Attached files
| file | filename |
|---|---|
| EX-31.1 - EX-31.1 - Trycera Financial, Inc. | ex31-1.htm |
| EX-32.1 - EX-32.1 - Trycera Financial, Inc. | ex32-1.htm |
| EX-32.2 - EX-32.2 - Trycera Financial, Inc. | ex32-2.htm |
| EX-31.2 - EX-31.2 - Trycera Financial, Inc. | ex31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended June 30, 2015
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 000-30872
TRYCERA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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33-0910363
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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18100 Von Karman Ave, Suite 850, Irvine, California
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92612
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(Address of principal executive offices)
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(Zip Code)
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(949) 705-4480
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At August 19, 2015 there were 15,855,007 shares of the registrant’s Common Stock outstanding, par value $0.001 per share.
TRYCERA FINANCIAL, INC.
Table of Contents
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PART I FINANCIAL INFORMATION
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PAGE
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Item 1.
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4
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4
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5
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6
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7
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Item 2.
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9
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Item 3.
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13
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Item 4T.
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14
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PART II OTHER INFORMATION
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Item 1.
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15
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Item 1A.
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15
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Item 2.
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15
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Item 3.
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16
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Item 4.
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16
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Item 5.
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16
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Item 6.
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16
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17
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FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements and information that are based on assumptions made by management and on information currently available. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” and similar expressions, as they relate to our company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the company concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others the following: changes in federal, state or municipal laws governing the distribution and performance of financial services; a general economic downturn; our startup phase of operations; reliance on third party processors and product suppliers; the inability to locate suitable acquisition targets; and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected.
Unless otherwise provided in this report, references to “we”, “us”, “our” and “Company” refer to Trycera Financial, Inc.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Trycera Financial, Inc.
Balance Sheets
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Jun 30,
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December 31,
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|||||||
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2015
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2014
|
|||||||
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(unaudited)
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||||||||
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Assets
|
||||||||
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Current Assets
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||||||||
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Cash
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$
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71,313
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$
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-
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||||
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Prepaid expenses and other current assets
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-
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9,025
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||||||
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Total Current Assets
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71,313
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9,025
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||||||
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Property & Equipment, net
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3,696
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4,759
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||||||
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Total Fixed Assets
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3,696
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4,759
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||||||
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Total Assets
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$
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75,009
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$
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13,784
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||||
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Liabilities & Stockholders’ Deficit
|
||||||||
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Current Liabilities
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||||||||
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Checks drawn in excess of bank balance
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$
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-
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$
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348
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||||
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Accounts payable
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789,046
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749,666
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||||||
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Accounts payable - related parties
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137,145
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179,565
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||||||
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Portfolio reserves
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34,774
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34,774
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||||||
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Accrued expenses
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1,882,947
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2,180,765
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||||||
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Debt settlement liability, net
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147,500
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141,355
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||||||
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Derivative liability
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16,185
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100,000
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||||||
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Unsecured notes, current maturities
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161,178
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94,448
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||||||
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Convertible notes payable, net of discounts, current maturities
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638,042
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713,042
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||||||
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Total Current Liabilities
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3,806,817
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4,193,963
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||||||
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Long-term Liabilities
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||||||||
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Unsecured notes, less current maturities
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71,300
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138,030
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||||||
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Total Long-term Liabilities
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71,300
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138,030
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||||||
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Total Liabilities
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3,878,117
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4,331,993
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||||||
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Stockholders’ Deficit
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||||||||
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Preferred stock, 20,000,000 shares authorized,
$.001 par value; none issued and outstanding
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-
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-
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||||||
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Common stock, 500,000,000 shares authorized at
$.001 par value; 15,855,007 and 667,673 shares
issued and outstanding, respectively
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15,855
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668
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||||||
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Additional paid-in capital
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22,427,927
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11,086,696
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||||||
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Prepaid stock - employees
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(22,613
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)
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(181,624
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)
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||||
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Accumulated deficit
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(26,224,277
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)
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(15,223,949
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)
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||||
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Total Stockholders’ Deficit
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(3,803,108
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)
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(4,318,209
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)
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||||
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Total Liabilities & Stockholders’ Deficit
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$
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75,009
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$
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13,784
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||||
The accompanying notes are an integral part of these financial statements.
