CONFIDENTIAL SERIES “A” OFFERING MEMORANDUM
Confidential Document #: Name:
SoPayMe, Inc. $9,000,000 ______Shares (“Shares”) ($____ USD per Share) Minimum Subscription(1) ______Shares ($25,000) THIS OFFERING IS MADE TO ACCREDITED INVESTORS ONLY
SoPayMe, Inc. (“Company” or “SoPayMe”), a Minnesota Corporation, is offering a maximum of ______Shares of its redeemable common stock (“Shares”) for $____ per Share. There is no minimum offering amount. The offering price per Share has been arbitrarily determined by the Company (see Risk Factors: Offering Price; Description of Share).
THESE ARE SPECULATIVE SECURITIES WHICH INVOLVE A HIGH DEGREE OF RISK. ONLY THOSE INVESTORS WHO CAN BEAR THE LOSS OF THEIR ENTIRE INVESTMENT SHOULD INVEST IN THESE SHARES.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), THE SECURITIES LAWS OF THE STATE OF MINNESOTA, OR UNDER THE SECURITIES LAWS OF ANY OTHER STATE OR JURISDICTION IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED BY THE ACT AND REGULATION D RULE 506(c) PROMULGATED THEREUNDER, AND THE COMPARABLE EXEMPTIONS FROM REGISTRATION PROVIDED BY OTHER APPLICABLE SECURITIES LAWS. ______
Sale Price Est. Selling Commissions (1) Proceeds To Company Per Share $____ $____ $____ Offering Amount $9,000,000 $720,000 $8,280,000
______(Footnotes on Page 2)
1650 W. 82nd St., Suite #700, Bloomington, MN 55431 (612) 910-6868 The Date of this Memorandum is January 1, 2017 Copyright 2012-2016, all rights reserved. Duplication only if authorized in writing by SoPayMe, Inc.
1 (1) The Company reserves the right to waive the $25,000 minimum subscription for any investor. The Offering is not underwritten. The Shares are offered on a “best efforts” basis by the Company through its officers and directors. The Company is offering a maximum of ______Shares for gross proceeds of $9,000,000 for this Offering. There is no minimum offering. As such, proceeds from the sale of any of the Shares will be deposited directly to the Company’s corporate account and will be immediately available for use by the Company at its discretion. Shares may also be sold by FINRA member brokers or dealers who enter into a Participating Dealer Agreement with the Company. They will receive fee commissions of up to 8% of the price of the Shares sold. The Company reserves the right to pay other expenses related to this Offering from the proceeds of the Offering (see Use of Proceeds and Plan of Placement).
(2) The Offering will terminate on the earliest of: (a) the date the Company, in its discretion, elects to terminate, or (b) the date upon which all Shares have been sold, or (c) August 1, 2017, or such date as may be extended from time to time by the Company, but not later than 180 days thereafter (the “Offering Period”).
THIS OFFERING IS NOT UNDERWRITTEN. THE OFFERING PRICE HAS BEEN ARBITRARILY SET BY THE MANAGEMENT OF THE COMPANY. THERE CAN BE NO ASSURANCE THAT ANY OF THE SECURITIES WILL BE SOLD.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY, NOR HAS ANY SUCH REGULATORY BODY REVIEWED THIS OFFERING MEMORANDUM FOR ACCURACY OR COMPLETENESS. BECAUSE THESE SECURITIES HAVE NOT BEEN SO REGISTERED, THERE MAY BE RESTRICTIONS ON THEIR TRANSFERABILITY OR RESALE BY AN INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD PROCEED ON THE ASSUMPTION THAT HE MUST BEAR THE ECONOMIC RISKS OF THE INVESTMENT FOR AN INDEFINITE PERIOD, SINCE THE SECURITIES MAY NOT BE SOLD UNLESS, AMONG OTHER THINGS, THEY ARE SUBSEQUENTLY REGISTERED UNDER THE APPLICABLE SECURITIES ACTS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THERE IS NO TRADING MARKET FOR THE COMPANY’S SECURITIES AND THERE CAN BE NO ASSURANCE THAT ANY MARKET WILL DEVELOP IN THE FUTURE OR THAT THE SECURITIES WILL BE ACCEPTED FOR INCLUSION ON NASDAQ OR ANY OTHER TRADING EXCHANGE AT ANY TIME IN THE FUTURE. THE COMPANY IS NOT OBLIGATED TO REGISTER FOR SALE UNDER EITHER FEDERAL OR STATE SECURITIES LAWS THE SECURITIES PURCHASED PURSUANT HERETO, AND THE ISSUANCE OF THE SECURITIES IS BEING UNDERTAKEN PURSUANT TO RULE 506 OF REGULATION D UNDER THE SECURITIES ACT. ACCORDINGLY, THE SALE, TRANSFER, OR OTHER DISPOSITION OF ANY OF THE SHARES WHICH ARE PURCHASED PURSUANT HERETO MAY BE RESTRICTED BY APPLICABLE FEDERAL OR STATE SECURITIES LAWS (DEPENDING ON THE RESIDENCY OF THE INVESTOR) AND BY THE PROVISIONS OF THE SUBSCRIPTION AGREEMENT REFERRED TO HEREIN. THE OFFERING PRICE OF THE SECURITIES HAS BEEN ARBITRARILY ESTABLISHED BY THE COMPANY AND DOES NOT NECESSARILY BEAR ANY SPECIFIC RELATION TO THE ASSETS, BOOK VALUE OR POTENTIAL EARNINGS OF THE COMPANY OR ANY OTHER RECOGNIZED CRITERIA OF VALUE.
No person is authorized to give any information or make any representation not contained in this Memorandum, and any information or representation not contained herein must not be relied upon. Nothing in this Memorandum should be construed as legal advice or tax advice.
All of the information provided herein has been provided by the Management of the Company. The Company makes no express or implied representation or warranty as to the completeness of this information or, in the case of projections, estimates, future plans, or forward looking assumptions or statements, as to their attainability or the accuracy and completeness of the assumptions from which they are derived. It is expected that each prospective investor will pursue his, her, or its own independent investigation. It must be recognized that estimates of the Company’s performance are subject to a high degree of uncertainty and may vary materially from actual results.
2 This offering is relying on Securities and Exchange provision that permits general solicitation or general advertising pursuant to Rule 506(c) based on SEC Rule dated September 23, 2013. Other than the Company’s management, no one has been authorized to give any information or to make any representation with respect to the Company or the Securities that is not contained in this Memorandum. Prospective investors should not rely on any information not contained in this Memorandum.
This Memorandum does not constitute an offer to sell or a solicitation of an offer to buy to anyone in any jurisdiction in which such offer or solicitation would be unlawful, unauthorized, or in which the person making such offer or solicitation is not qualified to do so.
This Memorandum does not constitute an offer to sell or a solicitation of an offer to buy the Shares if the prospective investor is unqualified under applicable securities laws.
This offering is made subject to withdrawal, cancellation, or modification by the Company without notice and solely at the Company’s discretion. The Company reserves the right to reject any subscription or to allot to any prospective investor less than the number of Shares subscribed for by such prospective investor.
This Memorandum has been prepared solely for the information of the person to whom it has been delivered by or on behalf of the Company. Distribution of this Memorandum to any person other than the prospective investor to whom this Memorandum is delivered by the Company and those persons retained to advise them with respect thereto is unauthorized. Any reproduction of this Memorandum, in whole or in part, or the divulgence of any of the contents without the prior written consent of the Company is strictly prohibited. Each prospective investor, by accepting delivery of this Memorandum, agrees to return it and all other documents received by them to the Company if the prospective investor’s subscription is not accepted or if the Offering is terminated.
By acceptance of this Memorandum, prospective investors recognize and accept the need to conduct their own thorough investigation and due diligence before considering a purchase of the Shares. The contents of this Memorandum should not be considered to be investment, tax, or legal advice and prospective investors should consult with their own counsel and advisors as to all matters concerning an investment in this Offering.
NASAA LEGEND
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES MAY BE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER FEDERAL AND STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
3 NOTICE TO NON-UNITED STATES RESIDENTS
IT IS THE RESPONSIBILITY OF ANY ENTITIES WISHING TO PURCHASE THE SHARES TO SATISFY THEMSELVES AS TO FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE THE UNITED STATES IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.
PATRIOT ACT RIDER
THE INVESTOR HEREBY REPRESENTS AND WARRANTS THAT THE INVESTOR IS NOT, NOR IS IT ACTING AS AN AGENT, REPRESENTATIVE, INTERMEDIARY OR NOMINEE FOR, A PERSON IDENTIFIED ON THE LIST OF BLOCKED PERSONS MAINTAINED BY THE OFFICE OF FOREIGN ASSETS CONTROL, U.S. DEPARTMENT OF TREASURY. IN ADDITION, THE INVESTOR HAS COMPLIED WITH ALL APPLICABLE U.S. LAWS, REGULATIONS, DIRECTIVES, AND EXECUTIVE ORDERS RELATING TO ANTI-MONEY LAUNDERING , INCLUDING BUT NOT LIMITED TO THE FOLLOWING LAWS: (1) THE SHARING AND STRENGTHENING OF AMERICA BY PROVIDING APPROPRIATE TOOLS REQUIRED TO INTERCEPT AND OBSTRUCT TERRORISM ACT OF 2001, PUBLIC LAW 107-56, AND (2) EXECUTIVE ORDER 13224 (BLOCKING PROPERTY AND PROHIBITING TRANSACTIONS WITH PERSONS WHO COMMIT, THREATEN TO COMMIT, OR SUPPORT TERRORISM) OF SEPTEMBER 23, 2001.
EACH PROSPECTIVE INVESTOR WILL BE GIVEN AN OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, MANAGEMENT OF THE COMPANY CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THE COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORTS OR EXPENSE NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED IN THIS MEMORANDUM. IF YOU HAVE ANY QUESTIONS WHATSOEVER REGARDING THIS OFFERING, OR DESIRE ANY ADDITIONAL INFORMATION OR DOCUMENTS TO VERIFY OR SUPPLEMENT THE INFORMATION CONTAINED IN THIS MEMORANDUM, PLEASE WRITE OR CALL:
SoPayMe, Inc. Randy Pentel, President and Chairman 1650 W. 82nd St., Suite #700, Bloomington, MN 55431 612-910-6868
4 TABLE OF CONTENTS
Summary Of The Offering 1 Overview and Organization 6 History of Products and Services 7 Fintech Sector Deals and Investments 8 Problems and Solutions Overview 9 Payments Processing Problems 10 SoPayMe Platform Overview 11 Payments Process Architecture 13 Competition 14 Market Strategy 15 Merchant Savings 15 Payments Market 16 Financial Highlights 18 Investor Proposition 22 The Offering 26 Requirements for Purchasers 27 Forward Looking Statements 28 Risk Factors 29 Use of Proceeds 42 Company Management 43 Management Compensation 43 Principal Shareholders 44 Related Party Transactions 44 Litigation 45 Description of Shares 45 Transfer Agent and Registrar 45 Plan of Placement 45 Additional Information 46
Appendix I: Annual Financial Projections - Payments Model (Years 1-5) 48 Monthly Financial Projections - Payments Model (Year 1) 66 Annual Financial Projections - Payments and Ad Model (Years 1-5) 72 Monthly Financial Projections - Payments and Ad Model (Year 1) 90
Appendix II: Subscription Agreement 100 Investor Suitability Questionnaire 105
5 Overview and Organization
The following material is intended to summarize information contained elsewhere in this Offering Memorandum (the “Memorandum”). This overview is qualified in its entirety by express reference to this Memorandum and the materials referred to and contained herein. Each prospective subscriber should carefully review the entire Memorandum and all materials referred to herein and conduct his or her own due diligence before subscribing for Shares.
The Company
SoPayMe, Inc. (“SoPayMe”, or the “Company”), intends to be an integral participant in the global payments industry, which generated total revenues of $1 trillion in 2013 and is estimated to reach $2.1 trillion in 20231. The Company began its organizational efforts in December of 2011, and then incorporated on April 18, 2012 with the purpose of developing, using its own proprietary technology and intellectual property, as well as the license or acquisition of other patented or proprietary technologies, a real-time payment network that operates independently of the ACH network and third party processors (see Related Party Transactions). The Company is a “C” corporation organized under the laws of the State of Minnesota. Its principal offices are located at 1650 W. 82nd St., Suite #700, Bloomington, MN 55431. The Company’s telephone number is (612) 910-6868. The Founder, Chairman and President of the Company is Randy Pentel.
The Company intends to operate globally in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry. Government regulation impacts key aspects of its business, and the Company is subject to regulations that affect the payments industry in the many countries in which it intends to operate. Changes in or non-compliance with laws and regulations, changes in the interpretation of laws and regulations, and the enactment of new laws and regulations applicable to us could have a material adverse impact on our business, results of operations, and financial condition.
Business Overview: Real-Time Payments Platform to End-to-End Shopping, Advertising and Payments Solution
SoPayMe is a fintech startup benefitting from four decades of financial industry experience. The Company’s backbone will be built on an in-house, secure payments processing platform that rides on trusted Fed Reserve rails and processes real-time transfers of collected funds, even on an interbank basis. The front end of the platform is a mobile wallet and optional smart card utilizing tokenization, encryption and multi-factor authentication security features so secure payments can be made anywhere, on any POS and on any device. Although SoPayMe withholds consumer financial data, its platform is designed to facilitate other valuable services such as: shopping apps, self-checkout, real-time, offline shopper data and ad campaign metrics, and the delivery of in-store, point-of-product, shopper-specific advertising.
SoPayMe’s business is primarily designed to be an electronic payment services company built upon a revolutionary “real-time” payment processing platform and network (the “SoPayMe Platform”). The Company will operate in the global payments industry with primary focus on the transactions revenue segment, which generated revenues of $425 billion in 2013 and is estimated to reach $807 billion in 20232. SoPayMe plans to introduce its services first in the United States where over 144 billion non-cash payment transactions occurred in 20153.
1 https://www.bcgperspectives.com/Images/Global_Payments_2014_Next_Level_Value_Sep_2014_tcm80-171913.pdf (“Global Payments 2014”, Boston Consulting Group) 2 Ibid 3 https://www.frbservices.org/files/communications/pdf/general/122216-2016-payments-study-summary.pdf (“The 2016 Federal Reserve Payments Study”, Federal Reserve) 6 The Company plans on building the SoPayMe platform from the ground up. Since the platform will be an “in-house” independent platform, SoPayMe can eliminate the added expense, delays and lack of control caused by utilizing third party processor intermediaries. Further, since the SoPayMe Platform will operate at the Federal Reserve System level, SoPayMe is able to offer its customers a competitive, low-cost money transfer infrastructure that is secure, widely accepted, and trusted by governments, banks, businesses and consumers.
U.S. retailers are subject to excessive transaction fees and extremely expensive hacker attacks. SoPayMe plans to quickly build its transaction revenue stream by providing U.S. retailers a secure, low-cost payments solution that eliminates the disclosure of consumer financial data. To facilitate fast and secure payments across all platforms, the Company plans to develop a smartphone-based mobile wallet application and offer an optional multi- technology, multi-factor authentication magnetic swipe smart card. Payments can be made online and offline, and the mobile wallet and smart card combination enables payments on all types of POS systems, from the ubiquitous mag swipe readers to the new contactless readers.
Success in the consumer-to-retail/retail-to-consumer transactions sector (C2B/B2C) will provide the Company a large user database, which can be leveraged to capture market share first in the peer-to-peer transactions sector (P2P), followed by the business-to-business (B2B), person-to- government/government-to-person (P2G/G2P) and the business-to-government/government-to-business (B2G/G2B) transactions sectors.
As will be seen in the Financial Highlights section of this Memorandum, there is a tremendous return on investment opportunity that is provided by transactional revenue alone. Market penetration into the retail sector provides the Company with other significant revenue opportunities that, while not considered in the financials of this Memorandum, are relevant disclosures to present an understanding of how SoPayMe’s business model may transition. As large numbers of consumers use the SoPayMe Platform on a daily basis at retail, a tremendous amount of sellable data flows through the SoPayMe Platform. Also, via relationships developed by SoPayMe’s executive management, collaboration with strategic partners can provide SoPayMe the wherewithal to further develop its business model to include a variety of other valuable services such as shopping apps, self-checkout, and the delivery of real-time, offline shopper data and ad campaign metrics and in-store, point-of-product, shopper-specific advertising.
SoPayMe’s unique, real-time payment processing platform and competitive pricing will provide a thriving client base that will generate user and revenue growth for years to come. The Company believes the SoPayMe Platform will yield a more secure, efficient and economical payment process. Utilizing longtime experience with financial products and existing business relationships, executive management is resolved to establish SoPayMe as the leading choice for payment processing among individuals, merchants, businesses and governments around the world and envisions harnessing SoPayMe’s market penetration in payments processing to transition SoPayMe into a single source supplier capable of providing comprehensive End-to-End Shopping, Advertising and Secure Payments Solutions.
History of Products and Services
The founder of the Company and his family have amassed significant depth of experience in the financial products realm, creating and participating in a number of businesses over the last four decades that are standards of their respective industries. In 1968, Randy’s father, Irwin Pentel, left the retail grocery industry and later developed and patented the first portable POS MICR reader for checks. In 1971, Irwin founded ChexSystems, which became the nation’s largest provider of negative history database information on forcibly closed checking and savings accounts. ChexSystems gained rapid exposure of its account verification services and was featured in 13,000 bank locations in just a few short years. The company was sold in 1984 to Deluxe Check Printers and became recognized as the “crown jewel” of Deluxe Corporations’ EFunds division as network coverage grew to more than 90% of all financial institution locations. EFunds was later spun off and purchased, along with ChexSystems, by Fidelity Information Services.
7 In 1986, Randy and his brother left ChexSystems and purchased a struggling company from Security Pacific called EARNS, located in California, which provided notification services on large-dollar return checks as required by law. The EARNS name was retained and notification services were offered through the brothers’ new company, Notification Systems, Inc., which they co-founded in Minneapolis, Minnesota. Today, virtually every major bank is a customer, and Notification Systems provides approximately $2 billion worth of notifications every month. EARNS provides an electronic interface with all 12 districts of the Federal Reserve System, and Notification Systems enjoys solid relationships with each of them. The founder’s thirty plus years of success and experience in the financial products industry provides the foundation for success for SoPayMe.
Fintech Sector Deals and Investments
The payments market is at a critical inflection point. The lack of attention given to payments problems by financial service industry incumbents has opened the floodgates of opportunity to new solution providers. Waves of startups and investor money have poured in to take advantage of the opportunities enabled by fintech in the digital payments world.
In North America, 2015 reached a 5-year funding high for fintech, reaching $7.67B across 378 deals4.
5 Investment in VC-backed U.S. fintech was up 73% and deals rose 6% in 2015 versus the previous year .
4 https://www.marsdd.com/wp-content/uploads/2015/02/CBInsights-KPMG-Fintech-Webinar-03-2016.pdf 5 Ibid 8 Globally, $13.8 billion was invested into 653 VC-backed fintech deals in 20156.
2015 reached a multi-year high, topping 2014’s VC-backed total by 106%7.
Problems and Solutions Overview
Payments Processing has Serious Problems
• Payments problems range from annoying inconveniences of not receiving money in a timely fashion to unreasonable transaction fee expenses to catastrophic multi-billion dollar data breaches. These are essentially problems of time, expense and security. In the U.S. alone, well over 144 billion non-cash transactions are processed annually8. These transactions are slow and expensive, and sometimes, massive amounts of data are stolen.
6 https://www.marsdd.com/wp-content/uploads/2015/02/CBInsights-KPMG-Fintech-Webinar-03-2016.pdf 7 Ibid 8 https://www.frbservices.org/files/communications/pdf/general/122216-2016-payments-study-summary.pdf (“The 2016 Federal Reserve Payments Study”, Federal Reserve) 9 SoPayMe Securely Delivers Real Money in Real Time
SoPayMe solves payments processing problems by securely delivering real money in real time via patented and patent-pending processes and platforms that require no POS hardware upgrades or changes in existing payment methods. SoPayMe eliminates expensive processor intermediaries and securely delivers collected funds in real time, even on an interbank basis. Unlike SoPayMe, nearly all payments solution providers use third party processors, subjecting themselves to added expense and total dependency on others to process their transactions in a timely and secure manner.
The Payments Solutions Marketplace is Highly Fragmented
• Solution Providers only address segments of the payments market. • Incremental innovation and lack of cross-industry collaboration have created a disorderly, muddled payment solutions marketplace.
SoPayMe can Combine Locationing with Payments to Provide a Single Source for Shopping, Advertising and Payments Solutions
SoPayMe’s back-end processing and front-end mobile wallet/smart card are part of a vertically integrated platform that delivers a low-cost, real- time and secure end-to-end payments solution. Smartphone identification and indoor positioning adds loyalty and location-based capabilities to payments, creating a platform that enables collaborative shopping, advertising and payments solutions.
