Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
☒ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
☐TRANSITION
PURSUANT TO UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-38623
PAYSIGN, INC.
(Exact name of registrant as specified in its charter)
2615 St. Rose Parkway, Henderson, Nevada89052
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code: (702)453-2221
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $0.001 par value per share PAYS The Nasdaq Stock Market LLC
Securities registered under Section 12(g) of the
Exchange Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public
accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second
fiscal quarter: $100,192,362 based upon a market price of $3.18 per share.
Indicate the number of shares outstanding of each
of the registrant’s classes of common stock, as of the latest practicable date: 51,864,932 as of March 17, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive
Proxy Statement for its 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form
10-K where indicated. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's
fiscal year ended December 31, 2021.
TABLE OF CONTENTS
PART I 1
ITEM 1 BUSINESS. 1
ITEM 1A. RISK FACTORS. 10
ITEM 1B. UNRESOLVED STAFF COMMENTS. 18
ITEM 2. PROPERTIES. 19
ITEM 3 LEGAL PROCEEDINGS. 19
ITEM 4. MINE SAFETY DISCLOSURE. 19
ITEM 6. [RESERVED]. 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK. 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 28
ITEM 9A. CONTROLS AND PROCEDURES. 28
ITEM 9B. OTHER INFORMATION. 29
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. 29
PART III 30
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 30
ITEM 11. EXECUTIVE COMPENSATION. 30
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 30
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. 31
SIGNATURES 33
Note Regarding Forward Looking Statements
This Annual Report on Form 10-K contains "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 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. 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.
i
PART
I
ITEM
1. BUSINESS.
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 future, we expect to further expand our product offerings into other
prepaid card offerings such as payroll cards, 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, and settlement income. Revenue from cardholder fees, interchange and card program management
fees is recorded when the performance obligation is fulfilled. Settlement income is recorded at the expiration of the card program.
What Are Prepaid Cards?
A prepaid card is a payment product that is pre-funded
and not directly linked to an individual bank account. Prepaid cards are unlike debit cards that are attached to a personal or business
checking account and draw funds from that linked account or a credit card that draws funds from a line of credit.
Prepaid cards can either be open-loop, closed-loop,
or restricted-loop. Open-loop, or network-branded, prepaid cards carry an acceptance mark of a national or international payment network
such as Visa, Interlink, Plus, MasterCard, Maestro, Cirrus, Discover or Pulse and can be used anywhere that card brand is accepted. Closed-loop
prepaid cards can only be used at a specific merchant whose name is typically branded on the card and are most likely not network branded.
Restricted-loop prepaid cards may carry a network brand and can be used only at a specific group of non-affiliated merchant locations
such as a shopping mall or a specific merchant category.
Open-loop, and some restricted-loop, prepaid cards
are issued by a financial institution under a license of the payment network. Open-loop prepaid cards provide consumers, businesses and
governments with the efficiency, security and flexibility of digital payments reducing costs associated with handling cash, checks and
other paper-based payment processes, and provides the end user a payment product that is accessible and with global utility, convenient,
safer than cash, can be used as a budgeting tool and contains protections against fraud and theft.
The prepaid market continues to experience significant
growth due to consumers, corporations and governments 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.
The Mercator Advisory Group’s 18th
Annual U.S. Open-Loop Prepaid Cards Market Forecast 2021-2025, shows that “2020 has been an extraordinary year for prepaid card
loads as a result of government benefits in response to COVID-19. As these benefits subside, 2021 will see an initial drop in load values
followed by steady growth.” Mercator forecasts open-loop prepaid card loads will have a compound annual growth rate of 3.0% from
2021 to 2025, when total loads are expected to reach $735 billion.
Consumers, both banked and unbanked, use prepaid
cards such as general purpose reloadable (“GPR”) cards, to conduct their day-to-day financial transactions such as paying
bills, depositing checks, and receiving direct deposits. According to the 2019 FDIC Survey of Household Use of Banking and Financial Services,
8.5% of U.S. households or approximately 128 million households, use GPR prepaid cards.
