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, 2004
[ ] 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 fling
requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes [X] No [ ]
State the number of shares outstanding of each of the Issuer's classes
of common equity as of the latest practicable date: At August 2,
2004, there were 4,682,400 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 14
ITEM 3. CONTROLS AND PROCEDURES 30
PART II 30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 34
ITEM 5. OTHER INFORMATION 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 35
SIGNATURES 36
PART I
ITEM 1. FINANCIAL STATEMENTS
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
In the opinion of the Company, all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly the
financial position of the Company as of June 30, 2004, and the results
of its operations and changes in its financial position from May 10,
2000, through June 30, 2004, have been made. The results of its
operations for such interim period are not necessarily indicative of
the results to be expected for the entire year. These condensed
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended December 31, 2003.
3
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Balance Sheets
June December
30, 2004 31, 2003
----------- -----------
(Unaudited)
Assets
Current Assets
Cash $ 356,684 $ -
Prepaid Expenses 859 -
Interest Receivable - 360
Note Receivable - Related Party - 1,200
---------- ----------
Total Current Assets 357,543 1,560
Other Assets
Deposits 9,207 -
---------- ----------
Total Other Assets 9,207 -
---------- ----------
Total Assets $ 366,750 $ 1,560
========== ==========
Liabilities & Stockholders' Equity
Current Liabilities
Accounts Payable $ 3,058 $ 11,323
Accrued Expenses 1,415 -
Interest Payable 2,685 7,004
Convertible Debenture 200,000 -
Note Payable - Related Party - 23,906
---------- ----------
Total Current Liabilities 207,158 42,233
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;
4,217,067 and 1,100,000 Shares Issued
and Outstanding, Respectively 4,217 1,100
Additional Paid In Capital 322,788 9,900
Deficit Accumulated in the Development Stage (167,413) (51,673)
---------- ----------
Total Stockholders' Equity 159,592 (40,673)
---------- ----------
Total Liabilities & Stockholders' Equity $ 366,750 $ 1,560
========== ==========
See accompanying notes to the financial statements.
4
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
For the Period
May 10, 2000
For the Three Months Ended For the Six Months Ended (Inception) to
June June June June June
30, 2004 30, 2003 30, 2004 30, 2003 30, 2004
---------- ---------- ---------- ---------- ----------
Revenues $ 14,000 $ - $ 14,000 $ - $ 14,000
--------- --------- --------- --------- ---------
Expenses
Technology Costs 8,681 - 8,681 - 8,681
Salaries and Wages 27,102 - 27,102 - 27,102
Professional Fees 67,522 - 67,522 - 67,522
General & Administrative 16,570 4,370 23,205 4,370 68,235
--------- --------- --------- --------- ---------
Total Expenses 119,875 4,370 126,510 4,370 171,540
--------- --------- --------- --------- ---------
Income (Loss)
from Operations (105,875) (4,370) (112,510) (4,370) (157,540)
Other Income (Expenses)
Interest Income 127 30 157 60 517
Interest Expense (2,685) (753) (3,386) (1,189) (10,390)
--------- --------- --------- --------- ---------
Total Other Income
(Expenses) (2,558) (723) (3,229) (1,129) (9,873)
--------- --------- --------- --------- ---------
Income (Loss)
Before Taxes (108,433) (5,093) (115,739) (5,499) (167,413)
Taxes - (1,646) - (1,646) -
--------- --------- --------- --------- ---------
Net Income (Loss) $ (108,433) $ (6,739) $ (115,739) $ (7,145) $ (167,413)
========= ========= ========= ========= =========
Loss Per
Common Share $ (.04) $ (.01) $ (.06) $ (.01) $ (.15)
Weighted Average
Outstanding Shares,
Retroactively Restated 2,578,880 550,000 1,839,440 550,000 1,103,526
See accompanying notes to the financial statements.
5
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
For the Period
May 10, 2000
For the Six Months Ended (Inception) to
June June June
30, 2004 30, 2003 30, 2004
---------- ---------- ----------
Cash Flows from Operating Activities
Net Income (Loss) $ (115,739) $ (7,145) $ (167,413)
Adjustments to Reconcile Net Loss
to Net Cash:
Stock Issued for Services 33,000 - 38,600
Forgiveness of Related Party Interest 7,705 - 7,705
Change in Assets and Liabilities:
(Increase) Decrease in Accounts
/Interest Receivable 360 (60) -
(Increase) Decrease in Prepaid Expenses (859) - (859)
(Increase) Decrease in Deposits (9,207) - (9,207)
Increase (Decrease) in Accounts Payable (8,266) 7,205 3,058
Increase (Decrease) in Interest Payable (4,319) - 2,685
Increase (Decrease) in Accrued Expenses 1,415 - 1,415
--------- --------- ---------
Net Cash Provided (Used) by
Operating Activities (95,910) - (124,016)
Cash Flows from Investing Activities
Proceeds from Related Party Note 1,200 - -
--------- --------- ---------
Net Cash Provided (Used) by
Investing Activities 1,200 - -
Cash Flows from Financing Activities
Proceeds from Issuance of Common Stock for Cash 275,300 - 280,700
Proceeds from Convertible Debenture 200,000 - 200,000
Proceeds from Issuance of Related Party Note - - 23,906
Payments made on Related Party Notes (23,906) - (23,906)
--------- --------- ---------
Net Cash Provided (Used) by
Financing Activities 451,394 - 480,700
--------- --------- ---------
Increase (Decrease) in Cash 356,684 - 356,684
Cash, Beginning of Period - - -
--------- --------- ---------
Cash, End of Period $ 356,684 $ - $ 356,684
========= ========= =========
Supplemental Cash Flow Information
Interest $ - $ - $ -
Income Taxes - 1,646 1,646
Common stock issued for Services 33,000 - 38,600
See accompanying notes to the financial statements.
6
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2004
NOTE 1 - CORPORATE HISTORY
Trycera Financial, Inc., (the "Company") was incorporated in Nevada on
May 10, 2000, under the name Whitelight Technologies, Inc., for the
purpose of seeking and consummating a merger or acquisition with a
business entity organized as a private corporation, partnership, or
sole proprietorship. On July 16, 2004, the Company filed a
certificate of amendment with the State of Nevada changing the name to
Trycera Financial, Inc.
The Company has yet to fully develop any material income from its
stated primary objective and it is classified as a development stage
company. All income, expenses, cash flows and stock transactions are
reported since the beginning of development stage.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Accounting
The Company uses the accrual method of accounting.
B. Revenue Recognition
The Company applies the provisions of SEC Staff Accounting
Bulletin ("SAB") No. 104, Revenue Recognition in Financial
Statements ("SAB 104"), which provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. The SAB 104 outlines the basic
criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies.
In general, the Company recognizes revenue related to monthly
contracted amounts for services provided when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred or
services have been rendered, (iii) the fee is fixed or
determinable and (iv) collectibility is reasonably assured.
C. Cash Equivalents
The Company considers all short term, highly liquid investments
that are readily convertible, within three months, to known
amounts as cash equivalents. The Company currently has no cash
equivalents.
D. Net Earnings (Loss) Per Share
Primary Earnings Per: Share amounts are based on the weighted
average number of shares outstanding at the dates of the
financial statements. Fully Diluted Earnings Per Share shall be
shown on stock options and other convertible issues that may be
exercised within ten years of the financial statement dates.
