UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2006
[ ]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 charter)
Nevada 33-0910363
State or other jurisdiction of I.R.S. Employer I.D. No.
incorporation or organization
170 Newport Center Drive, Suite 210, Newport Beach, CA 92660
Address of principal executive offices Zip Code
Issuer's telephone number, including area code: (949) 273-4300
Check whether the Issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the Issuer's classes of
common equity as of the latest practicable date: At August 11, 2006, there
were 7,219,302 shares of the Registrant's Common Stock outstanding.
Table of Contents
Page
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . .
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION. . . . . . . . . . . . . . . . . . . . . .
ITEM 3. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . .
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES. . . . . . . . . . .
ITEM 3. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
PART I
ITEM 1. FINANCIAL STATEMENTS
Trycera Financial, Inc.
Consolidated Balance Sheets
<Table>
<Caption>
June December
30, 2006 31, 2005
------------ ------------
(Unaudited)
Assets
Current Assets
- --------------
Cash $ 359,663 $ 211,523
Accounts Receivable, net of allowance
of $0 and $1,999 53,588 99,811
Prepaid Expenses and other current assets 10,734 42,786
Client ACH Reserves 5,000 5,000
------------ ------------
Total Current Assets 428,985 359,120
Property & Equipment, net 8,833 12,764
Other Assets
- ------------
Deposits 9,207 9,207
Definite Life Intangible Assets, net 69,415 75,644
------------ ------------
Total Other Assets 78,622 84,851
------------ ------------
Total Assets $ 516,440 $ 456,735
============ ============
Liabilities & Stockholders' Equity
Current Liabilities
- -------------------
Accounts Payable $ 54,212 $ 52,469
Portfolio reserves 85,291 -
Accrued Expenses 45,304 46,827
Line of Credit 9,095 14,485
Deferred Revenue, net 95,000 22,191
------------ ------------
Total Current Liabilities 288,902 135,972
------------ ------------
Total Liabilities 288,902 135,972
============ ============
Commitments - -
Stockholders' Equity
- --------------------
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; 7,359,802 and 6,876,802 Shares
Issued and Outstanding, Respectively 7,359 6,876
Additional Paid In Capital 3,360,988 2,761,230
Accumulated Deficit (3,140,809) (2,447,343)
------------ ------------
Total Stockholders' Equity 227,538 320,763
------------ ------------
Total Liabilities & Stockholders' Equity $ 516,440 $ 456,735
============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
3
Trycera Financial, Inc.
Consolidated Statements of Operations
(Unaudited)
<Table>
<Caption>
For the Three Months Ended For the Six Months Ended
June June June June
30, 2006 30, 2005 30, 2006 30, 2005
------------ ------------ ------------ ------------
Revenues
Consulting $ 7,500 $ - $ 9,100 $ -
Stored Value 72,130 35,577 371,290 51,039
Call Center 64,991 10,418 135,564 10,418
Catalog Shopping 3,242 38,034 3,242 91,335
------------ ------------ ------------ ------------
147,863 84,029 519,196 152,792
Cost of Sales 293,675 66,554 505,190 107,782
- ------------- ------------ ------------ ------------ ------------
Gross Profit (145,812) 17,475 14,006 45,010
Expenses
- --------
Depreciation and Amortization 10,483 53,144 11,357 51,385
Salaries and Wages 139,128 113,135 321,284 248,934
Stock Based Compensation 3,423 - 108,173 -
Professional Fees 90,848 55,400 138,182 128,844
General & Administrative 69,686 120,732 128,805 195,455
------------ ------------ ------------ ------------
Total Expenses 313,568 342,411 707,801 624,618
Income (Loss) from
Operations (459,380) (324,936) (693,795) (579,608)
------------ ------------ ------------ ------------
Other Income (Expenses)
- -----------------------
Interest, net (231) (296) 329 (572)
------------ ------------ ------------ ------------
Total Other Income
(Expenses) (231) (296) 329 (572)
------------ ------------ ------------ ------------
Income (Loss) Before Taxes (459,611) (325,232) (693,466) (580,180)
Income Taxes - - - -
------------ ------------ ------------ ------------
Net Income (Loss) $ (459,611) $ (325,232) $ (693,466) $ (580,180)
============ ============ ============ ============
Basic earnings per share:
Loss per share $ (0.06) $ (0.05) $ (0.10) $ (0.09)
============ ============ ============ ============
Weighted average shares 7,289,501 6,314,835 7,144,471 6,311,338
============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
4
Trycera Financial, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<Table>
