The following discussion should be read in conjunction with our financial statements and related notes thereto as filed with the Securities and Exchange Commission.
Overview
From 2004 until 2008 the Company was in the business of developing, deploying and marketing semi-custom and customized branded prepaid and prepaid card solutions. Due to continued losses from operations during 2008, the Company began winding down its principal business operations and commenced a search for a new business venture. The Company has no material assets and significant liabilities. Former board members and management were unsuccessful in securing a new business venture for the Company and on January 22, 2009, transferred control of the Company to Ronald N. Vance, former company counsel, to seek for and, if possible, locate a suitable operating business venture willing to take control of the Company.
On August 12, 2009, the Company changed its status from shell Company to operating Company. Pursuant to business operations established in the second half of 2009, the Company has begun operations. The core focus of the restarted operations is marketing financial products and services. Under initial restarted operations, the Company did not make plans to reinstate its previous program management status, and instead planned to rely on third party processors, program managers and banks to coordinate, issue and manage prepaid card portfolios on behalf of the Company. After reviewing the program managers and partnerships available, the Company has refocused its efforts on marketing financial products and services, but has also elected to pursue a program management path. In addition to program management, the Company will focus on the marketing of network branded third party card programs and alternative personal financial solutions. In efforts to support the restarted operations and to deliver organic revenue, the Company executed an agreement with a new bank and turnkey prepaid card program manager, Central National Bank. By contracting with Central National Bank Freedom, the Company is moving to provide a network branded prepaid card to customers as a primary vehicle for delivering other financial products and services such as bill payment, payment reporting and online personal financial management tools. The Company throughout the first three quarters of 2010 has also begun negotiations to engage businesses in the sales process. The targeted focus of the Company is to partner with businesses which deliver non-bank personal and financial services such as insurance agencies, micro-loan centers, rent to own, local/regional credit unions and check cashing businesses. As of the date of this report, the Company has begun entering into operating agreements and continued negotiations with several businesses to implement the turnkey solution provided by our banking partner. While new agreements are in place, it is too early and thus, indeterminable how restarting operations may positively or adversely affect the business. As a result, the Company, while attempting to create newfound revenue streams, will continue seeking opportunities for outside business ventures and raising funds to aid in restarting, marketing and launching new network branded prepaid card programs and supporting the operations.
Recent Developments
For the third quarter ending September 30, 2010, all primary operational efforts have been prioritized and focused on entering into new operating agreements and marketing products and services in support of continued operations. In continuing with the direction outlined in the first two quarters, the Company continued to focus on developing marketing partnerships to facilitate the distribution of prepaid debit cards, personal financial services and payment reporting services, all of which are designed to assist consumers in managing individual personal finances, including spending, budgeting and financial awareness. The Company had previously executed agreements to operate under a new banking partnership, a new processor relationship and a leading retail load network.
By working closely with Central National Bank, management believes we will be able to offer a predictable low cost model that will provide our customers and strategic distribution partners the flexibility of working with wide reaching portfolio program channels and will align cardholders with a suite of financial tools that include personal budgeting tools, online card balance viewing, bill payment, convenient reloading options online or at retail and a financial management spending analysis tool. Currently, the Company has one program being marketed, a network branded payroll card being distributed via a commissioned sales force. In addition, throughout the first three quarters of 2010 the Company has worked to develop a customized payroll program for a leading private retail group in the western United States. We anticipate launching this program during the fourth quarter of 2010. This customized payroll program represents potential organic revenue opportunities to the Company.
In conjunction with continuing efforts to expand the operations, the Company spent time in the third quarter on recruiting industry experts to come work with the Company. The individuals hired by the Company represent the key management and operators required to lead operating divisions within the Company. The newly created Credit Services Division is focused on payment reporting technologies and the impact of recurring prepaid debit transaction payments on consumers. In order to establish direction for this new division, the Company sought out industry experts and made a key hire by appointing Michael Nathans to the role of President, Credit Services on September 17, 2010. Mr. Nathans is a recognized expert in the fields of alternative credit and reporting and brings unique expertise to assist in building this division.
A number of initiatives undertaken during the third quarter by the Company have taken longer than expected or anticipated. Capital constraints coupled with key management time constraints, increasing regulatory requirements and lengthening approval timeframes all contributed to slower than planned marketing as well as delays in generating organic revenues in the third quarter. The Company expects that organic revenues will be generated in the coming quarters to allow the Company to hire third parties to staff and support the program development and primary growth objectives.
