UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549


FORM 10


GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934


3PEA INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


Nevada

 

95-4550154

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

     

1700 W Horizon Ridge Parkway, Suite 102, Henderson, Nevada

 

89012

(Address of principal executive offices)

 

(Zip Code)


Registrant’s telephone number, including area code: (702) 453-2221


Securities to be registered pursuant to Section 12(b) of the Exchange Act: None


Securities to be registered pursuant to Section 12(g) of the Exchange Act:


Title of each class to be so registered

 

Name of each exchange on which each class is to be registered

     

Class A Common Stock, $0.001 par value

 

None


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x



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TABLE OF CONTENTS

ITEM 1. BUSINESS. 3
ITEM 1A. RISK FACTORS. 13
ITEM 2. FINANCIAL INFORMATION. 27
ITEM 3. PROPERTIES. 31
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 31
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS. 33
ITEM 6. EXECUTIVE COMPENSATION. 35
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 36
ITEM 8. LEGAL PROCEEDINGS. 37
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 37
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES. 38
ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED. 39
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. 39
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 40
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 40
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. 41
SIGNATURES 42




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ITEM 1. BUSINESS.

Overview

We were originally incorporated in Nevada as G.K.W., Inc. on August 24, 1995.  We changed our name to Antek International, Inc. on July 1, 1996 and operated as a distributor of private-label revolutionary coatings for graffiti and corrosion resistance. Antek’s products consisted of environmentally-friendly coatings which formed a thick, impenetrable layer that encapsulate rust and were extremely pliant to prevent damage from wind, water, weathering, UV rays and graffiti. We went public in 1998. We changed our name to Tika Corporation on October 12, 2005, after which we focused our business on financial management services.  We acquired 3Pea Technologies, Inc., a payment solutions company, in March 2006, which resulted in 3Pea Technologies, Inc. becoming our wholly owned subsidiary. We changed our name to Paypad Inc. on March 13, 2006.  On October 19, 2006 we changed our name to 3PEA International, Inc.  In 2007 we acquired control of Wow Technologies, Inc., a payment solutions company with a proprietary card processing platform, in a share exchange agreement whereby Wow Technologies, Inc. became our majority-owned subsidiary.

The business of 3Pea Technologies, Inc., both before and after we after we acquired it, was the development of a secure payment gateway and hardware device which utilized encryption technology and secure key exchange to facilitate PIN debit transactions over the internet. It developed proprietary stored value systems, secure key loading systems, and acted as an encryption service organization injecting keys into its proprietary payment terminal called the PayPad®. Users could connect the device to their computers and utilize it to make purchases over the internet without having to provide their credit card and other personal information to the seller. Due to the lack of market acceptance of this concept, we ultimately determined to shelve the product and reevaluate the technology and markets for potential use in the future.  3Pea Technologies, Inc. continues to focus on the evaluation of payment terminal software and hardware technology.   We then adapted the payment platform that we developed to support prepaid debit cards, which is our current business.

Business of Issuer

We are a payment solutions company which currently focuses on providing proprietary transaction processing solutions for healthcare and financial applications providing prepaid debit cards, which are also known as stored value cards (SVCs).  We believe SVCs are a fast-growing product segment in the financial services industry.  Our products and services are aimed at capitalizing on the growing demand for stored value and reloadable ATM/prepaid card financial products in a variety of market niches. Currently, the primary market for our cards is the pharmaceutical marketing or drug sampling market, and secondarily the surveys and rewards card market, although we are expanding into other markets for SVC's, including, pharmacy benefits cards, payment distribution and reimbursement cards and payroll cards.

Our proprietary platform is scalable and customizable, delivering cost benefits and revenue building opportunities to partners. We manage all aspects of the debit card lifecycle, from managing the card design and approval processes with partners and associations, to production, packaging, distribution, and personalization. We also oversee inventory and security controls, renewals, lost and stolen card management and replacement.



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To date, we have issued more than 17 million prepaid debit cards under programs implemented for several Fortune 100 and 500 companies, including many of the top pharmaceutical manufacturing companies in the world.

Depending on the program selected by the client, we generate the following types of revenues: setup charges; customized software development fees; data processing and report generation fees; transaction fees from each transaction by a consumer; interchange fees; fees from sourcing the debit cards used for the program; and administrative fees.  

Pharmaceutical Sampling Market

Historically, one of the promotional tools utilized by pharmaceutical companies has been to provide promotional samples to physicians, which then distribute them to patients.  Our card, which we market under the name "AllegianceRx Card,” is meant to replace the distribution of physical samples.  Our AllegianceRx Card is an adjudicated promotional debit card that reimburses prescription drug prescribers with promotional funds at retail pharmacies nationwide.  

Our prescription solutions provide claims processing and other administrative services for clients that are conducted online, in real-time, according to client benefit plan designs.  Our solutions present a cost-effective alternative to an in-house pharmacy claims adjudication system by providing real-time financial incentives for both consumers and payers. Our offerings also allow clients to directly manage more of their pharmacy benefits and include pharmacy claims adjudication, network and payer administration, client call center service and support, reporting, rebate management, as well as implementation, training and account management.

AllegianceRx Card

The AllegianceRx Card is a promotional pharmaceutical copay or discount card which is adjudicated as a primary or secondary insurance card at the retail pharmacy location. This primary or secondary adjudication determines what funds will be loaded on to the card by applying business rules determined by the sponsoring company. The loaded funds are then immediately applied to the prescription purchase at the pharmacy as a cost offset for the patient.  The card may be used to defer part or all the cost of the prescription or any co-pay or deductible, or any combination thereof that the patient would otherwise have to pay under his or her insurance program or out of pocket to purchase the drug.  The AllegianceRx Card can be offered as either a straight payment voucher card or a debit card, or a combination of the two, through our Healthpoint Network.  A voucher card is adjudicated just like a debit card, but differs from a debit card in that funds are remitted to the pharmacy on a monthly or bi-monthly basis, unlike a debit card which is funded at the time of purchase.  A voucher card is used in promotional campaigns where it is not feasible to distribute a card with a magnetic strip, such as newspaper or magazine ads or inserts.  Key features and benefits of the AllegianceRx card are:

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Tracking and auditing "free samples" is no longer required, as the retail pharmacy network serves as the distribution mechanism for new prescriber promotions.



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§

The patient's primary insurance pays the standard adjudicated amount for prescription fills that would historically be "free samples," thus turning the distribution of samples into a revenue generator.  

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The distribution of cards enables far superior prescriber and patient data collection for the pharmaceutical company through the use of automated questionnaires required to activate the cards.

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The card can be implemented as a secondary insurance card (for private insurance patients), as a traditional voucher card (for Medicare patients), or as both on the same card.

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The marketing programs can be better designed exactly to meet the specifications and needs of the sponsoring pharmaceutical company, as compared to programs involving the distribution of physical samples.

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Because the card operates like a debit card, pharmacy retailers are paid instantly for the adjudicated promotional cost on covered prescription transactions.

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We provide a set of comprehensive, customizable reporting modules to our pharmaceutical clients.  

Healthcare Remittance Card

We have also developed a Health Insurance Prescription Coverage Card, which operates as a financial debit card providing real time health insurance prescription drug payments from the sponsoring health insurance company to the retail pharmacy.  We have recently began marketing the card to health insurance companies.  

Key features and benefits of the Health Insurance Prescription Coverage Card are:

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Health insurance RxBin information on the front of the card allows the card to be adjudicated like any other prescription coverage card when presented with a valid prescription at the retail pharmacy location.

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Following adjudication, the agreed and authorized payment amount from the sponsoring health insurance company to the pharmacy is funded to the card.

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The pharmacy is paid instantly for covered prescription transactions, and all of the time, expense, and delay associated with billing, payment tracking, and payment delivery from the insurance company to the pharmacy is eliminated.

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Claims payment tracking and reporting is available online and in real time.

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Like a typical health insurance card, the card stays on file with the local pharmacy retailer, providing optimal convenience for both the member and the pharmacist.



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§

The sponsoring health insurance company sees reduced administrative overhead for paying and tracking prescription claims.

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In return for immediate payment to the pharmacy retailer with less administrative cost, the sponsoring health insurance company benefits from discounts on drug purchases from the pharmacy retailer.

HealthPoint Network

Our HealthPoint Network offers real-time pharmacy claims adjudication at more than 62,000 pharmacies nationwide, including all major pharmacy chains. Our HealthPoint Network is currently marketed as a value added option with our AllegianceRx card, for which we receive additional fee revenue from pharmaceutical companies who elect to use the service.  We have integrated the pharmacy claims adjudication capability with our prepaid debit card platform specifically to provide reliable, cost effective, on-line and real-time claims adjudication with real-time loading of our debit cards at the point of service. Our technology is extremely flexible, allowing instantaneous program design, update, and customization to meet our clients changing needs.

Key features and benefits of the HealthPoint Network are:

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Flexible plan analysis, design and implementation, which allow clients as much or as little control over the process as desired. Our seasoned team ensures seamless implementation and a timely launch. Options include customized benefit structures, multi-tier co-pay structures, automated therapeutic protocols, brand interchanges, multi-domain rules, and deductible and benefit carryover.

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Pharmacy claims management services, which provide accurate, reliable, and real time processing and support and support multi-tiered plan options, multi-domain rules, member enrollment and identification, co-pay determination, claims adjudication, min/max dosing guidelines, customized messaging to pharmacy providers, rules-based table driven functionality, and ID card production.

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24/7 adjudication and maintenance availability, 365 days a year, with a 24/7 state-of-the-art pharmacy help desk and member help desk.

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Robust reporting services, with standard and customizable reporting packages.

Other Products

Survey Instant Rewards

We offer a Survey Instant Rewards card program to organizations interested in gathering survey data, particularly for companies that have difficulty locating and inducing qualified consumers to provide survey data for market research.  The Survey Instant Rewards card program provides a better approach to survey collection and market research by utilizing financial debit card technology to offer targeted survey respondents immediate financial rewards for completing market research surveys.  



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We provide consumer product and service companies with a simple and powerfully effective turnkey solution for collecting valuable market information about customers, competitors, and markets.  With a Survey Instant Rewards Program, the client mails a survey recipient an unloaded debit card and invites him or her to take your online or phone based survey. When his survey is complete, the card is automatically loaded with the incentive reward, which the recipient can immediately redeem at the nearest ATM machine or point of sale location.

Key features and benefits of Survey Instant Rewards card program are:

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The immediacy of the reward, combined with the tangible nature of the physical debit card in the hand of the recipient, produces a powerful motivator for individuals to answer a few questions.

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The program is ideal for all size survey projects.

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We provide a complete turnkey solution, and an ability to integrate our debit card features into the client's existing survey collection capabilities.

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The programs can be quickly customized and implemented, and the results are immediately available online and in real time.

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The programs are extremely fast and efficient at collecting valuable information, resulting in vastly improved response rates and dramatically lower overall survey collection time than programs that use other common methods of reward, including coupons and mail in rebates.

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Increased survey response rates lower overall survey cost.

Other Markets

We have identified a variety of other markets that our debit cards can be used in, such as corporate incentive or reimbursement programs, gift cards, payroll payments, government benefit payments, and as a reloadable debit card for use by consumers without a traditional bank account.  Our ability to expand our debit cards to other market niches is dependent on our raising capital for technology improvements and sales and marketing expenses.

Technology

Our technology platform employs a standard enterprise services bus in a service-oriented architecture, configured for 24/7 operations. We maintain one secure, interconnected, environmentally-controlled primary data center in Las Vegas, Nevada, with emergency power generation capabilities, and a back-up data center in the Las Vegas metro area. We use a variety of proprietary and licensed standards-based technologies to implement our platforms, including those which provide for orchestration, interoperability and process control. The platforms also integrate a data infrastructure to support both transaction processing and data warehousing for operational support and data analytics.



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Competition

The markets for financial products and services, including SVCs and services related thereto, are intensely competitive. We compete with a variety of companies in our markets and our competitors vary in size, scope and breadth of products and services offered.  Certain segments of the financial services and healthcare industries tend to be highly fragmented, with numerous companies competing for market share. Highly fragmented segments currently include financial account processing, customer relationship management solutions, electronic funds transfer and SVC solutions. In addition to competition from other companies, we face competition from existing and potential clients who already have or may develop their own product offerings.

Many of our existing and potential competitors have longer operating histories, greater financial strength and more recognized brands in the industry. These competitors may be able to attract customers more easily because of their financial resources and awareness in the market. Our larger competitors can also devote substantially more resources to business development and may adopt more aggressive pricing policies. To compete with these companies, we rely primarily on direct marketing strategies including strategic marketing partners.

In our pharmaceutical sampling business, we believe that McKesson, Emdeon and Trial Card have programs to enable to enable pharmaceutical companies to distribute vouchers or cards in lieu of physical samples.  

Sales and Marketing

We primarily market our products and services through direct marketing by our officers.  We also utilize independent contractors who make direct sales for us and other companies and are paid on a commission basis only. We market our pharmaceutical sampling cards directly to pharmaceutical firms and through advertising/marketing agencies used by the pharmaceutical firms.  

Markets and Major Customers

We have no major customers and we are not reliant on any drug or program.  We currently manage between 60 and 80 pharmaceutical sampling and discount programs at any given time, consisting of over 17 million cards under management.  

Regulation

Introduction

We operate in a highly regulated environment and are subject to extensive regulation, supervision and examination. Applicable laws and regulations may change, and there is no assurance that such changes will not adversely affect our business.  Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including but not limited to the imposition of restrictions on the operation of financial institutions we may work with.  Any change in such regulation and oversight, whether in the form of restrictions on activities, regulatory policy, regulations, or legislation, including but not limited to changes in the regulations governing banks, could have a material impact on our operations.


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Our products and services are generally subject to federal, state and local laws and regulations, including:

 

anti-money laundering laws;

 

   

 

money transfer and payment instrument licensing regulations;

 

   

 

escheatment laws;

 

   

 

privacy and information safeguard laws;

 

   

 

bank regulations; 

 

   

 

consumer protection laws; and

     
 

false claims laws and other fraud and abuse restrictions.

     
 

Privacy and security standards under HIPAA or other laws

     

These laws are often evolving and sometimes ambiguous or inconsistent, and the extent to which they apply to us or the banks that issue our cards, our clients or our third party service providers is at times unclear. Any failure to comply with applicable law — either by us or by the card issuing banks, our client or our third party service providers, over which we have limited legal and practical control — could result in restrictions on our ability to provide our products and services, as well as the imposition of civil fines and criminal penalties and the suspension or revocation of a license or registration required to sell our products and services. See "Risk Factors" for additional discussion regarding the potential impacts of changes in laws and regulations to which we are subject and failure to comply with existing or future laws and regulations.

We continually monitor and enhance our compliance program to stay current with the most recent legal and regulatory changes. We also continue to implement policies and programs and to adapt our business practices and strategies to help us comply with current legal standards, as well as with new and changing legal requirements affecting particular services or the conduct of our business generally.

Anti-Money Laundering Laws

Our products and services are generally subject to federal anti-money laundering laws, including the Bank Secrecy Act, as amended by the USA PATRIOT Act, and similar state laws. On an ongoing basis, these laws require us, among other things, to:

 

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report large cash transactions and suspicious activity;

 

   

 

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screen transactions against the U.S. government's watch-lists, such as the watch-list maintained by the Office of Foreign Assets Control;



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prevent the processing of transactions to or from certain countries, individuals, nationals and entities;

 

   

 

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identify the dollar amounts loaded or transferred at any one time or over specified periods of time, which requires the aggregation of information over multiple transactions;

 

   

 

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gather and, in certain circumstances, report customer information;

 

   

 

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comply with consumer disclosure requirements; 

 

   

 

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register or obtain licenses with state and federal agencies in the United States and seek registration of any retail distributors when necessary.

     

Anti-money laundering regulations are constantly evolving. We continuously monitor our compliance with anti-money laundering regulations and implement policies and procedures to make our business practices flexible, so we can comply with the most current legal requirements. We cannot predict how these future regulations might affect us. Complying with future regulation could be expensive or require us to change the way we operate our business.

Money Transfer and Payment Instrument Licensing Regulations

We are not currently subject to money transfer and payment instrument licensing regulations; however, we have plans to introduce products in the future that would be subject to such regulations.  Currently, we believe that 39 U.S. jurisdictions would require us to obtain a license to operate a money transfer business.  As a licensee, we would be subject to certain restrictions and requirements, including reporting, net worth and surety bonding requirements and requirements for regulatory approval of controlling stockholders, agent locations and consumer forms and disclosures. We would also subject to inspection by the regulators in the jurisdictions in which we are licensed, many of which conduct regular examinations.  In addition, we would be required to maintain "permissible investments" in an amount equivalent to all "outstanding payment obligations."

Escheatment Laws

Unclaimed property laws of every U.S. jurisdiction require that we track certain information on our card products and services and that, if customer funds are unclaimed at the end of an applicable statutory abandonment period, the proceeds of the unclaimed property be remitted to the appropriate jurisdiction.  

Privacy and Information Safeguard Laws

In the ordinary course of our business, we or our third party service providers collect certain types of data, which subjects us to certain privacy and information security laws in the United States, including, for example, the Gramm-Leach-Bliley Act of 1999, or the GLB Act, and other laws or rules designed to regulate consumer information and mitigate identity theft. We are also subject to privacy laws of various states. These state and federal laws impose obligations with respect to the collection, processing, storage, disposal, use and disclosure of personal information, and require that financial institutions have in place policies regarding information privacy and security. In addition, under federal and certain state financial privacy laws, we must provide notice to consumers of our policies and practices for sharing nonpublic information with third parties, provide advance notice of any changes to our policies and, with limited exceptions, give consumers the right to prevent use of their nonpublic personal information and disclosure of it to unaffiliated third parties. Certain state laws may, in some circumstances, require us to notify affected individuals of security breaches of computer databases that contain their personal information. These laws may also require us to notify state law enforcement, regulators or consumer reporting agencies in the event of a data breach, as well as businesses and governmental agencies that own data. In order to comply with the privacy and information safeguard laws, we have confidentiality/information security standards and procedures in place for our business activities and with our third-party vendors and service providers. Privacy and information security laws evolve regularly, requiring us to adjust our compliance program on an ongoing basis and presenting compliance challenges.


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Bank Regulations

All of the cards that we service are issued by a state-chartered bank. Thus, we are subject to the oversight of the regulators for, and certain laws applicable to, these card issuing banks. These banking laws require us, as a servicer to the banks that issue our cards, among other things, to undertake compliance actions similar to those described under "– Anti-Money Laundering Laws" above and to comply with the privacy regulations promulgated under the GLB Act as discussed under "– Privacy and Information Safeguard Laws" above. Consumer Protection Laws

Certain products that we anticipate introducing in the future would be subject to state and federal consumer protection laws, including laws prohibiting unfair and deceptive practices, regulating electronic fund transfers and protecting consumer nonpublic information. Before we introduce those products, we will have to develop appropriate procedures for compliance with these consumer protection laws.

Card Associations

In order to provide our products and services, we, as well as the banks that issue our cards, must be registered with Visa and MasterCard, as well as any other networks that we desire to use, such as Pulse, NYCE and Star, and, as a result, are subject to card association rules that could subject us to a variety of fines or penalties that may be levied by the card association or network for certain acts or omissions. The banks that issue our cards are specifically registered as "members" of the Visa and/or MasterCard card associations. Visa and MasterCard set the standards with which we and the card issuing banks must comply.

False Claims Laws and Other Fraud and Abuse Restrictions

We provide claims processing and other transaction services to pharmaceutical companies that relate to, or directly involve, the reimbursement of pharmaceutical costs covered by Medicare, Medicaid, other federal healthcare programs and private payers. As a result of these aspects of our business, we may be subject to, or contractually required to comply with, state and federal laws that govern various aspects of the submission of healthcare claims for reimbursement and the receipt of payments for healthcare items or services. These laws generally prohibit an individual or entity from knowingly presenting or causing to be presented claims for payment to Medicare, Medicaid or other third party payers that are false or fraudulent. False or fraudulent claims include, but are not limited to, billing for services not rendered, failing to refund known overpayments, misrepresenting actual services rendered in order to obtain higher reimbursement, improper coding and billing for medically unnecessary goods and services. Many of these laws provide significant civil and criminal penalties for noncompliance and can be enforced by private individuals through “whistleblower” or qui tam actions. To avoid liability, providers and their contractors must, among other things, carefully and accurately code, complete and submit claims for reimbursement.



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From time to time, constituents in the healthcare industry, including us, may be subject to actions under the federal False Claims Act or other fraud and abuse provisions. We cannot guarantee that state and federal agencies will regard any billing errors we process as inadvertent or will not hold us responsible for any compliance issues related to claims we handle on behalf of providers and payers. Although we believe our editing processes are consistent with applicable reimbursement rules and industry practice, a court, enforcement agency or whistleblower could challenge these practices. We cannot predict the impact of any enforcement actions under the various false claims and fraud and abuse laws applicable to our operations. Even an unsuccessful challenge of our practices could cause adverse publicity and cause us to incur significant legal and related costs.

Privacy and Security Standards under HIPAA or Other Laws.  

The Health Insurance Portability and Accountability Act of 1996 contains privacy regulations and the security regulations that apply to some of our operations. The privacy regulations extensively regulate the use and disclosure of individually identifiable health information by entities subject to HIPAA. For example, the privacy regulations permit parties to use and disclose individually identifiable health information for treatment and to process claims for payment, but other uses and disclosures, such as marketing communications, require written authorization from the individual or must meet an exception specified under the privacy regulations. The privacy regulations also provide patients with rights related to understanding and controlling how their health information is used and disclosed. To the extent permitted by the privacy regulations, ARRA and our contracts with our customers, we may use and disclose individually identifiable health information to perform our services and for other limited purposes, such as creating de-identified information. Determining whether data has been sufficiently de-identified to comply with the privacy regulations and our contractual obligations may require complex factual and statistical analyses and may be subject to interpretation. The security regulations require certain entities to implement and maintain administrative, physical and technical safeguards to protect the security of individually identifiable health information that is electronically transmitted or electronically stored. We have implemented and maintain policies and processes to assist us in complying with the privacy regulations, the security regulations and our contractual obligations. We cannot provide assurance regarding how these standards will be interpreted, enforced or applied to our operations.  If we are unable to properly protect the privacy and security of health information entrusted to us, we could be subject to substantial penalties, damages and injunctive relief.

In addition to HIPAA, numerous other state and federal laws govern the collection, dissemination, use, access to and confidentiality of individually identifiable health information and healthcare provider information. In addition, some states are considering new laws and regulations that further protect the confidentiality, privacy and security of medical records or other types of medical information. In many cases, these state laws are not preempted by the HIPAA privacy regulations and may be subject to interpretation by various courts and other governmental authorities. Further, the U.S. Congress and a number of states have considered or are considering prohibitions or limitations on the disclosure of medical or other information to individuals or entities located outside of the United States.



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Research and Development Expenditures

We spent $141,495 and $86,948 on research and development in years 2008 and 2009, respectively.

Patents and Trademarks

We protect our intellectual property rights through a combination of trademark, patent, copyright and trade secrets laws.  At this time, we have not applied for any registered trademarks or patents covering any of the products or services that we currently offer.  

In order to limit access to and disclosure of our proprietary information, all of our employees and consultants have signed confidentiality and we enter into nondisclosure agreements with third parties. We cannot provide assurance that the steps we have taken to protect our intellectual property rights, however, will deter adequately infringement or misappropriation of those rights. Particularly given the international nature of the Internet, the rate of growth of the Internet and the ease of registering new domain names, we may not be able to detect unauthorized use of our intellectual property or take enforcement action .

Employees and Consultants

At July 22, 2010, we had six employees.

We have no collective bargaining agreements with our employees, and believe all consulting and employment agreements relationships are satisfactory.  We hire independent contractors on an as-needed basis, and we may retain additional employees and consultants during the next twelve months, including additional executive management personnel with substantial experience in pharmaceutical sampling market and development business.

ITEM 1A. RISK FACTORS.

An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this registration statement, including our consolidated financial statements and related notes included elsewhere in this prospectus, before deciding to invest in our common stock. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our common stock could decline and you could lose part or all of your investment.



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Risks Related to Our Business

Because our auditor has issued a going concern opinion regarding our company, there is an increased risk associated with an investment in our company.

Our auditor has issued a going concern opinion on our financial statements, which means that our auditor has substantial doubt about our ability to continue as a going concern.  We plan to seek additional sources of capital through the issuance of debt or equity financing to fund new marketing initiatives and repayment of debt, but there can be no assurance we will be successful in accomplishing our objectives.  Our ability to continue as a going concern is dependent on additional sources of capital and the success of generating sufficient revenues to fund our operating activities and pay our obligations.  Our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. As a result, there is an increased risk that you could lose the entire amount of your investment in us.

Our growth rates may decline in the future.

In fiscal 2009, we experienced rapid growth as a result increased sales resulting from the continued acceptance of our pharmaceutical sampling card by the pharmaceutical industry. However, we have not experienced the same growth in 2010.  There can be no assurance that we will be able to resume our historical growth rates in future periods. In the near term, our continued growth depends in significant part on our ability, among other things, to attract new pharmaceutical companies as clients, and to convince pharmaceutical companies that the distribution of debit cards is a more effective marketing tool than the distribution of actual samples.  Our continued growth also depends on our ability to develop and market other debit card products that can utilize the platform that we have developed for our pharmaceutical sampling business.  

As the prepaid financial services industry continues to develop, our competitors may be able to offer products and services that are, or that are perceived to be, substantially similar to or better than ours. This may force us to compete on the basis of price and to expend significant marketing, product development and other resources in order to remain competitive. Even if we are successful at increasing our operating revenues through our various initiatives and strategies, we will experience an inevitable decline in growth rates as our operating revenues increase to higher levels and we may also experience a decline in margins. If our operating revenue growth rates slow materially or decline, our business, operating results and financial condition could be adversely affected.

Our business could suffer if there is a change in pharmaceutical marketing expenditures.

At this time, our primary product is the marketing of debit cards for pharmaceutical sampling programs, and as such we are dependent on the size of the marketing budgets of major pharmaceutical companies and how those budgets are allocated among different marketing opportunities available to them.  In the event there are is a material decline in the size of pharmaceutical marketing budgets, we could see a decline in revenues.  In addition, if pharmaceutical companies begin to allocate their marketing budgets to other forms of advertising that they believe are more cost effective, we could also see a decline in revenues.    



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We operate in a highly regulated environment, and failure by us or business partners to comply with applicable laws and regulations could have an adverse effect on our business, financial position and results of operations.

We operate in a highly regulated environment, and failure by us or our business partners to comply with the laws and regulations to which we are subject could negatively impact our business. We are subject to state money transmission licensing requirements and a wide range of federal and other state laws and regulations, which are described under "Business – Regulation" above. In particular, our products and services are subject to an increasingly strict set of legal and regulatory requirements intended to protect consumers and to help detect and prevent money laundering, terrorist financing and other illicit activities.

Many of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions, and ensuring compliance with them is difficult and costly. For example, with increasing frequency, federal and state regulators are holding businesses like ours to higher standards of training, monitoring and compliance, including monitoring for possible violations of laws by the businesses that participate in our reload network. Failure by us or those businesses to comply with the laws and regulations to which we are subject could result in fines, penalties or limitations on our ability to conduct our business, or federal or state actions, any of which could significantly harm our reputation with consumers and other network participants, banks that issue our cards and regulators, and could materially and adversely affect our business, operating results and financial condition.

Changes in the laws, regulations, credit card association rules or other industry standards affecting our business may impose costly compliance burdens and negatively impact our business.

There may be changes in the laws, regulations, card association rules or other industry standards that affect our operating environment in substantial and unpredictable ways. Changes to statutes, regulations or industry standards, including interpretation and implementation of statutes, regulations or standards, could increase the cost of doing business or affect the competitive balance. For example, more stringent anti-money laundering regulations could require the collection and verification of more information from our customers, which could have a material adverse effect on our operations.  Regulation of the payments industry has increased significantly in recent years. A number of regulations impacting the credit card industry were recently implemented. Additional changes may require us to incur significant expenses to redevelop our products. Also, failure to comply with laws, rules and regulations or standards to which we are subject, including with respect to privacy and data use and security, could result in fines, sanctions or other penalties, which could have a material adverse affect on our financial position and results of operations, as well as damage our reputation.

A data security breach could expose us to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.

We, the banks that issue our cards, our third party service providers receive, transmit and store confidential customer and other information in connection with our products and services. The encryption software and the other technologies we and our partners use to provide security for storage, processing and transmission of confidential customer and other information may not be effective to protect against data security breaches. The risk of unauthorized circumvention of our security measures has been heightened by advances in computer capabilities and the increasing sophistication of hackers. The banks that issue our cards, our clients and our third-party processors also may experience similar security breaches involving the receipt, transmission and storage of our confidential customer and other information. Improper access to our or these third parties' systems or databases could result in the theft, publication, deletion or modification of confidential customer and other information.



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A data security breach of the systems on which sensitive cardholder data and account information are stored could lead to fraudulent activity involving our products and services, reputational damage and claims or regulatory actions against us. If we are sued in connection with any data security breach, we could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our operating revenues and profitability. We would also likely have to pay (or indemnify the banks that issue our cards for) fines, penalties and/or other assessments imposed by Visa or MasterCard as a result of any data security breach. Further, a significant data security breach could lead to additional regulation, which could impose new and costly compliance obligations. In addition, a data security breach at one of the banks that issue our cards or our third party service providers could result in significant reputational harm to us and cause the use and acceptance of our cards to decline, either of which could have a significant adverse impact on our operating revenues and future growth prospects.

We Have Substantial Liabilities That May Require That We Raise Capital.

As of June 30, 2010, we had $202,059 of cash, current assets (excluding restricted cash) of $242,690, current liabilities (excluding of card funding liabilities funded by restricted cash) of $3,510,634, and a working capital deficit of ($3,267,944).  Our current liabilities include $1,069,982 of accounts payable and accrued liabilities, many of which are past due, and $2,440,652 of loans payable that are classified as current because the loan is either evidenced by a note that has matured or is not documented by a note at all.  We are currently able to pay our accounts payable that are essential to our continued operation in the ordinary course of business from our ongoing revenues, but have not paid other accounts payable that are held by nonessential vendors.  We have managed to forestall any legal action by all of our creditors by maintaining good relations with our creditors.  However, if any material creditor decides to commence legal action to collect from us, it could jeopardize our ability to continue in business.  Our plan is to renegotiate the payment terms of our indebtedness or request that creditors convert their debt into common stock.  

The industry in which we compete is highly competitive, which could adversely affect our operating revenue growth.

A number of other companies provide debit cards for the pharmaceutical sampling business, including McKesson, Emdeon and Trial Card.  We also compete for the marketing dollars of pharmaceutical companies with other forms of marketing, such as mass media advertising and direct sales.

We believe that our existing competitors have longer operating histories, are substantially larger than we are, may already have or could develop substantially greater financial and other resources than we have, may offer, develop or introduce a wider range of programs and services than we offer or may use more effective advertising and marketing strategies than we do to achieve broader brand recognition, customer awareness and retail penetration. We may also face price competition that results in decreases in the purchase and use of our products and services. To stay competitive, we may have to increase the incentives that we offer to our marketing partners and decrease the prices of our products and services, which could adversely affect our operating results.



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We rely on relationships with card issuing banks to conduct our business, and our results of operations and financial position could be materially and adversely affected if we fail to maintain these relationships or we maintain them under new terms that are less favorable to us.

Substantially all of our cards are issued by Monterey County Bank. Our relationship with this bank is currently, and will be for the foreseeable future, a critical component of our ability to conduct our business and to maintain our revenue and expense structure, because we are currently unable to issue our own cards. If we lose or do not maintain existing banking relationships, we would incur significant switching and other costs and expenses and we and users of our products and services could be significantly affected, creating contingent liabilities for us. As a result, the failure to maintain adequate banking relationships could have a material adverse effect on our business, results of operations and financial condition. Our agreement with the bank that issue our cards provide for revenue-sharing arrangements and cost and expense allocations between the parties. Changes in the revenue-sharing arrangements or the costs and expenses that we have to bear under these relationships could have a material impact on our operating expenses. In addition, we may be unable to maintain adequate banking relationships or, following their expiration in 2013, renew our agreements with the banks that currently issue substantially all of our cards under terms at least as favorable to us as those existing before renewal.

We receive important services from third-party vendors, and replacing them could entail unexpected integration costs

Some services relating to our business, including fraud management and other customer verification services, transaction processing and settlement, pharmacy claims adjudication, card production and customer service, are outsourced to third-party vendors. All of our vendors could be replace with competitors if our vender terminated our contract or went out of business.  However, in some cases replacing a vendor would entail one-time integration costs to connect our systems to the successor’s systems, and could result in less advantageous contract terms for the same service, which could adversely affect our profitability.  

Changes in credit card association or other network rules or standards set by Visa and MasterCard, or changes in card association and debit network fees or products or interchange rates, could adversely affect our business, financial position and results of operations.

We and the banks that issue our cards are subject to Visa and MasterCard, Pulse, NYCE and Star association rules that could subject us to a variety of fines or penalties that may be levied by the card associations or networks for acts or omissions by us or businesses that work with us. The termination of the card association registrations held by us or any of the banks that issue our cards 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 our ability to provide our products and services could have an adverse effect on our business, operating results and financial condition. In addition, from time to time, card associations increase the organization and/or processing fees that they charge, which could increase our operating expenses, reduce our profit margin and adversely affect our business, operating results and financial condition.



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For example, a portion of our operating revenues is derived from interchange fees. The amount of interchange revenues that we earn is highly dependent on the interchange rates that Visa and MasterCard set and adjust from time to time. There is a risk that interchange rates for certain products and certain issuing banks will decline significantly in the future as a result of the expected enactment of the Dodd-Frank Bill. If interchange rates decline, whether due to actions by Visa or MasterCard or future legislation or regulation, we would likely need to change our fee structure to compensate for lost interchange revenues. To the extent we increase the pricing of our products and services, we might find it more difficult to acquire consumers and to maintain or grow card usage and customer retention. We also might have to discontinue certain products or services. As a result, our operating revenues, operating results, prospects for future growth and overall business could be materially and adversely affected.

We may not be able to successfully manage our intellectual property and may be subject to infringement claims.

In the rapidly developing legal framework, we rely on a combination of contractual rights and copyright, trademark and trade secret laws to establish and protect our proprietary technology. Despite our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property or may develop software or technology competitive to us. Our competitors may independently develop similar technology, duplicate our products or services or design around our intellectual property rights. We may have to litigate to enforce and protect our intellectual property rights, trade secrets and know-how or to determine their scope, validity or enforceability, which is expensive and could cause a diversion of resources and may not prove successful. The loss of intellectual property protection or the inability to secure or enforce intellectual property protection could harm our business and ability to compete.

We may also be subject to costly litigation in the event our products and technology infringe upon another party’s proprietary rights. Third parties may have, or may eventually be issued, patents that would be infringed by our products or technology. Any of these third parties could make a claim of infringement against us with respect to our products or technology. We may also be subject to claims by third parties for breach of copyright, trademark or license usage rights. Any such claims and any resulting litigation could subject us to significant liability for damages. An adverse determination in any litigation of this type could require us to design around a third party’s patent or to license alternative technology from another party. In addition, litigation is time consuming and expensive to defend and could result in the diversion of the time and attention of our management and employees. Any claim from third parties may result in limitation on our ability to use the intellectual property subject to these claims.

Additional equity or debt financing may be dilutive to existing stockholders or impose terms that are unfavorable to us or our existing stockholders.

We plan to raise capital through a private placement of our common stock to repay indebtedness and provide capital for our expansion into other products and services using our debit card platform.  If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may involve arrangements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, that are not favorable to us or our current stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies and products or grant unfavorable license terms.



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We depend on key personnel and could be harmed by the loss of their services because of the limited number of qualified people in our industry.

