Tricell (TCLL) 10-Q 2006 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period endedJune 30, 2006.

o 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:0-50036

TRICELL, INC.

(Exact name of registrant as specified in its charter)

Nevada	88-0504530
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)

6 Howard Place, Stoke-on-Trent, Staffordshire, ST1 4NQ United Kingdom
(Address of principal executive offices) (Zip Code)

011 44 870 753 2360

(Registrant’s telephone number, including area code)

     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.

Yeso     Noþ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check One):

Large accelerated filero      Accelerated Filero     Non-accelerated filer:þ

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso     Noþ

     The number of shares of common stock outstanding as of August 11, 2006 was 101,045,877.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION	F-1
Item 1. Financial Statements	F-1
Item 2. Management’s Discussion And Analysis of Financial Condition and Results of Operations	3
Item 3. Quantitative and Qualitative Disclosures About Market Risk	7
Item 4. Controls and Procedures	8
PART II — OTHER INFORMATION	8
Item 1. Legal Proceedings	8
Item 6. Exhibits	8
INDEX TO EXHIBITS	10
List of Subsidiaries
Certification of CEO Under Section 302
Certification of CFO Under Section 302
Certification of CEO Pursuant to 18 U.S.C. Section 1350
Certification of CFO Pursuant to 18 U.S.C. Section 1350

2

PART I — FINANCIAL INFORMATION

ITEM 1.Financial Statements

TRICELL INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

					December 31,
		June 30, 2006			2005
		(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	98,141		$	266,780
VAT receivable, net			8,518,837			1,783,320
Receivable from shareholders			—			135,784
Accounts receivable			205,883,489			50,815,920
Accounts receivable, related party			22,511,527			—
Prepaid expenses and other current assets			142,024			329,276
Total current assets			237,154,018			53,331,080
Machinery and equipment, net			94,407			137,159
Intangible assets, net of $43,088 and $33,846, respectively			49,337			58,579
Goodwill			70,915			70,915
TOTAL ASSETS		$	237,368,677		$	53,597,733
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Income taxes payable		$	1,719,861		$	2,675,072
Accounts payable			226,412,751			51,447,603
Payable to shareholders			728,431			69,173
Accrued expenses and other current liabilities			4,382,245			2,717,019
Deferred tax liability			271,777			327,131
	��
Total current liabilities			233,515,065			57,235,998
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 100,000,000 shares authorized, none issued and outstanding			—			—
Common stock, $0.001 par value, 500,000,000 shares authorized, 101,030,020 and 99,030,020 shares issued and outstanding during 2006 and 2005, respectively			101,030			99,030
Additional paid-in capital			1,110,519			740,980
Retained earnings (accumulated deficit)			2,010,024			(4,766,367	)
Accumulated other comprehensive income			757,157			640,264
Deferred compensation			(125,118	)		(352,172	)
Total stockholders’ equity (deficit)			3,853,612			(3,638,265	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	237,368,677		$	53,597,733

See accompanying notes to consolidated financial statements.

F-1

TRICELL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)

	2006			2005
SALES	$	357,387,776		$	220,508,455
COST OF SALES		352,360,313			219,100,603
GROSS PROFIT		5,027,463			1,407,852
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		2,053,429			651,866
INCOME FROM OPERATIONS		2,974,034			755,986
OTHER INCOME (EXPENSE)
Interest expense and other financing costs		(320,460	)		(847,338	)
Other expense		—			—
Gain on net liabilities written off from liquidated subsidiaries		—			—
Rental income		465			—
Interest income		196			33
Total Other Income (Expense)		(319,799	)		(847,305	)
INCOME (LOSS) BEFORE INCOME TAXES		2,654,235			(91,319	)
INCOME TAX BENEFIT (EXPENSE)		(884,853	)		16,389
NET INCOME (LOSS)	$	1,769,382		$	(74,930	)
EARNINGS (LOSS) PER SHARE — BASIC AND DILUTED	$	0.02		$	—
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — BASIC AND DILUTED		101,030,020			93,753,020

See accompanying notes to consolidated financial statements.

