Item 1. Financial Statements
3PEA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2017 AND DECEMBER 31, 2016
|
|
June 30,
2017
(Unaudited)
|
|
|
December 31,
2016
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,403,811
|
|
|
$
|
1,631,943
|
|
Cash Restricted
|
|
|
11,643,818
|
|
|
|
10,002,505
|
|
Accounts Receivable
|
|
|
118,530
|
|
|
|
110,269
|
|
Prepaid Expenses and other assets
|
|
|
528,830
|
|
|
|
270,634
|
|
Total current assets
|
|
|
13,694,989
|
|
|
|
12,015,531
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
649,142
|
|
|
|
300,761
|
|
|
|
|
|
|
|
|
|
|
Intangible and other assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
4,551
|
|
|
|
5,551
|
|
Intangible assets, net
|
|
|
1,551,210
|
|
|
|
1,550,044
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,899,892
|
|
|
$
|
13,871,707
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
680,712
|
|
|
$
|
765,596
|
|
Customer card funding
|
|
|
11,643,818
|
|
|
|
10,002,505
|
|
Legal settlement payable – current portion
|
|
|
–
|
|
|
|
254,900
|
|
Notes payable
|
|
|
–
|
|
|
|
124,168
|
|
Total current liabilities
|
|
|
12,324,530
|
|
|
|
11,147,169
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
–
|
|
|
|
27,892
|
|
Total long-term liabilities
|
|
|
–
|
|
|
|
27,892
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,324,530
|
|
|
|
11,175,061
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock; $0.001 par value; 150,000,000 shares authorized, 43,410,765 and 43,185,765 issued and outstanding at June 30, 2017 and December 31, 2016, respectively
|
|
|
43,411
|
|
|
|
43,186
|
|
Additional paid-in capital
|
|
|
6,950,442
|
|
|
|
6,797,759
|
|
Treasury stock at cost, 303,450 shares at June 30, 2017
and December 31, 2016
|
|
|
(150,000
|
)
|
|
|
(150,000
|
)
|
Accumulated deficit
|
|
|
(3,045,776
|
)
|
|
|
(3,799,613
|
)
|
Total 3Pea International, Inc.'s stockholders' equity
|
|
|
3,798,077
|
|
|
|
2,891,332
|
|
Noncontrolling interest
|
|
|
(222,715
|
)
|
|
|
(194,686
|
)
|
Total stockholders' equity
|
|
|
3,575,362
|
|
|
|
2,696,646
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
15,899,892
|
|
|
$
|
13,871,707
|
|
See accompanying notes to consolidated financial
statements.
3PEA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND
2016
(UNAUDITED)
|
|
For the three months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
3,418,169
|
|
|
$
|
2,375,645
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (excluding depreciation and amortization)
|
|
|
1,855,539
|
|
|
|
1,243,929
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,562,630
|
|
|
|
1,131,716
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
234,413
|
|
|
|
133,353
|
|
Selling, general and administrative
|
|
|
928,585
|
|
|
|
682,896
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,162,998
|
|
|
|
816,249
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
399,632
|
|
|
|
315,467
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Other income
|
|
|
5,901
|
|
|
|
2,082
|
|
Interest expense
|
|
|
(31,623
|
)
|
|
|
(22,709
|
)
|
Total (expense)
|
|
|
(25,722
|
)
|
|
|
(20,627
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and noncontrolling interest
|
|
|
373,910
|
|
|
|
294,840
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
3,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interest
|
|
|
370,910
|
|
|
|
294,840
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the noncontrolling interest
|
|
|
13,533
|
|
|
|
40,839
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to 3Pea International, Inc.
|
|
$
|
384,443
|
|
|
$
|
335,679
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Net income per common share - fully diluted
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
43,262,413
|
|
|
|
42,907,743
|
|
Weighted average common shares outstanding - fully diluted
|
|
|
44,189,913
|
|
|
|
43,098,576
|
|
See accompanying notes to consolidated financial
statements.
3PEA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(UNAUDITED)
|
|
For the six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
6,619,064
|
|
|
$
|
4,557,004
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (excluding depreciation and amortization)
|
|
|
3,689,088
|
|
|
|
2,539,605
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,929,976
|
|
|
|
2,017,399
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
449,274
|
|
|
|
256,987
|
|
Selling, general and administrative
|
|
|
1,743,268
|
|
|
|
1,393,794
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,192,542
|
|
|
|
1,650,781
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
737,434
|
|
|
|
366,618
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Other income
|
|
|
25,997
|
|
|
|
5,914
|
|
Interest expense
|
|
|
(31,623
|
)
|
|
|
(38,265
|
)
|
Total other (expense)
|
|
|
(5,626
|
)
|
|
|
(32,351
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and noncontrolling interest
|
|
|
731,808
|
|
|
|
334,267
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
6,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interest
|
|
|
725,808
|
|
|
|
334,267
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the noncontrolling interest
|
|
|
28,029
|
|
|
|
83,351
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to 3Pea International, Inc.
|
|
$
|
753,837
|
|
|
$
|
417,618
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
Net income per common share - fully diluted
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
43,224,301
|
|
|
|
42,792,152
|
|
Weighted average common shares outstanding - fully diluted
|
|
|
44,151,801
|
|
|
|
42,982,985
|
|
See accompanying notes to consolidated financial
statements.
