# Paysign, Inc. (PAYS) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Paysign, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1496443/000168316824001729/paysign_i10k-123123.htm
Accession: 0001683168-24-001729
Filing date: 2024-03-27
Report date: 2023-12-31
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/fy2022/ (FY 2022)
Next year: /company/PAYS/mda/fy2024/ (FY 2024)

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 (the “Exchange Act”) (“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 stockholders 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 I - 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. We are 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 operate on a powerful, high-availability payments
platform with cutting-edge fintech capabilities that can be seamlessly integrated with our clients’ systems. This distinctive positioning
allows us to provide end-to-end technologies that securely manage transaction processing, cardholder enrollment, value loading, account
management, data and analytics, and customer service. Our architecture is known for its cross-platform compatibility, flexibility, and
scalability – allowing our clients and partners to leverage these advantages for cost savings and revenue opportunities.

Our suite of product offerings includes solutions
for corporate rewards, prepaid gift cards, general purpose reloadable debit cards, employee incentives, consumer rebates, donor compensation,
clinical trials, healthcare reimbursement payments and pharmaceutical payment assistance, and demand deposit accounts accessible with
a debit card. In the future, we expect to further expand our product into other prepaid card offerings such as travel cards and expense
reimbursement cards. Our cards are sponsored by our issuing bank partners.

Our revenues include fees generated from cardholder
fees, interchange, card program management fees, transaction claims processing fees, breakage, 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. Breakage is recorded ratably over the estimated card life based on historical redemption patterns, market-specific trends,
escheatment rules and existing economic conditions and relates solely to our open-loop gift card business which began at the end of 2022.
Settlement income is recorded at the expiration of the card program and relates solely to our pharma prepaid business which ended in 2022.

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

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

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 employ a 24/7/365 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 patient affordability solutions, 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.

We have devoted more extensive resources to sales
and marketing activities as we have added essential personnel to our marketing, sales and support teams. 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 2024, we plan to continue to invest additional
funds in technology improvements, sales and marketing, fraud, 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 support our existing business and expand into new vertical markets using internally generated funds.

2023 Year Milestones

[[GREPCENT_TABLE]]
[["","\u00b7","Grew to approximately 6.4 million cardholders and approximately 600 card programs as of December 31, 2023."],["","\u00b7","Year over year revenue increased 24.3%."],["","\u00b7","Added 20 net new Plasma programs, launched 24 net new Pharma programs, and added 1 net new Other prepaid program."]]
[[/GREPCENT_TABLE]]

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

Results of Operations

Comparison of Year Ended December 31, 2023
to Year Ended December 31, 2022

The following table summarizes our consolidated
financial results for year ended December 31, 2023 in comparison to year ended December 31, 2022:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,","","","Variance"],["","","2023","","","2022","","","$","","","%"],["Revenues"],["Plasma industry","","$","41,951,659","","","$","34,737,640","","","$","7,214,019","","","","20.8%"],["Pharma industry","","","4,051,037","","","","3,007,140","","","","1,043,897","","","","34.7%"],["Other","","","1,271,466","","","","288,887","","","","982,579","","","","340.1%"],["Total revenues","","","47,274,162","","","","38,033,667","","","","9,240,495","","","","24.3%"],["Cost of revenues","","","23,137,997","","","","17,079,069","","","","6,058,928","","","","35.5%"],["Gross profit","","","24,136,165","","","","20,954,598","","","","3,181,567","","","","15.2%"],["Gross margin %","","","51.1%","","","","55.1%"],["Operating expenses"],["Selling, general and administrative","","","20,276,842","","","","17,700,651","","","","2,576,191","","","","14.6%"],["Depreciation and amortization","","","4,026,578","","","","2,909,612","","","","1,116,966","","","","38.4%"],["Total operating expenses","","","24,303,420","","","","20,610,263","","","","3,693,157","","","","17.9%"],["(Loss) income from operations","","$","(167,255",")","","$","344,335","","","$","(511,590",")","","","(148.6%",")"],["Net income","","$","6,458,727","","","$","1,027,775","","","$","5,430,952","","","","528.4%"],["Net margin %","","","13.7%","","","","2.7%"]]
[[/GREPCENT_TABLE]]

The increase in total revenues of $9,240,495 for
the year ended December 31, 2023 compared to the same period in the prior year consisted primarily of a $7,214,019 increase in Plasma
revenue, a $1,043,897 increase in Pharma revenue, and a $982,579 increase in Other revenue. The increase in Plasma revenue was primarily
due to a rise in the number of plasma centers and donations, and, consequently, dollars loaded to cards, cardholder fees, and interchange,
as there continues to be an increase in demand for plasma which has been driven by global increases in plasma protein therapies. The increase
in Pharma revenue was primarily due to the launch of new pharma patient affordability programs. The increase in Other revenue was primarily
due to the growth of our payroll, retail, and corporate incentive programs.