Payments Processing Problems
Time
• Processing the transfer of good, irrevocable funds can take anywhere from 1 day up to 2 weeks or even longer.
Expense
• Debit Card Interchange Fees average 23 cents per transaction9. • Prepaid Card Interchange Fees average 50 cents per transaction10. • Cash Transactions Costs average 25 cents per transactions11. • Adds additional Float/Cash Velocity Costs associated with transaction settlements12. • Most Credit Card Fees range from 1.5 - 2% of transaction amount13,14.
9 http://www.federalreserve.gov/paymentsystems/regii-average-interchange-fee.htm (“Average Debit Card Interchange Fee by Payment Card Network”, Federal Reserve) 10 Ibid 11 http://www.ei.com/downloadables/Cost_of_Cash_Study.pdf (“Cost of Cash Study”, Economists Incorporated) 12 Ibid 10 • Total cost per check is calculated at 25 cents per transaction.
15 Security: U.S. Data Breaches (selected)
• Heartland Payment Systems - 130 million cards, estimated cost of $2.8 billion. • Global Payments Inc. - 1.5 million cards with a reported cost of $90 million. • Citibank - 360,000 credit card holders, estimated cost of $19.4 million. • CardSystems Solutions - 40 million cards, costs not disclosed. • Target Corporation - 40 million cards, as well as data on 70 million customers, costs estimated up to $1.5 billion. • T.J. Maxx - 90 million cards, estimated cost of $2.47 billion.
16 Security: 2014 Data Breaches (Due to legal requirements not all breaches are reported or publicly disclosed.)
• A total of 1,023,108,267 data records were lost or stolen in 2014. That's the equivalent of 32 records lost or stolen every second. • Data breaches totaled 1,541, up 46% from the 1,056 in 2013. • With 1,164 data breaches, North America accounted for 76% of total breaches for the year. • Only 58 of the data breach incidents in 2014, or less than 4% of the total, involved data that was encrypted in part or in full. • The majority of breaches in 2014 (54%) involved the theft or compromise of identifiable information, such as names, addresses and social security numbers. In comparison, many of the thefts of 2013 involved financial information, such as credit card numbers. • The retail industry lost more than 567 million data records - 55% of all records lost in 2014.
SoPayMe Platform Overview
Advantages: Secure, Universal, Inexpensive and Value-Added
Financial data is never available to merchants, stored on phones or cards, or exchanged between consumers, merchants and banks. SoPayMe’s proprietary payments processing platform can work with any bank, delivering available funds in seconds, even on an interbank basis. SoPayMe works on all POS systems; payments can be made offline or online, via mag swipe or contactless, card or phone, with or without signature, biometrics, chip/token/terminal & pin. Noncredit transactions of $10 or more cost only a flat ten cents per transaction; P2P and transactions under $10 are free; credit-based transactions can be made with significant processing savings.
13 http://usa.visa.com/download/merchants/Visa-USA-Interchange-Reimbursement-Fees-2015-April-18.pdf (“Visa USA Interchange Reimbursement Fees”, Visa) 14 https://www.mastercard.us/en-us/about-mastercard/what-we-do/interchange.html (“U.S. region interchange programs and rates”, MasterCard) 15 http://www.bankrate.com/finance/banking/us-data-breaches-1.aspx#ixzz3gUUILKoH (“11 data breaches that stung US consumers”, Bankrate) 16 http://www.safenet-inc.com/resources/data-protection/2014-data-breaches-infographic/ (“Data Breaches in 2014 - Breach Level Index Findings”, Gemalto NV) 11 SoPayMe’s platform facilitates other solutions such as shopping apps, self-checkout, the delivery of real-time, offline shopper data and ad campaign metrics, and in-store, point-of-product, shopper-specific advertising.
SoPayMe Benefits from 40+ years of Financial Services Industry Experience
SoPayMe benefits from working relationships with the Fed Reserve System, all 12 Fed Reserve Districts and nearly every major bank.
SoPayMe’s Back-End: Real-Time Payments Processing Platform
Building an “in-house” Real-Time Payments Processing Platform. Maintain access and control of servers, encryption, multi-layered authentication and real-time threat detection. Facilitate immediate bank-to-bank transactions and eliminates expensive intermediary processors. Collaborate with the Fed Reserve System, and enable the lowest possible cost model for SoPayMe. Rides the money transfer infrastructure that is secure and widely accepted and trusted by governments, banks, businesses and consumers alike, which lowers the cost and barrier of entry for SoPayMe.
SoPayMe’s Front-End: Mobile Wallet and Optional Smart Card
Loads multiple accounts to both wallets and cards, if desired. Provides multi-factor authentication, including biometrics, which can be utilized on enabled smartphones and smart cards. Enables mobile wallet and smart card options to enables tokenize transactions on all POS systems. Can make transactions offline and online; collects funds in real-time, even on an interbank basis. SoPayMe’s payment process reduces fees to the lowest in the industry, providing significant savings to retail merchants. By never sharing financial data during any transaction, SoPayMe protects governments, banks, businesses and consumers.
Value-Added Capabilities
Smartphone accelerometers and magnetometers enable indoor locationing via dead reckoning and magnetic mapping. The combination of locationing capabilities with SoPayMe’s vertical payments solution provides SoPayMe the ability to create a platform that can deliver comprehensive end-to-end shopping, advertising and payments solutions. Potential value-added solutions include the following:
• Accurate locationing of shoppers and delivery of in-store, point-of-product, shopper-specific ads, specials and coupons. • Real-time bidding, ad optimization, collection of shopper data, ad conversion and ad campaign metrics. • Transparency of purchasing decisions and return on ad spend. • Shopping app sync, shopping list upload, item locator, and expedited shopping path.
12 • Self-scan product codes, running basket total, automated couponing, secure self-checkout and payment. • Remote deli, pharmacy, bakery and online ordering, product nutritional information, and recipes.
Ancillary Revenue Potentials
Significant Ad and Data Revenue can be gained by providing some of the above value-added capabilities. Processing Fee Revenue can be generated by providing processing services to other Fintechs. Sales Revenue can be obtained via the sale of smart cards and card-carrying phone cases.
Remote Ordering Patented Technology
On October 1, 2015, SoPayMe entered into a Letter of Intent with Remote Incorporated (a company controlled by Mr. Pentel), whereby Remote Incorporated will license its portfolio of remote-ordering patented technology to SoPayMe. The remote ordering patented technology covers various remote ordering through the use of portable electronic devices, such as phones, tablets, etc. SoPayMe has non-sublicensable, non-exclusive, non- transferrable rights to use the remote ordering technology and has agreed to pay Remote Incorporated three percent (3%) of gross revenues generated by payment transactions only. All other terms of the license agreement have not been finalized as of the date of this memorandum.
Payments Processing Architecture / Select Merchant Advantages
13 Competition
The Company will compete against businesses in a variety of industries, many of which are larger than SoPayMe, have dominant and secure positions in other industries, and offer other goods and services to consumers and merchants which SoPayMe may not offer or service. The global payments industry is undergoing a seismic shift. As online and offline commerce increasingly converge, the pace of change, innovation and disruption is increasing. The global payments industry is highly competitive, highly innovative and increasingly subject to regulatory scrutiny, which may negatively affect the competitive landscape. The Company will compete against all forms of payments, including:
• paper-based transactions (principally cash and checks); • other providers of mobile payments, digital wallets and solutions that use tokenized card data approaches and Near Field Communication (“NFC”) functionality, including those utilizing Host Based Card Emulation (“HCE”) functionality to eliminate the need for NFC chips; • other payment-card processors that offer their services to merchants; and • providers of “person-to-person” payments that facilitate individuals sending money with an email address or mobile phone number.
Management believes that with its proprietary platform, adequate capitalization, licensed technology and unique approach to provide an end-to-end shopping, advertising and payments solution it can create a significant competitive advantage. As was previously noted in this Memorandum, $13.8 billion was invested into 653 VC-backeed fintech deals in 2015. Below is a table comparing select features of the SoPayMe platform to notable, select competition (Y=YES; N=NO; S=SOMETIMES, MAYBE UNDER CERTAIN CONDITIONS; U=UNKNOWN or N/A).
14 Market Strategy
SoPayMe intends to offer the SoPayMe Platform on a worldwide basis. To quickly build its customer base and transaction revenues, SoPayMe will initially target U.S. retail merchants as they are subject to excessive transaction fees, incur massive costs due to hacker attacks and have very large existing payment transactions volume. SoPayMe will provide U.S. retailers a secure, low-cost payments solution that eliminates the disclosure of consumer financial data, thereby reducing the attractiveness of merchants as fruitful targets for hackers. Further, by adding locationing capabilities to its platform, SoPayMe will also be able to offer beneficial shopping and advertising solutions to merchants. SoPayMe will leverage the C2B/B2C customer base to capture market share in the P2P & B2B payments sector, followed by capture of the P2G, G2P, B2G and G2B sectors.
U.S. merchant targets include big-box, convenience, pharmacy, fuel, grocery, dining and other retail and retail service companies. To illustrate the potential payments transaction volume, consider Walmart has over 11,000 stores where 260 million customers shop ever week17. Even relatively small supermarket chains have significant transaction volume. ShopRite, with only 250 supermarkets, has over 238 million annual customer transactions18.
Merchant Savings
The below chart and table illustrate the potential savings advantages for Merchant “X” by utilizing SoPayMe as its payment platform. With only a 10% payments capture, SoPayMe can deliver Merchant “X” a 1.29% increase in after-tax net earnings and $65 million in savings on transaction fees.
17 http://stock.walmart.com/files/doc_financials/2015/annual/2015-annual-report.pdf (“Walmart 2015 Annual Report”, Wal-Mart Stores, Inc.) 18 http://wakefern.shoprite.com/retail/shoprite/ (‘ShopRite Facts”, Wakefern Food Corp.) 15 Payments Market (U.S.)
As can be seen in the 2016 Federal Reserve Payments graph below, 2015 U.S. Annual Non-Cash Transactions exceed 144 billion transactions19.
19 https://www.frbservices.org/files/communications/pdf/general/122216-2016-payments-study-summary.pdf (“The 2016 Federal Reserve Payments Study”, Federal Reserve) 16 Payments Market (Global)
As can be seen in the 2014 Boston Consulting Group chart below, Global Transactions Revenue reached $425 billion in 201320. Global Payments Revenue exceeded $1 trillion in 2013 and is projected to exceed $2.1 trillion in 202321. SoPayMe is projecting Net Cash Flow from payments to reach $369 million in Year 5 of the Pro Forma. SoPayMe is projecting Net Cash Flow from payments and ads to reach $715 million in Year 5 of the Pro Forma.
20 https://www.bcgperspectives.com/Images/Global_Payments_2014_Next_Level_Value_Sep_2014_tcm80-171913.pdf (“Global Payments 2014”, Boston Consulting Group) 21 Ibid 17 Financial Highlights (Payments Model*)
The table below and the chart on the following page illustrate the financial goals of the Company during the next five years.
*Does not include Ad, Data or Processing Fee Revenues
18
*Does not include Ad, Data or Processing Fee Revenues
19 Financial Highlights (Payments and Ad Model*)
The table below and the chart on the following page illustrate the financial goals of the Company during the next five years.
*Does not include Data or Processing Fee Revenues
20
*Does not include Data or Processing Fee Revenues
21 Investor Proposition (Payments Model*)
The following Investor Propositions use a number of variables to determine a hypothetical share of the Company in exchange for investment. The following scenarios are for discussion purposes and are dependent on forward looking operating and valuation assumptions. The investor share is based on an Implied Return on Investment (ROI) multiple of 4.86 and a company valuation of .85 times year 5 EBITDA. It should be noted that the rate of return is dependent on subjective measurements of risk and reward, and valuations are subject to market conditions.
INVESTOR PROPOSITIONS
Scenario A Scenario B Scenario C Investment $9,000,000 $900,000 $90,000 Required Rate of Return 37.2% 37.2% 37.2% Implied ROI Multiple 4.86 4.86 4.86 Value of Investment (Yr 5) $43,721,646 $4,372,165 $437,216
Year 5 EBITDA $514,394,219 $514,394,219 $514,394,219 EBITDA Multiple 0.85 0.85 0.85 Projected Company Value (Yr 5) $437,235,086 $437,235,086 $437,235,086
INV. PROPOSITIONS Proposed Investor Share 10.0% 1.0% 0.1%
*Does not include Ad, Data or Processing Fee Revenues
22 Investor Proposition (Payments and Ad Model*)
The following Investor propositions use a number of variables to determine a hypothetical share of the Company in exchange for investment. The following scenarios are for discussion purposes and are dependent on forward looking operating and valuation assumptions. The investor share is based on an Implied Return on Investment (ROI) multiple of 8.83 and a company valuation of .85 times year 5 EBITDA. It should be noted that the rate of return is dependent on subjective measurements of risk and reward, and valuations are subject to market conditions.
INVESTOR PROPOSITIONS
Scenario A Scenario B Scenario C Investment $9,000,000 $900,000 $90,000 Required Rate of Return 54.6% 54.6% 54.6% Implied ROI Multiple 8.83 8.83 8.83 Value of Investment (Yr 5) $79,473,022 $7,947,302 $794,730
Year 5 EBITDA $934,937,770 $934,937,770 $934,937,770 EBITDA Multiple 0.85 0.85 0.85 Projected Company Value (Yr 5) $794,697,105 $794,697,105 $794,697,105
INV. PROPOSITIONS Proposed Investor Share 10.0% 1.0% 0.1%
*Does not include Data or Processing Fee Revenues
23 Projected Investor Rate of Return (Payments Model*)
The following table indicates the Projected Investor Cash Flow and Investor Internal Rate of Return for the Payments Model.
PROJECTED INVESTOR INTERNAL RATE OF RETURN
Start-up Year 1 Year 2 Year 3 Year 4 Year 5 Investment $9,000,000 Investor Share 10.0%
Net Profit ($1,593,900) $1,537,759 $15,953,064 $82,812,540 $334,242,882
Year 5 Valuation Multiple 0.85
Company Valuation $284,106,450
Investor Share of Profits $0 $153,769 $1,595,238 $8,280,901 $33,422,864
Investor Share of Valuation $28,409,435
Investor Cash Flow ($9,000,000) $0 $153,769 $1,595,238 $8,280,901 $61,832,299 PROJECTED INVESTOR IRR INVESTOR PROJECTED
Investor IRR 54%
*Does not include Ad, Data or Processing Fee Revenues
24 Projected Investor Rate of Return (Payments and Ad Model*)
The following table indicates the Projected Investor Cash Flow and Investor Internal Rate of Return for the Payments and Ad Model.
PROJECTED INVESTOR INTERNAL RATE OF RETURN
Start-up Year 1 Year 2 Year 3 Year 4 Year 5 Investment $9,000,000 Investor Share 10.0%
Net Profit ($2,593,900) $4,828,403 $26,096,463 $136,597,964 $546,836,572
Year 5 Valuation Multiple 0.85
Company Valuation $464,811,086
Investor Share of Profits $0 $482,860 $2,609,755 $13,660,366 $54,685,936
Investor Share of Valuation $46,483,045
Investor Cash Flow ($9,000,000) $0 $482,860 $2,609,755 $13,660,366 $101,168,981 PROJECTED INVESTOR IRR INVESTOR PROJECTED
Investor IRR 72%
*Does not include Data or Processing Fee Revenues
25 The Offering
The Company is offering a maximum of ______Shares at a price of $____ per Share. There is no minimum offering. If all of the shares are sold, there will be a maximum of ______shares issued. Upon completion of the sale of the ______Shares from this Offering up to ______Shares will have been issued. Each purchaser must execute a Subscription Agreement making certain representations and warranties to the Company, including such purchaser’s qualifications as an Accredited Investor as defined by the Securities and Exchange Commission in Rule 501(a) of Regulation D promulgated (see Requirements for Purchasers).
Risk Factors
See Risk Factors, beginning on page 29 of this Memorandum, for other certain factors that could adversely affect an investment in the Shares.
Use of Proceeds
Proceeds from the sale of Shares will be used for, but not limited to, development and implementation of the SoPayMe technology, software and application design, working capital, salaries, potential acquisitions, licensing and legal and regulatory compliance (see Use of Proceeds, page 42).
Offering Proceeds - No Escrow of Subscription Proceeds
The Company is offering a maximum of ______shares for maximum gross proceeds of $9,000,000.00 (the “offering amount”). There is no minimum number of shares offered. All proceeds from the sale of any of the Shares will be deposited directly to the Company’s corporate account and will be available for immediate use by the Company at its discretion. If less than the maximum number of shares are sold the Company may have inadequate funds to fully develop its business and may need debt financing or other capital investment to fully implement the Company’s business plans (see Plan of Placement).
Ownership
Upon the sale of the 9,000,000 Shares from this Offering, the number of issued and outstanding Shares of the Company will be held as follows:
Shareholders Percentage of Shares No. of Shares Present Shareholders __% ______New Shareholders __% ______
Transfer Agent
The Company will serve as its own registrar and transfer agent with respect to its Shares.
26 Subscription Period
The Offering will terminate on the earliest of: (a) the date the Company, in its discretion, elects to terminate, or (b) the date upon which all Shares have been sold, or (c) August 1, 2017 , or such date as may be extended from time to time by the Company, but not later than 180 days thereafter (the “Offering Period” or “Termination Date”).
Requirements for Purchasers
Prospective purchasers of the Shares offered by this Memorandum should give careful consideration to all of the risk factors described under Risk Factors, and especially to the speculative nature of this investment and the limitations described under that caption with respect to the lack of a readily available market for the Shares and the resulting long term nature of any investment in the Company. This Offering is available only to “Accredited Investors” as that term is defined in rule 501(a) of Regulation D.
General Suitability Standards
The Shares will not be sold to any person unless such prospective purchaser, or his or her duly authorized representative, shall have represented in writing to the Company in the Subscription Agreement that:
(a) The prospective purchaser has adequate means of providing for his or her current needs and personal contingencies and has no need for liquidity in the investment of the Shares;
(b) The prospective purchaser’s overall commitment to investments which are not readily marketable is not disproportionate to his, her, or its net worth, and the investment in the Shares will not cause such overall commitment to become excessive; and
(c) The prospective purchaser is an “Accredited Investor” (as defined below) suitable for purchase in the Shares.
(d) Each person acquiring Shares will be required to represent that he, she, or it is purchasing the Shares for his, her, or its own account for investment purposes and not with a view to resale or distribution (See Subscription for Shares).
Accredited Investors
The Company will conduct the Offering in such a manner that Shares may be sold only to “Accredited Investors” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933 (the “Securities Act”). In summary, a prospective investor will qualify as an “Accredited Investor” if he, she, or it meets any one of the following criteria:
(a) Any natural person whose individual net worth or joint net worth with that person’s spouse, at the time of his purchase, exceeds $2,500,000, excluding the value of the individual’s primary residence;
27 (b) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and who has a reasonable expectation of reaching the same income level in the current year;
(c) Any bank as defined in Section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Securities and Exchange Act of 1934 (the “Exchange Act”); any insurance company as defined in Section 2(13) of the Exchange Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; any Small Business Investment Company (SBIC) licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000, or if a self-directed plan, with investment decisions made solely by persons who are Accredited Investors;
(d) Any private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940;
(e) Any organization described in Section 501(c)(3)(d) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
(f) Any director, executive officer, or general partner of the issuer of the securities being sold, or any director, executive officer, or general partner of a general partner of that issuer;
(g) Any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Section 506(b)(2)(ii) of Regulation D adopted under the Act; and
(h) Any entity in which all the equity owners are Accredited Investors.
Other Requirements
No subscription for the Shares will be accepted from any investor unless they are acquiring the Shares for their own account (or accounts as to which they have sole investment discretion), for investment and without any view to sale, distribution or disposition thereof. In order to comply with SEC guidance on determining accredited investor status under Rule 506(c), each prospective purchaser of Shares will be required to furnish such information as the Company may require. These items may include the following: W-2s, tax returns, bank and brokerage statements, credit reports and the like.
Forward Looking Statements
In this context, forward-looking statements often address our expected future business, financial performance and financial condition and often contain words such as, “expect”, “anticipate”, “intend”, “believe”, “seek”, “see”, or “will”. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Some of the statements contained in this Memorandum, including information incorporated by reference, discuss future
28 expectations or state other forward looking information. Those statements are subject to known and unknown risks, uncertainties and other factors, several of which are beyond the Company’s control that could cause the actual results to differ materially from those contemplated by the statements. The forward looking information is based on various factors and was derived using numerous assumptions. In light of the risks, assumptions, and uncertainties involved, there can be no assurance that the forward looking information contained in this Memorandum will in fact transpire or prove to be accurate.