3PEA INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2017
|
|
Stockholders' Equity Attributable to 3Pea International, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Treasury
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Accumulated
|
|
|
controlling
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Amount
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
|
|
Balance, December 31, 2016 (Audited)
|
|
|
43,185,765
|
|
|
$
|
43,186
|
|
|
$
|
6,797,759
|
|
|
$
|
(150,000
|
)
|
|
$
|
(3,799,613
|
)
|
|
$
|
(194,686
|
)
|
|
$
|
2,696,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for services (Unaudited)
|
|
|
25,000
|
|
|
|
25
|
|
|
|
4,269
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,294
|
|
Stock Based Compensation (Unaudited)
|
|
|
–
|
|
|
|
–
|
|
|
|
98,614
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
98,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Conversion (Unaudited)
|
|
|
200,000
|
|
|
|
200
|
|
|
|
49,800
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (Unaudited)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
753,837
|
|
|
|
(28,029
|
)
|
|
|
725,808
|
|
Balance, June 30, 2017 (Unaudited)
|
|
|
43,410,765
|
|
|
$
|
43,411
|
|
|
$
|
6,950,442
|
|
|
$
|
(150,000
|
)
|
|
$
|
(3,045,776
|
)
|
|
$
|
(222,715
|
)
|
|
$
|
3,575,362
|
|
See accompanying notes to consolidated financial
statements.
3PEA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(UNAUDITED)
|
|
For the six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
753,837
|
|
|
$
|
417,618
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Change in noncontrolling interest
|
|
|
(28,029
|
)
|
|
|
(83,351
|
)
|
Depreciation and amortization
|
|
|
449,274
|
|
|
|
256,987
|
|
Stock based compensation
|
|
|
102,908
|
|
|
|
26,815
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Change in accounts receivable
|
|
|
(8,261
|
)
|
|
|
(48,629
|
)
|
Change in prepaid expenses
|
|
|
(258,196
|
)
|
|
|
(65,431
|
)
|
Change in other assets
|
|
|
1,000
|
|
|
|
–
|
|
Change in accounts payable and accrued liabilities
|
|
|
(84,884
|
)
|
|
|
177,409
|
|
Change in customer card funding
|
|
|
1,641,313
|
|
|
|
3,292,225
|
|
Change in legal settlement payable
|
|
|
(254,900
|
)
|
|
|
(496,231
|
)
|
Net cash provided by operating activities
|
|
|
2,314,062
|
|
|
|
3,477,412
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(398,891
|
)
|
|
|
(41,997
|
)
|
Purchase of intangible assets
|
|
|
(399,930
|
)
|
|
|
(361,383
|
)
|
Net cash used in investing activities
|
|
|
(798,821
|
)
|
|
|
(403,380
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowing on note payable
|
|
|
–
|
|
|
|
31,603
|
|
Proceeds from exercise of warrants
|
|
|
50,000
|
|
|
|
–
|
|
Payments on notes payable
|
|
|
(152,060
|
)
|
|
|
(91,491
|
)
|
Net cash used in financing activities
|
|
|
(102,060
|
)
|
|
|
(59,888
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and restricted cash
|
|
|
1,413,181
|
|
|
|
3,014,144
|
|
Cash and restricted cash, beginning of period
|
|
|
11,634,448
|
|
|
|
8,453,439
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash, end of period
|
|
$
|
13,047,629
|
|
|
$
|
11,467,583
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Transfer of accrued interest from accrued liabilities to notes payable
|
|
$
|
–
|
|
|
$
|
115,227
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
46,663
|
|
|
$
|
38,265
|
|
Income taxes paid
|
|
$
|
13,200
|
|
|
$
|
–
|
|
See accompanying notes to consolidated financial
statements.
3PEA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT POLICIES
The foregoing unaudited consolidated interim
financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”).
Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles
in the United States of America for complete financial statements. These unaudited interim financial statements should be read
in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended December 31,
2016. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of
which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
The preparation of financial statements in
accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of
the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period.
Uncertainties with respect to such estimates and assumption are inherent in the preparation of the Company’s financial statements;
accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material
effect on the reported amounts of the Company’s financial position and results of operations.
Operating results for the three and six months
ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
About 3PEA International, Inc.
3PEA International, Inc. is a vertically integrated
provider of innovative prepaid card programs and processing services for corporate, consumer and government applications. Our payment
solutions are utilized by our customers as a means to increase customer loyalty, reduce administration costs and streamline operations.
Public sector organizations can utilize our solutions to disburse public benefits or for internal payments. We market our prepaid
debit card solutions under our PaySign
®
brand. As we are a payment processor and debit card program manager, we
derive our revenue from all stages of the debit card lifecycle. We provide a card processing platform consisting of proprietary
systems and innovative software applications based on the unique needs of our programs. We have extended our processing business
capabilities through our proprietary PaySign platform. We provide a variety of services including transaction processing, cardholder
enrollment, value loading, cardholder account management, reporting, and customer service.
