# Paysign, Inc. (PAYS) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Paysign, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1496443/000168316823001661/paysign_i10k-123122.htm
Accession: 0001683168-23-001661
Filing date: 2023-03-22
Report date: 2022-12-31
Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization.
Confidence: high

Company profile: /company/PAYS/
All MD&A years: /company/PAYS/mda/
Previous year: /company/PAYS/mda/fy2021/ (FY 2021)
Next year: /company/PAYS/mda/fy2023/ (FY 2023)

ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION and RESULTS OF OPERATIONS.

The following discussion and analysis of our
financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related
notes included elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include,
but are not limited to, those identified below and those discussed in “Risk Factors” included elsewhere in this Form 10-K.

[[GREPCENT_TABLE]]
[["","21"]]
[[/GREPCENT_TABLE]]

Disclosure Regarding Forward-Looking Statements

This Annual Report on Form 10-K includes forward
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (“Forward-Looking Statements”). All statements other than statements of historical fact included in
this report are Forward-Looking Statements. These Forward-Looking Statements are based on our current expectations, assumptions, estimates
and projections about our business and our industry. Words such as "believe," "anticipate," "expect," "intend,"
"plan," “propose,” "may," and other similar expressions identify Forward-Looking statements. In the normal
course of our business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time-to-time
issue certain statements, either in writing or orally, that contain, or may contain, Forward-Looking Statements. Although we believe that
the expectations reflected in such Forward-Looking Statements are reasonable, we can give no assurance that such expectations will prove
to have been correct. In addition, any statements that refer to expectations, projections, estimates, forecasts, or other characterizations
of future events or circumstances are Forward-Looking Statements. These Forward-Looking Statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those reflected in the Forward-Looking Statements. Such important factors (“Important
Factors”) and other factors are disclosed in this report, including those factors discussed in “Part II - Item 1A.
Risk Factors.” All prior and subsequent written and oral Forward-Looking Statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the Important Factors described below that could cause actual results to differ materially
from our expectations as set forth in any Forward-Looking Statement made by or on behalf of us. You are cautioned not to place undue reliance
on these Forward-Looking Statements, which relate only to events as of the date on which the statements are made. We undertake no obligation
to publicly revise these Forward-Looking Statements to reflect events or circumstances that arise after the date hereof. You should refer
to and carefully review the information in future documents we file with the Securities and Exchange Commission.

Overview

Paysign, Inc. (the “Company,” “Paysign,”
“we” or “our”), headquartered in Nevada, was incorporated on August 24, 1995, and trades under the symbol PAYS
on The Nasdaq Stock Market LLC. Paysign is a vertically integrated provider of prepaid card products and processing services for corporate,
consumer and government applications. Our payment solutions are utilized by our corporate customers as a means to increase customer loyalty,
increase patient adherence rates, reduce administration costs and streamline operations. Public sector organizations can utilize our payment
solutions to disburse public benefits or for internal payments. We market our prepaid card solutions under our Paysign® brand. As
we are a payment processor and prepaid card program manager, we derive our revenue from all stages of the prepaid card lifecycle.

We provide a card processing platform consisting
of proprietary systems and 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’s flexibility and
ease of customization has allowed us to expand our operational capabilities by facilitating our entry into new markets within the payments
space. 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, clinical trials, healthcare reimbursement
payments and pharmaceutical payment assistance. We have expanded our product offerings to include additional corporate incentive products
and demand deposit accounts accessible with a debit card. In the third quarter of 2022 we expanded our prepaid product offering to include
payroll cards and in the fourth quarter of 2022 we expanded our prepaid product offering to include retail disbursements and prepaid gift
cards. In the future, we expect to further expand our product offerings into other prepaid card offerings such as travel cards and expense
reimbursement cards. Our cards are sponsored by our issuing bank partners.

[[GREPCENT_TABLE]]
[["","22"]]
[[/GREPCENT_TABLE]]

Our revenues include fees generated from cardholder
fees, interchange, card program management fees, transaction claims processing fees, and settlement income. Revenue from cardholder fees,
interchange, card program management fees, and transaction claims processing fees is recorded when the performance obligation is fulfilled.
Settlement income is recorded at the expiration of the card program.

We have two categories for our prepaid debit cards:
(1) corporate and consumer reloadable cards, and (2) non-reloadable cards.

