- Quarterly Report (10-Q)

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 ended September 30, 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 107
Tampa, 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

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

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

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date : 31,877,770 shares of common stock, $0.001 par value, outstanding as of November 3, 2011.

nFinanSe Inc.
Table of Contents
			Page No.
NOTE REGARDING FORWARD LOOKING STATEMENTS			1

PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements:
		Consolidated Balance Sheets as of September 30, 2011 (unaudited) and January 1, 2011 (audited)	2
		Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2011 and October 2, 2010	3
		Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2011 and October 2, 2010	4
		Notes to Consolidated Financial Statements (unaudited)	5

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		17
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.		23
	Item 4T. Controls and Procedures.		23
PART II - OTHER INFORMATION
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		24

	Item 6. Exhibits.		24

SIGNATURES			26

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 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 quarterly report are in U.S. dollars unless otherwise stated.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

nFinanSe Inc.

CONSOLIDATED BALANCE SHEETS

	September 30,			January 1,
	2011			2011
ASSETS	(Unaudited)			(Audited)
CURRENT ASSETS:
Cash and cash equivalents	$	1,517,938		$	1,073,762
Restricted cash		1,691,793			817,166
Receivables:
Accounts (net of allowance for doubtful accounts of $0)		650,826			317,906
Other (net of allowance for doubtful accounts of $27,230 and $7,230, respectively)		320,999			218,727
Prepaid expenses and other current assets, including prepaid marketing costs of approximately $44,400 and $177,600, respectively		384,064			577,174
Prepaid card supply		301,463			719,192
Total current assets		4,867,083			3,723,927

PROPERTY AND EQUIPMENT		201,248			284,696

OTHER ASSETS		52,520			52,520

TOTAL ASSETS	$	5,120,851		$	4,061,143

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	889,542		$	975,742
Accrued personnel costs		162,389			100,509
Credit facility loans outstanding		2,000,000			1,000,000
Deferred revenues		12,500			51,875
Other accrued liabilities		53,340			61,247
Total current liabilities		3,117,771			2,189,373

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock - $.001 par value: 35,000,000 shares authorized; 23,001,997 and 20,275,993 shares issued and outstanding on September 30, 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 $7,779,954 and $7,690,565 (including undeclared accumulated dividends in arrears of $279,470 and $190,081) as of September 30, 2011 and January 1, 2011, respectively		7,500			7,500
Series 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 September 30, 2011 and January 1, 2011		1,000			1,000
Series 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 September 30, 2011 and January 1, 2011		4,038			4,038
Series 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 September 30, 2011 and January 1, 2011		4,332			4,332
Series E Convertible Preferred Stock – 7,900,000 and 4,333,340 shares authorized at September 30, 2011 and January 1, 2011, respectively; 7,558,898 and 3,406,171 shares issued and outstanding with a liquidation value of $34,015,041 and $15,327,770 at September 30, 2011 and January 1, 2011, respectively		6,959			3,406
Common stock - $0.001 par value: 250,000,000 shares authorized; 31,877,770 and 26,196,714 shares issued and outstanding as of September 30, 2011 and January 1, 2011, respectively		31,878			26,197
Preferred Stock – Subscribed		600
Subscribed Receivable – Preferred Stock		(900,000	)
Additional paid-in capital		84,656,266			77,729,173
Accumulated deficit		(81,809,493	)		(75,903,876	)
Total stockholders’ equity		2,003,080			1,871,770
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,120,851		$	4,061,143

See notes to consolidated financial statements.

nFinanSe Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended September 30, 2011			For the three months ended October 2, 2010			For the nine months ended September 30, 2011			For the nine months ended October 2, 2010
Operating revenues:
Card revenues	$	951,417		$	282,021		$	2,540,479		$	570,650
Reload revenues		273,849			52,752			624,639			119,307
Interchange revenues		275,399			69,426			703,731			153,437
Retailer incentive compensation		(37,500	)		(30,000	)		(112,500	)		(90,000	)
Total operating revenues		1,463,165			374,199			3,756,349			753,394