<Caption>
For the Six Months Ended
June June
30, 2006 30, 2005
------------ ------------
Cash Flows from Operating Activities
- ------------------------------------
Net Income (Loss) $ (693,466) $ (580,180)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations;
Depreciation and amortization 11,357 51,385
Stock issued for services 35,000 -
Stock based compensation 108,173 45,133
(Increase) decrease in accounts receivable 46,223 (14,071)
(Increase) decrease in prepaid and other current assets 32,052 574
(Increase) decrease in deposits - (5,000)
Increase (decrease) in portfolio reserves - 15,000
Increase (decrease) in accounts payable 1,743 24,018
Increase (decrease) in portfolio reserves 85,291 -
Increase (decrease) in accrued expenses (1,523) 9,353
Increase (decrease) in unearned revenue 72,809 (45,351)
------------ ------------
Net Cash Provided (Used) by Operating Activities (302,341) (499,139)
------------ ------------
Cash Flows from Investing Activities
- ------------------------------------
Acquisition of property & equipment (1,197) (9,013)
Acquisition of intangible assets and other - (27,404)
------------ ------------
Net Cash Provided (Used) by Investing Activities (1,197) (36,417)
------------ ------------
Cash Flows from Financing Activities
- ------------------------------------
Proceeds from issuance of common stock 457,068 -
Payments made on line of credit (5,390) (1,204)
------------ ------------
Net Cash Provided (Used) by Financing Activities 451,678 (1,204)
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 148,140 (536,760)
Cash and Cash Equivalents at Beginning of Period 211,523 974,658
------------ ------------
Cash and Cash Equivalents at End of Period $ 359,663 $ 437,898
============ ============
Cash Paid for:
- --------------
Interest $ 992 $ -
Income Taxes $ - $ -
Non-cash financing activities:
- ------------------------------
Common stock issued for services 35,000 -
</Table>
The accompanying notes are an integral part of these financial statements.
5
Trycera Financial, Inc.
Notes to the Financial Statements
June 30, 2006
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 10KSB for the year ended December 31, 2005. The results
of operations for the six months ended June 30, 2006 are not
necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2006.
B. 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 warrants and employee stock
options, in the amount of 2,836,250, were considered in the
calculation of earnings per share but were not included because their
inclusion would have been anti-dilutive for the periods presented.
<Table>
<Caption>
June 30, June 30,
2006 2005
------------ ------------
(Unaudited) (Unaudited)
Basic Earnings per share:
Income (Loss) (numerator) $ (693,466) $ (580,180)
Shares (denominator) 7,144,471 6,311,338
------------ ------------
Per Share Amount $ (.10) $ (.09)
============ ============
</Table>
6
Trycera Financial, Inc.
Notes to the Financial Statements
June 30, 2006
NOTE 2 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 10,000,000. 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 period ending June 30, 2006:
<Table>
<Caption>
2004 Stock Plan
--------------------------
Weighted
Average
Amount of Exercise
Shares Price
------------ ------------
Outstanding at January 1, 2005 2,621,250 $ .56
Options Granted 449,000 $ .96
Options Exercised - -
Options Canceled - -
------------ ------------
Outstanding at December 31, 2005 3,070,250 $ .62
Options Granted 120,000 -
Options Exercised - -
Options Canceled (252,750) -
------------ ------------
Options Outstanding at June 30, 2006 2,836,250 $ .61
============ ============
Options Exercisable at June 30, 2006 2,076,667 $ .56
Options Exercisable at December 31, 2005 1,704,167 $ .45
</Table>
7
Trycera Financial, Inc.
Notes to the Financial Statements
June 30, 2006
NOTE 2 STOCK OPTION PLAN (CONTINUED)
- --------------------------------------
The Company, in accordance with Statement of Financial Accounting Standards
No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", $3,423 and $108,173,
respectively was recognized for the three and six months ended June 30,
2006 and $0 was recognized for the comparative periods in 2005. 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:
<Table>
<Caption>
June 30, 2006
-------------
Five Year Risk Free Interest Rate 5.11%
Dividend Yield 0%
Volatility 30%
Average Expected Term (Years to Exercise) 5
</Table>
Management would like to confirm an intention to use an appropriate
volatility in the future, which is likely to be higher than the historical
basis.
