as follows:

2017                            $ 40,626
2018                             7,188
2019                             7,188
2020                             7,188
2021                             1,198
Total                             $ 63,388

NOTE 4 – CONCENTRATION OF CUSTOMERS

During the year ended December 31, 2016 and 2015, the Company had two and one customer(s) that accounted for 82% and 91% of the revenue, respectively.     
    
NOTE 5 – SUBSEQUENT EVENTS

Management has evaluated events and transactions subsequent to the balance sheet date through the date of the independent auditor's report (the date on which the financial statements were available to be issued) for potential recognition or disclosure in the financial statements. Management has not identified any items requiring recognition or disclosure.


8

SINGULAR PAYMENTS LLC
Balance Sheet
As of August 31, 2017
 
 
 
TOTAL
ASSETS
 
   Current Assets
 
      Bank Accounts
 
         Charles Yancey/Adrienne Yancey
0.00
         Petty Cash
0.00
         Singular Payments, LLC
27,035.89
         Terminal Income
-2,576.12
      Total Bank Accounts
$24,459.77
      Accounts Receivable
 
         Accounts Receivable
-498.00
      Total Accounts Receivable
$-498.00
      Other Current Assets
 
         Due from Members
0.00
         Inventory Asset
64,600.00
         Loans to Singular Payments of Jax
0.00
         Undeposited Funds
33,304.32
      Total Other Current Assets
$97,904.32
   Total Current Assets
$121,866.09
   Fixed Assets
 
      Computer Software
13,342.45
      Furniture and Equipment
103,099.57
      Leasehold Improvements
10,214.48
      Other fixed assets
2,673.35
      Z Less Accumulated Depreciation
-81,640.00
   Total Fixed Assets
$47,689.85
   Other Assets
 
      AR
498.00
      Deposits
10,644.00
      Loan Closing Costs
7,485.00
   Total Other Assets
$18,627.00
TOTAL ASSETS
$188,182.94
 
 
LIABILITIES AND EQUITY
 
   Liabilities
 
      Current Liabilities
 
         Credit Cards
 
            Amex Gold Card
0.00
            Charles Yancey - AAdvantage Cit
0.00
            The Business Platinum Card-0400
-5,619.47
         Total Credit Cards
$-5,619.47
         Other Current Liabilities
 
            Loan from Officer
0.00
            PYDS Transaction Advance
600,000.00
            Sales Tax Payable
27.00
            St. Augustine & St. John's County Payable
43.88
         Total Other Current Liabilities
$600,070.88

9

      Total Current Liabilities
$594,451.41
      Long-Term Liabilities
 
         Note Payable -Reunion
0.00
         Note Payable-NPC
0.00
         Vehicle Loan-1
0.00
      Total Long-Term Liabilities
$0.00
   Total Liabilities
$594,451.41
   Equity
 
      Members Capital
 
         Charles Yancey
57,126.77
         Jeff Yancey
0.00
         Linda Yancey
0.00
         Vaden C. Landers
57,205.77
      Total Members Capital
$114,332.54
      Members Draw
0.00
         Charles Yancey
-2,795,000.00
         Vaden Landers
-1,025,000.00
      Total Members Draw
$-3,820,000.00
      Members Equity
3,828,876.48
      Opening Balance Equity
26,990.31
      Owner's Draw
-288,000.00
      Shareholder Distribution
0.00
      Net Income
-268,467.80
   Total Equity
$-406,268.47
TOTAL LIABILITIES AND EQUITY
$188,182.94



10



SINGULAR PAYMENTS LLC
Profit and Loss
January - August 2017
 
 
 
TOTAL
INCOME
 
   Refund
1,696.65
   Residual Income
 
      Card Connect
804,823.45
      Global E-Telecom Residual
4,044.13
      PayFac
3,018.24
      Quickwater
328.21
   Total Residual Income
812,214.03
   Sales of Product Income
623.00
   Services Income
64,837.26
   Terminal Equipment
6,715.10
   Unapplied Cash Payment Income
0.00
Total Income
$886,086.04
GROSS PROFIT
$886,086.04
EXPENSES
 
