UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period endedApril 2, 2011





 ̈      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from _____________ to _____________





Commission File Number 000-33389





nFinanSe Inc.





(Exact name of registrant as specified in its charter)





Nevada
65-1071956(State or other jurisdiction of
(IRS Employer Identification No.)incorporation or organization)3923 Coconut Palm Drive, Suite 107Tampa, Florida
33619(Address of principal executive offices)
(Zip Code)Issuer’s telephone number, including area code:
(813) 367-4400





Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.





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.





Large accelerated filer   £
Accelerated filer   £Non-accelerated filer (Do not check if a smaller reporting company)   £
Smaller reporting company   T





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).





Yes


No
X





State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 31,877,770shares of common stock, $0.001 par value, outstanding as of May 10, 2011.










nFinanSe Inc.Table of ContentsPage No.NOTE REGARDING FORWARD LOOKING STATEMENTS
1PART I - FINANCIAL INFORMATIONItem 1.     Financial Statements:Consolidated Balance Sheets as of April 2, 2011 (unaudited) and January 1, 2011 (audited)
2Consolidated Statements of Operations (unaudited) for the thirteen weeks ended April 2, 2011 and April 3, 2010
3Consolidated Statements of Cash Flows (unaudited) for the thirteen weeks ended April 2, 2011 and April 3, 2010
4Notes to Consolidated Financial Statements (unaudited)
5Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.
17Item 3.     Quantitative and Qualitative Disclosures About Market Risk.
22Item 4T.   Controls and Procedures.
22PART II - OTHER INFORMATIONItem 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
23Item 6.     Exhibits.
23SIGNATURES
24











-i-





FORWARD-LOOKING STATEMENTS




The Securities and Exchange Commission (the “SEC”), encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report contains such “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the ”Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”.)





Words such as “seek”, “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “budget,” “may be,” “may continue,” “may likely result” and words and terms of similar substance used in connection with any discussion of future operating and financial performance identify forward-looking statements. Unless we have indicated otherwise, or the context otherwise requires, references in this report to “we,” “us,” “our,”, “nFinanSe,” ”the Company” or similar terms, are to nFinanSe Inc. and its subsidiaries,





We claim the protection of safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this report and they may also be incorporated by reference in this report to other documents filed with the SEC, and include, but are not limited to, statements about future financial and operating results and performance, statements about our plans, objectives, expectations and intentions with respect to future operations, products and services, and other statements that are not historical facts. These forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements.





The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:





●
our ability to design and market our products;●
the estimated timing of our product roll-outs;●
our ability to protect our intellectual property rights and operate our business without infringing upon the intellectual property rights of others;●
the changing regulatory environment related to our products;●
whether or not markets for our products develop and, if they do develop, the pace at which they develop;●
our ability to attract the qualified personnel to implement our growth strategies;●
our ability to develop sales and distribution capabilities;●
our ability to work with our distribution partners;●
the accuracy of our estimates and projections;●
our ability to fund our short-term and long-term financing needs;●
changes in our business plan and corporate strategies;●
the risk factors discussed and identified in this report and in other of our public filings with the SEC; and●
those risks discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”





Each forward-looking statement should be read in context with, and with an understanding of, the various other disclosures concerning our Company, as well as other public reports filed with the SEC. You should not place undue reliance on any forward-looking statement as a prediction of actual results or developments, which speak only to the date of this report. Except to the extent required by applicable law or regulation, we are not obligated to update or revise any forward-looking statement contained in this annual report to reflect new events or circumstances unless and to the extent required by applicable law.





All dollar amounts in this annual report are in U.S. dollars unless otherwise stated.








-1-





PART I - FINANCIAL INFORMATION





Item 1.     Financial Statements.


nFinanSe Inc.


CONSOLIDATED BALANCE SHEETS





April 2,


January 1,2011


2011ASSETSCURRENT ASSETS:Cash and cash equivalents

$
2,765,754


$
1,073,762Restricted cash


1,035,865



817,166Receivables:Accounts (net of allowance for doubtful accounts of $0 and $0,         respectively)


485,417



317,906Other (net of allowance for doubtful accounts of $7,230 and $7,230, respectively)


30,466



218,727Prepaid expenses and other current assets, including prepaid marketing costs of approximately $128,600 and $177,600, respectively


840,928



577,174Prepaid card supply


586,480



719,192Total current assets


5,744,910



3,723,927PROPERTY AND EQUIPMENT


283,125



284,696OTHER ASSETSOther assets


52,520



52,520TOTAL ASSETS

$
6,080,555


$
4,061,143LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIES:Accounts payable

$
915,667


$
975,742Accrued personnel costs


181,460



100,509Credit facility loans outstanding


1,500,000



1,000,000Deferred revenues


43,125



51,875Other accrued liabilities


57,923



61,247Total current liabilities


2,698,175



2,189,373COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS’ EQUITY:Preferred stock - $.001 par value:  25,000,000 shares authorized; 22,568,663 and 20,275,993 shares issued and outstanding on April 2, 2011 and January 1, 2011, respectively, as follows:Series A Convertible Preferred Stock – 9,330,514 shares authorized; 7,500,484 and 7,500,484  shares  issued and outstanding with liquidation values of $7,595,011 and $7,690,565 (including undeclared accumulated dividends in arrears of $94,527 and $190,081) as of April 2, 2011 and January 1, 2011, respectively


7,500



7,500Series B Convertible Preferred Stock – 1,000,010 shares authorized; 1,000,000 shares issued and outstanding with a liquidation value of $3,000,000 at April 2, 2011 and January 1, 2011


1,000



1,000Series C Convertible Preferred Stock – 4,100,000 shares authorized; 4,037,500 shares issued and outstanding with a liquidation value of $8,075,000 at April 2, 2011 and January 1, 2011


4,038



4,038Series D Convertible Preferred Stock – 4,666,666 shares authorized; 4,331,838 shares issued and outstanding with a liquidation value of $12,995,514 at April 2, 2011 and January 1, 2011


4,332



4,332Series E Convertible Preferred Stock – 5,900,000 and 4,333,340 shares authorized at April 2, 2011 and January 1, 2011, respectively; 5,698,841 and 3,406,171 shares issued and outstanding with a liquidation value of $25,644,785 and $15,327,770 at April 2, 2011 and January 1, 2011, respectively


5,699



3,406Common stock - $0.001 par value: 200,000,000 shares authorized; 31,877,770 and  26,196,714 shares issued and outstanding as of April 2, 2011 and January 1, 2011, respectively


31,878



26,197Additional paid-in capital


81,497,252



77,729,173Accumulated deficit


(78,169,319
)


(75,903,876
)Total stockholders’ equity


3,382,380



1,871,770TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
6,080,555


$
4,061,143





See notes to consolidated financial statements.


-2-





nFinanSe Inc.


CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


For the

thirteen

weeks ended

April 2, 2011


For the

thirteen

weeks ended

April 3, 2010Operating revenues:Card revenues

$
744,473


$
116,999Reload revenues


155,320



29,925Interchange revenues


196,710



35,440Retailer incentive compensation


(37,500
)


(30,000
)Total operating revenues


1,059,003



152,364Operating expenses:Sales and marketing expenses


788,325



843,488Compensation and benefits expenses


1,341,689



1,222,316Processing expenses


351,378



102,836Other general and administrative expenses


571,065



588,074Total operating expenses


3,052,457



2,756,714Loss before other expense


(1,993,454
)


(2,604,350
)Other expense:Interest expense


(82,935
)


(23,421
)Total other expense


(82,935
)


(23,421
)Net loss


(2,076,389
)


(2,627,771
)Dividends paid on Series A Convertible Preferred Stock


(189,054
)


-Undeclared and unpaid dividends on Series A Convertible Preferred Stock


(93,499
)


(93,499
)Net loss attributable to common stockholders

$
(2,358,942
)

$
(2,721,270
)Net loss per share - basic and diluted:Total net loss per share

$
(0.08
)

$
(0.15
)Weighted average number of shares outstanding


28,573,794



18,295,248





See notes to consolidated financial statements.




