ITEM 1. BUSINESS
Overview and Development Since the Beginning of 2009
From 2004 until 2008 the Company was in the business of developing, deploying and marketing semi-custom and customized branded prepaid and prepaid card solutions. Due to continued losses from operations during 2009, the Company began winding down its principal business operations and commenced a search for a new business venture. At that time, the Company had no material assets or significant liabilities. Former board members and management were unsuccessful in securing a new business venture for the Company and on January 22, 2009, transferred control of the Company to Ronald N. Vance, former company counsel, to seek for and, if possible, locate a suitable operating business venture willing to take control of the Company.
On August 12, 2009, the Company changed its status from shell Company to operating Company. Pursuant to business operations established in the second quarter of fiscal 2010, the Company recommenced operations. The core focus of the restarted operations is marketing prepaid card products, payment reporting products and a suite of financial products and services. As a result, and at this time, the Company does not plan to reinstate its previous program management status, and will instead rely on third party processors, program managers and banks to coordinate, issue and manage prepaid card portfolios on behalf of the Company. The Company will focus on the marketing of network branded third party card programs that can adopt our payment reporting platform within their technical infrastructure. By leveraging existing card platforms and portfolios, we should be able to aggregate more payment reporting customers. The Company has also begun negotiations to engage businesses in the sales process. The targeted focus of the Company is to partner with businesses which deliver non-bank personal and financial services such as insurance agencies, micro-loan centers, rent to own, local/regional credit unions and check cashing businesses. As of the date of this report, the Company has begun negotiations for various arrangements and agreements. While new agreements are in place, it is indeterminable how restarting operations may positively or adversely affect the business. As a result, the Company, while attempting to create newfound revenue streams, will continue seeking opportunities for outside business ventures and raising funds to aid in launching new opportunities, generating organic revenues and restarting the operations.
Recent Developments
In further support of continued operations, the company made a number of material changes to its operations throughout the 2010 fiscal year,including:
On August 23, 2010, the Company entered into a lease agreement with the Irvine Company. The agreement allows the Company to lease 3,400 feet of office space in Irvine, California.
On July 19, 2010, the Company became an official affiliate marketer of Lower My Bills. By offering this service, the Company can assist cardholders and consumers and generate recurring revenue through this affiliate relationship.
On July 21, 2010, the Company became a marketing affiliate for myFICO. This service allows cardholders and consumers to actively manage certain credit profiles and will allow the Company to generate recurring revenue opportunities.
On July 1, 2010, the Company canceled our existing call center agreement with Globe Wired. The business case for the outsourced call center was not sustainable and thus the agreement was amicably terminated.
On June 9, 2010, the Company entered into a consulting agreement with Island Financial Solutions. The purpose of the agreement is to expand prepaid card opportunities and alternative payment platforms across a broad region outside of the United States.
On May 27, 2010, the Company entered into a call center agreement with Globe Wired. As our outsourced call center provider Globe Wired shall be responsible for all inbound service calls and all outbound targeted marketing in conjunction with personal financial services offerings.
On May 14, 2010, the Company terminated all prior agreements by and between Newport Coast Securities and the Company. The Company is seeking strategic advice from other parties and the termination was deemed mutual.
On April 9, 2010 the Company entered into a Services Agreement with the National Organizations for the Advancement of Haitians “NOAH”, the agreement covers in principal, all efforts to distribute prepaid cards and raise payment history awareness with the groups and individuals affiliated with NOAH.
On March 5, 2010, the Company notified a strategic partner Credit Reporting Services Corporation, that we were terminating our existing agreement. The termination positions the Company to renegotiate future agreements and provides flexibility for competing and non-exclusive arrangements.
On February 26, 2010, the Company’s securities legal counsel, Ronald N. Vance, resigned from the Company. The required disclosures were made under Form 8-K and filed with the Securities and Exchange Commission.
On February 25, 2010 the Company also resolved an outstanding $40,000 arbitration debt under a debt conversion agreement with Triple Crown. Under this agreement, the arbitration award was paid jointly to the recipient (Transfers4Less) by Triple Crown and the Company’s insurance provider. Triple Crown was issued 40,000,000 shares to it and its successors and designees as compensation for converting and satisfying that debt.
On February 24, 2010 the principal officers and key management (Messrs Smith and Kenyon) each received 175,000,000 shares of common stock of the Company. The shares were provided for payment for services from October 1, 2009 until February 28, 2010, a period which covers $100,000 in accrued wages for each Messrs Smith and Kenyon.
On February 23, 2010, Matthew Richards accepted an offer to join the Board of Directors of the Company. Matthew Richards is a national trainer, public speaker and educator. For 27 years, Mr. Richards has been a business and marketing consultant and a real estate investor. Mr. Richards is currently working with Knowledge to Wealth, Inc. (K2W) teaching and promoting financial literacy seminars which help individuals learn how to invest in real estate, start a new business, implement government grant programs, boost their credit profile and improve their leadership skills through personal development and coaching.
Throughout all four quarters of 2010, the Company continued to negotiate with new vendors, key vendors and prior service providers. Key management personnel have accrued wages and continue to accrue wages and accept partial payments for services to date. It is anticipated that key management personnel and key vendors and prior service providers shall be reimbursed accordingly once additional working capital is invested. A continued and substantial backlog of liabilities remains on the records of the Company, but management remain confident that those liabilities will be addressed in the coming quarters. Of the major items outstanding, the single largest are the lapsed settlement agreements with former directors Knitowski, Dang and their related parties, Dang, Ecewa, Curo and Sagoso. The Company has been in contact with certain principals as listed above during the last two quarters of 2010 and in the first quarter of 2011. It is expected that cash payments or alternative arrangements will be made in the second quarter or third quarter of2011 to mitigate any languishing liabilities to those particular parties.
In conjunction with continuing efforts to expand the operations, the Company spent time in the third quarter on recruiting industry experts to come work with the Company. The individuals hired by the Company represent the key management and operators required to lead operating divisions within the Company, the newly created Credit Services Division is focused on payment reporting technologies and the impact of recurring prepaid debit transaction payments on consumers. In order to establish direction for this new division, the Company sought out industry experts and made a key hire by appointing Michael Nathans to the role of President, Credit Services on September 17, 2010. Mr. Nathans is a recognized expert in the fields of alternative credit and reporting and brings unique expertise to assist in building this division.
During the fourth quarter, all primary operational efforts have been prioritized and focused on entering into new operating agreements, restarting operations and leveraging expertise via new hires in the alternative credit and reporting space. At the start of the fourth quarter, the Company focused on developing marketing partnerships to facilitate the distribution of prepaid debit cards, personal financial services and payment reporting services, all of which are designed to assist consumers in managing individual personal finances, including spending, budgeting and financial awareness. We also continued progress and development on other marketing and sales channels with our banking partner, card issuer and program manager, Central National Bank. While we did begin to distribute a limited number of payroll cards to customers during the fourth quarter of 2010, we anticipate marketing and launching a white label program to a broader customer base in the second quarter of 2011 and this program represents potential organic revenue opportunities to the Company.
In addition to our new operations, we plan to expand in the coming quarters through targeted acquisitions of small card portfolios and complementary personal financial services-related companies. We have targeted three potential acquisitions in the financial services space, one related to patented technology while the other two are related to the delivery of personal financial services and personal financial awareness. At this stage the Company has not entered into any negotiations or agreements to make any acquisitions.
During the course of 2010, a number of initiatives undertaken by the Company have taken longer than expected or anticipated. Significant working capital and capital constraints coupled with key management time constraints, increasing regulatory requirements and lengthening approval timeframes all contributed to slower than planned marketing as well as material delays in generating organic revenues throughout the year. The Company expects that organic revenues will be generated in the coming quarters to allow the Company to hire third parties to staff and support the program development and primary growth objectives. However, there are no assurances that the company can or will be able to generate the necessary revenues to sustain the operations and there are no assurances that the Company will secure the necessary funds to operate long term.
The Company currently remains near insolvency but is seeking financing from various sources for which there is one commitment to provide us with such financing. The Company believes that material changes to the recent trends in revenue are expected within the next one hundred eighty days. We do not currently have sufficient cash on hand to satisfy existing operating cash needs or working capital requirements on a sustained basis and the President and CEO has been seeking short term loans for the Company in order to fulfill certain obligations related to audit, employee retention and operational functions.
Business of the Company
The Company operates in the prepaid debit card and prepaid payments space. The Company intends to either seek an outside business venture or to raise funds to grow existing developmental operations. The Company anticipates that businesses for possible acquisition will be referred by various sources, including its officers and directors, shareholders, professional advisors, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals. The Company will not engage in any general solicitation or advertising for a business opportunity, and will rely on personal contacts of its sole officer and director and his affiliates, as well as indirect associations between him and other business and professional people. By relying on “word of mouth,” the Company may be limited in the number of potential acquisitions it can identify. While it is not presently anticipated that the Company will engage unaffiliated professional firms specializing in business acquisitions or reorganizations, such firms may be retained if management deems it in the best interest of the Company.
