Washington, D.C. 20549
TRYCERA FINANCIAL, INC.
5230 E. Hunter Avenue, Anaheim, California, 92807
(Former name, former address and former fiscal year, if changed since last report)
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
At May 12, 2011, there were 456,701,446 shares of the registrant’s Common Stock outstanding, par value $0.001 per share.
This report contains certain forward-looking statements and information that are based on assumptions made by management and on information currently available. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” and similar expressions, as they relate to our company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the company concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others the following: changes in federal, state or municipal laws governing the distribution and performance of financial services; a general economic downturn; our startup phase of operations; reliance on third party processors and product suppliers; the inability to locate suitable acquisition targets; and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected.
Unless otherwise provided in this report, references to “we”, “us”, “our” and “Company” refer to Trycera Financial, Inc.
The accompanying notes are an integral part of these financial statements.
Trycera Financial, Inc.
March 31, 2011
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
A. General
| | The accompanying condensed financial statements of the Company have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the periods presented. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2010. The results of operations for the three months ended March 31, 2011, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. |
NOTE 2 – 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 minimal 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, grow revenues organically through new program launches and marketing campaigns and/or a profitable business venture to acquire or merge.
NOTE 3 – SIGNIFICANT TRANSACTIONS
On March 30, 2011, the Company entered into a new financial commitment agreement with a private equity group. The group has agreed in principle to commit $2,500,000 over eight (8) quarters, beginning in the second quarter of 2011. As part of the commitment, the Company with expand the Board of Directors to four (4) members and the private equity group will hold one (1) seat. As a precursor to entering into this new financial commitment agreement, on March 29, 2011, the Company unilaterally terminated the subscription agreement dated August 17, 2010 between the Company and another private equity partner. The agreement committed the private equity partner to deliver $2,500,000 in funding within 45 days of August 17, 2010, which would have been October 1, 2010. However, the Company detrimentally relied on such funding and as of the date of termination, the private equity partner had invested a total of $157,500 or 6.3% of the committed funding amount.
NOTE 4 – SUBSEQUENT EVENTS
Pursuant to FASB ASC 855-10-50-1, the Company has evaluated subsequent events through May 13, 2011, the date these financial statements were available to be issued.
Item 2. 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 filed with the Securities and Exchange Commission.
Overview
From 2004 until 2008 the Company was in the business of developing, deploying and marketing semi-custom and customized branded prepaid and prepaid card solutions. Due to continued losses from operations during 2009, the Company began winding down its principal business operations and commenced a search for a new business venture. The Company has no material assets and significant liabilities. Former board members and management were unsuccessful in securing a new business venture for the Company and on January 22, 2009, transferred control of the Company to Ronald N. Vance, former company counsel, to seek for and, if possible, locate a suitable operating business venture willing to take control of the Company.
On August 12, 2009, the Company changed its status from shell Company to operating Company. Pursuant to business operations established in the second quarter, the Company has begun operations. The core focus of the restarted operations is marketing prepaid card products, payment reporting products and a suite of financial products and services. As a result, and at this time, the Company does not plan to reinstate its previous program management status, and will instead rely on third party processors, program managers and banks to coordinate, issue and manage prepaid card portfolios on behalf of the Company. The Company will focus on the marketing of network branded third party card programs that can adopt our payment reporting platform within their technical infrastructure. By leveraging existing card platforms and portfolios, we should be able to aggregate more payment reporting customers. The Company has also begun negotiations to engage businesses in the sales process. The targeted focus of the Company is to partner with businesses which deliver non-bank personal and financial services such as insurance agencies, micro-loan centers, rent to own, local/regional credit unions and check cashing businesses. As of the date of this report, the Company has begun negotiations for various arrangements and agreements. While new agreements are in place, it is indeterminable how restarting operations may positively or adversely affect the business. As a result, the Company, while attempting to create newfound revenue streams, will continue seeking opportunities for outside business ventures and raising funds to aid in launching new opportunities, work to begin generating organic revenues and developing strategic alliances and payment reporting partnerships.
