Blueone Card (BCRD) Risk Analysis

The electronic payments industry is subject to rapid and significant technological changes. We cannot predict the effect of technological changes on our business. The Program Manager relies, in part, on third parties for the development of, and access to, new technologies. We expect those new services and technologies applicable to our industry will continue to emerge, and these new services and technologies may be superior to, or render obsolete, the technologies we currently utilize through resale of the Program Manager's products and services. Additionally, the Program Manager may make future investments in, or enter into strategic alliances to develop, new technologies and services or to implement infrastructure change to further its strategic objectives, strengthen its existing businesses and remain competitive. However, the Program Manager's ability to transition to new services and technologies that it develops may be inhibited by a lack of industry-wide standards, by resistance from our retail distributors, its BaaS platform partners, third-party processors or consumers to these changes, or by the intellectual property rights of third parties. Since we are a reseller of the Program Manager's prepaid, branded cards, our future success will depend, in part, on the Program Manager's ability to develop new technologies and adapt to technological changes and evolving industry standards. These initiatives are inherently risky, and they may not be successful or may have an adverse effect on our business, financial condition and results of operations.

The Program Manager's brands and marks are important to its business, and it utilizes trademark registrations and other means to protect them. The Program Manager's business would be harmed if it was unable to protect its brand against infringement and its value was to decrease as a result. The Program Manager relies on a combination of patent, trademark and copyright laws, trade secret protection and confidentiality and license agreements to protect the intellectual property rights related to the Program Manager's products and services. The intellectual property rights of the Program Manager could be challenged, invalidated or circumvented. The Program Manager may unknowingly violate the intellectual property or other proprietary rights of others and, thus, may be subject to claims by third parties. These assertions may increase over time as a result of growth and the general increase in the pace of patent claims assertions, particularly in the U.S. Because of the existence of a large number of patents in the mobile technology field, the secrecy of some pending patents, and the rapid rate of issuance of new patents, it is not economically practical or even possible to determine in advance whether a product or any of its elements infringes or will infringe on the patent rights of others. Regardless of the merit of these claims, the Program Manager may be required to devote significant time and resources to defending against these claims or to protecting and enforcing its own rights. The Program Manager might also be required to develop a non-infringing technology or enter into license agreements and there can be no assurance that licenses will be available on acceptable terms and conditions, if at all. Some of our intellectual property rights may not be protected by intellectual property laws, particularly in foreign jurisdictions. The loss of the Program Manager's intellectual property or the inability to secure or enforce its intellectual property rights or to defend successfully against an infringement action could harm our business, results of operations, financial condition and prospects.

The Program Manager's ability to provide reliable service to its customers and other network participants depends on the efficient and uninterrupted operation of its computer network systems and data centers as well as those of our retail distributors, network acceptance members and third-party processors. The Program Manager's business involves the movement of large sums of money, processing of large numbers of transactions and management of the data necessary to do both. Our success depends on the Program Manager's account programs, including the Program Manager's BaaS programs, as well as the Program Manager's processing and settlement services, the efficient and error-free handling of the money that is collected, remitted or deposited in connection with the provision of the Program Manager's products and services. The Program Manager relies on the ability of its employees, systems and processes and those of the banks that issue its cards, retail distributors, other business partners and third-party processors to process and facilitate these transactions in an efficient, uninterrupted and error-free manner. Their failure to do so could materially and adversely impact our operating revenues and results of operations. The Program Manager's systems and the systems of third-party processors are susceptible to outages and interruptions due to fire, natural disaster, power loss, telecommunications failures, software or hardware defects, terrorist attacks and similar events. The Program Manager uses both internally developed and third-party systems, including cloud computing and storage systems, for its services and certain aspects of transaction processing. Interruptions in the Program Manager's service may result for a number of reasons. Any damage to, or failure of, the Program Manager's processes or systems generally, or those of its vendors (including as a result of disruptions at the Program Manager's third-party data center hosting facilities and cloud providers), or an improper action by its employees, agents or third-party vendors, could result in interruptions in its service, causing customers, retail distributors and other partners to become dissatisfied with the Program Manager's products and services or obligate the Program Manager to issue credits or pay fines or other penalties to them. Sustained or repeated process or system failures could reduce the attractiveness of the Program Manager's products and services, including its BaaS platform, and result in contract terminations, thereby reducing operating revenue and harming our results of operations. Further, negative publicity arising from these types of disruptions could be damaging to the Program Manager's and our reputation and may adversely impact use of the Program Manager's products and services, including its BaaS platform, and adversely affect our ability to attract new customers and distributors. Additionally, some of our contracts with retail future distributors may contain service level standards pertaining to the operation of the Program Manager's systems, and provide the retail distributor with the right to collect damages and potentially to terminate its contract with us for system downtime exceeding stated limits. If the Program Manager faces system interruptions or failures, our business interruption insurance may not be adequate to cover the losses or damages that we incur.