7
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2004
NOTE 2 - Significant Accounting Policies (continued)
E. Depreciation
The cost of property and equipment is depreciated over the
estimated useful lives of the related assets. The cost of
leasehold improvements is depreciated over the lesser of the
length of the lease of the related assets for the estimated lives
of the assets. Depreciation is computed on the straight line
method.
F. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles, in the United States of
America, require management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
G. Fair Value of Financial Instruments
The fair value of the Company's cash and cash equivalents,
receivables, accounts payable and accrued liabilities approximate
carrying value based on their effective interest rates compared
to current market prices.
H. General and Administrative Costs
General and administrative expenses include fees for office
space, insurance, compensated absences, travel and entertainment
costs.
I. Income Taxes
The Company utilizes the liability method of accounting of income
taxes. Under the liability method, deferred income tax assets
and liabilities are provided based on the difference between the
financial statements and tax basis of assets and liabilities
measured by the currently enacted tax rates in effect for the
years in which these differences are expected to reverse.
Deferred tax expense or benefit is the result of changes in
deferred tax assets and liabilities.
8
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2004
NOTE 3 - New Technical Pronouncements
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure an amendment of
FAS 123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for an
entity that voluntarily changes to the fair value based method of
accounting for stock-based employee compensation. It also amends the
disclosure provisions of SFAS No. 123 to require prominent disclosure
about the effects on reported net income of an entity's accounting
policy decisions with respect to stock-based employee compensation.
This Statement also amends APB Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim
financial information. SFAS No. 148 is effective for annual and
interim periods beginning after December 15, 2002. The adoption of
the interim disclosure provisions of SFAS No. 148 did not have an
impact on the Company's financial position, results of operations or
cash flows. The Company is currently evaluating whether to adopt the
fair value based method of accounting for stock-based employee
compensation in accordance with SFAS No. 148 and its resulting impact
on the Company's financial statements.
In January 2003, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables. This consensus addresses certain aspects of accounting
by a vendor for arrangements under which it will perform multiple
revenue-generating activities, specifically, how to determine whether
an arrangement involving multiple deliverables contains more than one
unit of accounting. EITF Issue No. 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15,
2003, or entities may elect to report the change in accounting as a
cumulative-effect adjustment. The adoption of EITF Issue No. 00-21
did not have a material impact on the Company's financial statements.
In January 2003, the FASB issued Interpretation ("FIN") No. 46,
Consolidation of Variable Interest Entities. Until this
interpretation, a company generally included another entity in its
consolidated financial statements only if it controlled the entity
through voting interests. FIN No. 46 requires a variable interest
entity, as defined, to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's
residual returns. FIN No. 46 is effective for reporting periods
ending after December 15, 2003. The adoption of FIN No. 46 did not
have an impact on the Company's financial statements.
9
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2004
NOTE 3 - New Technical Pronouncements (continued)
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, which amends and
clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS
No. 149 will not have an impact on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 changes the accounting guidance for certain
financial instruments that, under previous guidance, could be
classified as equity or "mezzanine" equity by now requiring those
instruments to be reported as liabilities. SFAS No. 150 also requires
disclosure relating to the terms of those instruments and settlement
alternatives. SFAS No. 150 is generally effective for all financial
instruments entered into or modified after May 31, 2003, and is
otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not
have an impact on the Company's financial statements.
In December 2003, the SEC issued SAB No. 104. SAB No. 104 revises or
rescinds portions of the interpretative guidance included in Topic 13
of the codification of staff accounting bulletins in order to make
this interpretive guidance consistent with current authoritative
accounting and auditing guidance and SEC rules and regulations. It
also rescinds the Revenue Recognition in Financial Statements
Frequently Asked Questions and Answers document issued in conjunction
with Topic 13. Selected portions of that document have been
incorporated into Topic 13. The adoption of SAB No. 104 in December
2003 did not have an impact on the Company's financial position,
results of operations or cash flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
During 2001, the Company loaned $1,200 to a corporation whose
president is a shareholder of the Company. The receivable was
unsecured and accrued interest at the rate of 10% per annum. The note
receivable was due on demand. On May 19, 2004, the Company received a
total of $1,539 in full satisfaction of the principal and interest of
the related party note.
10
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2004
On May 10, 2004, the Company entered into a contract with Cygni
Capital, LLC and Ecewa Capital, LLC (collectively "Cygni") to provide
management and consultation services. The contract became effective
May 15, 2004, and will continue for one year. The contract will
automatically renew for an additional six (6) month term, unless
otherwise notified. Cygni will provide ongoing consulting services
for $10,000 per month throughout the contract term.
NOTE 5 - NOTE PAYABLE RELATED PARTY
The Company had issued several promissory notes to various
corporations whose officer(s) are shareholders of the Company. The
notes were unsecured, bearing an interest rate of 10% per annum and
were due and payable on demand. At March 31, 2004, the accrued
interest associated with the various notes was $7,705.
June 30, December 31,
The Company has the following note payable obligations: 2004 2003
---------- ----------
Related party notes payable due on demand
accruing interest at a rate of 10% per annum $ - $ 23,906
-------- --------
Totals $ - $ 23,906
Less Current Maturities - (23,906)
-------- --------
Total Long-Term Notes Payable $ - $ -
======== ========
On May 19, 2004, the Company paid a total of $23,906 in satisfaction
of all related party notes. Accrued interest of $7,705 was forgiven
by the note holders. Accordingly, this amount has been charged
against additional paid-in-capital.
NOTE 6 - STOCKHOLDERS' EQUITY
On May 4, 2004, the board of directors approved a reverse stock split
at the rate of one share for each two (1:2) shares outstanding held by
shareholder at the effective time of the reverse split. The Company
did not issue any fractional shares due to reverse split. The effect
of the reverse split was retroactively applied to all prior issuances.
During the quarter ended June 30, 2004, the Company issued a total of
3,300,000 shares of common stock to several individuals for services
rendered on behalf of the Company. Accordingly, common stock and
additional paid in capital have been charged $3,300 and $29,700,
respectively.
11
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2004
On June 4, 2004, the board of directors authorized to undertake a
non-public offering of 2,000,000 shares of common stock at $.75 per
share to be sold pursuant to Rule 506 of Regulation D promulgated by
the Securities and Exchange Commission. The private offering will
terminate September 15, 2004.
During the quarter ended June 30, 2004, the Company issued 367,067
shares of common stock pursuant to the private offering. Accordingly,
common stock and additional paid-in-capital have been charged $367 and
$274,933, respectively.
NOTE 7 - STOCK OPTION PLAN
On May 4, 2004, the Company approved and adopted the 2004 Stock
Option/Stock Issuance Plan, which allows for the Company to issue
stock or grant options to purchase or receive shares of the Company's
common stock. The maximum number of shares that may be optioned and
sold under the plan is 5,000,000. The plan became effective with its
adoption and remains in effect for ten years, however, options expire
five years from grant, unless terminated earlier. Options granted
under the plan vest according to terms imposed by the Plan
Administrator. The Administrator may not impose a vesting schedule
upon any option grant which is more restrictive than twenty percent
(20%) per year vesting with the initial vesting to occur not later
than one (1) year after the option grant date. The following schedule
summarizes the activity during the six month period ending June 30,
2004:
2004 Stock Plan
----------------------
Weighted
Average
Amount of Exercise
Shares Price
---------- ---------
Outstanding at January 1, 2004 - -
Options Granted 2,215,000 $.53
Options Exercised - -
Options Canceled - -
Options Outstanding at June 30, 2004 2,215,000 $.53
Options Exercisable at June 30, 2004 190,001 $.23
12
Trycera Financial, Inc.
fka Whitelight Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2004
In accordance with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", there was no option
expense recognized for the six-month period ended June 30, 2004.