Employee stock options outstanding and exercisable under this plan as of
June 30, 2006 are:
<Table>
<Caption>
Weighted Average Weighted
Number of Average Remaining Number Average
Range of Options Exercise Contractual of Options Exercise
Exercise Price Granted Price Life (Years) Vested Price
-------------- ------------ ------------ ------------ ------------ ------------
$.001- $.99 2,431,250 $ .55 4.25 2,017,500 $ .55
$1.00 405,000 $ 1.00 4.25 59,167 $ 1.00
</Table>
Employee stock options outstanding and exercisable under this plan as of
December 31, 2005 are:
<Table>
<Caption>
Weighted Average Weighted
Number of Average Remaining Number Average
Range of Options Exercise Contractual of Options Exercise
Exercise Price Granted Price Life (Years) Vested Price
-------------- ------------ ------------ ------------ ------------ ------------
$.001- $.85 2,196,250 $ .53 3.5 1,496,250 $ .40
$0.75 425,000 $ .61 3.5 154,167 $ .61
$0.75 135,000 $ .75 4.5 37,500 $ .61
$1.00 314,000 $ 1.00 4.5 16,250 $ .81
</Table>
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with our
financial statements and related notes thereto as filed with the Securities
and Exchange Commission.
Prior to May 2004, we had no operating history. Based in Newport
Beach, California, we are currently in the business of developing and
marketing a suite of stored value and financial products and services.
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. Our core operating business is centered upon developing and
marketing a broad array of stored value products and services for persons
without banking relationships and persons who are underserved by existing
banking facilities.
RECENT DEVELOPMENTS
During the quarter ended June 30, 2006, we continued to build upon the
custom program launched in the first quarter, PlatinumTel. Our product
team has helped PlatinumTel identify opportunities to improve card adoption
by providing concepts of inserts and media to program managers at
PlatinumTel for review and distribution to their retail locations.
Furthermore, we have renewed efforts to grow our card portfolio through
online, direct to consumer and affiliate marketing channels.
In the second quarter we also launched a new product, the Model Debit
MasterCard (registered trademark symbol) card. This turnkey stored value
solution showcases our new semi-customized offering called the OEM platform
and has been developed to support a prepaid card program tied to an early
twenties modeling program across the United States. Similar to other
customized solutions, the Model Debit MasterCard (registered trademark
symbol) program offers a set of card features and functionalities that
include: bill payment, wireless spending alerts, live customer service
support and web-based card management tools.
To further diversify our prepaid card product offers, we developed and
implemented a proprietary card management platform in the second quarter.
This card management platform is designed to mitigate large program start-
up costs while streamlining the way stored value card programs are built
and managed. Known as the OEM platform, this card platform provides card
marketers and our customers with the ability to rapidly create, launch, and
manage semi-customized stored value programs while not bearing the costs
and related resource requirements associated with direct processor, issuer,
and association relationships. The OEM platform allows marketers to market
a unique card brand of their choosing and wrap that brand in a customized
web skin which is then seamlessly integrated into our core infrastructure
and technology engine, providing transparent functionality. Further
benefits of our OEM platform include hands on program management by us and
the flexibility to choose a cost plus processing model or a traditional
revenue sharing model.
9
During the quarter we also continued the development of an alternative
credit reporting product and service branded Full Credit. We expended
resources and spent capital on program development and legal fees in order
to prepare the product for an early third quarter delivery.
This complementary service program will allow participants to report non-
traditional payments to over 200 national credit reporting agencies. A
majority of the payments and transactions provided to the national credit
reporting agencies under this program would include rent, gas and electric,
cable TV, phone/wireless and utilities (water, sewer & trash). By
providing such non-traditional payment information, credit reporting
agencies may better understand an individual's consumer credit behavior and
in turn offer an ability to report alternative scores that may or may not
help facilitate credit granting decisions by prospective credit lenders.