We have developed prepaid card programs for
healthcare reimbursement payments, pharmaceutical co-pay assistance, donor compensation and corporate incentive and rewards. We
plan to expand our product offering to include payroll cards, general purpose re-loadable cards, travel cards, and expense reimbursement
and per diem cards. Our cards are offered to end users through our relationships with bank issuers.
Our proprietary PaySign
®
platform
was built on modern cross-platform architecture and designed to be highly flexible, scalable and customizable. The platform allows
3PEA to significantly expand its operational capabilities by facilitating our entry into new markets within the payments space
through its flexibility and ease of customization. The PaySign platform delivers cost benefits and revenue building opportunities
to our 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. We
deploy a fully staffed, in-house customer service department which utilizes bi-lingual customer service agents, Interactive Voice
Response, (IVR), SMS alerts and two way SMS messaging.
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.
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.
Restricted cash
– restricted cash
is a cash account controlled by the Company which funds are received related to the card programs from our customers. The Company
has recorded a corresponding customer card funding liability.
Goodwill and intangible assets
- Goodwill
is the purchase premium after adjusting for the fair value of net assets acquired. Goodwill is not amortized but is reviewed for
potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit
level. A reporting unit, as defined under applicable accounting guidance, is a business segment or one level below a business segment.
We may in any given period bypass the qualitative assessment and proceed directly to a two-step method to assess and measure impairment
of the reporting unit’s goodwill. We first assess qualitative factors to determine whether it is more likely-than-not (i.e.,
a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value. This step serves
as the basis for determining whether it is necessary to perform the two-step quantitative impairment test. The first step of the
quantitative impairment test involves a comparison of the estimated fair value of each reporting unit to its carrying amount, including
goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not
impaired; however, if the carrying amount of the reporting unit exceeds its estimated fair value, then the second step of the quantitative
impairment test must be performed. The second step compares the implied fair value of the reporting unit’s goodwill with
its carrying amount to measure the amount of impairment loss, if any. The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit’s goodwill
exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
For intangible assets, we recognize an impairment
loss if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of the intangible
asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the
asset.
Intangible assets with finite lives are amortized
on a straight-line basis over their estimated useful lives.
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. Any fees paid up front are deferred until such time such services have been considered
rendered. As of June 30, 2017 and December 31, 2016, there were no deferred revenues recorded.
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. Such revenues are recognized when such services are performed.
|
|
·
|
Transaction fees, paid by the applicable networks and passed through by our card issuing banks when our SVCs (Stored Value Cards) are used in a purchase or ATM transaction. Such revenues are recognized when such services are performed.
|
|
·
|
Maintenance, administration, transaction fees, charged to an SVC and not under any multiple element arrangements. Such revenues are recognized when such services are performed.
|
|
·
|
Program maintenance management fees charged to our clients. Such revenues are not under any multiple element arrangements and are recognized when such services are performed.
|
|
·
|
Software development and consulting services to our clients. Such revenues are recognized in accordance with ASC 985-605.
|
The Company records all revenues on gross basis
in accordance with ASC 605-45 since it is the primary obligor and establishes the price in the revenue arrangement. The Company
is currently under no obligation for refunding any fees or has any obligations for disputed claim settlements.
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.
Reclassification of prior year presentation
- Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications
had no effect on the reported results of operations. In first quarter of March 31, 2017, the Company concluded that it was appropriate
to reclassify its customer service center costs from general and administration expense to cost of sales. In the second quarter,
the company concluded that it was appropriate to reclassify stock payable from liabilities to additional paid in capital. These
changes in classification does not affect previously reported cash flows from operations in the Consolidated Statement of Cash
Flows, and had no effect on the previously reported net income of the Consolidated Statement of Income for any period.
Recent Accounting Pronouncements
–
In November 2016, the FASB issued Accounting Standards Update 2016-18, “Statement of Cash Flows – Restricted Cash a
consensus of the FASB Emerging Issues Task Force.” This standard requires restricted cash and cash equivalents to be included
with cash and cash equivalents on the statement of cash flows under a retrospective transition approach. The guidance became effective
for fiscal years beginning December 15, 2017 and interim periods within those fiscal years. The Company has retrospectively adopted
ASU 2016-18.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
("ASU 2014-09"), which supersedes nearly all existing revenue
recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods
or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates
may be required within the revenue recognition process than are required under existing GAAP. ASU 2014-09, as amended by ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,
is effective for annual periods
beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for annual
reporting periods beginning after December 15, 2016. The FASB has also issued a number of additional technical corrections since
the initial ASU, all of which follow the effective dates of the new revenue recognition guidance under Topic 606. The amendment
allows companies to use either a full retrospective or a modified retrospective approach to adopt this ASU. We have formed
a project team and are currently assessing the impact of the adoption of this principle on our consolidated financial statements.
We anticipate adopting this ASU on January 1, 2018 using the modified retrospective approach, however, may opt for the
full retrospective method depending on the final outcome of our evaluation.
2.
FIXED ASSETS
Fixed assets consist of the following:
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Equipment
|
|
$
|
1,117,031
|
|
|
$
|
746,117
|
|
Software
|
|
|
119,580
|
|
|
|
117,163
|
|
Furniture and fixtures
|
|
|
115,359
|
|
|
|
107,141
|
|
Website Costs
|
|
|
10,342
|
|
|
|
–
|
|
Leasehold improvements
|
|
|
43,499
|
|
|
|
36,499
|
|
|
|
|
1,405,811
|
|
|
|
1,006,920
|
|
Less: accumulated depreciation
|
|
|
(756,669
|
)
|
|
|
(706,159
|
)
|
Fixed assets, net
|
|
$
|
649,142
|
|
|
$
|
300,761
|
|
3.
INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Patents and trademarks
|
|
$
|
34,940
|
|
|
$
|
34,771
|
|
Platform and licenses
|
|
|
2,401,317
|
|
|
|
2,008,307
|
|
Kiosk development
|
|
|
64,802
|
|
|
|
64,802
|
|
Licenses
|
|
|
389,165
|
|
|
|
382,414
|
|
|
|
|
2,890,224
|
|
|
|
2,490,294
|
|
Less: accumulated amortization
|
|
|
(1,339,014
|
)
|
|
|
(940,250
|
)
|
Intangible assets, net
|
|
$
|
1,551,210
|
|
|
$
|
1,550,044
|
|
Intangible assets are amortized over their
useful lives ranging from periods of 5 to 15 years.
4.
NOTES PAYABLE
Notes payable consist of the following:
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Note payable due to a shareholder of the Company, bearing fixed interest at 8%, due on demand and unsecured.
|
|
$
|
–
|
|
|
$
|
102,613
|
|
Notes payable due to various equipment finance companies bearing interest from 12.89% to 15.14% at December 31, 2016.
|
|
|
–
|
|
|
|
49,447
|
|
|
|
|
–
|
|
|
|
152,060
|
|
Less: non-current portion
|
|
|
–
|
|
|
|
(124,168
|
)
|
Notes payable – long term portion
|
|
$
|
–
|
|
|
$
|
27,892
|
|
5.
COMMON STOCK
At June 30, 2017, 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 43,410,765 shares of common stock, and no shares of preferred
stock.
2017 Transactions
: During the six months
ended June 30, 2017, the Company issued shares of common stock as follows:
|
·
|
25,000 shares of common stock for current services
rendered totaling $4,294 or $0.17 per share (average cost).
|
|
|
|
|
|
200,000 shares of common stock
were issued related to exercise of a warrant with an exercise price of $0.25 for a total of $50,000 in cash proceeds.
|
2016 Transactions
: During the six months
ended June 30, 2016, the Company issued shares of common stock as follows:
|
·
|
437,500 shares of common stock for current services rendered and prior services which had previously been recorded as accrued liability totaling $98,810 or $0.23 per share (average cost).
|
Stock and Warrant Grants:
In November 2016, the Company granted a
total of 5,000,000 shares to certain officers and directors of the Company with a total value of $787,950 or $0.15759 per
share (including a 15% discount of fair market value due to these shares being restricted and lacking market liquidity). The
5,000,000 shares have a quarterly vesting period of five years with the first vesting period occurring on December 31, 2016.
The approximate value vested for the three and six months ended June 30, 2017 was $39,397 and $78,794 respectively. As of
June 30, 2017, none of the shares have been issued.
In November 2016, the Company granted 210,000
shares to a consultant. The shares were valued at $33,094 or $0.15759 per share (including a 15% discount of fair market value
due to these shares being restricted and lacking market liquidity). The 210,000 shares have a quarterly vesting period of three
years with the first vesting period occurring on December 31, 2016. The approximate value vested for the three and six months ended
June 30, 2017 was $2,758 and $5,516, respectively. The approximate value vested for 2016 is $2,758. As of June 30, 2017, none of
the shares have been issued.
In March 2015, the Company granted 200,000
shares of common stock along with 200,000 warrants to a consultant. The shares were valued at $30,600 or $0.16 per share (including
a 15% discount of fair market value due to these shares being restricted and lacking market liquidity). The warrants were valued
at $34,611, using the Black-Scholes options pricing model under the following assumptions: stock price at issuance of $0.18 per
share; exercise price of $0.50, 3 year life; discount rate of 2.00%; and volatility rate of 245%. The 200,000 shares and 200,000
warrants granted have a vesting period of six months, and were fully vested as of March 31, 2016. As of March 31, 2017, the 200,000
shares have been issued and the warrants for 200,000 shares were granted.
In August 2014, the Company granted 150,000
shares of common stock to a consultant with a total value of $25,500 or $0.17 per share (including a 15% discount of fair market
value due to these shares being restricted and lacking market liquidity). The 150,000 shares granted have a vesting period of three
years of which thirty two months had vested as of June 30, 2017. The approximate value vested for the three and six months ended
June 30, 2017 and 2016 was $2,100, and $4,200, respectively. This was the same amount vested in the same periods in the prior year.