-3-


nFinanSe Inc.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





For the

thirteen week

period ended

April 2, 2011


For the

thirteen week

period ended

April 3, 2010CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(2,076,389
)

$
(2,627,771
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


53,183



58,190Provision for prepaid card supply obsolescence


197,321



577,869Stock based compensation and consulting


132,858



115,822Changes in assets and liabilities, net:Restricted cash


(218,699
)


(60,177
)Receivables


20,750



40,124Prepaid card supply


(64,609
)


(110,044
)Prepaid expenses and other current assets


(263,754
)


(169,415
)Other assets


-



(2
)Accounts payable and accrued  liabilities


17,552



117,355Deferred revenues


(8,750
)


(1,667
)NET CASH USED IN OPERATING ACTIVITIES


(2,210,537
)


(2,059,716
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment


(51,612
)


(51,192
)NET CASH USED IN INVESTING ACTIVITIES


(51,612
)


(51,192
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of Series E Convertible Preferred Stock


3,439,000



-Proceeds from borrowings


500,000



-Payments for stock issuance costs


(3,859
)


-Proceeds from the exercise of Warrants


19,000



17,031NET CASH PROVIDED BY FINANCING ACTIVITIES


3,954,141



17,031


NET CHANGE IN CASH AND CASH EQUIVALENTS


1,691,992



(2,093,877
)CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


1,073,762



3,794,788CASH AND CASH EQUIVALENTS, END OF PERIOD

$
2,765,754


$
1,700,911SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid

$
82,935


$
23,465SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Warrants exchanged for Common Stock

$
-


$
9,998Dividends on Series A Convertible Stock Preferred Stock

$
189,054


$
-Declared and unpaid dividends on Series A Convertible Preferred Stock

$
-


$
179,772


See notes to consolidated financial statements.


-4-


nFinanSe Inc.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE A –ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Background





The accompanying consolidated financial statements include the accounts of nFinanSe Inc. and those of its wholly owned subsidiaries, nFinanSe Payments Inc. and MBI Services Group, LLC (currently dormant) (collectively, the “Company,” “we, ” “us, ” or “our”).





nFinanSe Inc. is a provider of stored value cards (“SVCs”), for sale through a wide variety of markets, including grocery stores, convenience stores, general merchandise stores and direct to customer through on-line or direct marketing activities. Our products and services are aimed at capitalizing on the growing demand for stored value and reloadable ATM/prepaid card financial products. We believe SVCs are a fast-growing product segment in the financial services industry.





Basis of Presentation





The consolidated financial statements contained herein have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  All significant intercompany accounts and balances have been eliminated in consolidation.  Accordingly, these consolidated financial statements do not include all the information and footnotes required by GAAP for annual financial statements.  In addition, certain comparative figures for the prior year may have been reclassified to conform to the current year’s presentation. In the opinion of management, the accompanying consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals and adjustments) to fairly present the financial position of the Company at April 2, 2011 and January 1, 2011, its results of operations for the thirteen weeks ended April 2, 2011 (“1Q2011”) and for the thirteen weeks ended April 1, 2010 (“1Q2010”) and its cash flows for 1Q2011 and 1Q2010. Operating results for 1Q2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January1, 2011.




In 1Q2010, the Company was considered to be a development stage company because we were continuing to develop our planned principal operations and because our revenues have been minimal.





Change of Accounting





During our development stage, we accounted for card packages to be sold in retail stores as inventory and we recorded transactions performed by our retail agents on a net basis. Because the Company was the only “pure play” SEC reporting company in the industry, we were unable to compare our accounting treatments to our larger, more mature, privately-held competitors. During fiscal 2010, the nation’s two largest prepaid card managers registered with the SEC and filed financial reports.  Our largest competitor and the largest manager of GPR cards in the financial services industry accounts for its card packages as a prepaid expense that is amortized over the expected life of the packages and it accounts for its retail transactions on a gross basis under the guidelines promulgated by Emerging Issues Task Force (“EITF”) Issue 99-19, “Reporting Revenue Gross as a Principal versus net as an Agent”.  In connection with management’s determination that nFinanSe Inc. no longer operates as a development stage company and for future comparability to the industry leader, management determined that the Company should follow the preferable accounting practices of the industry leader and the promulgations of the EITF.  As such, we record Card sales and Reload sales at the price charged by our retail agents and the amounts retained by the retail agents and distributors are recorded as sales and marketing expense. Maintenance fees are recorded at the amount collected and any sharing percentage with distributors is recorded as sales and marketing expense. Interchange is recorded at the amount paid by the relevant network, and any fees and sharing arrangements with banks are charged to selling and marketing expenses  In addition, the Company has modified the presentation and treatment of card supply from an inventory asset to a prepaid asset in accordance with the appropriate Accounting Standards Codification (“ASC”) and industry treatment.


-5-


The following financial statement line items for 1Q2010 were affected by the change in accounting:





Statement of operations 1Q2010:As computed

pre change

in accounting

As computed

under changes

Effect of

ChangeTotal operating revenues
$
54,692
$
152,364
$
97,672Total operating expenses
$
2,659,042
$
2,756,714
$
97,672Loss before other expense
$
(2,604,350)
$
(2,604,350)
$
-








Statement of cash flows 1Q2010:As computed

pre change

in accounting

As computed

under changes

Effect of

ChangeProvision for inventory obsolescence
$
577,869
$
-
$
(577,869)Provision for prepaid card supply obsolescence
$
-
$
577,869
$
577,869Net cash used in operating activities
$
(2,059,716)
$
(2,059,716)
$
-





Use of Estimates





The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions we are required to make. Estimates that are critical to the accompanying consolidated financial statements arise from our belief that (1) we will be able to raise and generate sufficient cash to continue as a going concern, (2) all long-lived assets are recoverable, and (3) our card supply asset is properly valued and deemed recoverable.  In addition, stock-based compensation expense represents a significant estimate.  The markets for our products are characterized by intense competition, rapid technological development, evolving standards and regulations and short product life cycles, all of which could impact the future realization of our assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. It is at least reasonably possible that our estimates could change in the near term with respect to these matters.





Cash and Cash Equivalents





For purposes of the statement of cash flows, we consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.





Restricted Cash





Funds classified as restricted cash as at April 2, 2011 and January 1, 2011 relate to loan advances on our credit facility, as described in Note C – Credit Facility.





Accounts Receivable and Allowance for Doubtful Accounts





Our credit terms to our prepaid card distributors for our wholesale fees and the load value of gift cards and of the general purpose reloadable (“GPR”) cards vary by customer but are less than two weeks.  Transaction fees are paid daily, one day in arrears by our card networks, Discover, MasterCard and VISA® (“Card Associations”).  Interest income is paid monthly in arrears by the card-issuing bank approximately two weeks into the month following the recognition of such fees or interest income.  Maintenance fees are charged to active cards with balances upon activation and then on the same day of each month thereafter.





Accounts receivable are determined to be past due if payment is not made in accordance with the terms of our contracts. Receivables are written off when they are determined to be uncollectible.  The distributing agents of our SVCs are typically prepaid card distributors and large multi-unit retailers. We perform ongoing credit evaluations of our distributors and, with the exception of some minimum cash balances, we generally do not require collateral.





-6-


We evaluate the allowance for doubtful accounts based upon our review of the collectability of our receivables in light of historical experience, adverse situations that may affect our distributors’ ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.





Other Receivables





Cardholder account overdrafts may arise from maintenance fee assessments on our GPR cards or from unauthorized purchase transactions that are posted on GPR or gift cards, in each case in excess of the funds in a cardholder’s account. We are exposed to losses from unrecovered cardholder account overdrafts. Each period, we offset card revenues in the accompanying statement of operations for overdrafts created by the maintenance fee assessments on our cards.  For overdrafts created by purchase transactions, we record bad debt expense for those items we do not deem to be recoverable and this expense is included in other general and administrative expenses in the accompanying statement of operations.





Prepaid Card Supply





The Company records the costs associated with card packages as prepaid expenses. We recognize the prepaid cost of card packages over the related sales period, currently twelve months.





Property and Equipment





Property and equipment are stated at cost. Major additions are capitalized, but minor additions, which do not extend the useful life of an asset, and maintenance and repairs are expensed as incurred. Depreciation and amortization are provided using the straight-line method over the estimated useful lives.





The estimated useful lives of the respective classes of assets are as follows:





Furniture, fixtures and equipment            3-5 years


Computer software                                     3 years


Tenant improvements                                Shorter of the useful life or the lease term





Long-Lived Assets





In accordance with ASC 360 “Property, Plant and Equipment”, we evaluate the recoverability of long-lived assets and the related estimated remaining lives when events or circumstances lead us to believe that the carrying value of an asset may not be recoverable.