The Company will not restrict its search to any particular business, industry, or geographical location and management may evaluate and enter into any type of business in any location. The Company may participate in a newly organized business venture or a more established company entering a new phase of growth or in need of additional capital to overcome existing financial problems. Participation in a new business venture entails greater risks since in many instances management of such a venture will not have proved its ability, the eventual market of such venture’s product or services will likely not be established, and the profitability of the venture will be unproved and cannot be predicted accurately. If the Company participates in a more established firm with existing financial problems, it may be subjected to risk because the financial resources of the Company may not be adequate to eliminate or reverse the circumstances leading to such financial problems.
In seeking a business venture, the decision of management will not be controlled by an attempt to take advantage of any anticipated or perceived appeal of a specific industry, management group, product, or industry, but will be based on the business objective of seeking long-term capital appreciation in the real value of the Company.
In analyzing prospective businesses, management will consider, to the extent applicable, the following: the available technical, financial, and managerial resources, working capital and other prospects for the future, the nature of present and expected competition, the quality and experience of management services which may be available and the depth of that management, the potential for further research, development, or exploration, the potential for growth and expansion, the potential for profit, the perceived public recognition or acceptance of products, services, or trade or service marks, name identification and other relevant factors.
The decision to participate in a specific business may be based on management’s analysis of the quality of the other firm’s management and personnel, the anticipated acceptability of new products or marketing concepts, the merit of technological changes, and other factors which are difficult, if not impossible, to analyze through any objective criteria. It is anticipated that the results of operations of a specific firm may not necessarily be indicative of the potential for the future because of the requirement to substantially shift marketing approaches, expand significantly, change product emphasis, change or substantially augment management, and other factors.
The Company will analyze all available factors and make a determination based on a composite of available facts, without reliance on any single factor. The period within which the Company may participate in a business cannot be predicted and will depend on circumstances beyond the Company’s control, including the availability of businesses, the time required for the Company to complete its investigation and analysis of prospective businesses, the time required to prepare appropriate documents and agreements providing for the Company’s participation, and other circumstances.
Acquisition of an Outside Business
In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, or other reorganization with another corporation or entity; joint venture; license; purchase and sale of assets; or purchase and sale of stock, the exact nature of which cannot now be predicted. The structure of the particular business acquisition will be approved by the Board of Directors and may not require the approval of the Company’s shareholders. Notwithstanding the above, the Company does not intend to participate in a business through the purchase of minority stock positions. Upon the consummation of a transaction, it is likely or possible that the present management and shareholders of the Company will not be in control of the Company. In addition, it is anticipated that the current officers and directors would resign in favor of new management designated by the target company without a vote of the Company’s stockholders.
In the event the Company enters into an acquisition transaction with another entity, the Company will be required to report the transaction in a Current Report on Form 8-K within four business days following the execution of the agreement, and any amendment thereto, and within four business days following the closing of the transaction. In addition, since the Company is no longer a shell company, it will be required to file within four business days a Current Report on Form 8-K which includes the information that would be required if the Company were filing a general form for registration of securities on Form 10 reflecting the Company and its securities upon consummation of the transaction, including information on the new business and management of the Company after closing.
In connection with the Company’s acquisition of a business, the present shareholders of the Company, including current management, may, as a negotiated element of the acquisition, sell a portion or all of the Company’s Common Stock held by them at a significant premium over their original investment in the Company. It is not unusual for affiliates of the entity participating in the reorganization to negotiate to purchase shares held by the present shareholders in order to reduce the number of “restricted securities” held by persons no longer affiliated with the Company and thereby reduce the potential adverse impact on the public market in the Company’s Common Stock that could result from substantial sales of such shares after the restrictions no longer apply. As a result of such sales, affiliates of the entity participating in the business reorganization with the Company would acquire a higher percentage of equity ownership in the Company. Public investors will not receive any portion of the premium that may be paid in the foregoing circumstances. Furthermore, the Company’s shareholders may not be afforded an opportunity to approve or consent to any particular stock buy-out transaction.
In the event sales of shares by present stockholders of the Company, including current management, is a negotiated element of a future acquisition, a conflict of interest may arise because our sole director will be negotiating for the acquisition on behalf of the Company and for sale of his or shareholders’ shares for his own or the shareholders’ respective accounts. Where a business opportunity is well suited for acquisition by the Company, but affiliates of the business opportunity impose a condition that management sell shares at a price which is unacceptable to our sole director, management may not sacrifice his or the shareholders’ financial interest for the Company to complete the transaction. Where the business opportunity is not well suited, but the price offered management for the shares is high, management will be tempted to effect the acquisition to realize a substantial gain on the shares in the Company. Management has not adopted any policy for resolving the foregoing potential conflicts, should they arise, and does not intend to obtain an independent appraisal to determine whether any price that may be offered for their shares is fair. Stockholders must rely, instead, on the obligation of management to fulfill its fiduciary duty under state law to act in the best interests of the Company and its stockholders.
It is anticipated that any securities issued in any such reorganization would be issued in reliance on exemptions from registration under applicable federal and state securities laws. Securities, including shares of the Company’s Common Stock, issued by the Company in such a transaction would be “restricted securities” as defined in Rule 144 promulgated by the Securities and Exchange Commission. Under amendments to Rule 144 recently adopted by the Commission, and which take effect on February 15, 2008, these restricted securities could not be resold under Rule 144 until the following conditions were met: the Company ceased to be a shell company; it remained subject to the Exchange Act reporting obligations; filed all required Exchange Act reports during the preceding 12 months; and at least one year had elapsed from the time the Company filed “Form 10 information” reflecting the fact that it had ceased to be a shell company. In some circumstances, however, as a negotiated element of the transaction, the Company may agree to register such securities either at the time the transaction is consummated, under certain conditions, or at specified times thereafter. Although the terms of such registration rights and the number of securities, if any, which may be registered cannot be predicted, it may be expected that registration of securities by the Company in these circumstances would entail substantial expense to the Company. The issuance of substantial additional securities and their potential sale into any trading market that may develop in the Company’s securities may have a depressive effect on such market.
While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may be expected that the parties to the business transaction will find it desirable to structure the acquisition as a so-called “tax-free” event under sections 351 or 368(a) of the Internal Revenue Code of 1986, (the “Code”). In order to obtain tax-free treatment under section 351 of the Code, it would be necessary for the owners of the acquired business to own 80% or more of the voting stock of the surviving entity. In such event, the shareholders of the Company would retain less than 20% of the issued and outstanding shares of the surviving entity. Section 368(a) (1) of the Code provides for tax-free treatment of certain business reorganizations between corporate entities where one corporation is merged with or acquires the securities or assets of another corporation. Generally, the Company will be the acquiring corporation in such a business reorganization, and the tax-free status of the transaction will not depend on the issuance of any specific amount of the Company’s voting securities. It is not uncommon, however, that as a negotiated element of a transaction completed in reliance on section 368, the acquiring corporation issue securities in such an amount that the shareholders of the acquired corporation will hold 50% or more of the voting stock of the surviving entity. Consequently, there is a substantial possibility that the shareholders of the Company immediately prior to the transaction would retain substantially less than 50% of the issued and outstanding shares of the surviving entity. It is anticipated that these shareholders would in fact retain less than 5% control of the Company after a reverse acquisition.
Therefore, regardless of the form of the business acquisition, it may be anticipated that stockholders immediately prior to the transaction will experience a significant reduction in their percentage of ownership in the Company.
Notwithstanding the fact that the Company is technically the acquiring entity in the foregoing circumstances, generally accepted accounting principles will ordinarily require that such transaction be accounted for as if the Company had been acquired by the other entity owning the business and, therefore, will not permit a write-up in the carrying value of the assets of the other company.
The manner in which the Company participates in a business will depend on the nature of the business, the respective needs and desires of the Company and other parties, the management of the business, and the relative negotiating strength of the Company and such other management.
The Company will participate in a business only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to such closing, will outline the manner of bearing costs if the transaction is not closed, will set forth remedies on default, and will include miscellaneous other terms.
Operation of Business After Acquisition
The Company’s operation following internal generation of a business model or its acquisition of a business will be dependent on the nature of the business and the interest acquired. If an outside business is acquired, it is unlikely that current shareholders would be in control of the Company or that present management would be in control of the Company following the acquisition. It may be expected that the business will present various risks, which cannot be predicted at the present time.