In further support of continued operations, the company made a number of material changes to its operations in the third quarter of 2010:
On August 23, 2010, the Company entered into a lease agreement with the Irvine Company. The agreement allows the Company to lease 3,400 feet of office space in Irvine, California.
On July 19, 2010, the Company became an official affiliate marketer of Lower My Bills. By offering this service, the Company can assist cardholders and consumers and generate recurring revenue through this affiliate relationship.
On July 21, 2010, the Company became a marketing affiliate for myFICO. This service allows cardholders and consumers to actively manage certain credit profiles and will allow the Company to generate recurring revenue opportunities.
On July 1, 2010, the Company canceled our existing call center agreement with Globe Wired. The business case for the outsourced call center was not sustainable and thus the agreement was amicably terminated.
Throughout the first three quarters of 2010, the Company continued to negotiate with new vendors, key vendors and prior service providers. Key management personnel have accrued wages and continue to accrue wages and accept partial payments for services to date. It is anticipated that key management personnel and key vendors and prior service providers shall be reimbursed accordingly once additional working capital is invested. A continued and substantial backlog of liabilities remains on the records of the Company, but management remain confident that those liabilities will be addressed in the coming quarters. Of the major items outstanding, the single largest are the lapsed settlement agreements with former directors Knitowski, Dang and their related parties, Dang, Ecewa, Curo and Sagoso. The Company has been in contact with certain principals as listed above during the third quarter. It is expected that cash payments or alternative arrangements will be made in the fourth quarter or early in 2011 to mitigate any languishing liabilities to those particular parties.
Key Accounting Policies
Key accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. There were no changes to our key accounting policies for the quarter ended September 30, 2010.
Results of Operations
For the three months ended September 30, 2010 and September 30, 2009
Revenue
Revenue from continuing operations was $137 and $50 for the quarters ended September 30, 2010 and 2009, respectively, representing an increase of $87 or effectively 174%. The increase in revenue was attributed to the commencement of pilot programs.
Cost of Sales and Gross Profit
Cost of sales was $385 and $0 for the quarters ended September 30, 2010 and 2009, respectively, representing an increase of $385 or 100%. The increase was attributed to the typical costs associated with the commencement of programs and operations.
The resulting gross profit (loss) was ($248) and $50 for the quarters ended September 30, 2010 and 2009, respectively. Management expects gross profit margin to remain unpredictable and volatile as the new operations begin. Fluctuations can be anticipated due to uncertainties in accessing markets coupled with higher product costs mixed with the volatility of entering markets where products have been commoditized. Management believes that by eliminating previously high fixed processing and banking costs associated with program management, the Company can focus on improving margins by delivering organic revenues through new marketing partnerships and alliances.
Operating Expenses
Operating expenses were $290,489 and $89,230 for the quarters ended September 30, 2010 and 2009, respectively, representing an increase of $201,259 or 226%. The components of our first quarter 2010 operating expense are salaries and wages (45%) professional fees (8%) and general and administrative (47%).
Salaries and wages expense were $129,834 and $0 for the quarters ended September 30, 2010 and 2009, respectively, representing an increase of $129,834. The Company has three employees, each of whom are working largely under accrued wages and non-cash compensation until such a time certain milestones are achieved or the Company has the funds to pay cash compensation or until the Company and employees mutually agree to new compensation terms. During the first quarter, the two key management employees, Messrs Smith and Kenyon agreed to non cash payments for accrued wages of $100,000 each. These non cash payments covered the period of October 1, 2009 through February 28, 2010. The compensation provided was 175,000,000 common shares of Company stock per employee.
General and administrative expenses were $138,599 and $2,257 for the quarters ended September 30, 2010 and 2009, respectively, representing an increase of $136,342 or 60,409%. The increase resulted largely from the fact the Company has retained several vendors whose expense is approximately $90,000 per quarter.
Net loss
We incurred net losses of $372,275 and $91,967 for the quarters ended September 30, 2010 and 2009, respectively, representing an increase in net loss of $280,308 or 305%. As we continue to seek restarted operations, organic growth in conjunction with strategic alternatives and a reverse acquisition or merger opportunity, we expect gross profit margins and the losses to ease when 2011 is compared to 2010.