Common Examples of Prepaid Cards
The prepaid card market is divided into three
macro categories based on who funds the card account. These categories are consumer-funded, corporate-funded and government-funded.
Consumer-Funded Programs: The consumer
prepaid category consists of products such as GPR cards, gift cards, travel money cards, and remittance/peer-to-peer (“P2P”)
cards.
General Purpose Reloadable Cards: 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.
Gift Cards: A non-reloadable
prepaid card that is purchased by a gift giver to be given to a gift recipient.
Corporate-Funded Programs: The corporate
prepaid category consists of products such as employee/partner incentives, consumer incentives, payroll, employee benefits, healthcare,
corporate expense and business travel, insurance claim disbursement, etc.
Our Products and Services
As a payment processor and prepaid card program
manager, 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 manage all aspects of the prepaid
card lifecycle, from the card design and approval processes with partners and networks, to production, packaging, distribution, and personalization.
We also oversee inventory and security controls, renewals, and lost and stolen card management and replacement. 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
(“IVR”) and two-way short message service (“SMS”) messaging platforms. As we do not have our own banking license
to issue open-loop prepaid cards, our cards are offered to end users through our relationships with bank issuers.
As an end-to-end payment processor and prepaid
card program manager, we derive our revenue from all stages of the 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; program administration fees; and settlement income.
To date, we have issued millions of prepaid cards
under programs implemented for Fortune 500 companies, multinationals, as well as top pharmaceutical manufacturers, universities and social
media companies.
As of December 31, 2021, we had approximately
4.3 million cardholders participating in approximately 440 card programs.
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 added
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.
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 all 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 purpose reloadable prepaid cards. Paysign is a registered trademark of the Company 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, clinical trial
participants, 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 the 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 act as a stand-alone solution. All Paysign cards are accepted anywhere Visa, Interlink, Plus, MasterCard,
Maestro, Cirrus, Discover and Pulse are accepted depending on the brands used.
Key benefits of our corporate incentive cards
are:
Per Diem/ Corporate Expense Payments
Per Diem, Corporate Expense and Business Travel
Cards are 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. We are 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 pays all or a portion of 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,
doctors’ offices and clinics nationwide.
Our pharmaceutical solutions provide payment claims
processing and other administrative services for clients according to client benefit plan designs. 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.
Patient Affordability Products and Services
Paysign provides targeted products and services
designed to address financial barriers related to patients starting and remaining on brand name drug therapies. Our products are specifically
designed to work within the established workflow of the specific healthcare provider. These products can be used to cover all or a portion
of the patient’s financial responsibility. We continue to build out additional products as industry concerns continue to emerge
presenting new business opportunities. A critical component of all patient affordability products is the ability of a pharmaceutical manufacturer
to access and visualize data related to the performance of their affordability program, patient and prescriber behavior, and overall brand
growth on a commercially insured patient basis. To provide these insights, Paysign has data scientist and a team of analytic professionals
dedicated to these products and clients.
Pharmacy Based Voucher and
Copay Affordability Programs: Voucher and Copay programs have become an industry standard offering for pharmaceutical brands entering
a market or seeking to increase market share. These products are processed via the pharmacy transactional systems in accordance with established
standards. These products are the most common form of affordability programs and exist for almost every retail and specialty-based branded
pharmaceutical drug. Pharmacies process claims to one of Paysign’s chosen processors who grow and maintain their own individual
contractual networks. Claims may be submitted in the primary or secondary payor position where our processor will adjudicate the claim
in accordance with business rules defined by each client.
Medical Claims Based Affordability
Programs: These programs are similar to pharmacy-based products but utilize internal networks developed and maintained by Paysign. We
are a direct processor of these claims and conduct adjudication on an internal proprietary platform specifically designed to address the
needs of our clients and their unique business rules. Payments for processed claims are made directly to a healthcare provider using our
virtual debit card products. We differentiate ourselves with this specific product by offering accelerated adjudication and payments relative
to our competition. This results in providers having a stronger willingness to utilize our products versus our competitors.