On August 8, 2006 entered into a new banking relationship with New
Millennium Bank, credit card processor, based in Livingston, New Jersey.
This agreement helps us diversify our banking relationships and facilitates
the implementation of new non-traditional prepaid debit card programs
within the United States.
On August 8, 2006 we acquired the assets of an online prepaid card
portfolio branded Prime Mutual Card. This turnkey prepaid card solution
expands our online offerings and has been acquired to support our expansion
into online and web-based affiliate programs within the United States. The
initial cost of the portfolio is $5,000. All other payments are based on
performance of the underlying assets.
On August 1, 2006 we launched the Full Credit alternative credit
reporting product and service. In conjunction with our proprietary
technology partner, we are now able to deliver a vehicle for credit
reporting to over two hundred national credit reporting agencies. Typical
payments recorded and reported under this service include: wireless
payments, car payments, rent and utilities.
On July 20, 2006, isleCORE Systems, a wholly owned subsidiary,
submitted a lease offer on a 2,830 (sf.) office space in Honolulu, Hawaii.
The lease offer has been accepted by the property manager and isleCORE has
scheduled a transitional move to the new location in mid-September, with an
effective lease date of October 1, 2006. The term of the lease is three
years and two months at $2.11 per square foot, $0.86 cents of which is
adjustable for common area maintenance over the life of the lease.
isleCORE has plans to sublease 1,000 (sf) of the property to a local
Hawaii-based recruitment firm.
On July 13, 2006 we eliminated negative balance fee revenues from the
portfolio. Under this new "smart fee" integration, any cardholder fees
assessed to the cardholder cards will not reduce below a zero value. In
the past, negative fees generated revenues that were then offset by future
write-offs to those balances that fell below zero dollars. At June 30, the
Company has an accrual of $65,291 for charges-offs in respect of negative
card balances.
10
On July 3, 2006, isleCORE Systems, a wholly owned subsidiary, engaged
a company, Genergraphics, with an agreement to provide third party
telephone surveys. The engagement is a pilot designed for a minimum 300
calls and the result are being measured by a pre-scripted series of
questions each requiring a numerical response.
EMPLOYEES
For the quarter ended June 30, 2006, we maintained eleven full time
employees. Individual headcount for full time management roles remained
consistent with the prior ending quarter, including areas of accounting,
programs/compliance and call center management. While we continue to
develop our products and services, our headcount will be aligned to focus
on operational contributions and account/customer support. It is
anticipated that in the coming months we will add two additional employees,
one in the core financial services business and one in the call center
operations business.
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
June 30, 2006.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDING JUNE 30, 2006
During the three months ended June 30, 2006, we generated revenues of
$147,863 compared to $84,029 for the three months ended June 30, 2005. The
increase resulted from the increased number of active cards in the
Company's portfolio together with the benefit for the full quarter of the
call center. The revenue associated with the Company's debit card
portfolios increased to $72,130 from $35,577 for the three months ended
June 30, 2005. The revenue from the Call Center increased to $64,991 from
$10,418 for the three months ended June 30, 2005 as the Call Center was
purchased in the second quarter of 2005.
During the three months ended June 30, 2006 revenue was unfavorably
impacted and offset by a large write-off of negative balance cardholder
accounts attributable to both discontinued cardholder use and a shift in
bank policy reducing the allowable write-off timeframe from ninety days to
thirty days. The offset to revenue associated with the write-off amounted
to $329,586 for the three months ended June 30, 2006. Moreover, a
resulting change to the fee calculation, as disclosed below in subsequent
events, will reduce the size of the negative portfolio balances and
minimize the reserve requirements moving forward.
11
Management has determined that the amount of revenues and expenses
estimated for the remainder of 2006 will increase progressively based upon
the expansion of operations during the first and second quarters of 2006.
For the three months ended June 30, 2006, we incurred costs of sales
of $293,675 compared to $66,554 for the three months ended June 30, 2005.
The increase resulted from the additional costs of implementing new card
programs and generating new users for existing card programs.
We incurred operating expenses of $313,568 for the three months ended
June 30, 2006 compared to operating expenses of $342,411 for the three
months ended June 30, 2005. Salaries and wages accounted for $139,128 or
44% of the operating expense and increased by $25,993 as headcount was
higher than the comparative quarter. Professional fees accounted for
$90,848 or 29% of the operating expenses and increased by $35,448 over the
comparative quarter due to the increased costs of the current years audit
and the increased legal expenses relating to the efforts to become a
publicly trading Company.