Because of our small size, we require the continued service and performance of our management team, sales and technology employees, all of whom we consider to be key employees. Competition for highly qualified employees in the financial services and healthcare industry is intense. Our success will depend to a significant degree upon our ability to attract, train, and retain highly skilled directors, officers, management, business, financial, legal, marketing, sales, and technical personnel and upon the continued contributions of such people. In addition, we may not be able to retain our current key employees. The loss of the services of one or more of our key personnel and our failure to attract additional highly qualified personnel could impair our ability to expand our operations and provide service to our customers.

Our future success depends on our ability to attract, integrate, retain and incentivize key personnel.

Our future success will depend, to a significant extent, on our ability to attract, integrate, retain and incentivize key personnel, namely our management team and experienced sales, marketing and program and systems management personnel. We must retain and motivate existing personnel, and we must also attract, assimilate and motivate additional highly-qualified employees. We may experience difficulty assimilating our newly-hired personnel, which may adversely affect our business. Competition for qualified management, sales, marketing and program and systems management personnel can be intense. Competitors have in the past and 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.

Security and privacy breaches of our electronic transactions may damage customer relations and inhibit our growth.

Any failures in our security and privacy measures could have a material adverse effect on our business, financial condition and results of operations. While we do not currently store personal information about consumers, some of the products we are contemplating offering in the future would require that we store personal information, including birth dates, addresses, bank account numbers, credit card information, social security numbers and merchant account numbers. If we are unable to protect this information, or if consumers perceive that we are unable to protect this information, our business and the growth of the electronic commerce market in general could be materially adversely affected. A security or privacy breach may:

§

cause our customers to lose confidence in our services;

§

deter consumers from using our services;

§

harm our reputation;



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§

require that we expend significant additional resources related to our information security systems and could result in a disruption of our operations;

§

expose us to liability;

§

increase expenses related to remediation costs; and

§

decrease market acceptance of electronic commerce transactions and SVC use.

Although management believes that we have utilized proven applications designed for premium data security and integrity in electronic transactions, our use of these applications may be insufficient to address changing market conditions and the security and privacy concerns of existing and potential customers.

The market for electronic commerce services is evolving and may not continue to develop or grow rapidly enough for us to become profitable.

If the number of electronic commerce transactions does not continue to grow or if consumers or businesses do not continue as projected to adopt our products and services, it could have a material adverse effect on our business, financial condition and results of operations. Management believes future growth in the electronic commerce market will be driven by the cost, ease of use and quality of products and services offered to consumers and businesses. In order to reach and thereafter maintain our profitability, consumers and businesses must continue to adopt our products and services.

The debit card and SVC industry is a fairly new industry that is developing and building standards, processes and relationships.

We are a developmental company building our networks and relationships. In the course of this development of our network, relationships, load locations and related systems, there exists the possibility that the associated companies may delay roll-out of our products and services.  These delays could have an adverse effect on cash flow, sales and inventory levels.

If we do not respond to rapid technological change or changes in industry standards, our products and services could become obsolete and we could lose our customers.

If competitors introduce new products and services, or if new industry standards and practices emerge, our existing product and service offerings, technology and systems may become obsolete. Further, if we fail to adopt or develop new technologies or to adapt our products and services to emerging industry standards, we may lose current and future customers, which could have a material adverse effect on our business, financial condition and results of operations. The electronic commerce industry is changing rapidly. To remain competitive, we must continue to enhance and improve the functionality and features of our products, services and technologies.



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Changes in the Bank Secrecy Act and/or the USA PATRIOT Act could impede our ability to circulate cards that can be easily loaded or issued.

Our current compliance program and screening process for the distribution and/or sale of SVCs is designed to comply with the Bank Secrecy Act (“BSA”) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the “USA PATRIOT Act”).  These regulations require financial institutions to obtain and confirm information related to their respective cardholders. If the BSA and/or the USA PATRIOT Act or subsequent legislation increases the level of scrutiny that we must apply to our cardholders and customers, it may be costly or impractical for us to continue to profitably issue and load cards for our customers.

Internal processing errors could result in our failing to appropriately reflect transactions in customer accounts.

In the event of a system failure that goes undetected for a substantial period of time, we could allow transactions on blocked accounts, confirm false authorizations, fail to deduct charges from accounts or fail to detect systematic fraud or abuse. Errors or failures of this nature could adversely impact our operations, our credibility and our financial standing.

Our business is dependent on the efficient and uninterrupted operation of computer network systems and data centers.

Our ability to provide reliable service to our clients and cardholders depends on the efficient and uninterrupted operation of our computer network systems and data centers as well as those of our third party service providers. Our business involves movement of large sums of money, processing of large numbers of transactions and management of the data necessary to do both. Our success depends upon the efficient and error-free handling of the money. We rely on the ability of our employees, systems and processes and those of the banks that issue our cards, our third party service providers to process and facilitate these transactions in an efficient, uninterrupted and error-free manner.

In the event of a breakdown, a catastrophic event (such as fire, natural disaster, power loss, telecommunications failure or physical break-in), a security breach or malicious attack, an improper operation or any other event impacting our systems or processes, or those of our vendors, or an improper action by our employees, agents or third-party vendors, we could suffer financial loss, loss of customers, regulatory sanctions and damage to our reputation. The measures we have taken, including the implementation of disaster recovery plans and redundant computer systems, may not be successful, and we may experience other problems unrelated to system failures. We may also experience software defects, development delays and installation difficulties, any of which could harm our business and reputation and expose us to potential liability and increased operating expenses.  We currently do not carry business interruption insurance.   

Difficult conditions in the economy generally may materially adversely affect our business and results of operations, and we do not expect these conditions to improve in the near future.

Our results of operations are materially affected by conditions in the economy generally. The capital and credit markets have been experiencing extreme volatility and disruption for more than twelve months at unprecedented levels. Recently, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining U.S. real estate market have contributed to increased volatility and diminished expectations for the economy and consumer spending. These factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and national recession. These events and the continuing market upheavals may have an adverse effect on us because we are dependent upon customer and consumer behavior. Our revenues are likely to decline in such circumstances. In addition, in the event of extreme and prolonged market events, such as the global credit crisis, we could incur significant losses.



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Factors such as consumer spending, business investment, the volatility and strength of the capital markets, and inflation all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our SVC products and services could be adversely affected. Adverse changes in the economy could affect our results negatively and could have a material adverse effect on our business and financial condition. The current mortgage crisis and economic slowdown has also raised the possibility of future legislative and regulatory actions that could further impact our business. We cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations and financial condition.

The soundness of other institutions and companies could adversely affect us.

Our ability to engage in loading and purchasing transactions could be adversely affected by the actions and failure of other institutions and companies, our card issuing banks and distributors that carry our SVCs.  As such, we have exposure to many different industries and counterparties. As a result, defaults by, or even questions or rumors about, one or more of these institutions or companies could lead to losses or defaults by us or other institutions. Losses related to these defaults or failures could materially and adversely affect our results of operations.

A prolonged economic downturn could reduce our customer base and demand for our products.

We are in uncertain economic times, including uncertainty with respect to financial markets that have been volatile as a result of sub-prime mortgage related and other matters. Our success significantly depends upon the growth of demand of our products from a growing customer base. If the communities in which we operate do not grow, or if prevailing economic conditions locally, nationally or internationally are unfavorable, our business may not succeed. A prolonged economic downturn would likely contribute to the deterioration of the demand for SVC’s and our products and services, which in turn would hurt our business. A prolonged economic downturn could, therefore, result in losses that could materially and adversely affect our business.



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Risks Related to Our Common Stock

There Is A Limited Market For Our Common Stock.

The trading market for our common stock is limited.  Our common stock is trading on Pink Sheets and is not eligible for trading on any national or regional securities exchange or the Nasdaq National Market.  We plan to apply for trading on the OTC Bulletin Board after we register our common stock under Section 12 of the Securities Exchange Act.  A more active trading market for our common stock may never develop, or if such a market develops, it may not be sustained.

Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading Market in Our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

·

that a broker or dealer approve a person's account for transactions in penny stocks; and

·

the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

·

obtain financial information and investment experience objectives of the person; and

·

make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

·

sets forth the basis on which the broker or dealer made the suitability determination; and

·

that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.



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Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Concentration of ownership among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions.

Our current directors, executive officers, holders of more than 5% of our total shares of common stock outstanding and their respective affiliates will, in the aggregate, beneficially own approximately 67.4% of our outstanding common stock. As a result, these stockholders will be able to exercise a controlling influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have significant influence over our management and policies for the foreseeable future. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your interests. The concentration of ownership could delay or prevent a change in control of our company or otherwise discourage a potential acquirer from attempting to obtain control of our company, which in turn could reduce the price of our common stock. In addition, these stockholders, some of which have representatives sitting on our board of directors, could use their voting control to maintain our existing management and directors in office, delay or prevent changes of control of our company, or support or reject other management and board of director proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.

Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale.

We have outstanding 35,233,639 shares of our common stock, assuming no exercise of outstanding options or warrants.  None of the shares are subject to any lock-up agreements, and all are eligible for sale, subject in some cases to volume and other restrictions imposed by Rule 144.  Sales of substantial amounts of our common stock in the public market, or even the perception that these sales could occur, could cause the trading price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

We Will Incur Significant Costs As A Result Of Operating As A Public Company. We May Not Have Sufficient Personnel For Our Financial Reporting Responsibilities, Which May Result In The Untimely Close Of Our Books And Record And Delays In The Preparation Of Financial Statements And Related Disclosures.

As a registered public company, we will experience an increase in legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as well as new rules subsequently implemented by the SEC, has imposed various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and make some activities more time-consuming and costly.



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If we are not able to comply with the requirements of Sarbanes-Oxley Act, or if we or our independent registered public accounting firm identifies additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC and other regulatory authorities.

Our operating results may fluctuate in the future, which could cause our stock price to decline.

Our quarterly and annual results of operations may fluctuate in the future as a result of a variety of factors, many of which are outside of our control. If our results of operations fall below the expectations of investors or any securities analysts who follow our common stock, the trading price of our common stock could decline substantially. Fluctuations in our quarterly or annual results of operations may be due to a number of factors, including, but not limited to: 

the timing and volume of purchases, use and reloads of our prepaid cards and related products and services;

the timing and success of new product or service introductions by us or our competitors;

seasonality in the purchase or use of our products and services;

reductions in the level of interchange rates that can be charged;

fluctuations in customer retention rates;

changes in the mix of products and services that we sell;

changes in the mix of retail distributors through which we sell our products and services;

the timing of commencement, renegotiation or termination of relationships with significant our third party service providers;

changes in our or our competitors' pricing policies or sales terms;

the timing of commencement and termination of major advertising campaigns;

the timing of costs related to the development or acquisition of complementary businesses;

the timing of costs of any major litigation to which we are a party;

the amount and timing of operating costs related to the maintenance and expansion of our business, operations and infrastructure;



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our ability to control costs, including third-party service provider costs;

volatility in the trading price of our common stock, which may lead to higher stock-based compensation expenses or fluctuations in the valuations of vesting equity; and

changes in the regulatory environment affecting the banking or electronic payments industries generally or prepaid financial services specifically.

The price of our common stock may be volatile, and you could lose all or part of your investment.

In the recent past, stocks generally, and financial services company stocks in particular, have experienced high levels of volatility. The trading price of our common stock may fluctuate substantially. The trading price of our common stock will depend on a number of factors, including those described in this "Risk Factors" section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock as you may be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the trading price of our common stock include the following:

price and volume fluctuations in the overall stock market from time to time;

significant volatility in the market prices and trading volumes of financial services company stocks;

actual or anticipated changes in our results of operations or fluctuations in our operating results;

actual or anticipated changes in the expectations of investors or the recommendations of any securities analysts who follow our common stock;

actual or anticipated developments in our business or our competitors' businesses or the competitive landscape generally;

the public's reaction to our press releases, other public announcements and filings with the SEC;

litigation involving us, our industry or both or investigations by regulators into our operations or those of our competitors;

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

changes in accounting standards, policies, guidelines, interpretations or principles;

general economic conditions; and

sales of shares of our common stock by us or our stockholders.



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In the past, many companies that have experienced volatility in the market price of their stock have become subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our common stock, the trading price of our common stock could decline.

We expect that the trading price for our common stock will be affected by any research or reports that securities analysts publish about us or our business. If one or more of the analysts who may elect to cover us or our business downgrade their evaluations of our common stock, the price of our common stock would likely decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market for our common stock, which in turn could cause our stock price to decline.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our capital stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. As a result, you will likely receive a return on your investment in our common stock only if the market price of our common stock increases.

ITEM 2. FINANCIAL INFORMATION.

Disclosure Regarding Forward Looking Statements

This registration statement contains forward-looking statements.  In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” and similar expressions.  All of the forward-looking statements contained in this registration statement are based on estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market and other factors. Although we believe such estimates and assumptions are reasonable, they are inherently uncertain and involve risks and uncertainties. In addition, management’s assumptions about future events may prove to be inaccurate. We caution you that the forward-looking statements contained in this registration statement are not guarantees of future performance and we cannot assure you that such statements will be realized. In all likelihood, actual results will differ from those contemplated by such forward-looking statements as a result of a variety of factors, including those factors discussed in “Item 1. Business - Risk Factors.” We will update these forward-looking statements only as required by law. However, we do not undertake any other responsibility to update any forward-looking statements.

Overview

The Company provides financial transaction solutions for the healthcare industry specializing in the design, implementation and management of a broad spectrum of healthcare payment programs. By combining the technology infrastructure and expertise of a debit card financial transaction processor with the claims adjudication capabilities of a Pharmacy Benefits Manager, the Company is in a unique position to offer streamlined, seamless and intuitive payment solutions for all sectors of the healthcare industry.



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The Company’s focus is on delivering reliable and secure payment solutions to help healthcare companies, pharmaceutical companies and payers businesses succeed in an increasingly complex marketplace. By serving as a single source for payment processing and unique healthcare solutions the Company sets new standards in convenience, reliability and innovation, and seeks to create a win-win-win scenario for the healthcare companies, pharmaceutical companies and payers.

The Company’s proprietary, end-to-end approach is scalable and customizable, delivering cost benefits and revenue building opportunities to partners. The company manages all aspects of the debit card lifecycle, from managing the card design and approval processes with partners and associations, to production, packaging, distribution, and personalization. The Company also oversees inventory and security controls, renewals, lost and stolen card management and replacement.

The Company has issued more than 17 Million prepaid debit cards consisting of programs for several of the fortune 100 and 500 including many of the top pharmaceutical manufacturing companies in the world. Founded in 1995, the company and its founders have developed leading industry partners and relationships and will continue to push the company to leadership in the growing prepaid marketplace.

Results of Operations

Fiscal Years Ended December 31, 2009 and 2008

Revenues for the year ended December 31, 2009 were $4,201,075, an increase of $2,998,376 compared to the year ended December 31, 2008, when revenues were $1,202,699.  The substantial increase in revenue is due to an increase in processing of program cards compared to the prior year primarily due to continuing market acceptance of our processing platform.  

Cost of revenues for the year ended December 31, 2009 were $3,660,598, an increase of $2,613,114 compared to the year ended December 31, 2008, when cost of revenues were $1,047,484.  The increase in cost in revenues is directly related to the overall increase in revenues.  Cost of revenues constituted approximately 87% and 87% of total revenues in 2009 and 2008, respectively.

Gross profit for the year ended December 31, 2009 was $540,477, an increase of $385,262 compared to the year ended December 31, 2008, when gross profit was $155,215.  Our overall gross profit percentage approximated 13% and 13% during the fiscal years 2009 and 2008 which is consistent with our overall expectations.

Selling, general and administrative expenses for the year ended December 31, 2009 were $877,476, a decrease of $327,956 compared to the year ended December 31, 2008, when selling, general and administrative expenses were $1,205,432.  The decrease in selling, general and administrative expenses was attributable to the following: a $315,000 decrease in stock based expenses compared to the prior year resulting from incentive common stock issued consultants and employee compensation in 2008 but not in 2009; a $125,000 decrease in consulting expenses compared to the prior year; and a $73,000 reduction in payroll expenses related to the overall reduction of operations in our subsidiary, Wow Technologies, Inc.  



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Other income (expense) for the year ended December 31, 2009 was $447,875, an increase in net other income (expense) of $2,722,858 compared to the prior year ended December 31, 2008 when other income (expense) was ($2,274,983).  The overall increase in net other income (expense) in 2009 as compared to 2008 was attributable to two factors.  First, we recorded a gain on forgiveness of indebtedness of $527,673 in fiscal year 2009 related to debts in our subsidiary, Wow Technologies, Inc., that were discharged in the Chapter 11 bankruptcy proceedings of Wow.  Second, in the year ended December 31, 2008, we incurred an impairment charge on our goodwill of ($2,142,112) which eliminated all of our capitalized goodwill as of December 31, 2008.  The goodwill resulted from our acquisition of a controlling interest in Wow in 2007.

Our net loss for the year ended December 31, 2009 was ($96,140), a decrease of $2,727,349 compared to the year ended December 31, 2008, when we recorded a net loss of ($2,823,489).  The overall change in net loss is attributable to the aforementioned factors.

Six Months Ended June 30, 2010 and 2009


Revenues for the six months ended June 30, 2010 were $1,484,000, a decrease of $485,000 compared to the six months ended June 30, 2009, when revenues were $1,969,000. The decrease in revenue was primarily due to the timing of the commencement and expiration of pharmaceutical card programs.

Cost of revenues for the six months ended June 30, 2010 were $1,174,000, a decrease of $549,000 compared to the six months ended June 30, 2009, when cost of revenues were $1,723,000. The decrease in cost of revenues was primarily attributable to the overall decrease in revenues. In addition, the mix of revenues in 2010 resulted in lower cost of revenues as a percentage of revenues as compared to the same period in 2009.  Cost of revenues constituted approximately 79% and 87% of total revenues in 2010 and 2009, respectively.

Gross profit for the six months ended June 30, 2010 was $309,000, an increase of $63,000 compared to the six months ended June 30, 2009, when gross profit was $246,000.  The increase in gross profit occurred because cost of revenues decreased more than revenues due to the overall mix of business.

Selling, general and administrative expenses for the six months ended June 30, 2010 were $259,000, a decrease of $288,000 compared to the six months ended June 30, 2009, when selling, general and administrative expenses were $547,000. The decrease in selling, general and administrative expenses was primarily attributable to a merger expense of $177,873 incurred in 2009 as the result of the issuance of shares to certain shareholders of Wow Technologies, Inc.  The remaining $110,758 of reduction in selling, general and administrative expense was due to savings resulting from the termination of operations at Wow Technologies, Inc., including a reduction in the number of employees, lower server hosting costs, and lower office rent.

Operating loss for the six months ended June 30, 2010 was ($20,000), a decrease of $352,000 compared to the six months ended June 30, 2009, when we experienced and operating loss of ($372,000). The decrease in operating loss compared to the same period in the prior year was primarily attributable to overall decrease in selling, general and administrative expenses.



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Other expense for the six months ended June 30, 2010 was ($34,000), a decrease of $5,000 compared to the prior six months ended June 30, 2009 when other expense was ($39,000).

Net loss for the six months ended June 30, 2010 was ($47,000), a decrease of $353,000 compared to the six months ended June 30, 2009, when we recorded a net loss of ($400,000). The overall change in net income (loss) is attributable to the aforementioned factors.

Liquidity and Capital Resources


We have financed our operations during the year primarily through the revenues generated and proceeds from borrowings.

As of June 30, 2010, our total current assets approximated $3,222,000 and total current liabilities approximated $6,490,000 which resulted in a working capital deficit of ($3,268,000).  By comparison, at December 31, 2009 our total current assets approximated $3,438,000 and total current liabilities approximated $6,807,000 resulting in a working capital deficit of ($3,369,000).  Our working capital deficit decreased by approximately $101,000 in the six months ended June 30, 2010, primarily as a result of the issuance of $60,000 of common stock for services and the conversion of debt of approximately $25,000 into common stock.

Our current liabilities include $1,069,982 of accounts payable and accrued liabilities, many of which are past due, and $2,440,652 of loans payable that are classified as current because the loan is either evidenced by a note that has matured or is not documented by a note at all.  We are currently able to pay our accounts payable that are essential to our continued operation in the ordinary course of business from our ongoing revenues, but have not paid other accounts payable that are held by nonessential vendors.  We have managed to forestall any legal action by all of our creditors by maintaining good relations with our creditors.  However, if any material creditor decides to commence legal action to collect from us, it could jeopardize our ability to continue in business.  Our plan is to renegotiate the payment terms of our indebtedness or request that creditors convert their debt into common stock.  

We believe that our available cash on hand at June 30, 2010 of $202,000 and revenues anticipated for the remainder of 2010 will be sufficient to sustain our operations for the next twelve months, provided that we are not required to pay any material amount of our delinquent accounts payable or our current notes payable. We will seek to obtain additional capital during the next twelve months through an equity offering. We also plan to request that some of our creditors convert their debt into equity to improve our financial position. However, there is no assurance we will be able to obtain additional capital as required, or obtain the capital on acceptable terms and conditions. We plan to use the proceeds to finance our entry into other markets for our debit cards, and to repay indebtedness. Our failure to obtain new capital will delay our entry into new markets, but will not jeopardize our ability to remain in business.  

Going Concern

Our financial statements have been presented on the basis that we continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, we incurred a net operating loss in the years ended December 31, 2009 and 2008, and the six months ended June 30, 2010, and we have substantial indebtedness that is due and payable.  These factors create an uncertainty about our ability to continue as a going concern.  We have entered into a private placement letter of intent with Colorado Financial Service Corporation, a FINRA registered broker dealer, to act as our lead placement agent to raise five million dollars for the company in equity and/or debt as determined by us. We are currently trying to raise capital through a private placement offering of preferred stock. However, there can be no guarantee that the placement agent will be successful in this endeavor.  Our ability to continue as a going concern is dependent on the success of this plan.  The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.



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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Estimates

Our significant accounting policies are described in Note 2 of Notes to Financial Statements. At this time, we are not required to make any material estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. However, as we begin actual mining operations, we will be required to make estimates and assumptions typical of other companies in the mining business.  

For example, we will be required to make critical accounting estimates related to future metals prices, obligations for environmental, reclamation, and closure matters, mineral reserves, and accounting for business combinations.  The estimates will require us to rely upon assumptions that were highly uncertain at the time the accounting estimates are made, and changes in them are reasonably likely to occur from period to period.  Changes in estimates used in these and other items could have a material impact on our financial statements in the future.

Our estimates will be based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates.

ITEM 3. PROPERTIES.

We lease 2,200 square feet of office space at 1700 W Horizon Ridge Parkway, Suite 102, Henderson, Nevada 89012, under a lease that runs through May 31, 2011 at a rate of $3,550 per month.  

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information, as of June 30, 2010, with respect to the beneficial ownership of our common stock by (i) all of our directors, (ii) each of our executive officers named in the Summary Compensation Table, (iii) all of our directors and named executive officers as a group, and (iv) all persons known to us to be the beneficial owner of more than five percent (5%) of any class of our voting securities.



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  Name and Address of Beneficial Owner

Amount and Nature of Beneficial Ownership

Percent of Class (1)

Mark Newcomer (2)

7,010,000

19.9%

     

Daniel H. Spence (2)

6,510,000

18.5%

     

David R. Weiler (2)

3,689,950

10.5%

     

Cynthia Korte

6929 E Hayden Rd, Suite C-4  PBM #487

Scottsdale, AZ 85250

2,442,000

6.9%

     

Anthony E. DePrima (2)

2,245,163

6.4%

     

Arthur De Joya (2)

1,050,000

3.0%

     

Christopher E. Newcomer (2)

1,000,000

2.8%

     

All Officers and Directors as a Group

21,305,113

61.1%

     

(1) Based upon 35,233,639 shares of Common Stock issued and outstanding as of June 30, 2010.

(2)  The address for the shareholder is 1700 W Horizon Ridge Pkwy, Ste 102, Henderson, NV 89012.

(3)  All reported shares are owned outright.

Equity Compensation Plan Information

The following table provides information as of December 31, 2009 about our outstanding compensation plans under which shares of stock have been authorized:

Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)

Weighted-average exercise price of outstanding options, warrants and rights (b)

Number of securities remaining available for future issuance (c)

Equity compensation plans approved by security holders

--

--

--

Equity compensation plans not approved by security holders

--

--

--

Total

--

--

--



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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.

Listed below are the directors and executive officers of the Company.

Name

Age

Present Positions with Company

Mark R. Newcomer

45

President & CEO, Chairman, Director

Arthur De Joya

44

CFO

Christopher E. Newcomer

49

CTO

David R. Weiler

55

CMO, Director

Daniel H. Spence

46

Director

Anthony E. DePrima, Esq.

71

Director

     

The following information sets forth the backgrounds and business experience of the directors and executive officers.

Mark R. Newcomer, Chairman, CEO, President, Director .  Mr. Newcomer serves as President and Chief Executive Officer of 3PEA International and has served in this capacity and as a Director since March 2006. From February of 2001 to present, Mr. Newcomer has served as Chairman and CEO of 3PEA Technologies, Inc., a payment solutions company he co-founded in 2001 with Mr. Spence. Mr. Newcomer continues to be a driving force in guiding the company's growth through technology investments, acquisitions, new product lines, and strategic partnerships. Mr. Newcomer attended Cal-Poly San Luis Obispo where he majored in Bio-Science.

Arthur De Joya, CPA, Chief Financial Officer .  Mr. De Joya serves as Chief Financial Officer of 3PEA International and has served in this capacity since October 2007 Mr. De Joya has over 13 years of experience in both public and private accounting mainly working with publicly traded companies.  Mr. De Joya’s experience in the private sector includes serving as financial advisor and chief financial officer for various publicly traded companies.  Mr. De Joya’s experience in public accounting includes being employed with KPMG LLP working with many large publicly traded companies.  Mr. De Joya is a partner and co-founder of De Joya Griffith & Company, LLC (PCAOB registered firm), a certified public accounting and consulting firm primarily working with publicly traded companies. Mr. De Joya received his B.S. in B.A. from the University of Nevada, Las Vegas and is a Certified Public Accountant licensed in the State of Nevada.  He is a member of the American Institute of Certified Public Accountants and Nevada Society of Certified Public Accountants.


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Christopher E. Newcomer, Chief Technology Officer .  Mr. Newcomer serves as Chief Technology Officer of 3PEA International.  From 2006 to 2009, Mr. Newcomer has played a key role in software development and architecture of 3PEA’s processing platforms.  From 2002 to 2006, Mr. Newcomer served as Founder and President of Newcomputing, a technology service provider and network design company specializing in the development and implementation of business software. Mr. Newcomer received his B.S. in Computer Science in 2000 from California State University San Bernardino.

David R. Weiler, Secretary, Chief Marketing Officer, Director .  Mr. Weiler serves as Secretary and Chief Marketing Officer of 3PEA International and has served as a Director since March 2006. Mr. Weiler has served as a Director of 3PEA Technologies, Inc., since August of 2002. From 1979-1983, Mr. Weiler began his career as a Systems Engineer and Systems Management Specialist in IBM Corporation’s Data Processing Division. From 1983 to 1985, Mr. Weiler served as a Management Consultant in the Chicago office of Touche Ross & Co., and from 1985 to 1988, he was a Senior Marketing Associate for LaSalle Partners, Inc. In 1988 Mr. Weiler relocated to Nashville, TN, to begin a career in the Healthcare Information Industry, including positions as Vice President, Sales for Inforum, Inc. (1988-1995), Vice President, Sales for Criterion Health Strategies (1995-1997), and Vice President, Sales and Client Services for the MedStat Group (1997-2000). From 2000 to the present, Mr. Weiler has been self employed as a private investor. In 1978, Mr. Weiler received a BA from the Northwestern University College of Arts and Sciences, where he majored in Economics. In 1979, he received a Masters of Management degree from the Kellogg Graduate School of Management at Northwestern University, where he majored in Marketing, Quantitative Methods, and Managerial Economics.

Daniel H. Spence, Director .  Mr. Spence serves as a Director of 3PEA International, and has served as a director since March 2006. Prior to founding 3PEA Technologies with co-founder Mark Newcomer, Mr. Spence designed and developed secure middleware for Internet financial processing systems in various contract positions. From 1995-1997 Mr. Spence was Systems Manager at The Associated Press, From 1997-1999, Mr. Spence was Director of Technology Planning at The Associated Press, the world’s largest news gathering organization with over 4000 employees in 227 countries. From 1984-1994, Mr. Spence was with Coca-Cola in Australia implementing financial and line of business systems for Coca-Cola operations worldwide. He has 20 years experience deploying large-scale technology solutions for major international corporations.

Anthony E. DePrima, JD., Director .  Mr. DePrima serves as a Director of 3PEA International, and has served as a director since October 2009. Mr. DePrima is a highly experienced attorney licensed in Arizona with broad corporate management experience.  He has been an active member of the State Bar of Arizona since April 1967 to the present, and a former member of the American Bar Association.  During this time he served as a Member of the U.S. Department of Commerce District Export Council for District of Arizona, and Chairman of the International Section of the Arizona Bar, Chairman of the Legal Advisory Committee of the Arizona Mexico Commission, and Director of the Arizona Mexico Commission.  His law practice has included Corporate, Commercial, Business, International Trade and US Customs Law, as well as general trial practice with numerous court and jury trials.  Mr. DePrima is currently a member of Lerch & DePrima PLC, attorneys. He is a Director and General Counsel of Coal Brick Oven Pizzeria, Inc., a Delaware corporation (Grimaldi’s Pizzeria chain of restaurants).  For over 20 years he has been Director and Secretary of Media Concepts, Inc., an Arizona corporation which publishes Native Peoples Magazine.  Through the years he has held positions of Director, Chief Executive Officer, President, Secretary, Executive Vice President, and Chief Financial Officer of medium sized publicly traded companies.  Mr. DePrima has a BS in General Business from Arizona State University School of Business, and Juris Doctorate from the University of Arizona.



34




 

Mark Newcomer and Christopher Newcomer are brothers.

None of the above directors and executive officers has been involved in any legal proceedings as listed in Regulation S-K, Section 401(f).

Board of Directors

Our board currently consists of four directors.  During 2009, our board of directors had 12 meetings.  All directors attended every meeting held during the time in which they served as directors.  There have been no material changes to the procedures by which security holders may recommend nominees to the board of directors.

Board Committees

We do not have an audit, nominating or compensation committee.  We intend, however, to establish an audit committee and a compensation committee of our Board of Directors in the future, once we have independent directors. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditor, evaluating our accounting policies and our system of internal controls. The compensation committee will be primarily responsible for reviewing and approving our salary and benefits policies (including stock options) and other compensation of our executive officers.  

We do not have an audit committee financial expert on our board because we do not have any independent directors.

Code of Ethics

Our Board of Directors has adopted a Code of Business Conduct and Ethics which is filed herewith as Exhibit 14.

ITEM 6. EXECUTIVE COMPENSATION.

The following table sets forth the compensation earned by our named Executive Officers during the last two fiscal years and other officers who received compensation in excess of $100,000 during any of the last three fiscal years. In accordance with Item 402(a)(5), we have omitted certain columns from the table required by Item 402(c).

 


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Summary Compensation Table

Name and Principal Position

Year

Salary

$

Stock Grant

$ (1)

Total

$

         

Mark Newcomer, President & CEO (1)

2009

2008

$   84,000

$   60,000

$     12,500

$               -

$         96,500

$         60,000

Omar Khandekar, Chief Information Officer

2009

2008

$             -

$   84,000

$               -

$     80,000

$                   -

$       154,000

         

(1)  The stock grant for Mr. Newcomer consisted of 1,250,000 shares valued at $0.01 per share.  The stock grant for Mr. Khandaker in 2008 consisted of 200,000 shares valued at $0.40 per share.

We did not grant any stock options or stock appreciation rights to our named executive officers in the last fiscal year, other than as described above.  We did not make any award to any named executive officer under any long-term incentive plan in the last fiscal year.  We did not reprice any options or stock appreciation rights during the last fiscal year.

We do not have any employment agreements with our officers.

Director Compensation

Name

Fees Earned or Paid in Cash ($)

Stock Awards ($)

Option Awards ($)

Non-Equity Incentive Plan Compensation ($)

Nonqualified Deferred Compensation Earnings ($)

All Other Compensation ($)

Total ($)

               

David Weiler*

-

$7,500

-

-

-

-

$7,500

Daniel Spence*

-

$7,500

-

-

-

-

$7,500

Anthony E. DePrima, Esq*

-

$7,500

-

-

-

-

$7,500

               

* The amounts were accrued in 2009, and ultimately paid in 2010 with shares of common stock valued at $0.01 per share.   

We do not have any policy regarding the compensation of directors and have paid no compensation for director services in the last two years.  

ITEM 7.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

We are indebted to Cynthia Korte in the amount of $501,000 as of December 31, 2008 and 2009 pursuant to a note that bears interest at 8.5% per annum, and which is unsecured and due on demand.  Ms. Korte is a related party by virtue of her ownership of 2,442,000 shares of common stock, or 6.9% of our outstanding shares.  The loan was made and the shares were issued in 2004.  The indebtedness is guaranteed by Mark Newcomer, who is our chairman and chief executive officer, and Daniel Spence, who is one of our directors.



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During the three months ending March 31, 2010, we issued 100,000 shares of common stock in conversion of $25,029 of accounts payable due to the law firm of Lerch & DePrima, PLC.  Anthony DePrima is one of our directors and a member of Lerch & DePrima, PLC.  The indebtedness was incurred by the law firm before Mr. DePrima became a director.

ITEM 8. LEGAL PROCEEDINGS.

We are not parties to any material legal proceedings at this time.

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

During 2008 and 2009, our common stock was traded on the Pink Sheets under the symbol “TPNL”. The following table summarizes the low and high prices for our common stock for each of the calendar quarters of 2008 and 2009.

 

2008

2009

 

High

Low

High

Low

First Quarter

0.950

0.030

0.055

0.002

Second Quarter

0.500

0.120

0.020

0.010

Third Quarter

0.120

0.090

0.020

0.020

Fourth Quarter

0.080

0.055

0.075

0.020

There were 376 shareholders of record of the common stock as of June 30, 2010. This number does not include an indeterminate number of shareholders whose shares are held by brokers in “street name.”  

Our common stock is subject to rules adopted by the Securities and Exchange Commission ("Commission") regulating broker dealer practices in connection with transactions in "penny stocks." Those disclosure rules applicable to "penny stocks" require a broker dealer, prior to a transaction in a "penny stock" not otherwise exempt from the rules, to deliver a standardized disclosure document prepared by the Commission. That disclosure document advises an investor that investment in "penny stocks" can be very risky and that the investor's salesperson or broker is not an impartial advisor, but rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with an investment in "penny stocks," to independently investigate the security, as well as the salesperson the investor is working with and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer with certain other information and must make a special written determination that the "penny stock" is a suitable investment for the purchaser, and receive the purchaser's written agreement to the transaction. Further, the rules require that, following the proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices of the securities.  These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for our common stock. Many brokers may be unwilling to engage in transactions in our common stock because of the added disclosure requirements, thereby making it more difficult for stockholders to dispose of their shares.



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Dividend Policy

We have not declared any cash dividends on our Common Stock during our fiscal years ended on December 31, 2009 or 2008.  Our Board of Directors has made no determination to date to declare cash dividends during the foreseeable future, but is not likely to do so.  There are no restrictions on our ability to pay dividends.

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.

We issued shares of our common stock in the following transactions in the last three years:

In September 2007, we entered into a share exchange agreement with WOW Technologies, Inc.  As a result of that share exchange agreement, we agreed to issue one share of our common stock for each 14 shares of WOW common stock presented for exchange.  In addition, we agreed to allow $280,000 of convertible notes issued by Wow to convert into shares of our common stock, such that Wow convertible noteholders would be entitled to receive the same number of shares of our common stock that they would have received had they converted their Wow notes into Wow common stock immediately prior to the share exchange agreement.  The maximum number of shares issuable for Wow common stock and in conversion of Wow convertible notes was 4,220,020.  The terms and conditions of the share exchange were determined to be fair by an order entered in the case styled 3Pea International, Inc. v. Wow! Technologies, Inc. , Case No. A564118, Dept. XI, in the District Court for Clark County, Nevada.  Accordingly, we believe that the issuance of our shares of common stock to WOW shareholders or note holders is exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933.  All shares are issued with a restrictive legend.  During the fiscal years ending December 31, 2007, 2008 and 2009, we issued 2,479,826, 326,711 and 524,688 shares, respectively, of restricted common shares pursuant to the share exchange agreement.  During the fiscal year ending December 31, 2009, we issued 114,286 shares of common stock in conversion of $80,000 of Wow indebtedness.  