Debit Based Affordability
Programs: We continue to utilize physical and virtual debit cards to address highly specific industry concerns related to patient affordability.
These issues include utilization of debit-based products to combat copay accumulators and maximizers, currently one of the largest threats
in the marketplace for pharmaceutical manufacturers.
Source Plasma Donor Payments
Plasma derived therapies are lifesaving treatments
used to treat various rare conditions. Plasma based therapies are manufactured using human plasma, which is the yellow liquid portion
of whole blood that can be easily replaced by the body. Plasma makes up approximately 55% of whole blood and consists primarily of water
and proteins. Source plasma is the plasma collected from individual donors that serves as the raw material for the further manufacture
into these life saving therapies. Historically, source plasma donation centers compensated their donors with cash or checks. Over the
past several years, plasma donation centers have migrated to a prepaid card 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 Plasma Donor Compensation
Prepaid Card, the Paysign Partner Portal for administrators, and the Paysign Kiosk. The Company recently introduced a number of enhancements
to its Plasma solution, offering cardholders a point-of-sale cash back rewards program, a pharmacy prescription discount card and a digital
bank account to assist our Pharma clients in their efforts to maximize the donor experience. 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 systems, 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 35% of the
plasma collection centers in the United States.
DDA Debit Cards—Paysign Premier
Recently, providers of GPR card products, in response
to changes in the regulatory environment, have introduced new products similar to a GPR card but that act as true demand deposit accounts
accessible with a debit card (“DDA Debit Card”). These DDA Debit Cards offer many of the features and functionalities of a
traditional debit card associated with a standard bank account, including overdraft protection. The Company began marketing its DDA Debit
Card, branded Paysign Premier Digital Bank Account, in the third quarter of 2019. The Company markets this product to a targeted portion
of its existing cardholder base through existing communication points and to customers and employees of new clients.
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 bilingual customer care representatives. The Paysign platform provides IVR, SMS alerts and two-way SMS messaging, allowing cardholders
to set alerts and check their balances and transaction 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 Paysign staff.
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 an ATM locator,
a loyalty point counter, and 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 transaction processing and operations. We utilize two secure,
interconnected, environmentally-controlled data centers, with emergency power generation capabilities, and fully redundant capabilities.
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 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 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.
Markets and Major Customers
We have no major customers and are not reliant
on any individual card program. We manage multiple programs at any given time. As of December 31, 2021, we managed approximately
440 card programs with approximately 4.3 million participating cardholders.
Implications of Being an Emerging Growth Company
Paysign qualifies as an “emerging growth
company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage
of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
We have elected to take advantage of certain reduced
disclosure obligations in this Annual Report on Form 10-K and may elect to take advantage of other reduced reporting requirements in future
filings. As a result, the information that we provide to our stockholders may be different from what you might receive from other public
reporting companies in which you hold equity interests.
In addition, under the JOBS Act, emerging growth
companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have
elected to avail ourselves of this exemption and, as a result, our financial statements may not be comparable to the financial statements
of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.
Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is
irrevocable.
We will remain an emerging growth company until
the earliest to occur of: (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion;
(ii) the last day of 2024; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended (referred to as the Exchange Act), which would occur if the market value of our
common equity held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal
quarter; or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during any three-year
period.
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:
· anti-money laundering laws;
· money transfer and payment instrument licensing regulations;
· escheatment laws;
· privacy and information safeguard laws;
· bank regulations;
· consumer protection laws;
· false claims laws and other fraud and abuse restrictions; and
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:
· report large cash transactions and suspicious activity;
· gather and, in certain circumstances, report customer information;
· comply with consumer disclosure requirements; and
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. state require that certain information be tracked on card programs.
If customer funds are unclaimed at the end of an applicable statutory abandonment period, the proceeds of the unclaimed property must
be remitted to the appropriate state. Analysis of facts and circumstances of each card program under state unclaimed property laws
determines whether funds under such programs are escheatable.