F-2

TRICELL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)

	2006			2005
SALES	$	740,924,849		$	276,775,381
COST OF SALES		730,069,629			274,589,325
GROSS PROFIT		10,855,220			2,186,056
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		5,809,795			1,216,483
INCOME FROM OPERATIONS		5,045,425			969,573
OTHER INCOME (EXPENSE)
Interest expense and other financing costs		(321,128	)		(1,091,406	)
Other expense		(7,007	)		—
Gain on net liabilities written off from liquidated subsidiaries		3,620,523			—
Rental income		465			—
Interest income		1,553			319
Total Other Income (Expense)		3,294,406			(1,091,087	)
INCOME (LOSS) BEFORE INCOME TAXES		8,339,831			(124,514	)
INCOME TAX BENEFIT (EXPENSE)		(1,563,442	)		(40,524	)
NET INCOME (LOSS)	$	6,776,389		$	(162,038	)
EARNINGS (LOSS) PER SHARE — BASIC AND DILUTED	$	0.07		$	—
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — BASIC AND DILUTED		100,952,672			93,753,020

See accompanying notes to consolidated financial statements.

F-3

TRICELL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)

	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	6,776,389		$	(162,038	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		42,205			19,128
Amortization of deferred compensation		227,054			196,880
Bad debt		—			72,457
Shares issued for services		371,539			—
(Gain)/loss on net liabilities written off from liquidated subsidiaries		(3,620,523	)		—
Changes in operating assets and liabilities:
VAT receivable		(6,775,246	)		(154,318	)
Accounts receivable		(177,727,563	)		309,859
Prepaid and other current assets		115,426			(4,802	)
Other receivables (payables), net		795,042			110,433
Accounts payable and accrued expenses		177,898,744			9,968
Other Current Liabilities		—			129,699
Income taxes payable		1,614,545			39,486
Net Cash Provided By Operating Activities		(282,388	)		566,752
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of machinery and equipment		(10,152	)		(62,305	)
Cash paid in acquisition of ACE Telecom		—			1,090,900
Loans to shareholders		—			(31,394	)
Loans to third parties		—			(175,764	)
Net Cash Provided by (Used In) Investing Activities		(10,152	)		821,437
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing from (repayment to) third parties		—			55,724
Net Cash Provided by Financing Activities		—			55,724
NET INCREASE (DECREASE) IN CASH		(292,540	)		1,443,913
EFFECT OF EXCHANGE RATE ON CASH		123,901			(43,206	)
CASH, BEGINNING OF PERIOD		266,780			6
CASH, END OF PERIOD	$	98,141		$	1,400,893
SUPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid during the period	$	8,276		$	1,086,953
Income taxes paid during the period	$	—		$	—
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
253,020 shares issued for deferred compensation 1,000,000 shares of common stock issued for the acquisition of ACE Telecom				$	30,000

See accompanying notes to consolidated financial statements.

F-4

NOTE 1 —NATURE OF BUSINESS AND CAPITALIZATION

Tricell, Inc. and subsidiaries (Tricell Distribution Limited, Tricell Global Limited (formally Tricell Properties Limited), Ace Telecom Limited and Ace Telecom Trading Limited), are collectively referred to herein as the “Company”.

The Company is a worldwide distributor of mobile telephones and other mobile handset accessories. The Company’s corporate offices are located in Stoke-On-Trent, United Kingdom.

NOTE 2 — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2005 included in the Company’s Form 10-K filed with the Securities and Exchange Commission. The interim unaudited consolidated financial statements should be read in conjunction with those consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, were made. Operating results for the six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ended December 31, 2006.

PRINCIPLES OF CONSOLIDATION

The consolidated interim financial statements include the accounts of Tricell, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

NOTE 3 — STOCK OPTIONS

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R,Share-Based Payment, as of January 1, 2006, using the modified prospective application method. This statement requires the recognition of compensation expense when an entity obtains employee services in exchange for stock-based payment transactions.

