Business Context and Reporting Period
3PEA International, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2012. The filing describes a payment-solutions business focused on prepaid debit card program management and processing, particularly pharmaceutical marketing, healthcare reimbursement, and incentive cards. The filing identifies the registrant as 3PEA International, Inc.; the request metadata names Paysign, Inc., so the entity relationship should be verified.
Financial Results and Position
| Metric | Q1 2012 | Q1 2011 / prior date |
|---|---|---|
| Revenue | $1.485 million | $937,569 |
| Gross profit; gross margin | $262,787; approximately 17.7% | $186,582; approximately 19.9% |
| Operating income | $92,228 | $22,157 |
| Net income attributable to 3PEA | $76,390 | $6,442 |
| Operating cash flow | $104,350 | $74,655 |
| Investing cash flow | $(60,845) | $(32,950) |
| Financing cash flow | $(8,500) | $0 |
| Cash, March 31, 2012 | $98,831 unrestricted; $5.782 million restricted | Unrestricted cash was $63,826 at December 31, 2011 |
Revenue increased 58%; net income attributable to the company rose by about $70,000. Cost of revenue was 82% of revenue versus 80% a year earlier, compressing gross margin. Interest expense was $15,843. Basic earnings per share was reported as $0.00.
At March 31, total assets were $7.493 million and total liabilities were $10.328 million, leaving a stockholders’ deficit of $2.834 million. Current liabilities included $5.782 million of customer card funding, matched by restricted cash, and $2.483 million of notes payable (including $538,000 owed to related parties and a $10,000 convertible note). Accounts payable and accrued liabilities were $2.063 million. The filing reports no long-term liabilities. Restricted card funds are not freely available operating liquidity.
Changes, Outlook, and Risks
Management attributed revenue growth to increased processing and the launch of an incentive rewards program at eight donation centers. It targeted approximately 25 centers for 2012 and anticipated growth over the following 24 months; no quantified earnings or revenue guidance was provided. Pharmaceutical marketing cards were expected to remain the majority of revenue for the next 24 months.
Management said available cash and anticipated 2012 revenue should support operations for 12 months, provided the company is not required to pay material amounts of delinquent accounts payable, accrued interest, or current notes. It was seeking private-placement equity capital but reported no broker-dealer agreement or investor commitments, and planned to ask creditors to convert debt to equity. Failure to raise capital was expected to delay expansion; management also stated it would not jeopardize continued operations.
Management cautioned that pharmaceutical-card revenue and costs can fluctuate substantially with program timing, card distribution, marketing activity, and program duration. Expansion into new markets requires investment in technology, sales and marketing, and regulatory compliance. Operating cash flow included working-capital movements; restricted cash changes were offset by corresponding customer card funding liability changes. The filing reported no legal proceedings, material off-balance-sheet arrangements, or changes in internal controls, and management judged disclosure controls effective.
Important Facts to Verify
- Confirm the filing’s registrant identity and its relationship, if any, to Paysign, Inc.
- Assess unrestricted liquidity and near-term obligations, especially delinquent payables, accrued interest, and current notes.
- Verify the status and terms of the proposed equity raise and any creditor debt-to-equity conversions.
- Track donation-center rollout against the 2012 target and test whether growth offsets the lower gross margin and variable program revenues.