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, 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 Gramm-Leach-Bliley Act as discussed under "Privacy and Information Safeguard Laws" above.
Consumer Protection Laws
Certain products that we anticipate introducing
in the future will likely be subject to additional state and federal consumer protection laws, including laws prohibiting unfair and deceptive
practices, regulating electronic fund transfers and protecting consumer nonpublic information. Before we can 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 Interlink, Plus, Maestro, Cirrus, Discover and Pulse, 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 card networks. The card networks 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, participants 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 from the American Recovery and
Reinvestment Act, 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 intellectual property and 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 proprietary information, or to take enforcement action.
Employees and Independent Contractors
As of December 31, 2021, we had approximately
eighty employees and independent contractors.
We have no collective bargaining agreements with
our employees, and believe all independent contractor and employment agreement 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.
Available Information
Our internet address is www.paysign.com. Information
on our website does not constitute part of this Annual Report.
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 Form 10-K, including our consolidated financial statements and related notes. 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. All forward-looking statements made
by us or on our behalf are qualified by the risks described below.
Risks Related to Our Business
We may be unable to grow our business in future
periods, and if our revenue growth slows, or our revenues decline further, our business and financial conditions could be adversely affected.
Our growth rates may decline in the future. There
can be no assurance that we will be able to grow our business in future periods. In the near term, our 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 growth also depends on our ability to develop and market other prepaid 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.
As a result of the COVID-19 pandemic, our business, financial condition,
profitability, and cash flows have been, and are likely to continue to be, negatively impacted.
The coronavirus (COVID-19) pandemic, which started
in late 2019 and reached the United States in early 2020, continues to significantly impact the economy of the United States and the rest
of the world. Federal, state and local authorities in the United States imposed measures intended to reduce the spread of the virus, including
restrictions on freedom of movement and business operations such as travel bans, business limitations and closures, quarantines and shelter-in-place
orders. These measures had a significant impact on the global economy and financial markets, and adversely affected the demand for our
products and services. While the disruption appears to be mitigating due to the availability of vaccines and other factors, the ultimate
duration and severity of the pandemic remain uncertain, particularly given the development of new variants that continue to spread. The
COVID-19 outbreak caused plasma center closures, and the stimulus packages signed into law during 2020 and 2021 reduced the incentive
for individuals to donate plasma for supplementary income. Those developments have had and will continue to have an adverse impact on
the Company’s results of operations. While we remain cautiously optimistic and have seen improvements in our operating results,
we cannot foresee how long it may take the Company to attain pre-pandemic operating levels as COVID-19 related labor shortages at plasma
donation centers, border closures, and other effects continue to weigh on the Company’s results of operations. Given the uncertainty
around the extent and timing of the potential future spread or mitigation of COVID-19 and variants and around the imposition or relaxation
of protective measures, management cannot at this time estimate with reasonable accuracy COVID-19’s further impact on the Company’s
results of operations, cash flows or financial condition.
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 a wide range of federal and other state laws and regulations, which are described under "Business – Regulations"
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 results.
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 service providers 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 card networks
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 results and future growth prospects.
We may have deficiencies or weaknesses in our internal control over
financial reporting which could, if not remediated, adversely affect our ability to report our financial condition and results of operations
in a timely and accurate manner, decrease investor confidence in our Company, and reduce the value of our common stock.
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act
and based upon the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the “COSO framework”). Management is also responsible for reporting on the effectiveness of internal
control over financial reporting.
Deficiencies or weaknesses in our internal control
over financial reporting that are not promptly identified and remediated may adversely affect our ability to report our financial condition
and results of operations in a timely and accurate manner, decrease investor confidence in our Company, and reduce the value of our common
stock. Although we believe we have taken appropriate actions to remediate previously reported control deficiencies that we have identified
and to strengthen our internal control over financial reporting, we cannot assure you that we will not discover other deficiencies or
weaknesses in the future.
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: