Business context and reporting period
This is 3PEA International, Inc.’s audited Form 10-K for the fiscal year ended December 31, 2015—not a quarterly report. 3PEA operates prepaid-card programs and payment processing services under the PaySign brand. The filing identifies the registrant as 3PEA International, Inc.; “Paysign, Inc.” appears in the request metadata, not as the issuer in the filing.
The company serves corporate, healthcare, pharmaceutical, plasma-donation and other clients. It earns fees from program setup and administration, processing, card usage, and related services. Cards are issued through bank partners.
Financial results and position
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $8.11 million | $10.29 million |
| Gross profit / margin | $4.09 million / about 50% | $5.64 million / about 55% |
| Operating income (loss) | $(8,872) | $2.75 million |
| Net income (loss) attributable to 3PEA | $(2.41) million | $2.61 million |
| Operating cash flow | $(719,504) | $3.08 million |
| Investing cash flow | $(926,182) | $(527,912) |
| Financing cash flow | $(851,788) | $305,106 |
Revenue fell about 21% year over year. Cash and cash equivalents excluding restricted customer funds were $1.39 million at year-end, down from $3.89 million. Restricted cash of $7.06 million was matched by an equal customer-card-funding liability; it is not unrestricted operating liquidity. Total assets were $10.26 million, total liabilities $9.08 million, and stockholders’ equity $1.18 million.
Year-end notes payable were $174,098, all current; related-party notes had been repaid during 2015. The company also reported $1.25 million remaining payable under a legal settlement, split between current and long-term portions. No material off-balance-sheet arrangements were reported.
Material changes versus the prior year
- Lower revenue, primarily attributed to declines in healthcare reimbursement and pharmaceutical co-pay programs; plasma-donation program revenue increased.
- SG&A rose to $3.73 million from $2.72 million, reflecting staffing, technology, new programs and planned expansion. Depreciation and amortization also increased.
- A $2.5 million legal settlement expense drove the swing to a net loss; interest expense decreased as debt was repaid.
- Operating cash flow turned negative. Investing outflows increased, while financing cash flow reflected debt repayments.
- Common shares outstanding increased from 36.67 million at year-end 2014 to 42.51 million at year-end 2015, including issuance of 5 million shares for previously recorded stock payable.
Outlook, risks and unusual items
Management said it expected revenue growth to resume in 2016 and beyond, citing corporate-incentive growth and anticipated increases in plasma-donation revenue. It also expected margins to improve as new incentive programs were added. The filing provides no quantified revenue or earnings guidance. Management stated year-end unrestricted cash, together with anticipated 2016 revenue and operating profits, would be sufficient for the next 12 months.
The filing says eight corporate incentive reward programs were added in the fourth quarter and reports 91 programs at year-end versus 78 a year earlier. Elsewhere, it describes the increase from 78 to 91 as plasma-donation centers; the category and count should be verified.
The principal unusual item was the PSKW dispute: the company agreed to pay $2.5 million to settle a claim seeking $5.8 million. It paid $1 million initially and reported $1.25 million paid in total by year-end, with the remaining balance payable in installments. The action was dismissed with prejudice, with the court retaining jurisdiction to enforce the settlement.
Key risks include the decline in pharmaceutical-program revenue, competition and pricing pressure, dependence on issuing-bank and third-party relationships, evolving payments and healthcare regulation, cybersecurity and service interruption exposure, and potential need for additional financing. The company reported no material legal proceedings beyond the settled PSKW matter. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Confirm the issuer identity and reporting period: this filing is for 3PEA International, Inc. and FY 2015, not a Q4-only filing.
- Reconcile the reported 78-to-91 increase and whether it refers to corporate incentive programs, plasma-donation centers, or both.
- Review the settlement payment schedule, interest, and remaining payable, and confirm subsequent payments.
- Assess unrestricted liquidity separately from restricted customer-card funds and compare cash burn with management’s 12-month sufficiency assertion.
- Evaluate the sources and durability of any recovery in pharmaceutical revenue and expected growth in plasma and corporate-incentive programs.
- Review share issuance, outstanding warrants, and potential dilution; the filing reported 800,000 warrants outstanding at year-end.