Operating expenses:
Sales and marketing expenses		917,134			447,618			2,531,336			1,773,127
Compensation and benefits expenses		1,122,502			1,260,450			3,749,721			3,767,059
Processing expenses		353,468			170,074			1,068,177			422,198
Other general and administrative expenses		533,908			603,072			1,710,565			1,805,979
Total operating expenses		2,927,012			2,481,214			9,059,799			7,768,363

Loss before other expense		(1,463,847	)		(2,107,015	)		(5,303,450	)		(7,014,969	)

Other expense:
Interest expense		(170,334	)		(51,025	)		(413,113	)		(97,725	)
Interest income		-			47			-			134
Total other expense		(170,334	)		(50,978	)		(413,113	)		(97,591	)

Net loss		(1,634,181	)		(2,157,993	)		(5,716,563	)		(7,112,560	)
Dividends paid on Series A Convertible Preferred Stock		-			-			-			(185,971	)
Undeclared and unpaid dividends on Series A Convertible Preferred Stock		(91,444	)		(93,499	)		(279,470	)		(96,582	)
Net loss attributable to common stockholders	$	(1,725,625	)	$	(2,251,492	)	$	(5,996,033	)	$	(7,395,113	)

Net loss per share - basic and diluted:
Total net loss per share	$	(0.05	)	$	(0.08	)	$	(0.19	)	$	(0.29	)
Weighted average number of shares outstanding		31,877,770			29,977,770			30,772,396			25,595,889

See notes to consolidated financial statements.

nFinanSe Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the nine month period ended September 30, 2011			For the nine month period ended October 2, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,716,563	)	$	(7,112,560	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		144,550			165,159
Provision for prepaid card supply obsolescence		610,395			1,022,943
Stock based compensation and consulting		503,650			533,661
Non-cash interest expense					46,667
Changes in assets and liabilities, net:
Restricted cash		(874,627	)		3,319
Receivables		(435,192	)		(113,606	)
Prepaid card supply		(192,666	)		(191,540	)
Prepaid expenses and other current assets		193,110			(67,297	)
Other assets		-			(27,584	)
Accounts payable and accrued liabilities		(32,228	)		333,805
Deferred revenues		(39,375	)		(1,667	)
NET CASH USED IN OPERATING ACTIVITIES		(5,838,946	)		(5,408,700	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(61,102	)		(51,192	)
NET CASH USED IN INVESTING ACTIVITIES		(61,102	)		(51,192	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series E Convertible Preferred Stock		5,329,083			3,109,000
Proceeds from issuance of Series D Convertible Preferred Stock		-			500,000
Proceeds from borrowings		1,250,000			-
Repayments of notes payable		(250,000	)		-
Payments for stock issuance costs		(3,859	)		(23,750	)
Proceeds from the exercise of Warrants		19,000			17,031
NET CASH PROVIDED BY FINANCING ACTIVITIES		6,344,224			3,602,281


NET CHANGE IN CASH AND CASH EQUIVALENTS		444,176		(1,857,611	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,073,762		3,794,788

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,517,938	$	1,937,177


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	242,780	$	51,058

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Warrants exchanged for Common Stock	$	-	$	9,998
Dividends on Series A Convertible Stock Preferred Stock	$	189,054	$	560,995
Increase in Preferred Stock Subscribed, Subscribed Receivable – Preferred Stock, and Additional Paid in Capital	$	900,000	$	-

See notes to consolidated financial statements.

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 subsidiary, nFinanSe Payments Inc. (collectively, the “ Company ,” “ we ,” “ us ,” or “ our ”).