Effects of the 1 for 1,000 reverse stock split effective March 27, 2015 have been retroactively applied to all periods presented.
Trycera Financial, Inc.
Statements of Operations
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For the Three Months Ended
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For the Six Months Ended
|
|||||||||||||||
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Jun 30,
2015
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Jun 30,
2014
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Jun 30,
2015
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Jun 30,
2014
|
|||||||||||||
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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|||||||||||||
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Revenues
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$
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3,037
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$
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5,436
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$
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9,915
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$
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11,576
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||||||||
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3,037
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5,436
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9,915
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11,576
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|||||||||||||
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Cost of Sales
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130
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380
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241
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679
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||||||||||||
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Gross Profit (loss)
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2,907
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5,056
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9,674
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10,897
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||||||||||||
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Expenses
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||||||||||||||||
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Salaries and wages
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9,592,087
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127,754
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9,745,397
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271,157
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||||||||||||
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Professional fees
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103,221
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9,000
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112,229
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18,000
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||||||||||||
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Other selling, general and administrative
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180,583
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10,114
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196,317
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89,486
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||||||||||||
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Total Expenses
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9,875,891
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146,868
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10,053,943
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378,643
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||||||||||||
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Loss from Operations
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(9,872,984
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)
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(141,812
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)
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(10,044,269
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)
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(367,746
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)
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||||||||
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Other Income (Expense)
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||||||||||||||||
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Derivative liability gain
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58,815
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-
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83,815
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-
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||||||||||||
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Loss on extinguishment of debt
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(987,772
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)
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-
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(987,772
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)
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-
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||||||||||
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Interest expense
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(24,854
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)
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(25,712
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)
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(52,102
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)
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(50,447
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)
|
||||||||
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Total Other Income (Expense)
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(953,811
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)
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(25,712
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)
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(956,059
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)
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(50,447
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)
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||||||||
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Loss before tax
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(10,826,795
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)
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(167,524
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)
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(11,000,328
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)
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(418,193
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)
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||||||||
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Income tax
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-
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-
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-
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-
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||||||||||||
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Net Loss
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$
|
(10,826,795
|
)
|
$
|
(167,524
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)
|
$
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(11,000,328
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)
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$
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(418,193
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)
|
||||
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Basic loss Per Share:
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||||||||||||||||
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Loss per share
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$
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(0.72
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)
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$
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(0.26
|
)
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$
|
(1.40
|
)
|
$
|
(0.65
|
)
|
||||
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Net Loss Per Share
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$
|
(0.72
|
)
|
$
|
(0.26
|
)
|
$
|
(1.40
|
)
|
$
|
(0.65
|
)
|
||||
|
Weighted Average Shares
|
14,965,940
|
649,370
|
7,856,316
|
642,957
|
||||||||||||
The accompanying notes are an integral part of these financial statements.
Effects of the 1 for 1,000 reverse stock split effective March 27, 2015 have been retroactively applied to all periods presented.
Trycera Financial, Inc.
