|1||1000's of very happy clients across the entire United States|
|2||Growing fast, rapidly accelerating acquisition rate|
|3||US small business market is 30+ million|
|4||Only about 1 million use a payroll service|
|5||1,000+ clients paying for at least one premium service|
|6||Rated by clients 4.8/5 in service and support|
I’m not only an investor but, I have been a customer of Payroll4Free.com since 2013. As the owner of a very small business, I found myself looking for a payroll service that was easy to use and priced fairly in comparison to the amount of payroll I was processing. I stumbled onto their website all those years ago and was impressed with the approach of letting advertisers pay to support this service while connecting users with advertisements that offer relevant products and services.
The team at Payroll4Free.com has always been extremely helpful with all my payroll questions and issues. While the service is free to its users, the experience is top-notch. This isn’t the average free version of paid software where free users get limited or no customer service. They are a company that cares about every customer they have.
Over the years, I’ve seen the advertising platform grow as well as the addition of premium add-on services. I’ve taken advantage of several advertised services over the years and am currently using several of the premium add-ons. The most recent add-on of pay as you go worker’s compensation insurance is saving my business money and saving me so much time in audits and reporting. So once again Payroll4Free.com is making my business work in a more efficient way and helping me keep costs down while meeting all the legal requirements of being an employer.
I’m confident that with such a smart approach to funding payroll for super small businesses through advertising and service add-on partnerships, there is tremendous room for growth. After all, if every company not currently using a payroll service because they feel priced out of it were to join in, the audience available to advertisers and partners would grow exponentially. I can’t wait to see the growth that will happen with the funding accessed through this campaign.
If you would like to personally discuss this investment with the President of Payroll4Free.com, please click here to schedule a call!
"Payroll4Free.com is a payroll service, much like ADP or Paychex, except that we focus on very small businesses and offer our basic payroll service free of charge.
There are 25 million small businesses in the United States with fewer than 5 employees! Fewer than 1 million use a payroll service. Virtually all other payroll services charge a base fee per payroll run or month, and additional fees per paycheck or employee, so their smaller clients are charged much more per paycheck than their larger clients. Each year, the IRS assesses more than $4 billion in payroll tax penalties to more than 3 million small businesses. Small businesses have an urgent need for an affordable payroll service. With clients now in all 50 states, Payroll4Free.com is best positioned to serve the needs of this vast, underserved market.
Our free service is rich with features, including accommodating different paid leave time accrual policies, multiple wage rates and departments, an online portal for employees, and much more. We also offer some optional services for which we do charge small fees.
Our small business owner clients typically manage the payroll function directly (unlike larger companies where payroll is handled by a controller or HR department). They provide a very valuable target market for advertisers who offer products and services for business use.
Our primary revenue will come from partnerships with companies that offer services that can be integrated into the Payroll4Free.com application. These include independent insurance agencies providing workers comp, employee background checking services, community banks offering ACH services, job posting services, and others. Revenue will also be generated from advertising that is displayed on the payroll software application from other companies, both local and national, offering goods and services to our clients.
We are poised for explosive growth. We have software compatible with regulations in all 50 states, a growing client base of 2,700+ with a rapidly increasing rate of new client acquisition, and we are not spending anything yet on marketing! Funds from this sale of equity in our company will allow us to complete the technology to greater automate operations, and begin a marketing program that will help us reach our potential. I hope you will join us as a shareholder, and that you, too, will benefit from that growth. If you would like to discuss this opportunity with me personally, please schedule a phone call with me by clicking here."
- Mike Rosenberg, President
We began in 2013, our first full year, with 2 clients in one state. Since then, we have completed additional programming to automate many back-office functions and accommodate regulations for all 50 states. We installed training videos to ease new client absorption. Our client base now exceeds 2,700 clients in all 50 states. Currently, we spend absolutely nothing on marketing - new clients find us searching on the web, or are referred by other clients and accounting firms.
There is a tremendous demand for our services. Payroll4Free.com is the welcome solution to the very small businesses we serve, because virtually all other payroll services charge fees structured so that the smallest clients pay the most per employee. There are more than 25 million businesses in the United States that have fewer than 5 employees. In addition to those of our clients who have switched to us from other payroll services, many of our clients had previously used no outside payroll service at all.
On-boarding new clients has largely been a manual process, which up to now has limited the rate at which we could add new clients. Thanks to your initial investment, we have already implemented new, automated on-boarding technology in 33 states, and we have seen our acquisition rate more than triple in those states. Use of funds from this campaign will include implementing automated on-boarding in the remaining states.