   Bank Service Charges
1,317.82
   Channel Partners
24,266.49
   Residual Payments
108,538.93
Total Channel Partners
132,805.42
   City Tax
916.93
   Commissioners
356.41
   Computer and Internet Expenses
27,318.91
   Employee Reimbursement
370.13
   Employee Relations
585.77
   Entertainment
9,151.17
   Equipment Rental
13,474.20
   Gift Card Product Expense
465.50
   Keyman Life Insurance
8,282.96
   Legal & Professional Fees
 
      Legal Fees
22,161.55
   Total Legal & Professional Fees
22,161.55
   Life Insurance
563.89
   Loan from Officer Reimbursement
10,000.00
   Marketing
 
     Advertising
1,939.92
     Mail
927.64
 
TOTAL
 
 
 
 
 
 
 
 
 
 
 
 

11

 
 
       Equipment Rental
454.54
     Total Mail
1,382.18
     Marketing Trade Shows
410,90
     Promotions
623.40
     Social Media
1,351.76
   Total Marketing
5,708.16
   Meals - Employee Ent.
126.00
   Meals and Entertainment
9,698.41
   Miscellaneous Expense
200.31
   Office Cleaning
50.00
   Office Expense & Supplies
6,652.47
   Office Supplies
5,237.87
   Office Supplies - Other
479.89
   Outside Sales Reps Office Expenses
-226.51
   PCI Compliance
99.98
   Professional Fees
2,281.25
   Rent/Lease Expense
56,837.58
   Salaries & Wages
709,576.06
      Outside Sales Commission
7,678.36
      Spiff
325.00
   Total Salaries & Wages
766,174.31
   Shipping , Freight & Delivery
1,368.03
   Terminal Equipment Expense
6,209.13
     Monthly Terminal Service Fee
1,603.17
   Total Terminal Equipment Expense
7,812.30
   Trademark Expense
450.00
   Transaction Fees
348.00
      Global Etelecom
3,782.98
     IVR
8,342.42
     Plug & Play
13,760.70
     SwervePay
4,457.52
   Total Transaction Fees
30,691.62
   Travel Expense
37,141.60
   Uncategorized Expense
2,100.00
   Utilities
3,553.32
Total Expenses
$1,164,553.84
Net Operating Income
$-278,467.80
Other Expenses
 
   Reconciliation Discrepancies
-10,000.00
Total Other Expenses
$-10,000.00
NET OTHER INCOME
$10,000.00
Net Income
$-268,467.80
 
 



12


Exhibit 99.2
 
Unaudited Pro Forma Condensed Combined Financial Information

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

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

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

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

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
































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

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

 
$
58,277

 
$
(1,500,000
)
 
(a)
 
$
2,620,738

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

 
75,999

 
(75,999
)
 
(c)
 
907,750

Settlement processing assets
 
43,851,311

 
—

 
—

 
 
 
43,851,311

Prepaid expenses and other
 
142,029

 
—

 
—

 
 
 
142,029

Notes receivable
 
200,000

 
—

 
—

 
 
 
200,000

Current assets before restricted cash
 
49,221,828

 
134,276

 
(1,634,276
)
 
 
 
47,721,828

Settlement processing assets
 
15,803,641

 
—

 
—

 
 
 
15,803,641

Total current assets
 
65,025,469

 
134,276

 
(1,634,276
)
 
 
 
63,525,469

 
 
 

 
 

 
 

 
 
 
 

Property and equipment, net
 
2,494,510

 
52,511

 
(52,511
)
 
(c)
 
2,494,510

 
 
 

 
 

 
 
 
 
 
 

Other Assets:
 
 

 
 

 
 

 
 
 
 

Intangibles, net
 
172,899

 
—

 
5,000,000

 
(b)
 
5,172,899

Deferred tax asset
 
1,621,000

 
—

 
—

 
 
 
1,621,000

Other assets
 
200,808

 
—

 
—

 
 
 
200,808

Total other assets
 
1,994,707

 
—

 
5,000,000

 
 
 
6,994,707

Total Assets
 
$
69,514,686

 
$
186,787

 
$
3,313,213

 
 
 
$
73,014,686

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS'
 
 

 
 

 
 
 
 

EQUITY
 
 

 
 

 
 

 
 
 
 

Current Liabilities:
 
 

 
 

 
 

 
 
 
 

Accounts payable
 
$
145,044

 
$
47,824

 
$
(47,824
)
 
(c)
 
$
145,044

Accrued expenses
 
703,322

 
184

 
(184
)
 
(c)
 
703,322

Settlement processing obligations
 
43,851,311

 
—

 
—

 
 
