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 September 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
18023 East Sky Park Circle, Suite G, Irvine, CA. 92614
- ------------------------------------------------ --------
Address of principal executive offices Zip Code
Issuer's telephone number, including area code: (949) 273-4300
Former Address: 170 Newport Center Drive, Suite 210,
Newport Beach, CA 92660
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 November 3, 2006,
there were 7,417,302 shares of the Registrant's Common Stock outstanding.
Table of Contents
Page
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ITEM 1. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . .3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION . . . . . . . . . . . . . . . . . . .9
ITEM 3. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . 16
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES. . . . . . . . . 17
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 18
ITEM 6. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART I
ITEM 1. FINANCIAL STATEMENTS
Trycera Financial, Inc.
Consolidated Balance Sheets
<Table>
<Caption>
September December
30, 2006 31, 2005
------------ ------------
(Unaudited)
Assets
Current Assets
Cash $ 116,542 $ 211,523
Accounts Receivable, net of allowance
of $0 and $1,999 70,655 99,811
Prepaid Expenses and other current assets 35,668 42,786
Client ACH Reserves 5,000 5,000
------------ ------------
Total Current Assets 227,865 359,120
Property & Equipment, net 6,911 12,764
Other Assets
- ------------
Deposits 9,207 9,207
Definite Life Intangible Assets, net 65,854 75,644
------------ ------------
Total Other Assets 75,061 84,851
------------ ------------
Total Assets $ 309,837 $ 456,735
============ ============
Liabilities & Stockholders' Equity
Current Liabilities
- -------------------
Accounts Payable $ 44,008 $ 52,469
Portfolio reserves 31,494 -
Accrued Expenses 56,029 46,827
Line of Credit - 14,485
Deferred Revenue, net - 22,191
------------ ------------
Total Current Liabilities 131,531 135,972
------------ ------------
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; 7,417,302 and 6,876,802 Shares
Issued and Outstanding, Respectively 7,417 6,876
Additional Paid In Capital 3,440,497 2,761,230
Accumulated Deficit (3,269,608) (2,447,343)
------------ ------------
Total Stockholders' Equity 178,306 320,763
------------ ------------
Total Liabilities & Stockholders' Equity $ 309,837 $ 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 Nine Months Ended
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
------------ ------------ ------------ ------------
Revenues
- --------
Consulting $ 102,168 $ - $ 111,268 $ -
Stored Value 171,150 123,639 542,440 174,679
Call Center 73,921 69,699 209,485 80,116
Catalog Shopping 2,927 8,980 6,169 100,316
------------ ------------ ------------ ------------
350,166 202,318 869,362 355,111
Cost of Sales 189,113 175,260 694,303 283,042
------------ ------------ ------------ ------------
Gross Profit 161,053 27,058 175,059 72,069
Expenses
- --------
Depreciation and
Amortization 5,483 30,290 16,840 81,675
Salaries and Wages 143,768 176,033 465,052 424,967
Stock Based Compensation 18,317 - 126,490 -
Professional Fees 65,670 68,427 203,852 197,271
General & Administrative 56,624 93,871 185,429 289,326
------------ ------------ ------------ ------------
Total Expenses 289,862 368,621 997,663 993,239
Income (Loss) from
Operations (128,809) (341,563) (822,604) (921,170)
------------ ------------ ------------ ------------
Other Income (Expenses)
- -----------------------
Interest, net 10 (393) 339 (965)
Financing Costs - (54,088) - (54,088)
Impairment of Intangible
Assets - - - -
------------ ------------ ------------ ------------
Total Other Income
(Expenses) 10 (54,481) 339 (55,053)
------------ ------------ ------------ ------------
Income (Loss) Before Taxes (128,799) 396,044) (822,265) (976,223)
Income Taxes - - - -
------------ ------------ ------------ ------------
Net Income (Loss) $ (128,799) $ (396,044) $ (822,265) $ (976,223)
============ ============ ============ ============
Basic earnings per share:
Loss per share $ (0.02) $ (0.06) $ (0.11) $ (0.15)