After fully implementing the on-boarding technology, we will begin an aggressive marketing program that includes national radio advertising and reaching out to trade associations and franchisors of small businesses. We look forward to earning a significant market share of the payroll service business from this gigantic, underserved market.
An important issue for all investors is the value of their investment. For start-up companies that have not yet established revenue and profitability, the valuation can seem somewhat arbitrary. While virtually all companies seeking investment indicate a valuation, you almost never see the justification for that valuation.
To determine a valuation for Payroll4Free.com, we calculated the value per client for several other payroll service companies (valuation divided by number of clients). For ADP, the largest payroll company, that value is $84,000 per client. For Paychex, the value per client is $36,000. For Gusto, which is not yet publicly traded, the value (set by venture capital investments) is $38,000 per client.
Payroll4Free.com's value for this campaign is less than $4,000 per client. This means that not only should Payroll4Free.com's value increase with the growth of its client base (based on initial per client value), but as its client base reaches critical mass, it will also allow for significant revenue growth from advertising partners, which will increase the per client value exponentially. Prospective investors should be very encouraged by this great growth potential.
Payroll4Free.com is distinguished from all other services by:
(3) Revenue Model
The Payroll4Free.com client can be characterized as the owner of a very small business, who wears many hats, and is not necessarily an expert in payroll or accounting. Our entrepreneur clients run payroll themselves, logging in to enter hours worked, print checks and reports, and maintain employees (unlike larger companies where the payroll function is handled by a controller or HR department).
Our average-size client has 3.8 employees. Our free services are very attractive to clients when compared to the cost of other services. Based on the choice of Payroll4Free.com clients to use some optional fee-based services, our clients actually pay an average of $7.18 per month. ADP and Paychex are far more expensive for companies with 4 employees ($129.20 and $103.55 per month, respectively for semi-monthly payrolls, based on rates reported by Payroll4Free.com clients who switched from those services). And lower cost services, like Gusto and Quickbooks Online Payroll, charge $63.00 and $76.00 per month, respectively (based on rates shown on their websites as of 7/19/2018). Payroll4Free.com is clearly the best value for the small business owner.
Payroll4Free.com is accredited by and enjoys an A+ rating with the Better Business Bureau. We provide the highest level of personal service, and were rated 4.8 out of 5.0 by our clients in service and support. Our clients often need an extra level of assistance during the early stages of using a payroll service, but this investment in service often pays good dividends, because after short period of time, most become more confident and independent in the use of our service. Our type and size client is often an "annoyance" to larger payroll services, who tend to focus on their larger, more profitable clients. We often hear stories from clients about their bad experiences with well-known payroll service companies that they have used previously.
Our clients represent a great target market for companies who offer goods and services of interest to small business owners. Our technology provides for advertising in the business application: "skyscraper” ads on the right side of the screen and "leaderboard” ads at the top of the screen rotate to allow multiple ads to appear in succession. Advertisers are assured a monthly per client minimum of 12 impressions with a minimum duration of 10 seconds, with a potential of 180 advertisers (based on average time spent per month by a Payroll4Free.com client). The ads do not interfere with the clients’ payroll work, and when a client chooses to click on a particular ad, they will be directed to the advertisers designated landing page.
In addition, Payroll4Free.com also has technology to print ads, such as coupons, on employee paystubs and to show them to employees when they access their pay information on the employee portal.
The concept of providing free service supported by advertising is not new. Radio and television has long provided free programming, supported by advertising. More recently we have seen the likes of Google, YouTube, Facebook, LinkedIn, and others, all providing free service supported by advertising.
Payroll4Free.com is unique in applying this revenue concept to business software applications. We believe we are in the best position to take advantage of this revenue model because (1) our marketplace of very small businesses (25 million+) is large enough that even a relatively small market share can produce a very large client base, (2) our client base represents a narrowly-defined key target for many advertisers, and (3) because our clients regularly and reliably log on to Payroll4Fee.com to take care of necessary business functions, advertisers can justifiably rely on receiving the exposure for which they pay.
Payroll4Free.com has two major sources of revenue: (1) client fees for optional services and (2) advertising.
(1) CLIENT FEES: Clients pay fees for optional services including full Payroll Tax Service, Direct Deposit Service, and when paying more than 25 employees. Currently, fees from clients average $6.38 per month per client.
