ITEM
1. BUSINESS.
Overview
The company was founded in 2001 as 3PEA
Technologies, Inc. In March 2006, we completed a reverse-merger with a non-operating public company named Tika Corporation which
was originally incorporated in Nevada as G.K.W., Inc. on August 24, 1995. As a result of the reverse-merger, 3PEA Technologies,
Inc. became a wholly owned subsidiary of Tika Corporation. We changed our name to Paypad Inc. on March 13, 2006. On October 19,
2006, we changed our name to 3PEA International, Inc. In 2007, we acquired control of Wow Technologies, Inc., a payment solutions
company with a proprietary card processing platform, in a share exchange agreement whereby Wow Technologies, Inc. became our majority-owned
subsidiary.
The business of 3PEA Technologies, Inc.,
both before and after we acquired it, was the development of a secure payment gateway and hardware device which utilized encryption
technology and secure key exchange to facilitate PIN debit transactions over the internet. We developed proprietary stored value
systems, secure key loading systems, and acted as an encryption service organization injecting keys into its proprietary payment
terminal called the PayPad
®
. Users could connect the device to their computers and utilize it to make purchases
over the internet without having to provide their credit card and other personal information to the seller. Due to the lack of
market acceptance of this concept, we ultimately determined to discontinue the product. We successfully adapted our payment platform
to alternatively support prepaid debit cards, which is our current business.
Business of Issuer
3PEA International, Inc. is a vertically
integrated provider of innovative prepaid card programs and processing services for corporate, consumer and government applications.
Our payment solutions are utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence
rates, reduce administration costs and streamline operations. Public sector organizations can utilize our payment solutions to
disburse public benefits or for internal payments. We market our prepaid card solutions under our PaySign brand. As we are a payment
processor and prepaid card program manager, we derive our revenue from all stages of the prepaid card lifecycle. We provide a card
processing platform consisting of proprietary systems and innovative software applications based on the unique needs of our clients.
We have extended our processing business capabilities through our proprietary PaySign platform. Through the PaySign platform, we
provide a variety of services including transaction processing, cardholder enrollment, value loading, cardholder account management,
reporting, and customer service.
The PaySign platform was built on modern
cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform has allowed 3PEA to significantly
expand its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility
and ease of customization. The PaySign platform delivers cost benefits and revenue building opportunities to our partners.
We have developed prepaid card programs
for corporate incentive and rewards including, but not limited to, consumer rebates and rewards, donor compensation, healthcare
reimbursement payments and pharmaceutical payment assistance. We are expanding our product offerings to include additional corporate
incentive products, payroll cards, demand deposit accounts accessible with a debit card, travel cards, and expense reimbursement
cards. Our cards are sponsored by our issuing bank partners.
We manage all aspects of the debit card
lifecycle, from managing the card design and approval processes with partners and networks, to production, packaging, distribution,
and personalization. We also oversee inventory and security controls, renewals, lost and stolen card management and replacement.
We deploy a fully staffed, in-house customer service department which utilizes bi-lingual customer service representatives, Interactive
Voice Response (“IVR”), and two-way short message service (“SMS”) messaging.
To date, we have issued millions of prepaid
debit cards under programs implemented for Fortune 500 companies, multinationals, as well as top pharmaceutical manufacturers,
universities and social media companies.
Depending on the program selected by the
client, we generate the following types of revenues: setup charges; customized software development fees; data processing and report
generation fees; transaction fees from each transaction by a cardholder; interchange fees; card fulfillment fees; fees related
to customer service and administrative fees.
What Are Prepaid Cards?
Prepaid debit cards are issued by a financial
institution and are loaded with funds and are used like a normal debit card. Prepaid debit cards are generally network branded
(Amex, Discover, MasterCard, Visa) and can be used anywhere the card brand is accepted. Network branded prepaid cards provide consumers,
businesses and governments with the efficiency, security and flexibility of digital payments through a non-credit payment option
and provide the end user security against fraud and theft.
While these cards work like traditional
debit/credit cards and offer many of the same fraud and loss protections, they access funds that have been loaded onto the card
by either the cardholder, another person (as a gift), the government for benefits, employers/corporations for payroll, or by a
corporation for rewards/incentives or health benefits. As a non-credit payment tool, they help users control their budget.
According to The
Federal Reserve Payments
Study: 2018 Annual Supplement
, prepaid card payments reached 13.1 billion payments by number with a value of $0.30 trillion
in 2017. In the same report, general purpose reloadable card payments (“GPR”) reached 112.6 billion payments by numbers
with a value of $6.06 trillion in 2017.
Today, millions of Americans use network
branded prepaid cards for the choice and protection they provide, including the estimated 43 million un-banked or underbanked (source:
2017 National Survey of Unbanked and Underbanked Households: FDIC October 2018) who would not otherwise have a way to participate
in our card-based economy, parents of college-aged students who want a safe and secure way to give money without the risk of running
up debt, and recipients of government benefits who need an efficient way to receive their welfare payments, child support payments,
Supplemental Nutrition Assistance Program (SNAP) program payments or unemployment payments.
Types of Cards
This increasingly popular financial product
comes in many forms. Here are some examples to understand how they are used.
General Purpose Reloadable: A type of prepaid
card typically purchased by a consumer for his/her personal use to pay for purchases, pay bills and/or access cash at ATMs. GPR
cards may be purchased online and in retail locations from a variety of providers. Funds may be loaded onto the card by direct
deposit of wages or benefits or at retail locations offering prepaid card reload services.
Recently, providers of GPR card products,
in response to changes in the regulatory environment, have introduced new products similar to a GPR but that act as a true demand
deposit account accessible with a debit card (“DDA Debit Card”), offering many of the features and functionalities
of a debit card associated to a standard bank account including overdraft protection. The Company is focused on entering the Consumer
market with a DDA Debit Card to be marketed as PaySign Premier, which will include all the functionalities discussed above.
Payroll: A prepaid card that is directly
or indirectly established through an employer and to which electronic fund transfers of the cardholder's wages, salary, or other
employee compensation (such as commissions), are made on a recurring basis.
Corporate Incentive Cards: A prepaid card
that is provided to a consumer or potential consumer as an incentive to, or reward for purchasing a product or completing a task,
such as completing a survey, adhering to a brand name drug regimen or test driving a vehicle. Payments can also be made by a company
to an employee or agent as an incentive bonus.
Health Care: Pre-tax benefit cards linked
to Health Savings Accounts (HSA), Flexible Spending Accounts (FSA) or Healthcare Reimbursement Accounts (HRA, which contain funds
that can be used to pay for current or future medical expenses. Pharmaceutical companies also employ prepaid card programs to increase
patient enrolment and adherence to a brand name drug through co-pay assist and buy and bill programs.