June 30, 2004
-------------
Five Year Risk Free Interest Rate 3.625
Dividend Yield 0%
Volatility 0%
Average Expected Term (Years to Exercise) 1
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 2,215,000 $.53 4.8 190,001 $.23
NOTE 8 - CONVERTIBLE DEBENTURE
On May 12, 2004, the Company issued a convertible debenture note to a
corporation that is a shareholder of the Company. The note is
unsecured, bears an interest rate of 10% per annum and is due and
payable on November 12, 2004. At June 30, 2004, the accrued interest
associated with the note is $2,685.
June 30, December31,
The Company has the following convertible debenture obligations: 2004 2003
---------- ----------
Related party convertible debentures due November 12, 2004
accruing interest at a rate of 10% per annum $ 200,000 $ -
--------- --------
Totals $ 200,000 $ -
Less Current Maturities (200,000) -
--------- --------
Total Long-Term Notes Payable $ - $ -
========= ========
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
Trycera Financial is a development stage company. Prior to May
2004, we had no operating history. In May 2004 we retained the
services of new management and commenced our financial services and
stored value products business. Our operations are in the startup
phase of development.
Based in Newport Beach, California, our charter is (1) to develop
and market a turnkey suite of financial products with a stored value
emphasis, and (2) to acquire and grow micro cap companies in the
stored value and financial services sectors. We are in the process of
closing our initial round of funding and intend to apply for quotation
on the OTC Bulletin Board during third or fourth quarter of 2004. We
have agreed to register the resale of the shares sold in our initial
round of funding, as well as certain shares held by existing
shareholders.
We are 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. These stored value products and
services include:
* Association-branded (MasterCard, Visa ) prepaid debit cards;
* Co-branded prepaid debit products;
* Private label credit products;
* Online payment solutions;
* Financial management tools and support; and
* Credit improvement programs and strategies.
We are developing stored value products and services to deliver
prepaid financial tools, online payment solutions, financial
management services, and credit improvement strategies and programs.
These services will be delivered through the use of business partner
infrastructure and distribution partner systems. Our stored value
products and services can be customized to meet the changing
requirements for specific customer demands.
In addition to our core operations, we intend to actively target
additional financial services-related companies for acquisition.
Management anticipates that such acquisitions would be funded
primarily using our authorized, but unissued shares of common stock.
We believe such acquisitions would provide additional stored value
products or financial services, and/or augment our current staff. Our
strategy is to acquire mature, quality companies with sound
financials, intriguing products and/or position, a loyal customer
base, and talented
14
management teams that have a passion for what they are doing and want
to continue to run and grow their companies. We intend to seek
companies that would be strategically diversified across service
channels to reduce the potential impact of a downturn in any specific
channel. It is anticipated that each acquired business would remain a
separate, self-funding unit with minimal overhead. We have
unrestricted discretion in seeking and participating in a business
opportunity.
While our strategy is to acquire mature, cash flow positive,
profitable companies, we are also interested in identifying additional
growth opportunities that are not currently being addressed within the
individual company's business plan. These growth opportunities will
be evaluated for the potential to infuse additional capital to fund
selected growth opportunities.
Stored Value and Financial Products and Services
Overview
Our business model has been developed primarily to serve the
needs of self-banked consumers. Self-banked is a general term that
describes a broad base of consumers, who for one reason or another do
not maintain bank accounts and/or credit card accounts. For example,
such consumers may have experienced credit problems in the past, they
may just have come of age and never had credit before, or they may not
feel comfortable working with banks and credit card companies and
choose to use cash for their everyday purchases. Given that we live
in a credit card dominated society where cards are needed for
everything from hotel reservations to online shopping, we have chosen
to focus on building products and services to meet the needs of
consumers who want and need the functionality of credit cards but who
are unable to acquire the cards through the traditional application
process. Within the confines of our core business model, we are
focused on three business components:
* Consumer based stored value products;
* Catalog shopping cards; and
* Customized stored value program management.
Consumer Based Stored Value Products. A stored value card, also
commonly referred to as a prepaid card, is typically a credit
card-sized piece of plastic that contains or represents an amount of
pre-loaded value. Unlike credit cards, which draw their value from a
line of credit, or debit cards, which draw their value from a checking
account, the value on a prepaid card typically comes from money given
to the company who markets and/or issues the card prior to its use.
Prepaid cards take many forms, including gift cards that can be used
at a specific merchant or mall (Starbucks gift card), travel cards
that can be used in the same way as travelers' checks (American
Express Travel Funds Card), payroll cards that can be used to access
one's wages, and "teen cards" that are marketed to those under 18
years to access funds their parents load onto the card (Visa Buxx
from Bank of America).
15
We are currently in development of several MasterCard branded
stored value cards. In this process we must first select a processor,
which is required to authorize and settle the transactions, select the
bank to issue the cards, and negotiate the distribution of the cards.
Currently, we are preparing the necessary documentation that must be
filed with the bank and MasterCard prior to us being authorized to
produce and distribute MasterCard branded stored value cards. Based
upon substantive discussions with MasterCard and multiple issuing
banks, we believe this process will be completed during fourth quarter
of this year. While this process is taking place, we are actively
pursing a variety of distribution strategies including retail sales
and bundled product offerings.
Within our business model, retail distribution involves the sale
of the stored value cards by us to a distributor, who in turn, will
place the cards in a retail store for sale to the end consumer. The
end user, the consumer in this case, would be able to purchase the
product in a retail establishment, and upon completion of the card
activation process, be entitled to receive his stored value
MasterCard in the mail within 7-10 business days. Upon receipt, the
consumer can use the card anywhere MasterCard is accepted and they
can add more funds at anytime either through the retailer or a variety
of other methods including direct deposit. Our role in this business
cycle is that of a traditional wholesale company where we provide
products to a distribution channel that are ultimately sold to a
consumer. Once the consumer activates the stored value product, we
begin a service relationship with that consumer where we ensure the
cardholders account is managed correctly. At this time, we have
elected to outsource the ongoing customer service of the consumer and
their credit card to our processor.
A bundled product offering is a sales method where we package a
stored value card with another product the consumer is purchasing. An
example of this might be including a prepaid MasterCard with the
purchase of a prepaid cellular phone. This type of offering provides
enhanced convenience for the consumer as he or she can add more
minutes to their cellular phone through the MasterCard that has been
included. To date, we have held executive level discussions with
several product distributors regarding a product relationship in which
a Trycera-branded stored value card would be included with a
complimentary retail product. As of the date of this filing, we have
not signed any distribution agreements because our stored value
products are not ready for distribution.
In addition to the stored value MasterCard products, we are in
the early stages of development of a collection of proprietary stored
value cards designed to enable consumers to access specific web based
content through the use of a prepaid card. This product is still in
the design stage and distribution has not been secured as of the date
of this filing. Once the product is fully developed, we intend to
distribute the product through the retail channel and through bundled
product offerings as previously described. The end user of these
products will be a consumer who upon purchase of the card will use the
prepaid value to purchase content from a website. An example of a
similar product is the Disney Blast prepaid card which can be
purchased at most convenience stores and used to purchase and download
content from the Disney Blast website.