Management has determined that the amount of revenues and expenses
estimated for the remainder of 2006 will increase progressively based upon
the expansion of operations during the first and second quarters of 2006.
FOR THE SIX MONTHS ENDING JUNE 30, 2006
During the six months ended June 30, 2006, we generated revenues of
$519,196 compared to $152,792 for the six months ended June 30, 2005. The
increase resulted from the increased number of active cards in the
Companies portfolio together with the benefit for the full period of the
call center. The revenue associated with the Company's debit card
portfolios increased to $371,290 from $51,039 for the six months ended June
30, 2005. The revenue from the Call Center increased to $135,564 from
$10,418 for the six months ended June 30, 2005 as the Call Center was
purchased in the second quarter of 2005.
Management has determined that the amount of revenues and expenses
estimated for the remainder of 2006 will increase progressively based upon
the expansion of operations during the first and second quarters of 2006.
For the six months ended June 30, 2006, we incurred costs of sales of
$505,190 compared to $107,782 for the six months ended June 30, 2005. The
increase resulted from the additional costs of implementing new card
programs and generating new users for existing card programs
We incurred operating expenses of $707,801 for the six months ended
June 30, 2006 compared to operating expenses of $624,618 for the six months
ended June 30, 2005. Salaries and wages accounted for $321,284 or 45% of
the operating expense and increased by $72,350 as headcount is higher than
the comparative period. Professional fees accounted for $138,182 or 20% of
the operating expenses and increased by $9,338 over the comparative period.
Stock based compensation was $108,173 or 15% of the operating expense and
was non existent in the comparative quarter.
12
Management has determined that the amount of revenues and expenses
estimated for the remainder of 2006 will increase progressively based upon
the expansion of operations during the first six months of 2006.
LIQUIDITY AND CAPITAL RESOURCES
A primary source of operating capital for the six months ended June
30, 2006, was from the sale of stock. The sale of stock was related to the
offering opened in the second quarter of 2006, which offered up to
1,600,000 shares of our common stock at $1.00 per share to investors with a
50% additional warrant coverage offer, for maximum gross proceeds of
$1,600,000 on the common stock and up to a maximum gross proceeds of
$800,000 related to exercised warrants.
As of June 30, 2006, cash totaled $359,663 as compared with $211,523
of cash at December 31, 2005, resulting in an increase of $148,140 in cash
and cash equivalents. The increase in cash and cash equivalents was
attributed to cash proceeds of the private common stock offering as offset
by the funding of the operations of the Company. In the six months ended
June 30, 2006 we used $302,341 of cash in operations. For the comparable
period in the prior year we used $499,139 of cash in operations.
Working capital was $140,083 at June 30, 2006, as compared with
working capital of $223,148 at December 31, 2005. This decrease in working
capital was a result of using existing funds for operations and related
expenses through cash proceeds from previous capital provided by the
private offering proceeds to support the business during its startup and
growth phase.
Proceeds from the private stock offering have continued to fund
operations in the second quarter 2006 to support the growth of the
business. Management believes that with funds continuing to accumulate
during a new third quarter offering, together with revenues generated from
operations, we will have sufficient cash to satisfy existing operating cash
needs and working capital requirements during and through early 2007. Our
monthly cash requirements are currently approximately $70,000 as we
continue to expand headcount and operations. Management estimates that
future monthly cash requirements will rise to approximately $82,500.
Without generating any additional revenues, we estimate that cash from our
new third quarter private offering and anticipated revenues generated from
operations would meet our cash flow requirements through at least December
31, 2006. Any additional funds from operations would likely extend this
estimated period. With the closing of our current private placement
offering, we would not anticipate the need for additional funding from
investors.
Concurrently, and while the timing is unknown to management, our key
banking partners may in the future, require security deposits for all
cardholder funds or a portion thereof. While the cardholder funds are not
our property, revised bank policies may necessitate such a
collateralization. Should the bank require such a security deposit, we may
be forced to raise further capital or reduce available cash on hand, which
would have a material impact on our immediate and short-term capital
resources.