Government Disbursement Cards: Prepaid
cards used for the purpose of disbursing government payments such as Social Security payments, disability payments, disaster relief
payments, WIC or Food Stamp disbursements or government payroll.
Gift Cards: A prepaid card that is purchased
by a gift giver to be given to a gift recipient.
Per Diem, Corporate Expense and Business
Travel Cards: A reloadable card that allows businesses, non–profits and government agencies the ability to control employee
spending while reducing administration costs by eliminating the need for traditional expense reports and eliminates the risks and
expenses of handling paper checks and cash.
Our Products and Services
We are a vertically integrated payment
processor and debit card program manager offering innovative payment solutions to corporations, government agencies, universities
and other organizations. Our payment solutions are utilized by our customers as a means to increase customer loyalty, increase
brand recognition, reward customers, agents and employees while reducing administration costs and streamlining operations. We market
our prepaid debit card solutions under our PaySign
®
brand of prepaid cards. As we are a payment processor and debit
card program manager, we derive our revenue from all stages of the debit card lifecycle. These revenues can include fees from program
set-up; customization and development; data processing and report generation; card production and fulfillment; transaction fees
derived from card usage; inactivity fees; card replacement fees and program administration fees. We provide in-house customer service
which includes live bilingual customer care representatives staffed 24/7/365. We also run in-house Interactive Voice Response and
two way SMS messaging platforms. Our cards are offered to end users through our relationships with bank issuers.
In our early years of operations, we focused
mainly on providing co-pay assistance prepaid cards to the pharmaceutical industry. In 2011, we began marketing a corporate incentive
prepaid card based payment solution targeting the plasma donation industry. More recently, having built the necessary infrastructure
and adding essential staff, we have increased our focus and sales efforts on corporate incentive and corporate expense card programs
as well as retargeting the pharmaceutical industry with co-pay assistance, buy and bill and other prepaid programs designed to
maximize patient enrollment, adherence and retention. In late 2018, we began to devote more resources to card programs used by
the pharmaceutical industry, and we expect significant contributions to revenue and gross margins from these pharmaceutical programs
commencing in the first quarter of 2019.
As of December 31, 2018, we had over 2.25
million cardholders participating in 250 card programs.
The PaySign Brand
In order to leverage the capabilities of
the PaySign platform and successfully expand our product offerings, we established the PaySign brand of prepaid cards and solutions.
The PaySign brand encompasses the entirety of our current and future prepaid product offerings, including but not limited to, corporate
incentives, healthcare related payment solutions for clinical trials, donations and co-pay assistance, payroll, settlement payments,
corporate expense cards and solutions designed for the public sector as well as general spend reloadable prepaid cards. PaySign
is a registered trademark of 3PEA Technologies, Inc. in the United States and other countries.
Corporate Incentives
Our PaySign corporate incentive cards offer
businesses a practical and contemporary way to reward and motivate existing and potential customers, employees, donors, patients,
participants in clinical trials, sales professionals, agents and distributors. We develop incentive card programs, either traditional
plastic or virtual, that our customers use for a wide variety of applications, including but not limited to: consumer rebates for
large purchases or frequent buyers; trade incentives for third party distributors, new product launches and commission based sales
incentives; consumer promotions such as automobile test drives; purchase incentives; loyalty rewards; compensation for time and
effort of donating, pharmaceutical payment assistance, referral programs, event giveaways and purchase incentives. The PaySign
solution can be integrated into existing payment management systems or as act as a stand-alone solution. The PaySign Card is accepted
anywhere Visa is accepted.
Key benefits of our corporate incentive
cards are:
Operating and administrative costs associated
with processing traditional paper checks are reduced.
Our clients can promote their brands as
the card can include the corporate sponsor’s logo. The card itself acts as a wallet sized billboard.
Our PaySign platform allows for easy customization
of our corporate incentive card products. For example, our clients can select merchants or merchant categories which dictate where
the card will be accepted. Our clients can receive customized reports, track card usage and attach surveys to the activation process
to gain market intelligence.
Our clients can get rewards and incentives
to the intended recipients in a much quicker manner than traditional methods using our corporate incentive card products.
Per Diem/ Corporate Expense Payments
Per Diem, Corporate Expense and Business
Travel Cards: A reloadable prepaid card that allows businesses, non –profits and government agencies the ability to control
employee spending while reducing administration costs by eliminating the need for traditional expense reports. 3PEA is currently
focusing on marketing these card products to large corporations.
Pharmaceutical Market
Our PaySign solutions for the pharmaceutical
industry are a specialized, adjudicated solution that off-sets a patient’s out-of-pocket costs associated with a prescription
drug purchase. Funds are provided by the sponsoring pharmaceutical company for use at retail pharmacies, specialty pharmacies,
hospitals, Doctor’s offices and clinics nationwide.
Our pharmaceutical solutions provide payment
claims processing and other administrative services for clients, in real-time, according to client benefit plan designs. Our solutions
present a cost-effective payment delivery vehicle by providing real-time financial benefit for both consumers and sponsors. Our
offerings also allow clients to directly manage more of their pharmacy benefits and include pharmacy claims adjudication, network
and payment administration, client call center service and support, reporting, rebate management, as well as implementation, training
and account management.
Co-Pay Assistance Program
Our Co-Pay Payment Program is a pharmaceutical
payment card which is adjudicated as a secondary claim at the point of purchase. The adjudication process determines what funds
will be loaded onto the card by applying business rules designed by the sponsoring company. The loaded funds are then immediately
applied to the prescription purchase at the point of purchase for the patient benefit. The card is used to defer out-of-pocket
costs for the prescription. Key features and benefits of our PaySign Card for the Co-Pay Payment Program are:
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Tracking and auditing "free samples" is no longer required, as the retail pharmacy network serves as the distribution mechanism for new prescriber promotions.
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The patient's primary insurance pays the standard adjudicated amount for prescription fills that would historically be "free samples".
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The distribution of cards enables far superior prescriber and patient data collection for the sponsoring pharmaceutical company through the use of automated questionnaires required to activate the cards.
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The marketing programs can be better designed exactly to meet the specifications and needs of the sponsoring pharmaceutical company, as compared to programs involving the distribution of physical samples.
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Because the card operates like a debit card, pharmacy retailers are paid instantly for the adjudicated promotional cost on covered prescription transactions.
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We provide a set of comprehensive, customizable reporting modules to our pharmaceutical clients.