Important factors that may cause the actual results to differ from those expressed within include:
• the success or failure of the Company’s efforts to successfully implement the Company’s planned platform and business model, • the Company’s ability to attract, build, and maintain a customer base, • the Company’s ability to attract and retain quality employees, and • the potential for competition.
Other risks are described under Risk Factors and some may be described in future communications to Shareholders. The Company makes no representation and undertakes no obligation to update the forward looking information to reflect actual results or changes in assumptions or other factors that could affect those statements.
Risk Factors
Investing in the Company’s Shares is very risky. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. Carefully consider the following factors, among others.
Development Stage Business
The principal(s) of the company began their efforts in December, 2011. Headquartered in the Twin Cities of Minnesota, the business was designed to be an electronic payment services company providing a revolutionary “real-time” payment processing platform and network (“SoPayMe Platform”) for the business-to-business, peer-to-peer, and retail marketplace. Accordingly, the Company has only a limited history upon which an evaluation of its prospects and future performance can be made. The Company’s proposed operations are subject to all business risks associated with new enterprises. The likelihood of the Company’s success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the expansion of a business, operation in a competitive industry, and the continued development of advertising, promotions and a corresponding customer base. There is a possibility that the Company could sustain losses in the future. There can be no assurances that SoPayMe, Inc. will operate profitably. There can be no assurance that the Company will be able to successfully develop the proposed SoPayMe Platform.
Inadequacy of Funds
The Company is offering a maximum of ______Shares. There is no minimum number of Shares offered and no escrow. If all of the Shares offered are sold, this would result in gross proceeds to the Company of $9,000,000.00. However, there can be no assurance that all of the Shares offered will be
29 sold. If a lesser number of shares are sold, proceeds available to the Company may be insufficient to capitalize and sustain SoPayMe, Inc. sufficiently to allow for: the full development of the SoPayMe system plus the licensing and/or acquisition of intellectual property pertaining to patented technology that could assist growth and revenues, as well as computer servers, and working capital. If less than the maximum proceeds from the sale of Shares are realized, or if certain assumptions contained in Management’s business plans prove to be incorrect, the Company may have inadequate funds to fully develop its business and may need debt financing or other capital investment to fully implement the Company’s business plans.
Dependence on Management
In the early stages of development the Company’s business will be significantly dependent on Mr. Pentel and his skills to assemble an effective management team. The Company’s success will be particularly dependent upon Randy Pentel, Chairman and President. The loss of Mr. Pentel would have a material adverse effect on the Company (see Management). Mr. Pentel has indicated to the Company his willingness to be employed by the Company, upon the successful completion of this Offering. A formal employment contract is expected to be signed upon completion of this Offering.
Key Personnel
The Company’s success also depends on key personnel. Because competition for key employees is intense, the Company may not be able to attract, retain, and develop the highly skilled employees it needs to support its business. The loss of senior management or other key personnel could harm the Company’s business. The Company’s performance depends substantially on the continued services of senior management and other key personnel, including key engineering and product development personnel, and the ability to attract, retain, and motivate key personnel. Competition for key personnel is intense, and the Company may be unable to successfully attract, integrate, or retain sufficiently qualified key personnel.
Risks Associated with Expansion
The Company plans on expanding its business through the introduction of a payment processing system that operates independently of normal ACH and credit card system. Any expansion of operations the Company may undertake will entail risks. Such actions may involve specific operational activities which may negatively impact the profitability of the Company. Consequently, Shareholders must assume the risk that (i) such expansion may ultimately involve expenditures of funds beyond the resources available to the Company at that time, and (ii) management of such expanded operations may divert Management’s attention and resources away from its existing operations. These factors may have a material adverse effect on the Company’s present and prospective business activities.
Customer Base and Market Acceptance
The Company believes it can develop a customer base for the SoPayMe Platform and Network through the marketing and promotion of the its payment processing services. The inability of the Company to develop such a customer base could have a material adverse effect on the Company. Although the Company believes that its payment processing service offers advantages over competitive companies and services, no assurance can be given that SoPayMe’s payment processing service will attain a degree of market acceptance on a sustained basis or that it will generate revenues sufficient for sustained profitable operations.
30 Competition
The global payments industry is highly competitive. The Company will compete against businesses in varied industries, many of whom have a dominant position in other industries, and offer other goods and services to consumers and merchants which the Company does not offer. As online and offline commerce increasingly converge, the pace of change, innovation and disruption is increasing. The global payments industry is rapidly changing, highly innovative and increasingly subject to regulatory scrutiny, which may negatively affect the competitive landscape. The Company will compete against all forms of payments, including:
• paper-based transactions (principally cash and checks); • providers of traditional payment methods, particularly credit and debit cards, money orders, and Automated Clearing House transactions; • other providers of “digital wallets” which offer customers the ability to pay online and/or on mobile devices through a variety of payment methods, including with mobile applications, through contactless payments; • mobile payments solutions that use tokenized card data approaches and Near Field Communication (“NFC”) functionality (including Host Based Card Emulation (“HCE”) functionality to eliminate the need for a physical NFC chip in the device); • other payment-card processors that offer their services to merchants; • “person-to-person” payments that facilitate individuals sending money with an email address or mobile phone number; and • other providers of mobile payments; card readers for mobile devices and of other new point of sale and multi-channel technologies.
The Company will also face competition and potential competition from:
• money remitters; • other services that provide online merchants the ability to offer their customers the option of paying for purchases from their bank account or paying on credit in the United States and abroad; • issuers of stored value targeted at online payments; • international online payment-services providers; • other online account-based payments; • payment services targeting users of social networks and online gaming, often through billing to the consumer’s mobile phone account; • other mobile payment services between bank accounts; • other payment services enabling banks to offer their online banking customers the ability to send and receive payments through their bank account; • other online shopping services that provide special offers linked to a specific payment provider; and • services that help merchants accept and manage virtual currencies.
At this point these payment providers have greater customer bases, volume, scale, and market share than the Company, which may provide significant competitive advantages. Some of these competitors may also be subject to less burdensome licensing, anti-money laundering, counter-terrorist financing, and other regulatory requirements. They may devote greater resources to the development, promotion, and sale of products and services, and they may offer lower prices or more effectively introduce their own innovative programs and services that adversely impact our growth. The Company also expects new entrants to offer competitive products and services. In addition, some merchants provide such services to themselves. Competing services tied to established banks and other financial institutions may offer greater liquidity and engender greater consumer confidence in
31 the safety and efficacy of their services. Established banks and other financial institutions that do not currently offer online payments could develop such a service.
If the Company is not able to differentiate its business from those of its competitors, drive value for its customers, and effectively align its resources with its goals and objectives, the Company may not be able to compete effectively against its competitors. The Company’s failure to compete effectively against any of the foregoing competitive threats could materially and adversely harm its business.
General Economic Conditions
The financial success of the Company may be sensitive to adverse changes in general economic conditions in the United States, such as recession, inflation, unemployment, and interest rates. Such changing conditions could reduce demand in the marketplace for the Company’s products. Management believes that the cutting-edge products they intend to market and the extensive network of SoPayMe users will insulate the Company from a significant reduction of demand. Nevertheless, SoPayMe has no control over these changes.
Trend in Consumer Preferences and Spending; Possible Fluctuations in Operating Results
The Company’s operating results may fluctuate significantly from period to period as a result of a variety of factors, including purchasing patterns of customers, competitive pricing, debt service and principal reduction payments, and general economic conditions. There is no assurance that the Company will be successful in marketing any of its products, or that the revenues from the sale of such products will be significant. Consequently, the Company’s revenues may vary by quarter, and the Company’s operating results may experience fluctuations.
Risks of Borrowing
As of the date of this Memorandum, the Company has no debt obligations. If the Company incurs indebtedness, a portion of its cash flow will have to be dedicated to the payment of principal and interest on such indebtedness. Typical loan agreements might also contain restrictive covenants which may impair the Company’s operating flexibility. Such loan agreements would also provide for default under certain circumstances, such as failure to meet certain financial covenants. A default under a loan agreement could result in the loan becoming immediately due and payable and, if unpaid, a judgment in favor of such lender which would be senior to the rights of owners of Shares of the Company. A judgment creditor would have the right to foreclose on any of the Company’s assets resulting in a material adverse effect on the Company’s business, operating results or financial condition.
Unanticipated Obstacles to Execution of the Business Plan
The Company’s business plans may change significantly. Many of the Company’s potential business endeavors are capital intensive and may be subject to statutory or regulatory requirements. Management believes that the Company’s chosen activities and strategies are achievable in light of current economic and legal conditions with the skills, background, and knowledge of the Company’s principals and advisors. Management reserves the right to make significant modifications to the Company’s stated strategies depending on future events.
32 Global and Regional Economic Conditions Could Harm Our Business
The Company’s operations and performance will depend significantly on global and regional economic conditions. Adverse economic conditions and events (including volatility or distress in the equity and/or debt or credit markets and fluctuations in foreign currency exchange rates) have in the past negatively impacted regional and global financial markets and will likely continue to do so from time to time in the future. These events and conditions could have an adverse impact on the Company and customers with which it intends to do business. In addition, financial turmoil affecting the banking system or financial markets could cause additional consolidation of the financial services industry, or significant financial service institution failures, new or incremental tightening in the credit markets, low liquidity, and extreme volatility in fixed income, credit, currency, and equity markets.
The Company’s success will depend to a large degree on its ability to successfully address the rapidly evolving market for transactions on mobile devices.
Mobile devices are increasingly used for ecommerce transactions and payments. The Company anticipates a significant portion of its customers to access its platforms through mobile devices. The Company may lose customers if it is not able to meet its customers’ mobile and multi-screen experience expectations. The variety of technical and other configurations across different mobile devices and platforms increases the challenges associated with this environment. In addition, a number of other companies with significant resources and a number of innovative startups have introduced products and services focusing on mobile markets.
If the Company cannot keep pace with rapid technological developments to provide new and innovative programs, products and services, the use of its products and our revenues could decline.
Rapid, significant technological changes continue to confront the industries in which the Company operates, including developments in smart cards, tokenization, e-commerce, mobile, and radio frequency and proximity payment devices, such as contactless payments. The Company cannot predict the effect of technological changes on its business.
The Company’s business is subject to online security risks, including security breaches.
SoPayMe is designed to not transmit any personal financial data, and the Company anticipates that this will mitigate online security risks. Nevertheless, there is a possibility that information or data could be compromised through a data breach or hack. To mitigate this possibility, the Company intends to employ state-of-the-art security protocols, which may involve multiple levels (or layers) of security features. The Company anticipates that it may need to expend significant resources to protect against security breaches or to redress problems that may be caused by breaches. These issues are likely to become more difficult and costly as SoPayMe expands the number of markets where it operates.
Systems failures and resulting interruptions in the availability of the Company’s websites, applications, products or services could harm our business.
Once operational, the Company’s systems may experience service interruptions or degradation because of hardware and software defects or malfunctions, computer denial-of-service and other cyberattacks, human error, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, or other events. The Company’s systems are being designed to be redundant both in terms of a given site, as well as multiple data sites.
33 The Company anticipates that it could experience system failures, denial of service attacks and other events or conditions from time to time that interrupt the availability or reduce the speed or functionality of its websites and mobile applications. A prolonged interruption in the availability or reduction in the speed or other functionality of the Company’s websites and mobile applications could materially harm the business.
The Company may rely on facilities, components and services supplied by third parties, and our business may be materially adversely affected to the extent these components or services do not meet our expectations or these third parties cease to provide the services or facilities. The Company does not carry business interruption insurance to compensate for losses that may result from interruptions in its service as a result of systems failures and similar events.
Changes to payment card networks or bank fees, rules, or practices could harm the Company’s business.
The Company anticipates a significant price advantage over other payment methods, such as credit and debit cards. Nevertheless, if the current fee structure were to be greatly reduced, it could result in a significant competitive challenge to the Company. While it’s possible that card networks may lower their fees, historically the trend has been the opposite.
Any factors that reduce cross-border trade or make such trade more difficult could harm the Company’s business.
The Company anticipates that cross-border trade can be an important source of both revenue and profits. Cross-border transactions could provide higher revenues and operating income than similar transactions that take place within a single country or market.
Cross-border trade is subject to, and may be impacted by, foreign exchange rate fluctuations. In addition, the potential interpretation and application of laws of multiple jurisdictions (e.g., the jurisdiction of the merchant and the consumer) are often extremely complicated in the context of cross-border trade. The interpretation and/or application of such laws could impose restrictions on cross-border trade. Any factors that increase the costs of cross- border trade or restrict, delay, or make cross-border trade more difficult or impractical would lower revenues and profits and could harm the business.
The Company’s business is subject to government regulation and oversight relating to the provision of financial services.
The Company is subject to various laws and regulations in the United States. Such laws and regulations include those governing banking, deposit taking, cross-border and domestic money transmission, foreign exchange, and payment services, such as payment processing and settlement services. The legal and regulatory requirements that apply to the Company may vary in the markets where it operates and increase over time as the geographical scope and complexity of the business and products expand. The Company intends to develop a compliance program focused on applicable laws, and regulations and the Company anticipates that it will need to devote resources to such a program. Nevertheless, the Company may still be subject to fines or other enforcement actions or may be required to make changes in its business practices or compliance programs. Costs associated with fines, enforcement actions, as well as reputational harm, changes in compliance requirements or limits on our ability to expand our product offerings could harm our business.
Under the laws of the United States, a money transmitter or money transfer service is a business entity that provides money transfer services or payment instruments. Money Transmitters in the US are part of a larger group of entities called Money Service Businesses or MSBs. Under federal law,
34 18 UCS § 1960, businesses are required to register for a Money Transmitter license where their activity falls within the state definition of a money transmitter. Examples of Money Transmitters include PayPal, MoneyGram, and Western Union among others.
Forty-eight US states regulate money transmitters although the laws vary from one state to the other. Most of the state laws require a surety bond with widely ranging amounts from as little as $25,000 to over $1 million and maintain a minimum capital requirement. There is an association of state regulators, the Money Transfer Regulators Association (MTRA) that seeks to create uniformity, common practices and efficient and effective regulation of money transmission industry in the US. The MTRA membership consists of state regulatory authorities in charge of regulating money transmitters and sellers of traveler’s checks, money orders, drafts and other money instruments.
The money transmitters themselves have a separate association, the National Money Transmitters Association (NMTA) which has a voice in shaping and developing this industry.
The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department requires MSBs to register. It is also a felony to engage in money transmissions without a license in any state that requires a license to operate. Internet and mobile-based payment services are also required to seek a state money transmitter license in order to offer services to individuals residing in the state.
FINCEN has also ruled that Informal Value Transfer Systems (IVTS) are considered money transmitters for the purpose of registration and licensing. FINCEN defines an ITVS as "any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form". These are known as Hawala in the Middle East, Afghanistan and Pakistan, as "hundi" in India and '"fei ch’ien" in China.
The Company intends to seek an administrative ruling from FinCEN and all states that regulate money transmitters that the Company is not a money transmitter since it intends to conduct payment processing for transactions integral to the sale of other goods or services. FinCEN stipulates four conditions for the payment processor exemption to apply to a particular business pattern:
(1) The entity providing the service must facilitate the purchase of goods or services, or the payment of bills for goods or services (other than money transmission itself). (2) The entity must operate through clearance and settlement systems that admit only BSA-regulated financial institutions. (3) The entity must provide the service pursuant to a formal agreement. (4) The entity’s agreement must be at a minimum with the seller or creditor that provides the goods or services and receives the funds22.
Although Management believes the intended Company business pattern operates under the four conditions described above, it is possible FinCEN, and at least some states, may nevertheless determine the Company is a money transmitter. If such rulings should occur, or should the Company determine it may be a better business decision, the Company may seek to form a strategic partnership with an existing chartered financial institution. In general, financial institutions are exempt from money transmitter regulations per se. As an affiliate of a chartered financial institution, the Company may also likely be exempt from money transmitters’ regulations. Alternatively, the Company could file application for a limited purpose trust company charter.
22 See 31 CFR § 1010.100(ff)(5)(ii)(B); see also FIN-2013-R002 (“Whether a Company that Offers a Payment Mechanism Based on Payable-Through Drafts to its Commercial Customers is a Money Transmitter” - 11/13/2013). FIN-2013-R002 clarifies that for the payment processor exemption to apply, the entity must use a clearance and settlement system that intermediates solely between BSA regulated institutions. 35 The term “limited purpose trust company” refers to institutions chartered under the bank and trust company provisions of New York Banking Law but without the power to take deposits or make loans. Financial criteria required in the application process for a limited purpose trust company charter are similar to those of a full service bank or trust company with two notable exceptions: the minimum level of capitalization is only two million dollars ($2,000,000) in Tier 1 capital, and an exemption from the requirements of FDIC insurance is available23. A limited purpose trust company will be without powers to take deposits and therefore will be ineligible for FDIC deposit insurance due to the limited nature of its activities. As such, an application for an exemption from the requirements of deposit insurance would need to be submitted, in accordance with Section 32 of the Banking Law and Supervisory Procedure G 10924. The New York state chartered limited purpose trust company has a significant advantage as it is not subject to money transmitter regulations under New York Banking Law25. At the time of this writing, Management understands that most states provide reciprocity to out-of-state limited trusts, and thus the advantage of not being subject to money transmitter regulations would extend to those states as well. California, Washington and Louisiana are somewhat of a gray area at the time of this writing, and there may likely be other states that will have to be addressed on a case by case basis. If the company is not successful in obtaining charter as a limited purpose trust company in New York, or any other state, the Company may be required to obtain licenses to operate as a money transmitter (or its equivalent) in the United States, in the states where it is required. As a licensed money transmitter, the Company is subject to restrictions with respect to its investment of customer funds, reporting requirements, bonding requirements and inspection by state regulatory agencies. Inability of the Company to successfully obtain: rulings that the Company is not a money transmitter, a strategic alliance with an existing financial institution, charter as a limited purpose trust company, or state money transfer licenses where they are required is likely to have a significant negative impact on the Company.
The Company is subject to consumer protection laws and regulations.
The Company is subject to consumer protection laws and regulations in the United States and other countries in which it may operate. The Company intends to focus on compliance with these laws and regulations and will have programs designed to comply with new and existing consumer protection requirements. However, any errors, failures, or delays in complying with such consumer protection laws and regulations could result in significant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions, as well as reputational harm. Any new consumer protection laws and regulations (or changes to, or expansion of, the interpretation or application of existing laws and regulations) applicable to the Company could subject it to additional restrictions on its operations, additional compliance and licensure requirements, and increased regulatory scrutiny, which could force the Company to change its business practices or limit its ability to grow the business. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations on the Company’s ability to grow the business, could have an adverse effect on its financial results and harm its business.
The Company anticipates that it may be subject to the Electronic Fund Transfer Act and Regulation E issued by the Consumer Financial Protection Bureau (“CFPB”). If applicable, such regulations, among other things, may require advance disclosure of changes to the services, compliance with specified error resolution procedures and to reimburse consumers for losses from certain transactions not authorized by the consumer.
The financial services sector has been increasingly subject to regulatory scrutiny. In January 2012, the CFPB finalized rules under Regulation E, mandated by the Dodd-Frank Act, which requires the Company to provide additional disclosures, error resolution rights, and cancellation rights to U.S. consumers who make international remittance payments
23 http://www.dfs.ny.gov/banking/iaus1b.htm 24 http://www.dfs.ny.gov/legal/regulations/adoptions/banking/arpol&pro.pdf (see pages 81-82) 25 http://public.leginfo.state.ny.us/lawssrch.cgi?NVLWO: (see Article 13-B TRANSMITTERS OF MONEY § 641. License.) 36 The Company is subject to anti-money laundering and counter-terrorist financing laws and regulations.
The Company is subject to various anti-money laundering and counter-terrorist financing laws and regulations around the world that prohibit, among other things, involvement in transferring the proceeds of criminal activities. The Company will develop programs designed to comply with new and existing legal and regulatory requirements. However, any errors, failures, or delays in complying with federal, state or foreign anti-money laundering or counter-terrorist financing laws and regulations could result in significant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions, as well as reputational harm.
U.S. regulators have increased their scrutiny of compliance with these obligations, which may require further revision or expansion of the Company’s compliance program, including the procedures used to verify the identity of customers and to monitor international and domestic transactions. Regulators regularly re-examine the transaction volume thresholds. The Company must obtain and keep applicable records or verify identities of customers and any change in such thresholds could result in greater costs for compliance.
Regulation in the areas of privacy and protection of user data may harm the Company’s business.
The Company will be subject to laws relating to the collection, use, retention, security, and transfer of personally identifiable information about customers around the world. Much of the personal information that the Company will collect, especially financial information, is regulated by multiple laws. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between or among the Company and other parties with whom the Company may have commercial relations. These laws continue to develop in ways the Company cannot predict, and that may harm its business.