During the fiscal year ending December 31, 2008, we issued a total of 725,000 restricted common shares to officers and employees for services rendered. During the three months ended March 31, 2010, we issued a total of 6,000,000 restricted common shares that were previously approved during the first quarter of 2009 to officers, directors and employees for services rendered. All shares issued for consulting services were valued at the market price on the date of approval by our board of directors. The issuance of the shares was exempt under Rule 701 and/or Section 4(2) of the Securities Act of 1933. The issuances did not involve a public offering of securities, as the shares were not offered or sold by means of any form of general solicitation or general advertising, and were issued with a restrictive legend. In our judgment, the recipients had knowledge of our assets, liabilities and business plan, and such information about us as was necessary to make an informed investment decision by virtue of their positions with us.

During the three months ending March 31, 2010, we issued 100,000 shares of common stock in conversion of $25,029 of indebtedness for legal services. The indebtedness was to a law firm of which one of our directors is a member. The issuance of our shares of common stock in satisfaction of the indebtedness was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The issuance did not involve a public offering of securities, as the shares were not offered or sold by means of any form of general solicitation or general advertising, and were issued with a restrictive legend. In our judgment, the recipient had knowledge of our assets, liabilities and business plan, and such information about us as was necessary to make an informed investment decision by virtue of their position with us.



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During the three months ending June 30, 2010, we issued 1,000 shares of common stock to a vendor for cash equal to $0.25 per share. The issuance of our shares of common stock in satisfaction of the indebtedness was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The issuance did not involve a public offering of securities, as the shares were not offered or sold by means of any form of general solicitation or general advertising, and were issued with a restrictive legend. In our judgment, the recipient had knowledge of our assets, liabilities and business plan, and such information about us as was necessary to make an informed investment decision by virtue of their position with us.

ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.

We are authorized to issue 150,000,000 shares of Common Stock with a par value of $0.001 per share, and 25,000,000 shares of Preferred Stock with a par value of $0.001 per share.  The Preferred Stock may be issued in one or more series containing such rights, limitations and privileges that our board of directors may determine from time to time.  As of June 30, 2010, there were 35,233,639 shares of Common Stock and no shares of Preferred Stock issued and outstanding, respectively.

Each outstanding share of Common Stock is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by the owners thereof at meetings of the stockholders.  Holders of our Common Stock

(iv)

have equal ratable rights to dividends from funds legally available therefore, if declared by our Board of Directors,

(v)

are entitled to share ratably in all our assets available for distribution to holders of common stock upon our liquidation, dissolution or winding up;

(vi)

do not have preemptive, subscription or conversion rights or redemption or sinking fund provisions;

(vii)

are entitled to one non-cumulative vote per share on all matters on which stockholders may vote at all meetings of our stockholders and for directors.

All of our outstanding shares of Common Stock are validly issued, fully paid and non-assessable.

Integrity Stock Transfer, Inc. serves as transfer agent for our common stock.

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Article V.B of our Articles of Incorporation, we are required to indemnify and hold harmless, to the fullest extent permitted by Nevada law, our officers and directors.  Furthermore, Article V.C of our Articles of Incorporation, we are required to advance any expenses of an officer or director incurred in defending a civil or criminal action, suit or proceeding as they are incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the corporation.  The indemnification provided by our Articles of Incorporation is not exclusive of any rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.



39



 

Article V.A of our Articles of Incorporation limits the personal liability of our officers and directors to the fullest extent permitted by Nevada law from time to time, including for damages for breach of fiduciary duty, except to the extent of acts or omissions which involve intentional misconduct, fraud, or a knowing violation of the law. If Nevada law is later amended to further eliminate or limit or authorize corporate action to further eliminate or limit the liability of directors or officers, the liability of directors and officers of the corporation shall be eliminated or limited to the fullest extent permitted by Nevada law as so amended.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

At the present, there is no pending litigation or proceeding involving one of our directors or officers as to which indemnification is being sought nor are aware of any threatened litigation that may result in claims for indemnification by any officer or director.  We do not currently maintain directors’ and officers’ liability insurance.

ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial information required by Regulation S-X is attached hereto as Exhibits A and B .  As a smaller reporting company, we are not required to provide the supplementary financial information required by Item 302 of Regulation S-K.

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

During the two fiscal years ended December 31, 2009, there has not been any change in accountants, or any disagreement on any matter of accounting principles or practices, financial statement disclosures or auditing scope or procedure with our auditors.  



40




ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.

(a)

The financial statements filed herewith are:

(i)

Audited financial statements of 3Pea International, Inc. as of December 31, 2009 and 2008, and for the years ended December 31, 2009 and 2009.

(ii)

Unaudited financial statements of 3Pea International, Inc. as of June 30, 2010, and for the six months ended June 30, 2010 and 2009.

(b)

The following exhibits are filed as part of this registration statement:

 Exhibit Number

Description of Exhibits

3.1

Amended and Restated Articles of Incorporation dated June 30, 2010

3.2

By-Laws

4.1

Form of common stock certificate (1)

4.2

Form of Warrant

10.1

Share Exchange Agreement between 3Pea International, Inc. and WOW Technologies, Inc.

10.2

Plan of Reorganization of Wow Technologies, Inc.

10.3

Promissory Note dated October 6, 2004 by and between 3Pea Technologies, Inc. and Cynthia Korte

10.4

Form of Convertible Promissory Note

10.5

Colorado Financial Services Corporation

14

Code of Business Conduct and Ethics

11*

Computation of Ratio of Earnings to Combined Fixed Charges and Preference Dividends (2)

21

Subsidiaries of Registrant

   

(1) Information pertaining to our common stock is contained in our Articles of Incorporation and Bylaws.

(2) Included within financial statements.




41




REPORTS TO SECURITIES HOLDERS

We have filed with the SEC a registration statement on Form 10 under the Securities Act with respect to the issuance of shares of our common stock being offered by this registration statement. We are not currently subject to the informational requirements of the Securities Exchange Act of 1934. As a result of the offering of the shares of our common stock, we will become subject to the informational requirements of the Exchange Act, and, in accordance therewith, will file quarterly and annual reports and other information with the SEC; and send a copy of our annual report together with audited financial statements to each of our shareholders. The registration statement, such reports and other information can be inspected and copied at the Public Reference Room of the SEC located at 100 F Street N.E., Washington D.C. 20549. Copies of such materials, including copies of all or any portion of the registration statement, can be obtained from the Public Reference Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may also be accessed electronically by means of the SEC's home page on the internet (http://www.sec.gov).


SIGNATURES

In accordance with Section 12 of the Exchange Act, the registrant caused this Form 10 to be signed on its behalf by the undersigned, hereunto duly authorized.

 

3PEA INTERNATIONAL, INC.

Dated: September 14, 2010

/s/ Mark Newcomer

 

Mark Newcomer, Chief Executive Officer




42




EXHIBIT A



3PEA INTERNATIONAL, INC.


FINANCIAL STATEMENTS


FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008


WITH AUDIT REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM




TABLE OF CONTENTS


 

PAGE

Audit Report of Independent Certified Public Accountants

F-2

Balance Sheets as of December 31, 2009 and 2008

F-3

Statements of Operations for the years ended December 31, 2009 and 2008

F-4

Statements of Stockholders' Deficit for the years ended December 31, 2009 and 2008

F-5

Statements of Cash Flows for the years ended December 31, 2009 and 2008

F-6

Notes to Financial Statements for the years ended December 31, 2009 and 2008

F-7





F-1




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors

3Pea International, Inc.

Las Vegas, Nevada


We have audited the accompanying consolidated balance sheet of 3Pea International, Inc. as of December 31, 2009 and December 31, 2008, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended. 'These financial statements are the responsibility of 3Pea International, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit a l so includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 3Pea International, Inc., as of December 31, 2009 and December 31, 2008, and the consolidated results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in The United States of America.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are described in Note 1. Absent the successful completion of one of these alternatives, the Company's operating results will increasingly become uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Sarna & Company


Sarna & Company,

Certified Public Accountants

Westlake Village, California

June 30, 2010



F-2





3PEA INTERNATIONAL, INC.

BALANCE SHEETS

DECEMBER 31, 2009 AND 2008


       
 

2009

 

2008

ASSETS

     

Current Assets

     

Cash

$                2,903

 

$            283,859

Cash Restricted

3,434,673

 

4,505,000

Accounts receivable

--

 

500

Total current assets

3,437,576

 

4,789,359

       

Fixed Assets, net

187,334

 

301,844

       

Intangible and other assets

     

Deposits

3,551

 

5,441

Intangible assets, net

54,287

 

59,632

       

Total Assets

$         3,682,748

 

$         5,156,276

       

LIABILITIES AND STOCKHOLDERS’ DEFICIT

     
       

Current liabilities:

     

Accounts payable and accrued liabilities

$             928,647

 

$        1,309,543

Customer card funding

3,434,673

 

4,505,000

Customer deposits

--

 

3,813

Notes payable- related parties

546,576

 

543,000

Convertible note payable

10,000

 

10,000

Notes payable

1,887,600

 

2,306,315

Total current liabilities

6,807,496

 

8,677,671

       

Long-term liabilities

     

Notes payable, non-current portion

75,000

 

75,000

Total long-term liabilities

75,000

 

75,000

       

Total liabilities

6,882,496

 

8,752,671

       

Commitments and contingencies

--

 

--

       

Minority interest

(793,735)

 

(858,254)

       

Stockholders' deficit:

     

Common stock, $0.001 par value, 150,000,000 shares authorized, 29,132,639 and 28,743,665 issued and outstanding at December 31, 2009 and 2008, respectively

29,133

 

28,744

Additional paid in capital

4,892,703

 

4,464,824

Treasury stock at cost, 303,450 shares

(150,000)

 

(150,000)

Accumulated deficit

(7,177,849)

 

(7,081,709)

Total stockholders' deficit

(2,406,013)

 

(2,738,141)

       

Total Liabilities and Stockholders' Deficit

$          3,682,748

 

$          5,156,276


See accompanying notes to financial statements.



F-3



3PEA INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008


 

2009

 

2008

       

Revenues

$         4,201,075

 

$       1,202,699

       

Cost of revenues

3,660,598

 

1,047,484

       

Gross profit

540,477

 

155,215

       

Operating expenses

     

Selling, general and administrative

142,496

 

144,311

Depreciation and amortization

877,476

 

1,205,432

Total operating expenses

1,019,972

 

1,349,743

       

Loss from operations

(479,495)

 

(1,194,528)

       

Other income (expense)

     

Interest expense

(64,462)

 

(97,074)

Other expense

(15,336)

 

(35,797)

Impairment of goodwill

--

 

(2,142,112)

Gain on forgiveness of debts

527,673

 

--

Total other income (expense)

447,875

 

(2,274,983)

       

Loss before provision for income taxes and minority interest

(31,620)

 

(3,469,511)

       

Provision for income taxes

--

 

--

       

Loss before minority interest

(31,620)

 

(3,469,511)

       

Allocation of minority interest income (loss)

(64,520)

 

646,022

       

Net loss

$         (96,140)

 

$     (2,823,489)

       

Net income (loss) per common share - basic and fully diluted

$              (0.00)

 

$               (0.11)

       

Weighted average number of common shares outstanding - basic and fully diluted

29,186,591

 

26,024,114

       

 

See accompanying notes to financial statements.




F-4



3PEA INTERNATIONAL, INC.

STATEMENT OF STOCKHOLDERS' DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008


     

ADDITIONAL

TREASURY

 

TOTAL

   

COMMON STOCK

PAID IN

STOCK

ACCUMULATED

STOCKHOLDERS’

   

SHARES

AMOUNT

CAPITAL

AMOUNT

DEFICIT

(DEFICIT)

               

Balance as of December 31, 2007

27,638,954

$    27,639

$   4,100,221

$   (150,000)

$          (4,258,220)

$        (285,757)

               

Issuance of common stock on March 4, 2008 for services, $0.40 per share

250,000

250

99,750

-

-

100,000

             

Issuance of common stock on March 4, 2008 for services, $0.40 per share

50,000

50

19,950

-

-

20,000

             

Issuance of common stock on March 4, 2008 for services, $0.40 per share

250,000

250

99,750

-

-

100,000

             

Issuance of common stock on March 4, 2008 for employment services, $0.40 per share

25,000

25

9,975

-

-

10,000

             

Issuance of common stock on March 4, 2008 for employment services, $0.40 per share

200,000

200

79,800

-

-

80,000

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.95 per share

38,012

38

36,073

-

-

36,111

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.20 per share

16,073

16

3,199

-

-

3,215

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.16 per share

7,145

7

1,143

-

-

1,150

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.12 per share

370

1

43

-

-

44

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.075 per share

22,105

22

1,636

-

-

1,658

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.055 per share

246,006

246

13,284

-

-

13,530

             

Net loss

-

-

-

-

(2,823,489)

(2,823,489)

               

Balance as of December 31, 2008

28,743,665

28,744

4,464,824

(150,000)

(7,081,709)

(2,738,141)

               

Issuance of stock related to merger with Wow Technologies, Inc. $0.055 per share

272,498

272

149,602

-

-

149,874

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.02 per share

135,119

135

26,889

-

-

27,024

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.01 per share

97,610

98

878

-

-

976

             

Cancellation of stock issued for services at $0.02 per share

(250,000)

(250)

(4,750)

-

-

(5,000)

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.02 per share

8,050

8

153

-

-

161

             

Issuance of stock related to Wow debt $0.02 per share

114,286

114

79,886

-

-

80,000

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.05 per share

8,912

9

437

-

-

446

             

Issuance of stock related to merger with Wow Technologies, Inc. $0.075 per share

2,499

3

184

-

-

187

             

Forgiveness of shareholder loans

   

174,600

   

174,600

             

Net loss

-

-

-

-

(96,140)

(96,140)

               

Balance as of December 31, 2009

29,132,639

$       29,133

$     4,892,703

$     (150,000)

$        (7,177,849)

$     (2,406,013)

 

See accompanying notes to financial statements.

 



F-5



3PEA INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

 

 

2009

 

2008

       

Cash flows from operating activities

     
       

Net income (loss)

$         (96,140)

 

$    (2,823,489)

Adjustments to reconcile net income (loss) to net cash used by operating activities:

64,519

 

(646,022)

Change in minority interest

(5,000)

 

310,000

Stock based expenses

142,496

 

144,311

Depreciation and amortization

--

 

2,142,112

Impairment on goodwill

178,668

 

--

Merger expense

3,950

 

--

Loss on disposal of assets

(527,673)

 

--

Gain of forgiveness of debts

     

Changes in operating assets and liabilities:

1,070,327

 

(3,983,213)

Change in restricted cash

500

 

4,220

Change in accounts receivable

--

 

35,797

Change in other assets

1,890

 

--

Change in deposits

(33,223)

 

652,548

Change in accounts payable and accrued liabilities

(1,070,327)

 

3,983,316

Change in customer card funding

(3,813)

 

2,000

Change in customer deposits

64,519

 

(646,022)

       

Net cash used by operating activities

(273,826)

 

(178,420)

       

Cash flows from investing activities:

     

Purchase of fixed assets

(26,591)

 

(11,204)

Net cash used by investing activities

(26,591)

 

(11,204)

       

Cash flows from financing activities:

     

Proceeds from borrowing on notes payable - related parties

8,576

 

459,000

Proceeds from borrowings on notes payable

22,200

 

--

Payments on notes payable-related parties

(5,000)

 

--

Payments on notes payable

(6,315)

 

(11,895)

Net cash used in financing activities

19,461

 

447,105

       

Net increase in cash

(280,956)

 

257,481

       

Cash - beginning of year

283,859

 

26,378

Cash - end of year

$               2,903

 

$          283,859

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

2009

 

2008

Non-cash financing transactions:

     

Issuance of 114,286 shares of common stock for satisfaction

of debenture

$80,000

 

$            --


See accompanying notes to financial statements.




F-6




3PEA INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2009 (AUDITED)


1.

Description of business, history and summary of significant policies

Description of business – 3PEA International, Inc. (the “Company” or “3PEA”) was incorporated on August 24, 1995 under the name of Antek International, Inc.  The Company had undergone several name changes which up through February 2006 had done business under the name of Tika Corporation.  On February 28, 2006 the Company or formerly Tika Corporation consummated a Stock Purchase Agreement (the “Agreement”) with 3 Pea Technologies, Inc. (“3 Pea Tech”) to acquire 100% of the outstanding capital stock of 3Pea Tech in exchange for 22,926,211 shares of the Company’s common stock (“3 Pea Transaction”).  As a result, 3Pea Tech became a wholly owned subsidiary of the Company. Prior to the 3Pea Transaction, the Company was an operating public company with 495,809 shares of common stock issued and outstanding.  3Pea was a privately held operating company originally engaged in the developing the first consumer-oriented ATM/Debit card w/PIN Internet payment solution. The 3Pea Transaction is considered to be a capital transaction in substance, rather than a business combination. In as much, the 3Pea Transaction is equivalent to the issuance of shares by a private company (3Pea Tech) for the assets of an operational public company, accompanied by a recapitalization. The accounting for the 3Pea Transaction is treated as a reverse acquisition, except goodwill is not recorded. Accordingly, the historical financial information of the accompanying financial statements are that of 3Pea Tech which the 22,926,211 shares issued by the Company are considered the historical outstanding shares of 3Pea Tech for accounting purposes.  

In September 2007, the Company acquired control of Wow Technologies, Inc., a payment solutions company with a proprietary card processing platform, in a share exchange agreement whereby Wow Technologies, Inc. became a subsidiary of 3PEA International, Inc.

On October 19, 2006, the Company changed its name to 3PEA International, Inc.

About 3PEA International, Inc.

3PEA International, Inc. is a transaction-based solutions provider. 3PEA through its wholly owned subsidiary 3PEA Technologies, Inc., focuses on delivering reliable and secure payment solutions to help healthcare companies, pharmaceutical companies and payers businesses succeed in an increasingly complex marketplace.  By serving as a single source for payment processing and unique Healthcare solutions, 3Pea sets new standards in convenience, reliability and innovation.

Going concern – The Company incurred accumulated net losses of approximately $7,178,000 as of December 31, 2009 and does not have sufficient operating capital to sustain its operating activities for the twelve months, raising substantial doubt about the Company’s ability to continue as a going concern.  The Company will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.  The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of generating sufficient revenues to fund its operating activities.  The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.



F-7




Principles of consolidation – The consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany balances and transactions have been eliminated.

Year end – The Company’s year end is December 31.

Use of estimates - The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and cash equivalents – The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents for the purposes of the statement of cash flows.

Fixed assets – Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Goodwill and intangible assets - Beginning January 1, 2002, the Company adopted Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 350, “Intangibles-Goodwill and Other”. According to this codification, goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under FASB ASC 350, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows.

FASB ASC 350 requires the Company to compare the fair value of the reporting unit to its carrying amount on an annual basis to determine if there is potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value.

During the year ended December 31, 2008, the Company recorded an impairment charge totaling $2,142,112 related to goodwill associated with the share exchange agreement with Wow Technologies, Inc.  As a result of this impairment charge, all goodwill associated with Wow Technologies, Inc. has been impaired.



F-8




Fair value of financial instruments – FASB ASC 825.10.50, “Financial Instruments”, requires the Company to disclose, when reasonably attainable, the fair market values of its assets and liabilities which are deemed to be financial instruments. The carrying amounts and estimated fair values of the Company’s financial instruments approximate their fair value due to the short-term nature

Earnings (loss) per share - Basic earnings (loss) per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings (loss) per share is computed using the weighted-average number of outstanding common stocks during the applicable period. Diluted earnings per share is computed using the weighted-average number of common and common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive.

Income taxes – The Company accounts for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Company’s consolidated balance sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. Changes in the Company’s valuation allowance in a period are recorded through the income tax provision on the consolidated statements of operations.

On January 1, 2007, the Company adopted ASC 740-10 (formerly known as FIN No. 48, Accounting for Uncertainty in Income Taxes). ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10, the Company recognized no material adjustment in the liability for unrecognized income tax benefits.

Revenue and expense recognition – We recognize revenue when (1) there is persuasive evidence of an arrangement existing, (2) delivery has occurred, (3) our price to the buyer is fixed or determinable and (4) collectability of the receivables is reasonably assured. We recognize the costs of these revenues at the time revenue is recognized.

We generate the following types of revenues:

Administration and usage fees, charged to our prepaid card clients when our programs are created, distributed or reloaded.




F-9




Transaction fees, paid by the applicable networks and passed through by our card issuing banks when our SVCs are used in a purchase or ATM transaction.

Maintenance, administration, transaction fees, charged to an SVC.

Program maintenance management fees charged to our clients.

Software development and consulting services to our clients.

Stock-Based Compensation - Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

Shares issued to employees are expensed upon issuance.

Stock based compensation for employees is account for using the Stock Based Compensation Topic of the FASB ASC.  We use the fair value method for equity instruments granted to employees and will use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

Advertising costs - Advertising costs incurred in the normal course of operations are expensed as incurred.

Research and development costs - Research and development costs are charged to expense as incurred.

New accounting pronouncements - In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 105-10, “Generally Accepted Accounting Principles.”  FASB ASC 105-10 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. FASB ASC 105-10 will be effective for financial statements issued for reporting periods that end after September 15, 2009.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 810-10,   “Consolidation”. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt FASB ASC 810-10 in fiscal 2010. The Company does not expect that the adoption of FASB ASC 810-10 will have a material impact on the financial statements.



F-10



 

In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 860-10, “Transfers of and Servicing”, which eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. FASB ASC 860-10 is effective for fiscal years beginning after November 15, 2009. The Company will adopt FASB ASC 860-10 in fiscal 2010. The Company does not expect that the adoption of FASB ASC 860-10 will have a material impact on the financial statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 855-10 “Subsequent Events,” FASB ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASB ASC 855-10 applies to both interim financial statements and annual financial statements. FASB ASC 855-10 is effective for interim or annual financial periods ending after June 15, 2009. FASB ASC 855-10 did not have a material impact on our financial statements.

2.

FIXED ASSETS

Fixed assets consist of the following:


 

As of

December 31, 2009

 

As of

 December 31, 2008

Equipment

 

$       438,678

 

$           436,829

Software

 

257,092

 

251,479

Furniture and fixtures

 

58,120

 

62,921

Leasehold equipment

 

                    14,780

 

3,967

   

768,670

 

755,196

Less: accumulated depreciation

 

581,336

 

453,352

Fixed assets, net

 

$        187,334

 

$           301,844



3.

INTANGIBLE ASSETS

Intangible assets consist of the following:



F-11





 

As of

December 31,
2009

 

As of

 December 31, 2008

Patents and trademarks

 

$            63,454

 

$             63,454

Website development

 

26,710

 


26,710

   

90,164

 

90,164

Less: accumulated depreciation

 

35,877

 

30,532

Intangible assets, net

 

$            54,287

 

$            59,632


Intangible assets are amortized over their useful lives ranging from periods of 5 to 15 years.

4.

NOTES PAYABLE – RELATED PARTIES

 

   

As of

December 31, 2009

   

As of

December 31, 2008

Note payable due to a shareholder of the company, bearing interest at 8.5%, renewable annually upon prepayment of one year’s interest, due on demand and unsecured.

 

$

501,000

 

$

501,000

Note payable due to a director of the company and shareholder, bearing no interest, due on demand and unsecured.

   

21,000

   

26,000

Note payable due to a director of the company and shareholder, bearing no interest, due on demand and unsecured.

   

16,000

   

16,000

Note payable due to a officer of the company, bearing no interest, due on demand and unsecured.

   

8,576

   

--

   

$

546,576

 

$

543,000


5.   CONVERTIBLE NOTE PAYABLE

Convertible note payable as of December 31, 2009 and 2008 consists of a $10,000 convertible promissory note to one individual.  The note is past due (March 2007), accrues interest at 6% per annum, and at the investors’ option until the repayment date may be converted to shares of the company’s common stock at a price of $1.00 per share.  In addition, if the noteholder elects to convert the note into common stock, the investor will also be entitled to receive warrants to purchase 10,000 shares of common stock at an exercise price of $1.50 per share.

6.    NOTES PAYABLE

Notes payable consist of the following:


F-12



   

As of

December 31, 2009

 

As of

December 31,
2008

Note payable due to a shareholder of the company,   bearing no interest, due on demand and unsecured.

 

$

1,031,500

 

$

1,031,500

Note payable due to a shareholder of the company, bearing no interest, due on demand and unsecured.

   

510,000

   

510,000

Note payable due to a shareholder of the company, bearing interest at 8%, due on demand and unsecured.

   

150,000

   

150,000

Note payable due to a shareholder of the company, bearing no interest, due on demand and unsecured.

   

134,500

   

134,500

Note payable due to a shareholder of the company, bearing interest at 10%, due February 2011 and unsecured.

   

50,000

   

50,000

Note payable due to a shareholder of the company, bearing interest at 10%, due February 2012 and unsecured.

   

25,000

   

25,000

Note payable due to a shareholder of the company.

   

19,400

~

 

194,000

Note payable to a financial institution bearing interest at 20.4%, secured by equipment, principal and interest due in monthly installments of $137 through January 2008.

   

--

   

1,188

Note payable bearing interest at 10%, unsecured, principal and interest due in monthly installments of $1,200 and due on demand.

   

12,200

   

--

Note payable due to a shareholder of the company, bearing no interest, due on demand and unsecured.

   

10,000

   

--

Note payable bearing interest at 20.4%, secured by equipment, principal and interest due in monthly installments of $421 through May 2009.

   

  --

   

5,127

Note payable bearing interest at 7%, unsecured, and past due (matured January 2007).

   

--

^

 

80,000

Note payable.

   

 10,000

*

 

100,000

Note payable.

   

 5,000

*

 

50,000

Note payable.

   

        5,000

*

 

50,000

     

1,962,600

   

2,381,315

Less: non-current portion

   

75,000

   

75,000

   

$

1,887,600

 

$

2,306,315



F-13


~

During the year ended December 31, 2009, $174,600 of this note payable was discharged and recorded as forgiveness of shareholder loan against additional paid-in capital (see Note 9).  As of December 31, 2008, this obligation was a non-interest-bearing, unsecured demand note.  As of December 31, 2009, pursuant to the plan of reorganization confirmed in Wow Technologies, Inc. bankruptcy case, this obligation converted into an obligation that is payable without interest in equal monthly payments over sixty months.

*

During the year ended December 31, 2009, $180,000 of these notes payable were discharged and recorded as gain on forgiveness of debt (see Note 9).  As of December 31, 2008, these obligations were evidenced by an unsecured note bearing interest at 7% per annum which matured in September 2006.  As of December 31, 2009, pursuant to the plan of reorganization confirmed in Wow Technologies, Inc. bankruptcy case, these obligations were converted into an obligation that is payable without interest in equal monthly payments over sixty months.

^

During the year ended December 31, 2009, this $80,000 note payable was converted into 114,286 shares of common stock in full satisfaction of the note.

7.    COMMON STOCK

At December 31, 2009, the Company's authorized capital stock was 150,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.  On that date, the Company had outstanding 29,132,639 shares of common stock, and no shares of preferred stock.

2009 Transactions :  During the year ended December 31, 2009, the Company issued shares of common stock in the following transactions:

524,688 shares of common stock to shareholders of Wow Technologies, Inc. valued at $0.01 to $0.02 per share.

114,286 shares of common stock in conversion of $80,000 of indebtedness of Wow Technologies, Inc.

250,000 shares of common stock previously issued for services were cancelled, which shares were valued at $0.02 per share.

2008 Transactions :  During the year ended December 31, 2008, the Company issued shares of common stock in the following transactions:

326,711 shares common stock to shareholders of Wow Technologies, Inc. valued at $0.01 to $0.06 per share.

775,000 shares of common stock for services valued at $0.70 per share.

 


F-14




All shares issued (or cancelled) for services or in exchange for Wow common stock are valued on the market price on the date issuance.

Warrants :

The Company issued the following warrants at the corresponding weighted average exercise price as of December 31, 2009.


Date of Issuance

Number of Warrants

Exercise Price

Contractual Life

Number of Shares Exercisable

March 21, 2006

12,500

1.50

5 years

12,500

February 13, 2007

12,500

1.50

4 years

12,500

February 8, 2006

30,000

1.50

5 years

30,000

February 17, 2006

30,000

1.50

5 years

30,000

February 13, 2007

49,500

1.50

4 years

49,500

 

134,500

   

134,500


Transactions involving warrants issued in the years ended December 31, 2008 and 2009 are summarized below:

 

Warrants

Weighted average Exercise Price

Outstanding as of December 31, 2007

1,099,084

$1.50

Issued

0

--

Cancelled/Expired

(170,000)

--

Outstanding as of December 31, 2008

929,084

$1.50

Issued

--

--

Cancelled/Expired

(794,584)

--

Outstanding as of December 31, 2009

134,500

$1.50

 

 

 

8.    COMMITMENTS AND CONTINGENCIES

On September 14, 2007, the Company entered into a stock purchase agreement, under which it agreed to acquire Wow Technologies, Inc. (“Wow”) for up to 4,220,020 shares of common stock.  The Company agreed to issue one share of its common stock for each 14 shares of Wow common stock presented for exchange.  In addition, the Company agreed to allow $280,000 of convertible notes issued by Wow to convert into shares of the Company's common stock, such that Wow convertible noteholders would be entitled to receive the same number of shares of Company common stock that they would have received had they converted their Wow notes into Wow common stock immediately prior to the share exchange agreement.  The maximum number of shares issuable for Wow common stock and in conversion of Wow convertible notes was 4,220,020.   

The Company agreed to conduct an initial closing when certificates representing at least 50.1% of ownership of Wow were presented for exchange.  The Company held the initial closing in December 2007, and has continued to issue shares of its common stock in exchange for Wow common stock as certificates are presented since that date.  The Company issued 2,479,826 shares, 326,711 shares and 524,688 shares in exchange for Wow common stock in 2007, 2008 and 2009, respectively. The Company is contingently obligated to issue an additional 888,795 shares in exchange for 12,443,130 shares of Wow common stock that were still outstanding as of December 31, 2009.  


F-15



 

In 2009, the Company issued 114,286 shares of common stock on conversion of $80,000 of Wow notes.  In 2009, Wow filed a voluntary Chapter 11 bankruptcy case in the United States Bankruptcy Court for the District of Nevada, Case No. 09-11878-BAM.  In September 2009, the Bankruptcy Court confirmed a plan of reorganization in Wow’s bankruptcy case.  Under the confirmed plan, the Wow agreed to satisfy the remaining $200,000 of convertible notes by payment of 10% of the amount of the debt through equal monthly payments over a sixty months following confirmation of the plan.  

As a result of the modification Wow's obligations under its Chapter 11 plan of reorganization, the remaining $200,000 of Wow convertible notes are no longer convertible into the Company's common stock.

Office lease – The Company had an operating lease for an office space month to month which the company terminated April 31, 2009 and has an operating lease for an office space that expires May 31, 2011. The monthly lease payment totals $4,025 and $3,550 per month, respectively. Lease payments plus common area maintenance fees for the year ended December 31, 2008 and 2009 totaled $64,897 and $48,072 respectively.

Pending of threatened litigation – We may become involved in litigation from time to time in the ordinary course of business. However at December 31, 2009, to the best of our knowledge, no such litigation exists or is threatened.

9.    DISCHARGE OF INDEBTEDNESS

In 2009, Wow filed a voluntary Chapter 11 bankruptcy case in the United States Bankruptcy Court for the District of Nevada, Case No. 09-11878-BAM.  In September 2009, the Bankruptcy Court confirmed a plan of reorganization in Wow’s bankruptcy case.  Under the confirmed plan, the Wow agreed to satisfy $774,303 of unsecured indebtedness by payment of 10% of the amount of the debt through equal monthly payments over a sixty months following confirmation of the plan, and the Company agreed to contribute sufficient funds to Wow to enable it to make those payments.  As a result of the plan, the Company discharged $702,273 of indebtedness, of which $174,600 was held by a shareholder and was recorded as paid in capital.  The balance of $527,673 was recorded as gain on forgiveness of debts on the income statement.

 


F-16

 

 

 


EXHIBIT B



3PEA INTERNATIONAL, INC.


CONSOLIDATED FINANCIAL STATEMENTS


FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009



TABLE OF CONTENTS


 

PAGE

Balance Sheets as of June 30, 2010 and December 31, 2009

G-2

Statements of Operations for the six months ended June 30, 2010 and 2009

G-3

Statements of Stockholders' Deficit for the six months ended June 30, 2010

G-4

Statements of Cash Flows for the six months ended June 30, 2010 and 2009

G-5

Notes to Financial Statements

G-6



G-1

 



3PEA INTERNATIONAL, INC.

BALANCE SHEETS

JUNE 30, 2010 AND DECEMBER 31, 2009

       
 

June 30, 2010

 

December 31, 2009

 

(unaudited

 

(audited)

ASSETS

     

Current Assets

     

Cash

$              202,059

 

$                2,903

Cash Restricted

2,979,287

 

3,434,673

Accounts receivable

40,631

 

--

Total current assets

3,221,977

 

3,437,576

       

Fixed Assets, net

119,398

 

187,334

       

Intangible and other assets

     

Deposits

3,551

 

3,551

Intangible assets, net

51,637

 

54,287

       

Total Assets

$          3,396,563

 

$          3,682,748

       

LIABILITIES AND STOCKHOLDERS’ DEFICIT

     
       

Current liabilities:

     

Accounts payable and accrued liabilities

$           1,069,982

 

$             928,647

Customer card funding

2,979,287

 

3,434,673

Notes payable- related parties

550,152

 

546,576

Convertible note payable

10,000

 

10,000

Notes payable

1,880,500

 

1,887,600

Total current liabilities

6,489,921

 

6,807,496

       

Long-term liabilities

     

Notes payable, non-current portion

75,000

 

75,000

Total long-term liabilities

75,000

 

75,000

       

Total liabilities

6,564,921

 

6,882,496

       

Commitments and contingencies

--

 

--

       

Minority interest

(800,525)

 

(793,735)

       

Stockholders' deficit:

     

Common stock, $0.001 par value, 150,000,000 shares authorized, 35,233,639 and 29,132,639 issued and outstanding at June 30, 2010 and December 31, 2009, respectively

35,234

 

29,133

Additional paid in capital

4,971,881

 

4,892,703

Treasury stock at cost, 303,450 shares

(150,000)

 

(150,000)

Accumulated deficit

(7,224,948)

 

(7,177,849)

Total stockholders' deficit

(2,367,833)

 

(2,406,013)

       

Total Liabilities and Stockholders' Deficit

$           3,396,563

 

$         3,682,748

 

See accompanying notes to financial statements.

 



G-2



3PEA INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

 

 

For the six months ended June 30,

 

2010

 

2009

       

Revenues

$     1,483,816

 

$     1,969,161

       

Cost of revenues

1,174,348

 

1,723,461

       

Gross profit

309,468

 

245,700

       

Operating expenses

     

Selling, general and administrative

70,586

 

70,305

Depreciation and amortization

258,642

 

547,273

Total operating expenses

329,228

 

617,578

       

Income (Loss) from operations

(19,760)

 

(371,878)

       

Other income (expense)

     

Interest expense

(34,130)

 

(21,811)

Other expense

--

 

(13,450)

Loss on disposal of assets

--

 

(3,950)

Total other income (expense)

(34,130)

 

(39,211)

       

Loss before provision for income taxes and minority interest

(53,890)

 

(411,089)

       

Provision for income taxes

--

 

--

       

Loss before minority interest

(53,890)

 

(411,089)

       

Allocation of minority interest income (loss)

6,791

 

11,278

       

Net loss

$       (47,099)

 

$      (399,811)

       

Net income (loss) per common share - basic and fully diluted

$            (0.00)

 

$            (0.01)

       

Weighted average number of common shares outstanding - basic and fully diluted

29,248,761

 

29,069,669

       

 

See accompanying notes to financial statements.