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Buy and Bill Program
Where PaySign’s standard pharmaceutical
Co-Pay assistance Cards provide payment for self-administered pharmaceuticals purchased at a pharmacy, PaySign’s Buy and
Bill Programs are designed to provide a benefit for patients when purchasing directly from their physician’s office or through
an infusion center for physician administered therapies
.
Source Plasma Donor Payments
Plasma derived therapies are lifesaving
treatments used to treat various rare conditions. In order for plasma based therapies to be produced, human plasma must be used
in its manufacture. Human plasma is the yellow liquid portion of whole blood that can be easily replaced by the body. Plasma makes
up approximately 57 percent of whole blood and consists primarily of water and proteins. Source plasma is the plasma collected
from volunteer donors that serves as the raw material for the further manufacture into these lifesaving therapies. Historically,
source plasma donation centers compensated their donors with cash or checks. In the past several years, plasma donation centers
have migrated to a prepaid card based solution for donor payments.
The Company offers a comprehensive customized
payment solution for source plasma collection centers under the PaySign brand. The solution consists of the PaySign Prepaid Debit
Card, the PaySign Connect Portal for administrators, and the PaySign Kiosk. The solution offers customized reporting and provides
a level of business analytics previously unavailable. The solution can be utilized either as a stand-alone web based solution or
integrated with existing donor management system; giving plasma donation centers an increased level of flexibility. The company
entered the market in late 2011 and has seen significant growth in this market segment. Currently, the Company services approximately
33% of the plasma collection centers in the US. The company expects our market share to continue to increase.
PaySign Premier
In response to new regulations, many providers
of GPR cards are also offering a debit card which is linked to a demand deposit account (a “DDA Debit Card”) and will
allow the cardholder to utilize overdraft protection in cases where the cardholder may spend more than the available balance in
the account. Many issuers are actively marketing this product as use of this feature can be a significant source of income for
the provider.
The Company is expecting to begin marketing
its DDA Debit Card, PaySign Premier in 2019. The Company expects to market this product to a targeted portion of its existing cardholder
base through existing communication points, as well as to the general public.
Other Services
Customer Service Center
In order to provide a full range of services
to our customers, we offer a fully staffed, in-house Customer Service Center which is operational 24 hours a day, 7 days per week
consisting of live bi-lingual customer care representatives. The PaySign Platform provides Interactive Voice Response (“IVR”),
SMS alerts and two way SMS messaging, allowing cardholders to set alerts and check their balances and history without the assistance
of a live customer service operator. We believe our in-house customer service center provides the highest quality customer service
experience for our clients as training is performed on-site by 3PEA staff, and the center performs customer service solely for
our products and services.
The PaySign Communications Suite
To help maximize the cardholder experience,
cardholders can access their card balances and transaction history, as well as other information as dictated by the program, such
as ATM locator, loyalty point counter, geo-specific messaging through a number of touchpoints such as the PaySign kiosk, the PaySign
Mobile App, two way SMS, text alerts and the PaySign cardholder web portal.
Technology
Our technology platform employs a standard
enterprise services bus in a service-oriented architecture, configured for 24/7/365 operations. We maintain two secure, interconnected,
environmentally-controlled data centers, with emergency power generation capabilities, and redundant functionalities. We use a
variety of proprietary and licensed standards-based technologies to implement our platforms, including those which provide for
orchestration, interoperability and process control. The platforms also integrate a data infrastructure to support both transaction
processing and data warehousing for operational support and data analytics.
Competition
The markets for financial products and
services, including prepaid debit cards and services related thereto, are intensely competitive. We compete with a variety of companies
in our markets and our competitors vary in size, scope and breadth of products and services offered. Certain segments of the financial
services and healthcare industries tend to be highly fragmented, with numerous companies competing for market share. Highly fragmented
segments currently include financial account processing, customer relationship management solutions, electronic funds transfer
and prepaid solutions.
Many of our existing and potential competitors
have longer operating histories, greater financial strength and more recognized brands in the industry. These competitors may be
able to attract customers more easily because of their financial resources and awareness in the market. Our larger competitors
can also devote substantially more resources to business development and may adopt more aggressive pricing policies. To compete
with these companies, we rely primarily on direct marketing strategies including strategic marketing partners.
Sales and Marketing
We market our PaySign payment solutions
through direct marketing by the Company’s sales team. Our primary market focus is on companies and municipalities that require
a streamlined payment solution for rewards, rebates, payment assistance, and other payments to their customers, employees, agents
and others. To reach these markets, we focus our sales efforts on direct contact with our target market and attendance at various
industry specific conferences. We may, at times, utilize independent contractors who make direct sales and are paid on a commission
basis only.
We expect to market our PaySign Premier
card through existing communication channels to a targeted segment of our existing cardholders, as well as to a broad group of
consumers, ranging from non-banked to fully banked with a focus on long term users of our product.
Markets and Major Customers
We have no major customers and we are not reliant on any individual
program. We manage multiple programs at any given time. As of December 31, 2018, we managed 250 card programs with over 2.25 million
participating cardholders.
Regulations
Introduction
We operate in a highly regulated environment
and are subject to extensive regulation, supervision and examination. Applicable laws and regulations may change, and there is
no assurance that such changes will not adversely affect our business. Regulatory authorities have extensive discretion in connection
with their supervisory and enforcement activities, including but not limited to the imposition of restrictions on the operation
of financial institutions we may work with. Any change in such regulation and oversight, whether in the form of restrictions on
activities, regulatory policy, regulations, or legislation, including but not limited to changes in the regulations governing banks,
could have a material impact on our operations.
Our products and services are generally
subject to federal, state and local laws and regulations, including:
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anti-money laundering laws;
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money transfer and payment instrument licensing regulations;
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privacy and information safeguard laws;
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consumer protection laws; and
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false claims laws and other fraud and abuse restrictions.
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privacy and security standards under HIPAA or other laws
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These laws are often evolving and sometimes
ambiguous or inconsistent, and the extent to which they apply to us or the banks that issue our cards, our clients or our third
party service providers is at times unclear. Any failure to comply with applicable law — either by us or by the card
issuing banks, our client or our third party service providers, over which we have limited legal and practical control —
could result in restrictions on our ability to provide our products and services, as well as the imposition of civil fines and
criminal penalties and the suspension or revocation of a license or registration required to sell our products and services. See
"Risk Factors" for additional discussion regarding the potential impacts of changes in laws and regulations to which
we are subject and failure to comply with existing or future laws and regulations.
We continually monitor and enhance our
compliance program to stay current with the most recent legal and regulatory changes. We also continue to implement policies and
programs and to adapt our business practices and strategies to help us comply with current legal standards, as well as with new
and changing legal requirements affecting particular services or the conduct of our business generally.