Reloadable Cards: These types of cards are generally
classified as payroll or considered general purpose reloadable (“GPR”) cards. Payroll cards are issued by an employer to an
employee in order to allow the employee to access payroll amounts that are deposited into an account linked to their card. GPR cards can
also be issued to a consumer at a retail location or mailed to a consumer after completing an on-line application. GPR cards can be reloaded
multiple times with a consumer’s payroll, government benefit, a federal or state tax refund or through cash reload networks located
at retail locations. Reloadable cards are generally open-loop cards as described below.

Non-Reloadable Cards: These are generally one-time
use cards that are only active until the funds initially loaded to the card are spent. These types of cards are generally used as gift
or incentive cards. Normally these types of cards are used for the purchase of goods or services at retail locations and cannot be used
to receive cash.

Both reloadable and non-reloadable cards may be
open-loop, closed-loop, or restricted-loop. Open-loop cards can be used to receive cash at ATM locations by PIN; or purchase goods or
services by PIN or signature at retail locations virtually anywhere that the network brand (American Express, Discover, Mastercard, Visa,
etc.) is accepted. Closed-loop cards can only be used at a specific merchant. Restricted-loop cards can be used at several merchants,
or a defined group of merchants, such as all merchants at a specific shopping mall.

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

We manage all aspects of the prepaid 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 bilingual customer service representatives, Interactive Voice Response, and two-way
short message service messaging and text alerts.

Currently, we are focusing our marketing efforts
on corporate incentive and expense prepaid card products in various market verticals including but not limited to general corporate expense,
healthcare related markets including co-pay assistance, clinical trials and donor compensation, loyalty rewards, and incentive cards.

As part of our continuing platform expansion process,
we evaluate current and emerging technologies for applicability to our existing and future software platform. To this end, we engage with
various hardware and software vendors in evaluation of various infrastructure components. Where appropriate, we use third-party technology
components in the development of our software applications and service offerings. Third-party software may be used for highly specialized
business functions, which we may not be able to develop internally within time and budget constraints. Our principal target markets for
processing services include prepaid card issuers, retail and private-label issuers, small third-party processors, and small and mid-size
financial institutions in the United States and Mexico.

[[GREPCENT_TABLE]]
[["","23"]]
[[/GREPCENT_TABLE]]

We have devoted more extensive resources to sales
and marketing activities as we have added essential personnel to our marketing and sales team. We market our Paysign payment solutions
through direct marketing by the Company’s sales team. Our primary market focus is on companies 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 commissions and/or restricted stock awards. We market
our Paysign Premier product through existing communication channels to a targeted segment of our existing cardholders, as well as to a
broad group of individuals, ranging from non-banked to fully banked consumers with a focus on long term users of our product.

In 2023, we plan to continue to invest additional
funds in technology improvements, sales and marketing, customer service, and regulatory compliance. From time to time, we evaluate raising
capital to enable us to diversify into new market verticals. If we do not raise new capital, we believe that we will still be able to
expand into new vertical markets using internally generated funds.

2022 Year Milestones

[[GREPCENT_TABLE]]
[["","\u00b7","Grew to approximately 5.3 million cardholders and 550 card programs as of December 31, 2022."],["","\u00b7","Year over year revenue increased 29.1%."],["","\u00b7","Added 79 net new Plasma programs, launched 7 net new Pharma programs, and added 15 net new Other prepaid programs."]]
[[/GREPCENT_TABLE]]

Results of Operations

Fiscal Years Ended December 31, 2022 and 2021

The following table summarizes our consolidated financial results:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,","","","Variance"],["","","2022","","","2021","","","$","","","%"],["Revenues"],["Plasma industry","","$","34,737,640","","","$","25,918,150","","","$","8,819,490","","","","34.0%"],["Pharma industry","","","3,007,140","","","","3,361,869","","","","(354,729",")","","","(10.6%",")"],["Other","","","288,887","","","","184,830","","","","104,057","","","","56.3%"],["Total revenues","","","38,033,667","","","","29,464,849","","","","8,568,818","","","","29.1%"],["Cost of revenues","","","17,079,069","","","","14,753,042","","","","2,326,027","","","","15.8%"],["Gross profit","","","20,954,598","","","","14,711,807","","","","6,242,791","","","","42.4%"],["Gross margin %","","","55.1%","","","","49.9%"],["Operating expenses"],["Selling, general and administrative","","","17,700,651","","","","14,953,322","","","","2,747,329","","","","18.4%"],["Depreciation and amortization","","","2,909,612","","","","2,497,918","","","","411,694","","","","16.5%"],["Total operating expenses","","","20,610,263","","","","17,451,240","","","","3,159,023","","","","18.1%"],["Income (loss) from operations","","$","344,335","","","$","(2,739,433",")","","$","3,083,768","","","","N/M"],["Net income (loss)","","$","1,027,775","","","$","(2,721,334",")","","$","3,749,109","","","","N/M"],["Net margin %","","","2.7%","","","","(9.2%",")"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","24"]]
[[/GREPCENT_TABLE]]