============ ============ ============ ============
Weighted average shares 7,378,053 6,374,976 7,225,003 6,314,835
============ ============ ============ ============
</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 Nine Months Ended
September September
30, 2006 30, 2005
------------ ------------
Cash Flows from Operating Activities
- ------------------------------------
Net Income (Loss) $ (822,265) $ (976,223)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations;
Depreciation and amortization 16,840 81,675
Stock issued for services 55,317 -
Stock based compensation expense 126,490 45,133
Stock warrants issued - 54,088
(Increase) decrease in accounts receivable 29,156 (51,219)
(Increase) decrease in prepaid and other current assets 7,118 (1,878)
(Increase) decrease in deposits - (5,000)
Increase (decrease) in portfolio reserves - 17,500
Increase (decrease) in accounts payable (8,460) 8,868
Increase (decrease) in portfolio reserves 31,494 -
Increase (decrease) in accrued expenses 9,202 26,551
Increase (decrease) in unearned revenue (22,191) (48,886)
------------ ------------
Net Cash Provided (Used) by Operating Activities (577,299) (849,391)
------------ ------------
Cash Flows from Investing Activities
- ------------------------------------
Acquisition of property & equipment (1,197) (15,039)
Acquisition of intangible assets and other - (27,404)
Proceeds received from I/C Receivable - -
------------ ------------
Net Cash Provided (Used) by Investing Activities (1,197) (42,443)
------------ ------------
Cash Flows from Financing Activities
- ------------------------------------
Proceeds from issuance of common stock 498,000 250,000
Proceeds from convertible debenture - -
Payments made on line of credit (14,485) (2,799)
------------ ------------
Net Cash Provided (Used) by Financing Activities 483,515 247,201
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (94,981) (644,633)
Cash and Cash Equivalents at Beginning of Period 211,523 974,658
------------ ------------
Cash and Cash Equivalents at End of Period $ 116,542 $ 330,025
============ ============
Cash Paid for:
Interest $ 992 $ -
Income Taxes $ - $ -
Non-cash financing activities:
- ------------------------------
Common stock issued for services 55,317 -
</Table>
The accompanying notes are an integral part of these financial statements.
5
Trycera Financial, Inc.
Notes to the Financial Statements
September 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 10-KSB for the year ended December 31, 2005. The
results of operations for the nine months ended September 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. Fully diluted earnings per share, which
account for outstanding employee stock options and warrants have not
been shown because the effect would have been anti-dilutive for the
periods presented.
<Table>
<Caption>
For the three months ended
September 30, September 30,
2006 2005
------------- -------------
(Unaudited) (Unaudited)
Basic Earnings per share:
Income (Loss) (numerator) $ (128,799) $ (396,044)
Shares (denominator) 7,378,053 6,374,976
------------- -------------
Per Share Amount $ (.02) $ (.06)
============= =============
</Table>
6
<Table>
<Caption>
For the Nine months ended
September 30, September 30,
2006 2005
------------- -------------
(Unaudited) (Unaudited)
Basic Earnings per share:
Income (Loss) (numerator) $ (822,265) $ (976,223)
Shares (denominator) 7,225,003 6,314,835
------------- -------------
Per Share Amount $ (.11) $ (.15)
============= =============
</Table>
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, with options expiring ten 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 September 30,
2006:
<Table>
<Caption>
2004 Stock Plan
--------------------------
Weighted
Average
Amount of Exercise
Shares Price
------------ ------------
Outstanding at January 1, 2006 3,070,250 $ .62
Options Granted 120,000 -
Options Exercised - -
Options Canceled (252,750) -
------------ ------------
Options Outstanding at September 30, 2006 2,836,250 $ .61
============ ============
Options Exercisable at September 30, 2006 2,371,562 $ .56
============ ============
</Table>
7
Trycera Financial, Inc.