Regulatory scrutiny of privacy, user data protection, use of data and data collection is increasing on a global basis. The Company is subject to a number of privacy laws and regulations in the countries in which it intends to operate and these laws and regulations will likely continue to evolve over time, both through regulatory and legislative action and judicial decisions. Some of these laws impose requirements that are inconsistent with one another, yet regulators may claim that both apply. The Company anticipates that it will need to comply with varying national requirements regarding privacy, user data protection, use of data and data collection. Such compliance could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business, and violations of privacy-related laws can result in significant penalties.
The Company anticipates that it will post on its website its privacy policies and practices concerning the collection, use and disclosure of user data. Any failure, or perceived failure, by the Company to comply with its posted privacy policies could adversely affect its business.
New and proposed laws and regulations could harm the Company’s business.
The Company will be subject to laws and regulations affecting domestic and international operations in a number of other areas, including: data privacy requirements, intellectual property ownership and infringement, tax, anti-competition, export requirements, anti-corruption, labor, advertising, billing, promotions, quality of services, environmental, and health and safety regulations. It is not always clear how these laws and regulations apply to its business.
37 Compliance with these laws, regulations, or similar requirements may be onerous and expensive, and variances and inconsistencies from jurisdiction to jurisdiction may further increase the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make our products and services less attractive to the Company’s customers, delay the introduction of new products or services in one or more regions, or cause the Company to change or limit its business practices. The Company intends to implement policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s employees, contractors, or agents will not violate such laws and regulations or its policies and procedures.
Use of the Company’s payments services for illegal purposes could harm its business.
The Company’s payment system is susceptible to potentially illegal or improper uses, including: terrorist financing, illegal online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or controlled substances, piracy of software, movies, music, and other copyrighted or trademarked goods, money laundering, bank fraud, child pornography trafficking, prohibited sales of alcoholic beverages or tobacco products, online securities fraud, or other illegal activity. Any resulting claims could damage our reputation and any resulting liabilities, loss of transaction volume or increased costs could harm our business.
In the future, the Company may be subject to patent litigation.
Such claims may be brought directly against the Company and/or against its customers, whom it may indemnify, either because it is contractually obligated to do so or it chooses to do so as a business matter. The Company believes that an increasing number of these claims against patent holders and other technology companies have been, and continue to be, initiated by third parties whose sole or primary business is to assert such claims. Patent claims, whether meritorious or not, are time-consuming and costly to defend and resolve, and could require the Company to make expensive changes in its methods of doing business, enter into costly royalty or licensing agreements, make substantial payments to satisfy adverse judgments or settle claims or proceedings, or cease conducting certain operations, which could harm its business.
The Company believes that the protection of its intellectual property, including its trademarks, patents, copyrights, domain names, trade dress, and trade secrets, is critical to its success.
The Company and its merchants may be subject to sales reporting and record-keeping obligations.
The Company may be required to report to the Internal Revenue Service about customers who receive payments in excess of a particular threshold or that exceed a certain number of transactions in a given period of time. As a result, the Company may be required to report tax identification numbers from certain parties. The Company intends on designing its systems to provide compliance with any applicable regulation.
Potential acquisitions, joint ventures, and strategic investments could result in operating difficulties and could harm our business.
In the future, the Company may seek to acquire or purchase other businesses or enter into joint ventures or strategic alliances. Such actions may expose the Company to a variety of potential risks and challenges.
38 Management Discretion as to Use of Proceeds
Management anticipates that the net proceeds from this Offering will be used for the purposes described herein (see Use of Proceeds). However, the Company reserves the right to use the funds obtained from this Offering for other similar purposes not presently contemplated which it deems to be in the best interests of the Company and its Shareholders in order to address changed circumstances or opportunities. As a result of the foregoing, the success of the Company will be substantially dependent upon the discretion and judgment of Management with respect to application and allocation of the net proceeds of this Offering. Investors for the Shares offered hereby will be entrusting their funds to the Company’s Management, upon whose judgment and discretion the investors must depend.
Control By Management
As of the date of this Memorandum, the Company’s officers and directors own 100% of the Company’s outstanding Shares. Upon completion of this Offering, the Company’s officers and directors will own approximately 90% of the then issued and outstanding Shares, and will be able to elect all of the directors and continue to control SoPayMe. New Shareholders will own a minority percentage of the Company. Investors will not have the ability to control a vote of the Company’s Board of Directors (see Principal Shareholders).
Dividend Policy
The Company intends to retain any future earnings to fund operations and expand the Company’s business. A Shareholder will be entitled to receive dividends only when, as, and if declared by Management and the Board of Directors out of funds legally available therefore. The Company’s Management and Board of Directors will determine future dividend policy based upon the Company’s results of operations, financial condition, capital requirements, and other circumstances.
No Assurances of Protection for Proprietary Rights; Reliance on Trade Secrets
In certain cases, the Company may rely on trade secrets to protect proprietary technology and processes which the Company has developed or may develop in the future. There can be no assurances that secrecy obligations will be honored or that others will not independently develop similar or superior technology. The protection of proprietary technology through claims of trade secret status has been the subject of increasing claims and litigation by various companies in order to protect proprietary rights as well as for competitive reasons even where proprietary claims are unsubstantiated. The prosecution of proprietary claims or the defense of such claims is costly and uncertain given the rapid development of the principles of law pertaining to this area. As such, the Company is not able to guarantee that traditional methods of protection will be effective in protecting the Company’s IP. The Company, in common with other firms, may also be subject to claims by other parties with regard to the use of technology information and data, which may be deemed proprietary to others. A patent application has been filed with the US Patent Office and is currently pending.
Limited Transferability and Liquidity
To satisfy the requirements of certain exemptions from registration under the Securities Act, and to conform with applicable state securities laws, each investor must acquire their Shares for investment purposes only and not with a view toward distribution. Consequently, certain conditions of the
39 Securities Act may need to be satisfied prior to any sale, transfer, or other disposition of the Shares. Some of these conditions may include a minimum holding period, availability of certain reports, including financial statements from SoPayMe, Inc., and limitations on the percentage of Shares sold and the manner in which they are sold. SoPayMe, Inc. can prohibit any sale, transfer or disposition unless it receives an opinion of counsel provided at the holder’s expense, in a form satisfactory to SoPayMe, Inc., stating that the proposed sale, transfer or other disposition will not result in a violation of applicable federal or state securities laws and regulations. No public market exists for the Shares and no market is expected to develop. Consequently, owners of the Shares may have to hold their investment indefinitely and may not be able to liquidate their investments in SoPayMe, Inc. or pledge them as collateral for a loan in the event of an emergency.
The Company’s Shares are not presently included for trading on any exchange, and there can be no assurances that the Company will ultimately be registered on any exchange. No assurance can be given that the Shares of the Company will ever qualify for inclusion on the NASDAQ System or any other trading market until such time as the company meets the listing requirements of the various exchanges and markets. As a result, the Company’s Shares are covered by a Securities and Exchange Commission rule that opposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company’s securities as well as the ability of members to sell their Shares in the secondary market.
Long Term Nature of Investment
An investment in the Shares may be long term and illiquid. As discussed above, the offer and sale of the Shares will not be registered under the Securities Act or any foreign or state securities laws by reason of exemptions from such registration which depends in part on the investment intent of the investors. Prospective investors will be required to represent in writing that they are purchasing the Shares for their own account for long-term investment and not with a view towards resale or distribution. Accordingly, purchasers of Shares must be willing and able to bear the economic risk of their investment for an indefinite period of time. It is likely that investors will not be able to liquidate their investment in the event of an emergency.
No Current Market for Shares
There is no current market for the Shares offered in this private Offering and no market is expected to develop in the near future.
Compliance with Securities Laws
The Shares are being offered for sale in reliance upon certain exemptions from the registration requirements of the Securities Act, applicable Minnesota Securities Laws, and other applicable state securities laws. If the sale of Shares were to fail to qualify for these exemptions, purchasers may seek rescission of their purchases of Shares. If a number of purchasers were to obtain rescission rights, SoPayMe would face significant financial demands which could adversely affect SoPayMe, Inc. as a whole, as well as any non-rescinding purchasers.
40 Offering Price
The price of the Shares offered has been arbitrarily established by SoPayMe, Inc. The Offering price bears little relationship to the assets, net worth, or any other objective criteria of value applicable to SoPayMe.
Lack of Firm Underwriter
The Shares are offered on a “best efforts” basis by the officers and directors of SoPayMe without compensation and may be offered on a “best efforts” basis through certain FINRA registered broker-dealers which enter into Participating Broker-Dealer Agreements with the Company. Accordingly, there is no assurance that the Company or any FINRA broker-dealer will sell any Shares offered.
Projections: Forward Looking Information
Management has prepared projections regarding SoPayMe’s anticipated financial performance and the Company’s projections are hypothetical. The projections are based on Management’s best estimate of the possible results of the operations of the Company. The financial projections of the Company have not been reviewed by SoPayMe’s independent accountants. These projections are based on several assumptions, set forth therein, which Management believes are reasonable. Some assumptions, upon which the projections are based, however, invariably will not materialize due to the inevitable occurrence of unanticipated events and circumstances beyond Management’s control. Therefore, actual results of operations will vary from the projections, and such variances may be material. Assumptions regarding future changes in sales and revenues are necessarily speculative in nature. In addition, projections do not and cannot take into account such factors as: general economic conditions, unforeseen regulatory changes, the entry into SoPayMe’s market of additional competitors, the terms and conditions of future capitalization and other risks inherent to the Company’s business. While Management believes that the projections accurately reflect possible future results of SoPayMe’s operations, those results cannot be guaranteed.
41 Use of Proceeds
The Company is seeking to raise gross proceeds of $9,000,000 from the sale of Shares in this Offering. The Company intends to apply these proceeds substantially as set forth herein, subject only to reallocation by Management in the best interests of the Company.
$9M RAISE
SOURCES & USES Source of Funds Start-Up Capital ($9M) Investor(s) $9,000,000 Total Sources $9,000,000
Use of Funds Start-Up Expenses Professional & Legal Fees $24,000 Stationery & Brochures $10,000 Insurance $20,000 Lease Deposit $5,000 IT / R&D $750,000 Advertising & Marketing $50,000 Website Development $50,000 Consulting / Licensing / Fees $1,250,000 Server Costs $750,000 Total Start-Up Expenses $2,909,000
Start-Up Assets Working Capital $5,328,500 Other Current Assets $7,500 Equipment $5,000
SOURCES & USES $9 MILLION PROCEEDS MILLION & USES $9 SOURCES Servers $750,000 Total Start-Up Assets $6,091,000
Total Uses $9,000,000
Notes: “Fees” includes estimated FinCEN and state money transfer licensing fees; consulting, proforma, pitch deck and memorandum preparation; and filing, printing, legal, accounting and expenses related to the Offering. This Offering is being sold by the officers and directors of the Company. Shares may be sold by registered broker or dealers who are members of the FINRA and who enter into a Participating Dealer Agreement with the Company. Such brokers or dealers may receive commissions up to eight percent (8%) of the price of the Shares sold.
42 Company Management
At the present time, Randy Pentel is the only principal actively involved in the management of the Company. The Company believes that it will be able to hire additional competent management candidates after funding and has already identified possible candidates.
Randy Pentel - Founder, Chairman and President
Randy Pentel has accumulated more than 30 years’ experience in the financial services industry, both as an owner and in executive, sales, and marketing capacities. Mr. Pentel gained experience beginning with ChexSystems’, the industry-standard new account verification service for financial institutions, and was responsible for sales and marketing, as well as training personnel on ChexSystems products and services. This gave him the critical knowledge of the company’s customer needs and target market while cultivating the experience necessary to become the Co-Founder of Notification Systems, Inc., in Bloomington, Minnesota, where he is responsible for sales and strategic development. Notification Systems processes approximately $2 billion in check transactions per month and has a communication platform which is able to connect in multiple ways with virtually every financial institution in the nation. These relationships can potentially greatly support and accelerate the introduction and growth of SoPayMe.
Management Compensation
There is no accrued compensation that is due Management. No director will initially receive any director’s fees. Each director will be entitled to reimbursement of expenses incurred while conducting Company business. Each director may also be a Shareholder in the Company. Management reserves the right to add compensation for Directors. Mr. Pentel’s compensation will come in three forms: (1) a delayed starting annual salary of $150,000 plus benefits; (2) a 5% commission rate on real-time transaction gross revenues; and (3) a 3% royalty on real-time transaction gross revenue (see Related Party Transactions) received indirectly through his ownership of Remote Incorporated.
Dilution
The purchasers of the Shares offered by this Memorandum will experience an immediate and substantial dilution of their investments. There are 200,000,000 authorized Shares of the Company of which 81,000,000 Shares are currently issued and outstanding. The net tangible book value per Share was approximately $0.001 on October 1, 2015. Net tangible book value per Share is equal to the Company’s total tangible assets less its total liabilities, divided by the total number of outstanding Shares. Upon completion of this Offering, the net tangible book value for the Shares which are now outstanding will be increased with corresponding dilution for the Shares sold to investors.
The following reflects the dilution to be incurred by the investors. “Dilution” is determined by subtracting the net tangible book value per Share after the Offering from the Offering price. If the expected maximum number of Shares offered hereby is sold, of which there can be no assurance, there will be ______Shares issued and outstanding with a net tangible book value of approximately $____ per Share. This represents an immediate increase in net tangible book value from $_____ to $____ per Share to existing Shareholders and an immediate dilution of from $____ to $____ per Share to purchasers of Shares in this Offering.
43 Dilution Based On This Offering
Offering Amount Shares Issued ______Offering Price $____ Diluted Share Price $____
Principal Shareholders
The table on the following page contains certain information as of October 1, 2015 as to the number of Shares beneficially owned by each person known by the Company to own beneficially more than 5% of the Company’s Shares, each person who is a Director of the Company, and all persons as a group who are Directors and Officers of the Company, and as to the percentage of the outstanding Shares held by them on such dates and as adjusted to give effect to this Offering.
Current Upon Full Subscription Name and Position Shares Percentage Percentage
Randy Pentel, Chairman 81,000,000 100% __%
Related Party Transactions
Mr. Pentel, the founder and current owner of 100% of the issued and outstanding common stock of the Company, has developed and filed multiple patent applications covering certain core elements of the Company’s payment processing systems. Those patent applications are currently classified as “patent pending” with the U.S. Patent and Trademark Office. If these Patents are issued, they will be owned by Mr. Pentel. If issued, it is Mr. Pentel’s intention to issue an exclusive license to the Company to utilize the process(es) in exchange for compensation, the terms of which have yet to be determined. In an effort to consider this contingency and maintain conservative forecasting, the financial pro forma assumes and calculates a royalty rate equal to three percent (3%) of real-time payments’ gross revenue.
In addition, Mr. Pentel previously developed and invented technologies relating to remote ordering. This patented technology covers various remote ordering through the use of portable electronic devices, such as phones and tablets, etc. SoPayMe has non-sublicensable, non-exclusive, non- transferrable rights to use the remote ordering technology. These rights are provided by Mr. Pentel’s assignee, Remote Incorporated, a Minnesota corporation, on a royalty-bearing basis equal to three percent (3%) of real-time payments gross revenue. Mr. Pentel serves as Chief Executive Officer of Remote Incorporated, and he is its controlling shareholder.
Option Agreements
The Company may offer key employees (or to attract key employees) options and/or warrants to purchase the company’s Shares. No such stock option plan currently exists and no options and/or warrants are currently outstanding.
44 Litigation
The Company is not presently a party to any litigation, nor to the knowledge of Management is any litigation threatened against the Company which may materially affect the business of the Company or its assets.
Description of Shares
The Shares offered hereby are ______shares. The Company has authorized a total of 200,000,000 Shares. As of the date of this memorandum, there are 81,000,000 Shares issued and outstanding. If the maximum number of Shares in this Offering are sold, ______Shares will be issued and outstanding.
The Shares are equal in all respects, and upon completion of the Offering, the Shares will comprise the only class of capital stock that the Company will have issued and outstanding upon close of the Offering. Each Share is entitled to one vote for any matter submitted to a vote of the Shareholders. Shares are not redeemable and do not have conversion rights. All shares of the Company are fully paid and non-assessable.
Shareholders are entitled to dividend distributions when and if declared by the Board of Directors out of funds legally available therefore. The Company to date has not paid any dividends. Future dividends are subject to the discretion of the Board of Directors. It’s Management’s present intention to reinvest any profits of the Company to grow the Company.
Transfer Agent and Registrar
The Company will act as its own transfer agent and registrar for its Shares.
Plan of Placement
The Shares are offered directly by officers and directors of the Company on the terms and conditions set forth in this Memorandum. Shares may also be offered by FINRA brokers and dealers. The Company is offering the Shares on a “best efforts” basis. The Company will use its best efforts to sell the Shares to investors. There can be no assurance that any or all of the Shares offered will be sold.
Subscription Funds
Commencing on the date of this Memorandum all funds received by the Company in payment of subscriptions for Shares will be deposited directly to the Company’s corporate account and will be available for use by the Company at its discretion (see Subscription Period).
Subscriptions for Shares are subject to rejection by the Company at any time.
45 How to Subscribe for Shares
A purchaser of Shares must complete, date, execute, and deliver to the Company the following documents:
1. Subscription Agreement,
2. Investor Suitability Questionnaire,
3. A check payable to “SoPayMe, Inc.” in the amount of $____ per Share for each Share purchased as set forth in the Subscription Agreement (minimum purchase ______Shares or $25,000).
The Subscriber may not withdraw subscriptions that are tendered to the Company (Florida and Pennsylvania Residents (see NASAA Legend in the front of this Memorandum for important information).
Additional Information
This is an offering to sophisticated, accredited investors only, who accept the responsibility to conduct their own investigation and consult with their professional advisors in connection to their investment. The Company will make available reasonable access to needed information for investors and their professional advisors. They are invited to review the materials available to the Company regarding its business and operations, this offering or any other matter set forth in this Memorandum that is not subject to a confidentiality agreement or otherwise not suitable for general disclosure. The Company’s management team will be available to answer investor inquiries relating to the Company, this offering and the Shares offered and will afford investors and their representatives the opportunity to obtain any additional information (to the extent that Company possesses such information or can acquire it without unreasonable effort or expense) necessary to verify the accuracy of the information in this Memorandum.
The Company will make available to potential investors, upon reasonable advanced request, copies of material information and other documents and will afford potential investors the opportunity to ask questions of, and receive answers from, the Company concerning the business and its financial condition and the Shares being offered hereby.
Such inquiries should be directed to: Randolph M. Pentel, Chairman and CEO, SoPayMe, Inc., 1650 W. 82nd St., Suite #700, Bloomington, MN 55431 (612) 910-6868.
The Company is not subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, accordingly, does not file reports with the Securities and Exchange Commission. The Shares are being offered pursuant to exemptions from registration under federal and state securities laws, and, accordingly, no registration statement has been filed with the SEC or with any state securities authority and none is expected to be filed. However, the Company plans on making available, to all holders of Shares, confidential and unaudited end of fiscal year financial reports/financial statements prepared in accordance with generally accepted accounting principles.
46 ERISA CONSIDERATIONS
General
When deciding whether to invest a portion of the assets of a qualified profit-sharing, pension or other retirement trust in the Company, a fiduciary should consider whether:
• The investment is in accordance with the documents governing the particular plan, • The investment satisfies the diversification requirements of Section 404(a)(1)(c) of Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and • The investment is prudent and in the exclusive interest of participants and beneficiaries of the plan.
Plan Assets
Under ERISA, whether the assets of the Company are considered "plan assets" is also critical. ERISA generally requires that "plan assets" be held in trust and that the trustee or a duly authorized Manager have exclusive authority and discretion to manage and control the assets.
ERISA also imposes certain duties on persons who are "fiduciaries" of employee benefit plans and prohibits certain transactions between such plans and parties in interest (including fiduciaries) with respect to the assets of such plans. Under ERISA and the Code, "fiduciaries" with respect to a plan include persons who:
• Have any power of control, management or disposition over the funds or other property of the plan, • Actually provide investment advice for a fee, or • Have discretion with regard to plan administration. If the underlying assets of the Company are considered to be "plan assets," then the Manager(s) of the Company could be considered a fiduciary with respect to an investing employee benefit plan. Various transactions between Management or any affiliate and the Company, such as the payment of fees to Managers, might result in prohibited transactions.
A regulation adopted by the Department of Labor generally defines plan assets as not to include the underlying assets of the issuer of the securities held by a plan. However, where a plan acquires an equity interest in an entity that is neither a publicly offered security nor a security issued by certain registered investment companies, the plan's assets include both the equity interest and an undivided interest in each of the underlying assets of the entity unless: the entity is an operating company or, the equity participation in the entity by benefit plan investors (as defined in the regulations) is not significant (i.e., less than twenty-five percent (25%) of any class of equity interests in the entity is held by benefit plan investors).