We did not incur any impairment charges in 1Q2011 or 1Q2010.





As of April 2, 2011 our estimates indicate that all remaining long-lived assets are recoverable.





Revenue Recognition





Our operating revenues consist of card revenues, reload revenues and interchange revenues.  We recognize revenue when (1) there is persuasive evidence of an arrangement existing, (2) delivery has occurred, (3) our price to the buyer is fixed or determinable and (4) collectability of the receivables is reasonably assured.





Card revenues consist of new card fees, monthly maintenance fees, Automated Teller Machine (“ATM”) fees and other revenues.  We charge new card fees when a consumer purchases a new card in a retail location.  We currently recognize new card fees at the time the new card is sold.  We charge maintenance fees on a monthly basis pursuant to the applicable cardholder agreements.  We charge ATM fees when a cardholder performs a withdrawal or other transactions at an ATM.  Other revenues consist of interest revenue on overnight investing of SVC balances by our card issuing bank, bill pay and fees associated with other optional products or services.  We recognize card revenues when the underlying product or service is completed, which is at the same time our fees are assessed.





-7-


We generate reload revenues when cardholders reload their GPR cards or purchase a “reload” or “top-up” pack at a retail location.  We recognize these revenues when the loads are purchased.





We earn interchange revenues from fees remitted to our card issuing bank account from a merchant when our cardholders make purchase transactions using our cards, which are based upon rates established by the card associations.  We recognize interchange revenues as these transactions occur.





We report our different types of revenue on a gross or net basis based upon whether we act as a principal or agent in the transaction.  To the extent we are the principal in the transaction, we report revenue on a gross basis.  We evaluate whether we are a principal or agent based upon certain guidance on gross versus net revenue reporting.  For all of our significant revenue generating arrangements, we record revenue on a gross basis.





On occasion, we enter into incentive agreements with our retailers to increase product acceptance and placement.  We recognize incentive payments as a reduction of revenues and recognize them over the related period for which the revenues or services are provided.





Sales and Marketing Expenses





Sales and marketing expenses consist primarily of sales fees and commissions paid to or retained by our distributors and retailers, advertising and marketing expenses, and the costs of manufacturing and distributing card packages and promotional materials to our distributors and retailers.





We generally establish the sales fees and commissions in distribution agreements with our distributors and we pay our distributors and retailers based on sales of our GPR and gift cards and reload services in their stores.  Sales fees and commissions were $476,515 and $107,995 for 1Q2011 and 1Q2010, respectively.





We incur advertising and marketing expenses for our products through retailer-based print promotions and in-store displays. We expense costs for the production of advertising when incurred.  Advertising and marketing expenses are recognized when the advertising event occurs. Advertising and marketing expenses were approximately $58,100 and $121,200 during fiscal 1Q2011 and 1Q2010, respectively.  At April 2, 2011 and January 1, 2011, we had approximately $128,600 and $177,600, respectively, in prepaid marketing of which the majority is related to product placement payments and advertising promotional payments made to a nation-wide retailer. The product placement payments are being amortized as a reduction of revenue over the contract period.





We record the costs associated with card packages as prepaid expenses. We recognize the prepaid cost of card packages over the related sales period, currently twelve months. Our manufacturing and distributing costs were $228,993 and $614,320 for 1Q2011 and 1Q2010, respectively. Included in our manufacturing and distributing costs were shipping and handling costs of $84 for 1Q2010.  There were no shipping and handling costs incurred during 1Q2010. Also included in our manufacturing and distributing costs was the liability that we incur for use tax to various states related to purchases of materials since no sales tax is charged to customers when new cards or reload transactions are purchased.





Research and Development





Research and development costs, which approximated $291,100 and $275,000 during 1Q2011 and 1Q2010, respectively, are expensed as incurred.  These costs are primarily related to network software development, security compliance and systems maintenance.





Net Loss Per Share





Basic net loss per share is computed by dividing the net loss attributable to common stockholders for the period after deducting dividends on our Series A Convertible Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the number of common and common equivalent shares outstanding during the period (common stock equivalents arise from options, warrants and convertible preferred stock). Because of our net losses, none of these common stock equivalents have been dilutive at any time since our inception; accordingly basic and diluted net loss per share are identical for each of the periods in the accompanying consolidated statements of operations.  Weighted average number of shares outstanding for 1Q2010 has been adjusted in accordance with ASC 260 “Earnings per Share”, for the 6,437,774 Common Stock shares issued as payment of the Series A Preferred Stock dividends.


-8-





The following table lists the total of the Company’s common stock, par value $0.001 per share (the “Common Stock”) and our common stock equivalents outstanding at April 2, 2011:


Description

Shares of Common Stock and Common Stock Equivalents OutstandingCommon Stock

31,877,770Series A Convertible Preferred Stock *

7,500,484Series B Convertible Preferred Stock *

1,000,000Series C Convertible Preferred Stock *

4,037,500Series D Convertible Preferred Stock *

43,318,380Series E Convertible Preferred Stock *

56,988,410Stock Options

12,310,639Warrants

42,846,931Total

199,880,114*  as-converted into Common Stock.





Income Taxes





Under certain ASCs, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Significant temporary differences arise primarily from impairment charges and accounts payable and accrued liabilities that are not deductible for tax reporting until they are realized and/or paid.





Financial Instruments and Concentrations





Financial instruments, as defined in a certain ASCs, consist of cash, evidence of ownership in an entity and contracts that both (1) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (2) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Our financial instruments consist primarily of cash and cash equivalents, restricted cash, short-term investment(s), accounts receivable, accounts payable, accrued liabilities and credit facilities.  The carrying values of these financial instruments approximate their respective fair values due to their short-term nature.





Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash and accounts receivable. We frequently maintain cash balances in excess of federally insured limits. However, we believe that cash balances held in non interest bearing accounts are fully insured by the federal government at this time. As such, with interest rates at historical lows, we have made the decision to maintain cash balances at more than one bank to diversify our exposure and to use our non-interest-earning balances to lower any banking fees. Our revenues and accounts receivable balance is and is expected to be primarily composed of amounts generated from our largest distributor, Interactive Communications (“InComm”).  We have not experienced any losses from receivables due from InComm.





Stock-Based Compensation





We account for stock based compensation utilizing the fair value recognition pursuant to ASC 718 “Compensation – Stock Compensation”.  This statement requires us to recognize compensation expense in an amount equal to the grant-date fair value of shared-based payments such as stock options granted to employees.  These options generally vest over a period of time and the related compensation cost is recognized over that vesting period.


-9-





The following table summarizes our stock-based compensation expense:




Stock-based compensation charged to:

1Q2011

1Q2010Compensation and benefits expense
$
132,858
$
111,483Other general and administrative expenses

-

4,339Total stock-based compensation
$
132,858
$
115,822




For 1Q2010, other general and administrative expenses include $4,339 charged to consulting expense for the cost of options issued in conjunction with an internet-based sales development agreement





Dividends on Preferred Stock





Our Series A Preferred Stock accrues dividends of 5% per annum, which are paid semiannually and can be satisfied in cash or through the issuance of Common Stock.  Unless and until these dividends are declared and paid in full, the Company is prohibited from declaring any dividends on its Common Stock.  Pursuant to the Company’s Amended and Restated Loan and Security Agreement, dated November 26, 2008 (see Note C – Credit Facility), the Company is limited to paying $500,000 in any fiscal year for cash dividends or other cash distributions to the holders of shares of Series A Preferred Stock.  There are no dividend requirements on our Series B Convertible Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”), on our Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”), on our Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”), or on our Series E Convertible Preferred Stock, par value $0.001 per share (“Series E Preferred Stock”).





On January 27, 2011 the Company’s Board of Directors (the “Board”) declared $189,054 in dividends due through December 31, 2010 and paid through the issuance of 3,781,056 shares of Common Stock.  Dividends owed but not declared on our Series A Preferred Stock were $94,527 as of April 2, 2011.





Fair Value Measurements





Our financial instruments, including unrestricted cash and cash equivalents, restricted cash, accounts receivable, prepaid card supply, certain other assets, accounts payable, and other accrued liabilities, are short-term, and, accordingly, we believe their carrying amounts approximate their respective fair values.





At April 2, 2011, the Company did not have any other items to be measured at fair value.