Results of Operations
For the nine months ended September 30, 2010 and September 30, 2009
Revenue
Revenue from continuing operations was $437 and $137 for the nine months ended September 30, 2010 and 2009, respectively, representing an increase of $300 or effectively 319%. The increase in revenue was attributed to the commencement of pilot programs.
Cost of Sales and Gross Profit
Cost of sales was $701 and $0 for the nine months ended September 30, 2010 and 2009, respectively, representing an increase of $701 or 100%. The increase was attributed to the typical costs associated with the commencement of programs and operations.
The resulting gross profit (loss) was ($264) and $137 for the nine months ended September 30, 2010 and 2009, respectively. Management expects gross profit margin to remain unpredictable and volatile as the new operations begin. Fluctuations can be anticipated due to uncertainties in accessing markets coupled with higher product costs mixed with the volatility of entering markets where products have been commoditized. Management believes that by eliminating previously high fixed processing and banking costs associated with program management, the Company can focus on improving margins by delivering organic revenues through new marketing partnerships and alliances.
Operating Expenses
Operating expenses were $1,302,346 and $186,461 for the nine months ended September 30, 2010 and 2009, respectively, representing an increase of $1,115,885 or 598%. The components of the nine months operating expense are salaries and wages (30%) professional fees (6%) and general and administrative (64%).
Salaries and wages expense were $388,294 and $0 for the nine months ended September 30, 2010 and 2009, respectively, representing an increase of $388,294. The Company has three employees, each of whom have been working largely under accrued wages and non-cash compensation until such a time certain milestones are achieved or the Company has the funds to pay cash compensation or until the Company and employees mutually agree to new compensation terms. During the nine months, the two key management employees, Messrs Smith and Kenyon agreed to non cash payments for accrued wages of $100,000 each. These non cash payments covered the period of October 1, 2009 through February 28, 2010. The compensation provided was 175,000,000 common shares of Company stock per employee.
General and administrative expenses were $841,485 and $5,644 for the nine months ended September 30, 2010 and 2009, respectively, representing an increase of $835,841 or 148,094%. The increase resulted largely from the fact the Company has retained several vendors and paid them in the form of common stock of the Company which is valued at approximately $779,249.
Net loss
We incurred net losses of $1,385,718 and $187,523 for the nine months ended September 30, 2010 and 2009, respectively, representing an increase in net loss of $1,198,195 or 639%. As we continue to seek restarted operations, organic growth in conjunction with strategic alternatives and a reverse acquisition or merger opportunity, we expect gross profit margins and the losses to ease when 2011 is compared to 2010.
Liquidity and Capital Resources
As of September 30, 2010, cash totaled $18,057 as compared with an overdraft of $1,144 at December 31, 2010, resulting in an increase of $18,057 in cash and cash equivalents. The increase in cash and cash equivalents was attributed to funding the operational expenses and cost of goods sold with new convertible debt. In the nine months ended September 30, 2010, we used $602,612 of cash in operations. For the comparable period in the prior year we used $34,022 of cash in operations.
Working capital was ($1,184,163) at September 30, 2010, as compared with working capital of ($979,968) at December 31, 2010. This decrease in working capital was a result of using new funds and stock to fund operations and related expenses.
The Company has collected a mix of equity investments and convertible note instruments to raise working capital for operations. The Company plans to continue to collect equity investments and debt instruments for the remainder of 2010 in order to finance continued operations and to finance potential merger and/or acquisition investments.
Off-Balance Sheet Arrangements
During the quarter ended September 30, 2010, we did not engage in any off-balance sheet arrangements.
Stock-Based Compensation
"On June 30, 2009, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162. On the effective date of this standard, FASB Accounting Standards Codification™ (ASC) became the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission (SEC). FASB ASC significantly changes the way financial statement preparers, auditors, and academics perform accounting research."
"This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. If an accounting change results from the application of this guidance, an entity should disclose the nature and reason for the change in accounting principle in their financial statements. This new standard flattens the GAAP hierarchy to two levels: one that is authoritative (in FASB ASC) and one that is non-authoritative (not in FASB ASC). Exceptions include all rules and interpretive releases of the SEC under the authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants, and certain grandfathered guidance having an effective date before March 15, 1992. This standard creates Topic 105, Generally Accepted Accounting Principles, in FASB ASC."