16
Catalog Shopping Cards. A second aspect of our business model is
the catalog shopping card marketed through direct mail and online
advertising. We are not currently generating revenue from this
channel, but are actively involved in the development of this product.
Unlike a Visa or MasterCard credit card, the catalog shopping card
is a private charge card that is issued to a consumer and allows them
to buy products from a specific catalog at agreed upon terms.
We intend to market this product to consumers with below average
credit ratings. Upon acceptance of a pre-approved card offer from
Trycera, the consumer would pay a processing fee and receive his card
along with the catalog or catalogs and/or website from which an
individual can purchase products. In most cases, the consumer would
be required to provide a down payment of between 20% and 50% of the
purchase price, with the balance due in installments at an agreed upon
interest rate. Upon receipt of the down payment, we would authorize
the merchandise to be shipped to the consumer. On a monthly basis, we
would send a bill to the consumer for that month's portion of the
balance that is due. This process is very similar to purchasing
merchandise through any store catalog, with the primary difference
being that a down payment is required prior to shipment of the
merchandise, and the catalog through which the consumer can shop is
provided by us. We would actively manage the direct mail and customer
solicitation process, including fulfillment, printing, and payment
processing. To service these consumers on an ongoing basis, we plan
to partner with third party catalog companies who could provide the
catalog and drop ship the merchandise to the consumer.
Customized Stored Value Program Management. The third component
of our business model includes the management of customized stored
value programs on behalf of other companies. This business involves
the same stored value MasterCard products as previously described,
with the primary difference being that we would act as an OEM supplier
while the corporate client who contracts with us would be responsible
for sales, marketing, distribution, and payment for all products and
services. Within this model, we intend to utilize the industry
expertise of our management coupled with the processor, banking and
MasterCard relationships that we have developed to facilitate the
sale of a co-branded product in conjunction with the client. This
business model is similar to American Airlines and the AAdvantage
MasterCard issued by Citibank. In that case, Citibank is responsible
for issuing the cards and supporting the end user of the card, but
American Airlines is responsible for customer acquisition,
distribution, and in some cases, product development costs. In this
model, we hope to generate revenue from consulting fees charged to the
client and card usage fees incurred by the cardholder for use of the
card. We are not currently managing any stored value programs, but we
are in early stage discussions with perspective clients who are
considering using us as the stored value program manager.
17
Competition
Although the retail based stored value industry is still in its
infancy, considerable specialization has begun to occur with the end
result delivering a competitive landscape that can be broken into
three primary segments: open, PIN-based semi-open, and closed loop
product offerings. Most segments are filled with unique competitors
and an equally divergent collection of product offerings.
The open segment of the market consists of a fragmented
collection of association branded prepaid debit card products. The
common trait within this product segment is that all products carry
the Visa, MasterCard, American Express, or Discover brand on the
front of the card giving the product category unparalleled payment
acceptance. Examples of companies who compete within the space are
Next Estate Communications, Net Spend, One Global Finance, and ITC
Financial Services. Many of these companies share common traits
including: well-developed proprietary infrastructure, substantial
investment in internal IT resources, significant and/or continual
venture capital backing, profitability, and direct relationships with
the associations, such as Visa and MasterCard.
Within the context of the stored value space, "PIN-based or
semi-open loop" traditionally refers to a category of products that do
not carry a major association branded (Visa, MasterCard, American
Express, Discover) on the front of the card. These cards are
affiliated with the Cirrus, Maestro, or Plus networks and are accepted
as payment at debit-enabled merchant locations. Unlike an open loop
product, a PIN-based product cannot be used for online commerce.
Several dozen small companies have emerged in this semi-open segment,
evolving from the precursor industry of prepaid phone cards. Included
on the list would be companies such as Air Time Technologies, I2C, and
Morgan Beaumont, among others.
Closed-loop product offerings make up the largest collective
segment of the stored value industry in terms of cards issued and
transactional volume. Cards within this segment tend to be focused on
specific use applications within a single organization or structure.
The common trait among these products is that they carry no direct
payment affiliation to the debit or credit network, and typically are
designed as a replacement for paper gift certificates or in limited
cases to access merchant specific online content. Common examples
include: the Starbucks gift card and Dave & Busters game card. There
are several entrants within this space, most of which are competing
only for their own gift card business. Notable providers within the
space are Stored Value Systems, Value Link, AT&T, and others.
There is a growing degree of competition among companies seeking
to acquire interests in stored value and financial services companies
such as those we may target for acquisition. A large number of
established and well-financed entities, including large banking and
financial institutions, stored value distributors and aggregators and
venture capital firms, are active in acquiring interests in companies
that we may find to be desirable acquisition candidates. Many of
these entities have significantly greater financial resources,
industry expertise and managerial
18
capabilities than do we. Consequently, we may be at a competitive
disadvantage in negotiating and executing possible acquisitions of
these entities as competitors may have easier access to capital than
do we. Although entrepreneur-founders of privately held stored value
and financial services companies may place greater emphasis on the
ease of access to capital than on obtaining the management skills and
industry expertise that we can provide, management believes that it
offers unique and attractive set of benefits, including the ability of
the founders and management to preserve their business culture and
identity while leveraging the strengths of an acquired company.
In addition, each of the prospective acquired companies will
undoubtedly face significant competition in their individual markets.
We believe competition will continue to grow both from new entrants to
the market as well as from existing participants, such as banks
expanding the breadth of their services into the markets currently
underserved.
We believe that competition in the stored value products and
services market is based upon the following factors:
* Addressing the needs of underserved and unbanked customers;
* Program flexibility for user-specific needs;
* Responsiveness to customer demands;
* Easy product distribution access and usage (i.e. online,
telephone, retail, etc);
* Stored value expertise;
* Brand recognition and geographic presence; and
* Price.
It can be assumed that we and any acquired company will compete
with numerous large companies that have substantially greater market
presence and financial, technical, marketing and other resources than
we have, such as Next Estate Communications, Net Spend, One Global
Finance, WildCard Systems and ITC Financial Services. These
competitors include (i) large stored value product and service
providers; (ii) national, regional and local networked retail prepaid
service providers who have stored value services divisions;
(iii) fully integrated on-line services companies; and (iv) major
venture-backed stored value firms. Many of our competitors expanded
their product and/or service offerings over the past year and
increased their focus on new product development and delivery, thus
increasing the number of organizations that are providing products and
services similar to ours.
As a result of continued competition, we expect to encounter
product or pricing pressure, which in turn could result in reductions
in the average selling price of our products and services. There can
be no assurance that we will be able to offset the effects of any such
price reductions through an increase in the volume of product sales,
higher revenue from new products or services, cost reductions or
otherwise. In addition, we believe that continuing awareness and
expansion in the stored value products and services industry could
result in increased price pressure and other competition in the
industry.
19
Regulatory Environment
As the stored value industry continues to grow, we can expect
regulatory oversight to expand accordingly. -Currently, various states
are investigating the feasibility of clarifying existing regulations
for stored value products. Although there may be additional
regulations at both the state and federal level, outlined below are
the key risks associated with the stored value industry:
* State laws: States such as Pennsylvania and Maryland are
proactive in defining and regulating the stored value industry
and serve as benchmarks for other states currently in the process
of defining the regulatory aspects of the emerging industry.