Statements of Cash Flows
(Unaudited)
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For the Six Months Ended
|
||||||||
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Jun 30,
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Jun 30,
|
|||||||
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2015
|
2014
|
|||||||
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(unaudited)
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(unaudited)
|
|||||||
|
Cash Flows from Operating Activities
|
||||||||
|
Net Loss
|
$
|
(11,000,328
|
)
|
$
|
(418,193
|
)
|
||
|
Adjustments to reconcile net loss to net cash used by operations;
|
||||||||
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Depreciation and amortization
|
1,063
|
1,065
|
||||||
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Amortization of prepaid stock - consultants
|
9,025
|
62,921
|
||||||
|
Amortization of prepaid stock - employees
|
159,011
|
183,360
|
||||||
|
Amortization of discount on note payable
|
6,145
|
6,264
|
||||||
|
Loss on extinguishment of debt
|
987,772
|
-
|
||||||
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Derivative liability gain
|
(83,815
|
)
|
-
|
|||||
|
Stock issued for services
|
9,590,840
|
87,281
|
||||||
|
Changes in operating assets and liabilities;
|
||||||||
|
Increase in accounts payable
|
39,380
|
153,336
|
||||||
|
Decrease in accounts payable - related party
|
(42,420
|
) |
-
|
|||||
|
Increase (decrease) in accrued expenses
|
29,988
|
(156,930
|
) | |||||
|
Net Cash Used by Operating Activities
|
(303,339
|
) |
(80,896
|
)
|
||||
|
Cash Flows from Financing Activities
|
||||||||
|
Proceeds from notes payable - unsecured
|
10,000
|
76,730
|
||||||
|
Repayments of notes payable - unsecured
|
(10,000
|
) |
-
|
|||||
|
Proceeds from sale of common stock
|
375,000
|
-
|
||||||
|
Proceeds from notes payable - related party
|
7,000
|
-
|
||||||
|
Repayments of notes payable - related party
|
(7,000
|
) |
-
|
|||||
|
(Increase) decrease in checks drawn in excess of bank balance
|
(348
|
)
|
135
|
|||||
|
Net Cash Provided by Financing Activities
|
374,652
|
76,865
|
||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
71,313
|
(4,031
|
)
|
|||||
|
Cash and Cash Equivalents at Beginning of Period
|
-
|
4,031
|
||||||
|
Cash and Cash Equivalents at End of Period
|
$
|
71,313
|
$
|
-
|
||||
|
Cash Paid For:
|
||||||||
|
Interest
|
$
|
-
|
$
|
-
|
||||
|
Income Taxes
|
$
|
-
|
$
|
-
|
||||
|
Non-Cash Financing Activities:
|
$
|
-
|
$
|
-
|
||||
The accompanying notes are an integral part of these financial statements.
Effects of the 1 for 1,000 reverse stock split effective March 27, 2015 have been retroactively applied to all periods presented.
Trycera Financial, Inc.
Notes to Financial Statements
Three months ended June 30, 2015
(unaudited)
NOTE 1 – GENERAL
The accompanying condensed financial statements of the Company have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the periods presented. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2014. The results of operations for the six months ended June 30, 2015, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2015.
NOTE 2 – 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 minimal cash on hand and few material assets outside key intellectual property. In addition, the Company has not established or 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, grow revenues organically through new program launches and marketing campaigns, and/or a profitable business venture to acquire or merge.
NOTE 3 – SIGNIFICANT TRANSACTIONS
On April 6, 2015, the Company replaced the existing Employment Agreement for its President/CEO, Ray A. Smith with a new Employment Agreement. The terms of the new agreement are for a period Five (5) years, renewable in two (2) year increments, and includes a Stock Incentive Compensation package consisting of Thirteen Million Five Hundred Thousand (13,500,000) post-split shares of Restricted Common Stock, which were issued upon execution of the agreement, and a salary of Twenty Thousand Dollars ($20,000) per month beginning on January 1, 2016. The stock was valued at $9,542,840, which was expensed as Salaries and Wages upon issuance.
On April 14, 2015, the Company received notice of conversion and agreed to convert $37,500 of the MJ Rich Note from March 2012 into Seven Hundred Fifty Thousand (750,000) post-split shares of Common Stock at a conversion price of Five Cents ($0.05). The transaction was accounted for as an extinguishment of debt rather than a conversion, as the conversion terms were different than those set forth in the original convertible promissory notes. The difference between the carrying value of the note and the fair market value of shares of $532,500 has been recorded as a loss on extinguishment of debt of $495,000.
On April 14, 2015, the Company received notice of conversion and agreed to convert $37,500 of the Banner- Note 1 from March 2010 into Seven Hundred Fifty Thousand (750,000) post-split shares of Common Stock at a conversion price of Five Cents ($0.05). The transaction was accounted for as an extinguishment of debt rather than a conversion, as the conversion terms were different than those set forth in the original convertible promissory notes. The difference between the carrying value of the note and the fair market value of the shares of $532,500 has been recorded as a loss on extinguishment of debt of $495,000.