Recent Developments
For the first quarter ending March 31, 2011, all primary operational efforts have been prioritized and focused on finalizing the technical infrastructure for the planned rollout of the Company’s payment reporting engines. In conjunction with the technical build out, the Company has continued entering into new distribution, strategic partnerships and operating agreements in support of the prepaid card business that is the backbone of the payment reporting business. Throughout the first quarter, the Company made limited progress in marketing the primary products and services in support of continued operations. In continuing with the direction outlined throughout 2010, the Company continued to focus on developing marketing partnerships to facilitate the distribution of prepaid debit cards, personal financial services and payment reporting services, all of which are designed to assist consumers in managing individual personal finances, including spending, budgeting and financial awareness. Last year, the Company executed agreements to operate under a new banking partnership, a new processor relationship and a leading retail load network. As part of the roadmap to further solidify the Company’s payment reporting efforts, the Company subsequent, to the first quarter has provided Central National Bank a request for a customized network branded card program.
The Company believes that this new card program will be able to offer a predictable low cost model that will provide our customers and strategic distribution partners the flexibility of working with wide reaching portfolio program channels and will better align cardholders with a suite of financial tools that include personal budgeting tools, online card balance viewing, bill payment, convenient reloading options online or at retail and a financial management spending analysis tool. We anticipate launching this program in the late part of the second quarter of 2011 or early in the third quarter.
In conjunction with continuing efforts to expand the operations, the Company spent time in the first quarter on aligning the payment reporting business with key industry associations, industry experts and governmental agencies in order to foster long term alliances.
In addition, a number of initiatives undertaken during the first quarter by the Company have taken longer than expected or anticipated. Capital constraints coupled with key management time constraints, increasing regulatory requirements, lengthening approval timeframes and vendor payment shortfalls all contributed to slower than planned marketing as well as delays in generating organic revenues in the first quarter. The Company expects that organic revenues will be generated in the coming quarters to allow the Company to hire third parties to staff and support the program development and primary growth objectives.
In further support of continued operations, the company made a number of material changes to its operations in the first quarter of 2011:
On March 30, 2011, the Company entered into a new financial commitment agreement with a private equity group. The group has agreed in principle to commit $2,500,000 over eight (8) quarters, beginning in the second quarter of 2011. As part of the commitment, the Company with expand the Board of Directors to four (4) members and the private equity group will hold one (1) seat.
On March 30, 2011, the Company entered into a consulting agreement with Mannon Walters. The agreement calls for performing certain obligations for specific consideration in cash and Company equity.
On March 29, 2011, the Company unilaterally terminated the subscription agreement dated August 17, 2010 between the Company and a private equity partner. The agreement committed the private equity partner to deliver $2,500,000 in funding within 45 days of August 17, 2010, which would have been October 1, 2010. However, the Company detrimentally relied on such funding and as of the date of termination, the private equity partner had invested a total of $157,500 or 6.3% of the committed funding amount.
On February 16, 2011, the Company filed a provisional patent application related to the technology and processes used with respect the Company’s alternative credit reporting platform. The Company remains underway with a complete process and technology compilation in order to file further patents regarding this function of the business.
On February 4, 2011, Reiner Vanooteghem, the Company’s Vice President of Sales resigned to pursue other opportunities.