G-3




3PEA INTERNATIONAL, INC.

STATEMENT OF STOCKHOLDERS' DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2010

 

     

ADDITIONAL

TREASURY

 

TOTAL

   

COMMON STOCK

PAID IN

STOCK

ACCUMULATED

STOCKHOLDERS’

   

SHARES

AMOUNT

CAPITAL

AMOUNT

DEFICIT

(DEFICIT)

               

Balance as of December 31, 2009

29,132,639

$       29,133

$       4,892,703

$       (150,000)

$       (7,177,849)

$       (2,406,013)

               

Issuance of stock for accrued liabilities

6,000,000

6,000

54,000

-

-

60,000

             

Issuance of stock for accounts payable

100,000

100

24,929

-

-

25,029

             

Issuance of common stock for cash $0.25 per share

1,000

1

249

-

-

250

             

Net income (loss)

-

-

-

-

(47,099)

(47,099)

               

Balance as of June 30, 2010

35,233,639

$       35,234

$       4,971,881

$       (150,000)

$       (7,224,948)

$       (2,367,833)

               

 

See accompanying notes to financial statements.


 

 

G-4



3PEA INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

                                                                  

 

2010

 

2009

       

Cash flows from operating activities

     
       

Net income (loss)

$          (47,099)

 

$         (399,811)

Adjustments to reconcile net income (loss) to net cash used by operating activities:

     

Change in minority interest

(6,790)

 

(11,278)

Depreciation and amortization

70,586

 

35,313

Loss on disposal of assets

--

 

3,950

Merger expense

--

 

177,873

Changes in operating assets and liabilities:

     

Change in restricted cash

455,386

 

846,371

Change in accounts receivable

(40,631)

 

500

Change in deposits

--

 

1,890

Change in accounts payable and accrued liabilities

225,854

 

(91,674)

Change in customer card funding

(455,386)

 

(846,371)

Change in customer deposits

--

 

(3,813)

Net cash provided (used) by operating activities

201,920

 

(287,051)

       

Cash flows from investing activities

     

Disposal (purchase) of fixed assets

--

 

16,961

Net cash used in investing activities

--

 

16,961

       

Cash flows from financing activities

     

Proceeds from borrowing on note payable

3,575

 

--

Proceeds from stock sales

250

 

--

Payments on note payable

(6,589)

 

(9,970)

Net cash used in financing activities

(2,764)

 

(9,970)

       

Net increase in cash

199,156

 

(280,060)

       

Cash - beginning of year

2,903

 

283,859

Cash - end of year

$          202,059

 

$               3,799

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

2010

 

2009

Non-cash financing transactions:

     

Issuance of 6,100,000 shares of common stock in satisfaction of accounts payable

$       85,029

 

$            --

 

See accompanying notes to financial statements.




G-5




3PEA INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 (UNAUDITED)


1.

Description of business, history and summary of significant policies

Description of business – 3PEA International, Inc. (the “Company” or “3PEA”) was incorporated on August 24, 1995 under the name of Antek International, Inc.  The Company had undergone several name changes which up through February 2006 had done business under the name of Tika Corporation.  On February 28, 2006 the Company or formerly Tika Corporation consummated a Stock Purchase Agreement (the “Agreement”) with 3 Pea Technologies, Inc. (“3 Pea Tech”) to acquire 100% of the outstanding capital stock of 3Pea Tech in exchange for 22,926,211 shares of the Company’s common stock (“3 Pea Transaction”).  As a result, 3Pea Tech became a wholly owned subsidiary of the Company. Prior to the 3Pea Transaction, the Company was an operating public company with 495,809 shares of common stock issued and outstanding.  3Pea was a privately held operating company originally engaged in the developing the first consumer-oriented ATM/Debit card w/PIN Internet payment solution. The 3Pea Transaction is considered to be a capital transaction in substance, rather than a business combination. In as much, the 3Pea Transaction is equivalent to the issuance of shares by a private company (3Pea Tech) for the assets of an operational public company, accompanied by a recapitalization. The accounting for the 3Pea Transaction is treated as a reverse acquisition, except goodwill is not recorded. Accordingly, the historical financial information of the accompanying financial statements are that of 3Pea Tech which the 22,926,211 shares issued by the Company are considered the historical outstanding shares of 3Pea Tech for accounting purposes.  

In September 2007, the Company acquired control of Wow Technologies, Inc., a payment solutions company with a proprietary card processing platform, in a share exchange agreement whereby Wow Technologies, Inc. became a subsidiary of 3PEA International, Inc.

On October 19, 2006, the Company changed its name to 3PEA International, Inc.

About 3PEA International, Inc.

3PEA International, Inc. is a transaction-based solutions provider. 3PEA through its wholly owned subsidiary 3PEA Technologies, Inc., focuses on delivering reliable and secure payment solutions to help healthcare companies, pharmaceutical companies and payers businesses succeed in an increasingly complex marketplace.  By serving as a single source for payment processing and unique Healthcare solutions, 3Pea sets new standards in convenience, reliability and innovation.

Going concern – The Company incurred accumulated net losses of approximately $7,178,000 as of December 31, 2009 and does not have sufficient operating capital to sustain its operating activities for the twelve months, raising substantial doubt about the Company’s ability to continue as a going concern.  The Company will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.  The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of generating sufficient revenues to fund its operating activities.  The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Principles of consolidation – The consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany balances and transactions have been eliminated.

Year end – The Company’s year end is December 31.

Use of estimates - The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.


G-6



 

Cash and cash equivalents – The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents for the purposes of the statement of cash flows.

Fixed assets – Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Goodwill and intangible assets - Beginning January 1, 2002, the Company adopted Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 350, “Intangibles-Goodwill and Other”. According to this codification, goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under FASB ASC 350, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows.

FASB ASC 350 requires the Company to compare the fair value of the reporting unit to its carrying amount on an annual basis to determine if there is potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value.

During the year ended December 31, 2008, the Company recorded an impairment charge totaling $2,142,112 related to goodwill associated with the share exchange agreement with Wow Technologies, Inc.  As a result of this impairment charge, all goodwill associated with Wow Technologies, Inc. has been impaired.

Fair value of financial instruments – FASB ASC 825.10.50, “Financial Instruments”, requires the Company to disclose, when reasonably attainable, the fair market values of its assets and liabilities which are deemed to be financial instruments. The carrying amounts and estimated fair values of the Company’s financial instruments approximate their fair value due to the short-term nature

Earnings (loss) per share - Basic earnings (loss) per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings (loss) per share is computed using the weighted-average number of outstanding common stocks during the applicable period. Diluted earnings per share is computed using the weighted-average number of common and common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive.

Income taxes – The Company accounts for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Company’s consolidated balance sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. Changes in the Company’s valuation allowance in a period are recorded through the income tax provision on the consolidated statements of operations.



G-7


 

On January 1, 2007, the Company adopted ASC 740-10 (formerly known as FIN No. 48, Accounting for Uncertainty in Income Taxes). ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10, the Company recognized no material adjustment in the liability for unrecognized income tax benefits.

Revenue and expense recognition – We recognize revenue when (1) there is persuasive evidence of an arrangement existing, (2) delivery has occurred, (3) our price to the buyer is fixed or determinable and (4) collectability of the receivables is reasonably assured. We recognize the costs of these revenues at the time revenue is recognized.

We generate the following types of revenues:

Administration and usage fees, charged to our prepaid card clients when our programs are created, distributed or reloaded.

Transaction fees, paid by the applicable networks and passed through by our card issuing banks when our SVCs are used in a purchase or ATM transaction.

Maintenance, administration, transaction fees, charged to an SVC.

Program maintenance management fees charged to our clients.

Software development and consulting services to our clients.

Stock-Based Compensation - Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

Shares issued to employees are expensed upon issuance.

Stock based compensation for employees is account for using the Stock Based Compensation Topic of the FASB ASC.  We use the fair value method for equity instruments granted to employees and will use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

Advertising costs - Advertising costs incurred in the normal course of operations are expensed as incurred.

Research and development costs - Research and development costs are charged to expense as incurred.



G-8




New accounting pronouncements - In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 105-10, “Generally Accepted Accounting Principles.”  FASB ASC 105-10 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. FASB ASC 105-10 will be effective for financial statements issued for reporting periods that end after September 15, 2009.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 810-10,   “Consolidation”. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt FASB ASC 810-10 in fiscal 2010. The Company does not expect that the adoption of FASB ASC 810-10 will have a material impact on the financial statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 860-10, “Transfers of and Servicing”, which eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. FASB ASC 860-10 is effective for fiscal years beginning after November 15, 2009. The Company will adopt FASB ASC 860-10 in fiscal 2010. The Company does not expect that the adoption of FASB ASC 860-10 will have a material impact on the financial statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 855-10 “Subsequent Events,” FASB ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASB ASC 855-10 applies to both interim financial statements and annual financial statements. FASB ASC 855-10 is effective for interim or annual financial periods ending after June 15, 2009. FASB ASC 855-10 did not have a material impact on our financial statements.

2.

FIXED ASSETS

Fixed assets consist of the following:


 

As of

June 30, 2010

 

As of

December 31, 2009

Equipment

 

$             438,678

 

$             438,678

Software

 

257,092

 

257,092

Furniture and fixtures

 

58,120

 

58,120

Leasehold equipment

 

14,780

 

14,780

   

768,670

 

768,670

Less: accumulated depreciation

 

649,273

 

581,336

Fixed assets, net

 

$             119,398

 

$             187,334

 


3.

INTANGIBLE ASSETS

Intangible assets consist of the following:


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As of

June 30, 2010

 

As of

December 31, 2009

Patents and trademarks

 

$              63,454

 

$                  63,454

Website development

 

26,710

 

26,710

   

90,164

 

90,164

Less: accumulated depreciation

 

38,527

 

35,877

Intangible assets, net

 

$             51,637

 

$                 54,287


Intangible assets are amortized over their useful lives ranging from periods of 5 to 15 years.

4.

NOTES PAYABLE – RELATED PARTIES

 

   

As of

June 30, 2010

   

As of

December 31, 2009

Note payable due to a shareholder of the company, bearing interest at 8.5%, renewable annually upon prepayment of one year’s interest, due on demand and unsecured.

   

 

501,000

   

 

501,000

Note payable due to a director of the company and shareholder, bearing no interest, due on demand and unsecured.

   


21,000

   


21,000

Note payable due to a director of the company and shareholder, bearing no interest, due on demand and unsecured.

   


16,000

   


16,000

Note payable due to a officer of the company, bearing no interest, due on demand and unsecured.

   


12,152

   


8,576

     

550,152

   

546,576


5.   CONVERTIBLE NOTE PAYABLE

Convertible note payable as of December 31, 2009 and 2008 consists of a $10,000 convertible promissory note to one individual.  The note  is past due (March 2007), accrues interest at 6% per annum, and at the investors’ option until the repayment date may be converted to shares of the company’s common stock at a price of $1.00 per share.  In addition, if the noteholder elects to convert the note into common stock, the investor will also be entitled to receive warrants to purchase 10,000 shares of common stock at an exercise price of $1.50 per share.

6.    NOTES PAYABLE

Notes payable consist of the following:


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As of

June 30, 2010

 

As of

December 31, 2009

Note payable due to a shareholder of the company,   bearing no interest, due on demand and unsecured.

 

$

1,031,500

 

$

1,031,500

Note payable due to a shareholder of the company, bearing no interest, due on demand and unsecured.

   

510,000

   

510,000

Note payable due to a shareholder of the company, bearing interest at 8%, due on demand and unsecured.

   

150,000

   

150,000

Note payable due to a shareholder of the company, bearing no interest, due on demand and unsecured.

   

133,000

   

134,500

Note payable due to a shareholder of the company, bearing interest at 10%, due February 2011 and unsecured.

   

50,000

   

50,000

Note payable due to a shareholder of the company, bearing interest at 10%, due February 2012 and unsecured.

   

25,000

   

25,000

Note payable bearing no interest payable in equal monthly installments over sixty months.

   

19,400

   

19,400

Note payable bearing interest at 10%, unsecured, principal and interest due in monthly installments of $1,200 and due on demand.

   

6,600

   

12,200

Note payable due to a shareholder of the company, bearing no interest, due on demand and unsecured.

   

10,000

   

10,000

Note payable bearing no interest payable in equal monthly installments over sixty months.

   

 10,000

   

 10,000

Note payable bearing no interest payable in equal monthly installments over sixty months.

   

 5,000

   

 5,000

Note payable bearing no interest payable in equal monthly installments over sixty months.

   

        5,000

   

        5,000

     

1,955,500

   

1,962,600

Less: non-current portion

   

75,000

   

75,000

   

$

1,880,500

 

$

1,887,600


7.    COMMON STOCK

At June 30, 2010, the Company's authorized capital stock was 150,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.  On that date, the Company had outstanding 35,233,639 shares of common stock, and no shares of preferred stock.

In the six months ended June 30, 2010, the Company issued shares of common stock in the following transactions:

·

6,000,000 shares of common stock were issued for services valued at $0.01 per share.



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·

100,000 shares of common stock in conversion of $25,029 of indebtedness.

·

1,000 shares of common stock for cash at $0.25 per share

All shares issued for services are valued on the market price on the date issuance.

Warrants :

The Company issued the following warrants at the corresponding weighted average exercise price as of June 30, 2010:


Date of Issuance

Number of Warrants

Exercise Price

Contractual Life

Number of Shares Exercisable

March 21, 2006

12,500

1.50

 5 years

12,500

February 13, 2007

12,500

1.50

 4 years

12,500

February 8, 2006

30,000

1.50

 5 years

30,000

February 17, 2006

30,000

1.50

 5 years

30,000

February 13, 2007

49,500

1.50

 4 years

49,500

 

134,500

   

134,500


Transactions involving warrants issued in the six months ended June 30, 2010 are summarized below:

 

Warrants

Weighted average Exercise Price

Outstanding as of December 31, 2009

134,500

$1.50

Issued

-

-

Cancelled/Expired

-

-

Outstanding as of June 30, 2010

134,500

$1.50

   


8.    COMMITMENTS AND CONTINGENCIES

On September 14, 2007, the Company entered into a stock purchase agreement, under which it agreed to acquire Wow Technologies, Inc. (“Wow”) for up to 4,220,020 shares of common stock.  The Company agreed to issue one share of its common stock for each 14 shares of Wow common stock presented for exchange.  In addition, the Company agreed to allow $280,000 of convertible notes issued by Wow to convert into shares of the Company's common stock, such that Wow convertible noteholders would be entitled to receive the same number of shares of Company common stock that they would have received had they converted their Wow notes into Wow common stock immediately prior to the share exchange agreement.  The maximum number of shares issuable for Wow common stock and in conversion of Wow convertible notes was 4,220,020.   

The Company agreed to conduct an initial closing when certificates representing at least 50.1% of ownership of Wow were presented for exchange.  The Company held the initial closing in December 2007, and has continued to issue shares of its common stock in exchange for Wow common stock as certificates are presented since that date.  The Company issued 2,479,826 shares, 326,711 shares and 524,688 shares in exchange for Wow common stock in 2007, 2008 and 2009, respectively.  The Company is contingently obligated to issue an additional 888,795 shares in exchange for 12,443,130 shares of Wow common stock that were still outstanding as of June 30, 2010.  

In 2009, the Company issued 114,286 shares of common stock on conversion of $80,000 of Wow notes.  In 2009, Wow filed a voluntary Chapter 11 bankruptcy case in the United States Bankruptcy Court for the District of Nevada, Case No. 09-11878-BAM.  In September 2009, the Bankruptcy Court confirmed a plan of reorganization in Wow’s bankruptcy case.  Under the confirmed plan, the Wow agreed to satisfy the remaining $200,000 of convertible notes by payment of 10% of the amount of the debt through equal monthly payments over a sixty months following confirmation of the plan.  As a result of the modification Wow's obligations under its Chapter 11 plan of reorganization, the remaining $200,000 of Wow convertible notes are no longer convertible into the Company's common stock.

Office lease – The Company has an operating lease for an office space that expires May 31, 2011. The monthly lease payment totals $4,025 and $3,550 per month, respectively.

Pending of threatened litigation – We may become involved in litigation from time to time in the ordinary course of business. However at June 30, 2010, to the best of our knowledge, no such litigation exists or is threatened.




G-12

Exhibit 3.1


AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

3PEA INTERNATIONAL, INC.



We the undersigned President and Secretary of 3PEA International, Inc., do hereby certify that the Articles of Incorporation of said corporation are amended and restated to read in full as follows:


ARTICLE I

NAME


The name of the Corporation shall be: 3PEA INTERNATIONAL, INC.



ARTICLE II

PERIOD OF DURATION


The Corporation shall continue in existence perpetually unless sooner dissolved according to law.


ARTICLE III

PURPOSES AND POWERS


The purpose for which the Corporation is organized is to engage in any lawful act or

activity for which corporations may be organized under the General Corporation Law of the State of Nevada.


ARTICLE IV

AUTHORIZED SHARES


This Corporation is authorized to issue two classes of shares to be designated, respectively, Common Stock and Preferred Stock. The total number of shares of Common Stock this Corporation shall have authority to issue is One Hundred and Fifty Million (150,000,000), par value $0.001 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is Twenty Five Million (25,000,000), par value $0.001 per share. The Preferred Stock may be issued from time to time, in one or more series, each series to be appropriately designated by a distinguishing letter or title, prior to the issue of any shares thereof.


The Board of Directors of the Corporation is hereby authorized to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption, the redemption price or prices, the liquidation preferences, any other designations, preferences and relative, participating, optional or other special rights, and any qualifications, limitations or restrictions thereof, of any wholly unissued series of Preferred Stock, and the number of shares constituting any such unissued series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. The Board of Directors shall pass resolutions designating voting powers, designations, preferences, limitations, restrictions, relative rights and distinguishing designation of each class or series of stock before the issuance of shares of that class or series.



1



 


The Corporation elects not to be governed by the terms and provisions of Sections 78.378 through 78.3793, inclusive, and Sections 78.411 through 78.444, inclusive, of the Nevada Revised Statutes, as the same may be amended, superseded, or replaced by any successor section, statute, or provision. No amendment to these Amended and Restated Articles of Incorporation, directly or indirectly, by merger or consolidation or otherwise, having the effect of amending or repealing any of the provision of this paragraph shall apply to or have any effect on any transaction involving acquisition of control by any person or any transaction with an interested stockholder occurring prior to such amendment or repeal.



ARTICLE V

LIMITATION OF LIABILITY

A.

Elimination of Liability.

A director or officer of the Corporation shall not be personally liable to the Corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, excepting only (1) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of but liability shall otherwise be eliminated or limited to the fullest extent permitted by the Nevada Revised Statutes as it may allow from time to time. If the Nevada Revised Statutes are amended to further eliminate or limit or authorize corporate action to further eliminate or limit the liability of directors or officers, the liability of directors and officers of the corporation shall be eliminated or limited to the fullest extent permitted by the Nevada Revised Statutes, as so amended from time to time.

B.

Mandatory Indemnification.

The Corporation shall indemnify the officers and directors of the corporation to the fullest extent permitted by Nevada law as the same exist or may hereafter be amended.


C.

Mandatory Payment of Expenses.

The expenses of the officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation or through insurance purchased and maintained by the corporation or through other financial arrangements made by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the corporation.




2



D.

Effect of Amendment or Repeal.

Except as provided in Article V, Section B. this corporation reserves the right to amend or repeal any provision contained in these Articles of Incorporation or its bylaws. However, any amendment to or repeal of any of the provisions in this Article V shall not adversely affect any right or protection of a director or officer if the Corporation for or with respect to any act or omission of such director or officer occurring to such amendment or repeal.



ARTICLE VI

AMENDMENTS


The Corporation reserves the right to amend, alter, change, or repeal all or any portion of the provisions contained in these Amended and Restated Articles of Incorporation from time to time in accordance with the laws of the State of Nevada, and all rights conferred on stockholders herein are granted subject to this reservation.


ARTICLE VII

AMENDMENT OF BYLAWS


The powers to alter, amend or repeal the Bylaws of the Corporation or to adopt new bylaws shall be vested in the board of directors. The bylaws may contain any provisions for the regulation or management of the affairs of the Corporation not inconsistent with the laws of the State of Nevada now or hereafter existing. In furtherance and not in limitation of the powers conferred by the laws of the State of Nevada, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.


ARTICLE VIII

DIRECTORS


The governing law of the Corporation shall be known as the board of directors. The number of directors comprising the board of directors shall be fixed and may be increased or decreased from time to time in the manner provided in the bylaws of the Corporation. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. Any action required or permitted to be taken by the stockholders of the

Corporation must be effected at a duly called annual or special meeting of such holders and may be effected by consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation for any purpose or purposes may be called only by the Board of Directors, by the Chairman of the Board of Directors or by the President of the Corporation and any power of stockholders to call a special meeting is specifically denied. No business other than that stated in the notice shall be transacted at any special meeting.




3




The foregoing Amended and Restated Articles of Incorporation have been duly approved by the Board of Directors.


The foregoing Amended and Restated Articles of Incorporation have been duly approved by the required majority vote of stockholders in accordance with Sections 78.390 and 78.403 of the Nevada General Corporation Law. The total number of outstanding shares of Common Stock of the Corporation is 35,232,639 of which 19,255,113 have provided written consent in favor of the Amended and Restated Articles of Incorporation.  The number of shares voting in favor of the Amended and Restated Articles of Incorporation equaled or exceeded the vote required. The percentage vote required under the law and the Articles of Incorporation in effect at the time of this filing was more than 50% of the outstanding Common Stock.



  IN WITNESS WHEREOF, 3PEA International, Inc. has caused this Amended and Restated Article of Incorporation to be executed this 30 th day of June, 2010.



_________________________

Mark R. Newcomer

President



_________________________

David R. Weiler

Secretary





STATE OF NEVADA


COUNTY OF CLARK


I hereby certify that on April 26, 2010, before me, a Notary Public, personally appeared Mark R. Newcomer, who acknowledged himself/herself to be the President of 3PEA International, Inc., and that he, having been authorized to do so, executed the above document for the purposes contained therein.


____________________________________

Notary Public


My commission expires: June 28, 2013



NOTARY SEAL:





4

Exhibit 3.2

BYLAWS

OF

3PEA INTERNATIONAL, INC.

a Nevada corporation

ARTICLE I

Offices

Section 1. The principal executive office for the transaction of business of this corporation shall be in the Bank of Las Vegas Center at 1700 W Horizon Ridge Parkway, Suite 102, Henderson, in the county of Clark, State of Nevada. The Board of Directors is hereby granted full power and authority to change the location of the principal executive office from one location to another.

Section 2. The registered office of this corporation shall be in the County of Carson City, State of Nevada.

Section 3. The corporation may also have offices at such other places both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II

Shareholders

Section 1. Place of Meeting. Meetings of shareholders shall be held either at the principal executive office of the corporation or at any other location within or without the State of Nevada which may be designated by written consent of all persons entitled to vote thereat.

Section 2 . Annual Meetings. The annual meeting of shareholders shall be held on such day and at such time as may be fixed by the Board; provided, however, that should said day fall upon a Saturday, Sunday, or legal holiday observed by the Corporation at its principal executive office, then any such meeting of shareholders shall be held at the same time and place on the next day thereafter ensuing which is a full business day. At such meetings, directors shall be elected by plurality vote and any other proper business may be transacted.

Section 3. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the President or the Secretary by resolution of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose of the proposed meeting.



1



Section 4. Notices of meetings shall be in writing and signed by the President or a Vice-President or the Secretary or an Assistant Secretary or by such other person or persons as the directors shall designate. Such notice shall state the purpose or purposes for which the meeting is called and the time and the place, which may be within or without this State, where it is to be held. A copy of such notice shall be either delivered personally to or shall be mailed, postage prepaid, to each stockholder of record entitled to vote at such meeting not less than ten nor more than sixty days before such meeting. If mailed, it shall be directed to a stockholder at his address as it appears upon the records of the corporation and upon such mailing of any such notice, the service thereof shall be complete and the time of the notice shall begin to run from the date upon which such notice is deposited in the mail for transmission to such stockholder. Personal delivery of any such notice to any officer of a corporation or association or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. In the event of the transfer of stock after delivery of such notice of and prior to the holding the meeting it shall not be necessary to deliver or mail notice of the meeting to the transferee. An affidavit of mailing of any notice, executed by the Secretary, shall be prima facie evidence of the giving of the notice.

Section 5. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.  

Section 6. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Articles of Incorporation. If however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

Section 7. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall be sufficient to elect directors or to decide any question brought before such meeting. unless the question is one upon which by express provision of the statutes or of the Articles of Incorporation, a different vote is required in which case such express provision shall govern and control the decision or such question.

Section 8. Each stockholder of record of the corporation shall be entitled at each meeting of stockholders to one vote for each share of stock standing in his name on the books of the corporation. Upon the demand of any stockholder, the vote for directors and the vote upon any question before the meeting shall be by ballot.

Section 9. At any meeting or the stockholders any stockholder may be represented and vote by a proxy or proxies appointed by an instrument in writing. In the event that any such instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all of the persons so designated unless the instrument shall otherwise provide. No proxy or power of attorney to vote shall be used to vote at a meeting of the stockholders unless it shall have been filed with the secretary of the meeting when required by the inspectors of election. All questions regarding the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by the inspectors of election who shall be appointed by the Board of Directors, or if not so appointed, then by the presiding officer of the meeting.



2



Section 10. Any action which may be taken by the vote of the stockholders at any annual meeting or special meeting may be taken without a meeting if authorized by the written consent of stockholders holding at least a majority of the voting power, unless the provisions of the statutes or of the Articles of Incorporation require a greater proportion of voting power to authorize such action in which case such greater proportion of written consents shall be required.

ARTICLE III

Directors

Section 1. Subject to limitation of the Nevada Revised Statutes, the Articles of Incorporation, of these bylaws, and of actions required to be approved by the shareholders, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. The Board may, as permitted by law, delegate the management of the day-to-day operation of the business of the corporation to a management company or other persons or officers of the corporation provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without prejudice to such general powers, it is hereby expressly declared that the Board shall have the following powers:

(a)

To select and remove all of the officers, agents and employees of the corporation, prescribe the powers and duties for them as may not be inconsistent with law, or with the Articles of Incorporation or by these bylaws, fix their compensation, and require from them, if necessary, security for faithful service.

(b)

To conduct, manage, and control the affairs and business of the corporation and to make such rules and regulations therefore not inconsistent with law, with the Articles of Incorporation or these bylaws, as they may deem best.

(c)

To adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock and to alter the form of such seal and such of certificates from time to time in their judgment they deem best.

(d)

To authorize the issuance of shares of stock of the corporation from time to time, upon such terms and for such consideration as may be lawful.

(e)

To borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefore, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecation or other evidence of debt and securities therefore.

Section 2. The number of directors which shall constitute the whole board shall be Four (4). The number of directors may from time to time be increased or decreased to not less than one, nor more than fifteen by action of the Board of Directors. The directors shall be elected at the annual meeting of the stockholders or by consent of majority shareholders in lieu of meeting and except as provided in Section 2 of this Article, each director elected shall hold office until his successor is elected and qualified. The Board of Directors, at its discretion, may remove any director by a unanimous vote of all remaining members of the Board. Such removal shall be effective immediately, even if successors are not elected simultaneously. Directors need not be stockholders.


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Section 3. Vacancies in the Board of Directors including those caused by an increase in the number of directors, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the stockholders. The holders of two-thirds of the outstanding shares of stock entitled to vote may at any time peremptorily terminate the term of office of all or any of the directors by vote at a meeting called for such purpose or by a written statement filed with the secretary or, in his absence, with any other officer. Such removal shall be effective immediately, even if successors are not elected simultaneously and the vacancies on the Board of Directors resulting therefrom shall be filled only by the stockholders.

A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any directors, or if the authorized number of directors be increased, or if the stockholders fail at any annual or special meeting of stockholders at which any director or directors are elected to elect the full authorized number of directors to be voted for at that meeting.

The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. If the board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the stockholders shall have power to elect a successor to take office when the resignation is to become effective.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office.

ARTICLE IV

Meetings of the Board of Directors

Section 1. Regular meetings of the Board of Directors shall be held at any place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such designation regular meetings shall be held at the registered office of the corporation. Special meetings of the Board may be held either at a place so designated or at the registered office.

Section 2. The first meeting of each newly elected Board of Directors shall be held immediately following the adjournment of the meeting of stockholders and at the place thereof. No notice of such meeting shall be necessary to the directors in order legally to constitute the meeting, provided a quorum be present In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors.

Section 3. Regular meetings of the Board of Directors may be held without call or notice at such time and at such place as shall from time to time be fixed and determined by the Board of Directors.

Section 4. Special meetings of the Board of Directors may be called by the Chairman or the president or by any Vice-president or by any two directors.

Written notice of the time and place of special meetings shall be delivered personally to each director, or sent to each director by mail or by other form of written or electronic communication, charges prepaid, addressed to him at his address as it is shown upon the records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or emailed, it shall be deposited in the United States mail or delivered to the email address on file at least forty-eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered as above provided, it shall be so delivered at least twenty four (24) hours prior to the time of the holding of the meeting. Such mailing, emailing or delivery as above provided shall be due, legal and personal notice to such director.



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Section 5. Notice of the time and place of holding an adjourned meeting need not be given to the absent directors if the time and place be fixed at the meeting adjourned.

Section 6. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present, and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 7. A majority of the authorized number of directors shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall he regarded as the act of the Board of directors, unless a greater number be required by law or by the Articles of Incorporation. Any action of a majority, although not at a regularly called meeting, and the record thereof, if assented to in writing by all of the other members of the Board shall be as valid and effective in all respects as if passed by the Board in regular meeting.

Section 8. A quorum of the directors may adjourn any directors meeting to meet again at a stated day and hour; provided, however, that in the absence of a quorum, a majority of the directors present at any directors meeting, either regular or special, may adjourn from time to time until the time fixed for the next regular meeting of the Board.

ARTICLE V

Committees or Directors

Section 1. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees of the Board of Directors, each committee to consist of two or more of the directors of the corporation which, to the extent provided in the resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the corporation and may have power to authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by the Board of Directors. The members of any such committee present at any meeting and not disqualified from voting may, whether or not they constitute a quorum, unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. At meetings of such committees, a majority of the members or alternate members shall constitute a quorum for the transaction of business and the act of a majority of the members or alternate members at any meeting at which there is a quorum shall be the act of the committee.

Section 2. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors.

Section 3. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee.


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ARTICLE VI

Compensation of Directors

Section 1. The directors may be paid their expenses of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director.  No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefore.  Members of special or standing committees may be allowed like reimbursement and compensation for attending committee meetings.

ARTICLE VII

Notices

Section 1. Notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the corporation. Notice by mail shall be deemed to be given at the time when the same shall be mailed. Notice to directors may also be given by telegram.

Section 2. Whenever all parties entitled to vote at any meeting, whether of directors or stockholders, consent, either by a writing on the records of the meeting or filed with the secretary, or by presence at such meeting and oral consent entered on the minutes., or by taking part in the deliberations at such meeting without objection, the doings of such meeting shall be as valid as if had at a meeting regularly called and noticed. and at such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection for want of notice is made at the time, and if any meeting be irregular for want of notice or of such consent, provided a quorum was present at such meeting, the proceedings of said meeting may be ratified and approved and rendered likewise valid and the irregularity or defeat therein waived by a writing signed by all parties having the right to vote at such meeting; and such consent or approval of stockholders may be by proxy or attorney, but all such proxies and powers of attorney must be in writing.

Section 3. Whenever any notice whatever is required to be given under the provisions of the statutes, of the Articles of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before- or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE VIII

Officers

Section 1. The officers of the corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. Any person may hold two or more offices.

Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a Chairman of the Board who shall be a director, and shall choose a President, a Secretary and a Treasurer, none of whom need be directors.

Section 3. The Board of Directors may appoint a Vice-Chairman of the Board, Vice-Presidents and one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

Section 4. The salaries and compensation of all officers of the corporation shall be fixed by the Board of Directors.



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Section 5. The officers of the corporation shall hold office at the pleasure of the Board of Directors- Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors.

Section 6. The Chairman of the Board shall preside at meetings of the stockholders and the Board of Directors, and shall see that all orders and resolutions of the Board of Directors are carried into effect.

Section 7. The Vice-Chairman shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties as the Board of Directors may from time to time prescribe.

Section 8. The President shall be the chief executive officer of the corporation and shall have active management of the business of the corporation. He shall execute on behalf of the corporation all instruments requiring such execution except to the extent the signing and execution thereof shall be expressly designated by the Board of Directors to some other officer or agent of the corporation.

Section 9. The Vice-President(s) shall act under the direction or the President and in the absence or disability of the President shall perform the duties and exercise the powers of the President. They shall perform such other duties and have such other powers as the President or the Board of Directors may from time to time prescribe. The Board of Directors may designate one or more Executive Vice-Presidents or may otherwise specify the order of seniority of the Vice-Presidents. The duties and powers of the President shall descend to the Vice President; in such specified order of seniority.

Section 10. The Secretary shall act under the direction of the President. Subject to the direction of the President he shall attend all meetings of the Board of Directors and all meetings of the stockholders and record the proceedings. He shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the President or the Board of Directors.

Section 11. The Assistant Secretaries shall act under the direction of the President. In order of their seniority, unless otherwise determined by the President or the Board of Directors, they shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary. They shall perform such other duties and have such other powers as the president or the Board of Directors may from time to time prescribe.

Section 12. The Treasurer shall act under the direction of the President. Subject to the direction of the President he shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the President or the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meeting or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation.

Section 13. If required by the Board of Directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation.



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Section 14. The Assistant Treasurer in the order of their seniority, unless otherwise determined by the President or the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of1he Treasurer. They shall perform such other duties and have such other powers as the President or the Board of Directors may from time to time prescribe.

ARTICLE IX

Certificates of Stock

Section 1. Every stockholder shall be entitled to have a certificate signed by the President or a Vice-President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights, shall be set forth in full or summarized on the face or back or the certificate which the corporation shall issue to represent such stock.

Section 2. If a certificate is signed (a) by a transfer agent other than the corporation or its employees or (2) by a registrar other than the corporation or its employees, the signatures of the officers of the corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall cease to be such officer before such certificate is issued, such certificate may be issued with the same effect as though the person had not ceased to be such officer. The seal of the corporation, or a facsimile thereof, may, but need not be, affixed to certificates of stock.

Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof. require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.

Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation, if it is satisfied that an provisions of the laws and regulations applicable to the corporation regarding transfer and ownership of shares have been complied with, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

Section 5. The Board of Directors may fix in advance a date not exceeding sixty (60) days nor less than ten (10) days preceding the date of any meeting of stockholders. or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining the consent of stockholders for any purpose, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to give such consent, and in such case, such stockholders, and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to notice of and to vote at such meeting, or any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, not withstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid.



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Section 6. The corporation shall be entitled to recognize the person registered on its books as the owner of shares to be the exclusive owner for all purposes including voting and dividends, and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada.

ARTICLE X

General Provisions

Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Articles of Incorporation.

Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends or for repairing or maintaining any property of the corporation or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Section 4. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

Section 5. The corporation may or may not have a corporate seal, as may from time to time be determined by resolution of the Board of Directors. If a corporate seal is adopted, it shall have inscribed thereon the name of the corporation and the words "Corporate Seal and "Nevada". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.