(2) ADVERTISING REVENUE: With sufficient success in our Fund Raise efforts, we are projected to reach 20,000 clients within two years, at which point we expect to begin to attract many advertisers. Payroll4Free.com offers easily auditable longer-duration advertising impressions that provide assurance that advertising dollars are not wasted on fraud. An article in Adweek (February 21, 2016) indicated just how scary is the problem of fraud in advertising:
Long a dirty little secret of the digital media business, the topic of ad fraud has been thrust front and center in discussions among agency executives, advertisers and publishers over the last three years. Bot traffic, or nonhuman digital traffic, is at its highest ever, and recent projections from the Association of National Advertisers have more than $7 billion in advertising investment wasted.
Four different categories define our advertising opportunities:
(a) Display Advertising
Ads appear on the right side of the screen (skyscraper ads), and at the top of the screen (leaderboard ads) within the payroll application, where clients enter hours worked, print checks and reports, and maintain employee data. Advertisers can be local, regional, or national, and can include a wide range of product categories, including those directed to the business (office supplies and equipment, credit card processing, business loans, telecom, IT, etc.) and those directed to the business owner personally (electronics, jewelry, automobiles, etc.).
Payroll4free.com will also offer premium ads, where we genuinely vet the advertiser and the offerings, and provide our endorsement.
(b) Payroll-Related Partnerships
Almost all businesses are required by law to purchase workers compensation insurance. Insurance carriers (and their affiliated agencies) who partner with payroll companies offer their clients the major advantage of a "pay-as-you-go" option, rather than requiring six months’ advance payments. ADP and Paychex own in-house agencies and are among the largest agencies in the U.S. They actually compete with the independent insurance agencies. Payroll4Free.com will refer new clients to agencies who partner with us, for which they will pay advertising fees. This relationship benefits the client, the agency, and Payroll4Free.com.
There are some 6,000 community banks, with 60,000 total branches in the U.S. These banks, which make a major share of loans to small businesses, face competition for depositors from the largest national banks.
An article in the Wall Street Journal (March 23, 2018) stated:
Last year, about 45% of new checking accounts were opened at the three (largest) national banks even though those lenders had 24% of U.S. branches, according to research by consulting firm Novantas. Regional and community banks, by contrast, had 76% of branches but only got 48% of new accounts..."The biggest banks are winning," wrote Tom Brown, CEO of hedge fund Curve Capital LLC, last month. "Small banks should be very concerned."
Community banks that partner with Payroll4Free.com will be referred new business accounts, which will enjoy reduced fees for optional services. The banks will also benefit from fees which Payroll4Free.com will pay to those banks for ACH transactions on behalf of their mutual clients. The banks, in turn, will pay advertising fees as they benefit from new business accounts referred by Payroll4Free.com.
(c) Employee Stub Coupons
Have you noticed the ads and coupons on the back of the register receipt from the grocery store? I don't know how many people look at them, but advertisers do pay for this exposure. Coupons ranging from free promotional giveaways from local retailers to discounts for pizza from national chains can be offered on the printed paystubs of employee checks or on the electronic employee pay advice accessed via the employee web portal. And employees do look at their pay checks and stubs!
(d) Client Premium Ads
Payroll4Free.com can allow for clients to list the goods and services they wish to offer to other clients in a listing available in the payroll software. These listings can appear to other clients locally, regionally or nationally, can be searched by category or by any number of key words, and will contain a link to a designated web page. The basic listing will be free to all clients. Clients will have the opportunity to pay a small fee for a larger, more attention-getting listing if they so choose.
We are projected to reach break-even with a total revenue of only $25 per client per month, as we reach the 50,000 client level. With more than 25% of that coming from client fees alone, we expect to see ad revenue grow and reach impressive profitability within three years.
Payroll4Free.com has the ability to handle the most sophisticated payroll needs, even for the largest companies. But even the smallest businesses will often need some of our flexible capabilities, and appreciate our ability to handle all kinds of special payroll situations, some of which are not handled even by the largest payroll services.
Employers can pay both W-2 employees and 1099 contractors. Salaried and hourly employees can be paid at different rates for different job categories, shift differentials, bonuses, commissions, and literally any and every kind of earnings. We provide automatic warnings and automatically calculate makeup wages for restaurants and other employers with tipped employees.
Earnings can be allocated to different job categories for appropriate allocation for accounting and workers comp rates. Payroll4Free.com clients can connect to most electronic time clocks for automated entry.
In addition to automatic calculations for all payroll taxes, Payroll4Free.com accommodates custom deductions (including pre-tax) and benefits, including those with complex caclulations (such as garnishments that vary based on amount of pay or even other withholdings). Payroll4Free.com also handles businesses with employees who are taxed in multiple states and cities.