NOTE B - GOING CONCERN





Our consolidated financial statements are prepared using GAAP as applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business.  Our operations have historically been funded primarily through equity capital.  From January 2011 through March 2011, in order to fund our operations, we sold 2,292,670 shares of our Series E Preferred Stock for an aggregate cash purchase price of $3,439,000 (See Note D – Series E Preferred Stock Offering.)  Because of our operating losses, we have a cash balance of approximately $2,765,800 as of April 2, 2011. We expect to raise additional sales of Series E Preferred Stock during 2011.  We believe this equity financing should be adequate to fund our operations for the next 12 months; however, we have incurred significant losses and negative cash flows from operations since our inception, and as a result no assurance can be given that we will be successful in attaining profitable operations, especially when one considers the problems, expenses and complications frequently encountered in connection with entrance into established markets and the competitive environment in which we operate.





These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.





-10-


NOTE C - CREDIT FACILITY





On June 10, 2008, the Company and its wholly owned subsidiary, nFinanSe Payments Inc. (collectively, the “Borrowers”), entered into a Loan and Security Agreement (the “Original Loan Agreement”) and, on November 26, 2008, entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) with Ballyshannon Partners, L.P., Ballyshannon Family Partnership, L.P., Midsummer  Investment, Ltd. (“Midsummer”), Porter Partners, L.P. and Trellus Partners, L.P. (collectively, the “Lenders”).  The Original Loan Agreement established a revolving credit facility in the maximum aggregate principal amount of $15,500,000 (the “Credit Facility”), with the Borrowers’ obligations secured by a lien on substantially all of the Company’s assets.  Loans under the Original Loan Agreement (each, a “Loan”) may be used solely to make payments to card-issuing banks for credit to SVCs.  The Amended and Restated Loan Agreement modified the Original Loan Agreement by establishing a sub-commitment of $3,400,000, pursuant to which a participating Lender, in its sole discretion, could advance funds (each, an “Accommodation Loan”) that could be used by the Company for general corporate purposes. The Accommodation Loans were advanced by the Lenders and exchanged for Series D Convertible Preferred Stock in 2009, par value $0.001 per share (the “Series D Preferred Stock”).  Loan amounts deposited into a lender-controlled loan account are reflected as Restricted Cash on our balance sheet and bear interest at 6% per annum until withdrawn (for the sole purpose of funding SVCs) from that deposit account, at which time they bear interest at 16% per annum.  Loans may be repaid and re-borrowed in accordance with the provisions of the Amended and Restated Loan Agreement.





On October 29, 2009, the Lenders approved the extension of maturity of the Credit Facility for an additional six months, or May 25, 2010, upon the satisfaction of certain conditions set forth in the Amended and Restated Loan Agreement.  During 2010, the Company and its Lenders executed seven amendments to the Amended and Restated Loan Agreement in order to extend its maturity and to reduce the aggregate commitment to $10.5 million.


On March 3, 2011, the Company entered into that certain Ninth Amendment to the Amended and Restated Loan and Security Agreement (the “Ninth Amendment”) with Ballyshannon Partners, L.P., Porter Partners, L.P., 5 Star Partnership, Ben Joseph Partners, NFS FMTC Rollover IRA FBO Franz J. Berlacher, and Robert Berlacher (collectively, the “New Lenders”).  The Ninth Amendment amended the Maturity Date of the notes issued pursuant to the Amended and Restated Loan Agreement to December 31, 2011.  Additionally, the Ninth Amendment amended the aggregate commitment to $3.5 million from $10.5 million.  The Ninth Amendment established a commitment fee equal to 10% of each respective New Lender’s commitment, which was paid by the Company in the form of shares of its Series E Preferred Stock.  Additionally, the commitment rate of interest under the Amended and Restated Loan Agreement was amended from 6% to 12% and the investment rate of interest was amended from 16% to 12%. Certain other terms were amended to describe the method in which Loans will be advanced by the New Lenders and the method in which Loans will be repaid by the Company.





The Credit Facility provides for usual and customary events of default, including but not limited to (i) the occurrence of a Material Adverse Change and (ii) the occurrence of a Change of Control (as such terms are defined in the Amended and Restated Loan Agreement).  The Credit Facility contemplates that, with the Lenders’ consent, the maximum commitment may be increased to up to $20,000,000, and additional lenders may be added.




As of April 2, 2011 the Company had drawn $1,500,000 in Loans under the Amended and Restated Loan Agreement.





Mr. Terker, a current member of the Board , has sole voting and dispositive power over the securities held by Ballyshannon Partners, L.P. and its affiliates, two of which were Accommodation Loan Lenders.  Ballyshannon Partners, L.P. is the lender agent named in the Amended and Restated Loan Agreement.   Mr. Terker has a financial interest in such entities, and, as such, has a financial interest in the Amended and Restated Loan Agreement.





NOTE D - PROPERTY AND EQUIPMENT





Property and equipment consists of the following:





Description

April 2, 2011


January 1, 2011Furniture, fixtures and equipment

$
1,051,613


$
1,012,599Computer software


198,491



185,893Leasehold improvements


196,840



196,8401,446,944



1,395,332Less accumulated depreciation and amortization


(1,163,819
)


(1,110,636
)Property and equipment – net

$
283,125


$
284,696





-11-


NOTE E – SERIES E PREFERRED STOCK OFFERING





On June 29, 2010, the Board approved an offering of up to $5,000,000 of Series E Preferred Stock at a purchase price of $1.50 per share.  On December 23, 2010, the Board amended the offering up to 4,333,334 shares for $6,500,000. On March 29, 2011, the Board amended the offering up to 5,900,000 shares for up to $8,850,000.On July 3, 2010, the Company entered into Securities Purchase Agreements, as amended by addendums to the Securities Purchase Agreements dated as of July 3, 2010 (as amended, the “Securities Purchase Agreements”), with several institutional and accredited investors (collectively, the “Investors”), pursuant to which the Company issued 333,334 shares of its Series D Preferred Stock.  Pursuant to the 2010 Purchase Agreements such shares were exchanged for 333,334 shares of Series E Preferred Stock on July 8, 2010 (the date on which the Statement of Designations, Rights and Preferences of the Series E Preferred Stock (the “Series E Certificate”) was filed with the Secretary of State of the State of Nevada) for an aggregate cash purchase price of $500,001.  The Company has entered intoSecurities Purchase Agreements with certain institutional and accredited investors for the sale of its Series E Preferred Stock. The following table summarizes those agreements by closing date:




Closing Date

Number of Shares

Aggregate Cash

Purchase PriceJuly 8, 2010

333,334
$
500,001August 10, 2010

400,000

600,000September 7, 2010

1,116,670

1,675,000September 30, 2010

606,167

909,250November 24, 2010

366,666

550,000December 31, 2010

583,334

875,000March 11, 2011

911,668

1,367,500April 1, 2011

1,381,002

2,071,500Totals as of April 2, 2011

5,698,841
$
8,548,251




As of April 2, 2011, the Company has issued 5,698,841 shares of its Series E Preferred Stock for an aggregate cash purchase price of $8,548,251.





Emerging Growth Equities (“EGE”) received fees of $26,250 in connection with the introduction of certain new investors for the above-described transactions.  Robert A. Berlacher, a current stockholder of the Company, is a co-founder and director of EGE Holdings, a holding company with a 100% ownership interest in EGE.  Mr. Berlacher received no compensation from EGE Holdings or EGE related to the Company’s sale of Series E Preferred Stock.  Bruce E. Terker, a member of our Board, controls two entities that are investors in EGE Holdings.  In addition, Mr. Terker received $3,859 in travel expense reimbursements for costs he incurred as a result of his efforts to raise funds  for our Series E Preferred Stock offering.





Pursuant to the Series E Certificate, the holders of the Series E Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of holders of Common Stock, shall be entitled to notice of any stockholders meeting in accordance with the Bylaws of the Company, as amended, and shall be entitled to vote, with respect to any question upon which holders of Common Stock are entitled to vote, including, without limitation, the right to vote for the election of directors, voting together with the holders of Common Stock as one class.  Each holder of shares of Series E Preferred Stock shall be entitled to vote on an as-converted to Common Stock basis.





