UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| | [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
| | [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to __________
Commission File Number: 000-30872
Trycera Financial, Inc.
(Exact name of Registrant as specified in its charter)
| Nevada | | 33-0910363 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
| | | |
| 1656 Reunion Avenue, Suite 250, South Jordan, Utah | | 84095 |
| (Addres of principal executive offices) | | (Zip Code) |
Issuer’s telephone number, including area code: (801) 446-8802
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. [ ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-accelerated Filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $324,005, computed by reference to the average bid and asked price of the Common Stock as of the last business day of the registrant’s most recently completed second fiscal quarter.
At April 6, 2009, there were 9,679,302 shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
| | Table of Contents | Page |
| PARTI | | 4 |
| ITEM 1 | BUSINESS | 4 |
| ITEM 1A | RISK FACTORS | 9 |
| ITEM 1B | UNRESOLVED STAFF COMMENTS | 9 |
| ITEM 2 | PROPERTIES | 9 |
| ITEM 3 | LEGAL PROCEEDSINGS | 10 |
| ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 10 |
| | | |
| PART II | | 10 |
| ITEM 5 | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 10 |
| ITEM 6 | SELECTED FINANCIAL DATA | 12 |
| ITEM 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 12 |
| ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 14 |
| ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 14 |
| ITEM 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL | 14 |
| ITEM 9A | CONTROLS AND PROCEDURES | 14 |
| ITEM 9A(T) | CONTROLS AND PROVEDURES | 15 |
| | | |
| PART III | | 16 |
| ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 16 |
| ITEM 11 | EXECUTIVE COMPENSATION | 17 |
| ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHODLERS' MATTERS | 19 |
| ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 21 |
| ITEM 14 | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 22 |
| | | |
| PART IV | | 23 |
| ITEM 15 | EXHIBITS, FINANCIAL STATEMENTS SCHEDULES | 23 |
| | | |
| | | |
Forward Looking Statements
The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our search for an operating company, possible or assumed future operations, business strategies, need for financing, competitive position, potential growth opportunities, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “will,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.
Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this report. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, changes in regulation of shell or blank check companies; the general economic downturn; a further downturn in the securities markets; our ability to raised needed operating funds and continue as a going concern; and other risks and uncertainties. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.
There may also be other risks and uncertainties that we are unable to identify and/or predict at this time or that we do not now expect to have a material adverse impact on our business.
Introductory Comment
Throughout this Annual Report on Form 10-K, unless otherwise designated, the terms “we,” “us,” “our,” “the Company,” “our Company,” and “Trycera” refer to Trycera Financial, Inc., a Nevada corporation.
PART I
ITEM 1. BUSINESS
Overview and Development Since the Beginning of 2008
Since 2004 the Company had been in the business of developing, deploying and marketing semi-custom and customized branded prepaid and prepaid card solutions. Because of 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 management was 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. During 2008 all officers and directors of the Company, except Alan Knitowski and Luan Dang, had resigned.
On January 22, 2009, Mr. Vance accepted appointment as a director and as the President, Chief Executive Officer, Secretary, and Treasurer of Trycera. Effective January 22, 2009, Mr. Knitowski resigned as a director and as Chairman of the Company, and Mr. Dang resigned as a director. Mr. Vance became the sole officer and director of the Company. Messrs Knitowski and Dang also granted Mr. Vance proxies to vote the shares beneficially owned by them and by certain affiliated or associated entities and individuals. Mr. Vance also received a proxy to vote shares held by Matthew Kerper, the former President of the Company. As a result, Mr. Vance received proxies to vote 4,250,585 shares and directly owned 85,000 shares, which in the aggregate represent 4,335,585 shares beneficially owned by Mr. Vance and which further represented approximately 44.7% of the voting control of the Company. As a result of this transaction, Mr. Vance assumed control of the Company from Messrs Knitowski and Dang.
Mr. Vance agreed to assume control of the Company to assist in the settlement of outstanding liabilities and to seek a new operating business. Prior to this change of control the Company essentially ceased its business operations and may be deemed a shell company as defined in Rule 405 promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act by virtue of its nominal operations. As a condition to the change of control, former management agreed to provide proxies to vote the stock beneficially owned by them or their related entities and associated parties. They also agreed to settle certain debt owed by the Company to them and their affiliated entities, including all outstanding 10% Senior Secured Promissory Notes, and to cancel any outstanding common stock purchase options held by them. They further agreed to cancel any outstanding contracts or agreements between them, or entities controlled by them, and the Company. Also, they agreed, if requested as a condition of the acquisition of a new operating business, that they would cancel any warrants held by them or any related entity. Finally, Mr. Dang agreed to act as an advisor to the Board to review any proposed acquisition transaction. Mr. Vance agreed, subject to his fiduciary duty as a director, not to finalize any such acquisition transaction if in the good faith opinion of Mr. Dang, the transaction would not be in the best interests of the Company.
Each of the proxies granted to Mr. Vance is irrevocable and will expire either on December 31, 2009, the date Mr. Vance resigns as a director, or the date upon which Mr. Vance ceases to control the Company, whichever first occurs. Sale or transfer of the shares is conditioned upon the purchaser or transferee agreeing in writing to be bound by the terms of the proxy. Mr. Vance, acting as proxy, may vote the shares at any meeting of the shareholders or may execute any written consent evidencing action by the shareholders. The proxies are not limited in the matters upon which the shares may be voted.
On or about January 2, 2007, the Company entered into an agreement with Curo Capital, LLC (“Curo Capital”), an entity controlled jointly by Mr. Knitowski and Mr. Dang, (the “Curo Capital Agreement”) whereby the Company agreed to pay $1,000 per month towards the Company’s office lease activities associated with the office of the Chairman. Pursuant to the terms of the Curo Capital Agreement, the Company owed approximately $12,000 to Curo Capital as of January 22, 2009. Also, on or about January 3, 2006, the Company entered into an agreement with Ecewa Capital Group, LLC (“Ecewa Capital”), an entity controlled by Mr. Knitowski (the “Ecewa Capital Agreement”) whereby Ecewa Capital provided certain consulting services to the Company. Pursuant to the terms of the Ecewa Capital Agreement, the Company owed approximately $60,000 to Ecewa Capital at January 22, 2009. In a settlement agreement dated January 22, 2009, Curo Capital agreed to settle all amounts owed to it under the Curo Capital Agreement for $4,000, and Ecewa Capital agreed to settle all amounts owed to it under the Ecewa Capital Agreement for $20,000. Payment of the settlement amounts is due prior to December 31, 2009, or upon closing of a corporate transaction, whichever shall first occur. If the Company fails to pay the settlement amounts, Curo Capital and Ecewa will have the option to rescind the settlement agreement. The Curo Capital Agreement and the Ecewa Capital Agreement were also cancelled effective December 31, 2008.
The Company had previously agreed to reimburse Mr. Dang for the cost of health insurance during the period he served as a director of the Company. At the time of his resignation on January 22, 2009, the Company owed approximately $14,950.83 to Mr. Dang for these health insurance costs (the “Health Insurance Payable”). On or about May 14, 2008, Sagoso Capital (“Sagoso”), a company controlled by Mr. Dang, loaned $5,000 to the Company and the company issued a 10% Senior Promissory Note representing the loan (the “Sagoso Note”) which was due and payable upon a change of control of the Company. On or about December 29, 2008, Sagoso Capital acquired the 10% Senior Promissory Notes issued by the Company to Ecewa Capital in the principal amount of $67,500 (the “Ecewa Notes”). In a settlement agreement dated January 22, 2009, Mr. Dang agreed to settle all amounts owed to him for the Health Insurance Payable for $5,000, and Sagoso agreed to settle all amounts owed to it under the Sagoso Note and the Ecewa Notes for $38,994.18. Payment of the settlement amounts is due prior to December 31, 2009, or upon closing of a corporate transaction, whichever shall first occur. If the Company fails to pay the settlement amounts, Mr. Dang and Sagoso will have the option to rescind the settlement agreement.
On or about May 14, 2008, Hang Dang loaned $5,000 to the Company and the company issued a 10% Senior Promissory Note representing the loan (the “Note”) which was due and payable upon a change of control of the Company. In a settlement agreement dated January 22, 2009, Ms. Dang agreed to settle all amounts owed to her for the Note for $2,661.82. Payment of the settlement amount is due prior to December 31, 2009, or upon closing of a corporate transaction, whichever shall first occur. If the Company fails to pay the settlement amounts, Ms. Dang will have the option to rescind the settlement agreement.
In connection with the change of control, Mr. Knitowski cancelled 106,250 common stock purchase options held by him and Mr. Dang cancelled 200,000 common stock purchase options held by him. These options represented all of the options held by these parties.
Upon the change of control, Mr. Dang was appointed as an advisor to the Board to review and make recommendations to the Board on any proposed transaction whereby any third party would assume control of the Company by means of a reverse acquisition transaction. The Board agreed to furnish to Mr. Dang for review on a confidential basis any such proposed transaction. Mr. Dang agreed to serve at no cost to the Company as an advisor to the Board until the Company acquires a new business or until the resignation of Mr. Vance as a director, whichever occurs first.
On February 6, 2009, Mr. Vance resigned as President of the Company and Ray A. Smith was appointed as President and Chief Executive Officer and is the Company’s principal executive officer.
Business of the Company
Selection of a Business
The Company intends to either seek an outside business venture or to raise funds to recommence operations. The Company anticipates that businesses for possible acquisition will be referred by various sources, including its sole officer and director, shareholders, professional advisors, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals. The Company will not engage in any general solicitation or advertising for a business opportunity, and will rely on personal contacts of its sole officer and director and his affiliates, as well as indirect associations between him and other business and professional people. By relying on “word of mouth,” the Company may be limited in the number of potential acquisitions it can identify. While it is not presently anticipated that the Company will engage unaffiliated professional firms specializing in business acquisitions or reorganizations, such firms may be retained if management deems it in the best interest of the Company. The Company has had preliminary discussions with Mr. Smith to implement a business plan aligned with his existing business, CRS Corporation, but no agreement or binding arrangement has been entered into. CRS Corporation is engaged in the business of tracking and reporting nontraditional payment history to national credit reporting agencies.
The Company will not restrict its search to any particular business, industry, or geographical location, and management may evaluate and enter into any type of business in any location. The Company may participate in a newly organized business venture or a more established company entering a new phase of growth or in need of additional capital to overcome existing financial problems. Participation in a new business venture entails greater risks since in many instances management of such a venture will not have proved its ability, the eventual market of such venture’s product or services will likely not be established, and the profitability of the venture will be unproved and cannot be predicted accurately. If the Company participates in a more established firm with existing financial problems, it may be subjected to risk because the financial resources of the Company may not be adequate to eliminate or reverse the circumstances leading to such financial problems.
In seeking a business venture, the decision of management will not be controlled by an attempt to take advantage of any anticipated or perceived appeal of a specific industry, management group, product, or industry, but will be based on the business objective of seeking long-term capital appreciation in the real value of the Company.
The analysis of new businesses will be undertaken by or under the supervision of management of the Company and reviewed by Mr. Dang as an advisor to the Board of Directors. In analyzing prospective businesses, management will consider, to the extent applicable, the following: the available technical, financial, and managerial resources, working capital and other prospects for the future, the nature of present and expected competition, the quality and experience of management services which may be available and the depth of that management, the potential for further research, development, or exploration, the potential for growth and expansion, the potential for profit, the perceived public recognition or acceptance of products, services, or trade or service marks, name identification and other relevant factors.
The decision to participate in a specific business may be based on management’s analysis of the quality of the other firm’s management and personnel, the anticipated acceptability of new products or marketing concepts, the merit of technological changes, and other factors which are difficult, if not impossible, to analyze through any objective criteria. It is anticipated that the results of operations of a specific firm may not necessarily be indicative of the potential for the future because of the requirement to substantially shift marketing approaches, expand significantly, change product emphasis, change or substantially augment management, and other factors.
The Company will analyze all available factors and make a determination based on a composite of available facts, without reliance on any single factor. The period within which the Company may participate in a business cannot be predicted and will depend on circumstances beyond the Company’s control, including the availability of businesses, the time required for the Company to complete its investigation and analysis of prospective businesses, the time required to prepare appropriate documents and agreements providing for the Company’s participation, and other circumstances.
Acquisition of an Outside Business
In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, or other reorganization with another corporation or entity; joint venture; license; purchase and sale of assets; or purchase and sale of stock, the exact nature of which cannot now be predicted. The structure of the particular business acquisition will be approved by the Board of Directors and may not require the approval of the Company’s shareholders. Notwithstanding the above, the Company does not intend to participate in a business through the purchase of minority stock positions. Upon the consummation of a transaction, it is likely that the present management and shareholders of the Company will not be in control of the Company. In addition, it is anticipated that the current sole officer and director would resign in favor of new management designated by the target company without a vote of the Company’s stockholders.