Anti-Money Laundering Laws
Our products and services are generally
subject to federal anti-money laundering laws, including the Bank Secrecy Act, as amended by the USA PATRIOT Act, and similar state
laws. On an ongoing basis, these laws require us, among other things, to:
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report large cash transactions and suspicious activity;
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screen transactions against the U.S. government's watch-lists, such as the watch-list maintained by the Office of Foreign Assets Control;
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prevent the processing of transactions to or from certain countries, individuals, nationals and entities;
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identify the dollar amounts loaded or transferred at any one time or over specified periods of time, which requires the aggregation of information over multiple transactions;
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gather and, in certain circumstances, report customer information;
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comply with consumer disclosure requirements;
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register or obtain licenses with state and federal agencies in the United States and seek registration of any retail distributors when necessary.
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Anti-money laundering regulations are constantly
evolving. We continuously monitor our compliance with anti-money laundering regulations and implement policies and procedures to
make our business practices flexible, so we can comply with the most current legal requirements. We cannot predict how these future
regulations might affect us. Complying with future regulation could be expensive or require us to change the way we operate our
business.
Money Transfer and Payment Instrument
Licensing Regulations
We are not currently subject to money transfer
and payment instrument licensing regulations; however, we have plans to introduce products in the future that would be subject
to such regulations. Currently, we believe that 39 U.S. jurisdictions would require us to obtain a license to operate a money
transfer business. As a licensee, we would be subject to certain restrictions and requirements, including reporting, net worth
and surety bonding requirements and requirements for regulatory approval of controlling stockholders, agent locations and consumer
forms and disclosures. We would also be subject to inspection by the regulators in the jurisdictions in which we are licensed,
many of which conduct regular examinations. In addition, we would be required to maintain "permissible investments" in
an amount equivalent to all "outstanding payment obligations."
Escheatment Laws
Unclaimed property laws of every U.S. jurisdiction
require that we track certain information on our card products and services and that, if customer funds are unclaimed at the end
of an applicable statutory abandonment period, the proceeds of the unclaimed property be remitted to the appropriate jurisdiction.
Privacy and Information Safeguard Laws
In the ordinary course of our business,
we or our third party service providers collect certain types of data, which subjects us to certain privacy and information security
laws in the United States, including, for example, the Gramm-Leach-Bliley Act of 1999, or the GLB Act, and other laws or rules
designed to regulate consumer information and mitigate identity theft. We are also subject to privacy laws of various states. These
state and federal laws impose obligations with respect to the collection, processing, storage, disposal, use and disclosure of
personal information, and require that financial institutions have in place policies regarding information privacy and security.
In addition, under federal and certain state financial privacy laws, we must provide notice to consumers of our policies and practices
for sharing nonpublic information with third parties, provide advance notice of any changes to our policies and, with limited exceptions,
give consumers the right to prevent use of their nonpublic personal information and disclosure of it to unaffiliated third parties.
Certain state laws may, in some circumstances, require us to notify affected individuals of security breaches of computer databases
that contain their personal information. These laws may also require us to notify state law enforcement, regulators or consumer
reporting agencies in the event of a data breach, as well as businesses and governmental agencies that own data. In order to comply
with the privacy and information safeguard laws, we have confidentiality/information security standards and procedures in place
for our business activities and with our third-party vendors and service providers. Privacy and information security laws evolve
regularly, requiring us to adjust our compliance program on an ongoing basis and presenting compliance challenges.
Bank Regulations
All of the cards that we service are issued
by a state-chartered bank. Thus, we are subject to the oversight of the regulators for, and certain laws applicable to, these card
issuing banks. These banking laws require us, as a servicer to the banks that issue our cards, among other things, to undertake
compliance actions similar to those described under "– Anti-Money Laundering Laws" above and to comply with
the privacy regulations promulgated under the GLB Act as discussed under "– Privacy and Information Safeguard Laws"
above.
Consumer Protection Laws
Certain products that we anticipate introducing
in the future would be subject to state and federal consumer protection laws, including laws prohibiting unfair and deceptive practices,
regulating electronic fund transfers and protecting consumer nonpublic information. Before we introduce those products, we will
have to develop appropriate procedures for compliance with these consumer protection laws.
Card Networks
In order to provide our products and services,
we, as well as the banks that issue our cards, must be registered with Visa and/or MasterCard, as well as any other networks that
we desire to use, such as Discover, Pulse, NYCE and Star, and, as a result, are subject to card association rules that could subject
us to a variety of fines or penalties that may be levied by the card association or network for certain acts or omissions. The
banks that issue our cards are specifically registered as "members" of the Visa and/or MasterCard card networks. Visa
and MasterCard set the standards with which we and the card issuing banks must comply.
False Claims Laws and Other Fraud and
Abuse Restrictions
We provide claims processing and other
transaction services to pharmaceutical companies that relate to, or directly involve, the reimbursement of pharmaceutical costs
covered by Medicare, Medicaid, other federal healthcare programs and private payers. As a result of these aspects of our business,
we may be subject to, or contractually required to comply with, state and federal laws that govern various aspects of the submission
of healthcare claims for reimbursement and the receipt of payments for healthcare items or services. These laws generally prohibit
an individual or entity from knowingly presenting or causing to be presented claims for payment to Medicare, Medicaid or other
third party payers that are false or fraudulent. False or fraudulent claims include, but are not limited to, billing for services
not rendered, failing to refund known overpayments, misrepresenting actual services rendered in order to obtain higher reimbursement,
improper coding and billing for medically unnecessary goods and services. Many of these laws provide significant civil and criminal
penalties for noncompliance and can be enforced by private individuals through “whistleblower” or qui tam actions.
To avoid liability, providers and their contractors must, among other things, carefully and accurately code, complete and submit
claims for reimbursement.
From time to time, constituents in the
healthcare industry, including us, may be subject to actions under the federal False Claims Act or other fraud and abuse provisions.
We cannot guarantee that state and federal agencies will regard any billing errors we process as inadvertent or will not hold us
responsible for any compliance issues related to claims we handle on behalf of providers and payers. Although we believe our editing
processes are consistent with applicable reimbursement rules and industry practice, a court, enforcement agency or whistleblower
could challenge these practices. We cannot predict the impact of any enforcement actions under the various false claims and fraud
and abuse laws applicable to our operations. Even an unsuccessful challenge of our practices could cause adverse publicity and
cause us to incur significant legal and related costs.
Privacy and Security Standards under
HIPAA or Other Laws.