Governmental Regulation
It is impossible to predict the government regulation, if any, to which the Company may be subject until it has acquired an interest in a business. The use of assets and/or conduct of businesses that the Company may acquire could subject it to environmental, public health and safety, land use, trade, or other governmental regulations and state or local taxation. In selecting a business in which to acquire an interest, management will endeavor to ascertain, to the extent of the limited resources of the Company, the effects of such government regulation on the prospective business of the Company. In certain circumstances, however, such as the acquisition of an interest in a new or start-up business activity, it may not be possible to predict with any degree of accuracy the impact of government regulation. The inability to ascertain the effect of government regulation on a prospective business activity will make the acquisition of an interest in such business a higher risk.
Competition
We function in a highly competitive and fragmented marketplace which we expect to become increasingly competitive in the future. In addition to the broad list of competitors described below there always remains the prospect of developing markets and new entrants that are unexpected and unforeseen given the changing competitive prepaid landscape.
We compete against a broad range of well-funded and financially stable providers of general purpose reloadable (GPR) cards. We compete with banks that offer demand deposit accounts and network branded card issuers that offer credit cards, branded private label cards, rewards cards, payroll cards and gift cards. Many of these institutions are substantially larger and have greater resources, larger and more diversified customer bases and greater brand recognition than we do. Many of these companies can also leverage their extensive customer bases and implement pricing policies that dissuade smaller companies from directly competing. In turn these larger companies may garner improved market share and may leverage economies unattainable by us. Primary competitors in the prepaid card and program management space include credit, debit and prepaid card issuers and prepaid card program managers and reload network operators like Green Dot, Netspend, AccountNow, PreCash, First Data, Western Union and MoneyGram.
We believe that the core competitive factors for the prepaid cards and program management space include:
•
widespread online, retail, mass merchant and niche channel distribution;
•
name brand recognition;
•
an ability to access and leverage third party reload networks;
•
broad compliance and regulatory expertise and capabilities;
•
cardholder service and support capabilities; and
•
consumer friendly pricing.
We recognize that we will be involved in intense competition with other business entities, many of which will have a competitive edge over us by virtue of their stronger financial resources and prior experience in business. There is no assurance that the Company will be successful in obtaining suitable investments to compete effectively and based on the core criteria, we believe that our primary products currently do not compete favorably with the competitors.
Employees
The Company currently has four full time equivalents, namely its President and CEO, Ray Smith, CFO and COO, Bryan Kenyon, President of Credit Services, Michael Nathans and CTO, Kevin Goldstein. Management of the Company expects to use third party providers, consultants, attorneys, and accountants as necessary, and does not anticipate a need to engage other full- time employees at this time. The future need for employees and their availability will be addressed in connection with the organic growth of the business and /or the strategic acquisition of related or unrelated businesses.
ITEM 1A.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we have elected not to provide the information required by this item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Because we are neither an accelerated filer or a large accelerated filer, nor a well-known seasoned issuer, we have elected not to provide the information required by this item.
ITEM 2.
ITEM 2. PROPERTIES
The Company leases our administrative office and headquarters which are located at 18200 Von Karman Avenue, Suite 850, Irvine, CA 92614. The Company may lease additional commercial office facilities in the future at such time as operations have developed to the point where the facilities are needed, but has no commitments or arrangements for any additional facilities. There is no assurance regarding the future availability of commercial office facilities or terms on which the Company may be able to lease facilities in the future, nor any assurance regarding the length of time the present arrangement may continue.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company continues to receive demands for payments from creditors. The Company has insufficient funds to defend these actions or to pay the creditors. However, management has been proactive to reach out to most creditors in an attempt to negotiate or resolve outstanding debt. In addition, the Company is proactively working with interested third parties to convert debt on behalf of the Company. Converted debt notifications will be filed on Form 8-K with the Securities and Exchange Commission.
The Company has received erroneous demands from certain individuals related to compensation and shareholder interests. As a result, the company has retained a law firm to protect our various interests and authorized various cease and desist orders to halt the dissemination of false and misleading information.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 11, 2009, shareholders owning or holding proxies to vote 5,050,665 shares, or approximately 52% of the total outstanding shares on such date, approved the following items (i) An amendment to our articles of incorporation to increase the authorized number of common shares from 100,000,000 to 2,000,000,000; and (ii) an amendment to our 2004 Stock Option/Stock Issuance Plan to increase the number of shares authorized under the plan from 10,000,000 to 250,000,000. The articles of amendment to increase the authorized common shares were filed with the State of Nevada on November 2, 2009.
.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s Common Stock is quoted on both the OTC Bulletin Board and the Pink Sheets. The Common Stock is currently traded with the trading symbol of “TRYF.” The table below sets forth for the periods indicated the quarterly high and low bid prices as reported by the Pink Sheets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
The Company’s Common Stock is considered to be penny stock under rules promulgated by the Securities and Exchange Commission. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker- dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.
Holders
At April 9, 2011, the Company had 133 shareholders of record. The number of record holders was determined from the records of the Company’s transfer agent and does not include beneficial owners of Common Stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The Company has appointed Interwest Transfer Co., Inc., Salt Lake City, Utah, to act as its transfer agent for the Common Stock.
Dividends
The Company has not declared or paid any cash dividends on its Common Stock during the two fiscal years ended December 31, 2010, or in any subsequent period. The Company does not anticipate or contemplate paying dividends on its Common Stock in the foreseeable future. The only restrictions that limit the ability to pay dividends on common equity, or that are likely to do so in the future, are those restrictions imposed by law.
Purchases of Equity Securities
On October 20, 2009, the Company issued 250,000 shares for services and entered into a leak out agreement with Mr. Dick Croft. Mr. Croft provides web development and graphics design support for the Company. The shares were issued in reliance upon the exemptions from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act. The certificates evidencing the above mentioned shares contain a legend (1) stating that the shares have not been registered under the Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Act.
On October 16, 2009, the Company issued 1,500,000 shares for business development services to PhilMoss & Co. and Argyle Capital. PhilMoss received 1,000,000 shares while Argyle Capital received 500,000 shares. The shares were issued in reliance upon the exemptions from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act. The certificates evidencing the above mentioned shares contain a legend (1) stating that the shares have not been registered under the Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Act.
On February 25, 2010, the Company issued an aggregate of 40,000,000 shares of its Common Stock to three unaffiliated entities upon the conversion of an aggregate of $10,000 of outstanding indebtedness. The lenders acquired and assisted in the settling of a $40,000 arbitration award and this debt had been outstanding since 2007. The certificates evidencing the above mentioned shares were issued without legend in that Rule 144 permits the lenders to tack back to the date of the debt which was more than two years prior to issuance.
On February 24, 2010, we issued 175,000,000 shares of our common stock each to Ray A. Smith, the Company’s CEO, President and Director and Bryan Kenyon, the Company’s Chief Financial Officer and Chairman in consideration for the shares both Messrs. Smith and Kenyon forgave $100,000 each of accrued salary, loans and other monies advanced on the Company’s behalf by both Mr. Smith and Mr. Kenyon. The shares were issued in reliance upon the exemptions from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act. The certificates evidencing the above mentioned shares contain a legend (1) stating that the shares have not been registered under the Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Act.
During the first and second quarters of 2010 the Company issued 12,250,000 shares of our common stock for consulting fees to various parties for services rendered. The shares were issued in reliance upon the exemptions from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act. The certificates evidencing the above mentioned shares contain a legend (1) stating that the shares have not been registered under the Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Act.
During the third quarter of 2010 the Company issued 3,350,000 shares to a private individual for cash purchase amount of $157,500. The shares were issued in reliance upon the exemptions from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act. The certificates evidencing the above mentioned shares contain a legend (1) stating that the shares have not been registered under the Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Act.
On May 27, 2010 the Company issued 5,300,000 shares to a private individual for cash purchase amount of $100,000. The shares were issued in reliance upon the exemptions from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act. The certificates evidencing the above mentioned shares contain a legend (1) stating that the shares have not been registered under the Act and (2) setting forth or referring to the restrictions on transferability and sale of the shares under the Act.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we have elected not to provide the information required by this item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and related notes thereto as included with this report.
Overview
From 2004 until 2008 the Company was in the business of developing, deploying and marketing semi-custom and customized branded prepaid and prepaid card solutions. Due to continued losses from operations during 2008, the Company began winding down its principal business operations and commenced a search for a new business venture. The Company has no material assets and significant liabilities. Former board members and management were unsuccessful in securing a new business venture for the Company and on January 22, 2009, transferred control of the Company to Ronald N. Vance, former company counsel, to seek for and, if possible, locate a suitable operating business venture willing to take control of the Company.