The increase in total revenues of $8,568,818 for
the year ended December 31, 2022 compared to the same period in the prior year consisted of a $8,819,490 increase in Plasma revenue,
a reduction of $354,729 in Pharma revenue, and a $104,057 increase in Other revenue. The increase in Plasma revenue was primarily due
to an increase in plasma locations, plasma donations and dollars loaded to card as individuals looked for opportunities to supplement
their income to combat inflationary pressures on gas, rent, and groceries and Mexican nationals were once again allowed to cross the border
to donate plasma. The reduction in Pharma revenue was primarily due to pharma prepaid contracts ending, offset by the growth and launch
of new pharma copay programs. Of the $3,007,140 Pharma industry revenue recognized in 2022, Pharma prepaid accounted for $1,526,180 and
Pharma copay accounted for $1,480,960. This compares to 2021 Pharma prepaid revenues of $2,749,531 and Pharma copay revenues of $612,338.

Cost of revenues for the year ended December 31,
2022 increased $2,326,027 compared to the same period in the prior year. Cost of revenues is comprised of transaction processing fees,
data connectivity and data center expenses, network fees, bank fees, card production costs, customer service, program management, application
integration setup, and sales and commission expense. Cost of revenues increased primarily due to the increase in our Plasma business as
many of the costs associated with this business are variable in nature as they are provided by third-parties who charge us based on the
number of transactions that occur during the period. In addition, year over year growth in our Pharma copay business contributed to higher
costs as network and commission costs associated with this business are higher than our Pharma prepaid business.

Gross profit for the year ended December 31,
2022 increased $6,242,791 compared to the prior year resulting primarily from the increase in revenue and cost of sales described above.
The increase in gross margin to 55.1% versus 49.9% compared to the same period in the prior year resulted from operating leverage in our
Plasma business, offset by the mix of products in our Pharma business as we transition from our higher margin prepaid business and related
settlement income to our lower margin copay business, and the launch of Other prepaid programs in the month of December 2022 which have
yet to have had time to mature.

Selling, general and administrative expenses for
the year ended December 31, 2022 increased $2,747,329 or 18.4% compared to the prior year and consisted primarily of an increase
in technologies and telecom of $975,000, staffing and compensation of $873,000, travel and entertainment of $170,000, rent and occupancy
of $140,000, professional services of $100,000, insurance of $60,000, and other operating expenses of $430,000.

Depreciation and amortization expense for the
year ended December 31, 2022 increased $411,694 compared to the prior year. The increase in depreciation and amortization expense was
primarily due to continued capitalization of new technologies and enhancements to our processing platform and infrastructure.

For the year ended December 31, 2022, we recorded
income from operations of $344,335 an increase of $3,083,768 from the period ending December 31, 2021, related to the aforementioned
factors.

Other income for the year ended December 31, 2022
increased $762,620 related to an increase in interest income resulting primarily from higher cash balances and increases in the federal
funds rate throughout the year as the Federal Reserve has increased rates to combat inflation.

The effective tax rate was 9.5% and (0.4%) for
the years ended December 31, 2022 and 2021. The effective tax rates vary, primarily due to
state and federal taxes due, offset by the use of net operating losses. The Company continues to have a full valuation allowance against
its deferred tax assets as of December 31, 2022.

The net profit for the year ended December 31,
2022 increased $3,749,109. The overall change in net income relates to the aforementioned factors.

