FNDS3000 Corp Issues CEO Letter to Stockholders Highlighting Strategic Achievements and Progress in South Africa
-- Company passes the milestone of 100,000 distributed cards to corporate clients. However, final distribution of cards to cardholders has been slower than expected.
-- Over $3 million has been loaded onto our prepaid cards through February 2010.
PR Newswire
JACKSONVILLE, Fla., March 18
JACKSONVILLE, Fla., March 18 /PRNewswire-FirstCall/ --
FNDS3000 Corp (OTC Bulletin Board: FDTC) (Frankfurt: "FT4," A0MWLG), a financial transaction processing services company, currently introducing prepaid card programs to the South African market, today announced that Chief Executive Officer, John Hancock, has released a letter to stockholders, in which he reviews the strategic achievements and progress of the Company.
Dear Fellow FNDS3000 Corp Stockholders:
Thank you for your continuing support of FNDS3000 Corp. Today, I would like to highlight a few of the Company achievements and brief you on our current activities and growth opportunities as it appears that 2010 will be a pivotal year for your Company. Over the last year or so, our accomplishments, which included developing an infrastructure, systems and new products did take time, but the potential return of future rewards can be dramatically positive. Our platform is solidly in place and will be the cornerstone of our growth in 2010 and beyond.
CORPORATE HIGHLIGHTS
In September 2008, we achieved the distinction of being certified as a third party processing company by MasterCard in South Africa. In the first half of 2009, we established a corporate office in South Africa and assembled our infrastructure, through strategic staff additions, establishing customer service operations and developing the local-market required functionality of our system.In August 2009, we completed the Pilot Test Phase, with the initial distribution of approximately 10,000 prepaid cards to corporate clients. During this phase, we implemented further product enhancements, together with more comprehensive customer service operations and advanced fraud prevention protocols, all of which were essential in assuring that the system was fit for purpose. In 2009, the Company implemented a mobile banking solution for the South Africa/African market.Our comprehensive test phases demonstrated stability and validated the processes and systems that are required to handle the higher volume of prepaid cards to be processed during the Production Roll-Out. During these phases, we tested, developed and enhanced our systems, processes, infrastructure and the operational team. This process included extensive internal testing and validation. Our sponsor bank was actively involved in the validation of our procedures and our electronic funds transfer system was reviewed by the staff of one of the top international auditing firms. In December 2009, we concluded the Market Test Phase and commenced the Production Roll-Out of our South African operations.These achievements did not raise any material problems which would cause us to question our confidence in our business model. Toward the end of the year, our distributors and corporate clients encountered logistical and procedural delays in distributing cards to cardholders. We found the process significantly slower than expected. This impacted the speed and rate of card activation. As a result, the Company refocused staff on supporting and assisting distributors and corporate clients in meeting this challenge. CURRENT ACTIVITIES AND BUSINESS METRICS
CARDS DISTRIBUTED, ACTIVATION AND CORPORATE CLIENTS
The second quarter of fiscal 2010 began in December 2009 as we entered the full production roll-out of our prepaid cards. As of January 2010, we have exceeded the level of 100,000 cards distributed to corporate clients which was called for in a financing covenant with our lead investor.
Our prepaid cards are distributed to corporate clients via the distributor network. After the cards are delivered to distributors, the next phase is that our distributors utilize internal processes to support our corporate clients in rolling out cards to the end-user cardholders. Distributors and corporate clients have experienced delays in this final process. The onward transmission to end-users has been a challenge. Approximately 10,000 cards have been activated since inception and the activation speed and rate has been much slower than anticipated. We are focusing our corporate resources in supporting customers and distributors in carrying out this task. We expect that the majority of distributed cards will be activated over time.
Our customer base has steadily increased. In August 2009, we announced that we had executed agreements with 11 corporate clients. As of today, our sponsor bank has approved card programs for 39 corporate customers. We have submitted another 15 corporate customer applications.
BREADTH OF CARD OFFERINGS
Our South African prepaid card programs initially envisioned a payroll prepaid card program. Today, our offerings include, in addition to payroll programs, micro-lending, debt rescheduling and management programs, commission and gratuity cards. Our system is capable of meeting the current mobile banking needs of our customers and can be further developed to provide for anticipated requirements. More recently, the Company has piloted card programs with seven established micro lenders, for whom the opportunity to lend small sums on a card rather than via cash provides significant security and cost advantages.