In the event the Company enters into an acquisition transaction with another entity, the Company will be required to report the transaction in a Current Report on Form 8-K within four business days following the execution of the agreement, and any amendment thereto, and within four business days following the closing of the transaction. In addition, because the Company is a shell company, if the transaction results in the Company no longer being a shell company, it will be required to file within four business days a Current Report on Form 8-K which includes the information that would be required if the Company were filing a general form for registration of securities on Form 10 reflecting the Company and its securities upon consummation of the transaction, including information on the new business and management of the Company after closing.
In connection with the Company’s acquisition of a business, the present shareholders of the Company, including current management, may, as a negotiated element of the acquisition, sell a portion or all of the Company’s Common Stock held by them at a significant premium over their original investment in the Company. It is not unusual for affiliates of the entity participating in the reorganization to negotiate to purchase shares held by the present shareholders in order to reduce the number of “restricted securities” held by persons no longer affiliated with the Company and thereby reduce the potential adverse impact on the public market in the Company’s Common Stock that could result from substantial sales of such shares after the restrictions no longer apply. As a result of such sales, affiliates of the entity participating in the business reorganization with the Company would acquire a higher percentage of equity ownership in the Company. Public investors will not receive any portion of the premium that may be paid in the foregoing circumstances. Furthermore, the Company’s shareholders may not be afforded an opportunity to approve or consent to any particular stock buy-out transaction.
In the event sales of shares by present stockholders of the Company, including current management, is a negotiated element of a future acquisition, a conflict of interest may arise because our sole director will be negotiating for the acquisition on behalf of the Company and for sale of his or shareholders’ shares for his own or the shareholders’ respective accounts. Where a business opportunity is well suited for acquisition by the Company, but affiliates of the business opportunity impose a condition that management sell shares at a price which is unacceptable to our sole director, management may not sacrifice his or the shareholders’ financial interest for the Company to complete the transaction. Where the business opportunity is not well suited, but the price offered management for the shares is high, management will be tempted to effect the acquisition to realize a substantial gain on the shares in the Company. Management has not adopted any policy for resolving the foregoing potential conflicts, should they arise, and does not intend to obtain an independent appraisal to determine whether any price that may be offered for their shares is fair. Stockholders must rely, instead, on the obligation of management to fulfill its fiduciary duty under state law to act in the best interests of the Company and its stockholders.
It is anticipated that any securities issued in any such reorganization would be issued in reliance on exemptions from registration under applicable federal and state securities laws. Securities, including shares of the Company’s Common Stock, issued by the Company in such a transaction would be “restricted securities” as defined in Rule 144 promulgated by the Securities and Exchange Commission. Under amendments to Rule 144 recently adopted by the Commission, and which take effect on February 15, 2008, these restricted securities could not be resold under Rule 144 until the following conditions were met: the Company ceased to be a shell company; it remained subject to the Exchange Act reporting obligations; filed all required Exchange Act reports during the preceding 12 months; and at least one year had elapsed from the time the Company filed “Form 10 information” reflecting the fact that it had ceased to be a shell company. In some circumstances, however, as a negotiated element of the transaction, the Company may agree to register such securities either at the time the transaction is consummated, under certain conditions, or at specified times thereafter. Although the terms of such registration rights and the number of securities, if any, which may be registered cannot be predicted, it may be expected that registration of securities by the Company in these circumstances would entail substantial expense to the Company. The issuance of substantial additional securities and their potential sale into any trading market that may develop in the Company’s securities may have a depressive effect on such market.
While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may be expected that the parties to the business transaction will find it desirable to structure the acquisition as a so-called “tax-free” event under sections 351 or 368(a) of the Internal Revenue Code of 1986, (the “Code”). In order to obtain tax-free treatment under section 351 of the Code, it would be necessary for the owners of the acquired business to own 80% or more of the voting stock of the surviving entity. In such event, the shareholders of the Company would retain less than 20% of the issued and outstanding shares of the surviving entity. Section 368(a)(1) of the Code provides for tax-free treatment of certain business reorganizations between corporate entities where one corporation is merged with or acquires the securities or assets of another corporation. Generally, the Company will be the acquiring corporation in such a business reorganization, and the tax-free status of the transaction will not depend on the issuance of any specific amount of the Company’s voting securities. It is not uncommon, however, that as a negotiated element of a transaction completed in reliance on section 368, the acquiring corporation issue securities in such an amount that the shareholders of the acquired corporation will hold 50% or more of the voting stock of the surviving entity. Consequently, there is a substantial possibility that the shareholders of the Company immediately prior to the transaction would retain substantially less than 50% of the issued and outstanding shares of the surviving entity. It is anticipated that these shareholders would in fact retain less than 5% control of the Company after a reverse acquisition.
Therefore, regardless of the form of the business acquisition, it may be anticipated that stockholders immediately prior to the transaction will experience a significant reduction in their percentage of ownership in the Company.
Notwithstanding the fact that the Company is technically the acquiring entity in the foregoing circumstances, generally accepted accounting principles will ordinarily require that such transaction be accounted for as if the Company had been acquired by the other entity owning the business and, therefore, will not permit a write-up in the carrying value of the assets of the other company.
The manner in which the Company participates in a business will depend on the nature of the business, the respective needs and desires of the Company and other parties, the management of the business, and the relative negotiating strength of the Company and such other management.
The Company will participate in a business only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to such closing, will outline the manner of bearing costs if the transaction is not closed, will set forth remedies on default, and will include miscellaneous other terms.
Operation of Business After Acquisition
The Company’s operation following internal generation of a business model or its acquisition of a business will be dependent on the nature of the business and the interest acquired. If an outside business is acquired, it is unlikely that current shareholders would be in control of the Company or that present management would be in control of the Company following the acquisition. It may be expected that the business will present various risks, which cannot be predicted at the present time.
Governmental Regulation
It is impossible to predict the government regulation, if any, to which the Company may be subject until it has acquired an interest in a business. The use of assets and/or conduct of businesses that the Company may acquire could subject it to environmental, public health and safety, land use, trade, or other governmental regulations and state or local taxation. In selecting a business in which to acquire an interest, management will endeavor to ascertain, to the extent of the limited resources of the Company, the effects of such government regulation on the prospective business of the Company. In certain circumstances, however, such as the acquisition of an interest in a new or start-up business activity, it may not be possible to predict with any degree of accuracy the impact of government regulation. The inability to ascertain the effect of government regulation on a prospective business activity will make the acquisition of an interest in such business a higher risk.
Competition
The Company will be involved in intense competition with other business entities, many of which will have a competitive edge over the Company by virtue of their stronger financial resources and prior experience in business. There is no assurance that the Company will be successful in obtaining suitable investments.
Employees
The Company currently has only one employee, namely its President, Ray Smith. Management of the Company expects to use consultants, attorneys, and accountants as necessary, and does not anticipate a need to engage any full- time employees so long as it is seeking and evaluating businesses. The future need for employees and their availability will be addressed in connection with a decision whether or not to acquire or participate in a specific business industry.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we have elected not to provide the information required by this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Because we are neither an accelerated filer or a large accelerated filer, nor a well-known seasoned issuer, we have elected not to provide the information required by this item.
ITEM 2. PROPERTIES
The Company has no office facilities and does not presently anticipate the need to lease commercial office space or facilities. For now the business address of the sole director is being used as the Company address. The Company may lease commercial office facilities in the future at such time as operations have developed to the point where the facilities are needed, but has no commitments or arrangements for any facilities. There is no assurance regarding the future availability of commercial office facilities or terms on which the Company may be able to lease facilities in the future, nor any assurance regarding the length of time the present arrangement may continue.
ITEM 3. LEGAL PROCEEDINGS
On September 30, 2008 we were notified of an arbitration claim filed by Transfers4Less against the Company for $75,000. The claim alleges breach of contract which the Company refutes and plans to vigorously defend. Judgment was granted on January 27, 2009, to Transfers4Less in the amount of $40,000 in the arbitration hearing held on January 15, 2009.
In April 2008 we received service of process for a complaint filed by Airport Industrial Complex, our former landlord. The complaint has been filed in the Orange Superior Court (Case No. 30-2008 00104277). Management has received and reviewed a copy of the complaint. On April 1, 2009 the Company represented by counsel appeared in Superior Court in a pre-trial effort to resolve the matter. The Company has negotiated a settlement, which remains unpaid at April 14, 2009. The next scheduled court appearance is May 1, 2009, with a trial date set for June 1, 2009.
On April 24, 2008, we received correspondence from Hill Ward Henderson, a law firm representing interests on behalf of a card marketer program, the Plan First Financial Prepaid MasterCard Card. The Plan First Prepaid MasterCard Card was the flagship program under the IMG card marketer umbrella. The correspondence contains assertions related to monies owed to both cardholders and Plan First Financial Solutions, both of which the Company refutes. As of March 31, 2009 the Company has received no further correspondence from either Hill Ward Henderson or Plan First Financial Solutions.
On May 1, 2008, we received a demand for payment letter filed by American Alarm Systems, our former security system provider for contracted services through 2010. The Company and American Alarm Systems appeared in small claims court and settled the matter for $900 on March 24, 2009. The Company has until June 30, 2009 to make payment on the settled amount.
The Company continues to receive demands for payments from creditors. The Company has no funds to defend these actions or to pay the creditors. However, management has been proactive to reach out to most creditors in an attempt to negotiate or resolve outstanding debt. Management anticipates that if the Company is unable to settle these claims, the Company will be dissolved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of the Company during the fourth quarter of the fiscal year ended December 31, 2008.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s Common Stock is quoted on both the OTC Bulletin Board and the Pink Sheets. The Common Stock is currently traded with the trading symbol of “TRYF.” The table below sets forth for the periods indicated the quarterly high and low bid prices as reported by the Pink Sheets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
| | Quarter | | High | | | Low | |
| FISCAL YEAR ENDED DECEMBER 31, 2007 | First | | $ | 1.70 | | | $ | 1.25 | |
| | Second | | $ | 1.07 | | | $ | 0.55 | |
| | Third | | $ | 1.01 | | | $ | 0.36 | |
| | Fourth | | $ | 0.36 | | | $ | 0.13 | |
| | Quarter | | High | | | Low | |
| FISCAL YEAR ENDED DECEMBER 31, 2008 | First | | $ | 0.13 | | | $ | 0.13 | |
| | Second | | $ | 0.08 | | | $ | 0.08 | |
| | Third | | $ | 0.07 | | | $ | 0.07 | |
| | Fourth | | $ | 0.06 | | | $ | 0.06 | |
| | Quarter | | High | | | Low | |
| FISCAL YEAR ENDING DECEMBER 31, 2009 | First | | $ | 0.06 | | | $ | 0.02 | |
The Company’s Common Stock is considered to be penny stock under rules promulgated by the Securities and Exchange Commission. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker- dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.
Holders
At April 6, 2009, the Company had 115 shareholders of record. The number of record holders was determined from the records of the Company’s transfer agent and does not include beneficial owners of Common Stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The Company has appointed Interwest Transfer Co., Inc., Salt Lake City, Utah, to act as its transfer agent for the Common Stock.
Dividends
The Company has not declared or paid any cash dividends on its Common Stock during the two fiscal years ended December 31, 2008, or in any subsequent period. The Company does not anticipate or contemplate paying dividends on its Common Stock in the foreseeable future. The only restrictions that limit the ability to pay dividends on common equity, or that are likely to do so in the future, are those restrictions imposed by law.
Purchases of Equity Securities
There were no purchases made during the fourth quarter of the fiscal year ended December 31, 2008, by or on behalf of our Company or any affiliated purchaser of shares or other units of any class of our equity securities registered pursuant to Section 12 of the Exchange Act.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we have elected not to provide the information required by this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and related notes thereto as included with this report.
Overview
Prior to May 2004, we had no operating history. From May 2004 until early in the first quarter in 2008, the Company operated and marketed a suite of prepaid and stored value and financial products and services. Prepaid and stored value products are broadly defined as financial instruments where the value on the card has been prepaid, and where subsequent transactions decrease the value against the balance originally loaded onto the instrument. Based in South Jordan, Utah, the Company discontinued all operations during the fiscal year 2008. The core operating business has been curtailed to refocus efforts on developing strategic alternatives while transitioning all platform stored value products and services to other willing program managers, card marketers or third party providers such as banks, processors or marketers in the prepaid industry. The primary banking partner elected to close down all remaining card portfolios in October 2008, so no programs were extended beyond that timeframe.