 
43,851,311

Current liabilities before restricted cash
 
44,699,677

 
48,008

 
(48,008
)
 
 
 
44,699,677

Restricted cash
 
15,803,641

 
—

 
—

 
 
 
15,803,641

Total current liabilities
 
60,503,318

 
48,008

 
(48,008
)
 
 
 
60,503,318

Stockholders' Equity:
 
 

 
 

 
 

 
 
 
 

Preferred stock
 
—

 
—

 
—

 
 
 
—

Common stock
 
181,818

 
—

 
1,515

 
(a)
 
183,333

Additional paid-in capital
 
63,881,365

 
—

 
3,498,485

 
(a)
 
67,379,850

Treasury stock
 
(718,149
)
 
—

 
—

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

 
—

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

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

 
138,779

 
3,361,221

 
 
 
12,511,368

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

 
$
186,787

 
$
3,313,213

 
 
 
$
73,014,686

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





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

 
$
1,679,709

 
$
9,243,933

 
 (e)
 
$
23,000,000

Operating expenses:
 
 

 
 

 
 

 
 
 
 

Cost of services
 
8,293,354

 
316,388

 
9,243,933

 
(e)
 
17,853,675

Selling, general and administrative:
 
 

 
 

 
 

 
 
 
 

Stock-based compensation
 
1,314,778

 
—

 
131,670

 
(f)
 
1,446,448

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

 
—

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

 
1,603,083

 
—

 
 
 
4,791,490

Depreciation and amortization
 
901,600

 
19,313

 
(19,313
)
 
(h)
 
1,901,600

 
 
 
 
 
 
1,000,000

 
(g)
 
 
Total operating expense
 
13,436,931

 
1,938,784

 
10,356,290

 
 
 
25,732,005

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

 
 

 
 

 
 
 
 

Interest income
 
97,322

 
—

 
—

 
 
 
97,322

Other income (expense)
 
99,277

 
4,301,887

 
(4,301,887
)
 
(h)
 
99,277

      Other income (expenses), net
 
196,599

 
4,301,887

 
(4,301,887
)
 
 
 
196,599

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

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

 
—

 
—

 
 
 
32,668

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

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

 
 
 
1,515,152

 
(i)
 
9,353,349

  Diluted
 
7,838,197

 
 
 
1,515,152

 
(i)
 
9,353,349

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





















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

 
$
886,086

 
$
6,622,000

 
 (e)
 
$
16,458,124

Operating expenses:
 
 

 
 

 
 

 
 
 
 

Cost of services
 
6,486,587

 
132,805

 
6,622,000

 
(e)
 
13,241,392

Selling, general and administrative:
 
 

 
 

 
 

 
 
 
 

Stock-based compensation
 
655,885

 
—

 
87,780

 
(f)
 
743,665

Cancellation of stock-based compensation
 
—

 
—

 
—

 
 
 
—

Other expenses
 
2,800,033

 
1,021,749

 
—

 
 
 
3,821,782

Depreciation and amortization
 
770,607

 
—

 
666,667

 
(b)
 
1,437,274

Total operating expense
 
10,713,112

 
1,154,554

 
7,376,447

 
 
 
19,244,113

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

 
 

 
 

 
 
 
 

Interest income
 
88,927

 
—

 
—

 
 
 
88,927

Other income (expense)
 
(121
)
 
—

 
—

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

 
—

 
—

 
 
 
88,806

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

 
—

 
—

 
 
 
36,677

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

 
 
 
1,350,462

 
(i)
 
9,987,631

  Diluted
 
8,637,169

 
 
 
1,350,462

 
(i)
 
9,987,631

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



















Notes to the Unaudited Pro Forma Condensed Financial Information

Note 1 - Basis of presentation

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

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

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

Note 2 - Financing transactions

The Company completed the acquisition of Singular Payment for total consideration of $5,000,000 consisting of $1,500,000 in cash, minus the balance of the outstanding note receivable of $600,000, and $3,500,000 in shares of common stock, or 1,515,152 shares of the Company's common stock, $0.001 par value, valued at $2.31. The final number of shares issued was determined using the volume-weighted average daily closing price for the shares of common stock for the 5 business days immediately preceding September 1, 2017.

Note 3 - Purchase price allocation

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

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

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

Note 4 - Pro forma adjustments

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

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




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

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

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