The Health Insurance Portability and Accountability
Act of 1996 contains privacy regulations and the security regulations that apply to some of our operations. The privacy regulations
extensively regulate the use and disclosure of individually identifiable health information by entities subject to HIPAA. For example,
the privacy regulations permit parties to use and disclose individually identifiable health information for treatment and to process
claims for payment, but other uses and disclosures, such as marketing communications, require written authorization from the individual
or must meet an exception specified under the privacy regulations. The privacy regulations also provide patients with rights related
to understanding and controlling how their health information is used and disclosed. To the extent permitted by the privacy regulations,
ARRA and our contracts with our customers, we may use and disclose individually identifiable health information to perform our
services and for other limited purposes, such as creating de-identified information. Determining whether data has been sufficiently
de-identified to comply with the privacy regulations and our contractual obligations may require complex factual and statistical
analyses and may be subject to interpretation. The security regulations require certain entities to implement and maintain administrative,
physical and technical safeguards to protect the security of individually identifiable health information that is electronically
transmitted or electronically stored. We have implemented and maintain policies and processes to assist us in complying with the
privacy regulations, the security regulations and our contractual obligations. We cannot provide assurance regarding how these
standards will be interpreted, enforced or applied to our operations. If we are unable to properly protect the privacy and security
of health information entrusted to us, we could be subject to substantial penalties, damages and injunctive relief.
In addition to HIPAA, numerous other state
and federal laws govern the collection, dissemination, use, access to and confidentiality of individually identifiable health information
and healthcare provider information. In addition, some states are considering new laws and regulations that further protect the
confidentiality, privacy and security of medical records or other types of medical information. In many cases, these state laws
are not preempted by the HIPAA privacy regulations and may be subject to interpretation by various courts and other governmental
authorities. Further, the U.S. Congress and a number of states have considered or are considering prohibitions or limitations
on the disclosure of medical or other information to individuals or entities located outside of the United States.
Patents and Trademarks
We protect our intellectual property rights
through a combination of trademark, patent, copyright and trade secrets laws.
In order to limit access to and disclosure
of our proprietary information, all of our employees and consultants have signed confidentiality and we enter into nondisclosure
agreements with third parties. We cannot provide assurance that the steps we have taken to protect our intellectual property rights,
however, will deter adequately infringement or misappropriation of those rights. Particularly given the international nature of
the Internet, the rate of growth of the Internet and the ease of registering new domain names, we may not be able to detect unauthorized
use of our intellectual property or take enforcement action.
Employees and Independent Contractors
As of March 1, 2019, we had sixty four
employees and independent contractors.
We have no collective bargaining agreements
with our employees, and believe all independent contractor and employment agreements relationships are satisfactory. We hire independent
contractors on an as-needed basis, and we may retain additional employees and consultants during the next twelve months, including
additional executive management personnel with substantial experience in development business.
ITEM
1A. RISK FACTORS.
An investment in our common stock involves
a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other
information in this registration statement, including our consolidated financial statements and related notes included elsewhere
in this prospectus, before deciding to invest in our common stock. If any of the following risks actually occurs, our business,
financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the
market price of our common stock could decline and you could lose part or all of your investment.
Risks Related to Our Business
Our growth rates may decline in the future.
In fiscal 2018, we experienced growth in our corporate incentives solution business. There can be no assurance that we will be
able to continue our current growth rate in future periods. In the near term, our continued growth depends in significant part
on our ability, among other things, to enter new markets and to continue to attract new clients, and to retain our current clientele.
Our continued growth also depends on our ability to develop and market other prepaid debit card products that can utilize the Paysign
platform.
As the prepaid financial services industry
continues to develop, our competitors may be able to offer products and services that are, or that are perceived to be, substantially
similar to or better than ours. This may force us to compete on the basis of price and to expend significant marketing, product
development and other resources in order to remain competitive. Even if we are successful at increasing our operating revenues
through our various initiatives and strategies, we will experience an inevitable decline in growth rates as our operating revenues
increase to higher levels and we may also experience a decline in margins. If our operating revenue growth rates slow materially
or decline, our business, operating results and financial condition could be adversely affected.
We operate in a highly regulated environment,
and failure by us or business partners to comply with applicable laws and regulations could have an adverse effect on our business,
financial position and results of operations.
We operate in a highly regulated environment,
and failure by us or our business partners to comply with the laws and regulations to which we are subject could negatively impact
our business. We are subject to state money transmission licensing requirements and a wide range of federal and other state laws
and regulations, which are described under "Business – Regulation" above. In particular, our products
and services are subject to an increasingly strict set of legal and regulatory requirements intended to protect consumers and to
help detect and prevent money laundering, terrorist financing and other illicit activities.
Many
of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions, and ensuring compliance with
them is difficult and costly. For example, with increasing frequency, federal and state
regulators
are
holding businesses like ours to higher standards of training, monitoring and compliance, including monitoring for possible violations
of laws by the businesses that participate in our reload network. Failure by us or those businesses to comply with the laws and
regulations to which we are subject could result in fines, penalties or limitations on our ability to conduct our business, or
federal or state actions, any of which could significantly harm our reputation with consumers and other network participants, banks
that issue our cards and regulators, and could materially and adversely affect our business, operating results and financial condition.
Changes in the laws, regulations, credit card association
rules or other industry standards affecting our business may impose costly compliance burdens and negatively impact our business.
There may be changes in the laws, regulations,
card association rules or other industry standards that affect our operating environment in substantial and unpredictable ways.
Changes to statutes, regulations or industry standards, including interpretation and implementation of statutes, regulations or
standards, could increase the cost of doing business or affect the competitive balance. For example, more stringent anti-money
laundering regulations could require the collection and verification of more information from our customers, which could have a
material adverse effect on our operations. Regulation of the payments industry has increased significantly in recent years. A number
of regulations impacting the credit card industry were recently implemented. Additional changes may require us to incur significant
expenses to redevelop our products. Also, failure to comply with laws, rules and regulations or standards to which we are subject,
including with respect to privacy and data use and security, could result in fines, sanctions or other penalties, which could have
a material adverse effect on our financial position and results of operations, as well as damage our reputation.
A data security breach could expose
us to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.
We, the banks that issue our cards and
our third party service providers receive, transmit and store confidential customer and other information in connection with our
products and services. The encryption software and the other technologies we and our partners use to provide security for storage,
processing and transmission of confidential customer and other information may not be effective to protect against data security
breaches. The risk of unauthorized circumvention of our security measures has been heightened by advances in computer capabilities
and the increasing sophistication of hackers. The banks that issue our cards, our clients and our third-party processors also may
experience similar security breaches involving the receipt, transmission and storage of our confidential customer and other information.
Improper access to our or these third parties' systems or databases could result in the theft, publication, deletion or modification
of confidential customer and other information.