The Company is a provider of prepaid access through the sale of General Purpose Reloadable (“GPR”) cards, payroll cards and gift cards (together referred to herein as “Cards”) across a wide variety of markets, including grocery stores, convenience stores, general merchandise stores and direct to customer through on-line or direct marketing activities. We believe prepaid access is 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 September 30, 2011 and January 1, 2011, its results of operations for the three and nine months ended September 30, 2011 (“ 3Q2011 ”and “ 9 Months 2011 ”, respectively) and for the three and nine months ended October 2, 2010 (“ 3Q2010 ” and “ 9 Months 2010 ”, respectively) and its cash flows for the 9 Months 2011 and the 9 Months 2010. Operating results for the 9 Months 2011 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 3Q2010 and the 9 Months 2010, the Company was considered to be a development stage company because we were continuing to develop our planned principal operations and because our revenues had been minimal. During the fourth quarter of fiscal 2010, management concluded that the Company no longer operates as a development stage enterprise.

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” Securities and Exchange “ 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 access 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 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 as of December 2010 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 distributing agents are recorded as sales and marketing expense. Maintenance fees are recorded at the amount collected and any sharing percentage with distributing agents 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.

The following financial statement line items for 3Q2010 and the 9 Months 2010 were affected by the change in accounting:

Statement of operations 3Q2010:
	As computed prior to change in accounting			As computed under changes			Effect of Change
Total operating revenues	$	208,708		$	374,199		$	165,491
Total operating expenses	$	2,315,723		$	2,481,214		$	165,491
Loss before other expense	$	(2,107,015	)	$	(2,107,015	)	$	-

Statement of operations 9 Months 2010:

	As computed prior to change in accounting			As computed under changes			Effect of Change
Total operating revenues	$	373,872		$	753,394		$	379,522
Total operating expenses	$	7,388,841		$	7,768,363		$	379,522
Loss before other expense	$	(7,014,969	)	$	(7,014,969	)	$	-

Statement of cash flows 9 Months 2010:
	As computed prior to change in accounting			As computed under changes			Effect of Change
Provision for inventory obsolescence	$	1,022,943		$	-		$	(1,022,943	)
Provision for prepaid card supply obsolescence	$	-		$	1,022,943		$	1,022,943
Net cash used in operating activities	$	(5,408,700	)	$	(5,408,700	)	$	-

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 September 30, 2011 and January 1, 2011 relate to loan advances on our credit facility, as described in Note C – Credit Facility and amounts received from the card networks to fund unauthorized cardholder purchases. Restricted cash amounted to approximately $1,691,800 and $817,000, at September 30, 2011 and January 1, 2011, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

Our credit terms to our distributing agents for the load value of Cards and our portion of the fees collected at retail vary by agreement 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 GPR 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 Cards are typically prepaid card distributors and large multi-unit retailers. We perform ongoing credit evaluations of our distributing agents and, with the exception of some minimum cash balances, we generally do not require collateral.

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 distributing agents’ ability to pay, 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 either as (i) a receivable for items we expect to collect through the applicable Card Association or (ii) as bad debt expense for those items we do not deem to be recoverable. Bad debt expense is included in other general and administrative expenses in the accompanying statements 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 the 9 Months 2011 or the 9 Months 2010.

As of September 30, 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 Card 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.

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 reloads are purchased.

We earn interchange revenues from the relevant Card Association each time one of our cardholders makes a purchase using one of our Cards. The fees are based upon rates established by each of the Card Associations.

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 accounting industry 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 retailer agents 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 distributing agents and retailers, advertising and marketing expenses, and the costs of manufacturing and distributing Card packages and promotional materials to our distributing agents and retailers.

We generally establish the sales fees and commissions in agreements with our distributing agents and we pay our distributing agents based on sales of our Cards and any reload services performed by their retail partners.

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 $81,400 and $226,400 during the 9 months 2011 and the 9 months 2010, respectively. At September 30, 2011 and January 1, 2011, we had approximately $44,400 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. Included in our manufacturing and distributing costs were shipping and handling costs. Also included in our manufacturing and distributing costs was the liability for use tax to various states related to use of materials for which no sales tax was paid.