On April 28, 2015, the Company issued to its legal counsel Fifty Thousand (50,000) shares of Restricted Common Stock for legal services previously rendered totaling $11,500.
On May 7, 2015, the Company issued to a private party One Hundred Twenty Five Thousand (125,000) shares of Restricted Common Stock at Three Dollars ($3.00) per share for Three Hundred Seventy Five Thousand Dollars ($375,000).
On June 30, 2015, the Company entered into a Settlement Agreement/Mutual Release Agreement with its former employee, Kevin Goldstein, against whom the Company filed a Complaint on or about October 15, 2013. The exact terms of the agreement are confidential; however, Mr. Goldstein has notified the Labor Commissioner the wage dispute of approximately $121,266 has been resolved completely and the Company agreed to dismiss Mr. Goldstein with prejudice from the Complaint filed in Orange County Superior Court, case number 30-2013-00681235-CU-BC-CJC.
NOTE 4 – CONTINGENCIES
The Company has not accrued various employee base salaries approximating $800,000 during 2014, and $300,000 during the six months ended June 30, 2015. This is primarily due to either a voluntary furlough, or implied breach of contract by the employees and the Company, as the respective employees have not worked forty hours per week (as required by the employment agreements) because the work has not been available due to the Company’s inability to sustain consistent, profitable operations. Management has assessed the likelihood of the employees pursuing and successfully claiming base salaries as reasonably possible, and has thus elected to disclose but not record these salaries, in accordance with ASC 450-20 Loss Contingencies.
In January 2012, the Company received Notices of Claim from two former employees seeking back-wages of approximately $240,000 pursuant to the Company’s alleged breach of their employment agreements. In October 2013, the Company filed counter claims against the employees claiming, among other violations, breach of contract and fraud. The Company is seeking damages in excess of the back-wages, and cannot determine at this time, the amount or likelihood of any gains or losses that may result from these claims.
NOTE 5 – SUBSEQUENT EVENTS
Pursuant to FASB ASC 855-10-50-1, the Company has evaluated subsequent events through the date these financial statements to be issued. Accordingly the following material events occurred subsequent to the quarter ended June 30, 2015:
None.
Item 2. 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 filed with the Securities and Exchange Commission.
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 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 February 6, 2009, Mr. Vance appointed Ray Smith as the Company’s President/CEO and was tasked to restructure the Company and implement a new working business model.
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 2012, the Company began operations. The core focus of the restarted operations was to market a prepaid card product coupled with a payment reporting system and a suite of financial products and services. As a result, the Company didn’t plan on reinstating its previous program management status, and intended to rely on third party processors, program managers and banks to coordinate, issue and manage prepaid card portfolios on behalf of the Company. The Company focused on the marketing of network branded third party card programs that could adopt the Company’s payment reporting platform within their technical infrastructure. By leveraging existing card platforms and portfolios, we intended to aggregate more payment reporting customers. The Company worked on developing and integrating a sophisticated money management and educational portfolio to better assist consumers in navigating the financial system here in the United States. The targeted focus of the Company has always been to partner with businesses such as mortgage companies and auto dealerships that currently have real-time credit turndowns. These customers are prime candidates for the Company’s suite of products and services. Utilizing the relationships established over the years, the Company continues to feel it can generate organic revenues which will in turn help to attract investment dollars so that management can properly run the Company.
All throughout 2014 and into 2015, the Company has continued to focus its primary operational efforts on the technical infrastructure and build-out of the Live Agent auto dealer kiosk program in addition to rebranding its financial and credit services product line. These efforts have seen limited forward progress due to setbacks which occurred from the failed delivery of committed investments from several groups. The lack of working capital and limited resources has caused delays in progress.
Despite the constant delays, the Company has continued to make progress on the completion of the technical build-out of the newly-branded product line and had limited success in its beta testing. The Company worked to launch a newly designed website which is more consumer friendly and informative so to better explain what the Company provides. This newly designed website and online back office has been designed to give consumers information and educational tools more readily at their fingertips.