A data security breach of the systems on
which sensitive cardholder data and account information are stored could lead to fraudulent activity involving our products and
services, reputational damage and claims or regulatory actions against us. If we are sued in connection with any data security
breach, we could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced
to pay damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on
our operating revenues and profitability. We would also likely have to pay (or indemnify the banks that issue our cards for) fines,
penalties and/or other assessments imposed by Visa or MasterCard as a result of any data security breach. Further, a significant
data security breach could lead to additional regulation, which could impose new and costly compliance obligations. In addition,
a data security breach at one of the banks that issue our cards or our third party service providers could result in significant
reputational harm to us and cause the use and acceptance of our cards to decline, either of which could have a significant adverse
impact on our operating revenues and future growth prospects.
The industry in which we compete is
highly competitive, which could adversely affect our operating revenue growth.
We believe that our existing competitors
have longer operating histories, are substantially larger than we are, may already have or could develop substantially greater
financial and other resources than we have, may offer, develop or introduce a wider range of programs and services than we offer
or may use more effective advertising and marketing strategies than we do to achieve broader brand recognition, customer awareness
and retail penetration. We may also face price competition that results in decreases in the purchase and use of our products and
services. To stay competitive, we may have to increase the incentives that we offer to our marketing partners and decrease the
prices of our products and services, which could adversely affect our operating results.
We rely on relationships with card issuing
banks to conduct our business, and our results of operations and financial position could be materially and adversely affected
if we fail to maintain these relationships or we maintain them under new terms that are less favorable to us.
Our relationship with various banks is
currently, and will be for the foreseeable future, a critical component of our ability to conduct our business and to maintain
our revenue and expense structure, because we are currently unable to issue our own cards. If we lose or do not maintain existing
banking relationships, we would incur significant switching and other costs and expenses and we and users of our products and services
could be significantly affected, creating contingent liabilities for us. As a result, the failure to maintain adequate banking
relationships could have a material adverse effect on our business, results of operations and financial condition. Our agreement
with the bank that issues our cards provide for cost and expense allocations between the parties. Changes in the costs and expenses
that we have to bear under these relationships could have a material impact on our operating expenses. In addition, we may be unable
to maintain adequate banking relationships or renew our agreements with the banks that currently issue our cards under terms at
least as favorable to us as those existing before renewal.
We receive important services from third-party
vendors, and replacing them could entail unexpected integration costs.
Some services relating to our business,
including network connectivity and gateway services are outsourced to third-party vendors. All of our vendors could be replaced
with competitors if our vendor terminated our contract or went out of business. However, in some cases replacing a vendor would
entail one-time integration costs to connect our systems to the successor’s systems, and could result in less advantageous
contract terms for the same service, which could adversely affect our profitability.
Changes in credit card association or
other network rules or standards set by Visa and MasterCard, or changes in card association and debit network fees or products
or interchange rates, could adversely affect our business, financial position and results of operations.
We and the banks that issue our cards are
subject to Visa and MasterCard, Pulse, NYCE and Star association rules that could subject us to a variety of fines or penalties
that may be levied by the card networks for acts or omissions by us or businesses that work with us. The termination of the card
association registrations held by us or any of the banks that issue our cards or any changes in card association or other debit
network rules or standards, including interpretation and implementation of existing rules or standards, that increase the cost
of doing business or limit our ability to provide our products and services could have an adverse effect on our business, operating
results and financial condition. In addition, from time to time, card networks increase the organization and/or processing fees
that they charge, which could increase our operating expenses, reduce our profit margin and adversely affect our business, operating
results and financial condition.
For example, a portion of our operating
revenues is derived from interchange fees. The amount of interchange revenues that we earn is highly dependent on the interchange
rates that Visa and MasterCard set and adjust from time to time. Interchange rates for certain products and certain issuing banks
declined significantly as a result of the enactment of the Dodd-Frank Bill. If interchange rates decline further, whether due to
actions by Visa or MasterCard or future legislation or regulation, we would likely need to change our fee structure to compensate
for lost interchange revenues. To the extent we increase the pricing of our products and services, we might find it more difficult
to acquire consumers and to maintain or grow card usage and customer retention. We also might have to discontinue certain products
or services. As a result, our operating revenues, operating results, prospects for future growth and overall business could be
materially and adversely affected.
We may not be able to successfully manage
our intellectual property and may be subject to infringement claims.
In the rapidly developing legal framework,
we rely on a combination of contractual rights and copyright, trademark and trade secret laws to establish and protect our proprietary
technology. Despite our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual
property or may develop software or technology competitive to us. Our competitors may independently develop similar technology,
duplicate our products or services or design around our intellectual property rights. We may have to litigate to enforce and protect
our intellectual property rights, trade secrets and know-how or to determine their scope, validity or enforceability, which is
expensive and could cause a diversion of resources and may not prove successful. The loss of intellectual property protection or
the inability to secure or enforce intellectual property protection could harm our business and ability to compete.
We may also be subject to costly litigation
in the event our products and technology infringe upon another party’s proprietary rights. Third parties may have, or may
eventually be issued, patents that would be infringed by our products or technology. Any of these third parties could make a claim
of infringement against us with respect to our products or technology. We may also be subject to claims by third parties for breach
of copyright, trademark or license usage rights. Any such claims and any resulting litigation could subject us to significant liability
for damages. An adverse determination in any litigation of this type could require us to design around a third party’s patent
or to license alternative technology from another party. In addition, litigation is time consuming and expensive to defend and
could result in the diversion of the time and attention of our management and employees. Any claim from third parties may result
in limitations on our ability to use the intellectual property subject to these claims. As of December 31, 2018, we had not received
any notice or claim of infringement from any party.
Additional equity or debt financing
may be dilutive to existing stockholders or impose terms that are unfavorable to us or our existing stockholders.
We may raise capital in order to provide
working capital for our expansion into other products and services using our payments platform. If we raise additional funds by
issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may involve arrangements that
include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation
and other preferences that are not favorable to us or our current stockholders. If we raise additional funds through collaboration
and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies and products
or grant unfavorable license terms.
We depend on key personnel and could
be harmed by the loss of their services because of the limited number of qualified people in our industry.
Because of our small size, we require the
continued service and performance of our management team, sales and technology employees, all of whom we consider to be key employees.
Competition for highly qualified employees in the financial services and healthcare industry is intense. Our success will depend
to a significant degree upon our ability to attract, train, and retain highly skilled directors, officers, management, business,
financial, legal, marketing, sales, and technical personnel and upon the continued contributions of such people. In addition, we
may not be able to retain our current key employees. The loss of the services of one or more of our key personnel and our failure
to attract additional highly qualified personnel could impair our ability to expand our operations and provide service to our customers.
