3PEA International, Inc. — Form 10-Q Summary
Issuer note: The filing identifies the registrant as 3PEA International, Inc., not Paysign, Inc. It covers the quarter and six months ended June 30, 2013; financial statements are unaudited.
Business context and reporting period
3PEA provides prepaid debit card program management and processing through its PaySign platform, serving healthcare reimbursement, pharmaceutical assistance, corporate incentives and other card markets. The company launched its new PaySign platform during Q2 2013 and reported adding a bank partner earlier in 2013; another partner and product rollout were anticipated in Q3.
Key financial results
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $1.204 million | $2.549 million | $3.315 million | $4.034 million |
| Gross profit (margin) | $405,000 (33.6%) | $516,000 (20.2%) | $924,000 (27.9%) | $779,000 (19.3%) |
| Operating income | $95,000 | $360,000 | $336,000 | $453,000 |
| Net income attributable to 3PEA | $80,000 | $1.481 million | $306,000 | $1.557 million |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $(897,000) | $171,000 |
Q2 basic and diluted earnings per share were reported as $0.00; six-month earnings per share were $0.01. Prior-year comparisons benefited from a nonrecurring $1.136 million gain on debt extinguishment, which explains much of the net income decline.
At June 30, cash was $866,000 and restricted cash was $5.006 million. Restricted cash was matched by a $5.006 million customer card-funding liability and should not be treated as unrestricted liquidity. Current liabilities totaled $6.801 million, including $538,000 of related-party notes and $169,400 of other notes; the filing lists no long-term liabilities. Total stockholders’ deficit was $198,000.
Changes versus prior comparable periods
- Revenue fell 53% in Q2 and 18% for the first six months. Management attributed the declines primarily to timing and utilization of pharmaceutical card programs, which comprise most revenue and can fluctuate substantially.
- Gross margin improved to 33.6% in Q2 and 27.9% year to date, versus 20.2% and 19.3%, respectively, attributed to a greater share of higher-margin revenue.
- SG&A rose to $300,000 in Q2 and $569,000 year to date, chiefly due to card-program management and the customer call center launched in Q1 2013.
- Operating income declined in both comparisons. Prior-year net income included the debt-extinguishment gain; no such gain was recorded in 2013.
- Cash declined by approximately $1.007 million during the first half, from $1.873 million to $866,000. Operating activities used $897,000, including a $1.200 million reduction in accounts payable and accrued liabilities; investing used $111,000, primarily for PaySign platform enhancement.
Outlook, risks and other notable items
Management expected revenue to trend upward as additional PaySign programs launch, products diversify and support services expand. It said available cash and anticipated remaining-2013 revenue should sustain operations for the next 12 months, while also seeking equity capital to accelerate market expansion and business development. No investor commitments or offering terms were in place; management cautioned that additional capital might not be available on acceptable terms and that expansion could be delayed.
Management highlighted unpredictable pharmaceutical program launch dates, duration, card loads and usage as causes of significant revenue and cost volatility. It also noted that expansion requires further investment in sales, marketing, technology and support. The filing reported no legal proceedings, no material off-balance-sheet arrangements, and effective disclosure controls as of June 30, 2013. The Risk Factors item states “Not applicable.”
Important facts for investors to verify
- Confirm that this 3PEA International, Inc. filing is the intended filing for the Paysign, Inc. request.
- Assess liquidity using unrestricted cash separately from restricted cardholder funds, and monitor operating cash burn and working-capital movements.
- Track pharmaceutical-program timing and concentration, new bank-partner launches, and whether PaySign platform investment translates into revenue and margin growth.
- Verify the status, terms and availability of proposed equity financing and any creditor debt-to-equity conversions.
- Reconcile the cash-flow discussion’s operating cash-use figure of $896,558 with the financial statement’s $896,557.