Benefit plan investors are not expected to acquire twenty-five percent (25%) or more of the Shares offered by the Company. Management of the Company intends to preclude significant investment in the Company by such plans. Investors/Employee benefit plans (including IRAs), however, are urged to consult with their legal advisors before subscribing for the purchase of Shares to ensure the investment is acceptable under ERISA regulations.
47
Appendix I: Annual Financial Projections - Payments Model (Years 1-5)
48 Financial Highlights (Payments Model)
The table below and chart on the following page illustrate the financial goals of the Company during the next five years:
FINANCIAL HIGHLIGHTS Year 1 Year 2 Year 3 Year 4 Year 5 Total Revenue (Adjusted) $387,000 $7,504,181 $40,149,247 $186,680,738 $703,838,580 Total Direct Cost of Revenue $90,300 $1,750,976 $9,368,158 $43,558,839 $164,229,002 Gross Margin $296,700 $5,753,206 $30,781,090 $143,121,899 $539,609,578 Total Op. Expenses $1,890,600 $4,215,447 $7,818,887 $15,717,991 $25,389,759 Profit Before Int. & Tax ($1,593,900) $1,537,759 $22,962,203 $127,403,908 $514,219,819 Taxes Incurred $0 $0 $7,009,139 $44,591,368 $179,976,937 Net Profit ($1,593,900) $1,537,759 $15,953,064 $82,812,540 $334,242,882
EBITDA ($1,440,050) $1,699,259 $23,128,203 $127,575,308 $514,394,219
Gross Margin/Revenue 76.7% 76.7% 76.7% 76.7% 76.7% EBITDA/Re ve nue -372.1% 22.6% 57.6% 68.3% 73.1% Net Profit/Revenue -411.9% 20.5% 39.7% 44.4% 47.5% Total Debt/Total Assets 6.2% 9.7% 14.3% 12.4% 10.2% Revenue/Employee $55,286 $416,899 $1,605,970 $5,490,610 $18,047,143 FINANCIAL HIGHLIGHTS FINANCIAL
Net Cash Flow ($1,163,372) $2,013,714 $19,118,219 $94,128,682 $369,545,088 Cash Balance - Ending $4,165,128 $6,178,842 $25,297,061 $119,425,742 $488,970,831
49
50 Use of Proceeds (Payments Model)
The Company is seeking to raise gross proceeds of $9,000,000 from the sale of Shares in this Offering. The Company intends to apply these proceeds substantially as set forth herein, subject only to reallocation by Management in the best interests of the Company.
$9M RAISE
SOURCES & USES Source of Funds Start-Up Capital ($9M) Investor(s) $9,000,000 Total Sources $9,000,000
Use of Funds Start-Up Expenses Professional & Legal Fees $24,000 Stationery & Brochures $10,000 Insurance $20,000 Lease Deposit $5,000 IT / R&D $750,000 Advertising & Marketing $50,000 Website Development $50,000 Consulting / Licensing / Fees $1,250,000 Server Costs $750,000 Total Start-Up Expenses $2,909,000
Start-Up Assets Working Capital $5,328,500 Other Current Assets $7,500 Equipment $5,000
SOURCES & USES $9 MILLION PROCEEDS MILLION & USES $9 SOURCES Servers $750,000 Total Start-Up Assets $6,091,000
Total Uses $9,000,000
51 Investor Proposition (Payments Model)
The following Investor Propositions use a number of variables to determine a hypothetical share of the Company in exchange for investment. The following scenarios are for discussion purposes and are dependent on forward looking operating and valuation assumptions. The investor share is based on an Implied Return on Investment (ROI) multiple of 4.86 and a company valuation of .85 times year 5 EBITDA. It should be noted that the rate of return is dependent on subjective measurements of risk and reward, and valuations are subject to market conditions.
INVESTOR PROPOSITIONS
Scenario A Scenario B Scenario C Investment $9,000,000 $900,000 $90,000 Required Rate of Return 37.2% 37.2% 37.2% Implied ROI Multiple 4.86 4.86 4.86 Value of Investment (Yr 5) $43,721,646 $4,372,165 $437,216
Year 5 EBITDA $514,394,219 $514,394,219 $514,394,219 EBITDA Multiple 0.85 0.85 0.85 Projected Company Value (Yr 5) $437,235,086 $437,235,086 $437,235,086
INV. PROPOSITIONS Proposed Investor Share 10.0% 1.0% 0.1%
52 Projected Investor Rate of Return (Payments Model)
The following table indicates the Projected Investor Cash Flow and Investor Internal Rate of Return for the Payments Model.
PROJECTED INVESTOR INTERNAL RATE OF RETURN
Start-up Year 1 Year 2 Year 3 Year 4 Year 5 Investment $9,000,000 Investor Share 10.0%
Net Profit ($1,593,900) $1,537,759 $15,953,064 $82,812,540 $334,242,882
Year 5 Valuation Multiple 0.85
Company Valuation $284,106,450
Investor Share of Profits $0 $153,769 $1,595,238 $8,280,901 $33,422,864
Investor Share of Valuation $28,409,435
Investor Cash Flow ($9,000,000) $0 $153,769 $1,595,238 $8,280,901 $61,832,299 PROJECTED INVESTOR IRR INVESTOR PROJECTED
Investor IRR 54%
53 Revenue Forecast (Payments Model)
The following is a five-year Revenue Forecast. Direct costs include all costs which can be directly tied to revenue and include “cost of goods.”
REVENUE FORECAST Year 1 Year 2 Year 3 Year 4 Year 5 Revenue (Pre-Adjusted) Real Time Payments $430,000 $8,337,979 $44,610,275 $207,423,042 $782,042,867 Advertising $0 $0 $0 $0 $0 Data Mining $0 $0 $0 $0 $0 Total Revenue (Adjusted) $387,000 $7,504,181 $40,149,247 $186,680,738 $703,838,580
Direct Cost of Revenue Real Time Payments $90,300 $1,750,976 $9,368,158 $43,558,839 $164,229,002 Advertising $0 $0 $0 $0 $0 Data Mining $0 $0 $0 $0 $0 Subtotal Cost of Revenue $90,300 $1,750,976 $9,368,158 $43,558,839 $164,229,002 Other Direct Cost $0 $0 $0 $0 $0 Total Direct Costs $90,300 $1,750,976 $9,368,158 $43,558,839 $164,229,002 REVENUE FORECAST Gross Margin $296,700 $5,753,206 $30,781,090 $143,121,899 $539,609,578 Gross Margin % 77% 77% 77% 77% 77%
54 The chart below represents the Payments Model Annual Revenue for Years 1 through 5.
55 The table below shows the Payments Model Units and Pricing Assumptions underlying the revenue forecast:
UNIT ASSUMPTIONS
Year 1 Year 2 Year 3 Year 4 Year 5 Units Real Time Payments 4,300,000 83,379,794 446,102,750 2,074,230,418 7,820,428,666 Advertising 0 0 0 0 0 Data Mining 0 0 0 0 0 Total Units 4,300,000 83,379,794 446,102,750 2,074,230,418 7,820,428,666
Unit Price Real Time Payments $0.10 $0.10 $0.10 $0.10 $0.10 Advertising $0.00 $0.00 $0.00 $0.00 $0.00 Data Mining $0.00 $0.00 $0.00 $0.00 $0.00
Direc t Unit Cos t UNIT ASSUMPTIONS UNIT Real Time Payments $0.021 $0.021 $0.021 $0.021 $0.021 Advertising $0.000 $0.000 $0.000 $0.000 $0.000 Data Mining $0.000 $0.000 $0.000 $0.000 $0.000
56 Expense / Cash Flow Summary (Payments Model)
The following is a five-year Expense/Cash Flow Summary table. A full Pro Forma Cash Flow table is detailed later in this Memorandum.
EXPENSE / CASH FLOW SUMMARY
Year 1 Year 2 Year 3 Year 4 Year 5 Expense Classifications Direct Cost of Revenue $90,300 $1,750,976 $9,368,158 $43,558,839 $164,229,002 Sales & Marketing $229,688 $1,128,709 $2,810,284 $7,187,668 $12,431,697 Gen. & Administrative $1,247,688 $2,649,013 $4,291,014 $7,438,545 $11,383,503 Research & Dev. $259,375 $323,663 $551,589 $920,378 $1,400,158 Dep. & Amortization $153,850 $161,500 $166,000 $171,400 $174,400 Interest $0 $0 $0 $0 $0 Total Expenses $1,980,900 $6,013,860 $17,187,045 $59,276,830 $189,618,761
Capital Expenditures $21,000 $33,000 $21,000 $27,000 $15,000
Change in Working Capital ($297,678) ($347,455) ($3,020,155) ($11,171,742) ($35,142,806) Change in Cash on Hand ($1,163,372) $2,013,714 $19,118,219 $94,128,682 $369,545,088
EXPENSE / CASH FLOW SUMMARY FLOW / CASH EXPENSE Cash on Hand $4,165,128 $6,178,842 $25,297,061 $119,425,742 $488,970,831
57 Revenue and Expenses Years 1 to 5 (Payments Model)
The following is a graph illustrating Revenue and Expenses for Years 1 through 5.
58 Personnel Forecast (Payments Model)
The Company’s Personnel Forecast is outlined below. Personnel wages indicate the average wage per position, and personnel costs are total wages for each position.
PERSONNEL FORECAST
Year 1 Year 2 Year 3 Year 4 Year 5 Personnel Count President 1 1 1 1 1 COO 1 1 1 1 1 CFO 1 1 1 1 1 CTO 1 1 1 1 1 CSO 1 1 1 1 1 General Counsel 1 1 1 1 1 Programmers 0 2 4 6 8 Administrative Staff 1 3 4 4 5 Director of Sales 0 1 1 1 1 Sales Associate 0 2 5 10 10 Marketing Manager 0 1 1 1 1 Head Programmer 0 1 2 4 6 Operations Manager 0 1 1 1 1 Social Media Manager 0 1 1 1 1 Total Personnel 7 18 25 34 39
Personnel Costs President $150,000 $250,000 $275,000 $302,500 $332,750 COO $31,250 $137,500 $151,250 $166,375 $183,013 CFO $31,250 $137,500 $151,250 $166,375 $183,013 CTO $125,000 $137,500 $151,250 $166,375 $183,013 CSO $150,000 $225,000 $247,500 $272,250 $299,475 PERSONNEL FORECAST PERSONNEL General Counsel $131,250 $192,500 $211,750 $232,925 $256,218 Programmers $0 $176,000 $387,200 $638,880 $937,024 Administrative Staff $25,000 $165,000 $242,000 $266,200 $366,025 Director of Sales $0 $110,000 $121,000 $133,100 $146,410 Sales Associate $0 $165,000 $453,750 $998,250 $1,098,075 Marketing Manager $0 $82,500 $90,750 $99,825 $109,808 Head Programmer $0 $132,000 $290,400 $638,880 $1,054,152 Operations Manager $0 $82,500 $90,750 $99,825 $109,808 Social Media Manager $0 $82,500 $90,750 $99,825 $109,808 Total Payroll $643,750 $2,075,500 $2,954,600 $4,281,585 $5,368,589
Revenue / Employee $55,286 $416,899 $1,605,970 $5,490,610 $18,047,143
59 Pro Forma Profit and Loss (Payments Model)
The Company intends to deploy its funding to maximize growth and profitability. In the Profit and Loss table below, gross margin equals revenue minus direct costs. The “bottom line” or profit (as measured before and after interest, taxes, depreciation, and amortization) equals gross margin minus operating expenses.
PRO FORMA PROFIT & LOSS
Year 1 Year 2 Year 3 Year 4 Year 5 Total Revenue (Adjusted) $387,000 $7,504,181 $40,149,247 $186,680,738 $703,838,580 Total Direct Cost of Revenue $90,300 $1,750,976 $9,368,158 $43,558,839 $164,229,002 Gross Margin $296,700 $5,753,206 $30,781,090 $143,121,899 $539,609,578 Gross Margin % 77% 77% 77% 77% 77%
Expenses Travel $39,750 $119,250 $180,000 $300,000 $600,000 Rent $40,000 $120,000 $360,000 $900,000 $900,000 Insurance $2,000 $21,600 $24,000 $72,000 $216,000 Leased Equipment/Data Center $45,000 $120,000 $240,000 $360,000 $600,000 Utilities $9,500 $28,500 $85,500 $213,750 $427,500 Marketing/Promotion $18,000 $180,000 $360,000 $900,000 $1,800,000 Fees/Permits $8,000 $300,000 $900,000 $2,250,000 $4,500,000 Contractors $750,000 $270,000 $300,000 $360,000 $600,000 Commissions $24,188 $375,209 $1,505,597 $4,667,018 $8,797,982 Misc. $60,000 $180,000 $300,000 $600,000 $600,000 Depreciation $153,850 $161,500 $166,000 $171,400 $174,400 Payroll Taxes & Benefits $96,563 $305,138 $443,190 $642,238 $805,288 Total Personnel $643,750 $2,034,250 $2,954,600 $4,281,585 $5,368,589 Total Op. Expenses $1,890,600 $4,215,447 $7,818,887 $15,717,991 $25,389,759 PRO FORMA PROFIT & LOSS Profit Before Int. & Tax ($1,593,900) $1,537,759 $22,962,203 $127,403,908 $514,219,819 Interest Expense $0 $0 $0 $0 $0 Taxes Incurred $0 $0 $7,009,139 $44,591,368 $179,976,937 Net Profit ($1,593,900) $1,537,759 $15,953,064 $82,812,540 $334,242,882 Net Profit % N/A 20.5% 39.7% 44.4% 47.5%
EBITDA ($1,440,050) $1,699,259 $23,128,203 $127,575,308 $514,394,219 EBITDA % N/A 22.6% 57.6% 68.3% 73.1%
60 Break-Even Analysis (Payments Model)
The table and chart below demonstrate when the Company is expected to become profitable. Break-even occurs when accumulated revenue equals accumulated expenses. According to the forecasted financials, month 29 will be the point at which break-even will occur.
61 Pro Forma Cash Flow (Payments Model)
The following depictions of the Company’s projected cash flow show that the Company expects to maintain sufficient cash balances over the five years of this plan. The “Pro Forma Cash Flow” table differs from the “Pro Forma Profit and Loss” (P&L) table. Pro forma Cash Flow is intended to represent the actual flow of cash in and out of the Company. In comparison, the revenue and expense projections on the P&L table include “non-cash” items and exclude funding and investment illustrations.
PRO FORMA CASH FLOW
Year 1 Year 2 Year 3 Year 4 Year 5 Operating Net Profit ($1,593,900) $1,537,759 $15,953,064 $82,812,540 $334,242,882 Adjustments to Net Profit $0 $0 $0 $0 $0 Depreciation & Amortization $153,850 $161,500 $166,000 $171,400 $174,400 Accounts Receivable $0 $0 $0 $0 $0 Inventory $0 $0 $0 $0 $0 Accounts Payable $297,678 $347,455 $3,020,155 $11,171,742 $35,142,806 Net From Operating Activity ($1,142,372) $2,046,714 $19,139,219 $94,155,682 $369,560,088
Investing Purchase - Other Current Assets $0 $0 $0 $0 $0 Sale - Other Current Assets $0 $0 $0 $0 $0 Purchase - Land $0 $0 $0 $0 $0 Sale - Land $0 $0 $0 $0 $0 Purchase - Long Term Assets ($21,000) ($33,000) ($21,000) ($27,000) ($15,000) Sale - Long Term Assets $0 $0 $0 $0 $0 Net From Investing Activity ($21,000) ($33,000) ($21,000) ($27,000) ($15,000)
Financing Investment $0 $0 $0 $0 $0 Dividends $0 $0 $0 $0 $0 PRO FORMA CASH FLOW CASH FORMA PRO New Current Borrow ing $0 $0 $0 $0 $0 Current Borrow ing Repay $0 $0 $0 $0 $0 New Long Term Liabilities $0 $0 $0 $0 $0 Long Term Liability Repay $0 $0 $0 $0 $0 Net From Financing Activity $0 $0 $0 $0 $0
Cash Flow Net Cash Flow ($1,163,372) $2,013,714 $19,118,219 $94,128,682 $369,545,088 Beginning Cash $5,328,500 $4,165,128 $6,178,842 $25,297,061 $119,425,742 Ending Cash $4,165,128 $6,178,842 $25,297,061 $119,425,742 $488,970,831
62 The graph below illustrates Payments Model Cash Flow for years 1 through 5.
63 Balance Sheet (Payments Model)
The Balance Sheet below highlights the Company’s projected assets, liabilities, and capital:
BALANCE SHEET
Year 1 Year 2 Year 3 Year 4 Year 5 Current Assets Cas h $4,165,128 $6,178,842 $25,297,061 $119,425,742 $488,970,831 Accounts Receivable $0 $0 $0 $0 $0 Inventory $0 $0 $0 $0 $0 Other Current Assets $7,500 $7,500 $7,500 $7,500 $7,500 Total Current Assets $4,172,628 $6,186,342 $25,304,561 $119,433,242 $488,978,331
Fixed Assets Long-term Assets $776,000 $809,000 $830,000 $857,000 $872,000 Accum. Depreciation $153,850 $315,350 $481,350 $652,750 $827,150 Land $0 $0 $0 $0 $0 Total Fixed Assets $622,150 $493,650 $348,650 $204,250 $44,850
Total Assets $4,794,778 $6,679,992 $25,653,211 $119,637,492 $489,023,181
Current Liabilities Accounts Payable $297,678 $645,133 $3,665,288 $14,837,029 $49,979,835 Current Borrow ing $0 $0 $0 $0 $0 Other Current Liabilities $0 $0 $0 $0 $0
BALANCE SHEET BALANCE Subtotal Current Liabilities $297,678 $645,133 $3,665,288 $14,837,029 $49,979,835
Long Term Liabilities $0 $0 $0 $0 $0
Total Liabilities $297,678 $645,133 $3,665,288 $14,837,029 $49,979,835
Paid-in Capital $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 Retained Earnings ($2,909,000) ($4,502,900) ($2,965,141) $12,987,923 $95,800,463 Earnings ($1,593,900) $1,537,759 $15,953,064 $82,812,540 $334,242,882 Total Capital $4,497,100 $6,034,859 $21,987,923 $104,800,463 $439,043,345
Total Liabilities and Capital $4,794,778 $6,679,992 $25,653,211 $119,637,492 $489,023,181
64 Sensitivity Analysis (Payments Model)
The sensitivity analysis below assumes that revenues are 15% higher or lower than figures projected earlier in this business plan. The first chart assumes revenues 15% greater than projected; the second chart assumes revenues 15% lower than projected.