As of June 30, 2017, 100,000 shares granted have been issued.
In September 2014, the Company granted
150,000 shares of common stock along with 150,000 Class A warrants and 150,000 Class B warrants to an advisory board member.
The shares were valued at $19,250 or $0.13 per share (including a 15% discount of fair market value due to these shares being
restricted and lacking market liquidity. The warrants were valued at $42,761, using the Black-Scholes options pricing model
under the following assumptions: stock price at issuance of $0.15 per share; exercise price of $0.25 for the Class A warrants
and $0.50 for the Class B warrants; 3 year life; discount rate of 2.00%; and volatility rate of 245%. The 150,000 shares and
300,000 warrants granted vest over a 3 year period, at 50,000 shares and 100,000 warrants per year of which thirty-four
months had vested as of June 30, 2017. The approximate value vested for the three months ended June 30, 2017 and 2016 was
$4,000 and $5,100 respectively and for the six months ended June 30, 2017 and 2016 was $9,100 and $10,200, respectively. As
of June 30, 2017, 125,000 of the 150,000 shares and none of the 300,000 warrants granted have been issued.
In September 2014, the Company granted 200,000
shares of common stock along with 200,000 warrants to a consultant. The shares were valued at $30,600 or $0.16 per share (including
a 15% discount of fair market value due to these shares being restricted and lacking market liquidity). The warrants were valued
at $34,611, using the Black-Scholes options pricing model under the following assumptions: stock price at issuance of $0.18 per
share; exercise price of $0.25; 3 year life; discount rate of 2.00%; and volatility rate of 245%. The 200,000 shares and 200,000
warrants granted had a vesting period of six months and were fully vested as March 31, 2015. During the three months ended March
31, 2016 the company had issued the 200,000 shares and warrant for 200,000 shares of common stock. As of June 30, 2017, warrants
relating to 200,000 shares have been exercised for total proceeds of $50,000.
In October 2014, the Company granted 150,000
shares of common stock to an advisory board member with a total value of $32,400 or $0.21 per share (including a 10% discount of
fair market value due to these shares being restricted and lacking market liquidity). The 150,000 shares granted will vest over
a 3 year period, at 50,000 shares per year of which thirty-three months had vested as of June 30, 2017. The approximate value vested
for the three months and six months ended June 30, 2017 and 2016 was $2,700 and $5,400, respectively. As of June 30, 2017, 125,000
of the shares previously vested have been issued.
In November 2014, the Company issued a warrant
for 100,000 shares of common stock as part of an issuance of note payable totaling $100,000. The warrant has an exercise price
of $0.50 and life of three years.
In October 2013, the Company granted 300,000
shares of common stock to an employee of the Company with a total value of $38,250 or $0.15 per share (including a 15% discount
of fair market value due to these shares being restricted and lacking market liquidity). The 300,000 shares granted have a vesting
period of three years and was fully vested as of October 2016. The approximate value vested for the three and six months ended
June 30, 2017 and 2016 was $0.00 and $3,200, respectively. As of March 31, 2017, all 300,000 shares granted have been issued.
6.
LEGAL SETTLEMENT
PAYABLE
On August 11, 2015, PSKW, LLC
(“PSKW”) served the Company, with a complaint styled
PSKW, LLC v. 3Pea International, Inc.
, filed in the
United States District Court for the Northern District of California, Case No. 5:15-cv-03576-RMW, San Jose Division (the
“Action”). In the Action, PSKW asserted claims against the Company for $5,800,000 for marketing fees allegedly
due by the Company. The Company contended, among other things, that PSKW breached its agreement with the Company, for which
the Company was damaged in an amount in excess of the amount which PSKW claimed was owed by the Company to PSKW. The parties
each denied liability, and entered into a Settlement Agreement and Release on October 2, 2015 whereby the Company agreed to
pay $2,500,000 to PSKW in full settlement of the Action. The settlement amount was payable by an initial payment of
$1,000,000 which was paid in October 2015, with the balance of $1,500,000 being payable in equal monthly installments over 18
months with interest at 3% per annum commencing on November 1, 2015. The Court dismissed the Action with prejudice, but
retained jurisdiction to enforce the Settlement Agreement. 3Pea Technologies, Inc., a wholly-owned subsidiary of the Company,
guaranteed the amount due under the Settlement Agreement. The Company expensed the entire $2,500,000 settlement during the
year ended December 31, 2015 since the principal terms of the Settlement Agreement had been agreed to as of that date. As of
March 31, 2017, the settlement was paid in full.
7.
SUBSEQUENT EVENTS
There were no reportable subsequent events
after June 30, 2017 through the date of this filing.
Item 2. Management’s
discussion and analysis of financial condition and results of operations.