ARTICLE XI

Amendments

Section 1. The Bylaws may be amended by a majority vote of all the stock issued and outstanding and entitled to vote at any annual or special meeting of the stockholders.

Section 2. The Board of Directors by a majority vote of the whole Board at any meeting may amend these Bylaws, including Bylaws adopted by the stockholders, but the stockholders may from time to time specify particular provisions of the Bylaws which shall not be amended by the Board of Directors.

ARTICLE XII

Conflicts with General Corporation Law

In the event and to the extent of any conflict between the provisions of these bylaws and any mandatory requirements of the General Corporation Law of Nevada, as it may be amended from time to time, the latter shall govern and all other provisions of the bylaws not in conflict thereof shall continue in full force and effect.



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Exhibit 4.2


THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“ACT”).  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN.

WARRANT TO PURCHASE                                                                                                            SHARES OF COMMON STOCK OF                                                                                                                                3 PEA TECHNOLOGIES, INC.


Void after

(____________)

Shares of Common Stock

Warrant Number (            )                                                                                                                                   (                )  


This certifies that __________, Tax ID Number _____________ (“Holder”), or assigns, for value received, is entitled to purchase from 3 Pea Technologies, Inc. , a Nevada corporation (“Company”), subject to the terms set forth below, that certain number of fully-paid and non-assessable shares of the Company’s common stock (the “Warrant Shares”) of the Company’s Common Stock  for cash at a price of One Dollar Fifty Cents ($1.50) (the “Exercise Price”) per share if exercised prior to the expiration date.  The number of Warrant Shares exercisable under this Warrant is equal to (_____).  The Warrant Shares shall be exercisable at any time or from time to time up to and including 5:00 p.m. (Pacific Time) on __________ such date being referred to herein as the “Expiration Date.”  Holder may exercise the Warrant Shares upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by wire transfer of the aggregate Exercise Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof.  The number of Warrant Shares and the Exercise Price are subject to adjustment as provided in Section 3 of this Warrant.




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EXERCISE, ISSUANCE OF CERTIFICATES, REDUCTION IN NUMBER OF WARRANT SHARES

This Warrant is exercisable at the option of the Holder of record hereof on or prior to the Expiration Date, at any time, for all or any part of the Warrant Shares (but not for a fraction of a share) which may be purchased hereunder, as that number may be adjusted pursuant to Section 3 of this Warrant.  The Company agrees that the Warrant Shares purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed and executed Form of Subscription delivered, and payment made for such Warrant Shares.  Certificates for the Warrant Shares so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company’s expense not later than thirty (30) days after the rights represented by this Warrant have been so exercised.  In case of a purchase of less than all the Warrant Shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver to the Holder hereof within a reasonable time a new Warrant or Warrants of like tenor for the balance of the Warrant Shares purchasable under the Warrant surrendered upon such purchase.  Each stock certificate so delivered shall be registered in the name of such Holder.

SHARES TO BE FULLY PAID

The Company covenants and agrees that all shares of Common Stock issuable upon conversion of such Warrant Shares, will, upon issuance and, if applicable, payment of the applicable Exercise Price, be duly authorized, validly issued, fully paid and nonassessable, and free of all liens and encumbrances, except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES

The Exercise Price and the total number of Warrant Shares shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3.

IN THE EVENT OF CHANGES IN THE OUTSTANDING COMMON STOCK OF THE COMPANY BY REASON OF STOCK DIVIDENDS, STOCK SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS, COMBINATIONS OR EXCHANGES OF SHARES, SEPARATIONS, REORGANIZATIONS, LIQUIDATIONS, OR THE LIKE, THE NUMBER AND CLASS OF SHARES AVAILABLE UNDER THE WARRANT IN THE AGGREGATE AND THE EXERCISE PRICE SHALL BE CORRESPONDINGLY ADJUSTED TO GIVE THE HOLDER OF THE WARRANT, ON EXERCISE FOR THE SAME AGGREGATE EXERCISE PRICE, THE TOTAL NUMBER, CLASS, AND KIND OF SHARES AS THE HOLDER WOULD HAVE OWNED HAD THE WARRANT BEEN EXERCISED PRIOR TO THE EVENT AND HAD THE HOLDER CONTINUED TO HOLD SUCH SHARES UNTIL AFTER THE EVENT REQUIRING ADJUSTMENT.  THE FORM OF THIS WARRANT NEED NOT BE CHANGED BECAUSE OF ANY ADJUSTMENT IN THE NUMBER OF EXERCISE SHARES SUBJECT TO THIS WARRANT.

 


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UPON EACH ADJUSTMENT OF THE EXERCISE PRICE, THE HOLDER OF THIS WARRANT SHALL THEREAFTER BE ENTITLED TO PURCHASE, AT THE EXERCISE PRICE RESULTING FROM SUCH ADJUSTMENT, THE NUMBER OF SHARES OBTAINED BY MULTIPLYING THE EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ADJUSTMENT BY THE NUMBER OF SHARES PURCHASABLE PURSUANT HERETO IMMEDIATELY PRIOR TO SUCH ADJUSTMENT, AND DIVIDING THE PRODUCT THEREOF BY THE EXERCISE PRICE RESULTING FROM SUCH ADJUSTMENT.

NOTICE OF ADJUSTMENT


Upon any adjustment of the Exercise Price or any increase or decrease in the number of Warrant Shares, the Company shall give written notice thereof, by first class mail postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company.  The notice shall be prepared and signed by the Company’s Chief Financial Officer and shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

NO VOTING OR DIVIDEND RIGHTS

Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent to receive notice as a shareholder of the Company on any other matters or any rights whatsoever as a shareholder of the Company.  No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised.

COMPLIANCE WITH SECURITIES ACT

The Holder of this Warrant, by acceptance hereof, agrees that this Warrant, the Warrant Shares to be issued upon exercise hereof, and the shares of Common Stock issuable upon conversion of the Warrant Shares are being acquired for investment and that it will not offer, sell, or otherwise dispose of this Warrant, any Warrant Shares, or any shares of Common Stock to be issued upon conversion of the Warrant Shares except under circumstances which will not result in a violation of the Act or any applicable state securities laws.  This Warrant, all Warrant Shares, and all shares of Common Stock issued upon conversion of the Warrant Shares (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

 


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WARRANT TRANSFERABLE

Subject to compliance with applicable federal and state securities laws under which this Warrant was purchased, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder (except for transfer taxes), upon surrender of this Warrant properly endorsed; provided, however, that the Holder shall notify the Company in writing in advance of any proposed transfer and shall not transfer this Warrant or any rights hereunder to any person or entity which is then engaged in a business that in the reasonable judgment of the Company is in direct competition with the Company.

DISPOSITION OF WARRANT SHARES AND COMMON STOCK

With respect to any offer, sale, or other disposition of the Warrant, any Warrant Shares, or of any shares of Common Stock issued upon conversion of the Warrant Shares prior to registration of such shares, the Holder hereof and each subsequent Holder of this Warrant agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder’s counsel, if reasonably requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state law then in effect) of such Warrant, Warrant Shares or Common Stock, as the case may be, and indicating whether or not under the Act certificates for such Warrant, Warrant Shares or Common Stock to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability.  Promptly upon receiving such written notice and opinion, the Company, as promptly as practicable, shall notify such Holder that such Holder may sell or otherwise dispose of such Warrant, Warrant Shares or Common Stock, all in accordance with the terms of the notice delivered to the Company.  If a determination has been made pursuant to this subparagraph 8 that the opinion of the counsel for the Holder is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly after such determination has been made.  Notwithstanding the foregoing, such Warrant, Warrant Shares or Common Stock may be offered, sold or otherwise disposed of in accordance with Rule 144 under the Act, provided that the Company shall have been furnished with such information as the Company may request to provide reasonable assurance that the provisions of Rule 144 have been satisfied.  Each certificate representing the Warrant, Warrant Shares or Common Stock thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of counsel for the Holder, such legend is not required in order to insure compliance with the Act.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

MODIFICATION AND WAIVER


This Warrant and any provision hereof may be changed, waived, discharged, or term I nated only by an instrument in writing signed by the party against which enforcement of the same is sought.

NOTICES

Any notice, request, or other document required or permitted to be given or delivered to the Holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such Holder at its address as shown on the books of the Company or to the Company at the address indicated therefore in the first paragraph of this Warrant or such other address as either may from time to time provide to the other.



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GOVERNING LAW

This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Nevada.

LOST WARRANTS

Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant.

FRACTIONAL SHARES

No fractional shares shall be issued upon exercise of this Warrant.  The Company shall, in lieu of issuing any fractional share, pay the Holder entitled to such fraction a sum in cash equal to such fraction (calculated to the nearest 1/100th of a share) multiplied by the then effective Exercise Price on the date the Form of Subscription is received by the Company.

NO IMPAIRMENT

The Company will not, by charter amendment or by reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment.  Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to Holder, the continued validity of this Warrant and the Company’s obligations hereunder.

SUCCESSORS AND ASSIGNS

This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the Holder.  The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder.

EFFECT OF MERGER OR ACQUISITION

Unless this warrant is exercised prior to or simultaneously therewith, if the Company shall at any time merge or otherwise combine with or into or by acquired by another corporation, the holder of this Warrant will thereafter receive, upon the exercise of this Warrant in accordance with its terms, the securities or properties to which the holder of the number of shares of Common Stock then deliverable upon exercise of this Warrant would have been entitled upon such transaction.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officer, thereunto duly authorized as of the _____ day of _____ 2006.



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3 PEA TECHNOLOGIES, INC .


By: _________________________________

Mark R. Newcomer, CEO


 

FORM OF SUBSCRIPTION


Date:_____________________

3 PEA Technologies, Inc.

3068 E. Sunset Road, Suite 3

Las Vegas, NV 89120-2785

Office: (702) 453-2221


To whom it may concern:


The undersigned, the holder of the attached Common Stock Warrant (“Holder”), hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, (1)                        shares of Common Stock of 3 Pea Technologies, Inc. (“Company”) purchasable thereunder at a price of One Dollar and Fifty Cents, ($1.50) per share (the “Purchase Price”) pursuant to the terms of the Warrant and the undersigned delivers the purchase price herewith in full in cash or wire transfer and herewith makes payment of _______________________Dollars, ($_________) therefore.

Holder represents to the Company that Holder is acquiring such common stock for Holder’s own account for investment and not with a view to or for sale in connection with any distribution thereof.  Holder requests that certificates for such shares be issued in the name of the Holder and delivered to the following address:

Name of Holder:

 ______________________________________________________;

whose address is:

__________________________________________

__________________________________________

__________________________________________


      Sign Name:__________________________________________

Print Name:__________________________________________

 

Footnotes

1 May be exercised in one or more exercisable events.



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3Pea – Wow

Share Exchange Agreement

Final – September 14, 2007


Exhibit 10.1


SHARE EXCHANGE AGREEMENT

      

This Share Exchange Agreement (the "Agreement") dated September 14, 2007, is made by and between 3Pea International, Inc. , a Nevada corporation ("3Pea"), having its principal offices at 3068 E. Sunset Road, Suite 3, Las Vegas, Nevada 89120 and WOW! Technologies, Inc. , a Nevada corporation ("WOW") having its principal office located at 3193 Montecito Drive, Las Vegas, Nevada 89120.


RECITALS:


      A.    This Agreement provides for the acquisition of WOW by 3Pea whereby WOW shall become a subsidiary of 3Pea. 3Pea desires to acquire 100% of the issued the outstanding shares of the common stock of WOW but no less than 50.1% of the issued and outstanding shares of the common stock and all other equity interest of WOW. The shareholders of WOW listed herein desire to exchange their shares of the common stock of WOW for shares of the duly and validly authorized but previously unissued common stock of 3Pea as hereinafter provided.


      B.    It is the intention of the parties hereto that: (i) 3Pea shall acquire 100% of the issued and outstanding shares of the common stock and all other equity interest of WOW, but no less than 50.1% of the issued and outstanding shares of WOW (“the WOW Shares”), in exchange solely for the number of shares of 3Pea's authorized but previously unissued shares of common stock having a par value of $.001 per share (the “Exchange”), not to exceed four million two hundred twenty thousand twenty shares (4,220,020), set forth below (the "Exchange Shares"); (ii) the Exchange will qualify as a tax-free reorganization pursuant to sections 354 and Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and (iii) the Exchange shall qualify as a transaction in securities exempt from registration or qualification under the Securities Act of 1933, as amended, and under the applicable securities laws of each state or jurisdiction where the WOW Shareholders reside, with WOW ultimately becoming a subsidiary of 3Pea.  Although the Exchange qualifies as a tax-free reorganization under the Code, the same tax treatment may not exist in other countries.


      C.    The Board of Directors of 3Pea deems it to be in the best interest of 3Pea and its shareholders to acquire all of the issued shares of the common stock and other equity interests of WOW.


      D.    The directors and shareholders of WOW deem it to be in the best interest of the shareholders of WOW to exchange the WOW Shares for the Exchange Shares as hereinafter provided.

 

       NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained in this Agreement, the parties hereto agree as follows:



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SECTION 1. EXCHANGE OF SHARES


      1.1    Exchange of Shares . 3Pea and WOW hereby agree that on the Closing Date (as hereinafter defined in Section 8.2), 3Pea shall issue one share of the common stock of 3Pea for every 14 shares of the common stock of WOW presented by a shareholder of WOW to 3Pea for exchange, not to exceed four million two hundred twenty thousand twenty shares (4,220,020) of the common stock of 3Pea including those shares reserved for the conversion of the Convertible Subordinated Debentures of WOW pursuant to section 4.3. Upon receipt of a tendering of 100% of all of the issued and outstanding shares of WOW, but no less than 50.1% of the outstanding equity interests of WOW, the WOW Shares shall be transferred to 3Pea such that, on the Closing Date, WOW will become a subsidiary of 3Pea.  


      1.2    Delivery of Shares . On the Closing Date, 3Pea shall deliver certificates representing the proper number of Exchange Shares to each exchanging shareholder of WOW. On the Closing Date, the shareholders of WOW wishing to exchange their WOW Shares for Exchange Shares (the "Exchanging Shareholders") will deliver to 3Pea the certificates representing the WOW Shares, duly endorsed on the back of each stock certificate ready for transfer with medallion signature guarantee (or with executed stock powers) so as to make 3Pea the sole owner thereof. Upon delivery of the WOW Shares, 3Pea will deliver certificate representing the Exchange Shares to the Exchanging Shareholders.

 


SECTION 2. REPRESENTATIONS AND WARRANTIES OF WOW AND EXCHANGING SHAREHOLDERS


       WOW, as of the date of this Agreement and of the Closing Date, hereby represents and warrants as follows.


            2.1    Organization and Good Standing .  WOW is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of Nevada. WOW has the corporate power and authority to carry on its business as presently conducted. WOW is qualified to do business in all jurisdictions except where the failure to be so qualified would have a material adverse effect on its business.

  

            2.2    Corporate Authority .  WOW has the power to operate as a corporation and to perform the transaction hereunder including the authority to give management of 3PEA International, Inc., the authority to perform such actions as are necessary and ordinary to operate the combined business entities contemplated hereunder from the date of execution hereof. The execution and performance of this Agreement, will not constitute a material breach of any agreement, indenture, mortgage, license or other instrument or document to which WOW is a party and will not violate any judgment, decree, order, writ, rule, statute, or regulation applicable to WOW or its properties. The execution and performance of this Agreement will not violate or conflict with any provision of WOW's Articles of Incorporation or the Bylaws attached as Schedule 2.2.

 



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            2.3     Access to Corporate Information; Independent Investigation . WOW, through its officers, directors and authorized representatives, acknowledges that it, in making its decision to recommend the exchange of the WOW equity interests for Exchange Shares, will rely upon independent investigations made by its representatives, if any, or rulings of a court, and it will have, prior to the Closing Date, been given access to and the opportunity to examine all material contracts and documents relating to the Agreement and an opportunity to ask questions of, and to receive information from, 3Pea or any person acting on its behalf concerning the terms and conditions of this Agreement.


            2.4    Risks . WOW acknowledges and understands that the exchange for the Exchange Shares involves a high degree of risk and is suitable only for persons of adequate financial means who have no need for liquidity in this investment in that (i) the Exchanging Shareholder may not be able to liquidate their investment in the event of an emergency; (ii) transferability is extremely limited; and (iii) in the event of a disposition, the Exchanging Shareholder could sustain a complete loss of its entire investment. The Exchanging Shareholders are sufficiently experienced in financial and business matters to be capable of evaluating the merits and risks of an investment in 3Pea; will have evaluated such merits and risks, including risks particular to the WOW’s situation; and the Exchanging Shareholders have determined that this investment is suitable for the Exchanging Shareholders.  The Exchanging Shareholders have adequate financial resources and can bear a complete loss of the investment.


            2.5    Investment Intent . The Exchanging Shareholders hereby represent that the Exchange Shares are being acquired for the Exchanging Shareholders' own accounts with no intention of distributing such securities to others, until such time as a distribution of the Exchange Shares to any Exchanging Shareholders may be completed in compliance with state and federal securities laws. Neither WOW nor any of the Exchanging Shareholders have any contract, undertaking, agreement or arrangement with any person to sell, transfer or otherwise distribute to any person or to have any person sell, transfer or otherwise distribute the Shares other than this Agreement which requires a distribution of the Exchange Shares of exchanging shareholders of the Final Closing Date and in compliance with state and federal securities laws. The Exchanging Shareholders are presently not engaged, nor do the Exchanging Shareholders plan to engage within the presently foreseeable future, in any discussion with any person regarding such a sale, transfer or other distribution of the Shares or any interest therein.


            2.6    Compliance with Federal and State Securities Laws . WOW and the Exchanging Shareholders understand that the Exchange Shares have not been registered under the Securities Act of 1933 (the “Securities Act”). WOW and the Exchanging Shareholders understand that the Exchange Shares must be held indefinitely unless the sale or other transfer thereof is subsequently registered by reason of a Registration Statement under the Securities Act or an exemption from such registration is available or pursuant to the terms of Rule 144 promulgated under the Securities Act. Moreover, WOW and the Exchanging Shareholders understand that their right to transfer the Exchange Shares will be subject to certain restrictions, which include restrictions against transfer under the Securities Act and applicable state securities laws. In addition to such restrictions, WOW and the Exchanging Shareholders realize that they may not be able to sell or dispose of the Exchange Shares as there may be no public or other market for them. WOW and the Exchange Shareholders understand that certificates evidencing the Shares shall bear legends substantially as follows:



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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE LAW OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS

 

            2.7     Approvals . WOW represents no approval, authorization, consent, order or other action of, or filing with, any person, firm or corporation is required in connection with the execution and delivery of this Agreement by it and for the consummation of the transactions described herein.


            2.8    No General Solicitation . The Exchanging Shareholders are not purchasing (or exchanging for) the Exchange Shares because of or following any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation or a subscription by a person other than a representative of 3Pea and is relying solely on WOW’s due diligence conducted in connection with this transaction.


            2.9    Financial Statements, Books and Records .  WOW represents that the attached as Schedule 2.9 are its audited financial statements (balance sheet, income statement, notes) as of December 31, 2006 and its unaudited financial statements as of June 30, 2007(the "Financial Statements"). WOW represents that its books of account and other financial records are in all material respects complete and correct and are maintained in accordance with good business and accounting practices..


            2.10    No Material Adverse Changes .  Except as set forth in Schedule 2.10, WOW represents from December 31, 2006 to the date of Final Closing there will not have been:


(i)

any adverse change in the financial position of WOW except changes arising in the ordinary course of business, which changes will in no event materially and adversely affect the financial position of WOW;




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(ii)

any damage, destruction or loss affecting the assets, prospective business, operations or condition (financial or otherwise) of WOW whether or not covered by insurance;


(iii)

any declaration, setting aside or payment of any dividend or distribution with respect to any redemption or repurchase of WOW capital interests;


(iv)

any sale of an asset (other than in the ordinary course of business) or any mortgage or pledge by WOW of any properties or assets;


(v)

adoption of any pension, profit sharing, retirement, stock bonus, stock option or similar plan or arrangement;


            2.11    Taxes .  WOW has filed all tax, governmental and/or related forms and reports (or extensions thereof) due or required to be filed and has paid or made adequate provisions for all taxes or assessments which had become due as of the Closing Date, and there are no deficiency notices outstanding. No extensions of time for the assessment of deficiencies for any year is in effect. No deficiency notice is proposed or, to the knowledge of WOW after reasonable inquiry, threatened against WOW. The tax returns of WOW have never been audited.


            2.12    Compliance with Laws .  WOW has complied with all federal, state, county and local laws, ordinances, regulations, inspections, orders, judgments, injunctions, awards or decrees applicable to it or its business which, if not complied with, would adversely affect the business of WOW.


            2.13    No Breach .  WOW represents that the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not:


                        (i)    violate any order, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, WOW or upon the properties or business of WOW; or


                        (ii)    violate any statute, law or regulation of any jurisdiction applicable to the transactions contemplated herein which could have a material, adverse effect on the business or operations of WOW.


            2.14    Actions and Proceedings .  WOW is not a party to any pending litigation or any governmental investigation or proceeding not reflected in the WOW Financial Statements and, there is no litigation, claims, assessments or non-governmental proceedings are threatened against WOW.




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            2.15    Agreements .  Schedule 2.15 sets forth any material contract or arrangement to which WOW is a party or by or to which it or its assets, properties or business are bound or subject, whether written or oral and which WOW's obligation exceeds $5,000.


            2.16    Brokers or Finders .  No broker's, finder's or similar fees will be payable by WOW in connection with the transactions contemplated by this Agreement, nor will any such fee be incurred as a result of any actions by WOW or any of its Shareholders.


            2.17    Property and Equipment . Except as set forth on Schedule 2.17, WOW owns no real or personal property or equipment nor is a party to any leasehold agreement. All uses of the real property by WOW or its subsidiaries conform in all material respects to all applicable ordinances, laws and regulations.


            2.18    OSHA and Environmental Compliance .  WOW has duly complied with, and its offices, real property, business, assets, leaseholds and equipment are in compliance in all material respects with, the provisions of the Federal Occupational Safety and Health Act, the Environmental Protection Act, and all other environmental laws. There have been no outstanding citations, notices or orders of non-compliance issued to WOW or relating to its business, assets, property, leaseholders or equipment under such laws, rules or regulations.


                        WOW has been issued all required federal, state and local licenses, certificates or permits relating to all applicable environmental laws.   WOW's represents there are no visible signs of releases, spills, discharges, leaks or disposal (collectively, referred to as "Releases") of hazardous substances at, upon, under or within the real property owned by WOW and there are no underground storage tanks or polychlorinated biphenyls on the real property. To the best of WOW's knowledge, the real property has never been used as a treatment, storage or disposal facility of hazardous waste. WOW' represents that there are  no hazardous substances present on the real property or any premises leased by WOW excepting such quantities as are handled in accordance with all applicable manufacturer's instructions and governmental regulations and in the proper storage containers and as are necessary for the operation of the commercial business of WOW.


            2.19    Tangible Assets.   WOW has full title and interest in all machinery, equipment, furniture, leasehold improvements, fixtures, projects, owned or leased by WOW, any related capitalized items or other tangible property material to the business of WOW (the "Tangible Assets"). Other than as set forth in Schedule 2.19, WOW holds all rights, title and interest in all the Tangible Assets owned by it on the Balance Sheet or acquired by it after the date on the Balance Sheet free and clear of all liens, pledges, mortgages, security interests, conditional sales contracts or any other encumbrances. All of the Tangible Assets are in good operating condition and repair and are usable in the ordinary course of business of WOW and conform to all applicable laws, ordinances and government orders, rules and regulations relating to their construction and operation, except as set forth on Schedule 2.19 hereto. WOW has clear title to all of its fictional business names, trading names, registered and unregistered trademarks, service marks and applications (collectively, the "Marks") and Marks are included as Tangible Assets.



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            2.20    Liabilities .  WOW did not have any direct or indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or responsibility, known or unknown, fixed or unfixed, liquidated or unliquidated, secured or unsecured, accrued or absolute, contingent or otherwise, including, without limitation, any liability on account of taxes, any governmental charge or lawsuit (all of the foregoing collectively defined to as "Liabilities"), which are not fully, fairly and adequately reflected on the Financial Statements (annual and interim), except for specific Liabilities set forth on Schedule 2.20 attached hereto and made a part hereof. As of the Initial Closing Date, WOW will not have any Liabilities, other than Liabilities fully and adequately reflected on the Financial Statements except for Liabilities incurred in the ordinary course of business and as set forth in Schedule 2.20, and will not exceed $280,000 on the Closing Date. WOW is not aware of any circumstance, condition, event or arrangement which may hereafter give rise to any Liabilities not in the ordinary course of business.


            2.21    Access to Records .  The corporate financial records, minute books and other documents and records of WOW have been made available to 3Pea prior to the Closing hereof.


            2.22    Operations of WOW . From the date of the December 31, 2006 financial statements through the Closing Date, WOW has not and will not, outside of the ordinary course of business, have:


                        (i)    incurred any new indebtedness or borrowed money;


                        (ii)    declared or paid any dividend or declared or made any distribution of any kind to any Shareholder, or made any direct or indirect redemption, retirement, purchase or other acquisition of any interests in its capital structure;


                        (iii)    made any loan or advance to any Shareholder, officer, director, employee, consultant, agent or other representative or made any other loan  or advance;


                        (iv)    disposed of any assets of WOW not in the ordinary course of business;


                        (v)    increased the annual level of compensation of any executive employee of WOW;


                        (vi)    increased, terminated, amended or otherwise modified any plan for the benefit of employees of WOW;


                        (vii)    issued any equity securities or rights to acquire such equity securities; or



 

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                        (viii)    entered into or modified any contract, agreement or transaction not in the ordinary course of business.


            2.23    Capitalization . The authorized capital of WOW consists of 200,000,000 shares of stock consisting of 200,000,000 shares of common stock as of the date of this Agreement, 53,480,288 shares of common stock are issued and outstanding. WOW’s shareholders list, as certified by Integrity Stock Transfer as of August 31, 2007, is attached as Schedule 2.23. WOW is current with respect to all dividend obligations. WOW has not granted, issued or agreed to grant, issue or make any warrants, options, subscription rights or any other commitments of any character relating to the issued or unissued shares of capital stock of WOW.


            2.24    Full Disclosure .  No representation or warranty by WOW, the Exchanging Shareholders in this Agreement or in any document or schedule to be delivered by them pursuant hereto, and no written statement, certificate or instrument furnished or to be furnished by WOW pursuant hereto or in connection with the negotiation, execution or performance of this Agreement contains or will contain any untrue statement of a fact or omits or will omit to state any fact necessary to make any statement herein or therein not misleading or necessary to a complete and correct presentation of all material aspects of the business of WOW, and/or the status of the WOW Shares.


2.25

Subsidiaries and Predecessor Corporations. WOW does not have any other subsidiaries and does not own, beneficially or of record, any shares of any other corporation other than those listed in Schedule 2.25.



SECTION 3. REPRESENTATIONS AND WARRANTIES OF 3PEA


            3Pea hereby represents and warrants as of the date of this Agreement and as of the Closing Date as follows:


            3.1    Organization and Good Standing . 3Pea is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. It has the corporate power to own its own property and to carry on its business as now being conducted and is duly qualified to do business in any jurisdiction where so required except where the failure to so qualify would have no material adverse effect on its business. 3Pea's articles of incorporation, as amended, and bylaws currently in effect are attached as Schedule 3.1.


            3.2    Corporate Authority . 3Pea has the corporate power to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been, or will be prior to the Closing Date, duly authorized by the Board of Directors of 3Pea and 3Pea's shareholdings owning a majority of the outstanding shares as required by Nevada law. The execution and performance of this Agreement will not constitute a material breach of any agreement, indenture, mortgage, license or other instrument or document to which 3Pea is a party and will not violate any judgment, decree, order, writ, rule, statute, or regulation applicable to 3Pea or its properties. The execution and performance of this Agreement will not violate or conflict with any provision of the Articles of Incorporation or By-laws of 3Pea.



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            3.3    The Exchange Shares . At the Closing, the Exchange Shares to be issued and delivered to the Exchanging Shareholders hereunder will when so issued and delivered in accordance with the terms of this Agreement and 3Pea's Articles of Incorporation, as amended and currently in effect, constitute valid and legally issued shares of 3Pea Common Stock fully paid and nonassessable and free and clear of all pledges, liens and encumbrances. The Exchange Shares are not subject to preemptive or other rights of any stockholders of 3Pea..


            3.7    Compliance with Laws . Except as described on Schedule 3.7, to the best of its knowledge, 3Pea has complied with all federal, state, county and local laws, ordinances, regulations, inspections, orders, judgments, injunctions, awards or decrees applicable to it or its business, which, if not complied with, would materially and adversely affect the business of 3Pea.

            

            3.8    Actions and Proceedings . 3Pea is not a party to any pending litigation or, to its knowledge, any governmental proceedings are threatened against.

            

            3.9    Capitalization . As of the Closing Date, there will be no more than 30,000,000 shares of 3Pea Common Stock outstanding of which no person or entity owns in excess of 5% of the issued and outstanding shares, except as may be set forth on the attached shareholder list as Schedule 3.9. 3Pea has 160,000,000 shares of stock:  150,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of preferred, $0.001 par value, authorized, of which no more than 30,000,000 common shares will have been issued at the Closing Date..

            

            3.10    No Breach .  The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not, to the best of its knowledge:

                        

                        (i)    violate any provision of 3Pea's Articles of Incorporation or By-Laws;

                        

                        (ii)    violate, conflict with or result in the breach of any of the material terms of, result in a material modification of, otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under, any contract or other agreement to which 3Pea is a party or by or to which it or any of its assets or properties may be bound or subject;

                        

                        (iii)    violate any order, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, 3Pea or upon the securities, properties or business to 3Pea; or



9




                        

                        (iv)    violate any statute, law or regulation of any jurisdiction applicable to the transactions contemplated herein, which violation could have a material adverse effect on the business or operations of 3Pea.

            

            3.11    Brokers or Finders . No broker's or finder's fee will be payable by 3Pea in connection with the transactions contemplated by this Agreement, nor will any such fee be incurred as a result of any actions of 3Pea's shareholders or Board of Directors.

            

            3.12    Corporate Authority .  3Pea has the corporate power to enter into this Agreement and to perform its respective obligations hereunder. The execution and delivery of this Agreement and the consummation of the transaction contemplated hereby have been duly authorized by the Board of Directors and shareholders owning a majority of the outstanding common stock of 3Pea. The execution and performance of this Agreement will not constitute a material breach of any agreement, indenture, mortgage, license or other instrument or document to which 3Pea is a party and will not violate any judgment, decree, order, writ, rule, statute, or regulation applicable to 3Pea or its properties.

            

            3.13    Full Disclosure .  No representation or warranty by 3Pea in this Agreement or in any document or schedule to be delivered by them pursuant hereto, and no written statement, certificate or instrument furnished or to be furnished by 3Pea pursuant hereto or in connection with the negotiation, execution or performance of this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state any fact necessary to make any statement herein or therein not materially misleading or necessary to complete and correct presentation of all material aspects of the business of 3Pea.

            

SECTION 4. COVENANTS

            

            4.1    Further Assurances.   The parties shall execute such documents and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby. Each such party shall use its best efforts to fulfill or obtain the fulfillment of the conditions to the Closing, including, without limitation, the execution and delivery of any documents or other papers, the execution and delivery of which are necessary or appropriate to the Closing.

            

            4.2    Confidentiality .  In the event the transactions contemplated by this Agreement are not consummated, 3Pea, WOW and the Shareholders agree to keep confidential any information disclosed to each other in connection therewith for a period of five(5) years from the date hereof; provided, however, such obligation shall not apply to information which:

 

                        



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                        (i)    at the time of the disclosure was public knowledge;

                        

                        (ii)    after the time of disclosure becomes public knowledge (except due to the action of the receiving party); or

                        

                        (iii)    the receiving party had within its possession at the time of disclosure; or

                        

                        (iv)    is ordered disclosed by a Court of proper jurisdiction.

            

            4.3    Assumption of WOW's Options, Warrants and Convertible Securities . 3Pea represents that it will only assume WOW's obligation pursuant to four Convertible Subordinated Debentures in a total aggregate amount of $280,000 (attached hereto as Schedule 1.1).  Upon conversion, these Debentures shall be entitled to a number of 3Pea shares equal to the number of 3Pea shares to which they would have been entitled had the holders exchanged their held equity interests on the Closing Date.  By way of example, if a debenture holders holds a note in a total amount of $10,000 with a conversion price of $0.05 per share, that holder would have been entitled to 200,000 shares of WOW common stock had the conversion occurred prior to the Closing Date; therefore, that holder would be entitled to exchange those 200,000 WOW shares for approximately 14,285 shares of 3Pea common stock (1 3Pea share for 14 WOW shares).  WOW has agreed that any and all other options, warrants and convertible securities shall have been converted into common stock of WOW prior to the Closing Date.

 

SECTION 5. CONDITIONS PRECEDENT TO CLOSING

            

            5.1    Conditions Precedent to the Obligation of WOW .  All obligations of the WOW under this Agreement are subject to the fulfillment, prior to or as of the Closing Date, as indicated below, of each of the following conditions:

                        

                    (a)    The representations and warranties by or on behalf of 3Pea contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of Closing Date as though such representations and warranties were made at and as of such time.

                        

                    (b)    3Pea shall have performed and complied in all material respects, with all covenants, agreements, and conditions set forth in, and shall have executed and delivered all documents required by this Agreement to be performed or complied with or executed and delivered by them prior to or at the Closing.

                        

                    (c)    On or before the Closing, the Board of Directors and shareholders owning a majority of the outstanding shares of 3Pea shall have approved, in accordance with Nevada law, the execution, delivery and performance of this Agreement and the consummation of the transaction contemplated herein and authorized all of the necessary and proper action to enable 3Pea to comply with the terms of the Agreement.



 

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                    (d)    3Pea shall have sufficient shares of 3Pea Common Stock authorized but unissued to complete the Exchange and to issue upon the conversion of the convertible note attached hereto as Schedule 1.1.

                        

                    (e)    All instruments and documents delivered to WOW and the Exchanging Shareholders pursuant to provisions hereof shall be reasonably satisfactory to legal counsel for WOW.

                       

            

            5.2    Conditions Precedent to the Obligations of 3Pea . All obligations of 3Pea under this Agreement are subject to the fulfillment, prior to or at Closing, of each of the following conditions, any of which may be waived in writing by 3Pea:


                    (a)    The representations and warranties by WOW contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true  at and as of the Closing Date as though such representations and warranties were made at and as of such time;

 

                    (b)    WOW shall have performed and complied with all covenants, agreements, and conditions set forth in, and shall have executed and delivered all documents required by this Agreement to be performed or complied or executed and delivered by them prior to or at the Closing.


                    (c)    The Shareholders shall have tendered, for exchange, a minimum of 50.1% of all of the issued and outstanding equity interests of WOW.

                       

 

SECTION 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES

            

    Notwithstanding any right of either party to investigate the affairs of the other party and its shareholders, each party has the right to rely fully upon representations, warranties, covenants and agreements of the other party and its shareholders contained in this Agreement or in any document delivered to one by the other or any of their representatives, in connection with the transactions contemplated by this Agreement. All such representations, warranties, covenants and agreements shall survive the execution and delivery hereof and the Closing hereunder for one year following the Closing Date.

 

 

SECTION 7. INDEMNIFICATION

            

    For a period of one (1) year from the Closing Date, WOW agrees to indemnify and hold harmless 3Pea, its officers, directors and principal shareholders, and 3Pea agrees to indemnify and hold harmless WOW, its officers, directors and principal shareholders, at all times against and in respect of any liability, damage, or deficiency, all actions, suits, proceedings, demands, assessments, judgments, costs and expenses, including attorneys' fees, incident to any of the foregoing, resulting from any material misrepresentation made by any indemnifying party to an indemnified party, an indemnifying party's breach of a covenant or warranty or an indemnifying party's non-fulfillment of any agreement hereunder, or from any material misrepresentation or omission from any certificate, financial statement or tax return furnished or to be furnished hereunder.