Payroll4Free.com accommodates calculations of accrued earned benefit time (vacation, sick, PTO, etc.), according to virtually any kind of policy. Available hours can optionally be printed on employee pay stubs, or displayed electronically on the Employee Portal.
With 25 million + very small businesses, all of whom can substantially benefit from our services, Payroll4Free.com has the potential of growing its client base exponentially. As our client base grows, we expect to become very valuable to advertisers for whom our clients represent a key target market. Your investment will provide the funds for marketing, added personnel, and additional automation of back-end processes. Our revenue model should ultimately provide us with more revenue per client than many of the fee-based services, all while providing a fabulous deal for small businesses and a great opportunity for appropriate advertisers. This really is a win-win-win for everyone, especially investors who take advantage of investing in Payroll4Free.com at this early stage. If you would like to personally discuss this investment with the President of Payroll4Free.com, please click here to schedule a call!
Payroll4Free.com has financial statements ending December 31 2019. Our cash in hand is $17,684.54, as of April 2020. Over the three months prior, revenues averaged $15,855.95/month, cost of goods sold has averaged $0/month, and operational expenses have averaged $52,997.01/month.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this offering. Some of the information contained in this discussion and analysis, including information regarding the strategy and plans for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Payroll4Free.com is a payroll service company, much like ADP or Paychex, except that we focus on very small businesses and offer the basic services free of charge (optional premium services are between $10
and $20 per month). The services are primarily supported by advertising that is displayed on the payroll software. Our small business owner clients provide a very valuable target market for advertisers who offer products and services intended for business use.
We have found that for most small businesses payroll services are generally unaffordable, and they tend to process it in-house to save money. Unfortunately, this often leads to huge payroll tax penalties ($4.2+ billion assessed by the IRS in 2015). We wanted to be able to offer those 30+ million small businesses a payroll option that is affordable, reliable, and service focused, which will allow us to eventually become the #1 small business payroll service provider in the United States.
Payroll4Free.com, Inc. was incorporated in the State of Delaware in January 2019. Payroll4Free.com, LLC was originally organized on 5/23/12. In January, the managing members decided to fully convert the company into the C-Corp, Payroll4Free.com, Inc.
Since then, we have:
Historical Results of Operations
Our company was organized in January 2019 and has limited operations upon which prospective investors may base an evaluation of its performance.
Liquidity & Capital Resources
To-date, the company has been financed with $113,471 in debt and $95,460 in equity.
After the conclusion of this Offering, should we hit our minimum funding target, our projected runway is 12 months before we need to raise further capital.
We plan to use the proceeds as set forth in this Form C under "Use of Funds". We don’t have any other sources of capital in the immediate future.
We will likely require additional financing in excess of the proceeds from the Offering in order to perform operations over the lifetime of the Company. We plan to raise capital in 24 months. Except as otherwise described in this Form C, we do not have additional sources of capital other than the proceeds from the offering. Because of the complexities and uncertainties in establishing a new business strategy, it is not possible to adequately project whether the proceeds of this offering will be sufficient to enable us to implement our strategy. This complexity and uncertainty will be increased if less than the maximum amount of securities offered in this offering is sold. The Company intends to raise additional capital in the future from investors. Although capital may be available for early-stage companies, there is no guarantee that the Company will receive any investments from investors.
Runway & Short/Mid Term Expenses
PAYROLL4FREE.COM, INC. cash in hand is $17,684.54, as of April 2020. Over the last three months, revenues have averaged $15,855.95/month, cost of goods sold has averaged $0/month, and operational expenses have averaged $52,997.01/month, for an average burn rate of $37,141.06 per month. Our intent is to be profitable in 42 months.
In order to fund short-term operations, he Company and reliably call upon additional funding Galaxy Hosted Software, LLC. The relationship between these two companies is that they share common management.
Since the date of our financials, we have increased in rate of client acquisition and signed revenue-generating agreement with Workers Comp Insurance Carrier.
In six months, we hope (but not guarantee) to have our revenues increase 20% and expect expense to go up 50%. We do not have any other sources of capital to rely on at this time.
The Shares have not be recommended or approved by any federal or state securities commission or regulatory authority. 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. Furthermore, these authorities have not passed upon the accuracy or adequacy of this document. Neither the U.S. Securities and Exchange Commission nor any state securities commission has passed upon the merits of any securities offered or the terms of the offering, nor have they passed upon the accuracy or completeness of any offering document or literature. The Shares are being offered under exemptions from U.S. federal registration and state registration; however, neither the U.S. Securities and Exchange Commission nor any state securities commission has not made an independent determination that these Shares are exempt from registration.