Disclosure Regarding Forward Looking
Statements
This Quarterly Report on Form 10-Q includes
forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (“Forward Looking Statements”). All statements other than statements of
historical fact included in this report are Forward Looking Statements. In the normal course of our business, we, in an effort
to help keep our shareholders and the public informed about our operations, may from time-to-time issue certain statements, either
in writing or orally, that contains or may contain Forward-Looking Statements. Although we believe that the expectations reflected
in such Forward Looking Statements are reasonable, we can give no assurance that such expectations will prove to have been correct.
Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of
such plans or strategies, past and possible future, of acquisitions and projected or anticipated benefits from acquisitions made
by or to be made by us, or projections involving anticipated revenues, earnings, levels of capital expenditures or other aspects
of operating results. All phases of our operations are subject to a number of uncertainties, risks and other influences, many of
which are outside of our control and any one of which, or a combination of which, could materially affect the results of our proposed
operations and whether Forward Looking Statements made by us ultimately prove to be accurate. Such important factors (“Important
Factors”) and other factors could cause actual results to differ materially from our expectations are disclosed in this report,
including those factors discussed in “Item 1A. Risk Factors.” All prior and subsequent written and oral Forward
Looking Statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Important
Factors described below that could cause actual results to differ materially from our expectations as set forth in any Forward
Looking Statement made by or on behalf of us.
Overview
3PEA International, Inc. is a vertically integrated
provider of innovative prepaid card programs and processing services for corporate, consumer and government applications. Our payment
solutions are utilized by our corporate customers as a means to increase customer loyalty, reduce administration costs and streamline
operations. Public sector organizations can utilize the solutions to disburse public benefits or for internal payments. We market
our prepaid debit card solutions under our PaySign brand. As we are a payment processor and debit card program manager, we derive
our revenue from all stages of the debit card lifecycle. We provide a card processing platform consisting of proprietary systems
and innovative software applications based on the unique needs of our programs. We have extended our processing business capabilities
through our proprietary PaySign platform. Through the PaySign platform, we provide a variety of services including transaction
processing, cardholder enrollment, value loading, cardholder account management, reporting, and customer service.
The PaySign platform was built on modern cross-platform
architecture and designed to be highly flexible, scalable and customizable. The platform has allowed 3PEA to significantly expand
its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility and ease
of customization. The PaySign platform delivers cost benefits and revenue building opportunities to our partners.
We have developed prepaid card programs for
corporate and incentive rewards including, but not limited to healthcare reimbursement payments, pharmaceutical co-pay assistance,
donor compensation and automobile dealership incentives. We are expanding our product offering to include additional corporate
incentive products, payroll cards, general purpose re-loadable cards, travel cards, and expense reimbursement cards. Our cards
are offered to end users through our relationships with bank issuers.
We are a vertically integrated payment processor
and debit card program manager offering innovative payment solutions to corporations, government agencies, universities and other
organizations. Our payment solutions are utilized by our customers as a means to increase customer loyalty, reduce administration
costs and streamline operations. We market our prepaid debit card solutions under our PaySign brand. As we are a payment processor
and debit card program manager, we derive our revenue from all stages of the debit card lifecycle. These revenues can include fees
from program set-up; customization and development; data processing and report generation; card production and fulfillment; transaction
fees derived from card usage; inactivity fees; card replacement fees and program administration fees. We provide an in-house customer
service center which includes live bi-lingual phone operators staffed 24/7, for incoming calls. We also provide in house Interactive
Voice Response (IVR), SMS alerts and two way SMS messaging platforms.
We are a vertically integrated payment processor
and debit card program manager offering innovative payment solutions to corporations, government agencies, universities and other
organizations. Our payment solutions are utilized by our customers as a means to increase customer loyalty, reduce administration
costs and streamline operations. We market our prepaid debit card solutions under our PaySign brand. As we are a payment processor
and debit card program manager, we derive our revenue from all stages of the debit card lifecycle. These revenues can include fees
from program set-up; customization and development; data processing and report generation; card production and fulfillment; transaction
fees derived from card usage; inactivity fees; card replacement fees and program administration fees. We provide an in-house customer
service center which includes live bi-lingual phone operators staffed 24/7, for incoming calls. We also provide in house Interactive
Voice Response and two way SMS messaging platforms.
The Company divides prepaid cards into two
general categories: corporate and consumer reloadable, and non-reloadable cards.
Reloadable Cards: These types of cards are
generally incentive, payroll or considered general purpose reloadable (“GPR”) cards. Payroll cards are issued to an
employee by an employer to receive the direct deposit of their payroll. GPR cards can also be issued to a consumer at a retail
location or mailed to a consumer after completing an on-line application. GPR cards can be reloaded multiple times with a consumer’s
payroll, government benefit, a federal or state tax refund or through cash reload networks located at retail locations. Reloadable
cards are generally open loop cards as described below.
Non-Reloadable Cards: These are generally one-time
use cards that are only active until the funds initially loaded to the card are spent. These types of cards are gift or incentive
cards. These cards may be open loop or closed loop. Normally these types of cards are used for purchase of goods or services at
retail locations and cannot be used to receive cash.