As previously and continually stressed, the Company does not have sufficient cash to meet its working capital needs while it pursues its strategic alternatives beyond April 2009 and has not had sufficient cash balances since early in 2008.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties that could cause materially different results under different estimates and assumptions. We believe our critical accounting policies relate to accounts receivable, goodwill and intangible assets and related impairment assessments, and stock-option compensation because they are important to the portrayal of our financial condition or results of operations and they require critical management estimates and judgments about matters that are uncertain. There were no changes to our critical accounting policies during the year ended December 31, 2008.
Results of Operations--Year Ended December 31, 2008, versus the Year Ended December 31, 2007
In 2008, we saw revenues drop 93% over the prior year. The decline of revenue was attributed to the exiting of the underlying business in all channels. The primary effort throughout the 2008 fiscal year was to wind up the business and seek a strategic alternative. Near the end of the first quarter 2008, we had begun in earnest shuttering in house prepaid card programs and moving towards discontinuing all operations.
Revenue
Revenue was $151,619 and $2,215,369 for the years ended December 31, 2008 and 2007, respectively, representing a decrease of $2,063,750 or 93%. Our 2008 results reflect the winding up of the operations and lay out a stark contrast to the 2007 product launches and marketing efforts. Management expects a strategic alternative to favorably impact the underlying revenue.
Cost of Sales and Gross Profit
Cost of sales was $123,029 and $1,895,910 for the years ended December 31, 2008 and 2007, respectively, representing a decrease of $1,772,881or 94%. The decrease was attributed to the exiting of the business operations.
The resulting gross profit was 18.9% and 14.4% for the years ended December 31, 2008 and 2007, respectively.
Operating expenses
Operating expenses were $755,271 and $1,401,063 for the years ended December 31, 2008 and 2007, respectively, representing a decrease of $645,792 or 46%. The major components of operating expense were salaries and wages (4%) general and administrative (45%) professional fees (21%) and stock based compensation (20%).
Salaries and wages expense was $32,354 and $362,208 for the years ended December 31, 2008 and 2007, respectively, representing a decrease of $329,854 or 91.1%. The decrease resulted from resignation of all employees in and around March 31, 2008. Former employees were paid on an as-needed basis as independent contractors subsequent to their resignation.
General and administrative expense was $336,639 and $238,152 for the years ended December 31, 2008 and 2007, respectively, representing an increase of $98,487 or 41.4%. The increase resulted from the inclusion of costs of former employees that were subsequently paid on a contract basis.
Professional fees and expenses were $157,868 and $375,846 for the years ended December 31, 2008 and 2007, respectively, representing a decrease of $217,978 or 58.0%. The decrease resulted from the expenses associated with a third party accounting service provider which were paid in part with stock grants. Included in this number is $28,680 in the form of non cash compensation resulting from the issue of stock grants for services compared to $107,650 for the prior year.
Stock based compensation was $148,168 and $152,741 for the years ended December 31, 2008 and 2007, respectively, representing a decrease of $4,573 or 3.0%. The net decrease is due to the reduced number of options vesting in 2008.
Other income (expense)
Other income (expense) was ($5,098) and ($318,392) for the years ended December 31, 2008 and 2007, respectively. The main component of other expense is the financing costs which resulted from the issuance of warrants attached to the shares offered in the Company’s last private placements. The financing costs are calculated using the number of warrants and the Black-Scholes model. Financing costs were $0 and $342,925 for the years ended December 31, 2008 and 2007 respectively.
Discontinued Operations
The Company sold its isleCore operations effective March 31, 2007. The total loss resulting from these operations were $0 and $20,809 for the periods ended December 31 2008 and 2007 respectively.
Net loss
We incurred net losses of $723,579 and $1,421,605 for the years ended December 31, 2008 and 2007, respectively.
Liquidity and Capital Resources
As of December 31, 2008, cash totaled $263 as compared with $72,625 cash or cash equivalents at December 31, 2007. Cash used in operations was $149,862 and was offset by $77,500 of cash from the issuance of the 10% secured notes. Cash used by operations was $149,862 and decreased by $484,706 from the comparative prior year period. The decrease resulted from a smaller net loss for the year ended December 31, 2008. Cash provided by financing was $77,500 and decreased by $512,500 from the comparative prior year period. The decrease resulted from the additional funds raised in private placements throughout 2007.
Working capital was $(589,145) at December 31, 2008, as compared with working capital of $(137,300) at December 31, 2007. This decrease in working capital was a result primarily of using cash balances and creditors to support the Company.
All primary and ongoing operational efforts are prioritized on seeking a strategic alternative for the public Company moving forward beyond the end of the second quarter 2009. The Company is currently insolvent unless there is a short-term capital infusion, a material change through new revenue sources, or an executed LOI tied to a strategic alternative. We do not currently have sufficient cash on hand to satisfy existing operating cash needs, reduce or pay key outstanding vendor invoices or service working capital requirements on a sustained basis. As previously disclosed in the Company’s annual report on Form 10-KSB for the year ending December 31, 2007 (the “2007 Annual Report”), quarterly report on Form 10-QSB for the third quarter of the Company’s 2007 fiscal year (the “Third Quarter 10-QSB 2007”) and quarterly report on Form 10-Q for the first quarter of the Company’s 2008 fiscal year (the “First Quarter 10-Q 2008”), ongoing program and approval delays, non-payment for services, operational challenges and an inability to raise capital have all contributed to the failure of the underlying business model and the resulting insolvency and lack of viability of the business. Aside from monies received from senior secured notes in the second quarter of 2008, all other recent individual and institutional efforts to raise additional new capital have been unsuccessful and there can be no assurances that this will change in the short term due to the challenging market conditions for both private and public financing and the current state of the Company’s business and operations.
At this time, the Company’s Board, a single individual, is actively exploring strategic alternatives that would preserve its public vehicle status and is also considering options associated with the pursuit of a reverse acquisition should no other strategic alternatives present themselves that would preserve the Company’s current public vehicle. Should a reverse acquisition ultimately be pursued or executed, it would likely result in a change to the Company’s underlying business model, a change in control, a change in management, a sale of assets, a merger with another entity or some other combination. Should the pursuit of strategic alternatives fail to deliver a viable migration strategy to the Company or its stakeholders, then the Board and management may seek to initiate an orderly liquidation of the Company, some combination of these transactions or other legal options that may be available. In addition, should alternatives fail to deliver a viable strategy, the Board and management will attempt to contact vendors to reduce or eliminate any and all contracted service costs or otherwise negotiate or settle outstanding debts or obligations using non-cash instruments such as stock.
On April 4, 2008, the Company received $77,500 of financing in the form of senior bridge notes, including the $37,500 related to the performance on the Letter of Intent executed by and between U.S. Social Scene (USSS) and Trycera as disclosed under Form 8-K on April 4, 2008 and later terminated by the Company for failure to perform.
The Company does not have sufficient cash to meet its working capital needs while it pursues its strategic alternatives beyond April 2009 and has not had sufficient cash balances since early in 2008. Should any efforts by the Board and management not prove successful, the Board and management will explore any and all remaining alternatives for the Company, whatever they may be.
Off-Balance Sheet Arrangements
During the years ended December 31, 2008 and 2007, we did not engage in any off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required pursuant to this item are included immediately following the signature page of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants reportable pursuant to this item.
ITEM 9A. CONTROLS AND PROCEDURES
As a smaller reporting company, we have elected not to provide the information required by this item. Rather, we have provided the information set forth in Item 9A(T) below.
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Our President, who serves as our principal executive officer and our principal financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. A discussion of the material weaknesses in our disclosure controls and procedures is set forth below.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Management’s report on internal control over financial reporting
Our management consists of Ray A. Smith, our Chief Executive Officer (“CEO”), and Bryan Kenyon, our Principal Financial Officer (“PFO”), who are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. As a result, our internal control system is limited in its scope and capabilities, although, based on our CEO and PFO’s general business experience, is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on his evaluation, they concluded that there are material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
All of our financial reporting is carried out by our CEO and PFO, and we do not have an audit committee. This lack of accounting staff results in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control.
Since our Company has no ongoing operations and may, at this time, be considered a “blank check” or “shell” company, as defined in the Securities Act, we are making an effort to mitigate this material weakness to the fullest extent possible. This is done by having our CEO and our PFO review all our financial reporting requirements for reasonableness. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it will be immediately implemented. As soon as our finances allow, we plan to hire sufficient accounting staff and implement appropriate procedures for monitoring and review of work performed by our CEO and PFO.
Based on our evaluation our management has concluded that our internal control over financial reporting was not effective as of December 31, 2008.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION
The Company did not fail to file any information required to be filed in a report on Form 8-K during the fourth quarter of the fiscal year ended December 31, 2008.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Current Management
The following table sets forth the name and ages of, and position or positions held by, our executive officers and directors:
| Name | Age | Position(s) | Director Since | Employment Background |
| Ronald N. Vance | 56 | Chairman | 2009 | Since 1984 Mr. Vance has been self-employed as an attorney practicing in the State of Utah. |
| Ray A. Smith | 36 | President and Chief Executive Officer | -- | Since April 2006 Mr. Smith has been the President and a director of CRS Corporation, a company offering credit enhancement, credit education, and consumer financial assistance services. From February 2002 until April 2006, he as the President and CEO of Comm 2020 which operated a call center marketing credit services and a credit card application processing center for Visa and MasterCard. Mr. Smith has served as President of and been employed by Trycera since February 2009. |
| Bryan Kenyon | 37 | Chief Financial Officer | -- | Mr. Kenyon was our Chief Financial Officer from May 2004 until October 2008 and our Chief Operating Officer from April 2007 until October 2008. He was reappointed as our CFO in April 2009. From May 2002 until February 2004, he was Director of Financial Planning and Analysis for Next Estate Communications, a provider of prepaid MasterCard® cards and stored value solutions. |
On April 14, 2008, the California Department of Corporations issued a desist and refrain order against Mr. Smith, CRS Corporation and others alleging that the parties had violated Section 25110 of the California Securities Act of 1968 by making general solicitations in connection with the sale of the common stock by CRS Corporation. The alleged violation took place in or about September 2006.
Directors are elected for a term of one year and until their successors are elected and qualified. Annual meetings of the stockholders, for the selection of directors to succeed those whose terms expire, are to be held at such time each year as designated by the Board of Directors. The Board of Directors has not selected a date for the next annual meeting of shareholders. Officers are elected by the Board of Directors, which is required to consider that subject at its first meeting after every annual meeting of stockholders. Each officer holds his office until his successor is elected and qualified or until his earlier resignation or removal.
Section 16(a) Beneficial Ownership Reporting Compliance
According to our records, no director, officer, or beneficial owner of more than 10% of our Common Stock failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2008.
Code of Ethics
On August 25, 2004, the Board of Directors adopted a Code of Ethics. The purpose of the Code of is to set the expectations of the highest standards of ethical conduct and fair dealings. The Code of Ethics applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Overview of Director Nominating Process
The Board of Directors does not have a standing nominating committee or committee performing similar functions. The Board of Directors also does not currently have a policy for the qualification, identification, evaluation or consideration of director candidates. The Board of Directors does not believe that a defined policy with regard to the qualification, identification, evaluation or consideration of candidates recommended by stockholders is necessary at this time due to the lack of operations and the fact that we have not received any stockholder recommendations in the past. Director nominees are considered solely by our current sole director.