In continuing with the direction outlined throughout the previous 4 years, the Company has continued to focus on developing marketing partnerships to facilitate the distribution of its Live Agent auto dealer kiosks and also various channels to provide the Company’s consumer financial and credit products, all of which have been designed to assist consumers in managing individual personal finances, including spending, budgeting, wealth planning and credit awareness. During the fourth quarter of 2014, the Company designed a new brand for its product line, which it now calls “Successful Habits of The Rich!™”. This product line includes three (3) separate products we call RichMoney™, RichCredit™, and RichWealth™.
The purpose of the rebranding was to make the Company’s product line more attractive and more stream lined for consumers to utilize and understand. The Company worked on converting all previously developed components into one (1) online web portal which consumers will more easily be able to access and utilize. This was also a requirement for the product line to be efficiently incorporated into the kiosks. This business model is currently being developed and beta tested and is expected to take significant time and resources to complete and launch.
The Company believes its current direction and strategy will be able to offer more a saleable, predictable, efficient customer acquisition model. We believe it will also provide a more attractive revenue generating solution to strategic distribution partners and give them more of an incentive to team up with the Company. The flexibility of working with a wide reaching portfolio program should better align interested consumers with our suite of financial tools and education. This product line has been designed specifically to lay the groundwork for the consumers so that at a future date, the Company can offer them additional financial-based products and services.
The Company’s robust system, unlike most systems out there, focuses on three areas: Money Management (RichMoney™), Credit Management (RichCredit™), and Wealth Management (RichWealth™). All three of these areas are closely connected and by focusing on all three, it is believed the consumer has a greater chance of reaching their financial goals in life.
The credit scoring system in the USA, commonly known as the FICO Score, focuses heavily on consumer’s on-time payments. One missed payment seriously affects the consumer’s FICO scores which lowers their ability to obtain loans. There is a lack of knowledge on how to properly put an effective budget together so to properly manage one’s cash and this gives little hope for a consumer to plan for his or her retirement. It is because of these factors the Company feels its product line is superior to any other program on the market.
Recent Developments
For the first two quarters ending June 30, 2015, all primary operational efforts were prioritized and focused on buildout of the new online consumer portal and redesigning the Company website. The Company continued to beta test and develop the Company’s newly developed product line and continued efforts to integrate this new web design into its Live Agent Auto Dealer Kiosk system along with developing the technical infrastructure for the Company’s credit and money management programs.
The Company continued to focus on developing marketing partnerships to facilitate the distribution of its personal financial services, payment reporting services and a prepaid debit card, all of which are designed to assist consumers in managing individual personal finances, including spending, budgeting, credit and financial awareness.
A number of planned initiatives undertaken during the first two quarters by the Company have failed or taken longer than expected or anticipated due to capital constraints. This, coupled with key management time constraints, increasing regulatory requirements, lengthening approval timeframes, vendor payment shortfalls, and increasing legal proceedings all contributed to slower than planned marketing as well as delays in generating organic revenues in the first quarter. The Company expects that organic revenues will continue to be generated throughout the remainder of 2015 and these revenues should make the Company more attractive to investors.
Throughout the first two quarters of 2015, the Company was contacted by several vendors demanding payment for prior services. The Company, as of the date of this report, is underfunded and is nearly insolvent. The financial commitments entered into during 2013 and 2014 were intended to provide improved funding over the coming quarters and was expected to allow the Company to remain focused on the core business and delivery of the payment reporting personal financial products and services. However, slow delivery of working capital and delays and misrepresentations in funding overall have resulted in the near collapse of the Company. The Company continues to negotiate with new vendors, key vendors and prior service providers. Key management personnel have and continued to accrue or furlough wages, or accept limited or partial payments for services. In addition, key management personnel are underwriting many operational expenses of the Company and are accruing those expenses as well. 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 remains confident that those liabilities will be paid, negotiated, reduced or addressed in the coming quarters.