We expect that a significant portion of our operating revenues are derived from revenues generated from the sales of the Program Manager's prepaid, branded cards sold through distributors such as liquor stores, which we estimate will be our largest retail distributors. We expect that liquor stores will have a significant impact on our operating revenues in future periods. Once we have established distribution through liquor stores, it would be difficult to replace them and the operating revenues derived from products and services sold therein. Accordingly, the loss of liquor stores as a primary means of distribution would have a material adverse effect on our business and results of operations. In addition, any publicity associated with the loss of any of our distributors could harm our reputation, making it more difficult to attract and retain consumers and other distributors, and could lessen our negotiating power with our remaining and prospective distributors.

The Program Manager is subject to association rules that could subject it to a variety of fines or penalties that may be levied by the card associations or networks for acts or omissions by the Program Manager or businesses that work with it, including card processors, such as MasterCard PTS. The termination of the card association registrations held by the Program Manager or any changes in card association or other debit network rules or standards, including interpretation and implementation of existing rules or standards, that increase the cost of doing business or limit the Program Manager's ability to provide its products and services could have an adverse effect on our business, operating results and financial condition. In addition, from time to time, card associations may increase the fees that they charge, which could increase our operating expenses, reduce our profit margin and adversely affect our business, results of operations and financial condition. Furthermore, we expect a substantial portion of our operating revenues to be derived from interchange fees. The amount of interchange revenues that we earn is highly dependent on the interchange rates that the payment networks set and adjust from time to time. The current interchange lawsuit settlement may possibly have a dampening effort on higher interchange fees. Visa and Mastercard tack on additional charges to transaction interchange fees, which may cause them to raise fees to other parties like us. The enactment of the Dodd-Frank Act required the Federal Reserve Board to implement regulations that have substantially limited interchange fees for many issuers. While the interchange rates that may be earned by us are exempt from the limitations imposed by the Dodd-Frank Act, there can be no assurance that future regulation or changes by the payment networks will not impact on our interchange revenues substantially. If interchange rates decline, whether due to actions by the payment networks or future regulation, we would likely need to change our fee structure to offset the loss of interchange revenues. However, our ability to make these changes will be limited by the terms of our future contracts and other commercial factors, such as price competition. To the extent we increase the pricing of the Program Manager's products and services, we might find it more difficult to acquire consumers and to maintain or grow card usage and customer retention, and we could suffer reputational damage and become subject to greater regulatory scrutiny. The Program Manager's may also have to discontinue certain products or services. As a result, our total operating revenues, operating results, prospects for future growth and overall business could be materially and adversely affected.

Criminals are using increasingly sophisticated methods to engage in illegal activities using deposit account products (including prepaid cards), reload products, or customer information. Illegal activities involving the Program Manager's products and services often include malicious social engineering schemes. Illegal activities may also include fraudulent payment or refund schemes and identity theft. The Program Manager relies upon third parties for transaction processing services, which subjects the Program Manager and its end customers to risks related to the vulnerabilities of those third parties. A single significant incident of fraud, or increases in the overall level of fraud, involving the Program Manager's cards and other products and services, have in the past and could in the future result in reputational damage it and to us. Such damage could reduce the use and acceptance of the Program Manager's cards and other products and services, cause retail distributors to cease doing business with us or lead to greater regulation that would increase the Program Manager's compliance costs. Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines on the Program Manager, which could adversely affect our business, results of operations and financial condition.

Our future success will depend, to a significant extent, on our ability to attract, integrate, retain and recognize key personnel, namely our management team and experienced sales, marketing and program and technology development personnel. Replacing departing key personnel can involve organizational disruption and uncertainty. We do not carry "key-man" life insurance on the lives of any of its executives, employees or advisors. We experience transitions among our executive officers from time to time. If we fail to manage any future transitions successfully, we could experience significant delays or difficulty in the achievement of our development and strategic objectives and our business, financial condition and results of operations could be materially and adversely harmed. We must retain and motivate existing personnel, and we must also attract, assimilate and motivate additional highly qualified employees. We may experience difficulty in managing transitions and assimilating our newly hired personnel, which may adversely affect our business. Competition for qualified management, sales, marketing and program and technology development personnel can be intense. Competitors may in the future attempt to recruit our top management and employees. If we fail to attract, integrate, retain and incentivize key personnel, our ability to manage and grow our business could be harmed.