Audit Committee Financial Expert
Our Board of Directors performs the duties that would normally be performed by an audit committee. Given our lack of operations prior to any merger, our Board of Directors believes that its current member has sufficient knowledge and experience necessary to fulfill the duties and obligations of the audit committee for our Company. The Board of Directors has determined that [*Mr. White is an audit committee financial expert, but he is not an independent director] the Company does not have an audit committee financial expert, due to lack of funds.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
During 2008 Bryan Kenyon served as our principal executive officer until October 2008, at which time Alan Knitowski assumed the position until January 2009. The following table sets forth the compensation of the named executive officer for each of the two fiscal years ended December 31, 2008 and 2007:
Name & Principal Position | | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | All Other Compensation ($) | | | Total ($) | |
| Bryan W. Kenyon, CFO/COO | | 2008 | | $ | 14,968 | | | | 0 | | | | 0 | | | | 0 | | | $ | 51,205 | (1) | | $ | 66,173 | |
| | 2007 | | $ | 120,000 | | | | 0 | | | | 88,312 | (2) | | | 181,750 | (2) | | $ | 8,898 | (1) | | $ | 898,960 | |
| Alan S. Knitowski, Chairman | | 2008 | | $ | 0 | | | | 0 | | | | 0 | | | | 0 | | | | $72,000 | (5) | | | $72,000 | |
| | 2007 | | $ | 0 | | | | 0 | | | | 0 | | | | 24,000 | (3) | | | $60,000 | (4) | | | $84,000 | |
| (1) | Mr. Kenyon’s other annual compensation consisted of amounts paid to him as an independent contractor in 2008 after his employment was terminated. It also consisted of a $307 per pay period adjustment for healthcare in 2007 of $342 per pay period. |
| (2) | On May 26, 2007, our Compensation Committee granted 100,000 shares and 200,000 stock purchase options to Mr. Kenyon pursuant to the new employment agreement entered into by and between Mr. Kenyon and the Company. The grant and options vest at a rate of 1/16th per quarter for four years and the options are exercisable at $1.00 per share. The value of the shares and options was determined in accordance with FAS 123R. |
| (3) | The grants and options vest at a rate of 1/4th of the total options granted at the end of each three-month period, which initial period shall commence on the day of the grant, and immediately in the event of a Corporate Transaction, as defined in the Plan. The value of the shares and options was determined in accordance with FAS 123R. |
| (4) | We paid $5,000 per month to Ecewa Capital Group LLC, a company of which Mr. Knitowski is the managing director, pursuant to an agreement whereby Ecewa provides to us general business and corporate strategy consulting services. |
| (5) | We paid $5,000 per month to Ecewa Capital Group LLC, a company of which Mr. Knitowski is the managing director, pursuant to an agreement whereby Ecewa provides to us general business and corporate strategy consulting services and we paid an additional $12,000 to the Office of the Chairman for corporate office space. |
Equity Awards
The following table sets forth certain information concerning unexercised options for the named parties that were outstanding as of December 31, 2008, all of which had expired or were cancelled as of April 6, 2009:
| Name | | Number of securities underlying unexercised options (#) Exercisable | | | Number of securities underlying unexercised options (#) unexercisable | | | Option exercise price ($) | | Option expiration date | | Number of shares or units of stock that have not vested (#) | | | Market value of shares or units of stock that have not vested ($) | |
| Bryan W. Kenyon | | | 750,000 | | | | 0 | | | | (1) | | May 27, 2014 | | | 0 | | | | 0 | |
| | | | 37,500 | | | | 0 | | | $ | 1.00 | | December 30, 2015 | | | 0 | | | | 0 | |
| | | | 200,000 | | | | 0 | | | $ | 1.01 | | June 7, 2017 | | | 125,000 | | | $ | 7,500 | |
| Alan S. Knitowski | | | 31,250 | | | | 0 | | | $ | 0.25 | | May 27, 2014 | | | 0 | | | | 0 | |
| | | | 25,000 | | | | 0 | | | $ | 0.75 | | May 27, 2015 | | | 0 | | | | 0 | |
| | | | 25,000 | | | | 0 | | | $ | 1.00 | | May 27, 2016 | | | 0 | | | | 0 | |
| | | | 25,000 | | | | 0 | | | $ | 1.03 | | May 29, 2017 | | | 0 | | | | 0 | |
(1) The exercise prices of these options are as follows: $0.25 first 1/4 of options granted; $0.45 second 1/4 of options granted; $0.65 for third 1/4 options granted; and $0.85 final 1/4 of options granted.
On May 11, 2004, our Board of Directors adopted the 2004 Stock Option/Stock Issuance Plan. Our shareholders approved the plan effective June 14, 2004. The purpose of the plan is to provide eligible persons an opportunity to acquire a proprietary interest in our company and as an incentive to remain in the service of the company. The Plan was updated on Jun 7, 2007 to include more shares of common stock.
There were 10,000,000 shares of common stock initially authorized for nonstatutory and incentive stock options and stock grants under the plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations.
The plan is administered by our Board of Directors. Participants in the plan are to be selected by the plan administrator which is currently our Compensation Committee. The persons eligible to participate in the plan are as follows: (a) employees of our company and any of its subsidiaries; (b) non-employee members of the board or non-employee members of the Board of Directors of any of its subsidiaries; and (c) consultants and other independent advisors who provide services to our company or any of its subsidiaries. Options may be granted, or shares issued, only to consultants or advisors who are natural persons and who provide bona fide services to our company or one of its subsidiaries, provided that the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for our securities.
The plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until May 1, 2014, whichever is earlier. The plan may also be terminated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of our assets.
Stock option awards under the plan consist of nonstatutory stock options (NSOs) and incentive stock options (ISOs). ISOs may be granted only to employees of our company or one of its subsidiaries.
The purchase price under each option is established by the plan administrator, but in no event will it be less than 100% of the fair market value of our common stock for ISOs and 85% for NSOs. The price applicable to any option holder who holds more than 10 percent of our outstanding common stock will be 110% percent of fair market value. The aggregate exercise price, plus applicable taxes, are due and payable in cash or check on the date of the exercise of an option. However, the plan administrator may permit payment of the total amount due by a full-recourse, interest-bearing promissory note; payroll deductions in installments; shares of common stock valued at fair market value on the date of exercise of the option; or through a special sale and remittance procedure through a designated brokerage firm.
The plan administrator will fix the terms of each option, but no option can be granted for a term in excess of 10 years. The term of such an option will not be longer than five years in the case of any option holder who holds, on the date of the grant of an ISO, more than 10% of our outstanding common stock. Upon termination of services, the option holder will have a limited time in which to exercise vested options. The plan administrator will not impose a vesting schedule upon any options granted which provides for exercise of an option for less than 20 percent of the shares subject to the option and with an initial installment for vesting which is fixed for a longer period than one year from the date of grant of the option.
During the lifetime of the person to whom an option has been granted, only that person has the right to exercise the option and that person cannot assign, encumber or transfer any right to the option. Upon the death of the person to whom an option has been granted, the option may be exercised only by those persons who inherit from the holder of the option by will or under the applicable laws of descent and distribution.
The plan administrator has the authority, with the consent of the option holder affected, to cancel outstanding options and to grant in substitution therefore new options covering the same or a different number of shares of common stock at an exercise price per share based upon the fair market value per share of such stock on the date of the grant of a new option.
At the discretion of the plan administrator, the consideration provided for the issuance of shares of common stock under the stock issuance plan will be satisfied in one or more of the following ways, or combinations thereof: (a) in cash or check payable to us; (b) issuing of a full-recourse promissory note; (c) payroll deductions in installments; (d) past services rendered to us or one of our subsidiaries; or (e) the agreement of a participant to accept employment and the undertaking and performance of services with or to us or one of our subsidiaries.
Stock issued under the stock issuance plan may vest immediately or upon terms established by the plan administrator, provided that at least 20 percent of the total shares subject to a vesting schedule will fully vest in each calendar year on the anniversary date of the issuance of the shares.
Irrespective of whether a participant’s shares are vested or are held in escrow, a participant to whom shares under the stock issuance plan have been issued will have the right to vote those shares and to receive any regular cash dividends paid on those shares.
If employment with or service to us terminates for whatever cause at a time when the participant holds unvested shares issued under the stock issuance plan, those shares will be immediately surrendered to us and cancelled. In the event the participant paid for the shares surrendered in cash or cash equivalent, the amount of that consideration will be repaid. In the event that the participant furnished a promissory note in payment of shares surrendered, the remaining balance of that note attributable to the surrendered shares will be cancelled. In the sole discretion of the plan administrator, the surrender and cancellation of any unvested shares issued under the stock issuance plan may be waived at any time by the plan administrator subject to such terms and conditions or on no terms and conditions as the plan administrator may determine.
Director Compensation
The following table sets forth certain information concerning the compensation of our directors, excluding Messrs Kenyon and Knitowski, whose total compensation is set forth in the Summary Compensation Table above, for the last fiscal year ended December 31, 2008:
| Name | | | | All other compensation ($) | | | Total ($) | |
| Luan Dang (2) | | | | | 14,951 | (1) | | | 14,951 | |
| Randolph Cherkas (2) | | | | | 0 | | | | 0 | |
| Robert Lang(2) | | | | | 0 | | | | 0 | |
| (1) | This amount represents reimbursement incurred by Mr. Dang for medical and dental insurance premiums for him and his family. |
| (2) | Mr. Dang resigned as a director on January 16, 2009, Mr. Cherkas resigned as a director on October 2, 2008, and Mr. Lang resigned as a director on January 16, 2008. |
Standard Arrangements for Outside Directors. Directors are permitted to receive fixed fees and other compensation for their services as directors, as determined by our board of directors. The board has adopted a policy to compensate non-employee directors. Each such director receives options for each year of service. At the commencement of each year of service as a non-employee director, the person receives options to purchase 25,000 shares. The options are exercisable at market value on the date of grant based upon the average closing bid price for the ten trading days immediately preceding appointment or the anniversary date. The board also grants annual options to purchase 10,000 shares for these directors to serve on a committee of the board, and 5,000 shares to chair the committee. These options vest as to 25% of the options per quarter, starting on the date of grant. They expire five years from the date of grant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Beneficial Owners of More than Five Percent, Directors, and Management
The following table sets forth certain information from reports filed by the named parties, or furnished by current management, concerning the ownership of our Common Stock as of April 6, 2009, of (i) each person who is known to us to be the beneficial owner of more than 5 percent of our Common Stock; (ii) all directors and executive officers; and (iii) our directors and executive officers as a group:
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership(1) | | | Percentage of Class(2) | |
Ronald N. Vance 1656 Reunion Ave., Suite 250 South Jordan, UT 84095 | | | 4,335,585 | (3) | | | 44.7 | % |
Ray A. Smith 1317 S. Westgate Ave, Suite 205 Los Angeles, CA 90025 | | | 0 | | | | -- | |
Bryan Kenyon 2560 E. Chapman Ave Suite 404 Orange, CA. 92689 | | | 715,080 | (4) | | | 7.4 | % |
Executive Officers and Directors as a Group (3 Person) | | | 5,050,665 | | | | 52.1 | |
Alan S. Knitowski 2560 E. Chapman Ave Suite 404 Orange, CA. 92689 | | | 729,802 | (5) | | | 7.5 | % |
Luan Dang 2560 E. Chapman Ave Suite 404 Orange, CA. 92689 | | | 3,789,500 | (6) | | | 36.3 | % |
Matthew S. Kerper P.O. Box 3599 Coppell, TX 75019 | | | 992,085 | | | | 10.3 | % |
(1) This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission. Unless otherwise indicated in the footnotes to this table, and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or exercisable within 60 days of the date of this table. As of the date of this table, there are no outstanding options or warrants.
(2) Applicable percentages are based on 9,679,302 shares of our Common Stock outstanding on April 6, 2009.
(3) Includes 4,250,585 shares for which Mr. Vance holds proxies. Of these proxy shares, 67,500 are beneficially owned by Alan S. Knitowski, 2,430,000 are beneficially owned by Luan Dang, and 992,085 are beneficially owned by Matthew S. Kerper.
(4) Includes 190,000 shares owned by a family trust and 80 shares owned with his wife.
(5) Consists of 67,500 shares owned by Mr. Knitowski’s IRA, 140,000 shares and 70,000 warrants owned by Curo Capital, LLC, an entity controlled jointly by Mr. Knitowski and Mr. Dang, and 452,302 shares owned by Trymetris Capital Fund I, LLC, an entity managed by Curo Capital, LLC.
(6) Includes 1,710,000 shares owned by Sagoso Capital, LLC, an entity controlled by Mr. Dang, 140,000 shares and 70,000 warrants owned by Curo Capital, LLC, an entity controlled jointly by Mr. Dang and Mr. Knitowski, 85,000 shares owned by a trust for the children of Mr. Knitowski for which Mr. Dang is trustee, and 452,302 shares owned by Trymetris Capital Fund I, LLC, an entity managed by Curo Capital, LLC. Also includes 697,500 shares issuable upon exercise of warrants.
Change of Control
We anticipate that a change of control will occur when a new business venture is acquired. Our business plan is to either reestablish business operations internally or seek and, if possible, acquire an operating entity through a reverse acquisition transaction with the operating entity. By its nature, a reverse acquisition generally entails a change in management and principal shareholders of the surviving entity. While management cannot predict the specific nature of the form of the reverse acquisition, it is anticipated that at the closing of the process, the current sole officer and director would resign in favor of persons designated by the operating company and that the shareholders of the operating entity would receive a controlling number of shares in our company, thus effecting a change in control of the company.