 

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    If the indemnified party receives written notice of the commencement of any legal action, suit or proceeding with respect to which the indemnifying party is or may be obligated to provide indemnification pursuant to this Section, the indemnified party shall, within 30 days of the receipt of such written notice, give the indemnifying party written notice thereof (a "Claim Notice"). Failure to give such Claim Notice within such 30 day period shall not constitute a waiver by the indemnified party or its rights to indemnity hereunder with respect to such action, suit or proceeding unless the defense thereof is prejudiced thereby. Upon receipt by the indemnifying party of a Claim Notice from the indemnified party with respect to any claim for indemnification which is based upon a claim made by a third party ("Third Party Claim"), the indemnifying party may assume the defense of the Third Party Claim with counsel of its own choosing, as described below. The indemnified party shall cooperate in the defense of the Third Party Claim and shall furnish such records, information and testimony and attend all such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably required in connection therewith. The indemnified party shall have the right to employ its own counsel in any such action, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless the indemnifying party shall not have with reasonable promptness employed counsel to assume the defense of the Third Party Claim, in which event such fees and expenses shall be borne solely by the indemnifying party. The indemnifying party shall not satisfy or settle any Third Party Claim for which indemnification has been sought and is available hereunder, without the prior written consent of the indemnified party, which consent shall not be delayed or which shall not be required if the indemnified party is granted a release in connection therewith. If the indemnifying party shall fail with reasonable promptness to defend such Third Party Claim, the indemnified party may defend, satisfy or settle the Third Party Claim at the expense of the indemnifying party and the indemnifying party shall pay to the indemnified party the amount of such Loss within ten days after written demand thereof. The indemnification provisions hereof shall survive the termination of this Agreement.

           

SECTION 8. DOCUMENTS AT CLOSING AND THE CLOSING

            

            8.1    Documents at Closing . Prior to, or at the Closing Date, the following transactions shall occur, all of such transactions being deemed to occur simultaneously:

                        

                    (a)    WOW will deliver, or will cause to be delivered, to 3Pea the following:

                                    

(i)

a certificate executed by the President and Secretary of WOW to the effect that all representations and warranties made by WOW under this Agreement are true and correct as of the Closing, the same as though originally given to 3Pea on said date attached as Schedule 8.1.1;

 



13

 

 


(ii)

articles of incorporation and any amendments thereto, bylaws and amendments thereto, certificate of good standing in the state of incorporation;


(iii)

all applicable Schedules hereto;


(iv)

all minutes and resolutions of board of directors and shareholders meetings of WOW;


(v)

a true and correct, certified shareholders list current as of the date of Closing from Integrity Stock Transfer detailing shareholders of record of 53,480,288 shares outstanding;


(vi)

all financial statements and tax returns of WOW;


(vii)

a resolution from WOW’s current directors appointing designees of 3Pea to the Board of Directors attached as Schedule 8.1.7;\


(viii)

letters of resignation from WOW’s current officers and directors to be effective upon the Initial Closing and after appointments described in this section attached as Schedule 8.1.8;


(ix)

copies of board resolutions approving this transaction;


(x)

any other document reasonably requested by 3Pea that it deems necessary for the consummation of the transactions;


(xi)

all Bank Records and Statements, Registers, Checkbooks, Debit and Credit Cards related to the corporate bank account as well as any other credit or debit accounts in the name of the corporation currently in the possession of WOW;


(xii)

a certificate from the Secretary of State of Nevada dated within 30 days of the Closing to the effect that WOW is in good standing under the laws of said State;


(xiii)

certificates representing a minimum of 50.1 percent (50.1%) of those shares of WOW to be exchanged for Exchange Shares will be delivered, if legally possible, along with duly executed powers transferring such certificates to 3Pea;


(xiv)

all other items, the delivery of which is a condition precedent to the obligations of 3Pea, as set forth in Section 5;


                        



14




                    (b)    3Pea will deliver or cause to be delivered to WOW and/or its Shareholders newly issued shares of its common stock for the Exchange Shares;

                                    

(i)

a certificate from 3Pea executed by the President or Secretary of 3Pea, to the effect that all representations an warranties of 3Pea made under this Agreement are true and correct as of the Closing, the same as though originally given to WOW on said date;


(ii)

all applicable Exhibits hereto;

                                    

                            (iii)    certified copies of resolutions by 3Pea Board of Directors authorizing this transaction;

                                    

                            (iv)    certificates from the Secretary of State of Nevada dated within 30 days of the Closing Date that 3Pea is in good standing under the laws of said State;

            

                            (v)    all other items, the delivery of which is a condition precedent to the obligations of WOW, as set forth in Section 5 hereof.


            8.3    The Closing Date . The Closing shall take place upon the receipt, by 3Pea, of certificates representing a minimum of 50.1% of the total issued and outstanding equity interests of Wow ("Closing Date"), but in no event shall the Closing Date be later than September 30, 2007 unless agreed upon by the parties in writing. At the Closing, the parties shall provide each other with such documents as may be necessary.

 

SECTION 9. MISCELLANEOUS

            

            9.1    Waivers .  The waiver of a breach of this Agreement or the failure of any party hereto to exercise any right under this Agreement shall in no way constitute waiver as to future breach whether similar or dissimilar in nature or as to the exercise of any further right under this Agreement.

            

            9.2    Amendment .  This Agreement may be amended or modified only by an instrument of equal formality signed by the parties or the duly authorized representatives of the respective parties.

            

            9.3    Assignment .  This Agreement is not assignable except by operation of law or mutual consent of the parties hereto.

            

            9.4    Notice .  Until otherwise specified in writing, the mailing addresses and fax numbers of the parties of this Agreement shall be as follows:

 

 

 

 

15


            

    To:    3Pea:

 

 

            Mark Newcomer, President

            3Pea Technologies, Inc.

            3068 E. Sunset Rd., Suite 3

            Las Vegas, Nevada 89120

            Fax: (702) 453-2223

 

    with copy to:


            Christopher Dieterich

            Dieterich & Mazarei, LP

            11300 West Olympic Boulevard, Suite 800

            Los Angeles, California 90064

            Fax: (310) 312-6680


  To:    WOW:


            Rick Willard, CEO & President

            WOW! Technologies, Inc.

            3193 Montecito Drive

Las Vegas, Nevada 89120

            Fax: (702) 451-6315


With copy to:


Patrick C. Clary, Chartered

7201 West Lake Mead Boulevard, Suite 503
Las Vegas, Nevada 89128

Fax: (702) 382-7277

pcclary@aol.com


Any notice or statement given under this Agreement shall be deemed to have been given if sent by registered mail addressed to the other party at the address indicated above or at such other address which shall have been furnished in writing to the addressor.

            

            9.5    Governing Law .

This Agreement shall be construed, and the legal relations between the parties determined, in accordance with the laws of the State of Nevada, thereby precluding any choice of law rules which may direct the application of the laws of any other jurisdiction.

            

            9.6    Publicity .  Prior to the Closing Date, no publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued by either party hereto at any time from the signing hereof without advance approval in writing of the form and substance by both parties.

         



16



            9.7    Entire Agreement .  This Agreement (including the Exhibits and Schedules to be attached hereto) and the collateral agreements executed in connection with the consummation of the transactions contemplated herein contain the entire agreement among the parties with respect to the exchange and issuance of the Shares and related transactions, and supersede all prior agreements, written or oral, with respect thereto.

            

            9.8    Headings .  The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

            

            9.9    Severability of Provisions .    The invalidity or unenforceability of any term, phrase, clause, paragraph, restriction, covenant, agreement or provision of this Agreement shall in no way affect the validity or enforcement of any other provision or any part thereof.

           

            9.10    Binding Effect .   This Agreement shall be binding upon the parties hereto and inure to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns.

            

            9.11    Tax Treatment . 3Pea, WOW and its Shareholders acknowledge that they each have been represented by their own tax advisors in connection with this transaction; that none of them has made a representation or warranty to any of the other parties with respect to the tax treatment accorded this transaction, or the effect individually or corporately on any party under the applicable tax laws, regulations, or interpretations; and that no opinion of counsel or private revenue ruling has been obtained with respect to the effects of this transaction under the Code.            


            9.12    Termination . This Agreement may be terminated by mutual agreement of the either party if the Closing Date does not occur by December 31, 2007.


9.13

Expenses .  Each party will pay its own legal, accounting and any other out-of-pocket expenses reasonably incurred in connection with this transaction, whether or not the transaction contemplated hereby is consummated.


9.14

Survival of Representations and Warranties .  The representations, warranties, covenants and agreements of the parties set forth in this Agreement or in any instrument, certificate, opinion, or other writing providing for in it, shall survive the Closing irrespective of any investigation made by or on behalf of any party.


9.15   Exhibits .  As of the execution hereof, the parties hereto have provided each other with the Exhibits provided for hereinabove, including any items referenced therein or required to be attached thereto.  Any material changes to the Exhibits shall be immediately disclosed to the other parties.


9.16 Disputes.  Any dispute or controversy arising out of or relating to this Agreement, any document or instrument delivered pursuant to, in connection with, or simultaneously with this Agreement, or any breach of this Agreement or any such document or instrument shall be settled in Las Vegas, Nevada.  The Parties hereto agree to participate in a mediation of any disputes in connection with this Agreement.  In the event that no agreement can be reached through the mediation process, the parties agree to participate in a binding arbitration in accordance with the rules then in effect of the American Arbitration Association or any successor thereto, before an arbitrator who shall be agreed upon by the parties.  If the parties fail to come to an agreement on a single arbitrator, each party shall select one arbitrator who shall then work together to select a third, impartial arbitrator to hear the dispute.  The arbitrator(s) may grant injunctions or other relief in such dispute or controversy.  The decision of the arbitrator(s) shall be final, conclusive and binding on the parties to the arbitration.  Judgment may be entered on the arbitrator or arbitrators' decision in any court having jurisdiction.  Each party in such arbitration shall pay their respective costs and expenses of such arbitration and all the reasonable attorneys' fees and expenses of their respective counsel.


 


17


 


9.17 Counterparts and Electronic Transmission .  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument, but only one of which need be produced. Any counterpart of this Agreement may be executed by transmission of a signed signature page by fax or e-mail.  Any party who delivers such a signature page agrees to later deliver an original counterpart to any party which requires it.

      

9.18    Independent Counsel. Each party to this Agreement acknowledges and agrees that it has had an opportunity to be represented by independent counsel of its own choice throughout all negotiations which preceded execution of this Agreement and the transaction referred to in this Agreement, and each has executed this Agreement with the consent and upon the advice of said independent counsel. Each party represents that he or it fully understands the provisions of this Agreement, has consulted with counsel concerning its terms, and executes this Agreement of his or its own free choice without reference to any representations, promises or expectations not set forth herein.


IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.

 

                                                             3Pea International, Inc.

                                                            a Nevada corporation

                                                            

                                                            By:____________________________

                                                                 Mark Newcomer, President

 

                                                             WOW! Technologies, Inc.

                                                            a Nevada corporation

 

                                                            By: __________________________

                                                            Rick L. Willard, President

 



 

18




SCHEDULES

 

Table of Contents


Pages

Schedule 1.1  (Four Convertible Subordinated Debentures)

X-X

Schedule 2.2  (WOW Articles of Incorporation and Bylaws)

X-X

Schedule 2.9  (WOW 12/31/2006 Audited Financial Statements & Unaudited Financial

Statements as of 6/30/2007)

X-X

Schedule 2.10 (WOW Material Adverse Changes if any since 12/31/2006)

X-X

Schedule 2.15 (WOW obligations exceeding $5,000 if any)

X-X

Schedule 2.17 (List of any Real or Personal Property owned by WOW)

X-X

Schedule 2.19 (List of Tangible Assets where Wow does not hold all rights,
title and interest)

X-X

Schedule 2.20 (Additional Wow Liabilities, Etc.)

X-X

Schedule 2.23 (WOW Shareholders List)

X-X

Schedule 2.24 (WOW Issuance Obligations)

X-X

Schedule 2.25 (WOW Subsidiaries and Predecessor Corporations)

X-X

Schedule 3.1  (3Pea Articles of Incorporation and Bylaws)

X-X

Schedule 3.8  (None)

X-X

Schedule 3.9  (3Pea Shareholders List)

X-X

Schedule 8.1.1 (WOW Certificate of President and Secretary)

 X-X

Schedule 8.1.7 (WOW Resolution Appointing Designees of 3PEA to BOD)

 X-X

Schedule 8.1.1 (WOW Resignation of all BOD and Officers)

 X-X

 

 



19

Exhibit 10.2


Stanford E. Lerch, Esq., (001287)

Lerch & DePrima, P.L.C.

4000 N. Scottsdale Rd., Suite 107

Scottsdale, Arizona 85251

Telephone: (480) 212-0700

ldlaw@ldlawaz.com

Attorneys for: Debtor


IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF NEVADA

In re:

WOW TECHNOLOGIES, INC.

Debtor.

Chapter 11 Proceedings

Case No.: BK-S-09-11878-BAM

PLAN OF REORGANIZATION



PLAN OF REORGANIZATION

OF

DEBTOR-IN-POSSESSION

WOW TECHNOLOGIES, INC.

DATED: June 19, 2009



1

 


WOW TECHNOLOGIES, INC. (“WOW” or “Debtor”) proposes the following Plan of Reorganization pursuant to Chapter 11 of the Bankruptcy Code. All creditors are encouraged to consult the Disclosure Statement filed herewith before voting to accept or reject this Plan. The Disclosure Statement contains a discussion of the Debtor’s history, a summary analysis of this Plan and other relevant financial information.

ARTICLE I

DEFINITIONS

A- SCOPE OF DEFINITIONS

For purposes of this Plan, except as expressly provided or unless the context otherwise requires all capitalized terms not otherwise defined shall have the meanings assigned to them in this Article I of the Plan. Whenever the context requires, such terms shall include the plural and the singular number, the masculine gender shall include the feminine, and the feminine gender shall include the masculine. A term used in the Plan and not defined herein, has the meaning ascribed to such term in the Code or Rules.

B- DEFINED TERMS

The following terms have the following meanings whenever used in this Plan.

1.

Allowed Administrative Claim : An Allowed Claim for payment of an administrative expense of a kind specified in §503(b) of the Code and referred to in §507(a)(2) of the Code, including without limitation:

(a)

The actual and necessary costs and expenses of preserving the Debtor’s estate and of operating the business of the Debtor (other than such Claims or portions thereof which, by their express terms, are not due or payable on the Effective Date);

(b)

The full amount of all Claims for allowance of compensation or reimbursement of costs and expenses for legal, accounting or other professional services under Section 330 or Section 503(b) of the Code, or otherwise allowed by the Court;



2



(c)

All fees and charges assessed against the Debtor’s estate under Chapter 123 of Title 28, United States Code; and

(d)

Expenses incurred by the Debtor in connection with this case, including expenses incurred in obtaining Confirmation of the Plan.

2.

Allowed Claim or Allowed Interest : Allowed Claim or Allowed Interest means a Claim against or Equity Security Claim in the Debtor to the extent that: (a) a proof of such Claim or interest was (i) timely filed; (ii) deemed filed pursuant to Section 1111(a) of the Code; or (b)(i) which is not a disputed Claim, or (ii) which is allowed (and only to the extent allowed) by a Final Order.

3.

Bankruptcy Code : Bankruptcy Code is the Bankruptcy Reform Act of 1978 (the “Code”), sometimes referred to as the Bankruptcy Code of 1978, as contained in Title11 U.S.C. Section 101 et seq., and all amendments thereto.

4.

Bar Date : The Order and Notice of Time Within Which To File Proofs Of Claim And For Hearing On Disclosure Statement entered on (“Order And Notice re Bar Date”) established the Bar Date as the date of the Court’s approval of the Disclosure Statement. Notice of that Order And Notice re Bar Date was given to all Creditors and other parties in interests in these proceedings. A separate Bar Date may apply to Claims arising out of the rejection of executory contracts and unexpired leases specified in Article VII of the Plan or to deficiency Claims arising out of the abandonment of collateral to previously Secured Creditors, or arising out of orders granting relief from the provisions of Section 362 of the Code.

5.

Business Day : A day that is not a Saturday, Sunday or federal holiday recognized by the federal courts for the District of Arizona or Arizona state holiday recognized by the federal courts for the District of Arizona.

6.

Chapter 11 : Chapter 11 of the Bankruptcy Code. Reference to section numbers are references to sections in the Bankruptcy Code, 11 U.S.C. Section 101 et seq., Public Law 95-598, effective October 1, 1979, as amended, unless otherwise specified.

7.

Claim : A Claim is a right to payment from the Debtor, which is evidenced by a timely filed proof of claim or application for payment which is allowed by the Court, or if a proof of claim is not filed, a right which otherwise appears in the applicable schedules of the Debtor and (1) is not listed as disputed, contingent or unliquidated, or (2) has been resolved by Final Order of the Court pursuant to the terms of the Plan.



3


 

8.

Claims of the Estate : Claims of the Estate means all asserted and unasserted Claims of the Debtor, existing prior to Confirmation, against anyone.

9.

Class : Any Class into which allowed claims or Allowed Interests are classified pursuant to Article IV.

10.

Confirmation : Entry by the Court of an Order Confirming the Plan at or after a hearing held pursuant to Section 1128 of the Code.

11.

Confirmation Hearing : The hearing to be held by the Court to determine whether or not the Debtor’s Plan meets the requirements of Chapter 11 of the Code and is entitled to Confirmation.

12.

Confirmation Order : Confirmation Order means an order of the Court confirming the Plan. The date the Confirmation Order is entered on the clerk’s docket is the Confirmation Date.

13.

Court : The United States Bankruptcy Court, District of Nevada, including the United States Bankruptcy Judge presiding in the Chapter 11 case of the Debtor.

14.

Creditors : Creditors are all Creditors of the Debtor holding allowed Claims for debts, liabilities, demands or Claims of any character whatsoever, as defined in Section 101(4) of the Bankruptcy Code.

15.

Debtor : The Debtor is WOW TECHNOLOGIES, INC (“WOW”), a Nevada corporation.

16.

Disclosure Statement : The Disclosure Statement submitted with the Plan pursuant to Bankruptcy Code §1125 in its present form or as it may be altered, amended or modified from time to time.

17.

Disputed Claim : Claims against the Debtor (a) which are scheduled by the Debtor as disputed contingent or unliquidated on or before the Effective Date, or (b) as to which an objection has been filed on or before the Effective Date or such other date as set by the Court for filing objections to claims, by a party in interest and which objection has not been withdrawn or resolved by entry of a Final Order on or before the Effective Date.



 

4


 

18.

Effective Date : The first Business Day following the thirtieth day after entry of a Final Order confirming the Plan.

19.

Filing Date : February 12, 2009 the date of the filing of the Chapter 11 Petition in this case by WOW.

20.

Final Order : A Final Order is an Order of the Court which, not having been reversed, modified or amended, and not being stayed, and the time to appeal from which or to seek review or certiorari or rehearing of which having expired, and from which no such appeal, review, certiorari or rehearing is pending, has become conclusive of all matters adjudicated thereby and in full force and effect.

21.

Final Order Confirming Plan : The Final Order of the Court determining that the Plan meets the requirements of Chapter 11 of the Code and is entitled to Confirmation.

22.

Petition Date : The 12th Day of February, 2009.

23.

Plan : The Plan of Reorganization in its present form, or as it may be amended, supplemented or modified.

24.

Priority Claims : Any Claim entitled to priority pursuant to Section 507(a) of the Code.

25.

Pro Rata : The proportion that the amount of a Claim against the Debtor in a particular class bears to the aggregate amount of all Claims (including undetermined Claims until disallowed) in such class.

26.

Property of the Debtor : The property of the Debtor as provided for in Bankruptcy Code § 541.

27.

Property or Properties : All property of the estate of the Debtor as previously or hereafter determined by Final Order of a Court of competent jurisdiction and/or as defined in Section 541 of the Code, including, but not limited to, any and all Claims or causes of action in favor of the Debtor against third parties (except as otherwise provided herein).



5

 


28.

Reorganized Debtor : The Debtor and its successors and assigns

29.

Unsecured Tax Claims : Any unsecured Claim for taxes entitled to priority pursuant to Section 507(a)(8) of the Code.

30.

Unsecured Claims : All Creditors, other than taxing entities, having Claims against the Debtor which are not Secured Claims.

31.

Unsecured Creditors : All Creditors of the Debtor holding Claims for unsecured debts, unsecured liabilities, unsecured demands or Unsecured Claims of any character whatsoever, except Claims entitled to priority pursuant to Section 507 of the Code and Claims of Equity Security Holders.

ARTICLE II

CERTAIN GENERAL TERMS AND CONDITIONS

The following general terms and conditions apply to the Plan:

1.

Class of Claims and Payment : Various classes of Claims are defined in the Plan. The Plan is intended to deal with all Claims against the Debtor of whatever character, whether or not contingent or liquidated, and whether or not allowed by the Court pursuant to Section 502(a) of the Code. However, only those Claims allowed pursuant to Section 502(a) of the Code will receive payment under the Plan.

2.

Modification of the Plan . The Plan may be modified upon application of the Debtor or corrected prior to Confirmation, without notice or hearing, and without any additional Disclosure Statement, pursuant to Section 1125 of the Code, provided that the Court finds that such modification does not materially or adversely affect any Creditor or class of Creditors or other parties in interest.

3.

Preserved Liens : To the extent required under Section 1124(2) of the Code, to preserve the rights of a Creditor having a Secured Claim dealt with pursuant to that Section, the lien or encumbrance of that Creditor shall, to the extent valid, be preserved.

4.

Securities Laws : Any satisfaction provided to any Creditor or other party in interest pursuant to the Plan which may be deemed to be a security, is exempt from registration under certain state and federal securities laws pursuant to Section 1145 of the Code.



6

 


5.

Time for Filing of Claims : The list of Creditors filed in these proceedings by the Debtor shall constitute the filing of a Claim by each Creditor which is not listed as disputed, contingent or unliquidated as to amount, but the Debtor reserves the right to object to any such Claim where it appears that the amount scheduled by the Debtor is improper or where there is some dispute with regard to that Claim. All other Creditors, or Creditors who disagree with the amounts as scheduled by the Debtor must have filed a Claim by ________________ unless a separate Bar Date applies for the rejection of the executor contracts and unexpired leases under the Plan or where there exists deficiency claims arising out of the abandonment of collateral to previously Secured Creditors or as a result of the granting of an order for relief from the provisions of Section 362 of the Code.

ARTICLE III

BASIS OF THE PLAN

The Debtor is in the business of manufacturing, marketing and distributing prepaid debit cards. The cards are to be targeted for the undocumented but bondable immigrant market as well as student/parent and travelers.

The Debtor believes it can continue to provide these services while expanding the operations of the company and its rolling stock inventory to accommodate additional client contracts.

After reviewing its financial condition and the prevailing economic conditions the Debtor believes it is in the best interest of itself and its creditors to reorganize pursuant to the provisions of Chapter 11 of the Code. Based upon such belief the Debtor has proposed a Plan that will treat its creditors and interest holders as follows:

Administrative claimants and other priority claimants will be paid one hundred (100%) percent of their allowed claims pursuant to the provisions of the Bankruptcy Code or in such other manner as that may be agreed upon between Debtor and Creditor.

The secured claimant shall be paid the value of its collateral and any deficiency balance shall be treated as a non priority unsecured claim.



7



Unsecured claimants will receive ten (10%) percent of their allowed unsecured claims in 60 equal monthly installments commencing Thirty (30) days after the Effective Date of the Plan.

Interest holders’ ownership interest will be retained due to the contributions hereinafter described to payment of debt and advancing working capital.

THE FOREGOING DISCUSSION IS ONLY A BRIEF SUMMARY OF THE PLAN AND ALL PARTIES SHOULD REVIEW THE FULL CONTEXT OF THE PLAN.

ARTICLE IV

CLASSIFICATION OF CLAIMS AND INTERESTS

The Plan provides for the separate classification of all claims against the Debtor and interests in the Debtor as follows:

Class 1A – Domestic Support Obligations.

Class 1B – Administrative Expenses Fees and Charges Specified in Section 507(a)(2) and Section 507 (a)(3).

Class 1C – Allowed Claims Entitled to Priority under Section 507(a)(4).

Class 1D – Allowed Claims Entitled to Priority under Section 507(a)(5) and (6).

Class 1E – Allowed Claims Entitled to Priority under Section 507(a)(7).

Class 1F – Allowed Claims Entitled to Priority under Section 507(a)(8).

Class 1G – Allowed Claims Entitled to Priority under Section 507(a)(9) and (10).

Class 2 – Allowed Secured Claim of Inter-Tel Leasing.

Class 3 – Allowed General Unsecured Creditors.

Class 4 – Allowed Claim of Interest Holder.

ARTICLE V

TREATMENT OF ALLOWED CLAIMS

1. Class 1A – Domestic Support Obligations .

The Debtor does not believe there are any Class 1A Claims.

2. Class 1B – Administrative Claims .



8



The Plan classifies all Administrative Claims and expenses allowed under 11 U.S.C. §503(b) and entitled to priority under 11 U.S.C. §507(a)(2) and (a)(3) as Class 1B Administrative Claims, as defined in 11 U.S.C. §503 of the Code. These claims consist of the actual, necessary costs and expenses of preserving the Estate, including taxes incurred, salaries or commissions for services rendered after the commencement of the case, fees of professionals employed by Debtor, and fees and charges assessed against the Estate under Chapter 123 of Title 28 of the United States Code.

Under 11 U.S.C. §1129(a)(9)(A), Administrative Claims must be paid in full on the Effective Date in order for a Plan to be confirmed. The Plan complies with this requirement by providing that Class 1B claims will be paid in full on the Effective Date of the Plan, or upon allowance, whichever occurs first, except to the extent a holder of an Administrative Claim otherwise agrees. Amounts due to holders of Class 1B Claims will be funded from the monies being provided pursuant to the Plan by 3 Pea.

Debtors anticipate that the following administrative expenses will accrue during these proceedings and will be payable on the Effective Date of the Plan.

a. Professional Fees. $50,000.00

The Bankruptcy Code requires that fees and expenses of attorneys and other professionals are subject to Court approval under 11 U.S.C. §330 of the Bankruptcy Code. Accordingly, the Plan provides that the fees of such professional shall not be paid until final orders of the Bankruptcy Court have been entered approving and authorizing payment of such fees. Debtors anticipate that these fees will aggregate approximately $50,000.00 through these proceedings, including the fees of Debtors’ counsel, and Debtor’s accountants. Because the Plan provides for payment in full of Class 2A Claims as of the Effective Date, the Class 2A Claims are not impaired.

3. Class 1C. Wage Claims

The Plan classifies Claims for wages entitled to priority under §507(a)(4) as Class 1C Claims. Such Claims include Claims for wages, salaries, and commissions, including severance, sick pay and vacation leave, to the extent the Claims were incurred within the 180-day period immediately prior to the bankruptcy filing. The amount of each such Claims entitled to priority is limited to $10,950 per Claimant.

 



9

 


Claims for wages outside the 180 day period or in excess of the dollar amount limitation are classified as non-priority Claims, in Class 3A.

Under Section 1129(a)(9)(B) of the Bankruptcy Code, Claims for wages entitled to priority must be paid in full in order to confirm a Plan. Debtor does not believe there are any wage Priority Claims.

4. Class 1D. Allowed Claims Entitled to Priority Under Section 507(a)(5) and (6) .

After payment of Allowed Secured Claims and Allowed Administrative Claims specified in §507(a)(2) and §507(a)(3) of the Bankruptcy Code, Allowed Claims entitled to priority under Sections 507(a), (5) and (6) of the Bankruptcy Code, if any, shall be paid in full and in cash on the Effective Date. The Debtor does not believe there are any Class 1D Claims.

5. Class 1E. Deposit Claims

The Plan classifies Claims for consumer deposits entitled to priority under §507(a)(7) as Class 1E Claims. Under this provision of the Bankruptcy Code, a Claim is entitled to priority treatment if it arises from the deposit of money by the Claimant with a Debtor in connection with the purchase of property or services for the use of the Claimant. The amount entitled to priority is limited to $2,426 per Claim. Claims for customer deposits outside the Code definition or in excess of the dollar limitation are classified in the Plan as General Claims, in Class 3A.  

Under §1129(a)(9)(B) of the Bankruptcy Code, Claims for consumer deposits entitled to priority must be paid in full on the Effective Date as a condition to confirmation. The Debtor does not believe there are any Class 1E claims.

6. Class 1F. Tax Claims

The Plan classifies Claims for taxes entitled to priority under §507(a)(8) as Class 1F Claims. Under Section 1129(a)(9)(C), Claims for taxes entitled to priority must be paid in full in regular installment payments in cash over a period not later than 5 years after the date of the order for relief in order to confirm a Plan. The Plan complies with this requirement by providing that such Claims will be paid in full in installments over four years after the Effective Date, with interest. In the event Debtor is unable to pay any such installment 3 Pea shall advance sufficient funds to Debtor to meet this requirement.



10


 

Because the Plan provides for payment in full of Class 1F Claims and complies with the requirements of §1129(a)(9)(C), holders of Class 1F Claims are not considered a voting class pursuant to §1123(a)(1).

Class 1C §507(a)(9) and (10) Claims. The Debtor believes there are no §507 (a)(9) and (10) Priority Claims.

7. Class 2 – Allowed Secured Claim of Inter-Tel Leasing (“Inter-Tel”)

Inter-Tel Leasing has a secured claim in the amount of $11,631.40 plus accrued interest. A cash payment of $1,000.00 will be paid for the phone equipment that collateralizes such secure debt. Upon payment of such sum Inter-Tel shall release its lien and the deficiency shall be treated as a general unsecured non-priority claim. The $1,000.00 payment shall be provided by 3Pea.

8. Class 3 – General Unsecured non Priority Creditors

A. Creditors with unsecured claims not entitled to priority will be paid Ten (10%) percent of the allowed amount of their respective claims in 60 equal monthly installments now commencing thirty (30) days after the Effective Date. In the event Debtor is unable to meet any installment, 3Pea shall advance the necessary funds.

9. Class 4 – Allowed Claim of Interest Holder

The interest holders shall retain their ownership interest in Debtor provided, however, it will pay or advance funds to Debtor sufficient to pay

(a)

the cash obligations of WOW TECHNOLOGIES, INC. to pre-petition creditors, as provided for in the Plan of Reorganization;

(b)

the fees, costs and expenses of the attorneys and accountants engaged by WOW to handle the bankruptcy petition, in an amount not to exceed $50,000.00;

(c)

such additional funds, at the sole discretion of 3 Pea, for working capital to facilitate WOW’s execution of its reorganization and business plan, post-petition;



11



(d)

Enter into a contract with WOW to have WOW furnish reporting and data processing services to 3 Pea.

No dividends shall be paid on its shares until such time as payments under the Plan have been paid in full.

CREDITORS AND INTEREST HOLDERS ARE URGED TO READ THE PLAN IN FULL. CREDITORS AND INTEREST HOLDERS ARE FURTHER URGED TO CONSULT WITH COUNSEL IN ORDER TO FULLY UNDERSTAND THE PLAN

ARTICLE VI

SATISFACTION OF CLAIMS

1.

Satisfaction : All Creditors, Equity Security Holders and other parties in interest who have or assert Claims in any class shall, upon Confirmation of the Plan, be deemed to have acknowledged that their respective Claims are fully satisfied by the distribution provided herein, each of which Claims, whether known or unknown, scheduled or unscheduled, filed or unfiled, asserted or assertable, is declared and shall be, for all purposes, upon the entry of the Order confirming the Plan, satisfied in full.

ARTICLE VII

UNEXPIRED LEASES AND EXECUTORY CONTRACTS

1.

Assumption : All leases, wherein the Debtor is the lessor, are hereby assumed, however, the assumption of such leases shall not act as a bar to the assertion by the Debtor of a breach of any such lease by the lessor.

2.

Cure of Defaults : Upon Confirmation, the Court shall provide that any contract affirmed pursuant to this Article VII or previously assumed pursuant to Section 365 of the Code, will be in force upon cure of any defaults requiring cure under Section 365 of the Code.

3.

Claims After Rejection : Any Creditor who wishes to assert a Claim due to the rejection of any executory contract or unexpired lease must file said Claim with the Court within thirty (30) days after Confirmation.

 



12



ARTICLE VIII

FUNDING IMPLEMENTATION

1.

Plan Funding : The Debtor shall be able to meet the obligations provided for in this Plan from its operations and the contributions made by its major shareholder 3 Pea International, Inc. (3 Pea) to provide for funds necessary to implement the Plan. Such funds shall be deemed to be a capital contribution and not a loan.

ARTICLE IX

PRESERVATION OF BANKRUPTCY CAUSES OF ACTION

1.

Preservation : Any and all causes of action which the Debtor may have or which may arise under any of the provisions of the Code or which may be enforceable under any of the provisions of the Code or any other law or statute, shall be preserved and this Court shall retain jurisdiction to dispose of such causes of action. All such causes of action shall belong to the Debtor as a part of the assets retained by him.

ARTICLE X

GENERAL PROVISIONS

1.

No Additional Charges : Except as expressly stated in the Plan, or as allowed by Court Order, no interest, penalty, late charge or additional charges (such as attorney’s fees) shall be allowed on any Claim subsequent to the Filing Date.

2.

Remedies to Cure Defects : After Confirmation, the Debtors may, with the approval of the Court, and so long as it does not materially or adversely affect the interest of Creditors, remedy any defect or omission, or reconcile any inconsistencies in the Plan, or in the Confirmation of the Plan, in such a manner as may be necessary to carry out the purpose and the intent of the Plan.

3.

Discharge : Nothing in the Plan shall be deemed to waive, limit or restrict in any way the discharge granted upon Confirmation of the Plan in Section 1141 of the Code. Except as otherwise provided in the Plan or in the Order confirming the Plan, such Confirmation Order acts as of the Effective Date as a discharge, of any and all debts of the Debtor that arose at any time before the entry of the Confirmation Order, including, but not limited to, all principal and any and all interest accrued thereon, pursuant to Section 1141(d)(1) of the Code. The discharge of the Debtor shall be effective as to each Claim, regardless of whether a proof of claim thereof was filed, whether the Claim is an Allowed Claim or whether the holder thereof votes to accept the Plan.

 



13


 

4.

Release of Liens and Interests . Unless otherwise provided in the Plan or in the Order confirming the Plan, all creditors possessing Allowed Secured Claims shall retain their liens on any of their collateral the Reorganized Debtor acquires as the result of confirmation of the Plan to secure payment of all cash or other property to be distributed to them on account of those liens pursuant to the terms of the Plan. Such liens on the Reorganized Debtor’s property shall be deemed relinquished and reconveyed to the Reorganized Debtor upon the payment to the holders of such liens of all money or property due them in satisfaction of their Allowed Secured Claims according to the terms of the Plan.

5.

Stay and Enforcement of the Plan . The automatic stay of § 362(a) of the Bankruptcy Code shall terminate when all orders necessary to the confirmation of the Plan become Final Orders. Although confirmation of the Plan may not discharge the Debtor pursuant to Section 1141 of the Bankruptcy Code, the Reorganized Debtor in only assuming the obligations set forth in this Plan in the amounts so specified herein and the Reorganized Debtor is only obligated and liable to make payment of such amounts in the manner set forth by and pursuant to the terms of the Plan. The Reorganized Debtor is not liable to any holders of Allowed Claims and Allowed Interests except as specifically provided for by the terms of the Plan when confirmed by Order of the Bankruptcy Court. If and only if the Reorganized Debtor fails to comply with the provisions of the Plan, the Holders of Claims in any class may proceed against the Reorganized Debtor and its property in order to enforce the Plan under Federal or State Law, in Bankruptcy Court, or any other Court of competent jurisdiction, and in the case of Secured Creditors in accordance with any applicable and existing mortgage, deed of trust, security agreement, or other lien instrument.

6.