Prior to January 1, 2006, the Company accounted for stock options granted to directors and employees using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, (APB No. 25”) and related interpretations. APB No. 25 required compensation expense be recognized for grants of stock options when the quoted market price of the Company’s common stock on the date the options were granted exceeds an option’s exercise price. The Company did not grant any stock options with an exercise price that was less than the fair market value of the stock at the date of grant during the period ended June 30, 2005. Accordingly, no compensation cost was recognized in that period in 2005 for its employee stock options in the accompanying financial statements. The Company had adopted the disclosure provisions of Statement of Financial Accounting Standard (”SFAS”) No. 123,Accounting for Stock-Based Compensation, (“SFAS” 123”) and SFAS No. 148,Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment ofFASB Statement No. 123, which require the Company to provide pro forma information regarding net income and net income per share as if compensation cost for the Company’s stock options had been determined under the fair value method prescribed by SFAS No. 123.

F-5

The Company had not granted any stock options prior to June 30, 2005, and hence there was no pro forma stock compensation expense for the six months ended June 30, 2005. The Company recorded $64,579, net of $27,677 related income tax, as stock compensation expense included in the statement of operations in selling, general, and administrative expense in the three months ended June 30, 2006. The Company recorded $129,158, net of $55,354 related income tax, as stock compensation expense included in the statement of operations in selling, general, and administrative expense in the six months ended June 30, 2006, related to options outstanding at December 31, 2005. No options were granted in the six months ended June 30, 2006.

NOTE 4 —CREDIT ARRANGEMENT

During 2006, the Company entered into a Conditional Joint Venture Loan Agreement (“Loan”) with Global Financial Services Management Limited (Hong Kong). The loan bears finance costs equal to 50% of the gross profit earned on transactions in which the Loan was used. This Loan has been used during the year and has provided the Company with the additional working capital needed to engage in increasing its trading operations. Funds received pursuant to the Loan (approximately $930,000, or 500,000 GBP) were not yet due to be repaid and were outstanding as of June 30, 2006. Approximately $318,000 (175,000 GBP) in finance costs is included in accrued expenses and other current liabilities on the accompanying balance sheet, and in interest expense and other financing costs in the accompanying statement of operations. The Loan has a term of one year and continues in effect until 80 days notice is given by either party. The Loan is secured by the goods purchased to affect such sales transactions.

NOTE 5 —RELATED PARTY TRANSACTIONS

As part of the acquisition of ACE there were amounts owed to the Company by their four shareholders of $275,704, these amounts have been repaid in part during 2005 and in full in 2006. As of June 30, 2006 there is a balance payable to the directors/shareholders of $728,431.

During the three and six months ended June 30, 2006 the Company had sales of approximately $17,188,000 and $99,842,000 to N2J, Inc., a company owned by certain of the directors of Tricell. These sales accounted for approximately 5% and 13% of total sales for the three and six months ended June 30, 2006, respectively. The Company also had an accounts receivable of approximately $22,512,000 due from N2J as of June 30, 2006, which accounted for approximately 10% of total accounts receivable.

NOTE 6 —COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments, which are reported separately on the consolidated statements of stockholders’ equity in the Company’s Form 10-K.

F-6

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2006		2005			2006		2005
Net income (loss)	$	1,769,382	$	(74,930	)	$	6,776,389	$	(162,038	)
Foreign currency translation adjustment, net of tax		195,261		108,994			116,893		181,157
Comprehensive income (loss)	$	1,964,643	$	34,064		$	6,893,282	$	19,119

NOTE 7 —CONCENTRATIONS

As of June 30, 2006, the Company had three customers that accounted for approximately 20%, 20%, and 10% of the Company’s accounts receivable balance. As of December 31, 2005, the Company had four customers that accounted for approximately 40%, 22%, 22%, and 12% of the Company’s accounts receivable balance.