Throughout the first quarter of 2011, the Company was contacted by several vendors demanding payment for prior services. The Company, as of the date of this report, is underfunded and is nearly insolvent. The new financial commitment entered into on March 30, 2011 shall provide improved funding over the coming quarters and is expected to allow the Company to remain focused on the delivery of the payment reporting and prepaid card businesses. The Company continues to negotiate with new vendors, key vendors and prior service providers. Key management personnel have accrued wages and continue to accrue wages and accept partial payments for services. It is anticipated that key management personnel and key vendors and prior service providers shall be reimbursed accordingly once additional working capital is invested. A continued and substantial backlog of liabilities remains on the records of the Company, but management remain confident that those liabilities will be paid, negotiated, reduced or addressed in the coming quarters. Of the major items outstanding, the single largest are the lapsed settlement agreements with former directors Knitowski, Dang and their related parties, Dang, Ecewa, Curo and Sagoso. The Company has been in contact with certain principals as listed above during the first quarter. It is expected that cash payments or alternative arrangements will be made in the second quarter of 2011 to mitigate any languishing liabilities to those particular parties.
Key Accounting Policies
Key accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. There were no changes to our key accounting policies for the quarter ended March 31, 2010.
Results of Operations
For the three months ended March 31, 2011
In the first quarter of 2011 we were focused on the technical infrastructure and executing distribution, marketing and strategic agreements. Delays in delivering marketing and services coupled with delayed vendor payments caused us to miss the opportunity to generate any material revenues during the quarter. As a result there was minimal revenue for both the first quarter 2011 and the comparable period.
Revenue
Revenue from continuing operations was $112 and $150 for the quarters ended March 31, 2011 and 2010, respectively, representing a decrease of $38 or effectively 25%. As previously discussed, delays in delivering marketing and services coupled with delayed vendor payments caused us to miss the opportunity to generate any material revenues during the quarter.
Cost of Sales and Gross Profit
Cost of sales was $1,845 and $161 for the quarters ended March 31, 2011 and 2010, respectively, representing an increase of $1,684 or 1045%. The increase was attributed to the typical costs associated with the commencement of programs and operations.
The resulting gross profit (loss) was ($1,733) and ($11) for the quarters ended March 31, 2011 and 2010, respectively. Management expects gross profit margin to remain unpredictable and volatile as the new operations begin. Fluctuations can be anticipated due to uncertainties in accessing markets coupled with higher product costs mixed with the volatility of entering markets where products have been commoditized. Management believes that by eliminating previously high fixed processing and banking costs associated with program management, the Company can focus on improving margins by delivering organic revenues through new marketing partnerships and alliances.
Operating Expenses
Operating expenses were $488,875 and $772,373 for the quarters ended March 31, 2011 and 2010, respectively, representing a decrease of $283,498 or 37%. The key components of our first quarter 2011 operating expense are salaries and wages (34%) stock based compensation (26%) and general and administrative (39%).
Salaries and wages expense were $164,142 and $129,230 for the quarters ended March 31, 2011 and 2010, respectively, representing an increase of $34,912 or 27%. The increase results from the increase in the number of employees from 2 for the three months ended March 31, 2010 to 4.3 full time equivalents for the three months ended March 31, 2011.
General and administrative expenses were $189,175 and $607,882 for the quarters ended March 31, 2011 and 2010, respectively, representing a decrease of $418,707 or 69%. The decrease resulted largely from the fact the Company has paid several vendors $564,300 in the form of stock, such stock being valued at $.011 and $.035 per share for the three months ended March 31, 2010.
Other income
Other income was $0 and $40,000 for the quarters ended March 31, 2011 and 2010, respectively. As previously stated, on February 25, 2010, the Company had resolved an outstanding $40,000 arbitration debt under a debt conversion agreement with Triple Crown. Under this agreement, the arbitration award was paid jointly to the recipient (Transfers4Less) by Triple Crown and the Company’s insurance provider. The Company had shown the insurance settlement as other income for which there is no comparable for 2011.
Net loss
We incurred net losses of $526,700 and $736,508 for the quarters ended March 31, 2011 and 2010, respectively, representing an increase in net loss of $209,808 or 28%. As we continue our general business operations, organic growth in conjunction with strategic alliances and acquisition or merger opportunity, we expect to improve on net losses when 2011 is compared to 2010.
