3PEA International, Inc. — FY2013 Form 10-K
Issuer and period: The filing is for 3PEA International, Inc. (fiscal year ended December 31, 2013), a prepaid debit card program manager and processor using its PaySign platform. The request metadata names Paysign, Inc.; that name does not match the registrant identified in this filing.
Business context and financial performance
The company provides prepaid card processing and program-management services, including corporate incentive and pharmaceutical/healthcare programs. It launched the PaySign platform in 2013, expanded its in-house customer service operation, added 29 corporate incentive programs, and increased staffing from 14 to 24.
| Metric | FY2013 | FY2012 | Change / context |
|---|---|---|---|
| Revenue | $6.308 million | $6.700 million | Down $392,497, or 5.9%; healthcare reimbursement and pharmaceutical program revenue declined. |
| Cost of revenue | $4.104 million | $5.305 million | Down $1.202 million; 65% of revenue versus 79% in 2012. |
| Gross profit / margin | $2.204 million / 35% | $1.395 million / 21% | Margin improved as higher-margin corporate incentive programs grew. |
| Operating expenses | $1.534 million | $0.820 million | Higher staffing, technology and infrastructure investment. |
| Operating income | $669,818 | $574,851 | Increased $94,967. |
| Net income attributable to 3PEA | $611,684 | $1.817 million | Down $1.205 million; 2012 included a $1.296 million gain on debt extinguishment. |
| Operating cash flow | $(620,273) | $2.055 million | Shifted to cash use, reflecting working-capital movements, including lower payables and accrued liabilities. |
| Investing / financing cash flow | $(238,779) / $13,380 | $(234,317) / $(11,750) | Investing was primarily platform and equipment spending; 2013 financing included equipment borrowing. |
At year-end, unrestricted cash was $1.027 million; restricted cash was $6.906 million, matched by customer card-funding liabilities. Current assets were $8.543 million and current liabilities $9.058 million. Total liabilities were $9.058 million, including $533,000 of related-party notes and $187,780 of other notes, all classified as current. Stockholders’ equity was $106,929, versus a deficit of $510,304 in 2012. Management said available cash and anticipated 2014 revenue should fund operations for the next 12 months.
The filing reports no income tax provision for either year. Basic earnings per share were $0.02 in 2013 and $0.05 in 2012; diluted earnings per share were $0.01 and $0.05, respectively. No dividends were paid or expected in the foreseeable future.
Material changes, outlook and risks
- Management attributed the revenue decline to reduced healthcare reimbursement and pharmaceutical marketing activity, while emphasizing the shift toward corporate incentive programs expected to offer higher margins. It expected revenue to trend upward as additional PaySign programs and services were introduced, but gave no quantified forecast.
- Expansion plans include payroll, general-purpose reloadable and travel cards, and pursuing opportunities in the European Union. Management said additional capital could accelerate expansion; without it, growth would be slower.
- Program launch timing and card usage—particularly in pharmaceutical programs—can vary substantially and make revenue difficult to forecast. Other key risks include intense competition, reliance on issuing-bank and third-party relationships, regulatory and card-network changes, cybersecurity and system disruptions, and limited access to capital.
- The company reported successful BSA, PCI-DSS and SOC 1 audits, no material legal proceedings, and effective management-assessed disclosure controls and internal control over financial reporting. The auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- The audited statements show 2012 gross profit of $1,395,029, while the MD&A states $1,359,029; confirm the correct comparative figure.
- Reconcile the filing’s income measures: the audited income statement reports $610,734 before noncontrolling interest and $611,684 attributable to 3PEA, while the MD&A describes net income as $610,734.
- Assess cash conversion and liquidity, separating unrestricted cash from restricted customer funds, and review the demand terms and related-party nature of substantial notes payable.
- Evaluate whether new corporate incentive programs can mature into durable revenue and whether the company can fund planned technology, sales, international and compliance investment.
- Review dilution and governance: 5 million unissued stock-grant shares were authorized under grants to officers and directors; insiders and directors were reported to beneficially own approximately 57% of shares, and the board had no independent directors or audit committee.