Key Metrics, Performance Indicators and Non-GAAP
Measures

Management reviews a number of metrics to help
us monitor the performance of and identify trends affecting our business. We believe the following measures are the primary indicators
of our quarterly and annual revenues:

Gross Dollar Volume Loaded on Cards – Represents
the total dollar volume of funds loaded to all of our card programs. Our gross dollar volume was $1.595 billion and $1.066 billion for
the years ended December 31, 2022 and 2021, respectively. We use this metric to analyze the total amount of money moving into our
card programs.

[[GREPCENT_TABLE]]
[["","25"]]
[[/GREPCENT_TABLE]]

Conversion Rate on Gross Dollar Volume Loaded
on Cards – Represents the percent of total gross dollar load volume onto our card programs that is converted into revenue, gross
profit and net profit dollars. Our revenue conversion rate for the years ended December 31, 2022 and 2021 were 2.38% or 238 basis
points (“bps”), and 2.76% or 276 bps, respectively, of gross dollar volume loaded on cards. Our gross profit conversion rate
for the years ended December 31, 2022 and 2021 were 1.31% or 131 bps, and 1.38% or 138 bps, respectively, of gross dollar volume
loaded on cards. Our net profit conversion rate for the years ended December 31, 2022 and 2021 were 0.06% or 6 bps and (0.25%) or
(25) bps, respectively, of gross dollar volume loaded on cards. The decline in the revenue conversion rate was primarily attributable
to the renewal and restructuring of a referral agreement in Q1 2022. The increase in the gross profit conversion rate was primarily attributable
to operating leverage in our Plasma business, offset by the mix of products in our Pharma business as we transition from our higher margin
prepaid business and related settlement income to our lower margin copay business, and the launch of Other prepaid programs in the month
of December 2022 which have yet to have had time to mature. The increase in the net profit conversion rate was primarily attributable
to improving operating results throughout 2022 as well as increased bank balances and interest rates which led to an increase in net interest
income.

Management also reviews key performance indicators,
such as revenues, gross profits, operational expenses as a percent of revenues, and cardholder participation. In addition, we consider
certain non-GAAP (or “adjusted”) measures to be useful to management and investors evaluating our operating performance for
the periods presented, and provide a tool for evaluating our ongoing operations, liquidity, and management of assets. This information
can assist investors in assessing our financial performance and measures our ability to generate capital for deployment and investment
in new card programs. These adjusted metrics are consistent with how management views our business and are used to make financial, operating
and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute
for revenues, operating income, net income (loss), earnings (loss) per share (basic and diluted) or net cash from operating activities
as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures
reported by other companies, to be key performance indicators:

“EBITDA” is defined as earnings before
interest, income taxes, depreciation and amortization expense and “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude
stock-based compensation expense. A reconciliation of net income (loss) to Adjusted EBITDA is provided in the table below.

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2022","","","2021"],["Reconciliation of adjusted EBITDA to net income (loss):"],["Net income (loss)","","$","1,027,775","","","$","(2,721,334",")"],["Income tax provision","","","107,477","","","","10,198"],["Interest income, net","","","(790,917",")","","","(28,297",")"],["Depreciation and amortization","","","2,909,612","","","","2,497,918"],["EBITDA","","","3,253,947","","","","(241,515",")"],["Stock-based compensation","","","2,277,717","","","","2,280,931"],["Adjusted EBITDA","","$","5,531,664","","","$","2,039,416"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

The following table sets forth the major sources
and uses of cash for our last two fiscal years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2022","","","2021"],["Net cash provided by operating activities","","$","25,317,964","","","$","15,228,189"],["Net cash used in investing activities","","","(4,091,683",")","","","(2,679,664",")"],["Net cash provided by financing activities","","","\u2013","","","","192,141"],["Net increase in cash and restricted cash","","$","21,226,281","","","$","12,740,666"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","26"]]
[[/GREPCENT_TABLE]]

Comparison of Fiscal 2022 and 2021

In fiscal 2022 and 2021, we financed our operations
through internally generated funds.

Operating activities provided $25,317,964 of cash
in 2022, an increase of $10,089,775 compared to 2021. The increase is primarily due to the increase in net income, depreciation and amortization,
and increases in cash flows from changes in operating assets and liabilities. The large year-over-year changes in operating assets and
liabilities related to accounts receivable, accounts payable and customer card funding are primarily due to the growth in our Plasma and
Pharma programs and the timing of collections and payments of our Pharma programs whereby we collect money from pharmaceutical and HUB
service companies and reimburse the pharmacy claims processor, healthcare providers and patients for their out-of-pocket drug costs.