Liquidity and Capital Resources
As of March 31, 2011, cash totaled $27,932 as compared with $15,800 at December 31, 2010, resulting in an increase of $12,132 in cash and cash equivalents. The increase in cash and cash equivalents was attributed to funding the operational expenses and cost of goods sold with new convertible debt. In the three months ended March 31, 2011, we used $87,180 of cash in operations. For the comparable period in the prior year we used $86,927 of cash in operations.
Working capital was ($1,632,565) at March 31, 2011, as compared with working capital of ($1,395,631) at December 31, 2010. This decrease in working capital was a result of using new funds and accounts payable to fund operations and related expenses.
The Company is currently being funded through a mix of equity investments and convertible note instruments to supply working capital for operations. The Company has a substantial backlog of liabilities and will need to negotiate and reduce liabilities in order to remain on a viable business path. If vendors, agents, suppliers and third parties are unwilling to agree to terms more favorable to the Company, there is a likelihood that the liabilities could materially and adversely affect day to day operations. The funds invested and committed are primarily focused on driving business growth and not specifically earmarked to extinguish large tranches of debt or the backlog of liabilities. In event that the Company is unable to mitigate the affects of the liabilities, the Company may seek any and all necessary protections afforded under various state and federal laws. The Company plans to continue to collect equity investments and debt instruments for the remainder of 2011 in order to finance continued operations and to finance potential merger and/or acquisition investments.
Off-Balance Sheet Arrangements
During the quarter ended March 31, 2011, we did not engage in any off-balance sheet arrangements.
Stock-Based Compensation
"On June 30, 2009, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162. On the effective date of this standard, FASB Accounting Standards Codification™ (ASC) became the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission (SEC). FASB ASC significantly changes the way financial statement preparers, auditors, and academics perform accounting research."
"This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. If an accounting change results from the application of this guidance, an entity should disclose the nature and reason for the change in accounting principle in their financial statements. This new standard flattens the GAAP hierarchy to two levels: one that is authoritative (in FASB ASC) and one that is non-authoritative (not in FASB ASC). Exceptions include all rules and interpretive releases of the SEC under the authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants, and certain grandfathered guidance having an effective date before March 15, 1992. This standard creates Topic 105, Generally Accepted Accounting Principles, in FASB ASC."
"FASB Statement No. 168 is the final standard that will be issued by FASB in that form. It was added to FASB ASC through Accounting Standards Update No. 2009-02 on June 30, 2009. There will no longer be, for example, accounting standards in the form of statements, staff positions, Emerging Issues Task Force (EITF) abstracts, or AICPA Accounting Statements of Position. Instead, FASB will issue Accounting Standards Updates. FASB will not consider Accounting Standards Updates as authoritative in their own right. Instead, they will serve only to update FASB ASC, provide background information about the guidance, and provide the basis for conclusions on changes made to FASB ASC."
"FASB ASC is a major restructuring of accounting and reporting standards designed to simplify user access to all authoritative U.S. generally accepted accounting principles (GAAP) by providing the authoritative literature in a topically organized structure. FASB ASC disassembled and reassembled thousands of nongovernmental accounting pronouncements (including those of FASB, the EITF, and the AICPA) to organize them under approximately 90 topics and include all accounting standards issued by a standard setter within levels A-D of the current U.S. GAAP hierarchy. FASB ASC also includes relevant portions of authoritative content issued by the SEC, as well as selected SEC staff interpretations and administrative guidance issued by the SEC; however, FASB ASC is not the official source of SEC guidance and does not contain the entire population of SEC rules, regulations, interpretive releases, and staff guidance. Moreover, FASB ASC does not include governmental accounting standards. FASB ASC is not intended to change U.S. GAAP or any requirements of the SEC."
Subsequent Events
The following material events occurred subsequent to the quarter ended March 31, 2011:
On May 2, 2011, Sheppard, Mullin, Richter & Hampton referred the Company to another firm for handling future legal matters. The small nature of the Company’s business and legal proceedings was identified as a primary driver for the referral.