13
Additionally, we may elect to compensate employees with equity
incentives where possible and continue to utilize equity instruments to
compensate all associates in efforts to minimize cash outlays. Management
believes this strategy provides the ability to increase stockholder value
as well as utilize cash resources more effectively.
During future quarters we may seek additional funding to finance
future acquisitions and growth. The amount and timing of such capital
transactions is not yet known and will depend largely on our operating
needs and the cost to acquire financial services and products companies.
Our ability to secure this additional funding given present market
conditions is uncertain, as is the financial effect any such funding may
have on our capital structure or operating results.
OFF-BALANCE SHEET ARRANGEMENTS
During the quarter ended June 30, 2006, we did not engage in any off-
balance sheet arrangements.
STOCK-BASED COMPENSATION
In December 2004, the FASB issued Statement of Financial Accounting
Standards (SFAS) No.123 (Revised), Shared-Based Payment. This standard
revises SFAS No. 123, APB Opinion No. 25 and related accounting
interpretations and eliminates the use of the intrinsic value method for
employee stock-based compensation. SFAS No. 123R requires compensation
costs related to share based payment transactions to be recognized in the
financial statements over the period that an employee provides service in
exchange for award. Currently, the Company uses the revised fair value
method of SFAS No. 123R to value share-based options granted to employees
and board members. This standard requires the expensing of all share-based
compensation including options, using the fair value based method.
SUBSEQUENT EVENTS
There were no material events that occurred subsequent to the quarter
ended June 30, 2006.
FORWARD-LOOKING STATEMENTS
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.
14
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE AND CONTROLS AND PROCEDURE
With the participation of management our chief executive officer and
chief financial officer have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this quarterly report. Based on that
evaluation the chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures are (1) effective to
ensure that material information required to be disclosed by us in reports
filed or submitted by us under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the rules
and forms of the Securities and Exchange Commission, and (2) effective to
ensure that information required to be disclosed by us in such reports
filed or submitted by the Company under the Exchange Act is accumulated and
communicated to management of the Company, including the principal
executive officer, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROLS
There were no changes in our internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act) that occurred during
our most recent quarter ended June 30, 2006, that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting. It should be noted that any system of controls,
however well designed and operated, can provide only reasonable and not
absolute assurance that the objectives of the system will be met. In
addition, the design of any control system is based in part upon certain
assumptions about the likelihood of future events. Because of these and
other inherent limitations of control systems, there is only reasonable
assurance that our controls will succeed in achieving their stated goals
under all potential future conditions.
Under current SEC guidelines, the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 (the "Act") will be effective for the Company's
year ending December 31, 2007. In order to comply with the Act, the
Company will undertake a comprehensive effort, which includes documentation
and testing of the design and operation of its internal control using the
guidelines established by INTERNAL CONTROL - INTEGRATED FRAMEWORK issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
During the course of these activities, the Company may identify certain
internal control matters that management believes should be improved.
These improvements, if necessary, will likely include further formalization
of existing policies and procedures, improved segregation of duties,
additional information technology systems controls and additional
monitoring controls. Because management has not presently determined
whether these matters will result in material weaknesses being identified
in the Company's internal control as defined by the Public Company
Accounting Oversight Board (United States), no assurances can be given
regarding the outcome of these efforts at the present time.