BEST CASE SCENARIO / REV IS 15% > PROJECTED
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue $445,050 $8,629,809 $46,171,635 $214,682,848 $809,414,367 Cost of Goods $103,845 $2,013,622 $10,773,381 $50,092,665 $188,863,352 Gross Margin $341,205 $6,616,187 $35,398,253 $164,590,184 $620,551,015 Gross Margin/Revenue 76.7% 76.7% 76.7% 76.7% 76.7% Operating Expenses $1,894,228 $4,271,728 $8,044,726 $16,418,044 $26,709,456 Net Profit ($1,553,023) $2,344,459 $18,285,063 $96,311,891 $385,997,013 Net Profit/Revenue -349.0% 27.2% 39.6% 44.9% 47.7%
Cash Flow ($1,112,647) $2,861,027 $21,901,004 $109,265,894 $426,526,275 BEST CASE SCENARIO CASE BEST Cash Balance $4,215,853 $7,076,879 $28,977,883 $138,243,777 $564,770,052
WORST CASE SCENARIO / REV IS 15% < PROJECTED
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue $328,950 $6,378,554 $34,126,860 $158,678,627 $598,262,793 Cost of Goods $76,755 $1,488,329 $7,962,934 $37,025,013 $139,594,652 Gross Margin $252,195 $4,890,225 $26,163,926 $121,653,614 $458,668,141 Gross Margin/Revenue 76.7% 76.7% 76.7% 76.7% 76.7% Operating Expenses $1,886,972 $4,159,165 $7,593,047 $15,017,938 $24,070,062 Net Profit ($1,634,777) $731,060 $13,175,180 $69,313,189 $282,488,752 Net Profit/Revenue -497.0% 11.5% 38.6% 43.7% 47.2%
Cash Flow ($1,214,096) $1,166,401 $15,889,549 $78,991,469 $312,563,902 WORST CASE SCENARIO CASE WORST Cash Balance $4,114,404 $5,280,805 $21,170,354 $100,161,823 $412,725,726
65
Appendix I: Monthly Financial Projections - Payments Model (Year 1)
66 Revenue Forecast - Payments Model (Year 1)
REVENUE FORECAST
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Revenue (Pre-Adjusted) Real Time Payments $0 $0 $0 $0 $0 $0 $0 $0 $5,000 $25,000 $150,000 $250,000 Advertising $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Data Mining $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Revenue (Adjusted) $0 $0 $0 $0 $0 $0 $0 $0 $4,500 $22,500 $135,000 $225,000
Direct Cost of Revenue Real Time Payments $0 $0 $0 $0 $0 $0 $0 $0 $1,050 $5,250 $31,500 $52,500 Advertising $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Data Mining $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cost of Revenue $0 $0 $0 $0 $0 $0 $0 $0 $1,050 $5,250 $31,500 $52,500 Other Direct Cost $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Direct Costs $0 $0 $0 $0 $0 $0 $0 $0 $1,050 $5,250 $31,500 $52,500 REVENUE FORECAST REVENUE FORECAST
Gross Margin $0 $0 $0 $0 $0 $0 $0 $0 $3,450 $17,250 $103,500 $172,500 Gross Margin % N/A N/A N/A N/A N/A N/A N/A N/A 77% 77% 77% 77%
Unit Assumptions - Payments Model (Year 1)
UNIT ASSUMPTIONS Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Units Real Time Payments 0 0 0 0 0 0 0 0 50,000 250,000 1,500,000 2,500,000 Advertising 0 0 0 0 0 0 0 0 0 0 0 0 Data Mining 0 0 0 0 0 0 0 0 0 0 0 0 Total Units 0 0 0 0 0 0 0 0 50,000 250,000 1,500,000 2,500,000
Unit Price Real Time Payments $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 Advertising $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Data Mining $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Dir e ct Unit Cos t UNIT ASSUMPTIONS UNIT Real Time Payments $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 Advertising $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 Data Mining $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
67 Personnel Forecast - Payments Model (Year 1)
PERSONNEL FORECAST Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Personnel Count President 111111111111 COO 000000000111 CFO 000000000111 CTO 111111111111 CSO 111111111111 General Counsel 000111111111 Programmers 000000000000 Administrative Staff 000000111111 Director of Sales 000000000000 Sales Associate 000000000000 Marketing Manager 000000000000 Head Programmer 000000000000 Operations Manager 000000000000 Social Media Manager 000000000000 Total Personnel 333444555777 Personnel Costs President $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 COO $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,417 $10,417 $10,417 CFO $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,417 $10,417 $10,417 CTO $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 CSO $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500
PERSONNEL FORECAST FORECAST PERSONNEL General Counsel $0 $0 $0 $14,583 $14,583 $14,583 $14,583 $14,583 $14,583 $14,583 $14,583 $14,583 Programmers $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Administrative Staff $0 $0 $0 $0 $0 $0 $4,167 $4,167 $4,167 $4,167 $4,167 $4,167 Director of Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Sales Associate $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Marketing Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Head Programmer $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Operations Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Social Media Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Payroll $35,417 $35,417 $35,417 $50,000 $50,000 $50,000 $54,167 $54,167 $54,167 $75,000 $75,000 $75,000
Revenue / Employee $0 $0 $0 $0 $0 $0 $0 $0 $900 $3,214 $19,286 $32,143
68 Proforma Profit and Loss - Payments Model (Year 1)
PRO FORMA PROFIT & LOSS Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Total Revenue (Adjusted) $0 $0 $0 $0 $0 $0 $0 $0 $4,500 $22,500 $135,000 $225,000 Total Direct Cost of Revenue $0 $0 $0 $0 $0 $0 $0 $0 $1,050 $5,250 $31,500 $52,500 Gross Margin $0 $0 $0 $0 $0 $0 $0 $0 $3,450 $17,250 $103,500 $172,500 Gross Margin % N/A N/A N/A N/A N/A N/A N/A N/A 77% 77% 77% 77%
Expenses Travel $2,000 $2,000 $2,000 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 Rent $0 $0 $0 $0 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Insurance $0 $0 $0 $0 $250 $250 $250 $250 $250 $250 $250 $250 Leased Equipment/Data Center $0 $0 $0 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Utilities $500 $500 $500 $500 $500 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Marketing/Promotion $0 $0 $0 $0 $0 $0 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 Fees/Permits $0 $0 $0 $0 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Contractors $0 $0 $0 $0 $0 $0 $125,000 $125,000 $125,000 $125,000 $125,000 $125,000 Commissions $0 $0 $0 $0 $0 $0 $0 $0 $281 $1,406 $8,438 $14,063 Misc. $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Depreciation $12,733 $12,733 $12,733 $12,783 $12,783 $12,783 $12,833 $12,833 $12,833 $12,933 $12,933 $12,933 Payroll Taxes & Benefits $5,313 $5,313 $5,313 $7,500 $7,500 $7,500 $8,125 $8,125 $8,125 $11,250 $11,250 $11,250 Total Personnel $35,417 $35,417 $35,417 $50,000 $50,000 $50,000 $54,167 $54,167 $54,167 $75,000 $75,000 $75,000 Total Op. Expenses $60,963 $60,963 $60,963 $84,533 $90,783 $91,283 $224,125 $224,125 $224,406 $249,590 $256,621 $262,246 PRO FORMA PROFIT & LOSS Profit Before Int. & Tax ($60,963) ($60,963) ($60,963) ($84,533) ($90,783) ($91,283) ($224,125) ($224,125) ($220,956) ($232,340) ($153,121) ($89,746) Interest Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net Profit ($60,963) ($60,963) ($60,963) ($84,533) ($90,783) ($91,283) ($224,125) ($224,125) ($220,956) ($232,340) ($153,121) ($89,746) Net Profit % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
EBITDA ($48,229) ($48,229) ($48,229) ($71,750) ($78,000) ($78,500) ($211,292) ($211,292) ($208,123) ($219,406) ($140,188) ($76,813) EBITDA % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
69 Proforma Cash Flow - Payments Model (Year 1)
PRO FORMA CASH FLOW
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Operating Net Profit ($60,963) ($60,963) ($60,963) ($84,533) ($90,783) ($91,283) ($224,125) ($224,125) ($220,956) ($232,340) ($153,121) ($89,746) Adjustments to Net Profit Depreciation & Amortization $12,733 $12,733 $12,733 $12,783 $12,783 $12,783 $12,833 $12,833 $12,833 $12,933 $12,933 $12,933 Accounts Receivable $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Inventory $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Accounts Payable $47,568 $0 $0 $23,199 $6,164 $493 $130,973 $0 $1,313 $28,882 $32,825 $26,260 Net From Operating Activity ($661) ($48,229) ($48,229) ($48,551) ($71,836) ($78,007) ($80,319) ($211,292) ($206,810) ($190,524) ($107,362) ($50,552)
Investing Purchase - Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Sale - Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Purchase - Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Sale - Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Purchase - Long Term Assets ($9,000) $0 $0 ($3,000) $0 $0 ($3,000) $0 $0 ($6,000) $0 $0 Sale - Long Term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net From Investing Activity ($9,000) $0 $0 ($3,000) $0 $0 ($3,000) $0 $0 ($6,000) $0 $0
Financing Investment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 PRO FORMA CASH FLOW FLOW CASH FORMA PRO New Current Borrow ing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Current Borrow ing Repay $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Long Term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Long Term Liability Repay $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net From Financing Activity $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cash Flow Net Cash Flow ($9,661) ($48,229) ($48,229) ($51,551) ($71,836) ($78,007) ($83,319) ($211,292) ($206,810) ($196,524) ($107,362) ($50,552) Beginning Cash $5,328,500 $5,318,839 $5,270,610 $5,222,381 $5,170,830 $5,098,994 $5,020,987 $4,937,668 $4,726,376 $4,519,567 $4,323,042 $4,215,680 Ending Cash $5,318,839 $5,270,610 $5,222,381 $5,170,830 $5,098,994 $5,020,987 $4,937,668 $4,726,376 $4,519,567 $4,323,042 $4,215,680 $4,165,128
70 Balance Sheet - Payments Model (Year 1)
BALANCE SHEET
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Current Assets Cas h $5,318,839 $5,270,610 $5,222,381 $5,170,830 $5,098,994 $5,020,987 $4,937,668 $4,726,376 $4,519,567 $4,323,042 $4,215,680 $4,165,128 Accounts Receivable $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Inventory $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other Current Assets $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 Total Current Assets $5,326,339 $5,278,110 $5,229,881 $5,178,330 $5,106,494 $5,028,487 $4,945,168 $4,733,876 $4,527,067 $4,330,542 $4,223,180 $4,172,628
Fixed Assets Long-term Assets $764,000 $764,000 $764,000 $767,000 $767,000 $767,000 $770,000 $770,000 $770,000 $776,000 $776,000 $776,000 Accum. Depreciation $12,733 $25,467 $38,200 $50,983 $63,767 $76,550 $89,383 $102,217 $115,050 $127,983 $140,917 $153,850 Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Fixed Assets $751,267 $738,533 $725,800 $716,017 $703,233 $690,450 $680,617 $667,783 $654,950 $648,017 $635,083 $622,150
Total Assets $6,077,606 $6,016,643 $5,955,681 $5,894,346 $5,809,727 $5,718,937 $5,625,785 $5,401,660 $5,182,017 $4,978,559 $4,858,264 $4,794,778
Current Liabilities Accounts Payable $47,568 $47,568 $47,568 $70,767 $76,932 $77,425 $208,397 $208,397 $209,710 $238,592 $271,418 $297,678 Current Borrow ing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
BALANCE SHEET BALANCE Subtotal Current Liabilities $47,568 $47,568 $47,568 $70,767 $76,932 $77,425 $208,397 $208,397 $209,710 $238,592 $271,418 $297,678
Long Term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Liabilities $47,568 $47,568 $47,568 $70,767 $76,932 $77,425 $208,397 $208,397 $209,710 $238,592 $271,418 $297,678
Paid-in Capital $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 Retained Earnings ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) Earnings ($60,963) ($121,925) ($182,888) ($267,421) ($358,204) ($449,488) ($673,613) ($897,738) ($1,118,694) ($1,351,033) ($1,504,154) ($1,593,900) Total Capital $6,030,038 $5,969,075 $5,908,113 $5,823,579 $5,732,796 $5,641,513 $5,417,388 $5,193,263 $4,972,306 $4,739,967 $4,586,846 $4,497,100
Total Liabilities and Capital $6,077,606 $6,016,643 $5,955,681 $5,894,346 $5,809,727 $5,718,937 $5,625,785 $5,401,660 $5,182,017 $4,978,559 $4,858,264 $4,794,778
71
Appendix I: Annual Financial Projections - Payments and Ad Model (Years 1-5)
72 Financial Highlights (Payments and Ad Model)
The table below and chart on the following page illustrate the financial goals of the Company during the next five years.
FINANCIAL HIGHLIGHTS Year 1 Year 2 Year 3 Year 4 Year 5 Total Revenue (Adjusted) $387,000 $25,013,938 $133,830,825 $622,269,125 $2,346,128,600 Total Direct Cost of Revenue $90,300 $14,558,112 $77,889,540 $362,160,631 $1,365,446,845 Gross Margin $296,700 $10,455,826 $55,941,285 $260,108,494 $980,681,755 Total Op. Expenses $2,890,600 $5,090,934 $11,331,946 $26,607,701 $45,918,384 Profit Before Int. & Tax ($2,593,900) $5,364,892 $44,609,339 $233,500,793 $934,763,370 Taxes Incurred $0 $0 $15,613,269 $81,725,278 $327,167,180 Net Profit ($2,593,900) $4,828,403 $26,096,463 $136,597,964 $546,836,572
EBITDA ($2,440,050) $5,526,392 $44,775,339 $233,672,193 $934,937,770
Gross Margin/Revenue 76.7% 41.8% 41.8% 41.8% 41.8% EBITDA/Re ve nue -630.5% 22.1% 33.5% 37.6% 39.9% Net Profit/Revenue -670.3% 19.3% 19.5% 22.0% 23.3% Total Debt/Total Assets 10.2% 25.2% 32.1% 28.7% 24.8% Revenue/Employee $55,286 $1,389,663 $5,353,233 $18,302,033 $60,157,144 FINANCIAL HIGHLIGHTS FINANCIAL
Net Cash Flow ($2,064,742) $7,370,600 $39,692,833 $189,394,036 $715,418,797 Cash Balance - Ending $3,263,758 $10,634,358 $50,327,191 $239,721,227 $955,140,024
73
74 Use of Proceeds (Payments and Ad Model)
The Company is seeking to raise gross proceeds of $9,000,000 from the sale of Shares in this Offering. The Company intends to apply these proceeds substantially as set forth herein, subject only to reallocation by Management in the best interests of the Company.
$9M RAISE
SOURCES & USES Source of Funds Start-Up Capital ($9M) Investor(s) $9,000,000 Total Sources $9,000,000
Use of Funds Start-Up Expenses Professional & Legal Fees $24,000 Stationery & Brochures $10,000 Insurance $20,000 Lease Deposit $5,000 IT / R&D $750,000 Advertising & Marketing $50,000 Website Development $50,000 Consulting / Licensing / Fees $1,250,000 Server Costs $750,000 Total Start-Up Expenses $2,909,000
Start-Up Assets Working Capital $5,328,500 Other Current Assets $7,500 Equipment $5,000
SOURCES & USES $9 MILLION PROCEEDS MILLION & USES $9 SOURCES Servers $750,000 Total Start-Up Assets $6,091,000
Total Uses $9,000,000
75 Investor Proposition (Payments and Ad Model)
The following Investor Propositions use a number of variables to determine a hypothetical share of the Company in exchange for investment. The following scenarios are for discussion purposes and are dependent on forward looking operating and valuation assumptions. The investor share is based on an Implied Return on Investment (ROI) multiple of 8.83 and a company valuation of .85 times year 5 EBITDA. It should be noted that the rate of return is dependent on subjective measurements of risk and reward, and valuations are subject to market conditions.
INVESTOR PROPOSITIONS
Scenario A Scenario B Scenario C Investment $9,000,000 $900,000 $90,000 Required Rate of Return 54.6% 54.6% 54.6% Implied ROI Multiple 8.83 8.83 8.83 Value of Investment (Yr 5) $79,473,022 $7,947,302 $794,730
Year 5 EBITDA $934,937,770 $934,937,770 $934,937,770 EBITDA Multiple 0.85 0.85 0.85 Projected Company Value (Yr 5) $794,697,105 $794,697,105 $794,697,105
INV. PROPOSITIONS Proposed Investor Share 10.0% 1.0% 0.1%
76 Projected Investor Rate of Return (Payments and Ad Model)
The following table indicates the Projected Investor Cash Flow and Investor Internal Rate of Return for the Payments Model.
PROJECTED INVESTOR INTERNAL RATE OF RETURN
Start-up Year 1 Year 2 Year 3 Year 4 Year 5 Investment $9,000,000 Investor Share 10.0%
Net Profit ($2,593,900) $4,828,403 $26,096,463 $136,597,964 $546,836,572
Year 5 Valuation Multiple 0.85
Company Valuation $464,811,086
Investor Share of Profits $0 $482,860 $2,609,755 $13,660,366 $54,685,936
Investor Share of Valuation $46,483,045
Investor Cash Flow ($9,000,000) $0 $482,860 $2,609,755 $13,660,366 $101,168,981 PROJECTED INVESTOR IRR INVESTOR PROJECTED
Investor IRR 72%
77 Revenue Forecast (Payments and Ad Model)
The following is a five-year Revenue Forecast. Direct costs include all costs which can be directly tied to revenue and include “cost of goods.”
REVENUE FORECAST Year 1 Year 2 Year 3 Year 4 Year 5 Revenue (Pre-Adjusted) Real Time Payments $430,000 $8,337,979 $44,610,275 $207,423,042 $782,042,867 Advertising $0 $17,509,757 $93,681,577 $435,588,388 $1,642,290,020 Data Mining $0 $0 $0 $0 $0 Total Revenue (Adjusted) $387,000 $25,013,938 $133,830,825 $622,269,125 $2,346,128,600
Direct Cost of Revenue Real Time Payments $90,300 $1,750,976 $9,368,158 $43,558,839 $164,229,002 Advertising $0 $12,807,136 $68,521,382 $318,601,792 $1,201,217,843 Data Mining $0 $0 $0 $0 $0 Subtotal Cost of Revenue $90,300 $14,558,112 $77,889,540 $362,160,631 $1,365,446,845 Other Direct Cost $0 $0 $0 $0 $0 Total Direct Costs $90,300 $14,558,112 $77,889,540 $362,160,631 $1,365,446,845 REVENUE FORECAST Gross Margin $296,700 $10,455,826 $55,941,285 $260,108,494 $980,681,755 Gross Margin % 77% 42% 42% 42% 42%
78 The chart below represents the Payments and Ad Model Annual Revenue for Years 1 through 5.
79 The table below shows the Payments and Ad Model Units and Pricing Assumptions underlying the revenue forecast.
UNIT ASSUMPTIONS
Year 1 Year 2 Year 3 Year 4 Year 5 Units Real Time Payments 4,300,000 83,379,794 446,102,750 2,074,230,418 7,820,428,666 Advertising 0 833,797,937 4,461,027,500 20,742,304,177 78,204,286,655 Data Mining 0 0 0 0 0 Total Units 4,300,000 917,177,731 4,907,130,250 22,816,534,595 86,024,715,321
Unit Price Real Time Payments $0.10 $0.10 $0.10 $0.10 $0.10 Advertising $0.02 $0.02 $0.02 $0.02 $0.02 Data Mining $0.00 $0.00 $0.00 $0.00 $0.00
Direc t Unit Cos t UNIT ASSUMPTIONS UNIT Real Time Payments $0.021 $0.021 $0.021 $0.021 $0.021 Advertising $0.015 $0.015 $0.015 $0.015 $0.015 Data Mining $0.000 $0.000 $0.000 $0.000 $0.000
80 Expense / Cash Flow Summary (Payments and Ad Model)
The following is a five-year Expense/Cash Flow Summary table. A full Pro Forma Cash Flow table is detailed later in this Memorandum.
EXPENSE / CASH FLOW SUMMARY
Year 1 Year 2 Year 3 Year 4 Year 5 Expense Classifications Direct Cost of Revenue $90,300 $14,558,112 $77,889,540 $362,160,631 $1,365,446,845 Sales & Marketing $479,688 $2,004,197 $6,323,343 $18,077,378 $32,960,322 Gen. & Administrative $1,747,688 $2,649,013 $4,291,014 $7,438,545 $11,383,503 Research & Dev. $509,375 $323,663 $551,589 $920,378 $1,400,158 Dep. & Amortization $153,850 $161,500 $166,000 $171,400 $174,400 Interest $0 $0 $0 $0 $0 Total Expenses $2,980,900 $19,696,484 $89,221,486 $388,768,332 $1,411,365,229
Capital Expenditures $21,000 $33,000 $21,000 $27,000 $15,000
Change in Working Capital ($396,308) ($2,413,697) ($13,451,370) ($52,651,672) ($168,422,826) Change in Cash on Hand ($2,064,742) $7,370,600 $39,692,833 $189,394,036 $715,418,797
EXPENSE / CASH FLOW SUMMARY FLOW / CASH EXPENSE Cash on Hand $3,263,758 $10,634,358 $50,327,191 $239,721,227 $955,140,024
81 Revenue and Expenses Years 1 to 5 (Payments and Ad Model)
The following is a graph illustrating Revenue and Expenses for Years 1 through 5.
82 Personnel Forecast (Payments and Ad Model)
The Company’s Personnel Forecast is outlined below. Personnel wages indicate the average wage per position and personnel costs are total wages for each position.