Management has performed an analysis of our ability to continue as a going concern. Based on their assessment, management has raised concerns about our ability to continue as a going concern. We have raised $113,471 in net proceeds from our crowd-funded debt financing and $95,460 in net proceeds from our private-placement equity financing and have borrowed $1,663,740 from a Galaxy Hosted Software LLC (“Galaxy”), a party related by common majority ownership and common management since the inception of the Company. Our ability to continue as a going concern will depend on our ability to obtain additional financing. Additional capital or debt financing may not be available on reasonable terms, or at all. If adequate financing is not available, we would be required to terminate or significantly curtail our operations.
Our substantial indebtedness could adversely affect our financial condition and our ability to operate our business. We have a substantial amount of debt. At December 31, 2019, we had liabilities related to the loan from Galaxy and our crowd funding debt financing of $1,779,107.Our substantial debt could have important consequences to investors, including the following:
- it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt,
The per share purchase price of the Shares has was not determined through an arms’ length negotiation and no third-party has been engaged to determine the fair market value of the Shares. The Company established the price per Share based on its own analysis of the valuations of other companies engaged in similar lines of business. The purchase price per Share in this Offering has not been the subject of arms’ length negotiations and the Company has not retained any third party to perform an analysis of the fair market value of the Company or the Shares. To determine a valuation for the Company, we calculated the value per client for several other payroll service companies (valuation divided by number of clients). For ADP, the largest payroll company, that value is $90,000 per client.(1) For Paychex, the value per client is $40,000.(2) For Gusto, which is not yet publicly traded, the value (set by the latest venture capital investments, now totaling over $500 M) is $38,000 per client.(4) We believe that this valuation method is reasonable but we have not retained any third-party expert to review or validate it.
(1) ADP Market Cap as of March 5, 2030 was $69.37 Billion, with 775,500 clients reported in the 2019 Annual Report.
Our business model is unproven. Our business model, which includes providing a free or low-cost payroll service and create revenue by selling ad space in our software program is unproved by us and unproven in our industry. There can be no assurance that we will be able to obtain any new paying clients or advertisement partners or if we do obtain new clients and advertisement partners, there is no assurance that we will obtain enough to become profitable. Therefore, investors must recognize that, notwithstanding the Company’s objective to become profitable, the Company may be unable to preserve the investors’ capital. Investors therefore must recognize that the risk of loss may be greater, in the case of an investment in the Company, than would be presented by alternative investment opportunities.
The payroll processing industry is competitive. The Company is focused on servicing small-sized businesses based on the growth potential that we believe exists in that market. We estimate that there are 25+ million addressable businesses in geographic markets that we serve. The market for payroll services is highly competitive and fragmented. Our competitors include national, international, regional, local and online service providers. In addition to traditional payroll processing service providers, we compete with in-house payroll systems, and we find that we are often the first payroll service company that a small business uses. Competition in the payroll processing industry is primarily based on service responsiveness, product quality and reputation, including ease of use and accessibility of technology, breadth of service and product offerings, and price. We believe that we are competitive in those areas and that our ease of use and price distinguish us from our competitors.
The cost of acquiring new clients may be higher than anticipated. The Company has acquired new clients through web searches, “Google Adwords,” referrals from current clients, referrals from accountants, insurance agencies and other third parties, and other promotional methods. Each acquisition method has different associated anticipated costs. If client acquisition costs are higher than anticipated, it will significantly affect the Company’s profitability.
The rate and acceleration of client acquisition may be slower than anticipated. The Company receives some revenue from its client base, and if client growth is slower than anticipated, revenue growth will be slower than anticipated. Further, the Company’s business model relies largely on advertising for future revenue. The larger the Company’s client base, the more attractive the Company expects to be to advertisers. A slow client growth rate will significantly affect advertising revenue.
The rate of acquiring new advertisers may be slower than anticipated. The Company believes that its ability to become profitable will be dependent on generating advertising revenue sufficient to exceed costs of operation and growing its client base to such numbers as to be attractive to advertisers and justify the level of fees required from the advertisers. Even if the client base grows rapidly, the concept of selling advertising to appear within a business application is relatively new and untested
The costs to acquire advertisers may be higher than anticipated. The Company anticipates having certain costs related to paying sales staff and marketing its products to advertisers. If the costs of acquiring new advertisers is greater than anticipated, it will greatly affect profitability.