These laws are designed to protect consumers and regulate the
legitimate businesses in conducting business in the stored value
space. On a state-by-state basis, each state may elect to
further refine the regulatory scope and enact new laws to manage
stricter compliance in the growing stored value arena.
* Money transmitter laws: Many states engage in the regulation of
the transfer or transmittal of money. Oftentimes this type of
transaction is regulated by the state banking authorities to
ensure consumer protection. As stored value makes an increased
presence in the transactional marketplace, it could be expected
that further regulatory guidelines will be established to monitor
industry compliance.
* Patriot Act: This law was enacted by the United States'
government to provide further investigative tools to Justice
Department authorities attempting to prevent acts of terrorism.
This legislative action is a potential risk for the stored value
industry as new laws governing information collection could be
further changed. Under the auspices of current law, the Patriot
Act regulates the submission of appropriate personal
identification for applications on all non-anonymous stored value
products. As an extension of the Patriot Act, there is a
subsequent Bank Secrecy Act, which may pose a future risk as the
regulatory climate changes in response to further refining the
existing laws.
Intellectual Property
As we further develop products, processes or methods, we are
committed to protecting our interests through the application of
appropriate trademarks, patents or rights. Though we currently do not
have any of the aforementioned protections, we will seek such
protections at the necessary time.
20
Strategic Acquisitions
Management is seeking potential acquisition candidates. However,
we have not yet found potential acquisition targets to proceed beyond
preliminary negations and due diligence investigation. We currently
have no binding agreements with any of these companies.
Selection Criteria for Acquisition Targets
Prospective acquisitions will be selected for their
profitability, product synergy, market position, and customer base and
for their experienced management teams. We will attempt to negotiate
acquisition terms which will limit financial risk to our shareholders
by setting specific performance milestones in order for the target
company's owners to receive full purchase consideration.
Management intends to consider a number of factors prior to
making any final decision as to whether to purchase a company or to
participate in any specific business endeavor, none of which may be
determinative or provide any assurance of success.
Selection Process for Acquisitions
The selection of a business opportunity in which to participate
is complex and risky. Additionally, as we have only limited resources
available to us, it may be difficult to find good opportunities.
There can be no assurance that we will be able to identify and acquire
any business opportunity based on management's business judgment.
We are unable to predict the time as to when and if we may
actually participate in any specific business endeavor. We anticipate
that proposed business ventures will be made available to us through
personal contacts of directors, executive officers and stockholders,
professional advisors, broker dealers in securities, venture capital
personnel, members of the financial community, attorneys, and others
who may present unsolicited proposals. In certain cases, the Company
may agree to pay a finder's fee or to otherwise compensate the persons
who submit a potential business endeavor in which the Company
eventually participates. Such persons may include our directors,
executive officers, beneficial owners or our affiliates. In this
event, such fees may become a factor in negotiations regarding a
potential acquisition and, accordingly, may present a conflict of
interest for such individuals. Our directors and executive officer
have not used any particular consultants, advisors or finders on a
regular basis to locate potential business opportunities.
The possibility exists that we may acquire or merge with a
business or company in which our executive officers, directors,
beneficial owners or our affiliates may have an ownership interest.
Our current policy does not prohibit such transactions. Because no
such transaction is currently contemplated, it is impossible to
estimate the potential pecuniary benefits to these persons.
21
Employees
We currently employ two full time individuals. As we continue to
develop our products and services, our headcount will expand
accordingly. It is anticipated that in the coming months we will add
an additional three to four employees.
Facilities
We sublease approximately 1,478 square feet of office space in
Newport Beach, California, for $3,695 per month. The sublease expires
on June 30, 2007.
Management's Discussion and Analysis and 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.
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, 2004.
Results of Operations
During the second quarter ending June 30, 2004, we generated
revenues of $14,000 and incurred operating expenses of $119,875. For
the six months ended June 30, 2004, we generated revenues of $14,000
and incurred operating expenses of $126,510. Since operations
commenced in May 2004, there is no comparable data for the same period
in the prior year. The $6,635 expense difference between the first
and second quarters is attributed to professional fees and expenses
associated with the management of the company prior to starting up
operations in May 2004. Management has not yet determined the amount
of revenues and expenses estimated for the remainder of 2004, but
anticipates that they will increase progressively based upon the
commencement of operations during the second quarter of 2004.
On May 18, 2004, we paid all outstanding notes payables in the
aggregate principal amount of $28,852, excluding interest, which was
forgiven. This transaction eliminated all of our outstanding notes
and loans payable as of May 18, 2004.
22
Liquidity and Capital Resources
A primary source of operating capital for the quarter ended
June 30, 2004, was from the sale of stock. On June 7, 2004, we commenced
an offering of up to 2,000,000 shares of our common stock at $.75 per
share to investors for maximum gross proceeds of $1,500,000. At June 30,
2004, we had sold 367,067 shares in this offering and collected
gross proceeds of $275,300. We anticipate this offering closing on
or before September 15, 2004. The shares offered will not be and
have not been registered under the Securities Act and may not be
offered or sold in the United States absent registration or an
applicable exemption from registration requirements.
A second principal source of our operating capital for the
quarter was furnished through the issuance of a convertible debenture
and the receipt of $200,000 for the debenture. This six-month 10%
convertible debenture was issued on May 12, 2004, upon receipt of the
$200,000. The debenture is convertible at the rate of $0.75 per
share. Likewise, neither the debenture nor the shares issuable upon
conversion of the debenture, will not be and have not been registered
under the Securities Act and may not be offered or sold in the United
States absent registration or an applicable exemption from
registration requirements.
As of June 30, 2004, cash totaled $356,684 as compared with
$8,249 of cash at March 31, 2004, resulting in an increase of $348,615
in cash and cash equivalents for the quarter ended June 30, 2004. The
increase in cash and cash equivalents consists of $436,324 provided by
the $200,000 loan in exchange for a six-month convertible debenture
with the balance of the increase attributed to proceeds of the private
common stock offering, with cash used in operations of $87,889. There
were no comparable operations or financing activities for the same
period last year.
Working capital was $362,277 at June 30, 2004, as compared with
working capital of $4,129 at March 31, 2004. This increase in working
capital was a result of the contribution of funds provided by both the
new debt and private offering proceeds to support the business during
its startup and growth phase.
Proceeds from the private stock offering are planned to continue
in the third quarter 2004 to support the startup phase. Management
believes that with funds from the offering, together with revenues
generated from operations, we will have sufficient cash to satisfy
existing operating cash needs and working capital requirements during
2004 and through at least 2005. Our monthly cash requirements have
been consistent at $55,000 and as we continue to expand headcount and
operations, management estimates that future monthly cash requirements
will rise to approximately $75,000. Without generating any additional
revenues, we estimate that cash from our private offering and
anticipated revenues generated from operations would meet our cash
flow requirements through at least December 31, 2005. Any additional
funds from operations would likely extend this estimated period. With
the closing of our stock offering, we would not anticipate the need
for additional funding from investors.
23
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, 2004, we did not engage in any
off-balance sheet arrangements.