On August 12, 2009, the Company changed its status from shell Company to operating Company. Pursuant to business operations established in the second quarter, the Company has begun operations. The core focus of the restarted operations is marketing financial products and services. As a result, the Company does not plan to reinstate its previous program management status, and will instead rely on third party processors, program managers and banks to coordinate, issue and manage prepaid card portfolios on behalf of the Company. The Company will focus on the marketing of network branded third party card programs. In efforts to support the restarted operations and to deliver organic revenue, the Company executed an agreement with a new issuing bank, processing partner and program manager, Central National Bank. By contracting with Central National Bank, the Company has the ability to deliver a turnkey personalized financial product with a suite of features and functions designed to facilitate e-commerce and provide a network branded prepaid card to customers as a primary vehicle for delivering other financial products and services such as bill payment, payment reporting and online personal financial management tools. The Company has also begun negotiations to engage businesses in the sales process. The targeted focus of the Company is to partner with businesses which deliver non-bank personal and financial services such as insurance agencies, micro-loan centers, rent to own, local/regional credit unions and check cashing businesses. As of the date of this report, the Company has begun negotiations for various arrangements and agreements. While new agreements are in place, it is indeterminable how restarting operations may positively or adversely affect the business. As a result, the Company, while attempting to create newfound revenue streams, will continue seeking opportunities for outside business ventures and raising funds to aid in retooling and restarting the operations.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties that could cause materially different results under different estimates and assumptions. We believe our critical accounting policies relate to accounts receivable, goodwill and intangible assets and related impairment assessments, and stock-option compensation because they are important to the portrayal of our financial condition or results of operations and they require critical management estimates and judgments about matters that are uncertain. There were no changes to our critical accounting policies during the year ended December 31, 2010.
Results of Operations--Year Ended December 31, 2010, versus the Year Ended December 31, 2009
In 2010, we saw very little revenues which is consistent with the prior year. The lack of revenue was attributed to the developmental stage and re-entry into the program management and prepaid card business. The primary operational effort throughout the 2009 fiscal year was to wind up the business and seek a strategic alternative while 2010 resulted in the recommencement of the operations, the reintroduction of the Trycera name and the development of strategic relationships.
Revenue
Revenue was $3,070 and $287 for the years ended December 31, 2010 and 2009, respectively, representing an increase of $2,783 or 970%. Our 2010 and 2009 results reflect the winding up of the operations and the commencement of our new business plan.
Cost of Sales and Gross Profit
Cost of sales was $1,554 and $0 for the years ended December 31, 2010 and 2009, respectively, representing an increase of $1,554 or 100%. The increase was attributed to the commencement of the current business operations.
The resulting gross profit was 49% and 100% for the years ended December 31, 2010 and 2009, respectively. Management expects a that the continuing business and/or strategic alternative to favorably impact the underlying gross profit margin but that is only determinable upon execution of an effective alternative.
Operating expenses
Operating expenses were $2,247,579 and $466,476 for the years ended December 31, 2010 and 2009, respectively, representing an increase of $1,781,103 or 382%. The major components of operating expense are salaries and wages (27%) general and administrative (47%) professional fees (4%) and stock based compensation (22%). A material amount of the operating expenses for the year ended December 31, 2010 have been accrued and continue to be unpaid or paid in small increments.
Salaries and wages expense was $618,500 and $152,975 for the years ended December 31, 2010 and 2009, respectively, representing an increase of $465,525 or 304%. The increase resulted from the signing of employment agreements with the officers of the Company.
General and administrative expense was $1,027,614 and $112,502 for the years ended December 31, 2010 and 2009, respectively, representing an increase $915,112 or 813%. The decrease resulted from a significant increase in all categories as the Company had no business, no facility and no employees for most of the 2010 fiscal year.
Professional fees and expenses were $97,921 and $200,999 for the years ended December 31, 2010 and 2009, respectively, representing a decrease of $103,078 or 51%. The decrease resulted from the inclusion of additional expenses associated with all third party service providers including strategic consulting services and accounting and legal services in 2009.
Stock based compensation expenses were $503,544 and $-0- for the years ended December 31, 2010 and 2009, respectively, representing an increase of $503,544 or 100%. The increase resulted from the issuance of stock options for compensation in 2010.
Other income (expense)
Other income (expense) was ($49,140) and ($7,001) for the years ended December 31, 2010 and 2009, respectively. The main component of other expense is the financing costs which resulted from notes payable.
Net loss
We incurred net losses of $2,295,203 and $473,990 for the years ended December 31, 2010 and 2009, respectively.
Liquidity and Capital Resources
As of December 31, 2010, cash totaled $15,800 as compared with $0 of cash at December 31, 2009, resulting in an increase of $15,800 in cash and cash equivalents. The increase in cash and cash equivalents was attributed to the surplus of financing (through working capital, debt and equity) over the expenditures for the year . For the year ended December 31, 2010, we used $713,025 of cash in operations. For the prior year we used $57,407 of cash in operations.
Cash provided from financing activities was $798,306. The Company raised $267,500 in 2010 in relation to private placements and raised $573,450 in unsecured financing. For the comparable period in the prior year we obtained $57,144 from financing activities.
In order to meet the Company’s cash flow requirements and to satisfy the existing debts, management intends to seek funding through the sale of either debt or equity instruments. On March 30, 2011, the Company entered into a new financial commitment agreement with a private equity group. The group has agreed in principle to commit $2,500,000 over eight (8) quarters, beginning in the second quarter of 2011. As part of the commitment, the Company will expand the Board of Directors to four (4) members and the private equity group will hold one (1) seat.
Working capital was ($1,395,631) at December 31, 2010, as compared with working capital of $(979,968) at December 31, 2009. This decrease in working capital was a result of using existing funds and accounts payable to fund operations and related expenses.
Caution About Forward Looking Statements
Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import.
Such forward-looking statements involve known and unknown risks including, but not limited to, the following factors:
·
changes in general economic and business conditions in the Company’s market area;
·
changes in banking and other laws and regulations applicable to the Company;
risks inherent in the prepaid space such as fraud loss, illegal card usage and collateral liabilities;
·
changing trends in customer profiles and behavior;
·
changes in interest rates and interest rate policies;
·
maintaining cost controls as the Company opens or acquires new programs/products/operations;
·
competition with other banks and financial institutions, and companies outside of the prepaid and banking industries, including those companies that have substantially greater access to capital and other resources;
·
the ability to continue to attract investments and capital to fund operations and growth;
·
the ability to successfully manage the Company’s growth or implement its growth strategies if it is unable to identify attractive markets, locations or opportunities to expand in the future;
·
reliance on the Company’s management team, including its ability to attract and retain key personnel;
·
demand, development and acceptance of new products and services;
·
problems with technology utilized by the Company;
·
maintaining capital levels adequate to support the Company’s growth; and
·
other factors not herein described in Item 1A, “Risk Factors,” above.
Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
Stock-Based Compensation
In December 2004, FASB issued FASB ASC 718 (Prior authoritative literature: SFAS No. 123R, “Share-Based Payment”). FASB ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. FASB ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued.
The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50 (Prior authoritative literature: EITF 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees”). The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with FASB ASC 718.
Subsequent Events
The following material events occurred subsequent to the year ended December 31, 2010:
On April 14, 2011, the Company filed a Form 8-K disclosing a change of auditor. The Company now works with Morrill & Associates, a PCAOB registered firm based in Utah.
On April 5, 2011, the Company re-filed the corrected Form 12b-25 with the Securities and Exchange Commission (SEC). The date on the initial form was erroneously dated 03/31/2011,and the resulting error caused the Company stock to be traded on both the Over the Counter Bulletin Board (OTCBB) and Pinksheets (PK). The corrected form has remedied the dual exchange issue and the Company remains active with the OTCBB.
On March 30, 2011, the Company entered into a new financial commitment agreement with a private equity group. The group has agreed in principle to commit $2,500,000 over eight (8) quarters, beginning in the second quarter of 2011. As part of the commitment, the Company with expand the Board of Directors to four (4) members and the private equity group will hold one (1) seat.
On March 29, 2011, the Company unilaterally terminated the subscription agreement dated August 17, 2010 between the Company and a private equity partner. The agreement committed the private equity partner to deliver $2,500,000in funding within 45 days of August 17, 2010, which would have been October 1, 2010. However, the Company detrimentally relied on such funding and as of the date of termination, the private equity partner had invested a total of $157,500 or 6.3% of the committed funding amount.
On February 16, 2011, the Company filed a provisional patent application related to the technology and processes used with respect the Company’s alternative credit reporting platform. The Company remains underway with a complete process and technology compilation in order to file further patents regarding this function of the business.
On February 4, 2011, Reiner Vanooteghem, the Company’s Vice President of Sales resigned to pursue other opportunities.
Off-Balance Sheet Arrangements
During the years ended December 31, 2010 and 2009, we did not engage in any off-balance sheet arrangements.