Cost of revenues for the year ended December 31,
2023 increased $6,058,928 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 and postage costs, customer service, program management,
application integration setup, and sales and commission expense. Cost of revenues increased during 2023 primarily due to an increase in
cardholder usage activity and associated network expenses such as interchange and ATM costs, an increase in plastics and collateral related
to an increase in the number of unique card loads, an increase in network expenses and sales commissions related to the growth in our
pharma patient affordability business, and an increase in customer service expenses associated with wage inflation pressures and the overall
growth in our business, offset by a decline in postage.

Gross profit for the year ended December 31, 2023
increased $3,181,567 compared to the same period in the prior year resulting primarily from the increase in Plasma revenue and the beneficial
impact of a variable cost structure as many of the plasma transaction costs are variable in nature which are provided by third parties
who charge us based on the number of active cards outstanding and the number of transactions that occurred during the period. Gross profit
also benefited from the growth in our pharma patient affordability business. The increase in gross profit was offset by the termination
of our pharma prepaid business in 2022, price increases by many of our third-party service providers, and an increase in customer service
expenses mentioned above. The decrease in gross margin resulted from the aforementioned factors.

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

Selling, general  and administrative expenses
for the year ended December 31, 2023 increased $2,576,191 compared to the same period in the prior year and consisted primarily of an
increase in (i) compensation and benefits of approximately $3,017,000 due to continued hiring to support the Company’s growth, a
tight labor market and increased benefit costs, (ii) an increase in stock-based compensation expense of approximately $576,000, (iii)
an increase in technologies and telecom of approximately $345,000, (iv) an increase in non-IT professional services of approximately $140,000,
and (v) an increase in all other operating expenses of approximately $62,000. This increase was offset by a $1,564,000 increase
in the amount of capitalized platform development costs.

Depreciation and amortization expense for the
year ended December 31, 2023 increased $1,116,966 compared to the same period in the prior year. The increase in depreciation and amortization
expense was primarily due to continued capitalization of new software development costs and equipment purchases related to continued enhancements
to our processing platform.

For the year ended December 31, 2023, we recorded
a loss from operations of $167,255 representing a decline of $511,590 compared to income from operations of $344,335 during the same period
last year related to the aforementioned factors.

Other income for the year ended December 31, 2023,
increased $1,740,154 primarily related to an increase in interest rates and the associated interest income received on higher average
bank account balances at our sponsor bank.

We recorded an income tax benefit of $4,094,911
for the year ended December 31, 2023, which equates to an effective tax rate of (173.2)%, primarily as a result of the release of our
valuation allowance of $4,588,781 on our federal and state deferred tax assets. The valuation release offset tax expense
of $493,870 on our pre-tax book income. We recorded an income tax expense of $107,477 for the year ended December 31, 2022, which equates
to an effective tax rate of 9.5% primarily as a result of the full valuation on our deferred tax asset and timing differences for stock-based
compensation during the period offset by current year tax credits and adjustments.

The net income for the year ended December 31,
2023 was $6,458,727, an improvement of $5,430,952 compared to the net income of $1,027,775 for the year ended December 31, 2022. 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 prepaid card programs. Our gross dollar volume loaded on cards was $1,706 million
and $1,595 million for the year ended December 31, 2023 and 2022, respectively. We use this metric to analyze the total amount of
money moving into our prepaid card programs.

Conversion Rates on Gross Dollar Volume Loaded
on Cards: Represents revenues, gross profit or net income conversion rates of gross dollar volume loaded on cards which are calculated
by taking our total revenues, gross profit or net income, respectively, as a numerator and dividing by the gross dollar volume loaded
on cards as a denominator. As we derive a number of our financial results from cardholder fees, we utilize these metrics as an indication
of the amount of money that is added to cards and will eventually be converted to revenues, gross profit and net income. Our total revenue
conversion rates for the years ended December 31, 2023 and 2022 were 2.77% or 277 basis points (“bps”), and 2.38% or 238 bps,
respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the year ended December 31, 2023 and
2022 were 1.41% or 141 bps, and 1.31% or 131 bps, respectively, of gross dollar volume loaded on cards. Our net income conversion rates
for the year ended December 31, 2023 and 2022 were 0.13% or 13 bps, and 0.06% or 6 bps, respectively, of gross dollar volume loaded on
cards.