Key Accounting Policies
Key accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. There were no changes to our key accounting policies for the quarter ended June 30, 2015.
Results of Operations
For the three months ended June 30, 2015
During the three months ended June 30, 2015 we were focused on the technical infrastructure and executing distribution, marketing and strategic agreements. Delays in delivering marketing and services coupled with delayed vendor payments caused us to miss the opportunity to generate any material revenues during the second quarter. As a result the Company had nominal revenues for the three months ended June 30, 2015.
Revenue
Revenue from continuing operations was $3,037 and $5,436 for the three months ended June 30, 2015 and 2014, respectively, representing a decrease of $2,399 or effectively 44%. As previously discussed, we revised the business strategy to focus on restarting operations and take the company into financial services marketing and move away from direct program management.
Cost of Sales and Gross Profit
Cost of sales was $130 and $380 for the three months ended June 30, 2015 and 2014. The decrease was $250 or 66% and incudes some nominal operating costs associated with the commencement of programs and operations.
The resulting gross profit was $2,907 and $5,056 for the three months ended June 30, 2015 and 2014, respectively. Management expects gross profit margin to remain unpredictable and volatile as the new operations begin. Fluctuations can be anticipated due to uncertainties in accessing markets coupled with higher product costs mixed with the volatility of entering markets where products have been commoditized. Management believes that by eliminating previously high fixed processing and banking costs associated with program management, the Company can focus on improving margins by delivering organic revenues through new marketing partnerships and alliances.
Operating Expenses
Operating expenses were $9,875,891 and $146,868 for the three months ended June 30, 2015 and 2014, respectively, representing an increase of $9,729,023 or 6,624%. The key components of operating expense for the three months ended June 30, 2015 are salaries and wages ($9,592,087) professional fees ($103,221) and other selling, general and administrative ($180,583).
Salaries and wages expense were $9,592,087 and $127,754 for the three months ended June 30, 2015 and 2014, respectively, representing an increase of $9,464,333 or 7,408%. This increase was effected by the stock based compensation recorded as salaries and wage expense associated with our President/CEO’s employment contract.
Other Selling, general and administrative expenses were $180,583 and $10,114 for the three months ended June 30, 2015 and 2014, respectively, representing an increase of $170,469 or 1,685%. Other selling, general and administrative expenses will continue to increase as the Company positions itself for growth.
Other Income (Expense)
Other income (expense) was ($953,811) and ($25,712) for the three months ended June 30, 2015 and 2014, respectively Other income (expense) included interest expense of $24,854 and losses on extinguishment of debt of $987,772 which were offset in part by $58,815 from a gain in the derivative liability.
Net loss
We incurred net losses of $10,826,795 and $167,524 for the three months ended June 30, 2015 and 2014, respectively, representing an increase in net loss of $10,659,271 or 6,363%. As we continue our general business operations, organic growth in conjunction with strategic alliances and a potential reverse acquisition or merger opportunity, we expect to improve on net losses when 2016 is compared to 2015.
For the six months ended June 30, 2015
During the first six months of 2015 we were focused on the technical infrastructure and executing distribution, marketing and strategic agreements. Delays in delivering marketing and services coupled with delayed vendor payments caused us to miss the opportunity to generate any material revenues during the second quarter. As a result the Company had nominal revenues for the six months ended June 30, 2015.
Revenue
Revenue from continuing operations was $9,915 and $11,576 for the six months ended June 30, 2015 and 2014, respectively, representing a decrease of $1,661 or effectively 14%. As previously discussed, we revised the business strategy to focus on restarting operations and take the company into financial services marketing and move away from direct program management.
Cost of Sales and Gross Profit
Cost of sales was $241 and $679 for the six months ended June 30, 2015 and 2014. The decrease was $438 or 65% and incudes some nominal operating cost associated with the commencement of programs and operations.