Net sales to customers in excess of 10% of net sales approximated the following during the three months and six months ended June 30, 2006 and 2005:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Customer	2006			2005			2006			2005
A		14	%		49	%		14	%		39	%
B		13	%		33	%		—			26	%
C		11	%		16	%		—			16	%
D		11	%		—			—			13	%
E		10	%		—			—			—

Net purchases from vendors in excess of 10% of total purchases approximated the following during the three months and six months ended June 30, 2006 and 2005:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Vendor	2006			2005			2006			2005
A		27	%		47	%		14	%		39	%
B		—			32	%		14	%		26	%
C		—			17	%		12	%		13	%
D		—			—			12	%		11	%

Revenues from the United Kingdom and other countries were as follows during the three months and six months ended June 30, 2006 and 2005:

	Three Months Ended June 30,
	2006		2005
UK	$	213,760,773	$	111,037,238
Portugal		95,899,236		34,928,646
Netherlands		—		—
Luxemburg		25,683,403		—
Spain		1,770,786		74,540,275
France		20,273,578		—
Cyprus		—		—
United States		—		2,296
Total	$	357,387,776	$	220,508,455

F-7

	Six Months Ended June 30,
	2006		2005
UK	$	423,816,442	$	165,009,628
Portugal		159,127,448		75,228,099
Netherlands		55,866,559		—
Luxemburg		51,506,013		—
Spain		13,318,389		35,812,082
France		20,273,578		—
Cyprus		17,016,420		—
United States		—		725,572
Total	$	740,924,849	$	276,775,381

NOTE 8 —BANKRUPCTY PROCEEDINGS

On January 28, 2006, the Company was notified that two of the Company’s wholly owned subsidiaries, Tricell International Limited (“Tricell International”) and Tricell (UK) Limited (“Tricell UK”), were moved from administration, a United Kingdom equivalent of Chapter 11 reorganization, to creditors’ voluntary liquidation, a United Kingdom equivalent of Chapter 7 liquidation. Neither Tricell nor other subsidiaries have provided any guarantees or security interests to the creditors of either Tricell International or Tricell UK. As a result of this liquidation, as of January 27, 2006, the assets and liabilities of Tricell UK and Tricell International were removed from the Company’s consolidated financial statements, resulting in a gain on net liabilities written off from liquidated subsidiaries of approximately $3,621,000, as reflected in the consolidated statements of operations.

F-8

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Information

     This quarterly report contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These statements relate to future events or to our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. There are a number of factors that could cause our actual results to differ materially from those indicated by such forward-looking statements.

     Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance, or achievements. Moreover, it does not assume responsibility for the accuracy and completeness of such forward-looking statements. The Company is under no duty to update any of the forward-looking statements after the date of this information statement to conform such statements to actual results. The foregoing management’s discussion and analysis should be read in conjunction with the Company’s financial statements and the notes herein.

Overview

     During the quarter ended June 30, 2006, we maintained our level of profitability from operations for the first quarter of 2006, which represents a significant improvement from our profitability for the quarter ended June 30, 2005. This improvement is due to our continued focus on trading operations. We have achieved this by retaining and reinvesting the working capital generated from our profitable trading operations during 2005 and continuing in the first half of 2006 and additionally achieving short-term debt financing. We anticipate that our current operations will maintain this level of revenue and profitability throughout the remainder of 2006.

     The primary area of our operations is the wireless sector, where we will continue our wholesale international distribution of mobile handsets and electronic equipment. We are continuing to see market growth and an increased demand for our services, in addition to the expansion of our products into new markets, which we plan to include the United States by the end of the second quarter for 2007. These factors are expected to be complimented by developing improved relationships with the wireless manufacturers and the expansion of our integrated logistics services.

Proposed Acquisition of N2J Limited

     We are continuing our negotiations to acquire N2J Limited, a United Kingdom limited company. The Letter of Intent (LOI), dated April 14, 2006, we entered into with N2J expired on May 15, 2006 but we expect to execute a new LOI before August 31, 2006. In the event we acquire N2J, we will have a broader platform of markets to sell our products. We believe N2J’s ability to liberally conduct trading from the United Kingdom will provide synergies of our current subsidiaries, as their network of purchasers and suppliers will now only be enhanced. We believe that this acquisition will significantly accelerate future profitability.