15
PART II
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
During the quarter ended June 30, 2006, the following securities were
sold by Trycera without registering the securities under the Securities
Act, except as otherwise previously reported:
- On April 10, 2006, we initiated an offering of up to 1,600,000
shares of common stock for gross proceeds of $1,600,000. The
offering was to terminate initially on June 30, 2006, but was
extended until July 12, 2006, as was allowed in the offering
memorandum. Each investor also received stock purchase warrants
at a rate of 50% of the shares purchased. The warrants are
exercisable through June 30, 2013, at $1.25 with certain
incentive discounts to the exercise price available through June
30, 2010. These shares were sold without registration under the
Securities Act by reason of the exemption from registration
afforded by the provisions of Section 4(6) and/or Section 4(2)
thereof, and Rule 506 promulgated thereunder, as a transaction by
an issuer not involving any public offering. The final investors
were:
<Table>
<Caption>
Number Number
Name of Shares of Warrants Amount
----- ----------- ----------- -----------
Hans Erickson 12,500 6,250 $ 12,500
Peter Kleis 50,000 25,000 $ 50,000
Edwin A. Knitowski 5,000 2,500 $ 5,000
Edwin M. & Maryann Knitowski 8,000 4,000 $ 8,000
Michael Knitowski 5,000 2,500 $ 5,000
Rob Lang 50,000 25,000 $ 50,000
</Table>
Each investor was an accredited investor as defined in Rule 501 of
Regulation D at the time of the purchase. The investors delivered
appropriate investment representations with respect to the purchase of
the shares and consented to the imposition of a restrictive legend
upon the certificates evidencing such shares and warrants. The
investors represented that they had not purchased the shares as a
result of or subsequent to any advertisement, article, notice, or
other communication published in any newspaper, magazine, or similar
media or broadcast on television or radio, or presented at any seminar
or meeting. The investors also represented that they had received a
term sheet describing the offering and had received copies of, or had
access to, all of the reports made by us with the Securities and
Exchange Commission. The investors further represented that he had
been afforded the opportunity to ask questions of our management and
to receive answers concerning the terms and conditions of the
transaction. No underwriting discounts or commissions were paid in
connection with the sale of these shares.
16
- On May 27, 2006, we granted 25,000 options to Alan S. Knitowski
and 50,000 options to Luan Dang, two of our directors. These
ten-year options were granted under our 2004 Stock Option/Stock
Issuance Plan. The options are exercisable at $1.00 per share.
The options were granted without registration under the
Securities Act by reason of the exemption from registration
afforded by the provisions of Section 4(6) and/or Section 4(2)
thereof, and Rule 506 promulgated thereunder, as a transaction by
an issuer not involving any public offering. Messrs Knitowski
and Dang acknowledged they had access to the books and records,
including filings made by us with the SEC. They delivered
appropriate investment representations with respect to the grants
and consented to the imposition of restrictive legends upon the
certificates representing the options. They represented that
they had not entered into the transaction with us as a result of
or subsequent to any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar
media or broadcast on television or radio, or presented at any
seminar or meeting. They represented that they had been afforded
the opportunity to ask questions of our management and to receive
answers concerning the terms and conditions of the option grants.
No underwriting discounts or commissions were paid in connection
with the transaction.
- On June 16, 2006, we granted a total of 45,000 options to Robert
Lang, one of our directors. These ten-year options were granted
under our 2004 Stock Option/Stock Issuance Plan. The options are
exercisable at $1.00 per share. The options were granted without
registration under the Securities Act by reason of the exemption
from registration afforded by the provisions of Section 4(6)
and/or Section 4(2) thereof, and Rule 506 promulgated thereunder,
as a transaction by an issuer not involving any public offering.
Mr. Lang represented that he was an accredited investor as
defined in Rule 501 of Regulation D at the time of the grant.
Mr. Lang delivered appropriate investment representations with
respect to the grant and consented to the imposition of
restrictive legends upon the certificate representing the option.
He represented that he had not entered into the transaction with
us as a result of or subsequent to any advertisement, article,
notice, or other communication published in any newspaper,
magazine, or similar media or broadcast on television or radio,
or presented at any seminar or meeting. He represented that he
had been afforded the opportunity to ask questions of our
management and to receive answers concerning the terms and
conditions of the option grants. No underwriting discounts or
commissions were paid in connection with the transaction.
17
ITEM 5. OTHER INFORMATION
The Company has been assigned ticker symbol "TRYF" for quotation on
the Over the Counter Bulletin Board (OTC BB), although trading has not yet
commenced as of August 8, 2006.
ITEM 6. EXHIBITS
The following exhibits are included as part of this report:
31.1 Rule 13a-14(a) Certification by Principal Executive Officer
31.2 Rule 13a-14(a) Certification by Chief Financial Officer
32.1 Section 1350 Certification of Principal Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
SIGNATURES
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: August 14, 2006 By: /S/ Matthew S. Kerper
-------------------------------------
Matthew S. Kerper, President
(Principal Executive Officer)
Date: August 14, 2006 By: /S/ Bryan Kenyon
-------------------------------------
Bryan Kenyon, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
18