Recent Accounting Pronouncements
Revenue Recognition - Multiple Deliverable Revenue Arrangements
In October 2010, the FASB issued guidance for Revenue Recognition - Multiple Deliverable Revenue Arrangements (Subtopic 605-25) “Subtopic”. This accounting standards update establishes the accounting and reporting guidance for arrangements under which the vendor will perform multiple revenue - generating activities. Vendors often provide multiple products or services to their customers. Those deliverables often are provided at different points in time or over different time periods. Specifically, this Subtopic addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The amendments in this guidance will affect the accounting and reporting for all vendors that enter into multiple-deliverable arrangements with their customers when those arrangements are within the scope of this Subtopic.
This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010. Earlier adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity will apply the amendments under this Subtopic retrospectively from the beginning of the entity’s fiscal year. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
All other new accounting pronouncements issued but not yet effective, have been deemed not to be relevant to the Company and are not expected to have any impact once adopted
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required pursuant to this item are included immediately following the signature page of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On April 14, 2011, the Company filed a Form 8-K disclosing a change of auditor. The Company now works with Morrill & Associates, a PCAOB registered firm based in Utah.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
As a smaller reporting company, we have elected not to provide the information required by this item. Rather, we have provided the information set forth in Item 9A(T) below.
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Our President, who serves as our principal executive officer and our principal financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. A discussion of the material weaknesses in our disclosure controls and procedures is set forth below.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Management’s report on internal control over financial reporting
Our management consists of Ray A. Smith, our Chief Executive Officer (“CEO”), and Bryan Kenyon, our Principal Financial Officer (“PFO”), who are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. As a result, our internal control system is limited in its scope and capabilities, although, based on our CEO and PFO’s general business experience, is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on his evaluation, they concluded that there are material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
All of our financial reporting is carried out by our CEO and PFO, and we do not have an audit committee. This lack of accounting staff results in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control.
Since our Company has no material operations and may, at this time, be considered a developmental company, as defined in the Securities Act, we are making an effort to mitigate this material weakness to the fullest extent possible. This is done by having our CEO and our PFO review all our financial reporting requirements for reasonableness. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it will be immediately implemented. In order to mitigate further weakness, the Company maintains a third party CPA independent of the Company auditors to participate in the accounting and review process. As soon as our finances allow, we plan to hire sufficient accounting staff and implement appropriate procedures for monitoring and review of work performed by our CEO and PFO.
Based on our evaluation under the frameworks described above, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2010.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
The Company did not fail to file any information required to be filed in a report on Form 8-K during the fourth quarter of the fiscal year ended December 31, 2010.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Current Management
The following table sets forth the name and ages of, and position or positions held by, our executive officers and directors:
On April 14, 2008, the California Department of Corporations issued a desist and refrain order against Mr. Smith, CRS Corporation and others alleging that the parties had violated Section 25110 of the California Securities Act of 1968 by making general solicitations in connection with the sale of the common stock by CRS Corporation. The alleged violation took place in or about September 2006.
Directors are elected for a term of one year and until their successors are elected and qualified. Annual meetings of the stockholders, for the selection of directors to succeed those whose terms expire, are to be held at such time each year as designated by the Board of Directors. The Board of Directors has not selected a date for the next annual meeting of shareholders. Officers are elected by the Board of Directors, which is required to consider that subject at its first meeting after every annual meeting of stockholders. Each officer holds his office until his successor is elected and qualified or until his earlier resignation or removal.
Section 16(a) Beneficial Ownership Reporting Compliance
According to our records, no director, officer, or beneficial owner of more than 10% of our Common Stock failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2010.
Code of Ethics
On August 25, 2004, the Board of Directors adopted a Code of Ethics. The purpose of the Code of is to set the expectations of the highest standards of ethical conduct and fair dealings. The Code of Ethics applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Overview of Director Nominating Process
The Board of Directors does not have a standing nominating committee or committee performing similar functions. The Board of Directors also does not currently have a policy for the qualification, identification, evaluation or consideration of director candidates. The Board of Directors does not believe that a defined policy with regard to the qualification, identification, evaluation or consideration of candidates recommended by stockholders is necessary at this time due to the lack of operations and the fact that we have not received any stockholder recommendations in the past. Director nominees are considered solely by our current sole director.
Audit Committee Financial Expert
Our Board of Directors performs the duties that would normally be performed by an audit committee. Given our lack of operations prior to any merger, our Board of Directors believes that its current member has sufficient knowledge and experience necessary to fulfill the duties and obligations of the audit committee for our Company. The Board of Directors has determined that the Company does not have an audit committee financial expert, due to lack of working capital.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth the compensation of the named executive officer for each of the two fiscal years ended December 31, 2010 and 2009:
(1)
On October 1, 2010, our Board of Directors granted 16,000,000 shares each to Messrs Kenyon and Smith as a result of executing employment agreements on October 1, 2010. The value of the shares was determined in accordance with FAS 123R.
(2)
On February 24, 2010, the Company issued 175,000,000 shares to each Messrs Smith and Kenyon in exchange for forgiving $100,000 in accrued wages and benefits. The value of the shares was not determined in accordance with FAS 123R.
(3)
The salaries of Messrs Smith and Kenyon were largely accrued throughout the year as a result of limited working capital. While Messrs Smith and Kenyon support the Company, the actual salary paid out to each individual amounts on average to twenty eight percent (28%) of the full salary listed herein.
Equity Awards
The following table sets forth certain information concerning unexercised options for the named parties that were outstanding as of December 31, 2010:
Name
Number of securities underlying unexercised options
(#)
exercisable
Number of securities underlying unexercised options
(#)
unexercisable
Option exercise price
($)
Option expiration date
Number of shares or units of stock that have not vested
(#)
Market value of shares or units of stock that have not vested
($)
Ray A. Smith
-
-
- - - -
Bryan W. Kenyon
-
-
- - - -
On May 11, 2004, our Board of Directors adopted the 2004 Stock Option/Stock Issuance Plan. Our shareholders approved the plan effective June 14, 2004. The purpose of the plan is to provide eligible persons an opportunity to acquire a proprietary interest in our company and as an incentive to remain in the service of the company. The Plan was updated on Jun 7, 2007 to include more shares of common stock.
There were 10,000,000 shares of common stock initially authorized for nonstatutory and incentive stock options and stock grants under the plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. On November 2, 2010, the number of shares authorized under the Plan was increased to 250,000,000.
The plan is administered by our Board of Directors. Participants in the plan are to be selected by the plan administrator which is currently our Compensation Committee. The persons eligible to participate in the plan are as follows: (a) employees of our company and any of its subsidiaries; (b) non-employee members of the board or non-employee members of the Board of Directors of any of its subsidiaries; and (c) consultants and other independent advisors who provide services to our company or any of its subsidiaries. Options may be granted, or shares issued, only to consultants or advisors who are natural persons and who provide bona fide services to our company or one of its subsidiaries, provided that the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for our securities.
The plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until May 1, 2014, whichever is earlier. The plan may also be terminated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of our assets.
Stock option awards under the plan consist of nonstatutory stock options (NSOs) and incentive stock options (ISOs). ISOs may be granted only to employees of our company or one of its subsidiaries.
The purchase price under each option is established by the plan administrator, but in no event will it be less than 100% of the fair market value of our common stock for ISOs and 85% for NSOs. The price applicable to any option holder who holds more than 10 percent of our outstanding common stock will be 110% percent of fair market value. The aggregate exercise price, plus applicable taxes, are due and payable in cash or check on the date of the exercise of an option. However, the plan administrator may permit payment of the total amount due by a full-recourse, interest-bearing promissory note; payroll deductions in installments; shares of common stock valued at fair market value on the date of exercise of the option; or through a special sale and remittance procedure through a designated brokerage firm.
The plan administrator will fix the terms of each option, but no option can be granted for a term in excess of 10 years. The term of such an option will not be longer than five years in the case of any option holder who holds, on the date of the grant of an ISO, more than 10% of our outstanding common stock. Upon termination of services, the option holder will have a limited time in which to exercise vested options. The plan administrator will not impose a vesting schedule upon any options granted which provides for exercise of an option for less than 20 percent of the shares subject to the option and with an initial installment for vesting which is fixed for a longer period than one year from the date of grant of the option.
During the lifetime of the person to whom an option has been granted, only that person has the right to exercise the option and that person cannot assign, encumber or transfer any right to the option. Upon the death of the person to whom an option has been granted, the option may be exercised only by those persons who inherit from the holder of the option by will or under the applicable laws of descent and distribution.
The plan administrator has the authority, with the consent of the option holder affected, to cancel outstanding options and to grant in substitution therefore new options covering the same or a different number of shares of common stock at an exercise price per share based upon the fair market value per share of such stock on the date of the grant of a new option.