Notes to the Financial Statements
September 30, 2006
NOTE 2 STOCK OPTION PLAN (CONTINUED)
Options granted under the plan vest according to terms imposed by the Plan
Administrator. The following schedule summarizes the activity during the
period ending December 31, 2005:
<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 - -
------------ ------------
Options Outstanding at December 31, 2005 3,070,250 $ .62
============ ============
Options Exercisable at December 31, 2005 1,704,167 $ .45
============ ============
</Table>
The Company, in accordance with Statement of Financial Accounting Standards
No. 123R, "ACCOUNTING FOR STOCK-BASED COMPENSATION," $18,317 and $126,490,
respectively was recognized for the three and nine months ended September
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>
September 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.
8
Employee stock options outstanding and exercisable under this plan as of
September 30, 2006 are:
<Table>
<Caption>
Weighted 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 4.0 2,306,145 $ .55
$1.00 405,000 $ 1.00 4.0 65,417 $ 1.00
</Table>
Employee stock options outstanding and exercisable under this plan as of
December 31, 2005 are:
<Table>
<Caption>
Weighted 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>
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 Irvine,
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.
9
RECENT DEVELOPMENTS
During the quarter ended September 30, 2006, we continued to build
upon the custom program launched in the first and second quarters, working
closely with our business partners to market and grow distribution of the
PlatinumTel Everyone Prepaid Visa Card and the Model Prepaid MasterCard
Card. Our product team has helped our customers identify opportunities to
improve card adoption by providing concepts of inserts and media to program
managers for review and distribution to their retail/non-retail locations.
Furthermore, in the third quarter we renewed efforts to grow our card
portfolio through online, direct to consumer and affiliate marketing
channels.
During the quarter, we executed an agreement with a new bank partner,
New Millennium Bank. The agreement allows us to diversify our banking
relationships and provides our program partners the flexibility of working
with either a national bank or a state bank.
In the third quarter we also focused on the sale of our
semi-customized OEM platform offering. Developed initially in the second
quarter, this turnkey stored value solution showcases our ability to
deliver a feature rich turnkey prepaid card program in a timeframe (90 days
or less) that creates a competitive advantage for us. 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. Current programs are
running under this platform and have been developed to support various
target markets and channels across the United States. Similar to our
branded in-house products (Trycera, Mi Dinero and Finium), the OEM platform
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. With continued development and
programming, management believes the OEM platform will evolve as a hybrid
model and serve as the basis for our cost effective stored value and
prepaid card solutions.
During the third quarter we finalized the development of our
alternative credit reporting product and service branded under the name My
Full Credit. While the initial launch was recorded in August 2006, we
continue to expend resources and capital to prepare the program for a large
scale implementation in late fourth quarter 2006. 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.
10
During the third quarter, we also made a policy change to how we
recognize fees related to our cardholders. In July 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 the end of the third quarter, our wholly owned subsidiary, isleCORE
Systems, located in Honolulu, Hawaii, moved to a new office. The move was
a result of our sublease expiring with our landlord, Hawaii Direct
Telephone. The new office space is located at 7 Waterfront Plaza, 500 Ala
Moana Blvd, Honolulu, Hawaii, 96813. The total additional cost of the new
location is approximately $500 per month more than our prior location
($3,500 versus $3,000) while the overall size was reduced by fifty percent,
from 1,200 square feet to 600 square feet.
EMPLOYEES
For the quarter ended September 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
September 30, 2006.
11
RESULTS OF OPERATIONS
For the three months ending September 30, 2006
During the three months ended September 30, 2006, we generated
revenues of $350,166 compared to $202,318 for the three months ended
September 30, 2005. The increase resulted from the growth in the number of
active cards in the Company's portfolio together with an increase in
consulting revenue. We focused on card growth and expansion by adding new
marketing and distribution channels, while continuing our efforts to
sustain organic growth with the current card programs. Separately,
consulting revenue expanded as a result of the participation of new
businesses into the OEM program which generated opportunities to share
knowledge and collect fees for related expertise. Consulting revenue
increased to $102,168 from $0 for the three months ended September 30,
2005. The revenue associated with the Company's debit card portfolios
increased to $171,150 from $123,639 for the three months ended September
30, 2005. The revenue from the call center increased to $73,921 from
$69,699 for the three months ended September 30, 2005.