In the event of any liquidation, before any distribution of assets of the Company shall be made to or set apart for the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Common Stock, the holders of Series E Preferred Stock shall be entitled to receive payment out of such assets of the Company in an amount equal to the greater of (i) $4.50 per share of Series E Preferred Stock, and (ii) the amount such holder would have received if such holder had converted its shares of Series E Preferred Stock to Common Stock, subject to but immediately prior to such liquidation (the “Series E Liquidation Preference”).  If the assets of the Company available for distribution to the holders of Series E Preferred Stock are insufficient to make in full the above-referenced payment required by the Series E Certificate, then the holders of the Series E Preferred Stock shall share pro rata in the distribution of such assets in proportion to the respective sums which would otherwise be payable upon such distribution related to a Liquidation (as such term is defined in the Series E Certificate) if all sums so payable to the holders of the Series E Preferred Stock were paid in full.





As long as at least 33% of the shares of Series E Preferred Stock issued are outstanding, the consent of the holders of at least a majority of the shares of Series E Preferred Stock at the time outstanding shall be necessary for effecting (i) any amendment, alteration or repeal of any of the provisions of the Series E Certificate in a manner that will adversely affect the rights of the holders of the Series E Preferred Stock, (ii) the authorization or creation by the Company of, or the increase in the number of authorized shares of, any stock of any class, or any security convertible into stock of any class, or the authorization or creation of any new class of preferred stock (or any action which would result in another series of preferred stock), in each case, ranking in terms of liquidation preference, redemption rights or dividend rights, pari passu with or senior to, the Series E Preferred Stock in any manner, and (iii) entrance by the Company into any senior secured financing or funded debt.  These listed actions by the Company will no longer require a vote of the holders of Series E Preferred Stock at such time as the Company first earns an annual earnings before interest, tax, depreciation and amortization (“EBITDA”) of at least $10,000,000 over any trailing 12-month period and Stockholder’s Equity as recorded on the Company’s balance sheet first becomes at least $15,000,000.





-12-


Shares of the Series E Preferred Stock are convertible at any time into shares of Common Stock by any holders thereof at the initial conversion price of $0.15 per share, which conversion price is subject to customary adjustments related to stock dividends, subdivisions and combinations.  In addition, if 10% or less of the aggregate shares of Series E Preferred Stock remain outstanding or, in the event of a sale, transfer or other disposition of all or substantially all the Company’s property assets or business to another corporation, in which the aggregate proceeds to the holders of the Series E Preferred Stock would be greater on an as-converted to Common Stock basis, all remaining outstanding shares of Series E Preferred Stock mandatorily convert into Common Stock.





The number of shares of Series E Preferred Stock that may be converted into Common Stock by any holder, and the number of shares of Series E Preferred Stock that shall be entitled to voting rights, shall be limited to the extent necessary to ensure that, following such conversion (or deemed conversion for voting purposes), the number of shares of Common Stock then beneficially owned by such holder and its affiliates does not exceed 9.99% of the total number of shares of Common Stock then issued and outstanding.





NOTE F - STOCK OPTIONS AND WARRANTS





On March 1, 2007, our stockholders approved the 2007 Omnibus Equity Compensation Plan (the “2007 Plan”) which combined the 709,850 shares that were issued and outstanding under the Company’s 2004 Stock Option Plan with the 2,300,000 shares available for issuance under the 2007 Plan.  On May 8, 2008, and again on June 17, 2010, at the Company’s Annual Stockholders’ Meeting, the Company’s stockholders voted to amend the 2007 Plan by increasing the number of authorized shares available for issuance by 1,000,000 and 9,790,150 shares, respectively, thus providing a total of 13,800,000 shares for issuance under the combined plans.  As of April 2, 2011, we had 12,310,639 total options outstanding under the combined plans, consisting of 12,210,639 options issued to employees and non-employee directors and 100,000 options issued to a consultant and 1,489,361 shares available for future option grants. Such outstanding options vest over various periods up to three years and expire on various dates through 2020.





The fair value of each option grant is estimated at the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions for the periods ended 1Q2011 and 1Q2010:





1Q2011


1Q2010Expected term in years

5


5Expected stock price volatility

295
%

167
%Risk free interest rate

2.24
%

1.78
%Dividend yield

0
%

0
%





No stock options were granted during the quarter ended 1Q2011.  Expected stock price volatility is determined using historical volatility of the Company's stock.  The average expected life was estimated based on historical employee exercise behavior.





The following table summarizes our stock option activity during the three month period ended April 2, 2011:





Number of

Options


Weighted average

exercise

price per share

(price at date of grant)Outstanding at January 1, 2011


12,474,605


$
0.77Cancelled


(163,966
)

$
3.01Outstanding at April 2, 2011


12,310,639


$
0.78Options granted at or above market value 1Q 2011


-





-13-


The following table summarizes information regarding options that are outstanding at April 2, 2011:




Options outstanding

Options exercisableRange of

exercise prices

Number

Outstanding

Weighted

average

remaining

contractual

life in years

Weighted

average

exercise

price

Number

exercisable

Weighted

average

exercise

price per

share$0.25-$0.50

11,623,803

8.4
$
0.50

6,262,133
$
0.50$0.75-$2.20

147,813

7.3
$
1.35

141,250
$
1.37$3.20-$9.80

440,773

4.8
$
4.74

440,773
$
4.74$10.20-$32.00

98,250

4.7
$
14.92

98,250
$
14.9212,310,639

8.2
$
0.78

6,942,406
$
0.99





The grant-date fair value of options granted during1Q2011 and 1Q2010 was approximately $0 and $3,800, respectively.  The total fair value of shares vested during the three-month period ended April 2, 2011 was approximately $186,400.  At April 2, 2011, we estimate the aggregate stock-based compensation attributable to unvested options was approximately $411,200, which amount is expected to be recognized over a period of approximately three years.





Officer Stock Options





On January 27, 2011, the Board, subject to stockholder approval at the Company’s Annual Meeting to be held May 25, 2011, awarded a total of 6,950,000 stock options to seven officers at an exercise price of $0.50 per share, which were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $636,000.  The options vest ratably over ten calendar quarters beginning January 2011. The fair value of these options will be effective after shareholder approval and will be recognized as stock-based compensation expense over the vesting period of the options.





On January 4, 2010, the Board approved the repricing of all existing officer options, 2,003,615 in the aggregate, to $0.50.  The options were originally issued at exercise prices ranging from $0.75 to $11.00.  The cost of the repricing of these options was valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $9,729.This repricing was approved by stockholders at the Company’s Annual Stockholders’ Meeting held on June 17, 2010.





On January 28, 2010, the Board awarded a total of 8,796,385 stock options to eight officers at an exercise price of $0.50 per share, which were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $804,893.  The options vest ratably over ten calendar quarters beginning January 2010. These grants were approved by stockholders at the Company’s Annual Stockholders’ Meeting held on June 17, 2010.  The fair value of these options is being recognized as stock-based compensation expense over the vesting period of the options.





Non Employee Director Options





In February 2010, 40,000 options were granted to the non-employee members of our Board. The options, which were 100% vested on the date of grant with an exercise price of $0.75, were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $4,000. This amount was included in employee and director stock-based compensation in the statement of operations for1Q2010.





In May 2010, 222,282 options were issued to each of Donald A. Harris and Bruce E. Terker in lieu of cash payments for their compensation as members of the Board.   The options, which were 100% vested on the date of grant with an exercise price of $0.50, were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $17,500. This amount was included in board of director compensation expense in the statement of operations for the year ended January 1, 2011.





In July 2010, 180,000 options were granted to the non-employee members of our Board. The options, which were 100% vested on the date of grant with an exercise price of $0.50, were valued using the Black-Scholes option pricing model at an aggregate fair value of approximately $16,300. This amount was included in employee and director stock-based compensation in the statement of operations for the year ended January 1, 2011.





-14-


Outstanding Warrants





The following table summarizes our warrant activity during the three month period ended April 2, 2011:





Number of

Warrants


Weighted average

exercise price

per share

(price at

date of grant)Outstanding at January 1, 2011


44,746,931


$
0.08Exercised


(1,900,000
)


0.01Outstanding at April 2, 2011


42,846,931


$
0.08





On January 12, 2011, Trellus Partners, LP, Trellus Small Cap Opportunity Fund LP, and Trellus Partners II LP paid to the Company $8,500, $1,000 and $500 for the exercise of 850,000, 100,000 and 50,000 warrants with an exercise price of $0.01 for the issuance of 850,000, 100,000 and 50,000 shares of our Common Stock, respectively.   On February 3, 2011, Wister Morris paid to the Company $4,000 for the exercise of 400,000 warrants with an exercise price of $0.01 for the issuance of 400,000 shares of our Common Stock.   On February 7, 2011, Mr. Jeffrey Porter paid to the Company $2,500 for the exercise of 250,000 warrants with an exercise price of $0.01 for the issuance of 250,000 shares of our Common Stock.  On February 18, 2011, Mr. Jeffrey Porter again paid to the Company $2,500 for the exercise of 250,000 warrants with an exercise price of $0.01 for the issuance of 250,000 shares of our Common Stock.