Investing activities used $4,091,683 of cash in
2022, as compared to $2,679,664 of cash in 2021. The increase is primarily attributable to an increase in the capitalization of internally
developed software relative to the prior year as we continued to invest in new technologies and enhancements to our processing platform
and infrastructure to support the growth of new customers and our existing business.

No cash was provided or used by financing activities
in 2022. Our cash provided by financing activities for 2021 related entirely to cash received from the exercise of stock options.

Our significant contractual cash requirements
also include ongoing payments for lease liabilities. For additional information regarding our cash commitments and contractual obligations, see
"Note 5 – LEASE” in the notes to the accompanying consolidated financial statements.

Liquidity and Sources of Financing

Unrestricted cash increased $2,321,082 to $9,708,238,
due to the improvement in our operating results throughout 2022. Restricted cash of $80,189,113 are funds used for customer card funding
with a corresponding offset under current liabilities. The increase of $18,905,199 in 2022 versus 2021 was predominately related to increases
in funds on card, increased Plasma deposits, and new Plasma and Pharma customers, offset by declines from Pharma customers whose contracts
terminated during the year. We experienced large increases in accounts receivable and accounts payable primarily due to the launch of
ten new Pharma programs during the year whereby Paysign invoices its customers for reimbursement to pharmacy networks, pharmacies, or
individuals for their out-of-pocket costs and remits those funds to cover the accounts payable liability. We believe that our unrestricted
cash on hand at December 31, 2022 of $9,708,238, along with anticipated revenues, operating profits and free cash flow anticipated
for 2023 and 2024, will be sufficient to sustain our operations for the next twenty-one months.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Our estimates will be based on our experience
and our interpretation of economic, political, regulatory, and other factors that affect our business prospects.

Fixed Assets – Fixed assets are stated
at cost less accumulated depreciation. Depreciation is principally recorded on the straight-line method over the estimated useful life
of the asset, which is generally 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Leasehold improvements
are capitalized and depreciated over the shorter of the remaining lease term or the estimated useful life of the improvements. Expenditures
for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation
are removed from the accounts and any gain or loss is reflected in other income (expense).

[[GREPCENT_TABLE]]
[["","27"]]
[[/GREPCENT_TABLE]]

The Company periodically evaluates whether events
and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets or whether the remaining balance
of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over
the remaining life of the fixed assets in measuring their recoverability.

Intangible Assets – For intangible
assets, the Company recognizes an impairment loss if the carrying amount of the intangible asset is not recoverable and exceeds fair value.
The carrying amount of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected
to result from the use of the asset.

Intangible assets with a finite life are amortized
on a straight-line basis over its estimated useful life, which is generally 3 to 15 years.

Internally Developed Software Costs –
Computer software development costs are expensed as incurred, except for internal use software or website development costs that qualify
for capitalization as described below, and include compensation and related expenses, costs of hardware and software, and costs incurred
in developing features and functionality.

For computer software developed or obtained for
internal use, costs that are incurred in the preliminary project and post implementation stages of software development are expensed as
incurred. Costs incurred during the application and development stage are capitalized, as the Platform asset. Capitalized costs are amortized
using the straight-line method over a three year estimated useful life, beginning in the period in which the software is available for
use.

Income Taxes – Income tax expense
is comprised of current and deferred income tax expense. Current income tax expense approximates taxes to be paid or refunded for the
current period. Deferred income tax expense results from the changes in deferred tax assets and liabilities during the periods. These
gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future
reversals of temporary differences between the basis of assets and liabilities as measured by tax laws and their basis as reported in
our consolidated financial statements. We also recognize deferred tax assets for tax attributes such as net operating loss carryforwards
and tax credit carryforwards. We record valuation allowances to reduce deferred tax assets to the amounts we conclude are more likely-than-not
to be realized in the foreseeable future. While the Company has considered future taxable income and ongoing prudent and feasible tax
strategies in assessing the need for the valuation allowance, if these estimates and assumptions change in the future, the Company may
be required to adjust its valuation allowance.