For the three months ended September 30, 2006, we incurred costs of
sales of $189,113 compared to $175,260 for the three months ended September
30, 2005. The increase resulted from the additional costs of having a
greater number of card users in the portfolio.
We incurred operating expenses of $289,862 for the three months ended
September 30, 2006, compared to operating expenses of $368,621 for the
three months ended September 30, 2005. Salaries and wages accounted for
$143,768 or 50% of the operating expense and decreased by $32,265 as
headcount was lower than the comparative quarter as a result of the third
quarter 2005 strategic shift to reduce personnel in our call center
operations and the continued benefits from restructuring the finance
operation which occurred in the first quarter of 2006. General and
administrative expenses accounted for $56,624 or 20% of the operating
expenses and decreased by $37,247 over the comparative quarter due to a
reduction in advertising and marketing expenses and a decrease in insurance
expense. The reduction in the advertising and marketing expenses was most
directly attributable to reduced partner marketing and card acquisition
costs.
Management has determined that based on our current card portfolio and
the card programs under development that the amount of revenues will rise
and expenses expand in conjunction with the new business being added to the
existing portfolio. It is estimated that contingent upon the rollout and
implementation of two key programs in the fourth quarter of 2006 that
revenues and expenses will likely converge in the late fourth quarter or
early in the first quarter of 2007. Any delays in rollouts of the key
programs will extend the period for revenues and expenses to converge and
may require us to seek additional funding.
12
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2006
During the nine months ended September 30, 2006, we generated revenues
of $869,362 compared to $355,111 for the nine months ended September 30,
2005. The increase resulted from the growth in the number of active cards
in the Company's portfolio together with increased consulting income and
the benefit for the full period of the call center. The revenue associated
with the Company's debit card portfolios increased to $542,440 from
$174,679 for the nine months ended September 30, 2005. We focused on card
growth and expansion by adding new marketing and distribution channels,
while continuing our efforts to sustain organic growth with the current
card programs. Separately, consulting revenue expanded as a result of the
participation of new businesses into the OEM program which generated
opportunities to share knowledge and collect fees for related expertise.
Consulting revenue increased to $111,268 from $0 for the nine months ended
September 30, 2005. The revenue from the call center increased to $209,485
from $80,116 for the nine months ended September 30, 2005, as the call
center was purchased in the second quarter of 2005.
For the nine months ended September 30, 2006, we incurred costs of
sales of $694,303 compared to $283,042 for the nine months ended September
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 $997,663 for the nine months ended
September 30, 2006 compared to operating expenses of $993,239 for the nine
months ended September 30, 2005. Salaries and wages accounted for $465,052
or 47% of the operating expense and increased by $40,085 as average
headcount increased over the comparative period due to the fact that the
call center was not acquired until the second quarter of 2005 .
Professional fees accounted for $203,852 or 20% of the operating expenses
and increased by $6,581 over the comparative period. Stock based
compensation was $126,490 or 13% of the operating expense and was
non-existent in the comparative quarter.
Management has determined that based on our current card portfolio and
the card programs under development that the amount of revenues will rise
and expenses expand in conjunction with the new business being added to the
existing portfolio. It is estimated that contingent upon the rollout and
implementation of two key programs in the fourth quarter of 2006 that
revenues and expenses will likely converge in the late fourth quarter or
early in the first quarter of 2007. Any delays in rollouts of the key
programs will extend the period for revenues and expenses to converge and
may require us to seek additional funding.