3

Future Sales Strategy

     To deliver our strategy we will:

     Continue to build our relationships with wireless manufacturers, broadening our portfolio with these manufacturers and expanding the number of customers to whom we supply;

     Expand the geographic coverage of our operations in Eastern Europe, Asia and North America; and

     Develop and expand our service offering to deliver integrated logistic services to the handset manufacturers and network operators, enabling them to more effectively address their markets, including the distribution, marketing and selling of airtime services.

     The size and relative lack of saturation of this market are the primary reasons why we anticipate trying to gain further entry in the United States market.

Results of Operations

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005

     The following discussion should be read in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2005. Comparisons made between reporting periods herein are for the six month period ended June 30, 2006 as compared to the same period in 2005.

	Six Months		Six Months
	June 30, Ended		June 30, Ended				Percent
	2006		2005		Increase		Increase
Revenue	$	740,924,849	$	276,755,381	$	464,149,468		168	%
Gross Profit	$	10,855,220	$	2,186,056	$	8,669,164		397	%

     The improvements in revenue and gross profit resulted when our 2006 trading operations were expanded relative to our trading operations conducted in the six months ended June 30, 2005. Further enhancing our results for six months ended June 30, 2006 as compared to the same period in 2005 was our focus on improved gross profit as compared to our 2005 operations due to our ongoing efforts to reduce our cost of sales and economies of scale.

	Six Months		Six Months
	June 30, Ended		June 30, Ended				Percent
	2006		2005		Increase		Increase
Gross Profit	$	10,855,220	$	2,186,056	$	8,669,164		397	%
Selling, General and Administrative Expenses	$	5,809,795	$	1,216,483	$	4,593,309		378	%
Income from Operations	$	5,045,428	$	969,573	$	4,075,855		420	%

4

     Our selling, general and administrative expenses increased for first six months of 2006 when compared with the same period of 2005. This 378% increase is related to our increase in trading operations and increased revenue which require that our administrative expenses increase. The improvement, 420% in income from operations is the result of our increased revenues, relatively decreased cost of sales, and our relatively lower selling, general and administrative expenses. Additionally, in the first six months ended June 30, 2006, Tricell resumed internally financing nearly all of its trading activities with cash flow from operations, whereas an external line of credit was used to finance a substantial portion of operations for most of 2005.

	Six Months			Six Months
	Ended June 30,			Ended					Percent
	2006			June 30, 2005			Increase		Increase
Income from Operations	$	5,045,428		$	969,573		$	4,075,855		420	%
Other Income (Expense)	$	3,294,406		$	(1,091,087	)	$	4,385,493		402	%
Income Tax Benefit (Expense)	$	(1,563,442	)	$	(40,524	)	$	1,522,918		3758	%
Net Income (loss)	$	6,776,389		$	(162,038	)	$	6,938,427		4282	%

     The increase in other income is almost entirely due to our write off of approximately $3,621,000 of net liabilities when two of our subsidiaries were liquidated in January 2006. Also contributing to our improved profitability is our reduction of interest expense and financing costs to $321,128 for the six months ended June 30, 2006 from $1,091,406 for the six months ended June 30, 2005. This other income added significantly to our already increased income from operations, resulting in net income of $6,776,389 for the six months ended June 30, 2006, as compared to net loss of $162,038 for the same period in 2005.

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2005

     The following discussion should be read in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2005. Comparisons made between reporting periods herein are for the three-month period ended June 30, 2006 as compared to the same period in 2005.

	Three Months		Three Months
	Ended		Ended				Percent
	June 30, 2006		June 30, 2005		Increase		Increase
Revenue	$	357,387,776	$	220,508,455	$	136,879,321		62	%
Gross Profit	$	5,027,463	$	1,407,852	$	3,619,611		257	%

     Our sales revenue increased to $357,387,776 for the three months ended June 30, 2006 from $220,508,445 for the same period in 2005. The increase in sales revenue is due to continued expansion of our trading operations.