At the discretion of the plan administrator, the consideration provided for the issuance of shares of common stock under the stock issuance plan will be satisfied in one or more of the following ways, or combinations thereof: (a) in cash or check payable to us; (b) issuing of a full-recourse promissory note; (c) payroll deductions in installments; (d) past services rendered to us or one of our subsidiaries; or (e) the agreement of a participant to accept employment and the undertaking and performance of services with or to us or one of our subsidiaries.
Stock issued under the stock issuance plan may vest immediately or upon terms established by the plan administrator, provided that at least 20 percent of the total shares subject to a vesting schedule will fully vest in each calendar year on the anniversary date of the issuance of the shares.
Irrespective of whether a participant’s shares are vested or are held in escrow, a participant to whom shares under the stock issuance plan have been issued will have the right to vote those shares and to receive any regular cash dividends paid on those shares.
If employment with or service to us terminates for whatever cause at a time when the participant holds unvested shares issued under the stock issuance plan, those shares will be immediately surrendered to us and cancelled. In the event the participant paid for the shares surrendered in cash or cash equivalent, the amount of that consideration will be repaid. In the event that the participant furnished a promissory note in payment of shares surrendered, the remaining balance of that note attributable to the surrendered shares will be cancelled. In the sole discretion of the plan administrator, the surrender and cancellation of any unvested shares issued under the stock issuance plan may be waived at any time by the plan administrator subject to such terms and conditions or on no terms and conditions as the plan administrator may determine.
Director Compensation
The following table sets forth certain information concerning the compensation of our directors, excluding Messrs Kenyon and Smith, whose total compensation is set forth in the Summary Compensation Table above, for the last fiscal year ended December 31, 2010:
Standard Arrangements for Outside Directors. Directors are permitted to receive fixed fees and other compensation for their services as directors, as determined by our board of directors. The board has adopted a policy to compensate non-employee directors. Each such director receives options for each year of service. At the commencement of each year of service as a non-employee director, the person receives options to purchase 25,000 shares. The options are exercisable at market value on the date of grant based upon the average closing bid price for the ten trading days immediately preceding appointment or the anniversary date. The board also grants annual options to purchase 10,000 shares for these directors to serve on a committee of the board, and 5,000 shares to chair the committee. These options vest as to 25% of the options per quarter, starting on the date of grant. They expire five years from the date of grant.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Beneficial Owners of More than Five Percent, Directors, and Management
The following table sets forth certain information from reports filed by the named parties, or furnished by current management, concerning the ownership of our Common Stock as of April 09, 2011, of (i) each person who is known to us to be the beneficial owner of more than 5 percent of our Common Stock; (ii) all directors and executive officers; and (iii) our directors and executive officers as a group:
(1) Includes 190,000 shares owned by a family trust and 80 shares owned with his wife.
Change of Control
We anticipate that a change of control will occur when a new business venture is acquired. Our business plan is to either reestablish business operations internally or seek and, if possible, acquire an operating entity through a reverse acquisition transaction with the operating entity. By its nature, a reverse acquisition generally entails a change in management and principal shareholders of the surviving entity. While management cannot predict the specific nature of the form of the reverse acquisition, it is anticipated that at the closing of the process, the current sole officer and director would resign in favor of persons designated by the operating company and that the shareholders of the operating entity would receive a controlling number of shares in our company, thus effecting a change in control of the company.
Equity Compensation Plan Information
The following table sets forth as of the most recent fiscal year ended December 31, 2010, certain information with respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance:
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
Weighted-average exercise price of outstanding options, warrants and rights
(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) and (b))
(c)
Equity compensation plans approved by security holders
$ -
$
-
$ -
Equity compensation plans not approved by security holders
$
-
$
-
$
-
Total
-
-
-
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
In connection with the change of control at January 22, 2009, all outstanding 10% Senior Secured Promissory Notes, including notes issued to Messrs Knitowski and Dang, former directors of the Company, were cancelled. These notes were in the principal amount of $77,500. Also in connection with the change of control, the consulting agreement with Ecewa Capital Group, LLC and the rental agreement with Curo Capital, LLC, entities controlled by Mr. Knitowski, were cancelled.
Mr. Vance’s law firm served as legal counsel for the Company since its inception in 2000 until November 14, 2008, at which time Mr. Vance terminated the representation of the Company. At the time of the termination, the Company owed Mr. Vance’s firm $23,762 for past services, none of which has been paid. Mr. Vance also served as Secretary for the Company from May 2004 until November 14, 2008. Mr. Vance currently owns 85,000 shares of the Company’s common stock which he received for past services. Mr. Vance’s law firm had represented the Company since its inception in 2000 through November 2009. Prior to their resignations, Messrs Knitowski and Dang, as the sole directors, approved a new engagement agreement with Mr. Vance’s law firm. Under the agreement the Company will pay Mr. Vance’s firm an hourly fee for services performed by him or his legal assistants in connection with the settlement of the outstanding debts, review of any potential reverse acquisition transaction, and ongoing reporting obligations with the SEC. The engagement agreement may be terminated by the Company at any time.
In connection with the change of control at January 22, 2009, Messrs. Knitowski and Dang provided to Mr. Vance irrevocable proxies to vote 3,258,500 shares. Each of the proxies granted to Mr. Vance is irrevocable and will expire either on December 31, 2009, the date Mr. Vance resigns as a director, or the date upon which Mr. Vance ceases to control the Company, whichever first occurs. Sale or transfer of the shares is conditioned upon the purchaser or transferee agreeing in writing to be bound by the terms of the proxy. Mr. Vance, acting as proxy, may vote the shares at any meeting of the shareholders or may execute any written consent evidencing action by the shareholders. The proxies are not limited in the matters upon which the shares may be voted.
In connection with the appointment of Mr. Smith as President and CEO, the Board approved a one-year, full-time employment agreement with Mr. Smith effective February 6, 2009. The agreement will be extended for additional one-year periods unless it is terminated by the Company at least 90 days before its expiration. The base salary to be paid to Mr. Smith is $10,000 per month beginning when the Company raises a minimum of $300,000. In addition, Mr. Smith shall be entitled to a signing bonus of stock of the Company when all of the existing liabilities of the Company are satisfied and the Company completes a reverse acquisition or merger transaction. Also, when the payment of salary commences, the Company has agreed to provide Mr. Smith an expense allowance of $2,000 per month. The employment agreement is terminable upon the death or disability of Mr. Smith, or for cause, and may be terminated by the Company without cause which would require the Company to pay a severance benefit in an amount equal to 90 days’ salary.
Director Independence
Our securities are not listed on a national securities exchange or in an inter-dealer quotation system which has requirements that directors be independent. As a result, we have adopted the independence standards of the American Stock Exchange to determine the independence of our directors and those directors serving on our committees. These standards provide that a person will be considered an independent director if he or she is not an officer of the Company and is, in the view of the Company’s Board of Directors, free of any relationship that would interfere with the exercise of independent judgment. Our Board of Directors has determined that one of our three directors meets the criteria for independence. We have no audit committee.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Paid
Chisholm, Bierwolf, Nilson & Morrill, LLC served as our independent registered public accounting firm for the fiscal years ended December 31, 2010 and 2009. The following fees were paid to our independent registered public accounting firm for services rendered during our last two fiscal years:
Audit Fees
The aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2010 and 2009 were $34,000 and $34,000, respectively.
Audit-Related Fees
There were no fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of the financial statements, other than those previously reported above, for the fiscal years ended December 31, 2010 and 2009.
Tax Fees
There were no fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning in the fiscal years ended December 31, 2010 and 2009, respectively.
All Other Fees
There were no other fees billed for products or services provided by the principal accountant, other than those previously reported above, for the fiscal years ended December 31, 2010 and 2009.
Audit Committee
Our Board of Directors, which functions in the capacity of an audit committee, has considered whether the non-audit services provided by our auditors to us are compatible with maintaining the independence of our auditors and concluded that the independence of our auditors is not compromised by the provision of such services. Our Board of Directors pre-approves all auditing services and permitted non-audit services, including the fees and terms of those services, to be performed for us by our independent auditor prior to engagement.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits
The following exhibits are filed with this report:
*Management contract, or compensatory plan or arrangement required to be filed as an exhibit.
Signature Page Follows
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Financial Statements
TRYCERA FINANCIAL, INC
For the years ended December 31, 2010 and 2009
For the years ended December 31, 2010 and 2009
Financial Statements Page
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Stockholders’ Deficit
Statements of Cash Flows
Notes to Financial Statements
/Letterhead/
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Trycera Financial, Inc.