Disputed Claims and Appeals . Where timely objections are made to any Claim in any Class, to any Priority Claim, or to any Claim for administrative expenses, or any motions or proceedings are filed in regard to any lien, claim or privilege, any cash payments due such Claimant shall be held by the Reorganized Debtor in a separately segregated interest bearing bank account, subject to the Bankruptcy Court’s jurisdiction. For purposes of distribution to creditors, calculations shall be made as if a Disputed Claim becomes an Allowed Claim. Distributions shall be made to the holder of such claim to the extent such distributions have already been made to Holders of Allowed Claims generally, if the objection to the Claim is overruled and the Disputed Claim becomes an Allowed Claim.



14


 

7.

Tax Considerations . The Debtor does not know of and shall not make any representations about any possible tax consequences that may affect creditors. Federal income tax consequences may result to particular creditors. Certain types of creditors may be subject to special rules that cannot be addressed herein. There may also be state, local or foreign tax considerations applicable to each creditor.

EACH CREDITOR IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE CONSEQUENCES OF THE PLAN FOR HIM, HER OR IT UNDER FEDERAL, STATE AND LOCAL TAX LAW.

8.

Headings : Paragraph headings have been inserted in the Plan for the convenience of the reader. Such headings shall not serve in any way to limit or modify the provisions of the paragraph.

ARTICLE XI

REORGANIZED DEBTOR

A- FEASIBILITY

1.

Description of Debtor’s Assets

The assets of the Debtor are listed on the Debtor’s Schedules filed with the Court. In addition the assets of the Debtor as of the Date of this Plan are contained in the Liquidation Analysis attached to this Disclosure Statement filed herein. As demonstrated in the Liquidation Analysis unsecured creditors will receive nothing on their claims in the event of liquidation of the assets of the Debtor.

2.

The debtor believes that the Plan satisfies the requirements of 11 U.S.C. §1129(a)(ii) of the Code and that the Disclosure Statement and its Exhibits demonstrate that Confirmation of the Plan is not likely to be followed by the liquidation of or need for further reorganization of the Reorganized Debtor.



15



B- CONFIRMATION OVER DISSENTING CLASS

The Bankruptcy Code contains provisions for confirmation of a plan even if the plan is not accepted by all impaired classes, so long as at least one impaired class of claims has accepted it. These "“cram-down"” provisions for confirmation of a plan, despite the nonacceptance of one or more impaired classes of claims or interests, are set forth in 11 U.S.C. §1129(b) of the Bankruptcy Code.

If a Class of secured Claims rejects the Plan, the Plan may still be confirmed so long as the Plan does not discriminate unfairly as to a Class and is “fair and equitable” to such Class under 11 U.S.C. §1129 (b) of the Bankruptcy Code and applicable case law. 11 U.S.C. Section 1129 (b) of the Bankruptcy Code states that the “fair and equitable standard may require, among other things, that the Plan provide (i) that the lien securing the Claims of members of the Class is to be left in place and the holders of the Claim will receive deferred cash payments of a present value equal to the lesser of the amount of such Claims or the value of the collateral securing such Claims; (ii) that the collateral securing the Claims be sold free of the lien with the lien attaching to the proceeds and with the lien on the proceeds being treated under one of the two other standards described in this paragraph; or (iii) a treatment for the Claim that is the “indubitable equivalent” of the Claim. The Debtor believes that the Plan satisfies the test and therefore that the Plan can be confirmed even if it is rejected by holders of Secured Claims. If a Class of unsecured Claims rejects the Plan, the Plan may still be confirmed so long as the Plan is not unfairly discriminatory as to that Class and is “fair and equitable” to such Class. Under 11 U.S.C. §1129 (b) of the Bankruptcy Code, a Plan is “fair and equitable” as to a class if, among other things, the Plan provides that (i) each holder of a Claim included in the rejecting class receive or retain on account of that Claim property which has a value, as of the Effective Date, equal to the allowed amount of such Claim; or that (ii) the holder of any Claim or interest that is junior to the Claim of such Class will not receive or retain on account of such junior Claim or interest any property at all; or (iii) although not included in 11 U.S.C. §1129 (b) but as determined by case law that if a junior Claim receives or retains anything on account, even though the senior holder has not received a one hundred percent (100%) return, that a substantial new contribution, as determined by the Court, shall be made by the junior Claimant. The Debtor believes that the Plan meets this test as to all impaired Classes of unsecured Claims. Therefore the Debtor believes the Plan could be confirmed even if it is rejected by the Classes of unsecured Claims as long as at least one impaired Class accepts the Plan.



16


 

With respect to a Class of interests, such interest holders may not receive any distribution or retain any value on account of such interests unless all Classes of creditors have been paid in full or that a substantial new contribution, as determined by the Court, shall be made by any interest holder retaining any distribution or value on account of such interests in the event all classes of creditors have not been paid in full.

ARTICLE XII

JURISDICTION OF THE COURT

1.

Reinvestment of Title and Retention of Jurisdiction : On Confirmation, the Debtor shall be reinvested with its assets, subject only to the terms of the Plan and the liens of the Secured Creditors described herein. The Debtor shall be entitled to manage its affairs, subject to the limitations set forth herein, without further order of the Court. Subject to such limitations, the Court will retain jurisdiction until the Plan has been fully consummated for certain purposes, including, but not limited to:

2.

The Classification of a Claim of any Creditor, the re-examination of any Claim which has been allowed for the purposes of voting and the determination of such objections as may be filed to any Claim : The failure by the Debtor to object to or to examine any Claim for the purposes of voting, shall not be deemed a waiver of the Debtor’s right to object to or reexamine the Claim in whole or in part. If a Creditor does not file a Claim in these proceedings, the Debtor may object to the amount scheduled as owing to that Creditor, in whole or in part. If any objection to a Claim is filed, no payment will be made with respect to such Claim until a determination on such objection has been made by the Court.

3.

Disputed Claims; Objections to Claims : Any party in interest may file an objection to any claim within ninety (90) days from the Effective Date. Objections not filed within such time shall be deemed waived.



17

 


If any Claim or any portion thereof is challenged by objection, the Debtor shall segregate and set aside funds, consistent with the Plan, sufficient to satisfy the Claim as filed, or as scheduled by the Debtor. When an objection to a Claim has been resolved, distribution shall be made accordingly.

4.

Title to and Liens Against Assets : Determination of all questions and disputes regarding title to and liens on the assets of the Debtor and determination of all causes of action, controversies, disputes or conflicts whether or not subject to an action pending as of the date of Confirmation, between the Debtor and any other party, including, but not limited to, the right of the Debtor to recover assets pursuant to the provisions of the Code.

5.

Correction of Defects : Correction of any defect, the curing of any omission or the reconciliation of any inconsistency in the Plan or in the Confirmation as may be necessary to carry out the purposes and intent of the Plan.

6.

Modification : After Confirmation, the Debtor may, with the approval of the Court, and so long as it does not materially or adversely affect the interest of Creditors, remedy any defect or omission, or reconcile any inconsistencies in the Plan or in the Confirmation in such manner as may be necessary to carry out the purposes and effect of the Plan.

7.

Enforcement : To enforce and interpret the terms and conditions of the Plan.

8.

Further Orders : Entry of any order, including injunctions, necessary to enforce the title, rights and powers of the Debtor and to impose such limitations, restrictions, terms and conditions of such title, rights and powers as the Court may deem necessary.

9.

Conclusion : Entry of an order concluding and terminating this case.

RESPECTFULLY SUBMITTED this 19th day of June, 2009.

LERCH & DEPRIMA, P.L.C.


/s/ Stanford E. Lerch

_______________________________________

Stanford E. Lerch

4000 North Scottsdale RD. Suite 107

Scottsdale, AZ 85251




18


Original filed this 19th day

of June 2009:


Copies of the foregoing mailed

this 19th day of June, 2009, to:


U. S. Bankruptcy Trustee

Foley Federal Building

300 Las Vegas Blvd. South

Las Vegas, Nevada 89101


By:

/s/ Jo Ann Garrison



19

Exhibit 10.3

PROMISSORY NOTE

Phoenix, Arizona  

October 6th, 2004

1. BORROWER'S PROMISE TO PAY. For value received, 3Pea Technologies, Inc., a Nevada corporation, 3068 E. Sunset Road, Suite 3, Las Vegas, Nevada 89120 ("Maker"), promises to pay to Cynthia Korte, 6929 N. Hayden Road, C-4 PMB 487, Scottsdale, AZ 85250, or Order, or the holder of this Note ("Payee"), the principal sum of Five Hundred Thousand Dollars and No/100 ($500,000.00), with principal and interest payable in the manner as provided in paragraphs 2 and 3 below.

2. INTEREST. This Note shall bear interest at the annual rate of Eight and One Half percent (8 1/2%) per annum from the above date until all principal and accrued interest have been paid in full. Interest shall be paid in advance for one year at the time of signing of this Note in the sum of $42,500.00. Thereafter, should this Note be renewed for an additional term of one year as provided for in paragraph 3 below, then in such event, interest shall be paid in advance for such additional term at the date of commencement of the second year of this Note. Interest is earned and is non-refundable when paid by Maker to Payee regardless of any prepayment of principal by Maker to Payee.

3. PAYMENT. The principal balance of this Note shall be paid in full on the one year anniversary date of this Note. Notwithstanding the foregoing, the Maker, at Maker's option, shall have the right to extend the time of payment of principal of this Note for an additional term of one year provided that the Maker shall pay the interest in advance for the additional term at the commencement of such additional term as provided in paragraph 2 above.

4. PLACE OF PAYMENT/NOTICE. All payments by Maker to Payee under this Note and all notices required or provided to be sent by any party hereto shall be made to the party entitled to receive payment, or the party to receive notice at their address above. Any party may change its address for purposes of this paragraph by giving written notice of such change of address to the other party in the manner herein provided for giving notice.

5. WAIVER OF PRESENTMENT, NOTICE OF DISHONOR AND PROTEST. Maker waives all rights to require the Payee to do the following things:

A. To demand payment of amounts due (known as "presentment");

B. To give notice that amounts due have not been paid (known as a "notice of dishonor");

C. To obtain an official certification of nonpayment (known as a "protest").

6. DEFAULT.



1



A. Notice. Should default be made in the payment of any installation of principal or interest when due, Maker shall not be considered in default if payment is received by Payee within five (5) days following receipt of written notice of default by Maker. Should Maker fail to pay this Note in full within such time, then this Note shall bear interest at the rate of eighteen (18%) per cent per annum from the date of default until paid in full.

B. Remedies Upon Default. If Maker is considered to be in default under this Note, Payee shall then have the right to bring suit or take any other action available to enforce payment of this Note upon the Maker.

C. Waivers. No waiver by Payee of any default shall operate as a waiver of any other default. No matter shall be considered waived by implication, or expressly waived unless in writing signed by the Payee. All remedies are cumulative, and not alternative. No right or power of Payee hereunder shall be deemed to have been waived by any act or conduct on the part of Payee, or by any neglect to exercise such right or power, or by any delay in doing so; and every right or power shall continue in full force and effect unless specifically waived or released by an instrument in writing executed by Payee.

7. COLLECTION COSTS. In the event that Payee shall retain or engage an attorney or attorneys' to collect, enforce, or protect its interest with respect to this Note, or as to any collateral securing the Note, the Maker shall pay all of the costs and expenses of such collection, enforcement, or protection, including reasonable attorneys' fees and costs, and the Payee may take judgment for all such amounts, in addition to the unpaid principal balance of the Note and accrued interest thereon.

8. BINDING EFFECT. This Note shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and assigns of the respective parties hereto.

9. APPLICABLE LAW. This Note shall be governed by and construed in accordance with its terms and by the laws and judicial decisions of the State of Arizona, the courts of which state shall have exclusive jurisdiction to enforce this Note.

10. DESCRIPTIVE HEADINGS. The descriptive headings of the paragraphs of this Note have been inserted for convenience of reference only and shall not control or effect the interpretation or construction of any paragraph herein.

11. TIME IS OF THE ESSENCE. Time is of the essence with respect to the performance of all obligations under this Note.

12. GUARANTY. The payment and performance of this Note is guaranteed by Mark R. Newcomer, Erin Newcomer, husband and wife, and Daniel H. Spence, and Elaine Spence, husband and wife, each jointly and individually, Guarantors, the terms of which are set forth in an UNCONDITIONAL CONTINUING GUARANTY OF PAYMENT AND PERFORMANCE, entered into between Guarantors and Payee of even date with this Promissory Note, and which is incorporated herein by reference in its entirety.

 


2



 

MAKER:

3Pea Technologies, Inc.,


By: /s/  Mark R. Newcomer

______________________________

Mark R. Newcomer

 Chief Executive Officer


By: /s/  Daniel H. Spence

______________________________

Daniel H. Spence

 President




3



UNCONDITIONAL CONTINUING GUARANTY

OF PAYMENT AND PERFORMANCE

For valuable consideration, the undersigned (herein called "Guarantors") jointly and severally unconditionally guaranty the payment and performance of 3Pea Technologies, Inc., a Nevada corporation, 3068 E. Sunset Road, Suite 3, Las Vegas, Nevada 89120, of each and every term and condition of that certain Promissory Note of even date herewith in the face amount of Five Hundred Thousand Dollars and No/100 ($500,000.00), between 3Pea Technologies, Inc. (therein "Maker"), and Cynthia Korte, 6929 N. Hayden Road, C-4 PMB 487, Scottsdale, AZ 85250 (therein "Payee"), in accordance with its terms. The liability of Guarantors and each of them hereunder shall be for the full amount of payment of all principal, interest and costs and attorney's fees for collection of the Note and enforcement of this Guarantee. The obligation of each Guarantor hereunder is independent of the obligation of every other Guarantor hereunder or of any other Guarantor, or of Borrower, and a separate action or actions may be brought and prosecuted against any one or more of the Guarantors hereunder or otherwise, whether action is brought against Borrower or any other Guarantor, or whether Borrower or any other Guarantor be joined in any such action or actions; and Guarantors waive the benefits of any statute of limitations affecting their liability hereunder or the enforcement thereof. Guarantors authorize Cynthia Korte, Payee (herein "Korte"), without notice or demand and without affecting their liability hereunder, from time to time, to reduce the amount of the installments of the above described note and/or to otherwise extend the time for the payment thereof; and Korte may assign this guarantee in whole or in part. Guarantors waive any right to require Korte to proceed against Borrower or to proceed against or exhaust any security held from Borrower or to proceed against any other Guarantor, or to pursue any other remedy in Korte's power whatsoever. Guarantors waive any defense arising by reason of any disability or other defense of Borrower, or by reason of the cessation from any cause whatsoever of the liability of Borrower. Until the above described Note of Borrower to Korte shall have been paid in full, Guarantors shall have no right of subrogation, and each of them does hereby waive any right to enforce any remedy which Korte now has, or may hereafter have against Borrower, and waive any benefit of and any right to participate in any security now or hereafter held by Korte. Guarantors waive all presentments, demands for performance, notices of non-performance, protests, notices of protest, notices of dishonor, and notices of acceptance of this guarantee. It is not necessary for Korte to inquire into the powers of Borrower or its officers, Members, or agents acting or purporting to act on its behalf, and the above described indebtedness which was created in reliance upon the professed exercise of such powers is hereby guaranteed. Guarantors agree to pay a reasonable attorney's fee and all other costs and expenses which may be incurred by Korte in the enforcement of this guarantee.

Guarantors hereby irrevocably and unconditionally waive all of the benefits and provisions of Arizona Revised Statutes, ss.12-1641, and any amendment thereto.



4


Further, as inducement for Korte to loan 3Pea Technologies, Inc. the sum of $500,000.00, Guarantors agree to cause 3Pea Technologies, Inc., to have a life insurance policy issued insuring the life of both Mark R. Newcomer and Daniel H. Spence as Insured under the policy and agreeing to pay a Death Benefit to Korte, as a named Beneficiary under the policy, sufficient to satisfy the loan upon the death of Mark R. Newcomer and/or Daniel H. Spence, until such time as the loan owing by 3Pea Technologies, Inc. to Korte is paid in full.

IN WITNESS WHEREOF the undersigned Guarantors have executed this guarantee this 6th day of October, 2004.


By: /S/ Mark R. Newcomer

      ---------------------------------------

         Mark R. Newcomer, Guarantor



By: /S/ Daniel H. Spence

     ----------------------------------------

        Daniel H. Spence, Guarantor



5

Exhibit 10.4


CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT


          THIS CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT (this "AGREEMENT") dated as of _______________, is entered into between 3Pea Technologies, Inc., a Nevada corporation (the "COMPANY" or "3PEA"), and _____________ ("Investor").



          WHEREAS, 3PEA is seeking $2,500,000 in loans in the form of convertible promissory notes; and


          WHEREAS, Investor desires to invest in 3PEA by purchasing a convertible promissory notes upon the terms and subject to the conditions set forth in this Agreement, and 3PEA desires such an investment; and


          Accordingly, the parties hereto agree as follows:


ARTICLE I


DEFINITIONS


          As used in this Agreement, the following terms shall have the following meanings:


          "TRANSACTION DOCUMENTS" means this Agreement, the Note, the Accredited Investor Certificate attached hereto as EXHIBIT B and all other certificates, documents, agreements and instruments delivered to Investor under or in connection with this Agreement.


ARTICLE II


PURCHASE AND SALE OF NOTE


          SECTION 2.01   SALE AND ISSUANCE OF NOTE. Subject to the terms and conditions of this Agreement, Investor agrees to purchase at the Closing, and the Company agrees to sell and issue to Investor at the Closing, one Note in the principal amount of ____________ ( $ _________) (the "NOTE") upon receipt of such amount.


          SECTION 2.02   CLOSING.   At the Closing, the Company shall deliver to Investor the Note against payment of the purchase price therefore by check, wire transfer, or a combination thereof.

 



1


                                                                                                       


ARTICLE III


TERMS OF THE NOTE


          SECTION 3.01  INTERESTS.  Interest shall accrue on the unpaid principal amount of each Note from the date of such Note until the maturity thereof, at a rate of 6.0% per annum.  Interest shall be computed as simple annual interest on the basis of a year of 360 days for the actual number of days occurring in the period for which such interest is payable.  Interest accrued on a particular Note will be forgiven upon conversion of such Note into shares of Common Stock.


          SECTION 3.02   REPAYMENT OF THE NOTES.  The principal amount and

accrued interest outstanding under each Note hereunder shall be due and payable on or before the second anniversary of the date of issuance of such Note (the "MATURITY DATE"), unless earlier prepaid under Section 3.03, converted under Section 3.05 (in which event interest will be forgiven).


          SECTION 3.03   PREPAYMENTS.  3PEA may, upon prior notice to Investor not later than 10 Business Days prior to the date of prepayment, prepay the outstanding principal amount and interest under the Note, without premium or penalty.  The notice given of any prepayment shall specify the date and amount of the prepayment and the date of the Note to which such prepayment shall be applied.  The Investor shall have the right to convert note upon notice of prepayment within the notice period.


          SECTION 3.04   PAYMENTS.  3PEA shall make payment under the Notes, unconditionally and in full without set-off, counterclaim or other defense, not later than 5:00 p.m. (Pacific Standard Time) on the Maturity Date in Dollars and in immediately available funds, at the address of Investor (as set forth in Section 8.02 below, which may be amended from time to time in accordance therewith), or to such other office and account of Investor as it from time to time shall designate in a written notice to 3PEA.



          SECTION 3.05 CONVERSIONS OF NOTES.


                  (a)    RIGHT TO CONVERT.  Investor may convert note between March 30, 2006 and March 30, 2007 subject to and upon compliance with the provisions of this Agreement. Investor shall have the right, at its option, to convert the outstanding principal amount under the Note, into the number of fully paid and non-assessable shares of 3PEA Common Stock. This number is obtained by dividing the principal amount under such Note surrendered for conversion by the Conversion Price (as defined below).


              

                  (b)    EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS.  In order to exercise the right to conversion with respect to a Note, Investor shall surrender the Note and shall give written notice of conversion to 3PEA that Investor elects to convert the Note in said notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of 3PEA Common Stock which shall be issued.



2


                                                                                                       


          As promptly as practicable, but in no event more than 15 Business Days after satisfaction of the requirements for conversion set forth above, 3PEA shall issue and shall deliver to Investor, a certificate or certificates for the number of full shares issuable upon conversion. A check or cash will be issued for any fractional shares.


                  (c)    CONVERSION PRICE.  The "CONVERSION PRICE" shall be $1.00, unless the Company has, during the offering period, sold its capital stock for a lower price  in which case such Note will convert at the lower of $1.00 or such lower price, and


                  (d)    EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.  If any of the following events occur, namely (i) any consolidation, merger or combination of 3PEA with another corporation as a result of which holders of 3PEA Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock (a "Merger"), or (ii) any sale or conveyance of the properties and assets of 3PEA as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock (an "Asset Sale"). In this event, 3PEA or the successor or purchasing corporation, as the case may be, shall execute with Investor an amendment to this Agreement providing that all issued and outstanding Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance.


                  (e)    RESERVATION OF SHARES; SHARES TO BE FULLY PAID.  3PEA shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares to provide for the conversion of the Notes as such Notes are presented for conversion.  From the execution of this Agreement, 3PEA will take all corporate action which may, in the opinion of its counsel, be necessary in order that 3PEA may validly and legally issue shares of such 3PEA Common Stock at such adjusted Conversion Price.


          3PEA covenants that all shares of 3PEA Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and non-assessable by 3PEA.


          SECTION 3.06      ISSUANCE OF FUTURE WARRANT in order to induce the Purchaser to enter into the aforesaid loan transaction and to make said loan to the Borrowers, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties covenant and agree as follows:


         (a)   Issuance of Warrant at conversion date of Note or upon repayment


         (b)   The Warrant will represent one share for each dollar invested.




3


                                                                                                       


         (c)   Upon the Note conversion date between March 30, 2006 and March 30, 2007 , the Company will issue to the Investor a warrant (the "WARRANT") to purchase shares  of Common Stock of the Company (such shares of Common Stock shall be available at  $1.50 with an exercise period between March 30, 2006 and March 30, 2008 .



          SECTION 3.07 TAXES ON PAYMENTS.  3PEA will not be responsible for any income tax of Investor for interest due on the Note, or stamp duty or other tax due on conversion of the Note into shares of Common Stock.

                               


ARTICLE IV


REPRESENTATIONS AND WARRANTIES


          SECTION 4.01   REPRESENTATIONS AND WARRANTIES OF 3PEA.  3PEA hereby represents and warrants to Investor that:


                  (a)    ORGANIZATION, GOOD STANDING AND QUALIFICATION.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has all requisite corporate power and authority to carry on its business as now conducted. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity.  The Company is not a participant in any joint venture, partnership, or similar arrangement.


                  (b)    CAPITALIZATION AND VOTING RIGHTS.  The authorized capital of the Company consists, or will consist immediately prior to the Closing, of:


                  

(i)    COMMON STOCK.  ______________ shares of Common Stock of which, ________________ shares are outstanding.


                 

 (ii)  The outstanding shares of Common Stock have all been duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Securities Act and any relevant state securities laws or pursuant to valid exemptions therefrom.


                  (c)    AUTHORIZATION.  The execution, delivery and performance of the Transaction Documents and any other agreement contemplated hereunder by 3PEA have been duly authorized by all necessary corporate action of 3PEA.  The shares of Common Stock to be issued upon conversion of the Notes have been or will be duly authorized by all necessary corporate action of 3PEA, and, upon issuance and payment therefor, will be validly issued, fully paid and non-assessable, and issued, upon Investor making appropriate written investment representations to 3PEA upon the conversion of each Note into shares of Common Stock as provided in this Agreement, in compliance with the qualification and registration requirements or exemptions therefrom under all applicable state and federal securities laws.




4


                                                                                                       


                  (d)    APPROVALS AND CONSENTS.  No approval, consent or authorization of any natural person, firm, corporation or Governmental Authority which has not heretofore been obtained is necessary for the execution or delivery of this Agreement.


                  (e)    OFFERING.  Subject in part to the truth and accuracy of Investor's representations set forth in Section 4.02 of this Agreement, the offer, sale and issuance of the Notes as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption.


                  (f)    LITIGATION.  There is no action, suit, proceeding or investigation pending or currently threatened against the Company. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate.


                  (g)    DISCLOSURE.  The Company has provided Investor with all the information that it has requested for deciding whether to purchase the Notes.  


                  (h)    TITLE TO PROPERTY AND ASSETS.  The Company owns its property and assets free and clear of all Liens.


                  (i)    FINANCIAL STATEMENTS.  3PEA has furnished Investor with the the audited balance sheets of 3PEA Technologies, Inc. (A Development Stage Company) as of December 31, 2003 and 2002, and the related statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2003 and 2002 and the period from February 21, 2001 (Date of Inception) through December 31, 2003. 3PEA has also provided investor with the interim unaudited financial statements as of September 30, 2004  


                  (j)    TAX RETURNS, PAYMENTS AND ELECTIONS.  The Company has filed all tax returns and reports as required by law.  These returns and reports are true and correct in all material respects.  The Company has paid all taxes and other assessments due, except those contested by it in good faith. The provision for taxes of the Company as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof.


          SECTION 4.02   REPRESENTATIONS AND WARRANTIES OF INVESTOR.  Investor hereby represents and warrants to 3PEA that:


                  (a)    AUTHORIZATION.  Investor has full power and authority to enter into this Agreement and the Transaction Documents, and each such agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms.




5


                                                                                                       


                  (b)    PURCHASE ENTIRELY FOR OWN ACCOUNT.  This Agreement is made with Investor in reliance upon its representation to 3PEA, which by its execution hereof Investor hereby confirms, that the Notes to be received by it, the Common Stock issuable upon conversion of the Notes will be acquired for investment for its own account. By executing this Agreement, Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities.


                  (c)    DISCLOSURE OF INFORMATION.  Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Notes.  Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Notes, and the business, properties, prospects and financial condition of the Company.  The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 4.01 of this Agreement or the right of Investor to rely thereon.  


                  (d)    INVESTMENT EXPERIENCE.  Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Notes.  If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Notes.


                  (e)    RESTRICTED SECURITIES.  Investor understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act, only in certain limited circumstances.  In this connection, Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.  


                  (f)    LEGENDS.  It is understood that the certificates evidencing the Securities may bear one or all of the following legends:


                       (i)    "These securities have not been registered under the Securities Act of 1933, as amended.  They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Securities Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Securities Act."


                       (ii)   Any legend required by the laws of the State of Nevada




6


                                                                                                       


ARTICLE V


CONDITIONS


          SECTION 5.01   CONDITIONS OF INVESTOR AT THE CLOSING.  The obligation of Investor to purchase the Notes at the Closing shall be subject to the satisfaction of each of the following conditions:


                  (a)    The representations and warranties of 3PEA contained in Section 4.01 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing.


                  (b)    The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.



          SECTION 5.02   CONDITIONS OF 3PEA.  The obligations of the Company to Investor under this Agreement are subject to each of the following conditions:


                  (a)    The representations and warranties of Investor contained in Section 4.02 shall be true on and as of the Closing as though such representations and warranties had been made on and as of such dates.


                  (b)    Investor shall have funded the principal amount of the Notes as specified in Sections 2.01



ARTICLE VI


COVENANTS


          SECTION 6.01   AFFIRMATIVE COVENANTS.  So long as any of the Notes shall remain unpaid, 3PEA agrees that:


                  (a)    PRESERVATION OF EXISTENCE.  3PEA will maintain and preserve, through itself or any successor to its business, its corporate existence, its rights to transact business and all other rights, franchises and privileges necessary or desirable in the normal course of its business and operations and the ownership of its material properties.


                  (b)    PAYMENT OF TAXES.  3PEA will pay and discharge all taxes..


                  (c)    COMPLIANCE WITH LAWS.  3PEA will comply in all material respects with the requirements of all applicable laws.


                  (d)    MAINTENANCE OF PROPERTIES.  3PEA will use commercially reasonable efforts to maintain and preserve all of its material properties.




7


                                                                                                       


                  (e)    LICENSES.  3PEA will use commercially reasonable efforts to obtain and maintain all licenses.


                  (f)    PLACE OF BUSINESS.  The Company shall provide Investor prompt written notice of any change in the location of its principal place of business and its chief executive office from 3068 E. Sunset Road, Suite 3, Las Vegas, Nevada 89120


                  (h)    VISIT RIGHTS.  The Company shall permit Investor, at Investor's expense, to visit the Company's office, and to discuss the Company's affairs, finances and accounts with its officers upon mutually acceptable arrangements.



ARTICLE VII


EVENTS OF DEFAULT


          SECTION 7.01   EVENTS OF DEFAULT.  Any of the following events that shall occur shall constitute an "EVENT OF DEFAULT":


                  (a)    PAYMENTS.  3PEA shall fail to pay when due any amount of principal of, or interest on, any Note, or any other amount payable under any Transaction Document, and such failure shall remain unremedied by 3PEA for a period of 30 days following the date of notice that such payment is due.


                  (b)    REPRESENTATIONS AND WARRANTIES.  Any representation or warranty by 3PEA in the Transaction Documents shall prove to have been incorrect in a material respect when made or deemed made.


                  (c)    FAILURE BY 3PEA TO PERFORM CERTAIN COVENANTS.  3PEA shall fail to perform or observe any material term, covenant or agreement contained in this Agreement and any such failure shall remain unremedied for a period of 30 days from the notice by Investor of the occurrence thereof.


          SECTION 7.02 CURES.  Upon each of such Event of Default, the Company shall have thirty (30) days to cure such default after receipt of written notice of default from Investor specifying the nature of the Company's default.  If the Company is unable to cure its default within such thirty (30) day period, Investor may, at its option, accelerate repayment of the Outstanding Balance in which case the Outstanding Balance shall be due and payable immediately.  Upon any default of the Company hereunder, Investor may pursue any remedies that are available to it.

 



8


                                                                                                       


ARTICLE VIII


MISCELLANEOUS


          SECTION 8.01   AMENDMENTS AND WAIVERS.  Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of 3PEA and Investor.  


          SECTION 8.02   NOTICES.  Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing. All notices shall be sent via FedEx Standard overnight delivery with signature confirmation to the address below or as revised in writing by the parties.


To Investor:           

                     

To:______________

Address: ______________________

Attn: _____________________

Fax:  ____________________


                         

To the Company:


3Pea Technologies, Inc.

3068 E. Sunset Road, Suite 3

Las Vegas, Nevada 89120

Attn: Mark R. Newcomer

Fax: (702) 453-2223



          SECTION 8.03 SURVIVALS.  All covenants, agreements, representations and warranties made herein shall, except to the extent otherwise provided herein, survive the execution and delivery of this Agreement, the execution and delivery of the Notes, and shall continue in full force and effect so long as Investor has any commitment, any Notes remain outstanding or unpaid or any obligation to perform any other act under this Agreement or the Transaction Documents otherwise remains unsatisfied.


          SECTION 8.04   BENEFITS OF AGREEMENT.  The Transaction Documents are entered into for the sole protection and benefit of the parties hereto and their successors and assigns, and no other person shall be a direct or indirect beneficiary of, or shall have any direct or indirect cause of action or claim in connection with, any Transaction Document.


          SECTION 8.05   BINDING EFFECT; ASSIGNMENT.  This Agreement shall become effective when it shall have been executed by 3PEA and Investor and thereafter shall be binding upon, inure to the benefit of and be enforceable by 3PEA, Investor and their respective successors and assigns.




9


                                                                                                       


          SECTION 8.06   GOVERNING LAW.  This Agreement shall be governed by, and construed in accordance with the law of the State of Nevada.


          SECTION 8.07   ENTIRE AGREEMENTS.  This Agreement and the documents referred to herein constitute the entire agreement between the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein.


          SECTION 8.08   SEVERABILITY.  If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.


          SECTION 8.09   COUNTERPARTS.  This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.


          SECTION 8.10   PUBLIC ANNOUNCEMENTS.  Neither party shall use the other's name nor refer to the other directly or indirectly in connection with the investment contemplated herein in any advertisement, news release or professional or trade publication, or in any other manner, unless otherwise required by law, or with prior written consent.


       SECTION 8.11   DISPUTE RESOLUTION.  The parties agree to negotiate in good faith to resolve any dispute between them regarding this Agreement.  


             SECTION 8.12   BLUE SKY NOTICES:

 

IT IS ANTICIPATED THAT THE SECURITIES DESCRIBED HEREIN MAY BE OFFERED FOR SALE IN SEVERAL STATES.  THE SECURITIES BLUE SKY LAWS OF SOME OF THOSE STATES REQUIRE THAT CERTAIN CONDITIONS AND RESTRICTIONS RELATING TO THE OFFERING BE DISCLOSED.  A DESCRIPTION OF THE RELEVANT CONDITIONS AND RESTRICTIONS REQUIRED BY THE STATES IN WHICH THE COMPANY MAY OFFER ITS SECURITIES FOR SALE IS SET FORTH BELOW.



SECTION 8.13   STATE NOTICE REQUIREMENTS

 

NOTICE REQUIREMENTS IN STATES WHERE SHARES MAY BE SOLD ARE AS FOLLOWS:


NOTICE TO ARIZONA RESIDENTS


THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE ARIZONA SECURITIES ACT AND CANNOT BE RESOLD UNLESS THEY ARE REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

 

 



10

                                                                                                       



NOTICE TO CALIFORNIA RESIDENTS


IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY TO ANY INTEREST THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER’S RULES.



NOTICE TO ILLINOIS RESIDENTS


THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECRETARY OF STATE OF ILLINOIS OR THE STATE OF ILLINOIS, NOR HAS THE SECRETARY OF STATE OF ILLINOIS OR THE STATE OF ILLINOIS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.



NOTICE TO NEVADA RESIDENTS


THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER APPLICABLE SECURITIES LAWS OF NEVADA AND THEREFORE CANNOT BE RESOLD OR TRANSFERRED UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.



NOTICE TO OHIO RESIDENTS


THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE OHIO SECURITIES ACT, BY REASON OF SPECIFIC EXEMPTIONS THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING.  THESE SECURITIES CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY UNLESS THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

 




11


                                                                                                       


NOTICE TO TENNESSEE RESIDENTS


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 ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS  AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION WHEREFROM.  INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISK OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.



          IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the date first above written.


(COMPANY)


3PEA TECHNOLOGIES, INC.


By:

     -------------------------------------------

Date:

        -------------------------------------------

Name:  

          ---------------------------------------

Title:  

        ----------------------------------------



(INVESTOR)



By:  

     -------------------------------------------

Date:

        --------------------------------------------

Name:  

          ---------------------------------------

Title:

        ----------------------------------------




12


                                                                                                       


--Signature Page to the Convertible Note Purchase Agreement—



EXHIBIT A


FORM OF CONVERTIBLE PROMISSORY NOTE


THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED FOR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IS AN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.


3PEA TECHNOLOGIES, INC.

CONVERTIBLE PROMISSORY NOTE



$________

Las Vegas, Nevada

March 30, 2005


          FOR VALUE RECEIVED, 3 PEA TECHNOLOGIES, INC., a Nevada corporation ("MAKER" or "3PEA"), promises to pay to the order of ___________________

 ("HOLDER"), the principal sum of _________________ ( $ ______________), together with interest from the date of this Note on the unpaid principal balance at a rate of 6.0% per annum. Interest shall be computed as simple annual interest on the basis of a year of 360 days for the actual number of days occurring in the period for which such commitment fee or interest is payable.  Payment shall be made by Maker to Holder at the address of ___________________ or to such other address of Holder as it shall designate in a written notice to Maker.


          This Note is issued pursuant to that certain Convertible Note Purchase Agreement dated as of ________________, between Maker and Holder (the "AGREEMENT"). Terms used herein have the meanings assigned to those terms in the Agreement, unless otherwise defined herein.


          The terms of payment of principal and accrued interest shall be in accordance with the terms and conditions of the Agreement.  Payment shall be made in lawful tender of the United States and shall be credited first to accrued interest then due and payable with the remainder applied to principal. Prepayment of the principal, together with accrued interest, may be made at any time without penalty or premium, subject to Section 3.03 of the Agreement.