5

	Three Months		Three Months
	Ended		Ended				Percent
	June 30, 2006		June 30, 2005		Increase		Increase
Gross Profit	$	5,027,463	$	1,407,852	$	3,619,611		257	%
Selling, General and Administrative Expenses	$	2,053,429	$	651,866	$	1,401,563		215	%
Income from Operations	$	2,974,034	$	755,986	$	2,218,048		293	%

     Our selling, general and administrative (SGA) expenses increased for the second quarter of 2006 when compared with the same period of 2005. This 215% increase is related to our increase in trading operations and increased revenue which requires that our administrative expenses increase. The improvement, 293% in income from operations is the result of our increased revenues, relatively decreased cost of sales, and our relatively lower selling, general and administrative expenses.

	Three			Three
	Months			Months
	Ended			Ended						Percent
	June 30, 2006			June 30, 2005			Increase/(Decrease)			Increase/(Decrease)
Income from Operations	$	2,974,034		$	755,986		$	2,218,048			293	%
Other Income (Expense)	$	(319,799	)	$	(847,305	)	$	(527,506	)		(62	%)
Income Tax Benefit (Expense)	$	(884,853	)	$	16,389		$	(901,242	)		(5499	%)
Net Income (Loss)	$	1,769,382		$	(74,930	)	$	1,844,312			2461	%

     We had net income of $1,769,382 for the three months ended June 30, 2006 as compared to a net loss of $74,930 for the three months in 2005. The increase in income was due to our expanded trading operations as well as a reduction of interest expense and financing costs in the three months ended June 30, 2006 to $320,460, from $847,338 for the three months ended June 30, 2005.

Liquidity and Capital Resources

     As of June 30, 2006, our cash and cash equivalents were $98,141, as compared to $266,780 as of December 31, 2005. The decrease is primarily due to working capital needs of our expanded operations.

	Six months			Six months
	ended June 30,			ended June 30,
	2006			2005
Cash Provided By (Used In)	$	(282,388	)	$	566,752
Operating Activities

     Cash used in operating activities for the six months ended June 30, 2006 was $282,388 as compared to cash provided by operating activities for the same period of 2005 of $566,752. The

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change is mainly attributable to the fact that our expanding operations required more working capital in 2006.

	Six months			Six months
	ended June 30,			ended June 30,
	2006			2005
Cash Provided by (Used In) Investing Activities	$	(10,152	)	$	821,437

     Cash used in investing activities decreased to $10,152 for the six months ended June 30, 2006 as compared to cash provided by investing activities of $821,437 for the same period in 2005. This decrease is primarily the result of a decrease in loans to third parties, from $175,764 for the six months ended June 30, 2005 to $0 for the same period in 2006; a decrease on loans to shareholders, from $31,394 for the six months ended June 30, 2005 to $0 for the same period in 2006; and a decrease in cash paid in the acquisition of Ace Telecom, from $1,090,900 for the six months ended June 30, 2005, to $0 for the same period in 2006.

	Six months		Six months
	ended June 30,		ended June 30,
	2006		2005
Cash Provided by (Used In) Financing Activities	$	—	$	55,724

     Cash provided by financing activities for the six months ended June 30, 2006 was $0, as compared to cash provided by financing activities of $55,724 for the same period in 2005. The decrease in cash provided by financing activities reflects our lack of borrowing for the six months ended June 30, 2006, as opposed to borrowing of $55,724 for the same period in 2005

     We believe we have sufficient cash to satisfy our operating requirements for twelve months. We have the ability to restrict our expenditures to the extent cash is not available related to working capital for our operations. If the cash reserves are not enough to satisfy our operating needs and we are unable to generate revenues, we will seek bank loans on favorable terms and/or sell additional shares of our equity securities to secure the cash required to conduct our business operations for the next twelve (12) months.