Irvine, CA
We have audited the accompanying balance sheets of Trycera Financial, Inc. as of December 31, 2010 and 2009 and the related statement of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trycera Financial, Inc. as of December 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 9 to the financial statements, the Company has a working capital deficit, continued operating losses, and negative cash flows from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in those matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Morrill & Associates
Morrill & Associates, LLC
Bountiful, Utah
April 18, 2011
The accompanying notes are an integral part of these financial statments
The accompanying notes are an integral part of these financial statments
The accompanying notes are an integral part of these financial statments
The accompanying notes are an integral part of these financial statments
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 1 - CORPORATE HISTORY
From 2004 until 2008 the Company was in the business of developing, deploying and marketing semi-custom and customized branded prepaid and prepaid card solutions. Due to continued losses from operations during 2009, the Company began winding down its principal business operations and commenced a search for a new business venture. At that time, the Company had no material assets or significant liabilities. Former board members and management were unsuccessful in securing a new business venture for the Company and on January 22, 2009, transferred control of the Company to the former company counsel, to seek for and, if possible, locate a suitable operating business venture willing to take control of the Company.
On August 12, 2009, the Company changed its status from shell Company to operating Company. Pursuant to business operations established in the second quarter of fiscal 2010, the Company recommenced operations. The core focus of the restarted operations is marketing prepaid card products, payment reporting products and a suite of financial products and services. As a result, and at this time, the Company does not plan to reinstate its previous program management status, and will instead rely on third party processors, program managers and banks to coordinate, issue and manage prepaid card portfolios on behalf of the Company. The Company will focus on the marketing of network branded third party card programs that can adopt our payment reporting platform within their technical infrastructure. By leveraging existing card platforms and portfolios, we should be able to aggregate more payment reporting customers. The Company has also begun negotiations to engage businesses in the sales process. The targeted focus of the Company is to partner with businesses which deliver non-bank personal and financial services such as insurance agencies, micro-loan centers, rent to own, local/regional credit unions and check cashing businesses. As of the date of this report, the Company has begun negotiations for various arrangements and agreements. While new agreements are in place, it is indeterminable how restarting operations may positively or adversely affect the business. As a result, the Company, while attempting to create newfound revenue streams, will continue seeking opportunities for outside business ventures and raising funds to aid in launching new opportunities, generating organic revenues and restarting the operations.
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. 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.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
B. Revenue Recognition (Continued)
With regard to events related to purchases of stored value or prepaid card products, the Company has sold no such goods at this time. When the Company begins to sell such stored value products, a customer who purchases a prepaid card product will pay an upfront acceptance fee in addition to paying some incremental value to add to the stored value card. The Company recognizes only the acceptance fee revenues, as the actual pre-funded load value is electronically transferred from our partner processor to an FDIC-insured account at our partner bank. The Company never possesses the actual pre-funded load value, which resides in a secure account at our processor before being sent to a non-Company accessible customer funding account at our bank. As a result, there is no general accounting treatment for the amounts pre-funded on the stored value cards. With respect to the acceptance fee, the Company will collect the acceptance fee from the customer, satisfying criteria (i) under SAB 104 with a persuasive evidence of an arrangement. The company does not realize the revenue from the acceptance income until the customer has activated their card. The activation of their card requires that they have passed the legal requirements of identity verification and an embossed card in their name has been mailed to their physical address and lastly the client with the card in their physical possession has called to activate their card. Moreover, the funds have been prepaid by the customer and thus as outlined in criteria (iv) the collectibility is reasonably assured. In both instances, the Company simply supplies a product or financial tool to a customer. There are no unearned income ramifications since the funds are held in an FDIC-insured account by our partner Bank and not under the control of the Company. The consumer may choose to spend or not spend the money on the stored value card, but the Company after the initial transaction has no obligation to provide future products. The Company does host a customer service center to receive and resolve any issues that may arise out of the use of the prepaid card product.
The consulting revenue the Company receives is billed after satisfying the customers' requirement and which follows the criteria of SAB 104 more specifically relating to the delivery of services rendered as outlined in criteria (ii).
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 has $15,800 in cash and cash equivalents and $0 at December 31, 2010 and 2009 respectively.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
D. Property and Equipment
Property and equipment as of December 31, 2010 and 2009 consists of the following and are recorded at cost:
Provision for depreciation of equipment will be computed on the straight-line method for financial reporting purposes. Depreciation is based upon estimated useful lives as follows:
Computer equipment 3 Years
Furniture & fixtures 7 Years
Maintenance, repairs, and renewals which neither materially add to the value of the equipment nor appreciably prolong its life are charged to expense as incurred.
E. Earnings (Loss) Per Share of Common Stock
The computation of earnings (loss) per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements. Outstanding employee stock options of 45,000,000 and -0-,have not been considered in the fully diluted earnings per share calculation in 2010 and 2009, due to the anti-dilutive effect.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
F. Stock-Based Compensation
In December 2004, FASB issued FASB ASC 718 (Prior authoritative literature: SFAS No. 123R, “Share-Based Payment”). FASB ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. FASB ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued.
The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50 (Prior authoritative literature: EITF 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees”). The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with FASB ASC 718.
G. 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.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
H. Fair Value of Financial Instruments
On January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
·
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
·
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
·
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of related party notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of December 31, 2010 and 2009.
I. Selling, General and Administrative Costs
Selling, general and administrative expenses included the following for the years ended December 31, 2010 and 2009.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
J. Prepaid Expenses and other Current Assets
Prepaid expenses and other current assets included the following for the years ended December 31, 2010 and 2009.
K. Accrued Expenses
Accrued expenses included the following for the years ended December 31, 2010 and 2009.
L. Trade Receivables and Collections
In the collection of payments, loans or receivables, the Company applies a range of collection techniques to manage delinquent accounts. In instances where balances exceed baseline levels a third party collection agency is selected to perform a collection service. The service fees may cost the Company 25% to 40% of the face value of the debt owed and result in receiving only a small portion of monies owed. With the stored value portfolio, the Company has not implemented a specific policy. Since a majority of the transaction activity is prepaid, the Company does not often provide services and load product until funds have been provided in advance. In cases where the funds are not provided in advance, the Company will carry an open receivable balance and does reserve the right to reduce the client reserve account in lieu of payment. At December 31, 2010 and 2009 the allowance for bad and doubtful accounts was $0.
M. Income Taxes
The Company utilizes the liability method of accounting for 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 liabi
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
N. Concentration
Financial instruments that potentially subject Trycera Financial, Inc. (the Company) to concentrations of credit risk consist of cash and cash equivalents. The Company places its cash and cash equivalents at well-known, quality financial institutions. At times, such cash and cash equivalents may be in excess of the FDIC insurance limit.
O. Capital Structure and Security Rights
Common Stock - The Company is authorized to issue 2,000,000,000 shares of common stock, par value $.001 per share. All common shares are equal to each other with respect to voting, and dividend rights, and are equal to each other with respect to liquidations rights.
Preferred Stock - The Company has authorization to issue 20,000,000 shares of preferred stock, par value $.001 per share. The Board of Directors will be authorized to establish the rights and preferences
of any series of the preferred shares without shareholder approval. At this time, the Board has not established a series of the preferred shares and no preferred shares have been issued.
P. Subsequent Events Evaluation
In May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 165 (FAS 165), Subsequent Events. Subsequent events for the Company have been evaluated through the date the financial statements were available to be issued. This disclosure should be read in conjunction with NOTE 10 contained herein.
NOTE 3 - NEW TECHNICAL PRONOUNCEMENTS
In March 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-11, which is included in the Codification under ASC 815, “Derivatives and Hedging” (“ASC 815”). This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption. This guidance is effective for interim and annual reporting periods beginning January 1, 2010. The adoption of ASU 2010-11 did not have a material impact on the Company’s financial statements.
In February 2010, the FASB issued Accounting Standards Update No. 2010-09 (“ASU 2010-09”) as amendments to certain recognition and disclosure requirements. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Those amendments remove potential conflicts with the SEC’s literature. All of the amendments in ASU 2010-09 were effective upon issuance for interim and annual periods. The adoption of ASU 2010-09 did not have a material impact on the Company’s financial statements.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 3 - NEW TECHNICAL PRONOUNCEMENTS
In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements. This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers. Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. (See FAS 167 effective date below.)
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. (See FAS 166 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. (See EITF 09-1 effective date below.)
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-
deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 3 - NEW TECHNICAL PRONOUNCEMENTS (continued)
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15,2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, “Measuring Liabilities at Fair Value” (ASU 2009-05). The amendments in this ASU apply to all entities that measure liabilities at fair value and provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using one or more techniques laid out in this ASU. The guidance provided in this ASU is effective for the first reporting period beginning after issuance. The Company does not expect the adoption of this ASU to have a material impact on its financial statements.
In June 2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS No. 168, "The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162").FASB ASC 105-10 establishes the FASB Accounting Standards Codification TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. FASB ASC 105-10 is effective for financial statements issued for fiscal years and interim periods ending after September 15, 2009. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ending December 31, 2009. Adoption of FASB ASC 105-10 did not have a material effect on the Company’s financial statements.