Stock-Based Compensation
We account for employee stock-based compensation under the
"intrinsic value" method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"),
as opposed to the "fair value" method prescribed by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). Pursuant to the provisions of APB 25, we
generally do not record an expense for the value of stock-based awards
granted to employees. If proposals currently under consideration by
various accounting standard organizations are adopted, such as the
Financial Accounting Standards Board Proposed Statement of Financial
Accounting Standard, "Share-Based Payment, an amendment of FASB
Statements No. 123 and 95," we may be required to treat the value of
stock-based awards granted to employees as compensation expense in the
future, which could have a material adverse effect on our reported
operating results and could negatively affect the price of our common
stock. If these proposals are adopted, we could decide to reduce the
number of stock-based awards granted to employees in the future, which
could adversely impact our ability to attract qualified candidates or
retain existing employees without increasing their cash compensation
and, therefore, have material adverse effect on our business, results
of operations and financial condition.
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
24
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.
Risk Factors
Our company is subject to a number of material risks, of which
those known to management are set forth below:
* We are Engaged in a New Business Venture and are Subject to all
of the Risks of a Start-Up Venture. Because we recently
commenced operations, our business is subject to all of the risks
inherent in a new enterprise, including the absence of a
profitable operating history, potential undercapitalization, and
expense of new product development and research and development.
Various problems, expenses, complications and delays may be
encountered in connection with the development of our business.
Future growth will require significant expenditures for
expansion, marketing, research and development. Traditional
sources of funding from lending institutions will likely not be
available to us. These expenses must either be paid out of
future earnings or future offerings of equity or debt
instruments. The availability of funds from either of these
sources cannot be assured. In addition, we have no definitive
agreements or arrangements for the implementation of our business
plan, and there is no assurance that management will be able to
enter into such agreements or arrangements which would reasonably
support our proposed operations.
* We have not Performed any Market Studies or Retained any
Independent Market Study of Our Proposed Products or Services,
and there is no Assurance that these Products and Services will
be Accepted in the Marketplace. Our business plan is to
introduce prepaid or stored value cards to the public. There is
no assurance that these services and products will be accepted in
the marketplace. We have not allocated any funds to performing
any in-house or independent marketing studies to confirm or
estimate market acceptance of our proposed services and products.
* We may Encounter Unknown Risks of New Ventures. As a part of our
overall business model, we intend to seek potential acquisition
targets. These acquisitions may involve risks which we are
unable to predict at this time. The results of operations of any
specific entity may not necessarily be indicative of what may
occur in the future, by reason of changing market strategies,
product expansion, changes in product emphasis, future management
personnel and changes in innumerable other factors. Further, in
the
25
case of a new business venture or one that is in a research and
development stage, the risks will be substantial, and there will
be no objective criteria to examine the effectiveness or the
abilities of its management or its business objectives. Also, a
firm market for its products or services may yet need to be
established, and with no past track record, the profitability of
any such entity will be unproven and cannot be predicted with any
certainty.
* The Acquisition of Existing Businesses could result in the
Dilution of the Percentage Ownership of Existing Shareholders.
As part of our business plan, we intend to seek and acquire
related businesses or operations using shares of our common
stock. The issuance of these shares could materially reduce the
percentage ownership interest in the company of existing
shareholders. There is no assurance that any acquired businesses
or operations would be successful or that if unsuccessful, such
acquisitions could be rescinded and the issued shares returned to
us.
* We have had a Number of Related Party Transactions. As a
start-up venture, we have engaged in a significant number of
transactions with related parties that may not be deemed to have
been at arm's length, including the following:
- On May 12, 2004, we borrowed $200,000 from Trymetris Capital
Fund I, LLC pursuant to the terms of a six-month 10%
convertible debenture which we issued for the loan. The
debenture is convertible at $0.75 per share. We also issued
100,000 shares of common stock as additional consideration
for the loan and granted demand registration rights for the
shares. The Fund is managed by Trymetris Capital
Management, LLC. Alan S. Knitowski, our Chairman, is a
managing member of this entity and holds an ownership
interest in the Fund. Jason Daggett, a member of our
advisory committee, is also a managing member of this
entity. Eric Chess Bronk, the former sole officer and
director of our company, is a non-managing member of this
entity.
- On May 12, 2004, we entered into a renewable one-year
consulting agreement with Cygni Capital, LLC and Ecewa
Capital, LLC in which we agreed to pay $10,000 every thirty
days for the services and, during the initial term, a
finder's fee equal to 8% of any transaction plus five-year
warrants to purchase shares equal to 8% of the securities
subject to the transaction. On May 18, 2004, we repaid
$8,731 of loans made to us by Cygni Capital. On May 24,
2004, Cygni Capital leased approximately 1,478 square feet
of office space and sublet the space to us for $3,695 per
month. In addition, Mr. Bronk personally guaranteed the
lease, for which we granted him five-year options to
purchase 50,000 shares. These options are exercisable at
$0.25 for the first 12,500, $0.45 for the next 12,500, $0.65
for the next 12,500, and $0.85 for the next 12,500. On May
27, 2004, we granted to Cygni Capital options to purchase
125,000 shares for prior consulting services. These options
are exercisable at $0.25 for the first 31,250, $0.45 for the
next 31,250, $0.65 for the next 31,250, and $0.85 for the
next
26
31,250. Mr. Bronk is the president of Cygni Capital.
Mr. Knitowski is the owner and manager of Ecewa Capital.
- On May 18, 2004, we repaid $19,295 of loans made to us by
Rigel Funds Management, Ltd., of which Mr. Bronk is a
director.
These transactions may not be on terms as beneficial as could be
obtained from unrelated parties. In addition, the related parties
may have interests that differ from those of other investors.
* The Loss of the Services of Current Management would have a
Material Negative Impact on Our Operations. We will be dependent
on Matthew S. Kerper, our CEO and President, and Bryan W. Kenyon,
our CFO, as our current management for the foreseeable future.
The loss of the services of any member of this management group
could have a material adverse effect on our operations and
prospects. We have not obtained "key man" insurance policies on
any member of management, including these individuals.
* We will be in Competition with a Number of Other Companies, Most
of which are Better Financed than is Our Company. The dominant
player in the prepaid stored value space is Next Estate
Communications, America's leading provider of prepaid MasterCard
cards. Next Estate boasts strong venture backing from numerous
companies and currently sells products in over 35,000 retail
stores nationally. Austin, Texas, based NetSpend Corporation is
also a well-capitalized leader within prepaid stored value
platforms, offering a turnkey, retail based stored value solution
to the check cashing industry. NetSpend is buoyed by venture
funding from a broad cross-section of technology and banking
firms. ITC Financial Services specializes in electronic payment
solutions for a multitude of business pursuits, primarily
focusing on retail based stored value and payroll products.
ITCFS was founded by Cam Lanier III and funded by ITC holdings
with an initial equity infusion of $54 million dollars in
September 2003. WildCard Systems is another stored value
provider with access to large amounts of capital and an
established track record as the originator of Visa Buxx. Backed
by GE Technology Finance and other private equity stakeholders,
the company has developed a secure technology and services
platform. This platform supports client configurable program
management, cardholder account management, card distribution and
other essential services for banks and business partners on a
global scale. Each of these companies has a longer operating
history and is better financed than our company. There is no
assurance that as a startup company, we will be able to compete
successfully with these other entities or that we will be able to
capture a significant segment of the market share from these
competitors.