These prepaid cards may be open loop, closed
loop or semi-closed loop. Open loop cards can be used to receive cash at ATM locations or purchase goods or services by PIN or
signature at retail locations. These cards can be used virtually anywhere that the network brand (Visa, MasterCard, Discover, etc.)
is accepted. Closed loop cards can only be used at a specific merchant. Semi-closed loop cards can be used at several merchants
such as a shopping mall.
The prepaid card market is one of the fastest
growing segments of the payments industry in the U.S. This market has experienced significant growth in recent years due to consumers
and merchants embracing improved technology, greater convenience, more product choices and greater flexibility. Prepaid cards have
also proven to be an attractive alternative to traditional bank accounts for certain segments of the population, particularly those
without, or who could not qualify for, a checking or savings account.
We have developed prepaid card programs for
healthcare reimbursement payments, corporate and incentive rewards and expense reimbursement cards. We plan to expand our product
offering to include payroll cards, general purpose re-loadable cards and travel cards. Our cards are offered to end users through
our relationships with bank issuers.
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. 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 banking partners and card associations,
to production, packaging, distribution, and personalization. We also oversee inventory and security controls, renewals, lost and
stolen card management and replacement.
As part of our platform expansion development
process, we evaluate current and emerging technologies for applicability to our existing and future software platform. To this
end, we engage with various hardware and software vendors in evaluation of various infrastructure components. Where appropriate,
we use third-party technology components in the development of our software applications and service offerings. Third-party software
may be used for highly specialized business functions, which we may not be able to develop internally within time and budget constraints.
Our principal target markets for processing services include prepaid card issuers, retail and private-label issuers, small third-party
processors, and small and mid-size financial institutions in the United States and in emerging international markets.
The Company is devoting more extensive resources
to sales and marketing activities as we have added essential personnel to our marketing and sales department. We sell our products
directly to customers in the U.S. but may work with a small number of resellers and third parties in international markets to identify,
sell and support targeted opportunities.
In order to expand into new markets, we will
need to invest additional funds in technology improvements, sales and marketing expenses, and regulatory compliance costs. We are
considering raising capital to enable us to diversify into new market verticals. If we do not raise new capital, we believe that
we will still be able to expand into new markets using internally generated funds, but our expansion will not be as rapid.
Results of Operations
Three Months ended June 30, 2017 and 2016
Revenues for the three months ended June 30,
2017 were $3,418,169, an increase of $1,042,524 compared to the same period in the prior year, when revenues were $2,375,645. The
increase in revenue is primarily due to an increase in the number of new corporate incentive prepaid card products and growth within
our existing corporate incentive prepaid card products. As of June 30, 2017, we managed 139 card programs with over 1,250,000 participating
cardholders.
The Company expects revenues to continue to
trend upwards for the foreseeable future as we expect to onboard over 60 additional corporate incentive card programs in the second
half of 2017.
Cost of revenues for the three months ended
June 30, 2017 were $1,855,539, an increase of $611,610 compared to the same period in the prior year, when cost of revenues were
$1,243,929. Cost of revenues constituted approximately 54% and 52% of total revenues in the same quarter 2017 and 2016, respectively.
Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses, network fees, card production
costs, customer service and program management expenses, application integration setup and sales expense.
Gross profit for the three months ended June
30, 2017 was $1,562,630, an increase of $430,914 compared to the same period in the prior year, when gross profit was $1,131,716.
Our overall gross profit percentage approximated 46% and 48% during the second quarters of 2017 and 2016 which is consistent with
our overall expectations.
Selling, general and administrative expenses
for the three months ended June 30, 2017 were $928,585, an increase of $245,689 compared to the same period in the prior year,
when selling, general and administrative expenses were $682,896. The increase in selling, general and administrative expenses was
due to increases in staff in anticipation of an accelerated rate of new card product launches expected in the second half of 2017.
Depreciation and amortization for the three
months ended June 30, 2017 were $234,413, an increase of $101,060 compared to the same period prior year of $133,353. Overall increase
in depreciation and amortization was primarily a result of an increase in depreciation related to an increase in capital expenditures
and amortization expense related to additional capitalized platform costs.
In the three months ended June 30, 2017, we
recorded operating income of $399,632, as compared to $315,467 in the same period in the prior year, representing an increase in
operating income of $84,165.
Other income (expense) for the three months ended June 30, 2016
was $(25,722), an increase in net other income (expense) of $5,095 compared to the same period in the prior year when other income
(expense) was $(20,627) which is within our overall expectations.
Net income before noncontrolling interest for the three months ended
June 30, 2017 was $370,910, an increase of $76,070 compared to the same period in the prior year of 294,840. The increase in our
net income before noncontrolling interest is attributable to the aforementioned factors.
Net loss attributable to the noncontrolling
interest for the three months ended June 30, 2017 was $13,533, a decrease of $27,306 compared to the same period in the prior year
of $40,839. The decrease in net loss attributable to noncontrolling interest is primarily due to a decrease in expenses related
to our European operations.