The resulting gross profit was $9,674 and $10,897 for the six months ended June 30, 2015 and 2014, respectively. Management expects gross profit margin to remain unpredictable and volatile as the new operations begin. Fluctuations can be anticipated due to uncertainties in accessing markets coupled with higher product costs mixed with the volatility of entering markets where products have been commoditized. Management believes that by eliminating previously high fixed processing and banking costs associated with program management, the Company can focus on improving margins by delivering organic revenues through new marketing partnerships and alliances.
Operating Expenses
Operating expenses were $10,053,943 and $378,643 for the six months ended June 30, 2015 and 2014, respectively, representing an increase of $9,675,300 or 2,555%. The key components of operating expense for the six months ended June 30, 2015 are salaries and wages ($9,745,397) professional fees ($112,229) and other selling, general and administrative ($196,317).
Salaries and wages expense were $9,745,397 and $271,157 for the six months ended June 30, 2015 and 2014, respectively, representing an increase of $9,474,240 or 3,494%. This increase was effected by the stock based compensation recorded as salaries and wage expense associated with our President/CEO’s employment contract.
Other selling, general and administrative expenses were $196,317 and $89,486 for the six months ended June 30, 2015 and 2014, respectively, representing an increase of $106,831 or 119%. Other selling, general and administrative expenses will continue to increase as the Company positions itself for growth.
Other Income (Expense)
Other income (expense) was ($956,059) and ($50,447) for the six months ended June 30, 2015 and 2014, respectively Other income (expense) included interest expense of $52,102 and losses on extinguishment of debt of $987,772 which were offset in part by $83,815 from again in the derivative liability.
Net loss
We incurred net losses of $11,000,328 and $418,193 for the six months ended June 30, 2015 and 2014, respectively, representing an increase in net loss of $10,582,135 or 2,530%. As we continue our general business operations, organic growth in conjunction with strategic alliances and a potential reverse acquisition or merger opportunity, we expect to improve on net losses when 2016 is compared to 2015.
Liquidity and Capital Resources
As of June 30, 2015, cash totaled $71,313 as compared with $0 at December 31, 2014, resulting in an increase of $71,313 in cash and cash equivalents. Working capital deficit was ($3,735,504) at June 30, 2015, as compared with working capital deficit of ($4,184,938) at December 31, 2014. This decrease in working capital deficit was a result of extinguishing debt through the issuance of our stock, and using new funds acquired from sales of our stock to fund operations and related expenses.
The Company is currently being funded through a mix of equity investments and convertible note instruments as well as personal loans from its President/CEO to supply working capital for operations. The Company has a substantial backlog of liabilities and will need to negotiate and reduce liabilities in order to remain on a viable business path. If vendors, agents, suppliers and third parties are unwilling to agree to terms more favorable to the Company, there is likelihood that the liabilities could materially and adversely affect day to day operations. The funds invested and committed are primarily focused on driving business growth and not specifically earmarked to extinguish large tranches of debt or the backlog of liabilities. In event that the Company is unable to mitigate the effects of the liabilities, the Company may seek any and all necessary protections afforded under various state and federal laws. The Company plans to continue to collect equity investments and debt instruments for the remainder of 2015 in order to finance continued operations and to finance potential merger and/or acquisition investments. In an event where the Company faces immediate insolvency, the Company may pursue the sale of its intellectual property, which may or may not have marketable value.
Off-Balance Sheet Arrangements
During the six months ended June 30, 2015, we did not engage in any off-balance sheet arrangements.
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 quarter ended June 30, 2015:
None.
Item 3. 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 4T. Controls and Procedures
Controls and Procedures
Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s “disclosure controls and procedures”, as such term is defined in Rules 13a — 15(e) and 15d — 15(e) of the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by the report.
Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that, as of June 30, 2015, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Report was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
With the participation of the Company’s management, including its Chief Executive Officer and Principal Financial Officer, the Company also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fiscal six months ended June 30, 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on such evaluation, management concluded that, as of the end of the period covered by this report, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. 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.