Advertising revenue may be lower than anticipated. The Company anticipates that it will receive fixed monthly amounts from some advertisers and will participate in advertisers’ affiliate programs where the Company receives fees based on a percentage of the advertisers’ sales of products and services to clients. While the Company anticipates that its fixed rates will be competitive and the average amount of fees received from affiliate programs will equal the fixed fees, the concept of advertising on a business application is relatively new and untested. Advertisers may not achieve sufficient results working with the Company to continue advertising long-term. If advertisers do not generate sufficient business from the Company’s clients, they may not continue to pay for advertising. The Company may not be able to sufficiently replace lost advertisers, and thus, may not receive anticipated levels of advertising revenue.
The Company is not yet profitable, and investors may lose part or all of their investments. The Company may require one or more additional fundraising rounds, depending on how much funding the Company raises in this Offering. If the Company does not raise additional funds, the Company may not be able to continue its operations.
The Company has a non-interest-bearing note payable to Galaxy, a party related by common majority ownership and common management. The loan balance for this note was $1,663,740 as of December 31, 2019. Galaxy continues to loan money to the Company to support its operations. Though the Company is not required to repay the loan until the Company becomes profitable, this could limit the ability of the Company to incur debt needed to fund its operations and may impair the Company’s ability to raise capital. Additionally, the
The Company’s financial statements have not been audited by an independent accountant. Although Company management prepared its financial statements in accordance with accounting principles generally accepted in the United States of America, and the Company’s accountant, Jason M. Tyra, CPA, PLLC reviewed the 2018 / 2019 financial statements in accordance with the Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants, such review was limited in scope to assurance that there are no material modifications that should be made to the financial statements. The review conducted by the Company’s accountant had a substantially more limited scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Therefore, the Company cannot make any assurances regarding its financial statements as a whole, or the possible conclusions of an audit by an independent accountant.
The Company may not be able to keep pace with changes in technology or provide timely enhancements to its products and services. The market for the Company’s products and services is characterized by rapid technological advancements, changes in customer requirements, frequent new product introductions and enhancements, and changing industry standards. The Company’s success depends on its ability to enhance current products and services and introduce new products and services in order to keep pace with products offered by competitors, enhance capabilities and increase the performance of its internal systems, and adapt to technological advancements and changing industry standards. If the Company’s systems become outdated, it may be at a disadvantage. There can be no assurance that the Company’s efforts to update and integrate systems will be successful. If the Company does not integrate and update its systems in a timely manner, there could be a material adverse effect to the Company’s business and results of operations.
The Shares do not have any voting rights. An Investor will hold a minority position in the Company and will have no voting rights in the Company, and thus will have no ability to control or influence the governance and operations of the Company. As holders of a majority interest of voting rights in the Company, the principal stockholders may make decisions with which the Investors disagree, or that negatively affect the value of the Investors’ shares in the Company, and the Investors will have no recourse to change these decisions. The Investors’ interests may conflict with those of the principal stockholder(s), and there is no guarantee that the Company will develop in a way that is optimal for or advantageous to the Investors. For example, the principal stockholder(s) may change the terms of the Certificate of Incorporation or Bylaws of the Company, change the terms of the shares issued by the Company, change the management of the Company, and redeem or dilute minority shareholders. The principal stockholder(s) may make changes that affect the tax treatment of the Company in ways that are unfavorable to Investors but favorable to them. The principal stockholder(s) may also vote to engage in new offerings and/or to register certain of the Company’s shares in a way that is dilutive to or negatively affects the value of the Shares the Investors own. The principal stockholder(s) may also have access to more information than the Investors, leaving an Investor at a disadvantage with respect to any decisions regarding the Shares he or she owns. The exit of the principal stockholder(s) may affect the value of the Company and its viability. Based on the factors described above, an Investor could lose all or part of his, her or its investment in the Shares in this offering, and may never see positive returns.
The Company’s right of first refusal could limit Investors’ ability to resell Shares. Pursuant to the Subscription Agreement, prior to the Company’s initial public offering, the Company will have a right to purchase all or any portion of the Shares that Investors may propose to transfer to a third party, at the same price and on the same terms and conditions as those offered to the prospective transferee. This right of first refusal could limit Investors’ ability to resell their Shares at the maximum potential price available on the open market
We have no plans to pay cash dividends on our preferred stock. We have no plans to pay cash dividends on our preferred stock. We intend to invest future earnings, if any, to fund our growth. Any payment of future dividends will be at the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations our Board of Directors deem relevant. Any future credit facilities or equity financing we obtain may further limit our ability to pay cash dividends on our preferred stock.