PERSONNEL FORECAST
Year 1 Year 2 Year 3 Year 4 Year 5 Personnel Count President 1 1 1 1 1 COO 1 1 1 1 1 CFO 1 1 1 1 1 CTO 1 1 1 1 1 CSO 1 1 1 1 1 General Counsel 1 1 1 1 1 Programmers 0 2 4 6 8 Administrative Staff 1 3 4 4 5 Director of Sales 0 1 1 1 1 Sales Associate 0 2 5 10 10 Marketing Manager 0 1 1 1 1 Head Programmer 0 1 2 4 6 Operations Manager 0 1 1 1 1 Social Media Manager 0 1 1 1 1 Total Personnel 7 18 25 34 39
Personnel Costs President $150,000 $250,000 $275,000 $302,500 $332,750 COO $31,250 $137,500 $151,250 $166,375 $183,013 CFO $31,250 $137,500 $151,250 $166,375 $183,013 CTO $125,000 $137,500 $151,250 $166,375 $183,013 CSO $150,000 $225,000 $247,500 $272,250 $299,475 PERSONNEL FORECAST PERSONNEL General Counsel $131,250 $192,500 $211,750 $232,925 $256,218 Programmers $0 $176,000 $387,200 $638,880 $937,024 Administrative Staff $25,000 $165,000 $242,000 $266,200 $366,025 Director of Sales $0 $110,000 $121,000 $133,100 $146,410 Sales Associate $0 $165,000 $453,750 $998,250 $1,098,075 Marketing Manager $0 $82,500 $90,750 $99,825 $109,808 Head Programmer $0 $132,000 $290,400 $638,880 $1,054,152 Operations Manager $0 $82,500 $90,750 $99,825 $109,808 Social Media Manager $0 $82,500 $90,750 $99,825 $109,808 Total Payroll $643,750 $2,075,500 $2,954,600 $4,281,585 $5,368,589
Revenue / Employee $55,286 $1,389,663 $5,353,233 $18,302,033 $60,157,144
83 Pro Forma Profit and Loss (Payments and Ad Model)
The Company intends to deploy its funding to maximize growth and profitability. In the Profit and Loss table below, gross margin equals revenue minus direct costs. The “bottom line” or profit (as measured before and after interest, taxes, depreciation, and amortization) equals gross margin minus operating expenses.
PRO FORMA PROFIT & LOSS
Year 1 Year 2 Year 3 Year 4 Year 5 Total Revenue (Adjusted) $387,000 $25,013,938 $133,830,825 $622,269,125 $2,346,128,600 Total Direct Cost of Revenue $90,300 $14,558,112 $77,889,540 $362,160,631 $1,365,446,845 Gross Margin $296,700 $10,455,826 $55,941,285 $260,108,494 $980,681,755 Gross Margin % 77% 42% 42% 42% 42%
Expenses Travel $39,750 $119,250 $180,000 $300,000 $600,000 Rent $40,000 $120,000 $360,000 $900,000 $900,000 Insurance $2,000 $21,600 $24,000 $72,000 $216,000 Leased Equipment/Data Center $45,000 $120,000 $240,000 $360,000 $600,000 Utilities $9,500 $28,500 $85,500 $213,750 $427,500 Marketing/Promotion $18,000 $180,000 $360,000 $900,000 $1,800,000 Fees/Permits $8,000 $300,000 $900,000 $2,250,000 $4,500,000 Contractors $1,750,000 $270,000 $300,000 $360,000 $600,000 Commissions $24,188 $1,250,697 $5,018,656 $15,556,728 $29,326,607 Mis c . $60,000 $180,000 $300,000 $600,000 $600,000 Depreciation $153,850 $161,500 $166,000 $171,400 $174,400 Payroll Taxes & Benefits $96,563 $305,138 $443,190 $642,238 $805,288 Total Personnel $643,750 $2,034,250 $2,954,600 $4,281,585 $5,368,589 Total Op. Expenses $2,890,600 $5,090,934 $11,331,946 $26,607,701 $45,918,384 PRO FORMA PROFIT & LOSS Profit Before Int. & Tax ($2,593,900) $5,364,892 $44,609,339 $233,500,793 $934,763,370 Interest Expense $0 $0 $0 $0 $0 Taxes Incurred $0 $0 $15,613,269 $81,725,278 $327,167,180 Net Profit ($2,593,900) $4,828,403 $26,096,463 $136,597,964 $546,836,572 Net Profit % N/A 19.3% 19.5% 22.0% 23.3%
EBITDA ($2,440,050) $5,526,392 $44,775,339 $233,672,193 $934,937,770 EBITDA % N/A 22.1% 33.5% 37.6% 39.9%
84 Break-Even Analysis (Payments and Ad Model)
The table and chart below demonstrate when the Company is expected to become profitable. Break-even occurs when accumulated revenue equals accumulated expenses. According to the forecasted financials, month 25 will be the point at which break-even will occur.
85 Pro Forma Cash Flow (Payments and Ad Model)
The following depictions of the Company’s projected cash flow show that the Company expects to maintain sufficient cash balances over the five years of this plan. The “Pro Forma Cash Flow” table differs from the “Pro Forma Profit and Loss” (P&L) table. Pro forma Cash Flow is intended to represent the actual flow of cash in and out of the Company. In comparison, the revenue and expense projections on the P&L table include “non-cash” items and exclude funding and investment illustrations.
PRO FORMA CASH FLOW
Year 1 Year 2 Year 3 Year 4 Year 5 Operating Net Profit ($2,593,900) $4,828,403 $26,096,463 $136,597,964 $546,836,572 Adjustments to Net Profit $0 $0 $0 $0 $0 Depreciation & Amortization $153,850 $161,500 $166,000 $171,400 $174,400 Accounts Receivable $0 $0 $0 $0 $0 Inventory $0 $0 $0 $0 $0 Accounts Payable $396,308 $2,413,697 $13,451,370 $52,651,672 $168,422,826 Net From Operating Activity ($2,043,742) $7,403,600 $39,713,833 $189,421,036 $715,433,797
Investing Purchase - Other Current Assets $0 $0 $0 $0 $0 Sale - Other Current Assets $0 $0 $0 $0 $0 Purchase - Land $0 $0 $0 $0 $0 Sale - Land $0 $0 $0 $0 $0 Purchase - Long Term Assets ($21,000) ($33,000) ($21,000) ($27,000) ($15,000) Sale - Long Term Assets $0 $0 $0 $0 $0 Net From Investing Activity ($21,000) ($33,000) ($21,000) ($27,000) ($15,000)
Financing Investment $0 $0 $0 $0 $0 Dividends $0 $0 $0 $0 $0 PRO FORMA CASH FLOW CASH FORMA PRO New Current Borrow ing $0 $0 $0 $0 $0 Current Borrow ing Repay $0 $0 $0 $0 $0 New Long Term Liabilities $0 $0 $0 $0 $0 Long Term Liability Repay $0 $0 $0 $0 $0 Net From Financing Activity $0 $0 $0 $0 $0
Cash Flow Net Cash Flow ($2,064,742) $7,370,600 $39,692,833 $189,394,036 $715,418,797 Beginning Cash $5,328,500 $3,263,758 $10,634,358 $50,327,191 $239,721,227 Ending Cash $3,263,758 $10,634,358 $50,327,191 $239,721,227 $955,140,024
86 The graph below illustrates Payments and Ad Model Cash Flow for years 1 through 5.
87 Balance Sheet (Payments and Ad Model)
The Balance Sheet below highlights the Company’s projected assets, liabilities, and capital.
BALANCE SHEET
Year 1 Year 2 Year 3 Year 4 Year 5 Current Assets Cas h $3,263,758 $10,634,358 $50,327,191 $239,721,227 $955,140,024 Accounts Receivable $0 $0 $0 $0 $0 Inventory $0 $0 $0 $0 $0 Other Current Assets $7,500 $7,500 $7,500 $7,500 $7,500 Total Current Assets $3,271,258 $10,641,858 $50,334,691 $239,728,727 $955,147,524
Fixed Assets Long-term Assets $776,000 $809,000 $830,000 $857,000 $872,000 Accum. Depreciation $153,850 $315,350 $481,350 $652,750 $827,150 Land $0 $0 $0 $0 $0 Total Fixed Assets $622,150 $493,650 $348,650 $204,250 $44,850
Total Assets $3,893,408 $11,135,508 $50,683,341 $239,932,977 $955,192,374
Current Liabilities Accounts Payable $396,308 $2,810,005 $16,261,375 $68,913,047 $237,335,873 Current Borrow ing $0 $0 $0 $0 $0 Other Current Liabilities $0 $0 $0 $0 $0
BALANCE SHEET BALANCE Subtotal Current Liabilities $396,308 $2,810,005 $16,261,375 $68,913,047 $237,335,873
Long Term Liabilities $0 $0 $0 $0 $0
Total Liabilities $396,308 $2,810,005 $16,261,375 $68,913,047 $237,335,873
Paid-in Capital $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 Retained Earnings ($2,909,000) ($5,502,900) ($674,497) $25,421,966 $162,019,930 Earnings ($2,593,900) $4,828,403 $26,096,463 $136,597,964 $546,836,572 Total Capital $3,497,100 $8,325,503 $34,421,966 $171,019,930 $717,856,502
Total Liabilities and Capital $3,893,408 $11,135,508 $50,683,341 $239,932,977 $955,192,374
88 Sensitivity Analysis (Payments and Ad Model)
The sensitivity analysis below assumes that revenues are 15% higher or lower than figures projected earlier in this business plan. The first chart assumes revenues 15% greater than projected; the second chart assumes revenues 15% lower than projected.
BEST CASE SCENARIO / REV IS 15% > PROJECTED
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue $445,050 $28,766,029 $153,905,449 $715,609,494 $2,698,047,890 Cost of Goods $103,845 $16,741,829 $89,572,971 $416,484,726 $1,570,263,872 Gross Margin $341,205 $12,024,200 $64,332,478 $299,124,769 $1,127,784,018 Gross Margin/Revenue 76.7% 41.8% 41.8% 41.8% 41.8% Operating Expenses $2,894,228 $5,278,539 $12,084,744 $28,941,210 $50,317,375 Net Profit ($2,553,023) $5,639,018 $30,564,924 $158,057,382 $630,317,986 Net Profit/Revenue -573.6% 19.6% 19.9% 22.1% 23.4%
Cash Flow ($2,014,017) $9,020,068 $45,703,253 $218,713,305 $824,119,270 BEST CASE SCENARIO CASE BEST Cash Balance $3,314,483 $12,334,551 $58,037,804 $276,751,109 $1,100,870,379
WORST CASE SCENARIO / REV IS 15% < PROJECTED
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue $328,950 $21,261,847 $113,756,201 $528,928,757 $1,994,209,310 Cost of Goods $76,755 $12,374,395 $66,206,109 $307,836,536 $1,160,629,818 Gross Margin $252,195 $8,887,452 $47,550,092 $221,092,220 $833,579,491 Gross Margin/Revenue 76.7% 41.8% 41.8% 41.8% 41.8% Operating Expenses $2,886,972 $4,903,330 $10,579,148 $24,274,192 $41,519,393 Net Profit ($2,634,777) $3,581,007 $21,932,408 $115,138,547 $463,355,158 Net Profit/Revenue -801.0% 16.8% 19.3% 21.8% 23.2%
Cash Flow ($2,115,466) $5,757,860 $33,513,309 $160,074,768 $606,718,325 WORST CASE SCENARIO CASE WORST Cash Balance $3,213,034 $8,970,893 $42,484,203 $202,558,970 $809,277,295
89
Appendix I: Monthly Financial Projections - Payments and Ad Model (Year 1)
90 Revenue Forecast - Payments and Ad Model (Year 1)
REVENUE FORECAST
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Revenue (Pre-Adjusted) Real Time Payments $0 $0 $0 $0 $0 $0 $0 $0 $5,000 $25,000 $150,000 $250,000 Advertising $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Data Mining $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Revenue (Adjusted) $0 $0 $0 $0 $0 $0 $0 $0 $4,500 $22,500 $135,000 $225,000
Direct Cost of Revenue Real Time Payments $0 $0 $0 $0 $0 $0 $0 $0 $1,050 $5,250 $31,500 $52,500 Advertising $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Data Mining $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cost of Revenue $0 $0 $0 $0 $0 $0 $0 $0 $1,050 $5,250 $31,500 $52,500 Other Direct Cost $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Direct Costs $0 $0 $0 $0 $0 $0 $0 $0 $1,050 $5,250 $31,500 $52,500 REVENUE FORECAST REVENUE FORECAST
Gross Margin $0 $0 $0 $0 $0 $0 $0 $0 $3,450 $17,250 $103,500 $172,500 Gross Margin % N/A N/A N/A N/A N/A N/A N/A N/A 77% 77% 77% 77%
Unit Assumptions - Payments and Ad Model (Year 1)
UNIT ASSUMPTIONS Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Units Real Time Payments 0 0 0 0 0 0 0 0 50,000 250,000 1,500,000 2,500,000 Advertising 0 0 0 0 0 0 0 0 0 0 0 0 Data Mining 0 0 0 0 0 0 0 0 0 0 0 0 Total Units 0 0 0 0 0 0 0 0 50,000 250,000 1,500,000 2,500,000
Unit Price Real Time Payments $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 Advertising $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 Data Mining $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Dir e ct Unit Cos t UNIT ASSUMPTIONS UNIT Real Time Payments $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 $0.021 Advertising $0.015 $0.015 $0.015 $0.015 $0.015 $0.015 $0.015 $0.015 $0.015 $0.015 $0.015 $0.015 Data Mining $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
91 Personnel Forecast - Payments and Ad Model (Year 1)
PERSONNEL FORECAST Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Personnel Count President 111111111111 COO 000000000111 CFO 000000000111 CTO 111111111111 CSO 111111111111 General Counsel 000111111111 Programmers 000000000000 Administrative Staff 000000111111 Director of Sales 000000000000 Sales Associate 000000000000 Marketing Manager 000000000000 Head Programmer 000000000000 Operations Manager 000000000000 Social Media Manager 000000000000 Total Personnel 333444555777
Personnel Costs President $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 COO $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,417 $10,417 $10,417 CFO $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,417 $10,417 $10,417 CTO $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 $10,417 CSO $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 PERSONNEL FORECAST FORECAST PERSONNEL General Counsel $0 $0 $0 $14,583 $14,583 $14,583 $14,583 $14,583 $14,583 $14,583 $14,583 $14,583 Programmers $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Administrative Staff $0 $0 $0 $0 $0 $0 $4,167 $4,167 $4,167 $4,167 $4,167 $4,167 Director of Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Sales Associate $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Marketing Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Head Programmer $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Operations Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Social Media Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Payroll $35,417 $35,417 $35,417 $50,000 $50,000 $50,000 $54,167 $54,167 $54,167 $75,000 $75,000 $75,000
Revenue / Employee $0 $0 $0 $0 $0 $0 $0 $0 $900 $3,214 $19,286 $32,143
92 Proforma Profit and Loss – Payments and Ad Model (Year 1)
PRO FORMA PROFIT & LOSS Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Total Revenue (Adjusted) $0 $0 $0 $0 $0 $0 $0 $0 $4,500 $22,500 $135,000 $225,000 Total Direct Cost of Revenue $0 $0 $0 $0 $0 $0 $0 $0 $1,050 $5,250 $31,500 $52,500 Gross Margin $0 $0 $0 $0 $0 $0 $0 $0 $3,450 $17,250 $103,500 $172,500 Gross Margin % N/A N/A N/A N/A N/A N/A N/A N/A 77% 77% 77% 77%
Expenses Travel $2,000 $2,000 $2,000 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 Rent $0 $0 $0 $0 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Insurance $0 $0 $0 $0 $250 $250 $250 $250 $250 $250 $250 $250 Leased Equipment/Data Center $0 $0 $0 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Utilities $500 $500 $500 $500 $500 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Marketing/Promotion $0 $0 $0 $0 $0 $0 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 Fees/Permits $0 $0 $0 $0 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Contractors $0 $0 $100,000 $100,000 $100,000 $100,000 $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 Commissions $0 $0 $0 $0 $0 $0 $0 $0 $281 $1,406 $8,438 $14,063 Misc. $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Depreciation $12,733 $12,733 $12,733 $12,783 $12,783 $12,783 $12,833 $12,833 $12,833 $12,933 $12,933 $12,933 Payroll Taxes & Benefits $5,313 $5,313 $5,313 $7,500 $7,500 $7,500 $8,125 $8,125 $8,125 $11,250 $11,250 $11,250 Total Personnel $35,417 $35,417 $35,417 $50,000 $50,000 $50,000 $54,167 $54,167 $54,167 $75,000 $75,000 $75,000 Total Op. Expenses $60,963 $60,963 $160,963 $184,533 $190,783 $191,283 $324,125 $324,125 $324,406 $349,590 $356,621 $362,246 PRO FORMA PROFIT & LOSS Profit Before Int. & Tax ($60,963) ($60,963) ($160,963) ($184,533) ($190,783) ($191,283) ($324,125) ($324,125) ($320,956) ($332,340) ($253,121) ($189,746) Interest Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net Profit ($60,963) ($60,963) ($160,963) ($184,533) ($190,783) ($191,283) ($324,125) ($324,125) ($320,956) ($332,340) ($253,121) ($189,746) Net Profit % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
EBITDA ($48,229) ($48,229) ($148,229) ($171,750) ($178,000) ($178,500) ($311,292) ($311,292) ($308,123) ($319,406) ($240,188) ($176,813) EBITDA % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
93 Proforma Cash Flow - Payments and Ad Model (Year 1)
PRO FORMA CASH FLOW
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Operating Net Profit ($60,963) ($60,963) ($160,963) ($184,533) ($190,783) ($191,283) ($324,125) ($324,125) ($320,956) ($332,340) ($253,121) ($189,746) Adjustments to Net Profit Depreciation & Amortization $12,733 $12,733 $12,733 $12,783 $12,783 $12,783 $12,833 $12,833 $12,833 $12,933 $12,933 $12,933 Accounts Receivable $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Inventory $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Accounts Payable $47,568 $0 $98,630 $23,199 $6,164 $493 $130,973 $0 $1,313 $28,882 $32,825 $26,260 Net From Operating Activity ($661) ($48,229) ($49,599) ($148,551) ($171,836) ($178,007) ($180,319) ($311,292) ($306,810) ($290,524) ($207,362) ($150,552)
Investing Purchase - Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Sale - Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Purchase - Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Sale - Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Purchase - Long Term Assets ($9,000) $0 $0 ($3,000) $0 $0 ($3,000) $0 $0 ($6,000) $0 $0 Sale - Long Term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net From Investing Activity ($9,000) $0 $0 ($3,000) $0 $0 ($3,000) $0 $0 ($6,000) $0 $0
Financing Investment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 PRO FORMA CASH FLOW FLOW CASH FORMA PRO New Current Borrow ing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Current Borrow ing Repay $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Long Term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Long Term Liability Repay $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net From Financing Activity $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cash Flow Net Cash Flow ($9,661) ($48,229) ($49,599) ($151,551) ($171,836) ($178,007) ($183,319) ($311,292) ($306,810) ($296,524) ($207,362) ($150,552) Beginning Cash $5,328,500 $5,318,839 $5,270,610 $5,221,011 $5,069,460 $4,897,624 $4,719,617 $4,536,298 $4,225,007 $3,918,197 $3,621,673 $3,414,310 Ending Cash $5,318,839 $5,270,610 $5,221,011 $5,069,460 $4,897,624 $4,719,617 $4,536,298 $4,225,007 $3,918,197 $3,621,673 $3,414,310 $3,263,758
94 Balance Sheet - Payments and Ad Model (Year 1)
BALANCE SHEET
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Current Assets Cas h $5,318,839 $5,270,610 $5,221,011 $5,069,460 $4,897,624 $4,719,617 $4,536,298 $4,225,007 $3,918,197 $3,621,673 $3,414,310 $3,263,758 Accounts Receivable $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Inventory $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other Current Assets $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 Total Current Assets $5,326,339 $5,278,110 $5,228,511 $5,076,960 $4,905,124 $4,727,117 $4,543,798 $4,232,507 $3,925,697 $3,629,173 $3,421,810 $3,271,258
Fixed Assets Long-term Assets $764,000 $764,000 $764,000 $767,000 $767,000 $767,000 $770,000 $770,000 $770,000 $776,000 $776,000 $776,000 Accum. Depreciation $12,733 $25,467 $38,200 $50,983 $63,767 $76,550 $89,383 $102,217 $115,050 $127,983 $140,917 $153,850 Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Fixed Assets $751,267 $738,533 $725,800 $716,017 $703,233 $690,450 $680,617 $667,783 $654,950 $648,017 $635,083 $622,150
Total Assets $6,077,606 $6,016,643 $5,954,311 $5,792,976 $5,608,357 $5,417,567 $5,224,415 $4,900,290 $4,580,647 $4,277,189 $4,056,894 $3,893,408
Current Liabilities Accounts Payable $47,568 $47,568 $146,199 $169,397 $175,562 $176,055 $307,027 $307,027 $308,340 $337,223 $370,048 $396,308 Current Borrow ing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
BALANCE SHEET BALANCE Subtotal Current Liabilities $47,568 $47,568 $146,199 $169,397 $175,562 $176,055 $307,027 $307,027 $308,340 $337,223 $370,048 $396,308
Long Term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Liabilities $47,568 $47,568 $146,199 $169,397 $175,562 $176,055 $307,027 $307,027 $308,340 $337,223 $370,048 $396,308
Paid-in Capital $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 $9,000,000 Retained Earnings ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) ($2,909,000) Earnings ($60,963) ($121,925) ($282,888) ($467,421) ($658,204) ($849,488) ($1,173,613) ($1,497,738) ($1,818,694) ($2,151,033) ($2,404,154) ($2,593,900) Total Capital $6,030,038 $5,969,075 $5,808,113 $5,623,579 $5,432,796 $5,241,513 $4,917,388 $4,593,263 $4,272,306 $3,939,967 $3,686,846 $3,497,100
Total Liabilities and Capital $6,077,606 $6,016,643 $5,954,311 $5,792,976 $5,608,357 $5,417,567 $5,224,415 $4,900,290 $4,580,647 $4,277,189 $4,056,894 $3,893,408
95
Appendix II: Subscription Agreement & Investor Suitability Questionnaire
96 Offered To Accredited Investors Only
THIS OFFERING OF NOTES (“SECURITIES”) IS MADE PURSUANT TO RULE 506(C) OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THE SECURITIES MAY BE SOLD ONLY TO “ACCREDITED INVESTORS,” WHICH FOR NATURAL PERSONS ARE INVESTORS WHO MEET CERTAIN MINIMUM ANNUAL INCOME OR NET WORTH THRESHOLDS. THE SECURITIES ARE BEING OFFERED IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND ARE NOT REQUIRED TO COMPLY WITH SPECIFIC DISCLOSURE REQUIREMENTS THAT APPLY TO REGISTRATION UNDER THE SECURITIES ACT. THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY EQUIVALENT STATE OR FOREIGN AGENCIES HAVE NOT PASSED UPON THE MERITS OF OR GIVEN ITS APPROVAL TO THE SECURITIES, THE TERMS OF THE OFFERING, OR THE ACCURACY OR COMPLETENESS OF ANY OFFERING MATERIALS. THE SECURITIES ARE SUBJECT TO LEGAL RESTRICTIONS ON TRANSFER, AND RESALE AND INVESTORS SHOULD NOT ASSUME THEY WILL BE ABLE TO RESELL THEIR SECURITIES. INVESTING IN SECURITIES INVOLVES RISK, AND INVESTORS SHOULD BE ABLE TO BEAR THE LOSS OF THEIR INVESTMENT. INVESTMENT IN THE SECURITIES SHOULD BE CONSIDERED HIGHLY SPECULATIVE AND SUITABLE ONLY FOR PERSONS OF ADEQUATE FINANCIAL MEANS WHO HAVE NO NEED FOR LIQUIDITY WITH RESPECT TO THIS INVESTMENT.