          The unpaid principal on this Note (or any portion thereof) shall be convertible at the election of Holder into shares of 3PEA Common Stock pursuant to the terms and conditions set forth in the Agreement.


          If action is instituted to collect this Note, Maker will pay all costs and expenses, including reasonable attorneys' fees, incurred in connection with such action. Maker hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.



13


                                                                                                       



          The holding of any provision of this Note to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provisions and the other provisions of this Note shall remain in full force and effect.


          This Note shall be construed in accordance with the laws of the state of Nevada, without regard to the conflicts of law provisions of the state of Nevada or of any other state.


          The Maker has caused this Convertible Promissory Note to be issued as of the date first above written.



3PEA TECHNOLOGIES, INC.



By:

     ----------------------------------------

Name:

          ------------------------------------

Title:

        -------------------------------------

 



14

Exhibit 10.5

 

CHADBOURN SECURITIES


A DIVISION OF


Colorado

Financial Service Corporation

Member FINRA • SIPC

88 Inverness Circle East, Ste F- 105, Centennial, Co 80112


9191 R. G. Skinner Parkway

Suite Five Hundred One

JACKSONVILLE, FLORIDA  32256



February 18 th , 2010


3Pea International, Inc.

Att.:  Mark Newcomer, CEO

1700 West Horizon Ridge Parkway

Suite # 102

Henderson, NV. 89012


Re.:

Letter of Intent


Dear Mr. Newcomer


       RE: Private Placement Letter of Intent

Gentlemen:


Reference is made to our recent discussions relating to a proposed private placement offering by your firm, as hereinafter defined, of a Private Placement offering (the “ Offering ”) of debt and/or equity securities (the “ Securities ”) to be issued by 3Pea International, Inc., an (Nevada corporation) (the “Company”).  Based upon our discussions, financial materials which you have made available to us describing the Company and its principals, the present and proposed business activities of the Company and the Company’s operations and financial condition, we hereby confirm in principle our interest in placing on a best efforts basis a private placement (the “ Private Placement ”) of the Company’s securities upon the following basic terms and conditions:


1.

Colorado Financial Service Corporation (“CFSC”) a Financial Industry Regulatory Authority (FINRA) broker–dealer through Chadbourn Securities (“Chadbourn”) collectively, sometimes referred to herein as the “ Placement Agent ” will undertake the Private Placement on a “ best efforts ” basis for the account of the Company and aggregate of up to Five Million Dollars ($5,000,000.00) in equity and/or debt as determined by the Company.




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2.

As Placement Agent of the Company, we shall, as soon as practicable, arrange up to a maximum of Five Million Dollars ($5,000,000) Private Placement for the Company through the issuance by the Company of ( To be determined ) securities consisting of either debt instruments (the “ Debt Securities ”) or shares of common stock (the “ Shares ”) (as determined by the Company) to be offered to “ Accredited Investors ,” as the term is defined in Section 501 (a) of Regulation D of the General Rules and Regulations of the Securities and Exchange Commission.


a.

Chadbourn’s fee for the Private Placement shall be: (I) Ten Percent (10%) of the aggregate proceeds to be received by the Company through the sale of any Shares or Three and one half Percent (3.5%) of the sale of any Debt Securities; (II) common stock warrants to be issued in the amount equal to Six Percent (6%) of the Shares sold, at an exercise price per share equal to 125% of the price per share paid by investors in the Private Placement price for a period of Three (3) Years, and for Debt Warrants in an amount equivalent to an equal dollar amount for ten percent of Shares in Warrants.


i.

The Company hereby acknowledges that prior to entering this agreement it has been involved in discussion with existing accredited investors and shareholders of the Company, a list of which has been attached as Exhibit A, concerning additional investment in the Company from them or their friends and family members.  Chadbourn hereby agrees to waive the fees specified in paragraph 2a of this agreement in connection with this “friends and family” investment.  In return for the waiver of the fees specified in 2a for the “friends and family” round the Company hereby agrees to indemnify Chadbourn against any potential claims arising from the friends and family investments per the indemnification in paragraph 2aii.


ii.

In consideration of Chadbourn’s waiver of the fees specified in paragraph 2a for the “friends and family” investment that the Company has been negotiating, described in paragraph 2ai, , the Company agrees to: (a) indemnify and hold harmless Chadbourn against any and all losses, claims, damages or liabilities to which Chadbourn may become subject arising in any manner out of or in connection with the rendering of services by Chadbourn hereunder or the Company’s actions involving the friends and family investments, and reimburse Chadbourn immediately for all reasonable legal or other expenses reasonably incurred and actually paid by Chadbourn in connection with investigating, preparing to defend or defending any lawsuits, claims or other proceedings naming him as a defendant and arising in any manner out of or in connection with the friends and family investments.




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b.

An attorney mutually acceptable to both parties will act as Placement Agent counsel and will assist the Company’s counsel in the preparation of the Private Placement Memorandum in conformity with the provisions of Regulation D, perform selected due diligence, prepare the Placement Agent Agreement, and all Blue Sky matters.


c.

A good faith retainer (the “Retainer”) of Fifteen Thousand Dollars ($15,000.00) shall be payable to Chadbourn Securities, Inc. as follows:


i.

Five Thousand Dollars ($5,000) payable upon the signing of this Letter of Intent; and


ii.

Two Thousand and Five Hundred Dollars ($2,500) payable every thirty (30) days from the signing of this Letter of Intent for period of four (4) months for a total of Ten Thousand Dollars ($10,000).


The retainer will be applied towards the fees described in section 6.


3.

Chadbourn’s willingness to proceed with the Private Placements is subject to the following:

a.

If required by market conditions, the recapitalization of the Company on terms mutually acceptable to the Company and the Placement Agent,


b.

Chadbourn’s satisfaction with the Company’s financial position, results of operations and prospects,


c.

satisfactory completion of Chadbourn’s due diligence investigation of the Company,


d.

preparation of a PPM and other appropriate documents relating to the Private Placement and by the Company and counsel to be retained for this purpose,


e.

compliance with all legal and regulatory requirements to the satisfaction of Chadbourn’s counsel, and


f.

market conditions at the time of the Offering.


4.

Pending the completion of the Private Placement, the Company agrees that it will not negotiate with any other person relating to a possible public offering and private placement of its securities during the period commencing on the date of this Letter of Intent and ending December 31, 2010 , except as outlined in Section 6.





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5.

The financial statements of the Company relating to the proposed Private Placement shall be audited by Sarna & Company or another recognized accounting firm reasonably satisfactory to the Placement Agent.  The Company shall engage as its securities counsel an attorney with significant experience in the area of securities law, which firm shall be reasonably satisfactory to the Placement Agent.


6.

The Placement Agent shall be reimbursed for its accountable expenses related to its due diligence review and road shows in the aggregate amount not to exceed Fifty Thousand Dollars ($50,000.00).                                            If the proposed Private Placement is not completed because, (i) the Placement Agent prevents its completion (except if such prevention is based upon breach by the Company of any covenant, representation, or warranty contained herein) the Company may terminate this Letter of Intent and the Company’s liability shall be the accountable expenses of the Placement Agent set forth the in this paragraph, and the Placement Agent shall refund the Balance paid as the Retainer.  If the proposed Private Placement is not completed because the Company prevents it or because of a breach by the Company of any such covenants, representations or warranties, the Company’s liability shall be Fifteen Thousand Dollars ($15,000.00) (which is the Retainer paid at the signing of the Letter of Intent), plus an amount equal to the amount of accountable expenses set forth in this paragraph.  In the event that prior to September 30, 2010, the Company enters into an arrangement with a third party for a public or private financing of securities of the Company and the Placement Agent has not previously abandoned the Private Placement, and the Company consummates the third party financing prior to September 30, 2010; upon the closing of such financing the Company shall pay One Hundred Thousand Dollars ($100,000.00) to the Placement Agent.  If the Placement Agent fails to raise a minimum of Three Million Dollars ($3,000,000.00) within 6 months of signing this Letter of Intent, the Company may contact a third party for the purpose of raising necessary funds without paying any fees to the Placement Agent.


7.

Assuming the closing of the Private Placement, the Company agrees the Placement Agent shall have a preferential right for a period of Twelve (12) months from the final closing date to purchase for its account or to sell for the account of the Company (collectively referred to herein as the Company)any securities with respect to which the Company may seek a public or private offering of the Company’s securities solely for cash consideration in the United States pursuant to a registration under the Securities Act of  1933  or otherwise.  The Company will consult the Placement Agent with regard to any such offering and will offer to the Placement Agent the opportunity to purchase or sell any such securities on terms not more favorable to the Company that they can secure elsewhere.  If the Placement Agent fails to accept in writing such proposal for financing made by the Company within Ten  (10) business  days  after   the receipt  of  a  notice  containing  such  proposal,  then the Placement Agent will have no further claim or right with respect to the financing proposal contained in such notice.  If, thereafter, such proposal is modified prior to the filing of the registration statement or the commencement of the private offering, and if such modification is less favorable to the Company, the Company shall adopt the same procedure as with respect to the original proposal.  Should the Placement Agent not avail itself of such opportunity to act as a Placement Agent, the Placement Agent would no longer have any preferential rights for future financing pursuant to the Section 7.  The Company agrees that any breach by the Company of the Placement Agent’s rights of first refusal shall be enforceable by the Placement Agent through injunctive relief.  The Company represents and warrants that no other person or entity has any rights to participate in any offer, sale or distribution of securities with respect to which the Placement Agent shall have a preferential right.  The Company has advised the Placement Agent that no person is entitled, directly or indirectly, to compensation from the Company for services as a finder in connection with the Private Placement contemplated by this Letter of Intent.



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8.

Upon the closing of the Private Placement, if requested by the Placement Agent, for a Twenty-Four (24) month period, a designee of Chadbourn shall be appointed to the Board of Directors of the Company, subject to such applicable law.  The appointment of the Chadbourn designee to the Board of Directors shall be someone acceptable to the management of the Company.  During such period, the observer shall receive notice of all Board meetings and shall have the right to attend all meetings of the Board of Directors.


9.

Chadbourn reserves the right, in its sole discretion, to reduce any item of its compensation or adjust the terms thereof as specified herein in the event that a determination should be made by FINRA and/or the securities department of any jurisdiction to the effect that its aggregate compensation is excessive or that the terms thereof require such adjustment.  Any such reduction or adjustment shall not affect any other terms or provisions of the Letter of Intent.


10.

Each officer and director of the Company shall agree that for a period of One Hundred Eighty (180) days from the closing of the Private Placement, he shall not publicly sell, assign or transfer more than an aggregate of Twenty-five Thousand (25,000) Shares in any thirty (30) day period without the prior consent of The Placement Agent.


11.

For a period from the date hereof until the earlier of (I) the termination of this Letter of Intent or (II) one year from the date hereof, the Placement Agent shall have the right to review all compensation and other arrangements between the Company and its present officers and directors entered into after the date of the Letter of Intent (other than changes in compensation applicable with respect to all employees generally), and all compensation and other arrangements between the Company and persons who hereafter become officers and directors which arrangements are on terms materially different from those of current officers and directors.



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12.

The Company represents and warrants to Chadbourn that it is not obligated to pay a finder’s fee to anyone in connection with the introduction of the Company to Chadbourn and that it has not paid any monies, securities or other compensation to any member of FINRA or the any affiliate of such a member during the prior Twelve (12) Months (except for payments to Chadbourn).


13.

The Company agrees that, for a period of Twelve (12) Months from the date hereof, it shall not solicit any offer to buy from or offer to sell any person introduced to the Company by the Placement Agent in connection with the Private Placement, directly or indirectly, any securities of the Company, or provide the name of any such person to  any other securities broker or dealer or selling agent, for the sole purpose of offering the Company’s securities, excluding any rights offering to all stockholders. In the event that the Company or any of its affiliates, directly or indirectly, solicits, offers to buy from or offers to sell to any such person any such securities or provides the name of any such person to any other securities broker or dealer or selling agent, and such person purchases such  securities or purchases the Company’s securities from any other securities broker or dealer of selling agent, the Company shall pay to the Placement Agent an amount equal to Five Percent (5%) of the aggregate purchase price of the securities so purchased by such person.


14.

Chadbourn shall be the lead Placement Agent for the purpose of giving consents on behalf of the Placement Agent with respect to the proposed Private Placement and for the receipt of fees payable and notices given by the Company hereunder.


15.

This Letter of Intent shall be deemed to have been made and delivered in Jacksonville, Florida and shall be governed as to validity, interpretation, construction, effect and in all other respect by the internal laws of the State of Florida.  This Letter of Intent constitutes the entire agreement among the parties hereto as to the subject matter herein.


(the remainder of this page intentionally left blank)




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If the foregoing conforms to your understanding, please sign, date and return to us a copy of this agreement.


Very truly yours,


Chadbourn Securities

a Division of Colorado Financial Service Corporation



          /s/ Daniel R. Murphy

By: _______________________________

Daniel R. Murphy, Managing Director



AGREED TO:



Chadbourn Securities

a Division of Colorado Financial Service Corporation


By: /s/ Daniel R. Murphy
       Daniel R Murphy


Title:  Managing Director


                          

DATE: February 25, 2010


3Pea International, Inc


    

By: /s/ Mark Newcomer
       Mark Newcomer   


Title: President/CEO


                        

DATE: February 25, 2010


Colorado Financial Service Corporation


By: /s/ Chester Hebert
      Chester Hebert


Title: President/CEO


                           

Date:   March 3, 2010




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EXHIBIT 14

 

3PEA INTERNATIONAL, INC


Code of Ethical Conduc t

3PEA International, Inc. (the “Company” ) has a proud tradition of conducting its business on a high ethical plane based on core values of honesty, integrity, and fair commercial competition. Over the years, the Company has developed systems, procedures and incentives intended to implement and institutionalize these core corporate values. The Company historically has insisted on adherence to these core values by its directors, officers and employees, and on their compliance with the systems and procedures established by the Company to implement them.   

The Sarbanes-Oxley Act of 2002 has imposed upon all publicly-traded corporations the obligation to codify certain ethical principles that govern the Company. This Code of Ethical Conduct applies to all directors, officers and employees (with all three groups being referred to as “employees”) of the Company and is intended to provide a clear understanding of the ethical principles of business conduct expected of each employee. Compliance with these standards is vital to the integrity and continued well being of our business and our employees.

Our Code is designed to embody rules regarding individual and peer responsibilities, as well as responsibilities to our employees, customers, suppliers, shareholders, the public and other stakeholders, and includes our goals in furthering:

1.   Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

2.   The avoidance of conflicts of interest, including disclosure to an appropriate person or persons identified in this Code of any material transaction or relationship that reasonably could be expected to give rise to such a conflict;

3.   Full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made by the Company;

4.   Compliance with applicable governmental laws, rules and regulations;

5.   The prompt internal reporting to an appropriate person or persons of any violations of the Code; and

6.   Accountability for adherence to the Code.



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Today, all corporations are under high levels of scrutiny and are held to increasingly higher levels of accountability.  As a result, the Board of Directors has reaffirmed its strong commitment that the Company’s business practices be conducted in accordance with the highest professional, ethical, legal and moral standards.  This Code outlines the broad principles of legal and ethical business conduct embraced by the Company.  It is not a complete list of legal or ethical questions an employee might face in the course of business, and therefore, the Code must be applied using common sense and good judgment.

Please read the Code of Ethical Conduct carefully.  We are confident that each of us will comply with the Code and thereby help maintain our reputation for the highest standards of business integrity.

OVERALL ETHICAL CONDUCT

BUSINESS ETHICS

It is essential that we all keep an eye out for possible infringements of the Company’s business ethics - whether these infringements occur in dealings with the government or the private sector, and whether they occur because of oversight or intention.  Employees of the Company who have knowledge of possible violations should notify Human Resources, the Finance Department or the Audit Committee of the Company’s Board of Directors (the “ Audit Committee ”).  To assist employees in the day-to-day protection of our business ethics, we have compiled a list of some areas where breaches may occur:

·

Improper or excessive payments of any of the following:

·

 Employee bonuses or compensation agreements

·

Consulting fees

·

Director & officer payments

·

Miscellaneous expenses

·

Insurance premiums

·

Nondeductible expenses

·

Employee loans

·

Public relations fees

·

Legal fees

·

Commissions

·

Other professional fees

·

Expense reports

·

Questionable payments to agents, consultants or professionals whose backgrounds have not been adequately investigated, who do not have signed contracts or letters of engagement, or whose association with the Company would be embarrassing if exposed;

·

Payroll-related expenditures, bonuses, awards and non-cash gifts given to or by employees of the Company without proper approval and adequate documentation;

·

Payments made in cash or checks drawn to Cash or Bearer or bank accounts/property titles not in the Company’s name;



2



·

Payments made in cash or checks drawn to Cash or Bearer or bank accounts/property titles not in the Company’s name;

·

Transfers to or deposits in the bank account of an individual, rather than in the account of the company with which we are doing business;

·

Billings made higher or lower than normal prices for fees, at a customer’s request;

·

Payments made for any purpose other than that described in supporting documents;

·

Payments made to employees of customers or agencies through intermediary persons or organizations, or that seem to deviate from normal business transactions;

·

Any large, abnormal, unexplained, or individually approved contracts, or expenditures made without review of supporting documentation;

·

Unusual transactions occurring with nonfunctional, inactive, or shell subsidiaries or undisclosed or unrecorded assets or liabilities;

·

Use of unethical or questionable means to obtain information, including information about competitors, information concerning government acquisition plans, or any procurement decision or action;

·

An employment, consulting, or business relationship between an employee of the Company and another company, especially in the same or related business; and

·

Frequent trading (buying and selling over short intervals) in stock of the Company or stock of a company with which we do business.

These are examples of possible infringements that employees of the Company need to avoid.  Employees should feel free to discuss any concerns about this policy with Human Resources, the Finance Department or the Audit Committee.

CONFLICTS OF INTEREST

Employees are expected to make or participate in business decisions and actions in the course of their employment with the Company based on the best interests of the Company as a whole, and not based on personal relationships or benefits.  Conflicts of interest can compromise employees' business ethics. Employees are expected to apply sound judgment to avoid conflicts of interest that could negatively affect the Company or its business.  At the Company, a conflict of interest is any activity that is inconsistent with or opposed to the Company's interests, or gives the appearance of impropriety.

Employees should avoid any relationship that would cause a conflict of interest with their duties and responsibilities at the Company.  Employees are expected to disclose to us any situations that may involve inappropriate or improper conflicts of interest affecting them personally or affecting other employees or those with whom we do business.  Waivers of conflicts of interest involving executive officers require the approval of the Company’s Board of Directors or an appropriate Committee of the Board of Directors.



3



Members of the Company’s Board of Directors have a special responsibility because our directors are prominent individuals with other substantial responsibilities.  To avoid conflicts of interest, directors are expected to disclose to their fellow directors any personal interest they may have in a transaction upon which the Board of Directors passes and to recuse themselves from participation in any decision in which there is a conflict between their personal interests and the interests of the Company.

Set forth below is specific guidance for some areas of potential conflicts of interest that require special attention. It is not possible to list all conflicts of interest.  These are examples of the types of conflicts of interest that employees of the Company are expected to avoid.  Ultimately, it is the responsibility of each individual to avoid any situation that could appear to be a conflict of interest.  Employees are urged to discuss any potential conflicts of interest with Human Resources, the Finance Department or the Audit Committee.

Interests in Other Businesses .  Employees of the Company and members of their immediate families must avoid any direct or indirect financial relationship with other businesses that could cause divided loyalty.  Employees of the Company must receive written permission from the Company before beginning any employment, business or consulting relationship with another company.  This does not mean that family members are precluded from being employed by one of the Company's customers, competitors or suppliers.  However, employees of the Company must avoid conducting Company business with members of their families - or others with whom they have a significant personal relationship - unless they have prior written permission from the Company.

Outside Directorships .  The Company encourages its employees to be active in industry and civic associations, including membership in other companies' Boards of Directors.  Employees who serve on outside Boards of a profit making organization are required, prior to acceptance, to obtain written approval from the Audit Committee.  As a rule, employees may not accept a position as an outside director of any current or likely competitor of the Company.  Furthermore, in the absence of an overriding benefit to the Company and a procedure to avoid any financial conflict (such as refusal of compensation and recusal from involvement in another company's relationship with the Company), approval is likely to be denied where the Company employee either directly or through people in his or her chain of command has responsibility to affect or implement the Company's business relationship with the other company.  Approval of a position as a director of a company that supports or promotes a competitor's products or services is also likely to be denied.

If the Audit Committee approves an outside directorship, employees may keep compensation earned from that directorship unless the terms of the Committee’s approval state otherwise. Generally, however, employees may not receive any form of compensation (including stock options, IPO stock or cash) for service on a Board of Directors of a company if the service is at the request of the Company or in connection with the Company's investment in, or a significant relationship exists with, that company and the directorship is as a consequence or in connection with that relationship. Any company that is a vendor, supplier, partner or customer of the Company has a "relationship" with the Company. " Significant " is broadly defined to include a sole-source vendor/supplier, or one in which the Company is responsible for generating five percent or more of the outside company's revenues. When membership on a Board of Directors is other than at the Company's request, and even if no compensation is received, a potential for conflict of interest exists, and therefore the Company employee is expected to recuse himself or herself from any involvement in the Company's relationship with that company. It is therefore important that the Company’s employees recognize that their membership should be an opportunity to provide expertise and to broadentheir own experience, but they should not be put in a position where the other company expects to use the person's Board membership as a way to get access or to influence Company decisions.



4



 

The Company may at any time rescind prior approvals in order to avoid a conflict or appearance of a conflict of interest for any reason deemed to be in the best interests of the Company.  In addition, the Company periodically will conduct an inquiry of employees to determine the status of their membership on outside Boards.

Investments in Public Companies .  Passive investments of not more than one percent of total outstanding shares of companies listed on a national or international securities exchange, or quoted daily by NASDAQ or any other board, are permitted without the Company's approval - provided the investment is not so large financially either in absolute dollars or percentage of the individual’s total investment portfolio that it creates the appearance of a conflict of interest.  Any such investment must not involve the use of confidential "inside" or proprietary information, such as confidential information that might have been learned about the other company on account of the Company's relationship with the other company.  Investments in diversified publicly traded mutual funds are not deemed subject to these conflict of interest guidelines, provided confidentiality requirements are observed.

Investments in Private Companies .  

Employees of the Company occasionally will find themselves in a position to invest in the Company’s partners or customers.  It is imperative that employees presented with such opportunities understand the potential conflict of interest that may occur in these circumstances.  The Company’s employees must always serve our shareholders first.  Investing in companies with which the Company has an actual or potential business relationship may not be in our shareholders' best interests.  The following guidelines are intended to cover such circumstances:

The Company’s employees may not invest in privately-held companies that are Company customers, partners or suppliers without disclosure to the Company.  Where the employee either directly or through people in his or her chain of command has responsibility to affect or implement the Company's relationship with the other company, approval of the Company is required; however, in such cases approval is likely to be denied.

Such situations may put Company employees in a conflict of interest between furthering their personal interests versus the interests of the Company; hence the likelihood of denial.  Employees in those circumstances should not invest in the company in question.




5



If an investment is made and/or approval is granted, and the employee subsequently finds himself or herself in a potentially conflicted position due to his or her job responsibilities or those of others in his or her chain of command, the Company employee is expected to recuse himself or herself from any involvement in the Company's relationship with that company.  (If the conflict is so fundamental as to undermine the employee's ability to undertake an important job activity, a discussion of possible divestiture may be required).  Furthermore, with respect to any investment or financial interest in a third party, employees should be extremely cautious to avoid activities such as recommending or introducing the company to other parts of the Company’s organization unless there is a clear disclosure of the financial interest.

If an employee happens to have an investment in a company and transitions into a role that would place him or her in a conflict of interest position (such as those described above), the employee should disclose the situation in writing to Human Resources, the Finance Department or the Audit Committee.  Efforts will be made to resolve the situation equitably on a case-by-case basis.

Where the Company has made an investment in a company, permission must be obtained before an employee invests in that company.  When a Company employee is placed on a Board of Directors or advisory board to represent the Company, such employee cannot make an investment in that company without approval from the Company’s Board of Directors; and they may not receive compensation for such participation at the Company's request.

Inventions, Books and Publications .  Company employees must receive written permission from the Company before developing, outside of the Company, any products, software or intellectual property that is or may be related to the Company's current or potential business.

Proper Payment .  All Company employees should pay for and receive only that which is proper.  Company employees should not make payments or promises to influence another's acts or decisions, and Company employees must not give gifts beyond those extended in normal business.  Company employees must observe all government restrictions on gifts and entertainment.  Employees will not receive payments of any kind from Company customers.

Favors, Gifts and Entertainment .  Company employees and members of their families must not give or receive valuable gifts (including gifts of equipment or money, discounts or favored personal treatment) to or from any person associated with the Company’s vendors or customers.  This includes accepting the opportunity to buy "directed shares" (also called "friends and family shares") from a company where the Company employee is now or is likely to become involved in the evaluation, recommendation, negotiation or approval of current or prospective business with that company.

This is not intended to preclude the Company from receiving or evaluating appropriate complimentary products or services. Nor is it intended to preclude the Company from making a gift of equipment to a company or organization, provided that the gift is openly given, with full knowledge by the company or organization, and is consistent with applicable law.  In all cases, the exchange of gifts must be conducted so there is no appearance of impropriety.  Gifts may only be given in accordance with applicable laws, including the United States Foreign Corrupt Practices Act.



6



 

Advertising novelties, favors, and entertainment are allowed when the following conditions are met:

·

They are consistent with the Company's business practices;

·

They do not violate any applicable law, such as state and federal procurement laws and regulations;

·

They are of limited value ($50 or less); or

·

Public disclosure would not embarrass the Company.

Industry Associations .  Memberships on boards of industry associations generally do not present financial conflicts of interest.  However, employees should be sensitive to possible conflicts with the Company's business interests, if, for instance, the association takes a position adverse to the Company's interests or those of its key customers.

FINANCIAL OFFICER CODE OF ETHICS

As a public company, it is of critical importance that the Company's filings with the Securities and Exchange Commission be accurate and timely.  Depending on their position with the Company, employees may be called upon to provide information to assure that the Company's public reports are complete, fair and understandable.  The Company expects all of its personnel to take this responsibility very seriously and to provide prompt and accurate answers to inquiries related to the Company's public disclosure requirements.

The Finance Department bears a special responsibility for promoting integrity throughout the organization, with responsibilities to stakeholders both inside and outside of the Company.  The Chief Executive Officer, the Chief Financial Officer and Finance Department personnel have a special role both to adhere to these principles themselves and also to ensure that a culture exists throughout the Company as a whole that ensures the fair and timely reporting of the Company's financial results and condition. 

Because of this special role, the Chief Executive Officer, the Chief Financial Officer and all members of the Finance Department are bound by the following Financial Officer Code of Ethics, and by accepting the Code of Ethical Conduct, each agrees that he or she will:

·

Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships;

·

Provide information that is accurate, complete, objective, relevant, timely and understandable to ensure full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, government agencies and in other public communications;

·

Comply with rules and regulations of federal, state, provincial and local governments, and other appropriate private and public regulatory agencies;



7



·

Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing one's independent judgment to be subordinated;

·

Respect the confidentiality of information acquired in the course of one's work except when authorized or otherwise legally obligated to disclose, and not use such confidential information for personal advantage;

·

Share knowledge and maintain skills important and relevant to shareholders’ needs;

·

Proactively promote and be an example of ethical behavior as a responsible partner among peers, in the work environment and the community;

·

Achieve responsible use of and control over all assets and resources employed or entrusted; and

·

Promptly report to the Chief Financial Officer and/or the Chairman of the Audit Committee any conduct that the individual believes to be a violation of law or business ethics or of any provision of the Code of Ethical Conduct, including any transaction or relationship that reasonably could be expected to give rise to such a conflict.


Violations of this Financial Officer Code of Ethics, including failures to report potential violations by others, will be viewed as a severe disciplinary matter that may result in personnel action, including termination of employment.  If you believe that a violation of the Financial Officer Code of Ethics has occurred, please contact the Chief Financial Officer, the Chief Executive Officer or the Chairman of the Audit Committee.

It is against Company policy to retaliate against any employee for good faith reporting of violations of this Code.

LAWS, REGULATIONS AND GOVERNMENT- RELATED ACTIVITIES

Violation of governing laws and regulations, whether in the United States or abroad, is both unethical and subjects the Company to significant risk in the form of fines, penalties and damaged reputation.  It is expected that each employee will comply with applicable laws, regulations and corporate policies.  Specific areas with which employees are expected to comply include:

·

Anti-Trust

·

Insider Trading

·

Foreign Corrupt Practices Act

·

Government Business

·

Political Contributions

·

Using Third-Party Copyrighted Material

·

Proprietary Information




8



ANTI-TRUST

The economy of the United States, and of most nations in which the Company does business, is based on the principle that competition and profit will produce high-quality goods at fair prices.  To ensure that this principle is played out in the marketplace, most countries have laws prohibiting certain business practices that could inhibit effective competition.  The antitrust laws are broad and far-reaching.  They touch upon and affect virtually all aspects of the Company's operations.  The Company supports these laws not only because they are the law, but also because we believe in the free market and the idea that healthy competition is essential to our long-term success.  The Company fully embraces all antitrust laws and avoids conduct that may even give the appearance of being questionable under those laws.  Whether termed anti-trust, competition, or free trade laws, the rules are designed to keep the marketplace thriving and competitive.  In all cases where there is question or doubt about a particular activity or practice, employees should contact the Finance Department before proceeding.

INSIDER TRADING

If an employee has material, non-public information relating to the Company, it is the Company's policy that neither the employee, nor any person related to the employee, may buy or sell securities of the Company or engage in any other action to take advantage of, or pass on to others, that information.  This policy also applies to trading in the securities of any other company, including our customers or suppliers, if employees have material, non-public information about that company which the employee obtained in the course of their employment by the Company.

Transactions that may be necessary or justifiable for independent reasons, including emergency expenditures and transactions planned before the employee learned the material information, are not exceptions.  Even the appearance of an improper transaction must be avoided to prevent any potential risk to the Company or the individual trader.  Violations of insider trading laws may be punishable by fines and/or imprisonment.

Besides the obligation to refrain from trading while in possession of material, non-public information, employees are also prohibited from “tipping” others.  The concept of unlawful tipping includes passing on information to friends or family members under circumstances that suggest that employees were trying to help them make a profit or avoid a loss.  Besides being considered a form of insider trading, of course, tipping is also a serious breach of corporate confidentiality.  For this reason, employees should be careful to avoid discussing sensitive information in any place (for instance, at lunch, on public transportation, in elevators) where others may hear such information. 



9



FOREIGN CORRUPT PRACTICES ACT

The Company requires full compliance with the United States Foreign Corrupt Practices Act (“ FCPA ”) by all of its employees, consultants and agents.  The anti-bribery and corrupt payment provisions of the FCPA make illegal any corrupt offer, payment, promise to pay or authorization to pay any money, gift or anything of value to any foreign official, or any foreign political party, candidate or official, for the purpose of:

·

Influencing any act, or failure to act, in the official capacity of that foreign official or party; or

·

Inducing the foreign official or party to use influence to affect a decision of a foreign government or agency, in order to obtain or retain business for anyone, or direct business to anyone.

Payments, offers, promises or authorizations to pay any other person, United States or foreign, are likewise prohibited if any portion of that money or gift will be offered, given or promised to a foreign official or foreign political party or candidate for any of the illegal purposes outlined above.

All Company employees, whether located in the United States or abroad, are responsible for FCPA compliance and the procedures to ensure FCPA compliance.  All managers and supervisory personnel are expected to monitor continued compliance with the FCPA to ensure compliance with the highest moral, ethical and professional standards of the Company.

Any action in violation of the FCPA is prohibited.  All Company employees who become aware of apparent FCPA violations should notify the Finance Department immediately.  Any question or uncertainty regarding compliance with this policy should be brought to the attention of the Chief Financial Officer or the Chief Executive Officer of the Company or the Chairman of the Audit Committee.

GOVERNMENT BUSINESS

Company employees should understand that special requirements might apply when contracting with any government body (including national, state, provincial, municipal or other similar government divisions in local jurisdictions). Because government officials are obligated to follow specific codes of conduct and laws, special care must be taken in government procurement. Some key requirements for doing business with a government are:

·

Accurately representing which Company products are covered by government contracts;   

·

Not offering or accepting kickbacks, bribes, gifts, gratuities or anything else of value with the intent of obtaining favorable treatment from the recipient (a gift that is customary in the business sector may be perceived as a bribe by a government official);    

·

Not improperly soliciting or obtaining confidential information, such as sealed competitors' bids, from government officials prior to the award of a contract; and



10



·

Hiring present and former government personnel may only occur in compliance with applicable laws and regulations (as well as consulting with management and Human Resources).

POLITICAL CONTRIBUTIONS

No Company assets - including employees' work time, use of Company premises, use of Company equipment, or direct monetary payments - may be contributed to any political candidate, political actions committees (also known as, “PACs”), party, or ballot measure without the permission of the Chief Financial Officer of the Company. Of course, Company employees may participate in any political activities of their choice on an individual basis, with their own money and on their own time.

USING THIRD-PARTY COPYRIGHTED MATERIAL

Company employees may sometimes need to use third-party copyrighted material to perform their jobs. Before such third-party material may be used, appropriate authorization from the copyright holder must be obtained. The need for such permission may exist whether or not the end product containing third-party material is for personal use or for Company internal or other use. It is against Company policy and it may be unlawful for any employee to copy, reproduce, scan, digitize, broadcast, or modify third-party copyrighted material when preparing Company products or promotional materials, unless written permission from the copyright holder has been obtained prior to the proposed use. Improper use could subject both the Company and the individuals involved to possible civil and criminal actions for copyright infringement. It is against Company policy for employees to use the Company's facilities for the purpose of making or distributing unauthorized copies of third-party copyrighted materials for personal use or for use by others.

PROPRIETARY INFORMATION

Proprietary information is defined as information that was developed, created or discovered by the Company, or that became known by or was conveyed to the Company, that has commercial value in the Company's business. It includes, but is not limited to, software programs and subroutines, source and object code, trade secrets, copyrights, ideas, techniques, know-how, inventions (whether patentable or not) and any other information of any type relating to designs, configurations, tooling, schematics, master works, algorithms, flowcharts, circuits, works of authorship, formulae, mechanisms, research, manufacture, assembly, installation, marketing, pricing, customers, salaries and terms of compensation of Company employees, and costs or other financial data concerning any of the foregoing or the Company and its operations generally.



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The Company's business and business relationships center on the confidential and proprietary information of the Company and of those with whom we do business – customers, vendors and others.  Each employee has the duty to respect and protect the confidentiality of all such information.  The use of confidential and proprietary information – whether the Company's or a third party's – is usually covered by a written agreement.  In addition to the obligations imposed by that agreement, all employees should comply with the following requirements:

·

Confidential information should be received and disclosed only under the auspices of a written agreement;

·

Confidential information should be disclosed only to those Company employees who need to access it to perform their jobs for the Company;

·

Confidential information of a third party should not be used or copied by any Company employee except as permitted by the third-party owner (this permission is usually specified in a written agreement); and   

·

Unsolicited third-party confidential information should be refused or, if inadvertently received by a Company employee, returned unopened to the third party or transferred to the Finance Department for appropriate disposition.

Employees must refrain from using any confidential information belonging to any former employers, and such information must never be brought to the Company or provided to other Company employees.

CONTACT INFORMATION  

You may contact the Chief Executive Officer, Mark Newcomer, at mnewcomer@3pea.com . You may contact the Finance Department or the Chief Financial Officer, Arthur De Joya, at adejoya@3pea.com .



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Exhibit 21

Subsidiaries of Registrant

3Pea Technologies, Inc., a Nevada corporation – 100% owned by Registrant

WOW Technologies, Inc., a Nevada corporation – 79% owned by Registrant