The Company may engage in additional issuances of securities. The Company plans to engage in additional offerings to sell equity or debt to additional investors in the future. Additionally, in the future, the Company may issue securities to its employees under its Equity Incentive Plan, to service providers as a form of payment, to lenders or to additional investors to raise capital. Investors may have the opportunity to increase their investment in the Company in a crowdfunding or other equity transaction, but such opportunity cannot be assured. The amount of additional financing needed by the Company, if any, will depend upon the objectives of the Company and the state of development of its operations at any given time.
Investors face risks related to a sale of the Company or the Company’s assets. As a holder of Preferred Stock, with no voting rights, an Investor will have no ability to influence a potential sale of the Company or a substantial portion of its assets. Thus, the Investor will rely upon the management of the Company to manage the Company in a way that maximizes value for stockholders and ensure full payment to the Company’s creditors. Accordingly, the success of the Investor’s investment in the Company will depend on the skill and expertise of the Company’s managers. If Company management authorizes a sale of all or a part of the Company, or a disposition of a substantial portion of the Company’s assets, there can be no guarantee that the amount received will be sufficient to repay Investors and the Company’s creditors.
Investors face risks related to transactions with related parties. Investors should be aware that there will be occasions when the Company may encounter potential conflicts of interest in its operations. On any issue involving conflicts of interest, the Company’s managers will use good faith judgment as to the Company’s best interests. The Company may engage in transactions with shareholders, affiliates, subsidiaries or other related parties, which may be on terms, which are not at arm’s length, but will be in all cases consistent with the duties of Company management to the Company’s stockholders. For example, the Company has obligations relating to a non-interest bearing note payable to an affiliate of the Company (described in more detail above). The Company believes that the terms of this loan comply with all relevant laws and regulations. By acquiring an interest in the Company, Investors will be deemed to have acknowledged the existence of any such actual or potential conflicts of interest.
The Company’s services may be adversely impacted by changes in government regulations and policies. Many of the Company’s services are designed according to government regulations that change. Changes in regulations could affect the extent and type of benefits employers are required, or may choose, to provide employees or the amount and type of taxes employers and employees are required to pay. Such changes could reduce or eliminate the need for some of the Company’s services and substantially decrease revenue. Added requirements could also increase the cost of doing business. Failure to educate and assist clients regarding new or revised legislation that impacts them could have an adverse impact on the Company’s reputation. Failure to modify services in a timely fashion in response to regulatory changes could have a material adverse effect on the Company’s business and results of operations.
The Company’s business and reputation may be adversely impacted if it fails to comply with U.S. laws and regulations. The Company’s services are subject to various laws and regulations, including, but not limited to, the Affordable Care Act (“ACA”) and anti-money laundering rules. Uncertainty regarding the potential future modifications of existing laws and regulations can adversely affect business. There is uncertainty regarding the potential future evolution and modification of the ACA. Failure to update services to comply with modified or new legislation in the area of health care reform as well as failure to educate and assist clients regarding this legislation could adversely impact the Company’s business reputation and negatively impact its client base. Failure to comply with laws and regulations could result in the imposition of consent orders or civil and criminal penalties, including fines, which could damage the Company’s reputation and have an adverse effect on the Company’s results of operations or financial condition. The Company has policies and procedures to monitor compliance with U.S. laws and regulations throughout the business.
The Company’s reputation, results of operations, or financial condition may be adversely impacted if it fails to comply with data privacy laws and regulations. The Company’s services may require the storage and transmission of proprietary and confidential information of its clients and their employees, including personal or identifying information, as well as their financial and payroll data. These services are subject to various complex government laws and regulations on the federal, state, and local levels, including those governing personal privacy. For example, the Company is subject to rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, federal and state labor and employment laws, and state data breach notification laws. Failure to comply with such laws and regulations could result in the imposition of consent orders or civil and criminal penalties, including fines, which could damage the Company’s reputation and have an adverse effect on its results of operations or its financial condition. The regulatory framework for privacy issues is rapidly evolving and future enactment of more restrictive laws, rules or regulations, and/or future enforcement actions or investigations could have a materially adverse impact on the Company through increased costs or restrictions on the Company’s business and noncompliance could result in regulatory penalties and significant legal liability.