"FASB Statement No. 168 is the final standard that will be issued by FASB in that form. It was added to FASB ASC through Accounting Standards Update No. 2009-02 on June 30, 2009. There will no longer be, for example, accounting standards in the form of statements, staff positions, Emerging Issues Task Force (EITF) abstracts, or AICPA Accounting Statements of Position. Instead, FASB will issue Accounting Standards Updates. FASB will not consider Accounting Standards Updates as authoritative in their own right. Instead, they will serve only to update FASB ASC, provide background information about the guidance, and provide the basis for conclusions on changes made to FASB ASC."
"FASB ASC is a major restructuring of accounting and reporting standards designed to simplify user access to all authoritative U.S. generally accepted accounting principles (GAAP) by providing the authoritative literature in a topically organized structure. FASB ASC disassembled and reassembled thousands of nongovernmental accounting pronouncements (including those of FASB, the EITF, and the AICPA) to organize them under approximately 90 topics and include all accounting standards issued by a standard setter within levels A-D of the current U.S. GAAP hierarchy. FASB ASC also includes relevant portions of authoritative content issued by the SEC, as well as selected SEC staff interpretations and administrative guidance issued by the SEC; however, FASB ASC is not the official source of SEC guidance and does not contain the entire population of SEC rules, regulations, interpretive releases, and staff guidance. Moreover, FASB ASC does not include governmental accounting standards. FASB ASC is not intended to change U.S. GAAP or any requirements of the SEC."
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
Controls and Procedures
Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s “disclosure controls and procedures”, as such term is defined in Rules 13a — 15(e) and 15d — 15(e) of the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by the report.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2010, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Report was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
With the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fiscal quarter ended September 30, 2010, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on such evaluation, management concluded that, as of the end of the period covered by this report, there have not been several changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Specific changes include (but are not limited to):
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Addition of independent Board Member for oversight and independence;
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Planned addition of personnel when Company expands;
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Re-implementation of Company audit committee.
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OTHER INFORMATION
The Company continues to receive demands for payments from creditors. The Company has insufficient funds to defend these actions or to pay the creditors. However, management has been proactive to reach out to most vendors and creditors in an attempt to negotiate or resolve outstanding debt. In addition, the Company is proactively working with interested third parties to convert debt on behalf of the Company. Converted debt notifications will be filed on Form 8-K with the Securities and Exchange Commission. Separately, Management anticipates that if the Company is unable to settle these claims, the Company may be dissolved.
In addition to the other information set forth in this report, you should carefully consider the factors discussed under the caption “Risk Factors” in Part I, "Item 1. Description of Business" in our Annual Report on Form 10-K for the year ended December 31, 2009 which could materially affect our business prospects, financial condition or future results. There have been no other material changes during the three months ended September 30, 2010 to the risk factors discussed in the periodic report noted above.
None
None
Subsequent Events
The following material events occurred subsequent to the quarter ended September 30, 2010:
On October 25, 2010, the Company entered into an employment agreement with Kevin Goldstein. Mr. Goldstein has been appointed to serve in the role as Chief Technology Officer (“CTO”).
On October 20, 2010, the Company entered into an employment agreement with Reiner Vanooteghem. Mr. Vanooteghem has been appointed to serve in the role as Vice President of Sales.
On October 8, 2010, the Company entered into a services agreement with GSI Hosting. GSI Hosting provides infrastructure and back office technology and support in a secure environment for all of our credit and payment reporting platforms.
On October 5, 2010, the Company entered into a credit services agreement with Because We Are One/Harmony Card. The agreement allows the Company to report payments and recurring transactions for Harmony cardholders who enroll into the payment reporting services.
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Exhibit No.
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Description
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Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the Principal Executive Officer.
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Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial Officer.
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Executive Officer.
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Financial Officer.
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SIGNATURE PAGE FOLLOWS
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Trycera Financial, Inc. |
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Date: November 15, 2010
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By:
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/s/ Ray Smith |
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Ray Smith, President |
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(Principal Executive Officer) |
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| Date: November 15, 2010 |
By: |
/s/ Bryan Kenyon |
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Bryan Kenyon, Chief Financial Officer |
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(Principal Financial Officer) |
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