On June 30, 2015, the Company entered into a Settlement Agreement/Mutual Release Agreement with its former employee, Kevin Goldstein, whom the Company filed a Complaint against on or about October 15, 2013. The exact terms of the agreement are confidential; however, Mr. Goldstein has notified the Labor Commissioner the wage dispute of approximately $121,266 has been resolved completely and the Company agreed to dismiss Mr. Goldstein with prejudice from the Complaint filed in Orange County Superior Court, case number 30-2013-00681235-CU-BC-CJC.
On October 15, 2013, the Company filed a complaint against two former employees, Michael Nathans and Kevin Goldstein, in Orange County Superior Court, case number 30-2013-00681235-CU-BC-CJC. The complaint consists of Breaches of Contract, Civil Conspiracy-Fraud, Breach of the Implied Covenant of Good Faith and Fair Dealing, Interference with Economic Advantage, Unjust Enrichment/Restitution and Breach of Fiduciary Duty committed by both parties. The total general and special financial damages to be determined at the time of trial. Also, the Company is seeking an Injunction to restrain future conduct and reimbursement of all reasonable attorney fees for the cost of the suit. Kevin Goldstein was dismissed from this case with prejudice on June 30, 2015.
On January 31, 2012, the Company received a Notice of Claim and Conference from the Labor Commissioner, State of California Case Number 18-84792 BB. The case was brought by Michael G. Nathans, the former President of Credit Services. Mr. Nathans stated he resigned from the Company effective November 21, 2011 as a result of the Company’s failure to maintain proper insurance and alleged the Company was in breach of his employment agreement with the Company dated September 17, 2010. Pursuant to the Claim, Mr. Nathans is seeking $152,054 in back wages. The Company intends to vigorously defend this Claim.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed under the caption “Risk Factors” in Part I, "Item 1. Description of Business" in our Annual Report on Form 10-K for the year ended December 31, 2014 which could materially affect our business prospects, financial condition or future results. There have been no other material changes during the six months ended June 30, 2015 to the risk factors discussed in the periodic report noted above.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 6, 2015, the Company replaced the existing Employment Agreement for its President/CEO, Ray A. Smith with a new Employment Agreement. The terms of the new agreement are for a period Five (5) years, renewable in two (2) year increments, and includes a Stock Incentive Compensation package consisting of Thirteen Million Five Hundred Thousand (13,500,000) post-split shares of Restricted Common Stock, which were issued upon execution of the agreement.
On April 14, 2015, the Company received notice of conversion and agreed to convert $37,500 of the MJ Rich Note from March 2012 into Seven Hundred Fifty Thousand (750,000) post-split shares of Common Stock at a conversion price of Five Cents ($0.05).
On April 14, 2015, the Company received notice of conversion and agreed to convert $37,500 of the Banner-1 Note from March 2010 into Seven Hundred Fifty Thousand (750,000) post-split shares of Common Stock at a conversion price of Five Cents ($0.05).
On April 28, 2015, the Company issued to its legal counsel Fifty Thousand (50,000) shares of Restricted Common Stock for services.
On May 7, 2015, the Company issued to a private party One Hundred Twenty Five Thousand (125,000) shares of Restricted Common Stock at Three Dollars ($3.00) per share for Three Hundred Seventy Five Thousand Dollars ($375,000).
On June 30, 2015, the Company issued Eight Thousand Three Hundred Thirty Four (8,334) shares of Restricted Common Stock to a private party at Three Dollars ($3.00) per share.
ITEM 3. DEFAULTS UPON SENIOR DEBT
None.
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
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Exhibit No.
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Description
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31.1
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31.2
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32.1
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32.2
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101.INS
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XBRL Instance Document**
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101.SCH
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XBRL Taxonomy Extension Schema Document**
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document**
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document**
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document**
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document**
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** In accordance with Rule 406T of Regulation S-T, the XBRL-related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith and not “filed.”
SIGNATURE PAGE FOLLOWS
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Trycera Financial, Inc.
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Date: August 19, 2015
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By:
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/s/ Ray A. Smith
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Ray A. Smith
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(Principal Executive Officer)
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Date: August 19, 2015
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By:
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/s/ Ray A. Smith
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Ray A. Smith, Principal Financial Officer
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(Principal Financial Officer)
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