Summary of Warrants outstanding by Exercise Price:





Exercise Price per Share

Number of Warrants Outstanding

Expiration Date$    0.01

41,505,131

Various dates from November 25, 2010 through November 30, 2014$    0.30

256,250

June 29, 2012 and June 12, 2012$    1.20

5,000

November 22, 2011$    2.30

883,475

June 29, 2012 and June 12, 2012$    2.53

54,575

June 12, 2013$    5.00

142,500

Various dates from April 1, 2011 through September 30, 2011$   0.09

42,846,931





NOTE G - COMMITMENTS AND CONTINGENCIES





Operating Leases





We are obligated under various operating lease agreements for our facilities.  Future minimum lease payments and anticipated common area maintenance charges under all of our operating leases are approximately as follows at April 2, 2011





Twelve months ending


AmountsMarch  2012
$
206,200March  2013

104,200Total
$
310,400





Rent expense included in net loss for 1Q2011 and 1Q2010, was approximately $52,000 and $54,400, respectively.





-15-


Employment Agreements





We are obligated under employment agreements with our Chief Executive Officer, Jerry R. Welch, and our Chief Financial Officer, Raymond P. Springer.  The employment agreements had an initial term from September 5, 2006 to December 31, 2008.  Each agreement is to be automatically renewed indefinitely for succeeding terms of two years unless otherwise terminated in accordance with the agreement.  The employment agreements provide to Messrs. Welch and Springer a current annual salary of $275,000 and $200,000, respectively. Both Mr. Welch and Mr. Springer also receive performance-based bonuses and certain medical and other benefits.  If we terminate Mr. Welch or Mr. Springer without cause, we will be required to pay severance to them in the amount of compensation and benefits they would have otherwise earned in the remaining term of their employment agreements or twelve months, whichever period is shorter.





Service and Purchase Agreements





We have entered into renewable contracts with DFS Services LLC (“DFS”) and VISA® U.S.A. Inc. (“VISA®”), our card networks, Palm Desert National Bank (“PDNB”), The Bancorp, Inc. (“Bancorp”) and First Bank & Trust (“FB&T”), our card-issuing banks, Metavante Corporation (“Metavante”), our processor, and American Express® Travel Related Services Company, Inc., a gift card program, that have initial expiration dates from March 17, 2011 through September 16, 2015.  Because the majority of the fees to be paid are contingent primarily on card volume, it is not possible to calculate the amount of the future commitment on these contracts. The Metavante, PDNB, Bancorp and FB&T agreements also require a minimum payment of $5,000, $3,000, $10,000 (in months 7-60) and $7,500 per month, respectively.  The Bancorp minimums are not being billed until a program is initiated.  During 1Q2011 and 1Q2010, we made aggregate payments of approximately $143,900 and $63,200, respectively, to Metavante, $60,700 and $7,000, respectively, to PDNB, $27,100 and $28,000, respectively, to FB&T and $5,000 and $0, respectively, to Bancorp under these agreements.  Bancorp has indicated that the minimum payments will not commence until we begin joint operations.  The FB&T agreement has expired and the parties are cooperating to conclude operations by no later than August 31, 2011.  As of April 9, 2011, PDNB’s electronic banking unit was acquired by First California Bank (“FCB”) (the “FCB Transaction”).  FCB assumed all card issuing bank agreements in their entirety, including ours.  The FCB Transaction will have no effect on our consolidated financial statements.





Our agreements with PDNB, FB&T and Bancorp require us to maintain certain reserve balances for our card programs.  As of April 2, 2011 and January 1, 2011, the reserve balances held at PDNB, FB&T and Bancorp were $10,000, $25,000 and $0, respectively.  These amounts are included in “Other assets” on the Company’s balance sheets as of April 2, 2011 and January 1, 2011.





Pending or Threatened Litigation





We may become involved in certain litigation from time to time in the ordinary course of business. To the best of our knowledge, no material litigation exists or is threatened.





Bond Collateral





We have been required to post collateral in the amount of $500,000 for performance bonds issued in connection with our state money transmitter licenses.  The collateral, in the form of a letter of credit arranged by Mr. Jeffrey Porter, was issued by a bank and was placed with the surety company that issued the various bonds which at the end of the current quarter aggregated approximately $13,000,000.  Mr. Porter entered into a Guarantee and Indemnification Agreement with the Company dated February 1, 2009.  Accordingly, we are contingently liable for the face amount of the letter of credit. Mr. Porter is compensated at the rate of 2% of the average outstanding amount of the letter of credit per quarter paid in arrears. The agreement contemplates that Mr. Porter will be paid in cash,  however, he has chosen to take payment in the form of various equity securities that are being sold by the Company at various times. The Guarantee and Indemnification Agreement can be cancelled by the Company upon receiving a more favorable arrangement from another party. On February 1, 2010 and again on February 1, 2011, both the letter of credit and the Guarantee and Indemnification Agreement were renewed for another twelve months.








End of Financial Statements.














-16-


Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.




Overview.nFinanSe Inc. is a provider of SVCs, for sale through a wide variety of markets, including grocery stores, convenience stores and general merchandise stores. Our products and services are aimed at capitalizing on the growing demand for stored value and reloadable ATM/prepaid card financial products. We believe SVCs are a fast-growing product segment in the financial services industry.  At April 2, 2011, there were over 84,000 locations where our SVCs could be loaded (mostly Western Union® and Moneygram® locations) and approximately 16,000 retail locations currently offering our SVCs for sale and for reload services.





Results of Operations. We have had limited revenues and activity prior to the fourth quarter of fiscal 2010. Accounting literature sets forth guidelines for identifying an enterprise in the development stage and management has concluded that due to our level of operations, the revenues generated since our fiscal fourth quarter 2010 and the revenues expected to be generated on a go forward basis indicates that we no longer operate as a development stage enterprise.  The transition from development stage did not have any to affect the Company’s consolidated financial statements.





Change in Accounting.  During our development stage, we accounted for card packages to be sold in retail stores as inventory and we recorded transactions performed by our retail agents on a net basis. Because the Company was the only “pure play” SEC reporting company in the industry, we were unable to compare our accounting treatments to our larger, more mature, privately-held competitors. During fiscal 2010, the nation’s two largest prepaid card managers registered with the SEC and filed financial reports.  Our largest competitor and the largest manager of GPR cards in the financial services industry accounts for its card packages as a prepaid expense that is amortized over the expected life of the packages and it accounts for its retail transactions on a gross basis under the guidelines promulgated by Emerging Issues Task Force (“EITF”) Issue 99-19, “Reporting Revenue Gross as a Principal versus net as an Agent”.  In connection with management’s determination that nFinanSe Inc. no longer operates as a development stage company and for future comparability to the industry leader, management determined that the Company should follow the preferable accounting practices of the industry leader and the promulgations of the EITF.  As such, we record Card sales and Reload sales at the price charged by our retail agents and the amounts retained by the retail agents and distributors are recorded as sales and marketing expense. Maintenance fees are recorded at the amount collected and any sharing percentage with distributors is recorded as sales and marketing expense. Interchange is recorded at the amount paid by the relevant network, and any fees and sharing arrangements with banks are charged to selling and marketing expenses  In addition, the Company has modified the presentation and treatment of card supply from an inventory asset to a prepaid asset in accordance with the appropriate ASC’s and industry treatment.





The following financial statement line items for 1Q2010 were affected by the change in accounting:




Statement of operations 1Q2010:As computed

pre change

in accounting

As computed

under changes

Effect of

ChangeTotal operating revenues
$
54,692
$
152,364
$
97,672Total operating expenses
$
2,659,042
$
2,756,714
$
97,672Loss before other expense
$
(2,604,350)
$
(2,604,350)
$
-
 
 
 Statement of cash flows 1Q2010:As computed

pre change

in accounting

As computed

under changes

Effect of

ChangeProvision for inventory obsolescence
$
577,869
$
-
$
(577,869)Provision for prepaid card supply obsolescence
$
-
$
577,869
$
577,869Net cash used in operating activities
$
(2,059,716)
$
(2,059,716)
$
-


-17-


Operating Revenues





We produce revenues through the following types of transactions:





·
Card Revenues:  includes Card fees, paid by consumers who purchase a Card from one of our retail agents, monthly maintenance fees, collected from a GPR cardholder concurrent with activation and each month thereafter, ATM fees and Bill Pay fees, collected from a GPR cardholder each time a transaction is conducted.·
Reload Revenues: fees paid by cardholders at the time they reload their GPR Card on the nFinanSe Network.·
Interchange Revenues: fees paid by the applicable networks when our Cards are used in a purchase or ATM transaction.