The Company could be subject to reduced revenues, increased costs, liability claims or harm to its competitive position as a result of cyberattacks, security vulnerabilities or Internet disruptions. The Company relies upon information technology (“IT”) networks, cloud-based platforms and systems to process, transmit, and store electronic information, and to support a variety of business processes. Cyberattacks and security threats are a risk to the Company’s business and reputation. A privacy or IT security breach could have a material adverse effect on the Company’s business.
Data Security and Privacy Leaks: The Company collects, uses, and retains increasingly large amounts of highly-sensitive personal information about its clients, employees of clients, and its employees, including: bank account numbers, credit card numbers, social security numbers, tax return information, health care information, retirement account information, payroll information, system and network passwords, and other sensitive personal and business information. At the same time, the continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security. Vulnerabilities, threats, and more sophisticated and targeted computer crimes pose a risk to the security of the Company’s systems and networks, and the confidentiality, availability, and integrity of the Company’s data.
The security of the Company’s IT infrastructure is an important consideration in the Company’s clients’ purchasing decisions. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, are increasingly more complex and sophisticated, and may be difficult to detect for long periods of time, the
Data Loss and Business Interruption: If the Company’s systems are disrupted or fail for any reason, including internet or systems failure, or if the Company’s systems are infiltrated by unauthorized persons, both the Company and its clients could experience data loss, financial loss, harm to reputation, or significant business interruption. The Company may be required to incur significant costs to protect against damage caused by disruptions or security breaches in the future. Such events may expose the Company to unexpected liability, litigation, regulatory investigation and penalties, loss of clients’ business, unfavorable impact to business reputation, and there could be a material adverse effect on the Company’s business and results of operations.
Our future success depends on the efforts of a small management team. The loss of services of the members of the management team may have an adverse effect on the company. There can be no assurance that we will be successful in attracting and retaining other personnel we require to successfully grow our business.
Our business, financial condition and results of operations may be materially adversely affected by global health epidemics, including the recent COVID-19 outbreak: Outbreaks of epidemic, pandemic, or contagious diseases such as COVID-19, could have an adverse effect on our business, financial condition, and results of operations. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. While the COVID-19 outbreak may still be in relatively early stages, international stock markets have begun to reflect the uncertainty associated with the slow-down in the global economy and the reduced levels of international travel experienced since the beginning of January, large declines in oil prices and the significant decline in the Dow Industrial Average have been largely attributed to the effects of COVID-19. If COVID-19 progresses in ways that disrupts our customers’ demand for our services or otherwise disrupts our operations, such disruption may materially negatively affect our operating results for 2020 and possible subsequent periods. Majority of our workforce is in Ohio and our customer base is located across the United States, and in many of those states executive orders have been signed to implement stay-at-home mandates, causing all non-essential businesses to close their offices. In response to these public health directives and orders, we have implemented work-from-home policies for certain employees. The effects of the executive order, the stay at home orders and our work-from-home policies may negatively impact productivity, disrupt our business and impact our ability to service our clients and our clients need for our services, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact us and vendors and customers business operations. Additionally, if the spread of COVID-19 limits our ability to make workers available either because they are ill or due to work from home orders, this likely would negatively affect, and may materially negatively affect, our operating results, cash flow and business.
On March 18, 2020, President Trump signed a bipartisan bill, the “Families First Coronavirus Response Act,” (“FFCRA”) aimed at addressing the COVID-19 pandemic. The FFCRA’s effective date has been set for April 2, 2020. The FFCRA is a comprehensive emergency measure expanding nutrition and food assistance, unemployment insurance benefits, and protections for workers exposed to risks of COVID-19. Particular provisions of the FFCRA that could materially affect our operations include the a temporary, emergency expansion to the federal Family and Medical Leave Act (FMLA) and a temporary establishment of a federal paid sick leave program in response to COVID-19. Such provisions may create obligations for the Company to provide its employees with paid sick leave beyond what the Company has historically provided. Additional expenditures related to these paid sick leave obligations may materially negatively affect our operating results for 2020 and possible subsequent periods. However, we expect that some of these potential payment obligations may be offset by separate provisions of the FFCRA creating a temporary payroll tax credit for paid sick leave and paid family leave or other federal stimulus legislation, including the America CARES Act, which was signed into law on March 27, 2020.
Any resulting financial impact cannot be reasonably estimated at this time. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions taken globally to contain the COVID-19 pandemic or treat its impact, among others. Existing insurance coverage may not provide protection for all costs that may arise from all such possible events. We are still assessing our business operations and system supports and the impact COVID-19 may have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-019 or its consequences, including downturns in business sentiment generally or in our sector in particular.
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