PURCHASERS OF THE SECURITIES SHOULD HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT THE RISKS (INCLUDING, AMONG OTHER THINGS, THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT AND THE LACK OF LIQUIDITY) AND SHOULD CONSULT THEIR FINANCIAL ADVISORS REGARDING THE APPROPRIATENESS OF MAKING AN INVESTMENT. FURTHERMORE, THE SECURITIES OFFERED ARE NOT SUBJECT TO THE PROTECTIONS OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
EACH INVESTOR SHOULD CAREFULLY REVIEW THE ENTIRE CONTENTS OF THE CONFIDENTIAL ACCREDITED INVESTOR PACKAGE BEFORE COMPLETING THESE SUBSCRIPTION DOCUMENTS. EACH INVESTOR SHOULD CONSULT HIS OR HER ATTORNEY, ACCOUNTANT OR OTHER ADVISORS AS TO ANY LEGAL, TAX AND RELATED MATTERS CONCERNING THIS INVESTMENT AND ITS SUITABILITY FOR THE INVESTOR.
PLEASE COMPLETE AND EXECUTE ALL DOCUMENTS IN ACCORDANCE WITH THE INSTRUCTIONS BELOW. EXCEPT AS OTHERWISE SPECIFICALLY INDICATED, ALL QUESTIONS MUST BE ANSWERED COMPLETELY. IF THE ANSWER TO ANY QUESTION IS “NO,” “NONE” OR “NOT APPLICABLE,” PLEASE SO STATE. PLEASE TYPE OR PRINT ALL INFORMATION IN INK.
97 Verification of Accredited Investor Status
Potential investors who wish to subscribe for Shares in the offering will first be required to fill out an accredited investor questionnaire and submit additional information to verify accredited investor status in accordance with Rule 506(c). Specifically, the Company will require potential investors to provide one or more of the following information to verify that a natural person who purchases securities in such Offering is an accredited investor:
(1) Accredited investors who wish to qualify based on the income test26 may be required to submit an Internal Revenue Service form that reports the purchaser’s income for the two most recent years (including, but not limited to, Form W-2, Form 1099, Schedule K-1 to Form 1065, and Form 1040) and provide a written representation that he or she has a reasonable expectation of reaching the income level necessary to qualify as an accredited investor during the current year.
(2) Accredited investors who wish to qualify based on the net worth27 test may be required to submit one or more of the following types of documentation dated within the prior three months and obtain a written representation from the purchaser that all liabilities necessary to make a determination of net worth have been disclosed:
(A) With respect to assets: bank statements, brokerage statements and other statements of securities holdings, certificates of deposit, tax assessments, and appraisal reports issued by independent third parties and
(B) With respect to liabilities: a consumer report from at least one of the nationwide consumer reporting agencies.
In order to comply with the net worth verification method provided under Rule 506(c), the relevant documentation must be dated within the prior three months of the sale of securities. If the documentation is older than three months, the Company may not rely on the net worth verification method, but may instead determine whether it has taken reasonable steps to verify the purchaser’s accredited investor status under a principles based method of verification.
(3) The Company may also consider and request written confirmation28 from one of the following persons or entities that the potential investor has taken reasonable steps to verify that it is an accredited investor within the prior three months and has determined that such potential investor is an accredited investor:
(A) A registered broker-dealer,
(B) An investment adviser registered with the Securities and Exchange Commission (“SEC”),
(C) A licensed attorney who is in good standing under the laws of the jurisdictions in which he or she is admitted to practice law, or
(D) A certified public accountant who is duly registered and in good standing under the laws of the place of his or her residence or principal office.
26 An accredited investor who meets the income test has had an individual income in excess of $200,000 in each of the two (2) most recent calendar years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current calendar year. 27 An accredited investor who meets the net worth test is a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person. 28 The Company may consider written confirmations from an attorney or certified public accountant who is licensed or duly registered, as the case may be, in good standing in a foreign jurisdiction. 98 Data Privacy Policy
This Privacy Policy describes the personal customer information that SoPayMe collects, whom it shares such information with and the circumstances under which it shares it, and how it protects such information.
Please read this Privacy Policy carefully. This Privacy Policy applies to all personally identifiable financial and other information about you that the Company has in its possession or that it may obtain in the future. It will continue to apply to you even if you are no longer an investor in the Shares.
I. Personal Information Collected. The Company obtains this information from: (1) Subscription Agreements, (2) Investor Questioners, (3) other forms you may fill out and submit; and (4) consumer credit bureaus.
II. Sharing of Personal Information. The Company does not share your personal information with others except (1) as necessary to service and update your account, (2) with consumer credit bureaus as permitted by federal law, such as the reporting of account activity, and (3) as otherwise permitted or required by law, such as to protect against fraud or to respond to a subpoena.
III. Protection of Personal Information. The Company controls access to your personal information by restricting access to employees who need it in order to perform their duties and who are trained in the proper handling of such information. The Company maintains physical, electronic and procedural safeguards to protect your personal information.
99 SoPayMe, Inc. Subscription Agreement
SoPayMe, Inc. 1650 West 82nd Street Suite 700 Bloomington, Minnesota 55431
Gentlemen and Ladies:
I, the undersigned (the “Purchaser”), understand that SoPayMe, Inc., a Minnesota company (the “Company”), wishes to raise Nine Million Dollars ($9,000,000) from various persons by selling up to ______Shares of common stock, no par value shares of its common stock (the “Shares”), at a price of ______($____ USD) per Share.
I have received, read, and understand the Limited Offering Memorandum dated ______, 201 7 (“Memorandum”). I further understand that my rights and responsibilities as a Purchaser will be governed by the terms and conditions of this Subscription Agreement, the Memorandum, and Investor Suitability Questionnaire of SoPayMe, Inc. I understand that you will rely on the following information to confirm that I am an “Accredited Investor”, as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and that I am qualified to be a Purchaser.
By signing this Subscription Agreement, I offer to purchase and subscribe from the Company the number of Shares set forth below on the terms specified herein. The Company reserves the right, in its complete discretion, to reject any subscription offer or to reduce the number of Shares allotted to me. If this offer is accepted, the Company will execute a copy of this Subscription Agreement and return it to me. I understand that commencing on the date of this Memorandum all funds received by the Company in full payment of subscriptions for Shares will be deposited directly to the Company’s corporate account and will be available for immediate use by the Company at its discretion. If only a fraction of this Offering is sold, or if certain assumptions contained in Management’s business plans prove to be incorrect, the Company may have inadequate funds to fully develop its business and may need debt financing or other capital investment to fully implement the Company’s business plans.
1. Accredited Investor. I am an Accredited Investor because I qualify within one of the following categories: Please Check the Appropriate Category
_____ $1,000,000 Net Worth. A natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000 excluding the value of the investor’s primary residence.
_____ $200,000/$300,000 Income. A natural person who had an individual income in excess of $200,000 (including contributions to qualified employee benefit plans) or joint income with such person’s spouse in excess of $300,000 per year in each of the two most recent years and who reasonably expects to attain the same individual or joint levels of income (including such contributions) in the current year.
_____ Director or Officer of Issuer. Any director or executive officer of the Company
_____ All Equity Owners In Entity Are Accredited. An entity, (i.e. corporation, partnership, trust, IRA, etc.) in which all of the equity owners are Accredited Investors as defined herein. 100 _____ Corporation. A corporation not formed for the specific purpose of acquiring the Shares offered, with total assets in excess of $5,000,000.
_____ Other Accredited Investor. Any natural person or entity which qualifies as an Accredited Investor pursuant to Rule 501(a) of Regulation D promulgated under the Act; specify basis for qualification:
______
______
2. Representations and Warranties. I represent and warrant to the Company that:
(A) I have adequate means of providing for my current needs and possible contingencies, and I have no need for liquidity of my investment in the Shares. I can bear the economic risk of losing the entire amount of my investment in Shares. I have such knowledge and experience that I am capable of evaluating the relative risks and merits of this investment. The purchase of Shares is consistent, in both nature and amount, with my overall investment program and financial condition.
(B) The address set forth below is my true and correct residence, and I have no intention of becoming a resident of any other state or jurisdiction.
(C) I have not utilized the services of a “Purchaser Representative” (as defined in Regulation D promulgated under the Securities Act) because I am a sophisticated, experienced investor, capable of determining and understanding the risks and merits of this investment.
(D) I have received, read, and am familiar with the Offering Documents, including the Memorandum, Subscription Agreement, and Investor Suitability Questionnaire of the Company. All documents, records and books pertaining to the Company and the Shares requested by me, including all pertinent records of the Company, financial and otherwise, have been made available or delivered to me.
(E) I have had the opportunity to ask questions of and receive answers from the Company’s officers and representatives concerning the Company’s affairs generally and the terms and conditions of my proposed investment in the Shares.
(F) I understand the risks implicit in the business of the Company. Among other things, I understand that there can be no assurance that the Company will be successful in obtaining the funds necessary for its success. If only a fraction of the maximum amount of the Offering is raised, the Company may not be able to expand as rapidly as anticipated, and proceeds from this Offering may not be sufficient for the Company’s long term needs.
(G) Other than as set forth in the Memorandum, no person or entity has made any representation or warranty whatsoever with respect to any matter or thing concerning the Company and this Offering, and I am purchasing the Shares based solely upon my own investigation and evaluation.
(H) I understand that no Shares have been registered under the Securities Act, nor have they been registered pursuant to the provisions of the securities or other laws of applicable jurisdictions. (I) The Shares for which I subscribe are being acquired solely for my own account, for investment and are not being purchased with a view to or for their resale or distribution. In order to induce the Company to sell Shares to me, the Company will have no obligation to recognize the ownership, beneficial or otherwise, of the Shares by anyone but me.
(J) I am aware of the following: (i) The Shares are a speculative investment which involves a high degree of risk; 101 (ii) My investment in the Shares is not readily transferable; it may not be possible for me to liquidate my investment; (iii) The financial statements of the Company have merely been compiled, and have not been reviewed or audited; (iv) There are substantial restrictions on the transferability of the Shares registered under the Securities Act; and (v) No federal or state agency has made any finding or determination as to the fairness of the Shares for public investment nor any recommendation or endorsement of the Shares
(K) Except as set forth in the Memorandum, none of the following information has ever been represented, guaranteed, or warranted to me expressly or by implication, by any broker, the Company, or agents or employees of the foregoing, or by any other person: (i) The appropriate or exact length of time that I will be required to hold the Shares; (ii) The percentage of profit and/or amount or type of consideration, profit, or loss to be realized, if any, as a result of an investment in the Shares; (iii) The past performance or experience of the Company, or associates, agents, affiliates, or employees of the Company or any other person, will in any way indicate or predict economic results in connection with the purchase of Shares; or (iv) The amount of dividends or distributions that the Company will make.
(L) I have not distributed the Memorandum to anyone, no other person has used the Memorandum, and I have made no copies of the Memorandum; and
(M) I hereby agree to indemnify and hold harmless the Company, its managers, directors, and representatives from and against any and all liability, damage, cost or expense, including reasonable attorneys fees, incurred on account of or arising out of: (i) Any inaccuracy in the declarations, representations, and warranties set forth above; (ii) The disposition of any of the Shares by me which is contrary to the foregoing declarations, representations, and warranties; and (iii) Any action, suit or proceeding based upon (1) the claim that said declarations, representations, or warranties were inaccurate or misleading or otherwise cause for obtaining damages or redress from the Company; or (2) the disposition of any of the Shares.
(N) The foregoing representation and warranties are true and accurate as of the date hereof, shall be true and accurate as of the date of the delivery of the funds to the Company and shall survive such delivery. If, in any respect, such representations and warranties are not true and accurate prior to delivery of the funds, I will give written notice of the fact to the Company, specifying which representations and warranties are not true and accurate and the reasons therefore.
3. Transferability/Restricted Securities. I understand that I may sell or otherwise transfer my Shares only if registered under the Securities Act or if I provide the Company with an opinion of counsel acceptable to the Company to the effect that such sale or other transfer may be made in absence of registration under the Securities Act. I have no right to cause the Company to register the Shares. Any certificates or other documents representing my Shares will contain a restrictive legend reflecting this restriction, and stop transfer instructions will apply to my Shares.
4. Indemnification. I understand the meaning and legal consequences of the representations and warranties contained in Paragraph 2 hereof, and I will indemnify and hold harmless the Company, its officers, directors, and representatives involved in the offer or sale of the Shares to me, as well as each of the managers and representatives, employees and agents and other controlling persons of each of them, from and against any and all loss, damage or liability due to or arising out of a breach of any representation or warranty of mine contained in this Subscription Agreement.
5. Revocation. I will not cancel, terminate or revoke this Subscription Agreement or any agreement made by me hereunder, and this Subscription Agreement shall survive my death or disability.
6. Termination of Agreement. If this subscription is rejected by the Company, then this Subscription Agreement shall be null and void and of no further force and effect. No party shall have any rights against any other party hereunder, and the Company shall promptly return to me the funds delivered with this Subscription Agreement.
102 7. Miscellaneous. (a) This Subscription Agreement shall be governed by and construed in accordance with the substantive law of the State of Minnesota. (b) This Subscription Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only in writing and executed by all parties. (c) By Purchasing the Shares in SoPayMe, Inc. I hereby agree to the terms and provisions of the Memorandum, Corporate Bylaws, and this Subscription Agreement. I have hereby read and understand all documents related to this Offering and agree that my ownership will be governed by the terms of these documents.
8. Ownership Information. Please print here the total number of Shares to be purchased, and the exact name(s) in which the Shares will be registered. Total Shares: ______Name(s): ______Single Person _____ Husband and Wife, as community property _____ Joint Tenants (with right of survivorship) _____ Tenants in Common _____ A Married Person as separate property _____ Corporation or other organization _____ A Partnership _____ Trust _____ IRA _____ Tax-Qualified Retirement Plan (a) Trustee(s)/ Custodian ______(b) Trust Date ______(c) Name of Trust ______(d) For the Benefit of ______Other: ______(please explain)
Social Security or Tax I.D. #: ______
Residence Address:
______Street Address
______City State Zip
Mailing Address: (Complete only if different from residence)
______Street Address (If P.O. Box, include address for surface delivery if different than residence)
103 ______City State Zip
Phone Numbers: Home: (______) ______Business: (______) ______Facsimile: (______) ______
9. Date and Signatures. Dated ______, 2017
Signatures Purchaser Name (Print)
______
______(Each co-owner or joint owner must sign - Names must be signed exactly as listed under “Purchaser Name”)
ACCEPTED:
SoPayMe, Inc.
By: ______Dated: ______, 2017 Randy Pentel, Chairman
104 SoPayMe, Inc. Investor Suitability Questionnaire
To: Prospective purchasers of capital Shares offered by SoPayMe, Inc. (the “Company”).
The Purpose of this Questionnaire is to solicit certain information regarding your financial status to determine whether you are an “Accredited Investor,” as defined under applicable federal and state securities laws, and otherwise meet the suitability criteria established by the Company for purchasing Shares. This questionnaire is not an offer to sell securities.
Your answers will be kept as confidential as possible. You agree, however, that this Questionnaire may be shown to such persons as the Company deems appropriate to determine your eligibility as an Accredited Investor or to ascertain your general suitability for investing in the Shares.
Please answer all questions completely and execute the signature page
A. Personal
1. Name: ______
2. Address of Principal Residence: ______
______County:______
3. Residence Telephone: (______) ______
4. Where are you registered to vote? ______
5. Your driver’s license is issued by the following state: ______
6. Other Residences or Contacts: Please identify any other state where you own a residence, are registered to vote, pay income taxes, hold a driver’s license or have any other contacts, and describe your connection with such state:
______
______
7. Please send all correspondence to:
(1)_____ Residence Address (as set forth in item A-2)
(2)_____ Business Address (as set forth in item B-1)
8. Date of Birth: ______
105 9. Citizenship: ______
10. Social Security or Tax I.D. #:______
B. Occupations and Income
1. Occupation: ______
(a) Business Address: ______
______
(b) Business Telephone Number: (______) ______
2. Gross income during each of the last two years exceeded:
(1) _____$25,000 (2) _____$50,000
(3) _____$100,000 (4) _____$200,000
3. Joint gross income with spouse during each of the last two years exceeded $300,000
(1) _____ Yes (2) _____ No
4. Estimated gross income during current year exceeds:
(1) _____ $25,000 (2) _____ $50,000
(3) _____ $100,000 (4) _____ $200,000
5. Estimated joint gross income with spouse during current year exceeds $300,000
(1) _____ Yes (2) _____ No
C. Net Worth
1. Current net worth or joint net worth with spouse (note that “net worth” includes all of the assets owned by you and your spouse in excess of total liabilities excluding the fair market value of your principal residence:
(1) _____ $50,000-$100,000 (2) _____ $100,000-$250,000 (3) _____ $250,000-$500,000
(4) _____ $500,000-$750,000 (5) _____ $750,000-$1,000,000 (6) _____ over $1,000,000
106 2. Current value of liquid assets (cash, freely marketable securities, cash surrender value of life insurance policies, and other items easily convertible into cash) is sufficient to provide for current needs and possible personal contingencies:
(1) _____ Yes (2) _____ No
D. Affiliation with the Company
Are you a director or executive officer of the Company?
(1) _____ Yes (2) _____ No
E. Investment Percentage of Net Worth
If you expect to invest at least $150,000 in Shares, does your total purchase price exceed 10% of your net worth or joint net worth with your spouse at the time of sale? (1) _____ Yes (2) _____ No
F. Consistent Investment Strategy
Is this investment consistent with your overall investment strategy?
(1) _____ Yes (2) _____ No
G. Prospective Investor’s Representations
The information contained in this Questionnaire is true and complete, and the undersigned understands that the Company and its counsel will rely on such information for the purpose of complying with all applicable securities laws as discussed above. The undersigned agrees to notify the Company promptly of any change in the foregoing information which may occur prior to any purchase by the undersigned of securities from the Company.
Prospective Investor:
______Date: ______, 2017 Signature
______Signature (of joint purchase if purchase is to be made as joint tenants or as tenants in common)
107 Consent of Spouse
I, ______, spouse of ______, do hereby certify, acknowledge and agree as follows: I have read and approve every provision set forth in the foregoing Subscription Agreement. I accept and agree to be bound by the Subscription Agreement in all respects. I hereby appoint my spouse as my attorney-in-fact with respect to the exercise of any rights under the Agreement. I hereby consent to any amendments or modifications to the Subscription Agreement that are consented to, executed by or otherwise binding upon my spouse.
Dated: ______, 2017
(Signature)
(Please Print Your Name)
108