The following table presents a breakdown of our operating revenues among card, reload and interchange revenues as well as contra-revenue items:





Fiscal1Q2011

1Q2010





Amount


% of Total Operating Revenues


Amount


% of Total Operating RevenuesOperating revenues:Card revenues

$
744,473



70.3


$
116,999



76.8Reload revenues


155,320



14.7



29,925



19.6Interchange revenues


196,710



18.6



35,440



23.3Retailer incentive compensation


(37,500
)


(3.6
)


(30,000
)


(19.7
)Total Operating Revenues

$
1,059,003



100.0
%

$
152,364



100.0
%





Card Revenues





Card revenues totaled $744,473 for 1Q2011, an increase of $627,474, or 536%, over 1Q2010. The increase was primarily the result of year-over-year growth of 335% in the number of GPR cards activated and 417% growth in our average active Card base. Visa branded Cards were initially rolled out in approximately 480 retail locations in January 2010. Approximately 14,500 additional retail agent locations began offering our Visa branded cards by December 2010.





Reload Revenues





Reload revenues totaled $155,320 for 1Q2011, an increase of $125,395, or 419%, over 1Q2010. The increase was primarily the result of the 468% growth in the number of Reloads sold for the same thirteen week periods. The increase in Reload volume was driven primarily by growth in our active Card base.





Interchange Revenues





Interchange revenues totaled $196,710 for 1Q2011, an increase of $161,270, or 455%, over 1Q2010. The increase was primarily the result of period-over-period growth of our active Card base and the 393% increase in dollars loaded on our cards.





Retailer Incentive Compensation





We amortize all incentive payments ratably over the life of the agreement and recognize as a contra-revenue component.





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Operating Expenses





The following table presents a breakdown of our operating expenses among sales and marketing, compensation and benefits, processing, and other general and administrative expenses:





1Q2011

Amount


1Q2010

Amount


ChangeOperating expenses:Sales and marketing expenses

$
788,325


$
843,488


$
(55,163
)Compensation and benefits expenses


1,341,689



1,222,317



119,372Processing expenses


351,378



102,836



273,272Other general and administrative expenses


571,065



588,073



(17,008
)Total operating expenses

$
3,052,457


$
2,756,714


$
295,743





Sales and Marketing Expenses





Sales and marketing expenses consist primarily of the  sales fees and commissions paid to or retained by our distributors and retailers for sales of our GPR and Gift cards and reload services in their stores, advertising and marketing expenses, and the costs of manufacturing and distributing card packages and promotional materials to our distributors and retailers. Additionally, we incurred significant expense in both years as we discontinued and abandoned Gift cards printed but unsold and GPR cards printed with a fixed denomination that did not sell. We generally establish sales fees and percentages in distribution agreements with our distributors, to the extent they collect the fee from the cardholder, they retain their portion and to the extent we collect the fee from the cardholder we remit their portion. We incur advertising and marketing expenses for our products through retailer-based print promotions and in-store displays. We expense costs for the production of advertising when incurred.  Advertising and marketing expenses are recognized when the advertising event occurs.  Our manufacturing and distribution costs vary primarily based on the number of GPR cards activated.





Sales and marketing expenses totaled $788,325 for 1Q2011, a decrease of $55,163, or 7%, from 1Q2010.  Advertising and marketing expenses decreased approximately $63,000 due primarily to lower agency expenses of $59,000, offset slightly by an increase of $7,922 for sales fees and commissions and manufacturing and distribution when comparing 1Q2011 to 1Q2010.  The increase in sales fees and commissions and manufacturing and distribution is attributable to the growth in our active cards and increased GPR Card activations and Reloads.





Compensation and Benefits Expenses




Compensation and benefits expenses represent the compensation and benefits that we provide to our employees. Compensation and benefits expenses associated with our customer service function will vary in line with new card sales and active cards outstanding, whereas the compensation expenses associated with other functions typically do not.





Compensation and benefits expenses totaled $1,341,689 for 1Q2011, an increase of $119,372, or 10%, over 1Q2010. The change was primarily due to an increase in cost related to additional customer service personnel of approximately $130,800, and net reductions in other administrative departments. The additional customer service representatives were needed to support the increase in Card sales and to service our rapidly growing Card base.





Processing Expenses





Processing expenses consist primarily of the fees charged to us by the banks that issue our prepaid cards, the third-party card processor that maintains the records of our customers’ accounts and processes transaction authorizations and settlements, and Visa and Discover ® Network, which process transactions for us through their respective payment networks. These costs generally vary based on the total number of active cards outstanding and gross transactional dollar volume.





Processing expenses totaled $351,378 for 1Q2011, an increase of $248,542, or 242%, compared to 1Q2010.  Charges for “cards on file” increased by $25,817 or 314% primarily due to our increased number of active cards.  Transactional and other charges on activated cards increased approximately $222,957 or 243% in 1Q2011 from 1Q2010.  These increases were primarily the result of growth in our Card base and increases in the volume of transactions for which we pay fees to the processor.





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Other General and Administrative Expenses





Other general and administrative expenses consist primarily of professional service fees, telephone and communication costs, depreciation and amortization of our property and equipment, bad debt, rent and utilities, and insurance. We incur telephone and communication costs primarily from customers contacting us through our toll-free telephone numbers and transactions over the data lines to support the nFinanSe load network. These costs vary with the total number of active cards outstanding as do bad debt losses from purchase transaction overdrafts and fraud. Costs associated with professional services, insurance, depreciation and amortization, and occupancy costs vary based upon our investment in infrastructure, risk management and internal controls and are not directly attributable to variances in transactions or revenues.




Other general and administrative expenses totaled $571,065 for 1Q2011, a decrease of $17,008, or3%, from 1Q2010.   This decrease is composed of the following variances:




Category


1Q2011



1Q2010


VarianceProfessional fees

$
121,558


$
132,885


$
(11,327
)Occupancy and related expenses


253,167



272,470



(19,303
)Business travel expenses


82,121



83,998



(1,877
)Other office expenses


114,219



98,720



15,499Total

$
571,065


$
588,073


$
(17,008
)





Liquidity and Capital Resources





Net cash used in operating activities was approximately $2.2 million and $2.1 million for 1Q2011 and 1Q2010, respectively.  The increase in cash used in operating activities was primarily due to increased card load volumes which impact our restricted cash balances, and increased prepaid expenses which were due to the $350,000 commitment fee paid to our lenders and discussed further in Note C – Credit Facility.  These increases were primarily offset by a lower operating loss that was primarily due to higher revenues in 1Q2011 when compared to 1Q2010.





Net cash used in investment activities for the 1Q2011 was approximately $51,600 consisting of purchases of property and equipment, primarily for continued compliance with payment card industry security standards.    Net cash used in investment activities for the 1Q2011 was approximately $51,200 consisting of purchases of property and equipment, primarily for additional computer hardware to improve the capacity of the nFinanSe NetworkTM.





As described in Note C to our consolidated financial statements, on June 10, 2008, we entered into the Original Loan Agreement.  Loans under the Credit Facility established by the Original Loan Agreement are to be used solely to make payments to card issuing banks for credit to SVCs.  On November 26, 2008, the Original Loan Agreement was subsequently amended to establish a sub-commitment of $3,400,000, pursuant to which each Lender in its sole discretion, may make Accommodation Loans that may be used by the Company for working capital expenditures, working capital needs and other general corporate purposes.  Loans and Accommodation Loans may be repaid and re-borrowed.  The maturity date of the notes issued pursuant to the Amended and Restated Loan Agreement was November 25, 2009, one year after the initial borrowing and on October 29, 2009, the Lenders approved the extension of maturity for an additional six months upon the satisfaction of certain conditions set forth in the Amended and Restated Loan Agreement.  The Amended and Restated Loan Agreement has subsequently been amended to extend the maturity to December 31, 2011 and to cap the aggregate commitment at $3.5 million and establishes a commitment fee equal to 10% of each respective New Lender’s commitment, which was paid by the Company on April 1, 2011 in the form of shares of its Series E Preferred Stock.