LIQUIDITY AND CAPITAL RESOURCES
A primary source of operating capital for the nine months ended
September 30, 2006, was $498,000 from the sale of stock. The sale of stock
was related to three offerings opened throughout 2006, including offerings
dated January 1, 2006, April 10, 2006 and August 1, 2006. In each offering
there were 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.
13
As of September 30, 2006, cash totaled $116,542 as compared with
$211,523 of cash at December 31, 2005, resulting in a decrease of $94,981
in cash and cash equivalents. The decrease in cash and cash equivalents
was attributed to funding the operational expenses and cost of goods with
cash proceeds of the private common stock offering. In the nine months
ended September 30, 2006 we used $577,299 of cash in operations. For the
comparable period in the prior year we used $849,391 of cash in operations.
Working capital was $96,334 at September 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 offerings have continued to fund
operations through the first, second and third quarters of 2006 to support
the growth of the business. Management believes that with funds continuing
to accumulate from the August 1, 2006 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
$60,000 as we continue to expand headcount and operations. Management
estimates that future monthly cash requirements will rise with headcount
and expanded cost of goods associated with new program implementations to
approximately $80,500. Any additional funds from operations and new
private placement offerings would likely extend this estimated period.
With the closing of our current private placement offering, and in
conjunction with key card program rollouts in the fourth quarter we would
not anticipate the need for additional funding from investors. Any delays
in program rollouts in the fourth quarter may require us to seek additional
funding from investors and delay a neutral cash flow into next year.
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 a bank or banks 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. We have engaged the banks on this specific collateral
requirement and at this time, we have determined that until a program is
launched with our new bank partner New Millennium Bank, we will not require
more than $15,000 in aggregate deposit amounts.
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.
14
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 September 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
The following material events occurred subsequent to the quarter ended
September 30, 2006:
On November 10, 2006, we had a voluntary reduction in headcount by
one. As of this date, we now we maintain ten full time employees, with two
positions available as disclosed under the Employee section contained
herein.
On November 2, 2006 we executed a recission agreement for the
previously acquired assets of an online prepaid card portfolio branded
Prime Mutual Card. The asset purchase and definitive agreements were
rescinded and the portfolio and all related assets were transferred back to
Heritage Card Solutions.
On November 2, 2006 an investor, Lau Ngyuen invested $25,000 under the
current offering.
15
On October 30, 2006 an investor, Romir Bosu invested $25,000 under the
current offering.
On October 23, 2006 we moved our primary offices from 170 Newport
Center Drive, Suite 210, Newport Beach CA, 92660 to 18023 East Sky Park
Circle, Suite G, Irvine, CA 92614. The new location increases our square
feet, from 1,450 to 2,150, while the overall rent reduces from $4,092 per
month to $3,500 per month.
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.
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.
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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 September 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.
PART II
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
During the quarter ended September 30, 2006, the following securities
were sold by Trycera without registering the securities under the
Securities Act, except as otherwise previously reported:
- On August 1, 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 September 30, 2006, but
was extended until November 30, 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 September 30, 2013, at $1.25 with certain
incentive discounts to the exercise price available through
September 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
initial investors are:
17
<Table>
<Caption>
Number Number
Name of Shares of Warrants Amount
- ----------------------- ------------ ------------ ------------
David Doan 50,000 25,000 $50,000
Damon Suter 25,000 12,500 $25,000
Lau Ngyuen 50,000 25,000 $50,000
Romir Bosu 25,000 12,500 $25,000
</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.
ITEM 5. OTHER INFORMATION
The Company has been assigned ticker symbol "TRYF" for quotation on
the Over the Counter Bulletin Board (OTC BB), and trading 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
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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: November 14, 2006 By: /S/ Mattew S. Kerper
-----------------------------------
Matthew S. Kerper, President
(Principal Executive Officer)
Date: November 14, 2006 By: /S/ Bryan Kenyon
-----------------------------------
Bryan Kenyon, Treasurer and Chief
Financial Officer (Principal Financial
Officer)
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