Off-Balance Sheet Arrangements

     We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structure finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes as part of our ongoing business. As of June 30, 2006, we were not involved in any unconsolidated SPE transactions.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

     We have never owned or traded market risk sensitive instruments, or equivalent instruments from which future cash flows can be realized. Our major market risk is changes in foreign currency exchange rates relative to the British Pound, which could impact our results of operations and financial condition. Foreign exchange risk arises from our exposure to

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fluctuations in foreign currency exchange rates because our reporting currency is the United States dollar. Management seeks to minimize the exposure to foreign currency fluctuations through natural internal offsets to the fullest extent possible. Specifically, we attempt to affect every one of our sales and purchase transactions in British Pounds to eliminate currency fluctuations entirely. We further attempt to minimize currency fluctuation risk by effecting purchases of equipment and subsequent resale of such equipment as expeditiously as possible and immediately thereafter convert foreign funds to British Pounds as to minimize the amount of time we are exposed to currency fluctuation. As of June 30, 2006, we had not engaged in any currency arbitrage or hedging activities, although we may in the future. Our debt is not subject to one measure of interest, therefore, the debt is somewhat diversified against interest rate increases.

ITEM 4. Controls and Procedures

     We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this quarterly report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

     There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

     The Company is not a party to any legal proceedings and is unaware of any pending or threatened legal proceedings.

ITEM 6. Exhibits

(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits beginning on page 10 this Form 10-Q, which is incorporated herein by reference.

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SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 18th day of August, 2006.

TRICELL, INC.
 

/s/ Neil Pursell  

By: Neil Pursell, Chief Financial Officer 

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INDEX TO EXHIBITS

EXHIBIT
NO.	DESCRIPTION
3(i)	Articles of Incorporation of the Company. (Incorporated by reference from the Company’s Form 10-SB12G, file number 000-50036, filed on October 11, 2002.)
3(ii)	Bylaws of the Company. (Incorporated by reference from the Company’s Form 10-SB12G, file number 000-50036, filed on October 11, 2002.)
10.1	Loan Agreement, dated February 14, 2005, by and between Tricell Distribution Ltd. and Telco Invest Limited (filed as Exhibit 10 to the Company’s Current Report on Form 10-K filed on June 10, 2005, and incorporated herein by reference).
10.2	Employment Agreement, dated January 26, 2006, by and between the Company and Neil Pursell (filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed on April 17, 2006, and incorporated herein by reference)
10.3	Employment Agreement, dated January 26, 2006, by and between the Company and James Reed (filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed on April 17, 2006, and incorporated herein by reference)
10.4	Employment Agreement, dated January 26, 2006, by and between the Company and Adrian John Sumnall (filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K filed on April 17, 2006, and incorporated herein by reference)
10.5	Employment Agreement, dated January 26, 2006, by and between the Company and Neil Proctor (filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed on April 17, 2006, and incorporated herein by reference)
10.6	Sale Agreement, dated June 30, 2005, by and between the Company and James Reed, Neil Pursell, John Sumnall, and Neil Proctor (filed as Exhibit 10 to the Company’s Current Report on Form 8-K filed on July 7, 2005, and incorporated herein by reference).
10.7	Letter of Intent dated April 14, 2006 executed by and between the Company and the owners of N2J Limited (filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K filed on April 17, 2006, and incorporated herein by reference)
21	List of Subsidiaries
31(i)	Certification of Chief Executive Officer of Tricell, Inc. under Section 302 of the Sarbanes-Oxley Act of 2002.
31(ii)	Certification of Chief Financial Officer of Tricell, Inc. under Section 302 of the Sarbanes-Oxley Act of 2002.
32(i)	Certification of Chief Executive Officer of Tricell, Inc. Pursuant to 18 U.S.C. §1350
32(ii)	Certification of Chief Financial Officer of Tricell, Inc. Pursuant to 18 U.S.C. §1350

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