Our future success depends on our ability
to attract, integrate, retain and incentivize key personnel.
Our future success will depend, to a significant
extent, on our ability to attract, integrate, retain and incentivize key personnel, namely our management team and experienced
sales, marketing and program and systems management personnel. We must retain and motivate existing personnel, and we must also
attract, assimilate and motivate additional highly-qualified employees. We may experience difficulty assimilating our newly-hired
personnel, which may adversely affect our business. Competition for qualified management, sales, marketing and program and systems
management personnel can be intense. Competitors have in the past and may in the future attempt to recruit our top management and
employees. If we fail to attract, integrate, retain and incentivize key personnel, our ability to manage and grow our business
could be harmed.
Security and privacy breaches of our
electronic transactions may damage customer relations and inhibit our growth.
Any failures in our security and privacy
measures could have a material adverse effect on our business, financial condition and results of operations. Certain products
we offer require that we store personal information, including birth dates, addresses, bank account numbers, credit card information,
social security numbers and merchant account numbers. If we are unable to protect this information, or if consumers perceive that
we are unable to protect this information, our business and the growth of the electronic commerce market in general could be materially
adversely affected. A security or privacy breach may:
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cause our customers to lose confidence in our services;
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deter consumers from using our services;
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require that we expend significant additional resources related to our information security systems and could result in a disruption of our operations;
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expose us to liability;
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increase expenses related to remediation costs; and
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decrease market acceptance of electronic commerce transactions and prepaid use.
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Although management believes that we have
utilized proven applications designed for premium data security and integrity in electronic transactions, our use of these applications
may be insufficient to address changing market conditions and the security and privacy concerns of existing and potential customers.
The market for electronic commerce services
is evolving and may not continue to develop or grow rapidly enough for us to become profitable.
If the number of electronic commerce transactions
does not continue to grow or if consumers or businesses do not continue as projected to adopt our products and services, it could
have a material adverse effect on our business, financial condition and results of operations. Management believes future growth
in the electronic commerce market will be driven by the cost, ease of use and quality of products and services offered
to consumers and businesses. In order to reach and thereafter maintain our profitability, consumers and businesses must continue
to adopt our products and services.
If we do not respond to rapid technological
change or changes in industry standards, our products and services could become obsolete and we could lose our customers.
If competitors introduce new products and
services, or if new industry standards and practices emerge, our existing product and service offerings, technology and systems
may become obsolete. Further, if we fail to adopt or develop new technologies or to adapt our products and services to emerging
industry standards, we may lose current and future customers, which could have a material adverse effect on our business, financial
condition and results of operations. The electronic commerce industry is changing rapidly. To remain competitive, we must continue
to enhance and improve the functionality and features of our products, services and technologies.
Changes in the Bank Secrecy Act and/or
the USA PATRIOT Act could impede our ability to circulate cards that can be easily loaded or issued.
Our current compliance program and screening
process for the distribution and/or sale of prepaid card products is designed to comply with the Bank Secrecy Act (“BSA”)
and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the
“USA PATRIOT Act”). These regulations require financial institutions to obtain and confirm information related to their
respective cardholders. If the BSA and/or the USA PATRIOT Act or subsequent legislation increases the level of scrutiny that we
must apply to our cardholders and customers, it may be costly or impractical for us to continue to profitably issue and load cards
for our customers.
Internal processing errors could result
in our failing to appropriately reflect transactions in customer accounts.
In the event of a system failure that goes
undetected for a substantial period of time, we could allow transactions on blocked accounts, confirm false authorizations, fail
to deduct charges from accounts or fail to detect systematic fraud or abuse. Errors or failures of this nature could adversely
impact our operations, our credibility and our financial standing.
Our business is dependent on the efficient
and uninterrupted operation of computer network systems and data centers.
Our ability to provide reliable service
to our clients and cardholders depends on the efficient and uninterrupted operation of our computer network systems and data centers
as well as those of our third party service providers. Our business involves movement of large sums of money, processing of large
numbers of transactions and management of the data necessary to do both. Our success depends upon the efficient and error-free
handling of the money. We rely on the ability of our employees, systems and processes and those of the banks that issue our cards,
our third party service providers to process and facilitate these transactions in an efficient, uninterrupted and error-free manner.
In the event of a breakdown, a catastrophic
event (such as fire, natural disaster, power loss, telecommunications failure or physical break-in), a security breach or malicious
attack, an improper operation or any other event impacting our systems or processes, or those of our vendors, or an improper action
by our employees, agents or third-party vendors, we could suffer financial loss, loss of customers, regulatory sanctions and damage
to our reputation. The measures we have taken, including the implementation of disaster recovery plans and redundant computer systems,
may not be successful, and we may experience other problems unrelated to system failures. We may also experience software defects,
development delays and installation difficulties, any of which could harm our business and reputation and expose us to potential
liability and increased operating expenses. We currently do not carry business interruption insurance.
Difficult conditions in the economy
generally may materially adversely affect our business and results of operations, and we do not expect these conditions to improve
in the near future.
Our results of operations are materially
affected by conditions in the economy generally. The capital and credit markets have been experiencing extreme volatility and disruption
for more than twelve months at unprecedented levels. Recently, concerns over inflation, energy costs, geopolitical issues, the
availability and cost of credit, the U.S. mortgage market and a declining U.S. real estate market have contributed to increased
volatility and diminished expectations for the economy and consumer spending. These factors in declining business and consumer
confidence and increased unemployment, have precipitated an economic slowdown and national recession. These events and the continuing
market upheavals may have an adverse effect on us because we are dependent upon customer and consumer behavior. Our revenues are
likely to decline in such circumstances. In addition, in the event of extreme and prolonged market events, such as the global credit
crisis, we could incur significant losses.
Factors such as consumer spending, business
investment, the volatility and strength of the capital markets, and inflation all affect the business and economic environment
and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower
family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our prepaid card
products and services could be adversely affected. Adverse changes in the economy could affect our results negatively and could
have a material adverse effect on our business and financial condition. The current mortgage crisis and economic slowdown has also
raised the possibility of future legislative and regulatory actions that could further impact our business. We cannot predict whether
or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations and financial
condition.
The soundness of other institutions and companies could adversely
affect us.
Our ability to engage in loading and purchasing
transactions could be adversely affected by the actions and failure of other institutions and companies, our card issuing banks
and distributors that carry our prepaid card products. As such, we have exposure to many different industries and counterparties.
As a result, defaults by, or even questions or rumors about, one or more of these institutions or companies could lead to losses
or defaults by us or other institutions. Losses related to these defaults or failures could materially and adversely affect our
results of operations.
A prolonged economic downturn could
reduce our customer base and demand for our products.