In June 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”) which amends the consolidation guidance applicable
to a variable interest entity (“VIE”). This standard also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is therefore required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. Previously, the standard required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. This standard is effective for fiscal years beginning after November 15, 2009, and for interim periods within those fiscal years. Early adoption is prohibited. Adoption of FASB ASC 810-10-65 did not have a material impact on the Company’s financial statements.
In June 2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140”), which eliminates the concept of a qualifying special-purpose entity (“QSPE”), clarifies and amends the de-recognition criteria for a transfer to be accounted for as a sale, amends and clarifies the unit of account eligible for sale accounting and requires that a transferor initially measure at fair value and recognize all assets obtained and liabilities incurred as a result of a transfer of an entire financial asset or group of financial assets accounted for as a sale. This standard is effective for fiscal years beginning after November 15, 2009. Adoption of FASB ASC 860-10 did not have a material impact on the Company’s financial statements.
In May 2009, FASB issued FASB ASC 855-10 (Prior authoritative literature: SFAS No. 165, "Subsequent Events"). FASB ASC 855-10 establishes principles and requirements for the reporting of events or transactions that occur after the balance sheet date, but before financial statements are issued or are available to be issued. FASB ASC 855-10 is effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009. As such, the Company adopted these provisions at the beginning of the interim period ended June 30, 2009.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company had previously agreed to reimburse Mr. Dang for the cost of health insurance during the period he served as a director of the Company. At the time of his resignation on December 31, 2008, the Company owed approximately $14,950 to Mr. Dang for these health insurance costs. These costs are still outstanding.
On or about May 14, 2008, Sagoso Capital (“Sagoso”), a company controlled by Mr. Dang, loaned $5,000 to the Company and the company issued a 10% Senior Promissory Note representing the loan (the
“Sagoso Note”) which was due and payable upon a change of control of the Company. On or about December 29, 2008, Sagoso Capital acquired the 10% Senior Promissory Notes issued by the Company to Ecewa Capital in the principal amount of $67,500 (the “Ecewa Notes”). These notes are still outstanding.
On or about May 14, 2008, a party related to Mr. Dang loaned $5,000 to the Company and the company issued a 10% Senior Promissory Note representing the loan which was due and payable upon a change of control of the Company. These notes are still outstanding.
On or about April 17, 2009, Ray Smith paid audit $15,000 on behalf of the Company. On or about May 26, 2009 Mr. Smith paid an additional $19,000 on behalf of the company. The Company has owes Mr. Smith $0 and $18,000 at December 31, 2010 and 2009 in respect of these payments.
On January 29, 2009, the Company entered into a consulting agreement with Balius Consulting Group, Inc., an entity controlled by Bryan Kenyon, a former director and officer of the Company, and Stephen Murphy, a former accounting consultant to the Company. Balius had agreed to assist in the negotiation of outstanding liabilities of the Company and to gather and organize the corporate and financial records of the Company. The Company has agreed to pay any hourly fee for work performed by Balius and to pay a bonus based upon the settlement amount of the outstanding payables. On October 1, 2009, the consulting agreement between the Company and Balius Consulting Group automatically terminated as a result of Mr. Kenyon entering into a formal employment agreement with Trycera and ceasing to provide services for Balius. Unpaid expenses of $125,466 are included in the financial statements related to this agreement as of December 31, 2009. At December 31, 2010 the expenses of Mr. Kenyon are included as amounts due to related parties.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 5 - INCOME TAXES
In September 2009, the FASB issued Accounting Standards Update (ASU) 2009-06, Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities, which modifies the guidance on uncertain tax positions in FASB Accounting Standards Codification™ (ASC or Codification) 740, Income Taxes (formerly FASB Interpretation 48, Accounting for Uncertainty in Income Taxes), as follows:
·
Provides implementation guidance that is applicable for all entities
·
Amends the disclosure requirements for nonpublic entities by eliminating the requirements for certain disclosures
The Company currently has no issues that would mandate application of any deferred tax items or expense. Net operating losses would create possible tax assets in future years. Due to the uncertainty as to the utilization of net operating loss carry forwards an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. No provision for income taxes has been recorded due to net operating losses of $8,732,536 as of December 31, 2010 that may be offset against further taxable income. No tax benefit has been reported in the financial statements.
Deferred tax assets and the valuation account as of December 31, 2010 and 2009 are as follows:
The Company has incurred losses that can be carried forward to offset future earnings if conditions of the Internal Revenue Codes are met. These losses may be offset against future taxable income through 2028.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to future use.
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 6 - STOCKHOLDERS' EQUITY
During the year ended December 31, 2009, the Company issued an aggregate 1,500,000 shares of common stock for marketing services at $.01 per share. Accordingly, common stock and additional paid-in capital have been charged $1500 and $13,500 respectively.
During the year ended December 31, 2009, the Company issued an aggregate 250,000 shares of common stock for marketing services at $.065 per share. Accordingly, common stock and additional paid-in capital have been charged $250 and $16,000 respectively.
During the year ended December 31, 2009, the Company issued an aggregate 32,000,000 shares of common stock in connection with employment agreements. Management believes that the value of the shares is $.011. Accordingly, common stock and additional paid-in capital have been charged $32,000 and $320,000 respectively. The employment agreements are for a period of 36 months and hence the cost of the agreements will be amortized over this period.
During the year ended December 31, 2009, the Company issued an aggregate of 857,144 shares of common stock pursuant to private offerings at $0.035 per share. Accordingly, common stock and additional paid-in capital have been charged $857 and $29,143 respectively.
During the year ended December 31, 2010, the Company issued an aggregate 402,250,000 shares of common stock for services at between $.011 and $.05 per share. Accordingly, common stock and additional paid-in capital have been charged $402,255 and $4,027,000 respectively.
During the year ended December 31, 2010, the Company issued an aggregate 8,650,000 shares of common stock at between $0.02 and $0.05 per share pursuant to a private placement. Accordingly, common stock and additional paid-in capital have been charged $8,650 and $258,850 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 250,000,000. 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 periods ending December 31, 2010 and December 31, 2009 respectively:
The Company has elected to measure and record compensation cost relative to performance stock option costs in accordance with Statement of Financial Accounting Standards No. 123R, "Accounting for Stock-Based Compensation", which requires the Company to use the Black-Scholes pricing model to estimate the fair value of options at the option date grant, $503,544 and $-0- was recognized for the years ended December 31, 2010 and 2009, respectively. 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:
Employee stock options outstanding and exercisable under this plan as of December 31, 2010 are:
TRYCERA FINANCIAL, INC.
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 8 - COMMITMENTS
The Company continues to receive demands for payments from creditors. The Company has insufficient funds to defend these actions or to pay the creditors. However, management has been proactive to reach out to most creditors in an attempt to negotiate or resolve outstanding debt. In addition, the Company is proactively working with interested third parties to convert debt on behalf of the Company. Converted debt notifications will be filed on Form 8-K with the Securities and Exchange Commission. These amounts are accrued as liabilities in the financial statements.
The Company has received erroneous demands from certain individuals related to compensation and shareholder interest. As a result, the company has retained a law firm to protect our various interests and authorized various cease and desist orders to halt the dissemination of false and misleading information. As we feel that these demands are erroneous we assert that an unfavorable outcome is unlikely and, therefore, have not accrued for a contingent liability related to these claims.
NOTE 9 - GOING CONCERN
The Company has had recurring operating losses since inception and is dependent upon financing to continue operations. These factors indicate that the Company may be unable to continue in existence should immediate and short term financing options not be available. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue its existence. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Currently the Company has $15,800 on hand and few material assets. In addition, the Company has not established nor maintained a recurring source of revenues to sufficiently cover or offset any current, anticipated or planned operating costs to allow it to continue as a going concern. It is the intent of the Company to find additional capital funding and/or a profitable business venture to acquire or merge.
NOTE 10 - SUBSEQUENT EVENTS
On March 30, 2011, the Company entered into a new financial commitment agreement with a private equity group. The group has agreed in principle to commit $2,500,000 over eight (8) quarters, beginning in the second quarter of 2011. As part of the commitment, the Company with expand the Board of Directors to four (4) members and the private equity group will hold one (1) seat.
On March 29, 2011, the Company unilaterally terminated the subscription agreement dated August 17, 2010 between the Company and a private equity partner. The agreement committed the private equity partner to deliver $2,500,000 in funding within 45 days of August 17, 2010, which would have been October 1, 2010. However, the Company detrimentally relied on such funding and as of the date of termination, the private equity partner had invested a total of $157,500 or 6.3% of the committed funding amount.
On February 16, 2011, the Company filed a provisional patent application related to the technology and processes used with respect the Company’s alternative credit reporting platform. The Company remains underway with a complete process and technology compilation in order to file further patents regarding this function of the business.