During the 1Q2011, financing activities included borrowings of $500,000, $3,439,000 from the sale of 2,292,670 shares of Series E Preferred Stock, and $19,000 from the cash exercise of 1,900,000 warrants at an exercise price of $0.01 per share, offset slightly by $3,859 in costs incurred for the Series E Preferred Stock offering. During the 1Q2010, the cash provided by financing activities was minimal.  As of April 2, 2011, we had drawn $1,500,000 under the Amended and Restated Loan Agreement.





Changes in Number of Employees and Location.We anticipate that the development of our business will require the hiring of a substantial number of additional employees in sales, administration, operations and customer service.


-20-
  Off-Balance Sheet Arrangements:





Operating Leases





We are obligated under various operating lease agreements for our facilities.  Future minimum lease payments and anticipated common area maintenance charges under all of our operating leases are approximately as follows at April 2, 2011.





Twelve months ending


AmountsMarch  2012
$
206,200March  2013

104,200Total
$
310,400





Employment Agreements





We are obligated under employment agreements with our Chief Executive Officer, Jerry R. Welch, and our Chief Financial Officer, Raymond P. Springer.  The employment agreements had an initial term from September 5, 2006 to December 31, 2008.  Each agreement is to be automatically renewed indefinitely for succeeding terms of two years unless otherwise terminated in accordance with the agreement.  The employment agreements provide to Messrs. Welch and Springer a current annual salary of $275,000 and $200,000, respectively. Both Mr. Welch and Mr. Springer also receive performance-based bonuses and certain medical and other benefits.  If we terminate Mr. Welch or Mr. Springer without cause, we will be required to pay severance to them in the amount of compensation and benefits they would have otherwise earned in the remaining term of their employment agreements or twelve months, whichever period is shorter.





Service and Purchase Agreements





We have entered into renewable contracts with DFS Services LLC (“DFS”) and VISA® U.S.A. Inc. (“VISA®”), our card networks, Palm Desert National Bank (“PDNB”), The Bancorp, Inc. (“Bancorp”) and First Bank & Trust (“FB&T”), our card-issuing banks, Metavante Corporation (“Metavante”), our processor, and American Express® Travel Related Services Company, Inc., a gift card program, that have initial expiration dates from March 17, 2011 through September 16, 2015.    Because the majority of the fees to be paid are contingent primarily on card volume, it is not possible to calculate the amount of the future commitment on these contracts. The Metavante, PDNB, Bancorp and FB&T agreements also require a minimum payment of $5,000, $3,000, $10,000 (in months 7-60) and $7,500 per month, respectively.  The Bancorp minimums are not being billed until a program is initiated.  During 1Q2011 and 1Q2010, we made aggregate payments of approximately $143,900 and $63,200, respectively, to Metavante, $60,700 and $7,000, respectively, to PDNB, $27,100 and $28,000, respectively, to FB&T and $5,000 and $0, respectively, to Bancorp under these agreements.  Bancorp has indicated that the minimum payments will not commence until we begin joint operations.  The FB&T agreement has expired and the parties are cooperating to conclude operations by no later than August 31, 2011.  As of April 9, 2011, PDNB’s electronic banking unit was acquired by First California Bank (“FCB”) (the “FCB Transaction”).    FCB assumed all card issuing bank agreements in their entirety, including ours.  The FCB Transaction will have no effect on our consolidated financial statements.





Our agreements with PDNB, FB&T and Bancorp require us to maintain certain reserve balances for our card programs.  As of April 2, 2011 and January 1, 2011, the reserve balances held at PDNB, FB&T and Bancorp were $10,000, $25,000 and $0, respectively.  These amounts are included in “Other assets” on the Company’s balance sheets as of April 2, 2011 and January 1, 2011.





Pending or Threatened Litigation





We may become involved in certain litigation from time to time in the ordinary course of business. To the best of our knowledge, no material litigation exists or is threatened.





Bond Collateral





We have been required to post collateral in the amount of $500,000 for performance bonds issued in connection with our state money transmitter licenses.  The collateral, in the form of a letter of credit arranged by Mr. Jeffrey Porter, was issued by a bank and was placed with the surety company that issued the various bonds which at the end of the current quarter aggregated approximately $13,000,000.  Mr. Porter entered into a Guarantee and Indemnification Agreement with the Company dated February 1, 2009.  Accordingly, we are contingently liable for the face amount of the letter of credit. Mr. Porter is compensated at the rate of 2% of the average outstanding amount of the letter of credit per quarter paid in arrears. The agreement contemplates that Mr. Porter will be paid in cash,  however, he has chosen to take payment in the form of various equity securities that are being sold by the Company at various times. The Guarantee and Indemnification Agreement can be cancelled by the Company upon receiving a more favorable arrangement from another party. On February 1, 2010 and again on February 1, 2011, both the letter of credit and the Guarantee and Indemnification Agreement were renewed for another twelve months.


See Note A - “Organization and Summary of Accounting Policies” to the consolidated financial statements, regarding the effect of certain recent accounting pronouncements on our consolidated financial statements.





-21-





Item 3.     Quantitative and Qualitative Disclosures About Market Risk.





Not applicable.





Item 4T.   Controls and Procedures.





Evaluation of Disclosure Controls and Procedures





An evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act of 1934 as of April 2, 2011 was carried out by us under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective.





Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.





Change in Internal Control over Financial Reporting





There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.






































-22-





PART II - OTHER INFORMATION





Item 1A.     Risk Factors


Set forth below and elsewhere in this report and in other documents we file with the SEC are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. The risk factor below is in addition to the description of the risk factors affecting our business previously disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K filed with the SEC on March 31, 2011.





Information system processing interruptions as the result the potential temporary failure of our aging hardware could result in an adverse impact on us, our credibility and our financial standing.





Our network hardware operates 24 hours a day 7 days a week and has built-in redundancy.  The current hardware is operational but past our desired service age.  Any capital restrictions or delays in our plans to replace the equipment may result in hardware failures.  These hardware failures may be minimal or more significant, but in any event may create processing interruptions and cardholders may not be able to load value to their Cards, receive load and transactional confirmations and lose the ability to contact customer service.  Such an event could also cause failure to detect systematic fraud or abuse. Errors or failures of this nature could immediately impact our operations, our credibility and our financial standing in an adverse manner.








Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds.





Series E Preferred Stock Sale





As previously disclosed on June 29, 2010, the Board approved an offering of up to $5,000,000 of Series E Preferred Stock at a purchase price of $1.50 per share.  On December 23, 2010, the Board amended the offering up to 4,333,334 shares for $6,500,000.  On July 3, 2010, the Company entered into Securities Purchase Agreements with several institutional and accredited investors, pursuant to which the Company issued 333,334 shares of Series E Preferred Stock on July 8, 2010, which was the date on which the Charter was filed with the Secretary of State of the State of Nevada.





Between August 10, 2010 and March 11, 2011, the Company reported that it had entered into Securities Purchase Agreements with certain other institutional and accredited investors, pursuant to which the Company issued 4,317,839 shares of Series E Preferred Stock for an aggregate cash purchase price of $6,476,750.





On March 29, 2011, the Board amended the offering up to 5,900,000 shares for up to $8,850,000 and on April 1, 2011, the Company entered into Securities Purchase Agreements with certain other institutional and accredited investors, pursuant to which the Company issued 1,381,002 shares of Series E Preferred Stock for an aggregate cash purchase price of approximately $2,071,500.  In aggregate, the Company has issued 5,698,841 shares of Series E Preferred Stock for an aggregate cash purchase price of $8,548,250.





Item 6.     Exhibits.




Exhibit Number

Description of Exhibit*31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





* filed herewith.


-23-





SIGNATURES





In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





NFINANSE INC.Date: May 16, 2011
By:
/s/ Jerry R. WelchJerry R. Welch

Chief Executive Officer and Chairman of the Board of Directors

(Principal Executive Officer)





NFINANSE INC.Date:  May 16, 2011
By:
/s/ Raymond P. SpringerRaymond P. Springer

Chief Financial Officer

(Principal Financial Officer)





NFINANSE INC.Date:  May 16, 2011
By:
/s/ Jerome A. KollarJerome A. Kollar

Vice President Finance and Controller

(Principal Accounting Officer)





-24-