* All of Our Outstanding Shares are Classified as Restricted
Securities or May Require Registration for Resale. In connection
with the organization of our company we issued 550,000 shares
without registration and at a time when our company would have
been designated as a blank-check company. In May 2004 we issued
an additional
27
3,300,000 shares to management, consultants, and others. In June
we commenced an unregistered private offering of up to 2,000,000
shares. Management believes that the holders of the 550,000
shares issued in the organization of our company would not
qualify to rely on Section 4(1) of the Securities Act or Rule 144
promulgated by the SEC under the Act. Therefore, these shares
may only be sold through a registration statement filed by us
registering the resale of these shares. In addition, management
believes that the balance of the outstanding shares would not
qualify for resale under Rule 144 until at least May 2005. Thus,
it is unlikely that a market for our stock could be established
until at least May 2005, or until we file a registration
statement to register the resale of our outstanding shares.
Management has agreed to file a registration statement to
register all of the outstanding shares, but there is no assurance
how long the registration process would take, or if the
registration statement would be declared effective for use by
these persons.
* There is No Public Market for the Common Stock which
significantly Limits the ability to Sell our Outstanding Shares.
There is currently no public market for our common stock and no
assurance that one will develop in the future. Management
intends to apply for quotation of our common stock in the "Pink
Sheets" or the OTC Bulletin Board in the future, but there is no
assurance such application process will be successful. Prior to
making application to the Bulletin Board, we would be required to
file a registration statement with the SEC and become subject to
the reporting requirements of the Exchange Act. The process of
registering the shares and making application for trading is
extremely time-consuming. The process could take several months.
And, there is no assurance that a registration statement would be
declared effective by the SEC or that an application for trading
would be approved.
* Our Shares are Designated as Penny Stock which could Decrease the
Liquidity of the Shares in any future Public Market. Our
outstanding shares are designated as "penny stock" and thus may
be more illiquid, if a market for the stock is established in the
future. The SEC has adopted rules (Rules 15g-2 through l5g-6 of
the Securities Exchange Act of 1934) which regulate broker-dealer
practices in connection with transactions in "penny stocks."
Penny stocks generally are any non-NASDAQ equity securities with
a price of less than $5.00, subject to certain exceptions. The
penny stock rules require a broker-dealer to deliver a
standardized risk disclosure document prepared by the SEC, to
provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, monthly account statements
showing the market value of each penny stock held in the
customers account, to make a special written determination that
the penny stock is a suitable investment for the purchaser and
receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the
level of trading activity, if any, in the secondary market for a
stock that becomes subject to the penny stock rules. Since our
shares are subject to the penny stock rules, shareholders or
investors may find it more difficult to sell their securities.
The market liquidity for our
28
shares could be severely and adversely affected by limiting the
ability of broker-dealers to sell the shares.
* Any Market which Develops for our Shares would likely be a
Volatile One. The over-the-counter market for securities, such
as the one which could develop for our common stock, has
historically experienced extreme price and volume fluctuations
during certain periods. These broad market fluctuations and
other factors, such as acceptance of our products and services,
and trends in the stored value industry, and the investment
markets generally, as well as economic conditions and quarterly
variations in our results of operations, may adversely affect the
market price of our common stock, if a public trading market
should develop in the future.
* Our Board of Directors can, without Stockholder Approval, Cause
Preferred Stock to be Issued on Terms that Adversely Affect
Common Stockholders. Under our articles of incorporation our
board of directors is authorized to issue up to 20,000,000 shares
of preferred stock, none of which are issued and outstanding as
of the date of this report, and to determine the price, rights,
preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by our
stockholders. If the board causes any preferred stock to be
issued, the rights of the holders of our common stock could be
adversely affected. The board's ability to determine the terms
of preferred stock and to cause its issuance, while providing
desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our
outstanding voting stock. Preferred shares issued by the board
of directors could include voting rights, or even super voting
rights, which could shift the ability to control the company to
the holders of the preferred stock. Preferred shares could also
have conversion rights into shares of common stock at a discount
to the market price of the common stock which could negatively
affect the market for our common stock. In addition, preferred
shares would have preference in the event of liquidation of the
corporation, which means that the holders of preferred shares
would be entitled to receive the net assets of the corporation
distributed in liquidation before the common stock holders
receive any distribution of the liquidated assets. We have no
current plans to issue any shares of preferred stock.
* We have not Paid, and do not Intend to Pay, Dividends and
therefore, unless our Common Stock Appreciates in Value, our
Investors may not Benefit from Holding our Common Stock. We have
not paid any cash dividends since inception. We do not anticipate
paying any cash dividends in the foreseeable future. As a result,
our investors will not be able to benefit from owning our common
stock unless the market price of our common stock becomes greater
than the price paid for the stock by these investors.
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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) and 15d-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 designed to ensure that information
required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and
are operating in an effective manner.
Changes in internal controls
There were no changes in our internal control over financial
reporting that have materially affected, or are 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.
PART II
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
During the quarter ended June 30, 2004, the following securities
were sold by Trycera without registering the securities under the
Securities Act (all shares are designated in post-reverse split
amounts):
* On May 11, 2004, we issued 410,000 shares of our common stock to
Eric Bronk, a former officer and director, as a bonus for prior
services as the sole officer and director of the company since
its inception. These shares were issued 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. Bronk represented that he was an accredited investor as defined
in Rule 501 of Regulation D at the time of the
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issuance. He delivered appropriate investment representations
with respect to this issuance and consented to the imposition of
restrictive legends upon the stock certificates representing the
shares. 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.
Mr. Bronk 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 stock issuance. No underwriting
discounts or commissions were paid in connection with the
transaction.
* On May 11, 2004, we issued 50,000 shares to our legal counsel,
Ronald N. Vance, for his services. The shares were issued
without registration under the Securities Act by reason of the
exemption from registration afforded by the provisions of Section
4(2) thereof, and Rule 506 promulgated thereunder, as a
transaction by an issuer not involving any public offering.
Mr. Vance acknowledged receipt of information similar to that which
would be contained in a prospectus in connection with this
transaction. He delivered appropriate investment representations
with respect to this issuance and consented to the imposition of
restrictive legends upon the documents evidencing the shares and
the options. 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.
Mr. Vance 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 stock issuance. No underwriting
discounts or commissions were paid in connection with this
transaction.
* On May 11, 2004, we issued 140,000 shares of our common stock to
Jason Daggett for accepting appointment as the initial member of
our advisory board. These shares were issued 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. Daggett represented that he was an accredited investor as
defined in Rule 501 of Regulation D at the time of the issuance.
He delivered appropriate investment representations with respect
to this issuance and consented to the imposition of restrictive
legends upon the stock certificates representing the shares. 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. Mr. Daggett 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 stock issuance. No underwriting discounts or
commissions were paid in connection with the transaction.
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* On May 11, 2004, we issued a total of 2,600,000 shares to our new
management for accepting appointments as officers and/or
directors of the company. We issued 500,000 shares to Luan Dang,
a director, 1,000,000 shares to Matthew S. Kerper, a director and
President, 600,000 shares to Bryan Kenyon, our CFO, and 500,000
shares to Alan Knitowski, our Chairman. These shares were issued
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. Each person represented that he was an
accredited investor as defined in Rule 501 of Regulation D at the
time of the issuance. Each delivered appropriate investment
representations with respect to this issuance and consented to
the imposition of restrictive legends upon the stock certificates
representing the shares. Each 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. Each 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 stock
issuance. No underwriting discounts or commissions were paid in
connection with the transaction.