Our success significantly depends upon
the growth of demand of our products from a growing customer base and our success at entering new market verticals. If prevailing
economic conditions locally, nationally or internationally are unfavorable, there may be a negative impact on our business. A prolonged
economic downturn would likely contribute to the deterioration of the demand for our products and services, which in turn would
negatively impact our business. A prolonged economic downturn could, therefore, result in losses that could materially and adversely
affect our business.
Risks Related to Our Common Stock
Our stock price is volatile and you
may not be able to sell your shares at a price higher than what was paid.
The market for our common stock is highly
volatile. In 2018, our stock price fluctuated between $0.70 and $5.33. The trading price of our common stock could be subject to
wide fluctuations in response to, among other things, quarterly variations in operating and financial results, announcements of
technological innovations or new products by our competitors or us, changes in prices of our products and services or our competitors'
products and services, changes in product mix, or changes in our revenue and revenue growth rates.
Concentration of ownership among our
existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate
decisions.
Our current directors, executive officers,
holders of more than 5% of our total shares of common stock outstanding and their respective affiliates will, in the aggregate,
beneficially own approximately 46% of our outstanding common stock. As a result, these stockholders will be able to exercise a
controlling influence over matters requiring stockholder approval, including the election of directors and approval of significant
corporate transactions, and will have significant influence over our management and policies for the foreseeable future. Some of
these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals
and actions with which you may disagree or which are not in your interests. The concentration of ownership could delay or prevent
a change in control of our company or otherwise discourage a potential acquirer from attempting to obtain control of our company,
which in turn could reduce the price of our common stock. In addition, these stockholders, some of which have representatives sitting
on our board of directors, could use their voting control to maintain our existing management and directors in office, delay or
prevent changes of control of our company, or support or reject other management and board of director proposals that are subject
to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.
Our stock price could decline due to
the large number of outstanding shares of our common stock eligible for future sale.
We have 46,731,912 shares of common stock
outstanding up through the date of this report, assuming no exercise of outstanding options, warrants or unvested restricted stock
grants. None of the shares are subject to any lock-up agreements, and all are eligible for sale, subject in some cases to volume
and other restrictions imposed by Rule 144. Sales of substantial amounts of our common stock in the public market, or even the
perception that these sales could occur, could cause the trading price of our common stock to decline. These sales could also make
it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
We Incur Significant Costs As A Result
Of Operating As A Public Company. We May Not Have Sufficient Personnel For Our Financial Reporting Responsibilities, Which May
Result In The Untimely Close Of Our Books And Record And Delays In The Preparation Of Financial Statements And Related Disclosures.
As a registered public company, we have
experienced an increase in legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), as well as new rules subsequently implemented by the SEC, has imposed various requirements on public companies, including
requiring changes in corporate governance practices. Our management and other personnel need to devote a substantial amount of
time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs
and make some activities more time-consuming and costly.
If we are not able to comply with the requirements
of Sarbanes-Oxley Act, or if we or our independent registered public accounting firm identifies additional deficiencies in our
internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline
and we could be subject to sanctions or investigations by the SEC and other regulatory authorities.
Our operating results may fluctuate
in the future, which could cause our stock price to decline.
Our quarterly and annual results of operations
may fluctuate in the future as a result of a variety of factors, many of which are outside of our control. If our results of operations
fall below the expectations of investors or any securities analysts who follow our common stock, the trading price of our common
stock could decline substantially. Fluctuations in our quarterly or annual results of operations may be due to a number of factors,
including, but not limited to:
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the timing and volume of purchases, use and reloads of our prepaid cards and related products and services;
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the timing and success of new product or service introductions by us or our competitors;
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seasonality in the purchase or use of our products and services;
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reductions in the level of interchange rates that can be charged;
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fluctuations in customer retention rates;
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changes in the mix of products and services that we sell;
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changes in the mix of retail distributors through which we sell our products and services;
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the timing of commencement, renegotiation or termination of relationships with significant third party service providers;
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changes in our or our competitors' pricing policies or sales terms;
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the timing of commencement and termination of major advertising campaigns;
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the timing of costs related to the development or acquisition of complementary businesses;
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the timing of costs of any major litigation to which we are a party;
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the amount and timing of operating costs related to the maintenance and expansion of our business, operations and infrastructure;
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our ability to control costs, including third-party service provider costs;
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volatility in the trading price of our common stock, which may lead to higher stock-based compensation expenses or fluctuations in the valuations of vesting equity; and
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changes in the regulatory environment affecting the banking or electronic payments industries generally or prepaid financial services specifically.
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The price of our common stock may be
volatile, and you could lose all or part of your investment.
In the recent past, stocks generally, and
financial services company stocks in particular, have experienced high levels of volatility. The trading price of our common stock
may fluctuate substantially. The trading price of our common stock will depend on a number of factors, including those described
in this "Risk Factors" section, many of which are beyond our control and may not be related to our operating performance.
These fluctuations could cause you to lose all or part of your investment in our common stock as you may be unable to sell your
shares at or above the price you paid. Factors that could cause fluctuations in the trading price of our common stock include the
following:
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price and volume fluctuations in the overall stock market from time to time;
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significant volatility in the market prices and trading volumes of financial services company stocks;
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actual or anticipated changes in our results of operations or fluctuations in our operating results;
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actual or anticipated changes in the expectations of investors or the recommendations of any securities analysts who follow our common stock;
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actual or anticipated developments in our business or our competitors' businesses or the competitive landscape generally;
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the public's reaction to our press releases, other public announcements and filings with the SEC;
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litigation involving us, our industry or both or investigations by regulators into our operations or those of our competitors;
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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
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changes in accounting standards, policies, guidelines, interpretations or principles;
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general economic conditions; and
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sales of shares of our common stock by us or our stockholders.
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In the past, many companies that have experienced
volatility in the market price of their stock have become subject to securities class action litigation. We may be the target of
this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's
attention from other business concerns, which could seriously harm our business.
If securities analysts do not publish
research or reports about our business or if they publish negative evaluations of our common stock, the trading price of our common
stock could decline.
We expect that the trading price for our
common stock will be affected by any research or reports that securities analysts publish about us or our business. If one or more
of the analysts who may elect to cover us or our business downgrade their evaluations of our common stock, the price of our common
stock would likely decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market
for our common stock, which in turn could cause our stock price to decline.
We do not intend to pay dividends for
the foreseeable future.
We have never declared or paid any cash
dividends on our capital stock. We intend to retain any earnings to finance the operation and expansion of our business, and we
do not anticipate paying any cash dividends in the foreseeable future. As a result, you will likely receive a return on your investment
in our common stock only if the market price of our common stock increases.