Management also reviews key performance indicators,
such as revenues, gross profit, 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 financial 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 revenue, 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:

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

“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 to Adjusted EBITDA is provided in the table below.

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2023","","","2022"],["Reconciliation of adjusted EBITDA to net income:"],["Net income","","$","6,458,727","","","$","1,027,775"],["Income tax (benefit) provision","","","(4,094,911",")","","","107,477"],["Interest income, net","","","(2,531,071",")","","","(790,917",")"],["Depreciation and amortization","","","4,026,578","","","","2,909,612"],["EBITDA","","","3,859,323","","","","3,253,947"],["Stock-based compensation","","","2,853,643","","","","2,277,717"],["Adjusted EBITDA","","$","6,712,966","","","$","5,531,664"]]
[[/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, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2023","","","2022"],["Net cash provided by operating activities","","$","27,620,624","","","$","25,317,964"],["Net cash used in investing activities","","","(7,048,678",")","","","(4,091,683",")"],["Net cash used in financing activities","","","(1,118,284",")","","","\u2013"],["Net increase in cash and restricted cash","","$","19,453,662","","","$","21,226,281"]]
[[/GREPCENT_TABLE]]

Comparison of Fiscal 2023 and 2022

During the years ended December 31, 2023 and 2022,
we financed our operations through internally generated funds.

Operating activities provided $27,620,624 of cash
in 2023, an increase of $2,302,660 compared to 2022. This change in cash flow is primarily due to increases in operating assets and liabilities.
The changes in accounts receivable, accounts payable, and customer card funding are primarily related to the growth in our pharma patient
affordability business and timing of payments as we are invoiced by third-party service providers at the end of the period and are due
monies from our pharma patient affordability customers to cover these third-party payables. The increase in cash flows from operating
activities was also impacted by net income, as well as non-cash adjustments for deferred income taxes, depreciation and amortization,
stock-based compensation, and lease expense.

We used net cash in investing activities during
the years ended December 31, 2023 and 2022 of $7,048,678 and $4,091,683, respectively. Cash used for investing activities was primarily
attributed to an increase in the capitalization of internally developed software as we continue to invest in our technology platform.

Cash used in financing activities of $1,118,284
for the year ended December 31, 2023 was primarily attributed to the repurchase of 394,558 shares of the Company’s common stock
at a weighted average price of $2.86 per share.

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.

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

Liquidity and Sources of Financing

Unrestricted cash increased $7,286,467 to $16,994,705,
due to the improvement in our operating results throughout 2023 and timing of payments and receivables related to our patient affordability
business. Restricted cash of $92,356,308 are funds used for customer card funding with a corresponding offset under current liabilities.
The increase of $12,167,195 in 2023 versus 2022 was predominately related to increases in funds on card, increased plasma deposits, and
new plasma and pharma customers, offset by declines from a pharma customer whose contract terminated during the year. We experienced large
increases in accounts receivable and accounts payable primarily due to the launch of 24 net 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, 2023 of $16,994,705,
along with anticipated revenues, operating profits and free cash flow anticipated for 2024 and 2025, 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.

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.

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

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. Other revenues are generated through
cardholder fees, interchange fees, program management fees, load fees and breakage.

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.

We refer to the portion of the dollar value of
prepaid-stored value cards that consumers do not ultimately redeem as breakage. In certain card programs where we hold the cardholder
funds where we expect to be entitled to a breakage amount, we recognize revenue using estimated breakage rates ratably over the estimated
card life, provided that a significant reversal of the amount of breakage revenue recognized is not probable and record adjustments to
such estimates when redemption is remote or we are legally defeased of the obligation, if applicable. We utilize a third party to estimate
breakage rates based on historical redemption patterns, market-specific trends, escheatment rules and existing economic conditions for
each program. We have adopted ASU 2016-04 Liabilities—Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for
Certain Prepaid Stored-Value Cards for the recognition of such breakage revenue. Breakage revenue is recorded in other revenue on the
consolidated statements of operations and was $74 thousand and $0 in fiscal year 2023 and fiscal year 2022, respectively.

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. This has historically been associated with the pharma prepaid business which ended in 2022. 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 to refund 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 expenses for these leases recognized on a straight-line basis over the lease term.

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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 option 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.