Equity Compensation Plan Information
The following table sets forth as of the most recent fiscal year ended December 31, 2008, certain information with respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance:
| | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) and (b)) (c) | |
| Equity compensation plans approved by security holders | | | 1,979,500 | | | $0.98 | | | | 7,176,500 | |
| Equity compensation plans not approved by security holders | | | 1,250,250 | | | | $0.83 | | | | -0- | |
| Total | | | 3,229,750 | | | | | | | | 7,176,500 | |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
In connection with the change of control at January 22, 2009, all outstanding 10% Senior Secured Promissory Notes, including notes issued to Messrs Knitowski and Dang, former directors of the Company, were cancelled. These notes were in the principal amount of $77,500. Also in connection with the change of control, the consulting agreement with Ecewa Capital Group, LLC and the rental agreement with Curo Capital, LLC, entities controlled by Mr. Knitowski, were cancelled.
Mr. Vance’s law firm served as legal counsel for the Company since its inception in 2000 until November 14, 2008, at which time Mr. Vance terminated the representation of the Company. At the time of the termination, the Company owed Mr. Vance’s firm $23,762 for past services, none of which has been paid. Mr. Vance also served as Secretary for the Company from May 2004 until November 14, 2008. Mr. Vance currently owns 85,000 shares of the Company’s common stock which he received for past services. Mr. Vance’s law firm had represented the Company since its inception in 2000 through November 2009. Prior to their resignations, Messrs Knitowski and Dang, as the sole directors, approved a new engagement agreement with Mr. Vance’s law firm. Under the agreement the Company will pay Mr. Vance’s firm an hourly fee for services performed by him or his legal assistants in connection with the settlement of the outstanding debts, review of any potential reverse acquisition transaction, and ongoing reporting obligations with the SEC. The engagement agreement may be terminated by the Company at any time.
In connection with the change of control at January 22, 2009, Messrs. Knitowski and Dang provided to Mr. Vance irrevocable proxies to vote 3,258,500 shares. Each of the proxies granted to Mr. Vance is irrevocable and will expire either on December 31, 2009, the date Mr. Vance resigns as a director, or the date upon which Mr. Vance ceases to control the Company, whichever first occurs. Sale or transfer of the shares is conditioned upon the purchaser or transferee agreeing in writing to be bound by the terms of the proxy. Mr. Vance, acting as proxy, may vote the shares at any meeting of the shareholders or may execute any written consent evidencing action by the shareholders. The proxies are not limited in the matters upon which the shares may be voted.
In connection with the appointment of Mr. Smith as President and CEO, the Board approved a one-year, full-time employment agreement with Mr. Smith effective February 6, 2009. The agreement will be extended for additional one-year periods unless it is terminated by the Company at least 90 days before its expiration. The base salary to be paid to Mr. Smith is $10,000 per month beginning when the Company raises a minimum of $300,000. In addition, Mr. Smith shall be entitled to a signing bonus of stock of the Company when all of the existing liabilities of the Company are satisfied and the Company completes a reverse acquisition or merger transaction. Also, when the payment of salary commences, the Company has agreed to provide Mr. Smith an expense allowance of $2,000 per month. The employment agreement is terminable upon the death or disability of Mr. Smith, or for cause, and may be terminated by the Company without cause which would require the Company to pay a severance benefit in an amount equal to 90 days’ salary.
On January 29, 2009, the Company entered into a consulting agreement with Balius Consulting Group, LLC, an entity controlled by Bryan Kenyon, a former director and officer of the Company, and Steven Murphy, a former accounting consultant to the Company. Balius has agreed to assist in the negotiation of outstanding liabilities of the Company and to gather and organize the corporate and financial records of the Company. The Company has agreed to pay any hourly fee for work performed by Balius and to pay a bonus based upon the settlement amount of the outstanding payables. The consulting agreement will terminate on December 31, 2009, unless terminated by the Company earlier for cause or if Messrs Kenyon or Murphy shall cease to provide the services for Balius.
Director Independence
Our securities are not listed on a national securities exchange or in an inter-dealer quotation system which has requirements that directors be independent. As a result, we have adopted the independence standards of the American Stock Exchange to determine the independence of our directors and those directors serving on our committees. These standards provide that a person will be considered an independent director if he or she is not an officer of the Company and is, in the view of the Company’s Board of Directors, free of any relationship that would interfere with the exercise of independent judgment. Our Board of Directors has determined that our sole director is not independent. We have no audit committee.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Paid
Chisholm, Bierwolf, Nilson & Morrill, LLC served as our independent registered public accounting firm for the fiscal years ended December 31, 2008 and 2007. The following fees were paid to our independent registered public accounting firm for services rendered during our last two fiscal years:
Audit Fees
The aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2008 and 2007 were $25,000 and $28,265, respectively.
Audit-Related Fees
There were no fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of the financial statements, other than those previously reported above, for the fiscal years ended December 31, 2008 and 2007.
Tax Fees
There were no fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning in the fiscal years ended December 31, 2008 and 2007, respectively.
All Other Fees
There were no other fees billed for products or services provided by the principal accountant, other than those previously reported above, for the fiscal years ended December 31, 2008 and 2007.
Audit Committee
Our Board of Directors, which functions in the capacity of an audit committee, has considered whether the non-audit services provided by our auditors to us are compatible with maintaining the independence of our auditors and concluded that the independence of our auditors is not compromised by the provision of such services. Our Board of Directors pre-approves all auditing services and permitted non-audit services, including the fees and terms of those services, to be performed for us by our independent auditor prior to engagement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements
The following financial statements are filed with this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2008 and 2007
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008 and 2007
Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007
Notes to ConsolidatedFinancial Statements
Exhibits
The following exhibits are filed with this report:
| | | Incorporated by Reference | | | |
Exhibit Number | | Exhibit Description | | Form | | | File No. | | | Exhibit | | Filing Date | | Filed Here-with | |
| | 3.1 | | Articles of Incorporation | | | 8-K | | | | 000-30872 | | | | 3.1 | | 6/15/04 | | | |
| | 3.2 | | Current Bylaws | | 10-QSB | | | | 000-30872 | | | | 3.2 | | 8/16/04 | | | |
| | 4.1 | | Form of Common Stock Certificate | | 10-SB | | | | 000-30872 | | | | 4.1 | | 7/ 21/00 | | | |
| | 4.2 | | 2004 Stock Option/Stock Issuance Plan * | | | 8-K | | | | 000-30872 | | | | 4.2 | | 5/ 13/04 | | | |
| | 4.3 | | Grant of Stock Option Form used pursuant to the 2004 Stock Option/Stock Issuance Plan | | 10-KSB | | | | 000-30872 | | | | 4.3 | | 4/ 7/06 | | | |
| | 4.4 | | Form of Series A Common Stock Purchase Warrant, as amended | | 10-KSB | | | | 000-30872 | | | | 4.6 | | 4/ 7/06 | | | |
| | 4.5 | | Form of Series B Common Stock Purchase Warrant | | 10-KSB | | | | 000-30872 | | | | 4.7 | | 4/ 7/06 | | | X | |
| | 4.6 | | Description of Registration Rights for investors in offerings dated September 20, 2005, and January 3, 2006 | | 10-KSB | | | | 000-30872 | | | | 4.8 | | 4/ 7/06 | | | | |
| | 10.1 | | Employment Agreement with Ray A. Smith | | | | | | | | | | | | | | | | X | |
| | 10.2 | | Consulting agreement with Balius Consulting Group, LLC | | | | | | | | | | | | | | | | X | |
| | 10.3 | | Engagement Agreement with Ronald N. Vance | | | | | | | | | | | | | | | | X | |
| | 10.4 | | Agreement with CRS Corporation | | | | | | | | | | | | | | | | | |
| | 14.1 | | Code of Ethics | | | 8-K | | | | 000-30872 | | | | 14.1 | | 8/ 26/04 | | | | |
| | 31.1 | | Rule 13a-14(a) Certification by Principal Executive Officer | | | | | | | | | | | | | | | | X | |
| | 31.2 | | Rule 13a-14(a) Certification by Principal Financial Officer | | | | | | | | | | | | | | | | X | |
| | 32.1 | | Section 1350 Certification of Principal Executive Officer | | | | | | | | | | | | | | | | X | |
| | 32.2 | | Section 1350 Certification of Principal Financial Officer | | | | | | | | | | | | | | | | X | |
*Management contract, or compensatory plan or arrangement required to be filed as an exhibit.
Signature Page Follows
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | Trycera Financial, Inc. | |
| | | | |
| Date: April 15, 2009 | By: | /s/ Ray A. Smith | |
| | | Ray A. Smith | |
| | | President | |
| | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| Date: April 15, 2009 | /S/ Ronald N. Vance | |
| | Ronald N. Vance, Director | |
| | | |
| Date: April 15, 2009 | /S/ Ray A. Smith | |
| | Ray A. Smith, President (Principal Executive Officer) | |
| | | |
| Date: April 15, 2009 | /S/ Bryan Kenyon | |
| | Bryan Kenyon, CFO (Principal Financial and Accounting Officer) | |
| | | |
Consolidated Financial Statements
TRYCERA FINANCIAL, INC
For the years ended December 31, 2008 and 2007
Table of Contents
For the years ended December 31, 2008 and 2007
| | | Page | |
| Financial Statements | | | |
| | | | |
| Report of Independent Registered Public Accounting Firm | | | 3 | |
| | | | | |
| Consolidated Balance Sheets | | | 4 | |
| | | | | |
| Consolidated Statements of Operations | | | 5 | |
| | | | | |
| Consolidated Statements of Cash Flows | | | 6 | |
| | | | | |
| Consolidated Statements of Stockholders' Deficit | | | 7 | |
| | | | | |
| Notes to Consoldiated Financial Statements | | | 8 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Trycera Financial, Inc.
Santa Monica, California
We have audited the accompanying consolidated balance sheets of Trycera Financial, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' deficit and cash flows for the years ended December 31, 2008 and 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall consolidated financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trycera Financial, Inc. as of December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for the years ended December 31, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 12 to the consolidated financial statements, the Company has a working capital deficit, continued operating losses, and negative cash flows from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in those matters are also described in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ Chisholm, Bierwolf, Nilson & Morrill LLC
Chisholm, Bierwolf, Nilson & Morrill LLC
Bountiful, Utah
April 10, 2009
| Trycera Financial, Inc. | |
| Consolidated Balance Sheets | |
| | | December | | | December | |
| | | | 31, 2008 | | | | 31, 2007 | |
| | | | | | | | | |
| Assets | | | | | | | | |
| Current Assets | | | | | | | | |
| Cash | | $ | 263 | | | $ | 72,625 | |
| Accounts receivable, net | | | - | | | | 30,931 | |
| Prepaid expenses and other current assets | | | - | | | | 29,853 | |
| Client ACH reserves | | | - | | | | 5,000 | |
| Total Current Assets | | | 263 | | | | 138,409 | |
| | | | | | | | | |
| Property & Equipment, net | | | - | | | | 9,751 | |
| | | | | | | | | |
| Other Assets | | | | | | | | |
| Definite life intangible assets, net | | | - | | | | 2,159 | |
| | | | | | | | | |
| Total Other Assets | | | - | | | | 2,159 | |
| | | | | | | | | |
| Total Assets | | $ | 263 | | | $ | 150,319 | |
| | | | | | | | | |
| Liabilities & Stockholders’ Deficit | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 340,089 | | | $ | 126,629 | |
| Portfolio reserves | | | 34,774 | | | | 34,202 | |
| Accrued expenses | | | 137,045 | | | | 114,878 | |
| 10% senior secured notes | | | 77,500 | | | | - | |
| | | | | | | | | |
| Total Current Liabilities | | | 589,408 | | | | 275,709 | |
| | | | | | | | | |
| Total Liabilities | | | 589,408 | | | | 275,709 | |
| | | | | | | | | |
| Commitments | | | - | | | | - | |
| | | | | | | | | |
| Stockholders’ Deficit | | | | | | | | |
| | | | | | | | | |
| Preferred stock, 20,000,000 shares authorized, | | | | | | | | |
| $.001 par value; none issued and outstanding | | | - | | | | - | |
| Common stock, 100,000,000 shares authorized at | | | | | | | | |
| $.001 par value; 9,694,302 and 9,250,302 shares | | | | | | | | |
| issued and outstanding, respectively | | | 9,694 | | | | 9,250 | |
| Additional paid in capital | | | 5,364,504 | | | | 5,184,500 | |
| Prepaid stock compensation | | | - | | | | (88,376 | ) |
| Accumulated deficit | | | (5,963,343 | ) | | | (5,230,764 | ) |
| Total Stockholders’ Deficit | | | (589,145 | ) | | | (125,390 | ) |
| Total Liabilities & Stockholders’ Deficit | | $ | 263 | | | $ | 150,319 | |
The accompanying notes are an integral part of these consoldiated financial statements.