* On May 12, 2004, we issued a six-month 10% convertible debenture
to Trymetris Capital Fund I, LLC, in the amount of $200,000 for a
like amount of funds received from this Fund for the debenture.
The debenture is convertible at the rate of $0.75 per share. In
addition, we issued 100,000 shares of common stock to the Fund as
additional consideration for the loan. The debenture and the
shares were issued 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 Fund represented that it was
an accredited investor as defined in Rule 501 of Regulation D at
the time of the transaction. The Fund delivered appropriate
investment representations with respect to this issuance and
consented to the imposition of restrictive legends upon debenture
certificate and the stock certificate. Management of the Fund
represented that it 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. The person representing
the manager of the Fund 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 grants. No
underwriting discounts or commissions were paid in connection
with the issuance of the debenture or the shares.
* On May 27, 2004, we granted a total of 2,215,000 options to our
new management and consultants. We granted 1,000,000 options to
Matthew S. Kerper pursuant to his employment agreement with us;
750,000 options to Bryan Kenyon pursuant to his employment
agreement with us; 50,000 options to Alan S. Knitowski for
serving as an
32
outside director, serving on our audit and compensation
committees, and for chairing our audit committee; 50,000 options
to Luan Dang for serving as an outside director, serving on our
audit and compensation committees, and for chairing our
compensation committee; 15,000 options to Ronald N. Vance, for
serving as our Secretary; 50,000 options to Jason Daggett for
serving on our advisory committee; 125,000 options to Cygni
Capital, LLC for consulting services; 125,000 options to Ecewa
Capital, LLC for consulting services; and 50,000 to Eric
Chess Bronk for providing a personal guarantee on our sublease of
office space. Subsequent to the grant, Cygni Capital, LLC
transferred its options to Eric Chess Bronk. These five-year
options were granted under our 2004 Stock Option/Stock Issuance
Plan. The options granted to Mr. Vance are exercisable at $.001
per share; the options granted to Mr. Daggett, Mr. Knitowski, and
Mr. Dang are exercisable at $0.25 per share; and the remaining
options are exercisable at $0.25 for the first one quarter of the
options granted, $0.45 for the next one-quarter, $0.65 for the
next one-quarter, and $0.85 for the final one-quarter. 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. Each person, except Mr. Vance,
represented that he was an accredited investor as defined in Rule
501 of Regulation D at the time of the grant. Mr. Vance
acknowledged receipt of information similar to that which would
be contained in a prospectus in connection with this transaction.
Each delivered appropriate investment representations with
respect to these grants and consented to the imposition of
restrictive legends upon the certificates representing the
options. Each 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.
Each 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.
* On June 7, 2004, we commenced a non-public offering of up to
2,000,000 shares of our common stock at $0.75 per share for
maximum gross proceeds of $1,500,000. As of June 30, 2004, we
had sold 367,067 shares to five accredited investors and one
non-accredited investors. The shares were offered and sold
without registration under the Securities Act by reason of the
exemption from registration afforded by the provisions of Section
4(2) thereof, and Rule 506 promulgated thereunder, as a
transaction by an issuer not involving any public offering. Each
of the investors was furnished with a confidential private
offering term sheet which contained the same type of information
as would be contained in a prospectus. Each investor delivered
appropriate investment representations with respect to this
issuance and consented to the imposition of restrictive legends
upon the stock certificates evidencing the shares. Each investor
represented that he had not entered into the transaction with us
as a result of or subsequent to any advertisement,
33
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. Each investor
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 sale of the shares. No underwriting
discounts or commissions were paid in connection with the sales
of the shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 10, 2004, shareholders owning 630,000 shares, or 57% of
the total outstanding shares on such date, approved the following:
* An amendment to our articles of incorporation to change the
corporate name to "Trycera Financial, Inc.;"
* An amendment to our articles of incorporation adopting a class of
preferred shares and authorizing 20,000,000 shares of preferred
stock, par value $.001 per share;
* A reverse split of the outstanding shares of common stock at the
rate of one for two (1:2); and
* A 2004 Stock Option/Stock Issuance Plan in which 5,000,000 shares
are authorized for issuance.
The amendments to the articles of incorporation, the reverse
stock split, and approval of the plan became effective on June 14,
2004.
ITEM 5. OTHER INFORMATION
Amended Bylaws
At its regular meeting held on July 28, 2004, the board
authorized certain amendments to our bylaws. These amendments
included the following items:
* The number of shares constituting a quorum at meetings of the
shareholders was reduced from a majority of the outstanding
shares to one-third.
* The chairman was granted authority to cast the deciding vote in
the event of a tie vote at any meeting of the directors.
* A hierarchy among persons holding the title of vice-president was
created.
* The offices of assistant secretary and assistant treasurer were
designated.
A copy of the amended bylaws it their entirety is attached hereto
as Exhibit 3.2.
Shareholder Nominees
At its regular meeting held on June 23, 2004, the board adopted
the following policy by which shareholders may recommend nominees to
our board of directors:
34
The Company's policy is to permit security holders to recommend
candidates for election as directors and to provide for a process
for stockholders to send communications to the Board of
Directors. Stockholders may send communications to the Board of
Directors by contacting the Company's President in writing or by
email.
Outside Director Compensation
At its regular meeting held on June 23, 2004, the board adopted a
policy for compensating outside directors. At the initial appointment
of the director, the compensation committee will grant him five-year
options to purchase 25,000 shares of our common stock. If the
director is appointed to a committee, he will be granted options to
purchase 10,000 shares, and if he is appointed as chair of a
committee, he will be granted an additional 5,000 options. The
exercise price of the options will be the fair market value of the
common stock at the date of grant, and the options will vest
one-quarter at the end of each three months from the date of grant.
The options will be granted under our 2004 Stock Option/Stock Issuance
Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.2 Bylaws, as amended July 28, 2004
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
(b) Reports on Form 8-K: During the quarter ended June 30,
2004, the Company filed the following reports on Form 8-K:
* On May 13, 2004, the Company filed a report dated May 7,
2004, announcing a change of control under Item 1 and the
following items under Item 5: the change of the name of the
company to Trycera Financial, Inc.; the borrowing of
$200,000 from Trymetris Capital Fund I, LLC; the
establishment of an advisory board; entering into a
consulting agreement with Cygni Capital, LLC and Ecewa
Capital, LLC.
* On June 9, 2004, the Company filed a report dated May 26,
2004, under Item 5 announcing the formation of a
compensation committee and an audit committee, employment
agreements with Matthew S. Kerper and Bryan Kenyon, and the
granting of options.
* On June 15, 2004, the Company filed a report dated June 14,
2004, under Item 5 announcing the effectiveness of the
shareholder approval to change the name of the Company; to
approve the amendment to the articles of incorporation to
provide for preferred shares; to reverse split the
outstanding stock; and to approve the Company's Stock
Option/Stock Issuance Plan.
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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: August 16, 2004 By: /s/ Matthew S. Kerper
Matthew S. Kerper, President
(Principal Executive Officer)
Date: August 16, 2004 By: /s/ Bryan Kenyon
Bryan Kenyon, Treasurer and
Chief Financial Officer
36