In addition, we have commenced implementation of unbranded "closed loop" cards into our product offerings. A closed loop card is a non branded card that can be used only in pre-defined group of stores or within communities which install their own acquiring infrastructure. We see a significant opportunity in this segment for a higher volume of cards. The sources of revenue and margins of closed loop card programs are different in comparison to our branded offerings. We are working with several South African retailers to potentially roll-out closed loop card programs by mid-2010.
CARD LOAD / SYSTEM PERFORMANCE
Since August 2009 through February 28, 2010, our corporate customers have loaded approximately 25 million rands (over US $3 million at current exchange rates) onto our prepaid cards.
Our system has performed as expected through February 28, 2010 and the incidence of fraud is well within expected limits.
REVENUE AND MARGINS
In the first fiscal quarter of 2010, we realized revenues of $77,695. While a modest figure, this is an important milestone in the development of our Company.
Revenue is only generated when cards are activated and hence, the speed and rate of the activation of our prepaid cards is our most critical corporate priority in the evolution of our business. In addition to our corporate clients, our distributors have experienced a significant learning curve in the support required for the activation process. Our future revenue growth depends on card activation and we have identified additional resources to resolve this issue expeditiously. The Company refocused staff on supporting and assisting distributors and corporate clients in meeting this challenge.
During the first fiscal half of 2010, revenue generated per card exceeded our earlier expectations of $5 per card per month. Costs were broadly in line with expectation. Margins per card, being the difference between revenue and cost, were not forecasted specifically. However, at this early stage of customer card utilization, we believe margin trends are encouraging. A definitive margin ratio will emerge from the specific mix of actual future card profiles as more cards are activated.
GROWTH OPPORTUNITIES
The marketplace for our prepaid card programs remains as attractive today as it was at the inception of the Company. The population of South Africa is around 50 million people and it is reported to be growing rapidly.
MARKET PROSPECT
The Company selected South Africa as the initial location to build its business, and we have seen no reason to change our view of the opportunity. The ability to customize programs that utilize our cards' extensive functionality, and the flexibility of our platform, is in our opinion, a competitive strength and we currently are not aware of significant competitors in the South African market with the same functionalities and product offerings. Though at an early stage, we are pleased with the customer reaction to the functions and benefits of our card.
We continue to identify further opportunities, for example, we have in process an additional 15 micro lending corporate applications. Although there is no guarantee that these opportunities will generate revenue, we view this as a particularly attractive growth sector.
Management cannot be specific on its aspirations at this early stage, but given the experiences so far, we see the South African market as a center of excellence, with a sophisticated banking system, which we feel provides a solid opportunity for growth. We expect to add a significant number of cards for the remainder of 2010 and we will report as new milestones are achieved as the volume of distributed and activated cards increases.
FINANCING
To date, the Company has raised approximately $11 million in capital in an extraordinary credit environment. This investment has been used to establish a solid corporate base while quickly building a presence in the South African market.
While delays in testing have negatively affected our cash flow in our early stages of development, the enhancements to our system and offerings have undoubtedly strengthened our position. There is a need to secure additional funds to cover operational expenses due to delays in launching the production roll-out in the latter half of 2009, as noted above, as we work towards positive cash flow.
Whatever financing proposals emerge, we will require to obtain consent from Sherington Holdings, LLC. We cannot today provide any guarantee that we will successfully close such financing or that such financing, if closed, will be on reasonable terms.
SUMMARY
FNDS3000 Corp is now in production roll-out, the most exciting phase of a company start up, and I feel privileged to lead the Company at this time. A total investment of approximately $11 million has financed the identification and entry into an attractive market place. This has included licensing and customization of a U.S. software platform, extensive IT development, setting up a solid corporate center in South Africa, recruitment of experienced senior executives in relevant disciplines such as the card industry, IT, fraud prevention, and customer service. We have obtained the support of a bank, certification of one of the top international card brands, regulatory approval and a network of distributors who have delivered contracted customers.
We have a major challenge, and it is not to be underestimated. The problem is one of logistics; that the extent of the effort involved in moving the 100,000 plus cards purchased by our corporate clients into the hands of their cardholders has been a disappointment. Our clients bought the cards because they have a need to transfer funds efficiently to individuals, and thus we know they are motivated to overcome the problems. We are working increasingly closely with them and providing additional support. I have redirected corporate effort to complete this roll out. Our currently contracted customers represent a significant opportunity and I am confident that we can provide the continuing support that will take on this challenge . In the meantime, we will seek additional investment while we fully execute these plans.
Sincerely,
John Hancock
Chief Executive Officer
FNDS3000 Corp
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