| Trycera Financial, Inc. | |
| Consolidated Statement of Operations | |
| | | | |
| | | For the Years Ended | |
| | | December 31, 2008 | | | December 31, 2007 | |
| Revenues | | | | | | |
| Stored value | | $ | 151,619 | | | $ | 2,215,369 | |
| | | | 151,619 | | | | 2,215,369 | |
| | | | | | | | | |
| Cost of sales | | | 123,029 | | | | 1,895,910 | |
| Gross Profit (Loss) | | | 28,590 | | | | 319,459 | |
| | | | | | | | | |
| Expenses | | | | | | | | |
| Depreciation and amortization | | | 2,159 | | | | 10,911 | |
| Salaries and wages | | | 32,354 | | | | 362,208 | |
| Stock based compensation | | | 148,168 | | | | 152,741 | |
| Professional fees | | | 157,868 | | | | 375,846 | |
| Bad debt expense | | | 8,083 | | | | 261,205 | |
| Contract termination costs | | | 70,000 | | | | - | |
| General & adminstrative | | | 336,639 | | | | 238,152 | |
| | | | | | | | | |
| Total Expenses | | | 755,271 | | | | 1,401,063 | |
| | | | | | | | | |
| Loss from Operations | | | (726,681 | ) | | | (1,081,604 | ) |
| | | | | | | | | |
| Other Income (Expenses) | | | | | | | | |
| Interest, income | | | 174 | | | | 1,094 | |
| Interest, expense | | | (2,996 | ) | | | (878 | ) |
| Financing costs | | | - | | | | (342,925 | ) |
| Other income (expense) | | | (2,276 | ) | | | 24,317 | |
| Total Other Income (Expense) | | | (5,098 | ) | | | (318,392 | ) |
| | | | | | | | | |
| Loss from continuing operations before tax | | | (731,779 | ) | | | (1,399,996 | ) |
| Income tax | | | 800 | | | | 800 | |
| Loss from Continuing Operations | | | (732,579 | ) | | | (1,400,796 | ) |
| | | | | | | | | |
| Discontinued Operations | | | | | | | | |
| Loss on disposal of discontinued operations | | | - | | | | (27,852 | ) |
| Gain (loss) from discontinued operations | | | - | | | | 7,043 | |
| Total Gain (loss) from Discontinued Operations | | | - | | | | (20,809 | ) |
| | | | | | | | | |
| Net Loss | | $ | (732,579 | ) | | $ | (1,421,605 | ) |
| | | | | | | | | |
| Basic loss Per Share | | | | | | | | |
| | | | | | | | | |
| Loss per share continuing operations | | $ | (0.08 | ) | | $ | (0.17 | ) |
| Loss per share discontinued operations | | | - | | | | (0.00 | ) |
| Net Loss Per Share | | $ | (0.08 | ) | | $ | (0.17 | ) |
| | | | | | | | | |
| Weighted Average Shares | | | 9,375,891 | | | | 8,266,850 | |
The accompanying notes are an integral part of these consoldiated financial statements.
| Trycera Financial, Inc. | |
| Consolidated Statements of Stockholder’s Deficit | |
| From the Years Ended December 31, 2008 and 2007 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | Preferred Stock | | | Common Stock | | | Paid-In | | | Accumulated | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | |
| | | | | | | | | | | | | | | | | | | |
| Balance, at January 1, 2007 | | | - | | | $ | - | | | | 7,582,302 | | | $ | 7,582 | | | $ | 3,886,852 | | | $ | (3,809,159 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for cash pursuant to | | | | | | | | | | | | | | | | | | | | | |
| private placement memorandum | | | | | | | | | | | | | | | | | | | | | |
| at $1.00 per share | | | - | | | | - | | | | 315,000 | | | | 315 | | | | 314,685 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for cash pursuant to | | | | | | | | | | | | | | | | | | | | | |
| private placement memorandum | | | | | | | | | | | | | | | | | | | | | |
| at $0.25 per share | | | - | | | | - | | | | 1,100,000 | | | | 1,100 | | | | 273,900 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services at | | | | | | | | | | | | | | | | | | | | | | | | |
| at $0.13 - $3.25 per share | | | - | | | | - | | | | 143,000 | | | | 143 | | | | 107,507 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares granted in connection | | | | | | | | | | | | | | | | | | | | | | | | |
| with employment agreement | | | | | | | | | | | | | | | | | | | | | | | | |
| at $1.01 per share | | | - | | | | - | | | | 100,000 | | | | 100 | | | | 100,900 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for accounts payable at | | | | | | | | | | | | | | | | | | | | | |
| at $0.50 per share | | | | | | | | | | | 10,000 | | | | 10 | | | | 4,990 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Valuation of stock options | | | - | | | | - | | | | - | | | | - | | | | 152,741 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Valuation of stock warrants | | | | | | | | | | | | | | | | | | | 342,925 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss for the period ended | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2007 | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,421,605 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, at December 31, 2007 | | | - | | | | - | | | | 9,250,302 | | | | 9,250 | | | | 5,184,500 | | | | (5,230,764 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services at | | | | | | | | | | | | | | | | | | | | | | | | |
| at $0.06 - $0.15 per share | | | - | | | | - | | | | 444,000 | | | | 444 | | | | 31,836 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Valuation of stock options | | | - | | | | - | | | | - | | | | - | | | | 148,168 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss for the period ended | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2008 | | | - | | | | - | | | | - | | | | - | | | | - | | | | (732,579 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, at December 31, 2008 | | | - | | | $ | - | | | | 9,694,302 | | | $ | 9,694 | | | $ | 5,364,504 | | | $ | (5,963,343 | ) |
The accompanying notes are an integral part of these consoldiated financial statements.
| Trycera Financial, Inc. | |
| Consolidated Statements of Cash Flows | |
| | | | | | | |
| | | For the Years Ended | |
| | | December | | | December | |
| | | | 31, 2008 | | | | 31, 2007 | |
| | | | | | | | | |
| Cash Flows from Operating Activities | | | | | | | | |
| Net Loss | | $ | (732,579 | ) | | $ | (1,421,605 | ) |
| Adjustments to reconcile net loss to net cash | | | | | | | | |
| used by operations; | | | | | | | | |
| Depreciation and amortization | | | 2,159 | | | | 23,535 | |
| Depreciation and amortization on discontinued operation | | | - | | | | 581 | |
| Amortization of prepaid stock compensation | | | 88,376 | | | | - | |
| Loss on sale of discontinued operations | | | - | | | | 27,852 | |
| (Gain) loss on sale of assets | | | 9,751 | | | | (24,317 | ) |
| Stock issued for services | | | 32,280 | | | | 112,650 | |
| Stock options and warrants | | | 148,168 | | | | 495,666 | |
| (Increase) decrease in accounts receivable | | | 30,931 | | | | 55,697 | |
| (Increase) decrease in prepaid and other current assets | | | 29,853 | | | | (17,424 | ) |
| (Increase) decrease in deposits/reserves | | | 5,000 | | | | 12,507 | |
| Increase (decrease) in accounts payable | | | 213,460 | | | | 55,177 | |
| Increase (decrease) in portfolio reserves | | | 572 | | | | 8,777 | |
| Increase (decrease) in accrued expenses | | | 22,167 | | | | 36,336 | |
| Net Cash Used by Operating Activities | | | (149,862 | ) | | | (634,568 | ) |
| | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | |
| Proceeds from sale of assets | | | - | | | | 25,000 | |
| Proceeds from disposal of discontinued operations | | | - | | | | 5,000 | |
| Net Cash Provided by Investing Activities | | | - | | | | 30,000 | |
| | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | |
| Proceeds from issuance of 10% Secured Notes | | | 77,500 | | | | - | |
| Proceeds from issuance of common stock | | | - | | | | 590,000 | |
| Net Cash Provided by Financing Activities | | | 77,500 | | | | 590,000 | |
| | | | | | | | | |
| Net Decrease in Cash and Cash Equivalents | | | (72,362 | ) | | | (14,568 | ) |
| | | | | | | | | |
| Cash and Cash Equivalents at Beginning of Period | | | 72,625 | | | | 87,193 | |
| | | | | | | | | |
| Cash and Cash Equivalents at End of Period | | $ | 263 | | | $ | 72,625 | |
| | | | | | | | | |
| Cash Paid For: | | | | | | | | |
| Interest | | $ | - | | | $ | 878 | |
| Income Taxes | | $ | - | | | $ | 800 | |
| | | | | | | | | |
| Non-Cash Financing Activities: | | | | | | | | |
| Common stock issued for services and deferred compensation | | $ | 268,824 | | | $ | 208,579 | |
The accompanying notes are an integral part of these consoldiated financial statements.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
Trycera Financial, Inc., (the "Company") was incorporated in Nevada on May 10, 2000, under the name Whitelight Technologies, Inc., for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship.
On July 16, 2004, the Company filed a certificate of amendment with the
state of Nevada changing the name to Trycera Financial Inc.
Since 2004 the Company had been in the business of developing, deploying and marketing semi-custom and customized branded prepaid and prepaid card solutions. Because of 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.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Accounting
The Company uses the accrual method of accounting.
B. Revenue Recognition
The Company applies the provisions of SEC Staff Accounting Bulletin("SAB") No. 104, Revenue Recognition in Financial Statements ("SAB 104"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to monthly contracted amounts for services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable and (iv) collectibility is reasonably assured.
With regard to events related to purchases of stored value or prepaid card products, the Company has sold no such goods at this time. When the Company begins to sell such stored value products, a customer who purchases a prepaid card product will pay an upfront acceptance fee in addition to paying some incremental value to add to the stored value card. The Company recognizes only the acceptance fee revenues, as the actual pre-funded load value is electronically transferred from our partner processor to an FDIC-insured account at our partner bank. The Company never possesses the actual pre-funded load value, which resides in a secure account at our processor before being sent to a non-Company accessible customer funding account at our bank. As a result, there is no general accounting treatment for the amounts pre-funded on the stored value cards. With respect to the acceptance fee, the Company will collect the acceptance fee from the customer, satisfying criteria (i) under SAB 104 with a persuasive evidence of an arrangement. The company does not realize the revenue from the acceptance income until the customer has activated their card. The activation of their card requires that they have passed the legal requirements of identity verification and an embossed card in their name has been mailed to their physical address and lastly the client with the card in their physical possession has called to activate their card. Moreover, the funds have been prepaid by the customer and thus as outlined in criteria (iv) the collectibility is reasonably assured. In both instances, the Company simply supplies a product or financial tool to a customer. There are no unearned income ramifications since the funds are held in an FDIC-insured account by our partner Bank and not under the control of the Company. The consumer may choose to spend or not spend the money on the stored value card, but the Company after the initial transaction has no obligation to provide future products. The Company does host a customer service center to receive and resolve any issues that may arise out of the use of the prepaid card product.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
The consulting revenue the Company receives is billed after satisfying the customers' requirement and which follows the criteria of SAB 104 more specifically relating to the delivery of services rendered as outlined in criteria (ii).
C. Cash Equivalents
The Company considers all short term, highly liquid investments that are readily convertible, within three months, to known amounts as cash equivalents. The Company currently has no cash equivalents.
D. Property and Equipment
Property and equipment as of December 31, 2008 and 2007 consists of the following and are recorded at cost:
| | | 2008 | | | 2007 | |
| Furniture & Fixtures | | $ | - | | | $ | 10,533 | |
| Computer equipment | | | - | | | | 12,437 | |
| | | | - | | | | 22,970 | |
| Accumulated depreciation | | | - | | | | (13,219 | ) |
| | | | | | | | | |
| Net Fixed Assets | | $ | - | | | $ | 9,751 | |
Provision for depreciation of equipment is computed on the straight-line method for financial reporting purposes. Depreciation is based upon estimated useful lives as follows:
D. Property and Equipment (continued)
| Computer equipment | 2-3 Years |
| Furniture & fixtures | 7 Years |
Maintenance, repairs, and renewals which neither materially add to the value of the equipment nor appreciably prolong its life are charged to expense as incurred.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
Depreciation charged to operations was $2,159 and $4,165 for the years ended December 31 2008 and 2007, respectively.
As the Company vacated the leased office space in Irvine, California, all remaining fixtures, fittings were either sold or abandoned. The Company, therefore, has no fixed assets at the December 31 2008.
E. Earnings (Loss) Per Share of Common Stock
The computation of earnings (loss) per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements. Outstanding employee stock options of -0- and 2,815,040, and outstanding warrants of -0- and 820,372 have not been considered in the fully diluted earnings per share calculation in 2008 and 2007, due to their anti-dilutive effect.
| | | For the Years Ended | |
| | | December 31, 2008 | | | December 31, 2007 | |
| Basic loss per share | | $ | (732,579 | ) | | $ | (1,421,605 | ) |
| Net loss (numerator) | | | 9,375,891 | | | | 8,266,850 | |
| Weighted average shares (denominator) | | | | | | | | |
| Per share amount | | $ | (0.08 | ) | | $ | (0.17 | ) |
F. Stock Options
The Company has elected to measure and record compensation cost relative to stock option costs in accordance with SFAS 123R, "ACCOUNTING FOR STOCK-BASED COMPENSATION," which requires the Company to use the Black-Scholes pricing model to estimate the fair value of the options at the option grant date.
G. Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles, in the United States of America, require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
H. Fair Value of Financial Instruments
The fair value of the Company's cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate carrying value based on their effective interest rates compared to current market prices.
I. Selling, General and Administrative Costs
Selling, general and administrative expenses included the following for the years ended December 31, 2008 and 2007.
| | | 2008 | | | 2007 | |
| Insurance | | $ | 53,399 | | | $ | 55,934 | |
| Rent | | | 42,785 | | | | 52,546 | |
| Travel and entertainment | | | 4,684 | | | | 14,379 | |
| Sales and marketing | | | 2,528 | | | | 1,378 | |
| Technology costs | | | 1,164 | | | | 33,827 | |
| Outside services | | | 207,555 | | | | 9,655 | |
| General and administrative | | | 9,574 | | | | 70,433 | |
| | | $ | 321,689 | | | $ | 238,152 | |
J. Prepaid Expenses and other Current Assets
Prepaid expenses and other current assets included the following for the years ended December 31, 2008 and 2007.
| | | 2008 | | | 2007 | |
| Prepaid expenses | | $ | - | | | $ | 17,424 | |
| Prepaid marketing costs | | | - | | | | 12,500 | |
| Total Prepaid & Other | | $ | - | | | $ | 29,853 | |
K. Accrued Expenses
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
Accrued expenses included the following for the years ended December 31, 2008 and 2007.
| | | 2008 | | | 2007 | |
| Accrued payroll and Compensated absences | | $ | 39,137 | | | $ | 32,435 | |
| Interest payable | | | 2,908 | | | | - | |
| Interchange and fees payable | | | - | | | | 57,443 | |
| Program termination costs | | | 95,000 | | | | 25,000 | |
| | | $ | 137,035 | | | $ | 114,878 | |
L. Lines of Credit
The Company had maintained and utilized one open line of credit for $25,000 with Wells Fargo Bank. This account had been closed prior to the end of the 2007 fiscal year, in part because the line of credit has been personally guaranteed by a former employee and director of the Company. Repayment terms on any borrowings adjusted quarterly at the then current prime rate plus 1%.
M. Trade Receivables and Collections
In the collection of payments, loans or receivables, the Company applies a range of collection techniques to manage delinquent accounts. In instances where balances exceed baseline levels a third party collection agency is selected to perform a collection service. The service fees may cost the Company 25% to 40% of the face value of the debt owed and result in receiving only a small portion of monies owed. With the stored value portfolio, the Company has not implemented a specific policy. Since a majority of the transaction activity is prepaid, the Company does not often provide services and load product until funds have been provided in advance. In cases where the funds are not provided in advance, the Company will carry an open receivable balance and does reserve the right to reduce the client reserve account in lieu of payment.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
N. Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred income tax assets and liabilities are provided based on the difference between the financial
statements and tax basis of assets and liabilities measured by the currently enacted tax rates in effect for the years in which these differences are expected to reverse. Deferred tax expense or benefit
is the result of changes in deferred tax assets and liabilities.
O. Concentrations
Financial instruments that potentially subject Trycera Financial, Inc. (the Company) to concentrations of credit risk consist of cash and cash equivalents. The Company places its cash and cash equivalents at
well-known, quality financial institutions. At times, such cash and cash equivalents may be in excess of the FDIC insurance limit.
P. Capital Structure and Security Rights
Common Stock - The Company is authorized to issue 100,000,000 shares of common stock, par value $.001 per share. All common shares are equal to each other with respect to voting, and dividend rights, and are equal to each other with respect to liquidations rights.
Preferred Stock - The Company has authorization to issue 20,000,000 shares of preferred stock, par value $.001 per share. The Board of Directors will be authorized to establish the rights and preferences of any series of the preferred shares without shareholder approval. At this time, the Board has not established a series of the preferred shares and no preferred shares have been issued.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
NOTE 2 - NEW TECHNICAL PRONOUNCEMENTS
In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51”. FAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS No. 160 is effective for the Company in its fiscal year beginning January 1, 2009. The Company is currently evaluating the impact of FAS No. 160 on its consolidated financial position and results of operations.
In December 2007, the FASB issued FAS No. 141 R “Business Combinations”. FAS No. 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. FAS No. 141R also provides guidance for recognizing and measuring the goodwill acquired in a business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination. FAS No. 141R is effective for the Company in its fiscal year beginning January 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that FAS No. 141R will have on its consolidated financial position and results of operations, the Company will be required to expense costs related to any acquisitions after September 30, 2009.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3), which amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. FSP 142-3 requires a consistent approach between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of an asset under SFAS 141 (R). The FSP also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is applied prospectively. Early adoption is prohibited. The Company does not expect the adoption of FSP 142-3 to have a material impact on its consolidated results of operations or financial condition.
In May 2008, the FASB issued FSP APB No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1 ) . This FSP requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The effective date of this FSP is for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and it does not permit earlier application. However, the transition guidance requires retroactive application to all periods presented. The Company does not expect the adoption of FSP 142-3 to have a material impact on its consolidated results of operations or financial condition
In October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active . (FSP FAS 157-3) This FSP clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. In particular, it provides additional guidance on (a) how the reporting entity’s own assumptions (that is, expected cash flows and appropriately risk-adjusted discount rates) should be considered when measuring fair value when relevant observable inputs do not exist, (b) how available observable inputs in a market that is not active should be considered when measuring fair value, and (c) how the use of market quotes (for example, broker quotes or pricing services for the same or similar financial assets) should be considered when assessing the relevance of observable and unobservable inputs available to measure fair value. This FSP is effective upon issuance, including prior periods for which financial statements have not been issued. The Company evaluated the impact of this FSP and concluded that its considerations in determining the fair value of its financial assets when the market for them is not active are consistent with the FSP’s guidance
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
NOTE 3 – DISCONTINUED OPERATIONS
In March, 2007, the Company completed the sale of its IsleCore subsidiary. In accordance with Statement of Financial Accounting Standards (“SFAS”) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the financial results of the Company’s IsleCore operations are reported as discontinued operations for all periods presented.
The financial results included in discontinued operations are:
| | | For the Year Ended | |
| | | December 31, 2008 | | | December 31, 2007 | |
| Basic earnings per share | | | | | | |
| Revenue | | $ | - | | | $ | 65,293 | |
| Income (loss) from discontinued operations | | $ | - | | | $ | 7,043 | |
| | | | | | | | | |
NOTE 4 – RECLASSIFICATION
We have reclassified our Statement of Operations for the year ended December 31, 2007, to reflect the sale of our IsleCore subsidiary. Our management and our board of directors have concluded this reclassification is necessary to reflect the changes described above in Note 3.
NOTE 5 INTANGIBLE ASSETS
On June 13, 2005 the Company issued 40,000 shares of common stock valued at $40,000 and paid cash in the amount of $30,000 for the net operating assets of Hawaii Direct Telephone that were merged into the operations of Trycera as a wholly-owned Hawaiian subsidiary corporation, isleCORE Systems, Inc., valued at $70,000. The Company paid $70,000 for the fixed assets including, key operating contracts valued at $53,955, and office equipment and supplies were valued at $16,045. There was no intellectual property received and the existing accounts receivable was zero at the time of the asset purchase. At December 31, 2007 there was no impairment to the intangible assets. However, an impairment of $25,000 was charged to the statement of operations during the year ended December 31, 2007. As previously stated at the end of the first quarter, our wholly owned subsidiary, isleCORE Systems, located in Honolulu, Hawaii, was disposed. The sale was completed in March 2007 and effective immediately at the close of the first quarter.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
On November 2, 2004 the Company issued 150,000 shares of common stock valued at $112,500 and paid cash in the amount of $100,000 for the net operating assets of Signature Credit Corporation that were merged into the operations of Trycera, valued at $212,500. The Company paid $112,500 for the fixed assets including, a Signature Credit customized software database system valued at $75,000, office equipment and supplies valued at $24,775, five existing domain names valued at $5,000 and existing accounts receivable valued at $7,725. The remainder of the consideration, $100,000 was allocated to intangible assets in the form of the existing Signature customer base. As a result of the asset acquisition, the value of the Signature Credit customized software database system was booked as a definite life intangible asset. The Signature customer base was booked as a separate definite life intangible asset. Management derived such value of the Signature Credit customer base by evaluating the assets to be acquired and assigning a value to those assets. The hard assets were valued at fair market value and the balance of the purchase price was assigned to the customer base, which management felt was reasonable for our use. The remaining Signature assets were sold in October 2007 for a sum of $25,000.
We account for goodwill and other intangible assets in accordance with SFAS No. 142, which requires that goodwill and other intangible assets that have indefinite lives not be amortized but instead be tested at least annually for impairment, or more frequently when events or a change in circumstances indicate that the asset might be impaired. For indefinite lived intangible assets, impairment is tested by comparing the carrying value of the asset to its fair value and assessing the ongoing appropriateness of the indefinite life classification. For goodwill, a two-step test is used to identify the potential impairment and to measure the amount of impairment, if any. The first step is to compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill is considered not impaired, otherwise goodwill is impaired and the loss is measured by performing step two. Under step two, the impairment loss is measured by comparing the implied fair value of the reporting unit with the carrying amount of goodwill. At December 31, 2008 there was no impairment to the intangible assets. However, an impairment of $60,000 was charged to the
statement of operations during the year ended December 31, 2004.
Total amortization in 2008 and 2007, respectively was $2,159 and $6,745. The amortization period for the intangible assets is 3 years and the accumulated amortization and intangible asset values are set forth as
follows:
| Year | | Accumulated Amortization | | | Asset Value | |
| 2008 | | $ | - | | | $ | - | |
| 2007 | | $ | 110,789 | | | $ | 2,159 | |
The remaining intangible assets owned by the Company were disposed in the first quarter of 2008. Together with some equipment the assets were sold at a loss of $9,751. At December 31, 2008 the Company no longer has any amortizable assets.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
NOTE 6 - RELATED PARTY TRANSACTIONS
Also, on or about January 3, 2006, the Company entered into an agreement with Ecewa Capital Group, LLC (“Ecewa Capital”), an entity controlled by Mr. Knitowski (the “Ecewa Capital Agreement”) whereby Ecewa Capital provided certain consulting services to the Company. Pursuant to the terms of the Ecewa Capital Agreement, the Company owed approximately $60,000 to Ecewa Capital at December 31, 2008. The amount incurred in respect of this agreement amounted to $60,000 for the years ended December 31, 2008 and December 31, 2007. Ecewa Capital was paid an additional $0 and $22,000 respectively, for additional consulting services during the years ended December 31, 2008 and December 31, 2007.
On or about January 2, 2007, the Company entered into an agreement with Curo Capital, LLC (“Curo Capital”), an entity controlled jointly by Mr. Knitowski and Mr. Dang, (the “Curo Capital Agreement”) whereby the Company agreed to pay $1,000 per month towards the Company’s office lease activities associated with the office of the Chairman. Pursuant to the terms of the Curo Capital Agreement, the Company owed approximately $12,000 to Curo Capital as of December 31, 2009. Expenses incurred under this agreement amounted to $12,000 and $12,000 respectively, during the years ended December 31, 2008 and December 31, 2007.
The Company had previously agreed to reimburse Mr. Dang for the cost of health insurance during the period he served as a director of the Company. At the time of his resignation on December 31, 2008, the Company owed approximately $14,950.83 to Mr. Dang for these health insurance costs.
On or about May 14, 2008, Sagoso Capital (“Sagoso”), a company controlled by Mr. Dang, loaned $5,000 to the Company and the company issued a 10% Senior Promissory Note representing the loan (the “Sagoso Note”) which was due and payable upon a change of control of the Company. On or about December 29, 2008, Sagoso Capital acquired the 10% Senior Promissory Notes issued by the Company to Ecewa Capital in the principal amount of $67,500 (the “Ecewa Notes”).
On or about May 14, 2008, Hang Dang loaned $5,000 to the Company and the company issued a 10% Senior Promissory Note representing the loan (the “Note”) which was due and payable upon a change of control of the Company.