On April 27, 2011, Trycera Financial, Inc. executed and alliance agreement with the National Credit Reporting Association. The alliance is aimed at leveraging the Equal Credit Opportunity Act, Regulation B (ECOA Reg B) with the key purpose of the agreement focused on establishing terms by which NCRA members will verify and report consumers' rental, utilities, and other recurring bill payment information to a Trycera customer's file.
On April 11, 2011, the Company filed a Form8-K disclosing a change of auditor. The Company now works with Morrill & Associates, a PCAOB certified firm based in Utah.
On April 5, 2011, the Company re-filed the corrected Form 12b-25 with the Securities and Exchange Commission (SEC). The date on the initial form was erroneously dated 03/31/2011, and the resulting error caused the Company stock to be traded on both the Over the Counter Bulletin Board (OTCBB) and Pinksheets (PK). The corrected form has remedied the dual exchange issue and the Company remains active with the OTCBB.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
Controls and Procedures
Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s “disclosure controls and procedures”, as such term is defined in Rules 13a — 15(e) and 15d — 15(e) of the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by the report.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2011, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Report was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
With the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fiscal quarter ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on such evaluation, management concluded that, as of the end of the period covered by this report, there have not been several changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Specific changes include (but are not limited to):
| § | Addition of independent Board Member for oversight and independence; |
| § | Planned addition of personnel when Company expands; |
| § | Re-implementation of Company audit committee. |
OTHER INFORMATION
The Company continues to receive demands for payments from creditors. The Company has insufficient funds to defend these actions or to pay the creditors. However, management has been proactive to reach out to most creditors in an attempt to negotiate or resolve outstanding debt. In addition, the Company is proactively working with interested third parties to convert debt on behalf of the Company. Converted debt notifications will be filed on Form 8-K with the Securities and Exchange Commission.
The Company has received erroneous demands from certain individuals related to compensation and shareholder interests. As a result, the company has retained a law firm to protect our various interests and authorized various cease and desist orders to halt the dissemination of false and misleading information.
In addition to the other information set forth in this report, you should carefully consider the factors discussed under the caption “Risk Factors” in Part I, "Item 1. Description of Business" in our Annual Report on Form 10-KSB for the year ended December 31, 2010 which could materially affect our business prospects, financial condition or future results. There have been no other material changes during the three months ended March 31, 2011 to the risk factors discussed in the periodic report noted above.
ITEM 2. Unregistered Sales Of Equity Securities and Use of Proceeds
On March 30, 2011, we entered into a Subscription Agreement with Legacy Resources Development LLC (Legacy Resources),whereby Legacy Resources has agreed to purchase 50,000,000 shares of our common stock at $.05 per share for an aggregate purchase price of $2,500,000. The Company received $100,000 on April 21, 2011 from a Legacy Resources principal, representing the initial payment for the shares. The Company anticipates that it will receive the balance of the funds from Legacy Resources within the next one hundred and eighty (180) days. The shares will be issued in reliance upon the exemptions from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act. The certificates evidencing the above mentioned shares contain a legend (1) stating that the shares have not been registered under the Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Act.
None
None
| Exhibit No. | | Description |
| | | |
| | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the Principal Executive Officer. |
| | | |
| | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial Officer. |
| | | |
| | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Executive Officer. |
| | | |
| | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Financial Officer. |
SIGNATURE PAGE FOLLOWS
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | Trycera Financial, Inc. | |
| | | | |
| Date: May 16, 2011 | By: | /s/ Ray Smith | |
| | | Ray Smith, President | |
| | | (Principal Executive Officer) | |
| | | | |
| Date: May 16, 2011 | By: | /s/ Bryan Kenyon | |
| | | Bryan Kenyon, Chief Financial Officer | |
| | | (Principal Financial Officer) | |
| | | | |