Income tax benefits are recognized and measured
based upon a two-step model: 1) a tax position must be more likely-than-not to be sustained based solely on its technical merits in order
to be recognized, and 2) the benefit is measured as the largest dollar amount of that position that is more likely-than-not to be sustained
upon settlement. The difference between the benefit recognized for a position and the tax benefit claimed on a tax return is referred
to as an unrecognized tax benefit. Income tax related interest and penalties, if applicable, are accrued within income tax expense.

Revenue and Expense Recognition –The
Company recognizes revenue when goods or services are transferred to customers in an amount that reflects the consideration which it expects
to receive in exchange for those goods or services. In determining when and how revenue is recognized from contracts with customers, the
Company performs the following five-step analysis: (i) identification of contracts with customers; (ii) determination of performance obligations;
(iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition
of revenue when (or as) the Company satisfies each performance obligation.

The Company generates revenues from Plasma card
programs through fees generated from cardholder fees and interchange fees. Revenues from Pharma card programs are generated through card
program management fees, transaction claims processing fees, interchange fees, and settlement income.

[[GREPCENT_TABLE]]
[["","28"]]
[[/GREPCENT_TABLE]]

Plasma and Pharma card program revenues include
both fixed and variable components. Cardholder fees represent an obligation to the cardholder based on a per transaction basis and are
recognized at a point in time when the performance obligation is fulfilled. Card program management fees and transaction claims processing
fees include an obligation to our card program sponsors and are generally recognized when earned on a monthly basis and are typically
due within 30 days pursuant to the contract terms which are generally multi-year contracts. The Company uses the output method to recognize
card program management fee revenue at the amount of consideration to which an entity has a right to invoice. The performance obligation
is satisfied when the services are transferred to the customer which the Company determined to be monthly, as the customer simultaneously
receives and consumes the benefit from the Company’s performance. Interchange fees are earned when customer-issued cards are processed
through card payment networks as the nature of our promise to the customer is that we stand ready to process transactions at the customer’s
requests on a daily basis over the contract term. Since the timing and quantity of transactions to be processed by us are not determinable,
we view interchange fees to comprise an obligation to stand ready to process as many transactions as the customer requests. Accordingly,
the promise to stand ready is accounted for as a single series performance obligation. The Company uses the right to invoice practical
expedient and recognizes interchange fee revenue concurrent with the processing of card transactions. Interchange fees are settled in
accordance with the card payment network terms and conditions, which is typically within a few days.

The Company utilizes the remote method of revenue
recognition for settlement income whereby the unspent balances will be recognized as revenue at the expiration of the cards and the respective
program. The Company records all revenue on a gross basis since it is the primary obligor and establishes the price in the contract arrangement
with its customers. The Company is currently under no obligation for refunding any fees, and the Company does not currently have any obligations
for disputed claim settlements. Given the nature of the Company’s services and contracts, generally it has no contract assets.

Cost of revenues is comprised of transaction processing
fees, data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, program
management, application integration setup, and sales and commission expense. 

Operating Leases – The Company
determines if a contract is or contains a leasing element at contract inception or the date in which a modification of an existing
contract occurs. In order for a contract to be considered a lease, the contract must transfer the right to control the use of an
identified asset for a period of time in exchange for consideration. Control is determined to have occurred if the lessee has the
right to (i) obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use and
(ii) direct the use of the identified asset.

In determining the present value of lease payments
at lease commencement date, the Company utilizes its incremental borrowing rate based on the information available, unless the rate implicit
in the lease is readily determinable. The liability for operating leases is based on the present value of future lease payments. Operating
lease expenses are recorded as rent expense, which is included within selling, general and administrative expenses within the consolidated
statements of operations and presented as operating cash outflows within the consolidated statements of cash flows.

Leases with an initial term of 12 months or less
are not recorded on the balance sheet, with lease expense for these leases recognized on a straight-line basis over the lease term.

Stock-Based Compensation – The Company
recognizes compensation expense for all restricted stock awards and stock options. The fair value of restricted stock awards is measured
using the grant date trading price of our stock. The fair value of stock options is estimated at the grant date using the Black-Scholes
option-pricing model, and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service
period. We have elected to recognize compensation expense for all options with graded vesting on a straight-line basis over the vesting
period of the entire option. The determination of fair value using the Black-Scholes pricing model is affected by our stock price as well
as assumptions regarding a number of complex and subjective variables, including expected stock price volatility and the risk-free interest
rate.