NOTE 7 INCOME TAXES
The Company has adopted FASB 109 to account for income taxes. The Company currently has no issues that create timing differences that would mandate deferred tax expense. Net operating losses would create possible tax assets in future years. Due to the uncertainty as to the utilization of net operating loss carry forwards an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. No provision for income taxes has been recorded due to net operating losses of $5,954,144 as of December 31, 2008 that may be offset against further taxable income. No tax benefit has been reported in the financial statements.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
Deferred tax assets and the valuation account as of December 31, 2008 and 2007 are as follows:
| | | 2008 | | | 2007 | |
| Deferred tax asset | | $ | 1,887,463 | | | $ | 1,661,865 | |
| Net operating loss carryforward | | | (1,887,463 | ) | | | (1,661,865 | ) |
| Valuation allowance | | $ | - | | | $ | - | |
| | | 2008 | | | 2007 | |
| Current Federal Tax | | $ | - | | | $ | - | |
| Current State Tax | | | 800 | | | | 800 | |
| Change in NOL benefit | | | (225,598 | ) | | | (366,751 | ) |
| Change in allowance | | | 225,598 | | | | 366,751 | |
| | | $ | 800 | | | $ | 800 | |
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to future use.
NOTE 8 OPERATING LEASES
The Company exited the leased space for its administrative and headquarters effective February 29, 2008. The former space, occupied the entire 2007 fiscal year consisted of approximately 2,150 square feet of office space, and was located at 18023 East Sky Park Circle, Suite G, Irvine, California. Monthly lease payments were $3,500 with a lease expiration on October 31, 2009. The Company had not been able to continue payments and subsequently vacated the space.
The Company’s wholly owned subsidiary, isleCORE Systems, was sold. The office space was located at 7 Waterfront Plaza, 500 Ala Moana Blvd, Honolulu, Hawaii, 96813. The total cost of the location was approximately $3,500, for 600 square feet. The lease expired on March 31, 2007 and the Company no longer has a committment.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
NOTE 9 - STOCKHOLDERS' EQUITY
During the year ended December 31, 2008, the Company issued an aggregate 444,000 shares of common stock for accounting and administrative services. The price of the stock at the time of issue was between $0.06 and $0.15. Accordingly, common stock and additional paid in capital have been charged $444 and $28,236 respectively.
During the year ended December 31, 2007, the Company issued an aggregate of 315,000 shares of common stock pursuant to private offerings at $1.00 per share. Accordingly, common stock and additional paid in capital have been charged $315 and $314,685 respectively. Each investor also received stock purchase warrants at a rate of 50% of the shares purchased. The warrants are exercisable through February 28, 2014, at $1.25 with certain incentive discounts to the exercise price available through February 28, 2011. As of December 31, 2007, 170,000 warrants were outstanding related to this offering.
During the year ended December 31, 2007, the Company issued an aggregate of 1,100,000 shares of common stock pursuant to private offerings at $0.25 per share. Accordingly, common stock and additional paid in capital have been charged $1,100 and $273,900 respectively. Each investor also received stock purchase warrants at a rate of 50% of the shares purchased. The warrants are exercisable through October 31, 2014, at $.3125 with certain incentive discounts to the exercise price available through February 28, 2011. As of December 31, 2007, 550,000 warrants were outstanding related to this offering.
During the year ended December 31, 2007, the Company issued an aggregate 143,000 shares of common stock for accounting and administrative services. The price of the stock at the time of issue was between $0.13 and $3.25. Accordingly, common stock and additional paid in capital have been charged $143 and $107,507 respectively.
During the year ended December 31, 2007, the Company issued an aggregate 100,000 shares of common stock in connection with an employment agreement. The price of the stock at the time of issue was $1.01. Common stock and additional paid in capital have been charged $100 and $100,900 respectively. The value of the employment agreement has been set up as a contra equity account and the amount is being amortized over the life of the employment agreement.
During the year ended December 31, 2007 the Company also issued 10,000 shares of common stock to settle accounts payable. Common stock and additional paid in capital have been charged $10 and $4,990 respectively.
NOTE 10 STOCK OPTION PLAN
On May 4, 2004, the Company approved and adopted the 2004 Stock Option/Stock Issuance Plan, which allows for the Company to issue stock or grant options to purchase or receive shares of the Company's common stock. The maximum number of shares that may be optioned and sold under the plan is 5,000,000. The plan became effective with its adoption and remains in effect for ten years, however, options expire five years from grant, unless terminated earlier. Options granted under the plan vest according to terms imposed by the Plan Administrator. The Administrator may not impose a vesting schedule upon any option grant which is more restrictive than twenty percent (20%) per year vesting with the initial vesting to occur not later than one (1) year after the option grant date. The following schedule summarizes the activity during the periods ending December 31, 2008 and 2007:
| | | 2004 Stock Plan | |
| | | Amount of Shares | | | Weighted average exercise price | |
| Outstanding at January 1, 2008 | | | 2,379,500 | | | $ | 0.73 | |
| Options Granted | | | - | | | | - | |
| Options Exercised | | | - | | | | - | |
| Options Canceled | | | (400,000 | ) | | | 0.84 | |
| Options Outstanding at December 31, 2008 | | | 1,979,500 | | | $ | 0.71 | |
| Options Outstanding at December 31, 2007 | | | 1,754,496 | | | $ | 0.67 | |
| | | 2004 Stock Plan | |
| | | Amount of Shares | | | Weighted average exercise price | |
| Outstanding at January 1, 2008 | | | 2,874,750 | | | $ | 0.63 | |
| Options Granted | | | 528,250 | | | | 0.96 | |
| Options Exercised | | | - | | | | - | |
| Options Canceled | | | (1,023,500 | ) | | | 0.56 | |
| Options Outstanding at December 31, 2008 | | | 2,379,500 | | | $ | 0.73 | |
| Options Outstanding at December 31, 2007 | | | 1,815,040 | | | $ | 0.65 | |
The Company has elected to measure and record compensation cost relative to performance stock option costs in accordance with Statement of Financial Accounting Standards No. 123R, "Accounting for Stock-Based Compensation", which requires the Company to use the Black-Scholes pricing model to estimate the fair value of options at the option date grant, $152,741 and $148,168 was recognized for the years ended December 31, 2007 and 2008, respectively. The fair value of the option grant was established at the date of grant using the Black-Scholes option pricing model with the following assumptions:
| | | For the Twelve Months Ended | |
| | | December 31, 2008 | | | December 31, 2007 | |
| Five Year Risk Free Interest Rate | | | N/A | | | | 4.56% - 5.1 | % |
| Dividend Yield | | | | | | | - | |
| Volatility | | | N/A | | | | 61% - 244 | % |
| Average Expected Term (Years to exercise) | | | N/A | | | | 5 | |
Employee stock options outstanding and exercisable under this plan as of December 31, 2008 are:
Range of Exercise Price | | | Number of Options Granted | | | Weighted Average Exercise Price | | | Average Remaining Contractual Life (Years) | | | Weighted Number of Options Vested | | | Average Exercise Price | |
| $ | .001 - $0.99 | | | | 1,321,250 | | | $ | 0.54 | | | | 0.8 | | | | 1,321,247 | | | $ | 0.54 | |
| $ | 1.00 - $2.00 | | | | 658,250 | | | $ | 1.04 | | | | 2.2 | | | | 433,250 | | | $ | 1.05 | |
The following represents the key vesting time frames and general terms included in the stock option plans for the Company Executives:
For the initial key personnel, employment agreements outlined provisions for the performance-based vesting terms. The exercise price of the options granted to the employees is $0.25 of the first quarter of the options granted; $0.45 for the next quarter; $0.65 for the next quarter; and $0.85 for the final quarter granted. The options granted to the employees shall vest as follows: 1/12th per quarter for each quarter of company revenue exceeding the previous quarter of revenue since his date of hire, independent of whether the revenue is generated from acquisition or non-acquisition business activities, 1/12th for each $250K in aggregate gross revenue growth from the day he commences work at the company, and/or at the three year six month anniversary of his employment with the company.
For the subsequent option grants for all other Company associates, refer to the 2004 Stock Option /Stock Issuance Plan, whereby the exercise price of the options granted was determined to be the $0.75 per share price and vests according to 1/4 of the options vesting after the first 12 months and then 1/36 of the options vesting each month, where all options are vested after 48 continuous months of service.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
The Company has issued warrants as part of its private placements. The warrants are exercisable through February 28, 2014, at various prices with certain incentive discounts to the exercise price available through February 28, 2011. These shares were sold without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering. The amount subscribed prior to December 31, 2008 was:
| Date | | Number of Warrants | | | Average Exercise | |
| December 31, 2008 | | | 1,250,250 | | | $ | 0.83 | |
The Company uses the Black-Scholes pricing model to estimate the fair value of warrants issued. The resulting cost is expensed as a cost of financing. $342,925 was recognized for the year ended December 31, 2007 for the cost of such warrants.
NOTE 11 SUBSEQUENT EVENTS
Legal Matters
In April 2008 we received service of process for a complaint filed by Airport Industrial Complex, our former landlord. The complaint has been filed in the Orange Superior Court (Case No. 30-2008 00104277). Management has received and reviewed a copy of the complaint. On April 1, 2009 the Company represented by counsel appeared in Superior Court in a pre-trial effort to resolve the matter. The Company has negotiated a settlement, which remains unpaid at April 14, 2009. The next scheduled court appearance is May 1, 2009 with a trial date set for June 1, 2009.
Operations
Since 2004 the Company had been in the business of developing, deploying and marketing semi-custom and customized branded prepaid and prepaid card solutions. Because of 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 management was 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. During 2008 all officers and directors of the Company, except Alan Knitowski and Luan Dang, had resigned.
TRYCERA FINANCIAL, INC.
Notes to Consolidated Financial Statements
December 31, 2008
In a settlement agreement dated January 22, 2009, Curo Capital agreed to settle all amounts owed to it under the Curo Capital Agreement for $4,000, and Ecewa Capital agreed to settle all amounts owed to it under the Ecewa Capital Agreement for $20,000. Payment of the settlement amounts is due prior to December 31, 2009, or upon closing of a corporate transaction, whichever shall first occur. If the Company fails to pay the settlement amounts, Curo Capital and Ecewa will have the option to rescind the settlement agreement. The Curo Capital Agreement and the Ecewa Capital Agreement were also cancelled effective December 31, 2008.
In a settlement agreement dated January 22, 2009, Mr. Dang agreed to settle all amounts owed to him for the Health Insurance Payable for $5,000, and Sagoso agreed to settle all amounts owed to it under the Sagoso Note and the Ecewa Notes for $38,994.18. Payment of the settlement amounts is due prior to December 31, 2009, or upon closing of a corporate transaction, whichever shall first occur. If the Company fails to pay the settlement amounts, Mr. Dang and Sagoso will have the option to rescind the settlement agreement.
In connection with the change of control of the Company, Mr. Knitowski cancelled 106,250 common stock purchase options held by him and Mr. Dang cancelled 200,000 common stock purchase options held by him. These options represented all of the options held by these parties.
Upon the change of control, Mr. Dang was appointed as an advisor to the Board to review and make recommendations to the Board on any proposed transaction whereby any third party would assume control of the Company by means of a reverse acquisition transaction. The Board agreed to furnish to Mr. Dang for review on a confidential basis any such proposed transaction. Mr. Dang agreed to serve at no cost to the Company as an advisor to the Board until the Company acquires a new business or until the resignation of Mr. Vance as a director, whichever occurs first.
On February 6, 2009, Mr. Vance resigned as President of the Company and Ray A. Smith was appointed as President and Chief Executive Officer and is the Company’s principal executive officer.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
We account for commitments and contingencies in accordance with SFAS No. 5, where a loss contingency exists and the likelihood that the future event or events will confirm the loss or impairment of an asset or the incurrence of a liability against the Company.
At December 31, 2008, a contingency for losses related to business interruption and litigation amounted to $95,000. Under the circumstances, the amount accrued met the criteria of probable outcomes as well as being reasonable to estimate. The $95,000 amount is comprised of three specific items, $40,000 for the contingency for an arbitration settlement with Transfers4Less, $40,000 for the contingency for probable litigation with a card program that was terminated by the bank due to the Company’s business interruption and $15,000 for a disputed item with a card marketer. The $40,000 contingency assigned to Transfers4Less was realized as an arbitration settlement on January 27, 2009. The remaining $55,000 represents adequate accruals for all contingencies, both probable and unforeseen.
NOTE 13– GOING CONCERN
The Company has had recurring operating losses since inception and is dependent upon financing to continue operations. These factors indicate that the Company may be unable to continue in existence should immediate and short term financing options not be available. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue its existence. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Currently the Company has nearly zero cash on hand and few material assets. In addition, the Company has not established nor maintained a recurring source of revenues to sufficiently cover or offset any current, anticipated or planned operating costs to allow it to continue as a going concern. It is the intent of the Company to find additional capital funding and/or a profitable business venture to acquire or merge.