Net income attributable to 3Pea International,
Inc. for the three months ended June 30, 2017 was $384,443, an increase of $48,764 compared to the same period in the prior year,
when we recorded net income of $335,679. The increase in our net income is attributable to the aforementioned factors.
Six Months ended June 30, 2017 and 2016
Revenues for the six months ended June 30,
2017 were $6,619,064, an increase of $2,062,060 compared to the same period in the prior year, when revenues were $4,557,004. The
increase in revenue is primarily due to an increase in the number of new corporate incentive prepaid card products and growth within
our existing corporate incentive prepaid card products.
Cost of revenues for the six months ended June
30, 2017 were $3,689,088, an increase of $1,149,483 compared to the same period in the prior year, when cost of revenues were $2,539,605.
Cost of revenues constituted approximately 56% and 56% of total revenues in 2017 and 2016, respectively. Cost of revenues is comprised
of transaction processing fees, data connectivity and data center expenses, network fees, card production costs, customer service
and program management expenses, application integration setup and sales expense.
Gross profit for the six months ended June
30, 2017 was $2,929,976, an increase of $912,577 compared to the same period in the prior year, when gross profit was $2,017,399.
Our overall gross profit percentage approximated 44% and 44% during the first six months of 2017 and 2016 which is consistent with
our overall expectations.
Selling, general and administrative expenses
for the six months ended June 30, 2017 were $1,743,268, an increase of $349,474 compared to the same period in the prior year,
when selling, general and administrative expenses were $1,393,794. The increase in selling, general and administrative expenses
was due to increases in staff in anticipation of an accelerated rate of new card product launches expected in the second half of
2017.
Depreciation and amortization for the six months
ended June 30, 2017 were $449,274, an increase of $192,287 compared to the same period prior year of $256,987. Overall increase
in depreciation and amortization was primarily a result of an increase in amortization expense related to additional capitalized
platform costs.
In the six months ended June 30, 2017, we recorded
operating income of $737,434, as compared to $366,618 in the same period in the prior year, an increase in operating income of
$370,816.
Other income (expense) for the six months ended
June 30, 2017 was $(5,626), a decrease in net other income (expense) of $26,725 compared to the same period in the prior year when
other income (expense) was $(32,351) which is within our overall expectations.
Net income before noncontrolling interest for
the six months ended June 30, 2017 was $725,808, an increase of $391,541 compared to the same period in the prior year of $334,267.
The increase in our net income before noncontrolling interest is attributable to the aforementioned factors.
Net loss attributable to the noncontrolling
interest for the six months ended June 30, 2017 was $28,029, a decrease of $52,322 compared to the same period in the prior year
of $83,351 The decrease in net loss attributable to noncontrolling interest is primarily due to a decrease in expenses related
to our European subsidiary.
Net income attributable to 3Pea International,
Inc. for the six months ended June 30, 2017 was $753,837, an increase of $336,219 compared to the same period in the prior year,
when we recorded net income of $417,618. The increase in our net income is attributable to the aforementioned factors.
Liquidity and Sources of Capital
The following table sets forth the major sources
and uses of cash for the six months ended June 30, 2017 and 2016:
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash provided by (used) in operating activities
|
|
$
|
2,314,062
|
|
|
$
|
3,477,412
|
|
Net cash provided by (used) in investing activities
|
|
|
(798,821
|
)
|
|
|
(403,380
|
)
|
Net cash provided by (used) in financing activities
|
|
|
(102,060
|
)
|
|
|
(59,888
|
)
|
Net (decrease) increase in unrestricted cash and cash equivalents
|
|
$
|
1,413,181
|
|
|
$
|
3,014,144
|
|
Comparison of six months ended June 30, 2017 and 2016
During the six months ended June 30, 2017 and
2016, we financed our operations primarily through revenues generated from operations.
Operating activities provided $2,314,062 of
cash in the six months ended June 30, 2017, as compared to $3,477,412 of cash in the same period in the prior year. Major non-cash
items that affected our cash flow from operations in the six months ended June 30, 2017 were non-cash charges of $449,274 for depreciation
and amortization and stock based compensation of $102,908. Our operating assets and liabilities provided 1,036,072 of cash, most
of which resulted from an increase in customer card funding of $1,641,313 a decrease in prepaid expenses of $(258,196) and a decrease
in our legal settlement payable of $(254,900).
Investing activities used $(798,821) of cash
in the six months ended June 30, 2017, as compared to $(403,380) of cash used in the same period in 20165, primarily relating to
capital expenditures and the continuous enhancement of the processing platform used in our business.
Financing activities used $(102,060) of
cash in the six months ended June 30, 2017 as compared to $(59,888) of cash used in the six months ended June 30, 2016. In
2017, cash used in financing activities consisted of payments on notes payables totaling $152,060 offset by $50,000 received
from the exercise of a warrant.
Sources of Financing
We believe that our available cash on hand
at June 30, 2017 of $1,403,811 and revenues anticipated for the remainder of 2017 will be sufficient to sustain our operations
for the next twelve months.
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 1 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.
Any estimates we make 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.