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 3Q2010 and the 9 Months 2010 has been adjusted in accordance with ASC 260 “Earnings per Share,” for the 6,437,774 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) issued as payment of the Series A Preferred Stock dividends.

The following table lists the total of the Company’s Common Stock and our common stock equivalents outstanding at September 30, 2011:

Description	Shares of Common Stock and Common Stock Equivalents Outstanding

Common Stock		31,877,770
Series A Convertible Preferred Stock *		7,500,484
Series B Convertible Preferred Stock *		1,000,000
Series C Convertible Preferred Stock *		4,037,500
Series D Convertible Preferred Stock *		43,318,380
Series E Convertible Preferred Stock *		75,588,980
Stock Options		18,976,270
Warrants		42,809,431

Total		225,108,815
* 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 and we believe that cash balances held in non-interest bearing accounts are fully insured by the federal government. The Company has not experienced any such losses. 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 International, Inc. (“ 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.

The following table summarizes our stock-based compensation expense:

Stock-based compensation charged to:		3Q2011		3Q2010	9 Months 2011		9 Months 2010

Compensation and benefits expense	$	162,368	$	186,373	$	503,650	$	509,138
Other general and administrative expenses		-		-		-		24,523
Total stock-based compensation	$	162,368	$	186,373	$	503,650	$	533,661

For the 9 Months 2010, other general and administrative expenses include charges $7,099 to consulting expense for the cost of options issued in conjunction with an internet-based sales development agreement. In addition, Bruce E. Terker and Donald A. Harris were issued warrants in lieu of cash compensation for board of director fees, for which the cost of warrants issued was approximately $17,500.

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 approximately $279,470 as of September 30, 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 September 30, 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 September 2011, in order to fund our operations, we sold 4,152,727 shares of our Series E Preferred Stock for an aggregate cash purchase price of $6,229,083 (See Note E – Series E Preferred Stock Offering.) Because of our operating losses, we have a cash balance of approximately $1,517,900 as of September 30, 2011 and we expect to receive $900,000 for 600,000 shares of Series E Preferred Stock sold in September as subscribed. We may need to raise additional funds through the sale of Series E Preferred Stock during 2012. 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.

NOTE C - CREDIT FACILITY

On November 26, 2008, the Company and its wholly owned subsidiary, nFinanSe Payments Inc., entered into an Amended and Restated Loan and Security Agreement (the “Credit Facility”) with Ballyshannon Partners, L.P., Ballyshannon Family Partnership, L.P., Midsummer Investment, Ltd. , Porter Partners, L.P. and Trellus Partners, L.P. (collectively, the “ Lenders ”). Loans under the Credit Facility are to be used solely to make payments to our Card-issuing banks for credit to cardholder accounts until such time as we receive remittances of cardholder funds from our distributing agents. In October 2009, the Lenders approved the extension of maturity of the Credit Facility through May 25, 2010.

During 2010, the Company and its Lenders executed amendments to the Credit Facility primarily to extend its maturity and to amend the aggregate maximum commitment to $10.5 million. On March 3, 2011, the Company entered into that certain Ninth Amendment to the Credit Facility (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 Credit Facility to December 31, 2011; amended the aggregate commitment to $3.5 million; and amended the rate of interest to 12% on loan amounts outstanding. Additionally, 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.

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 Credit Facility).

As of September 30, 2011 and January 1, 2011, the Company had drawn $2,000,000 and $1,000,000, respectively, in loans under the Credit Facility.

In June 2011, Porter Partners, L.P. was repaid $250,000 of loans previously advanced which reduced the aggregate commitment to $3.25 million. Porter Partners, L.P. purchased $250,000 of Series E Preferred Stock on June 30, 2011.

Mr. Bruce Terker, a current member of the Board, has sole voting and dispositive power over the securities held by Ballyshannon Partners, L.P. Ballyshannon Partners, L.P. is the lender agent named in the Credit Facility. Mr. Donald Harris, a current member of the Board, has sole voting and dispositive power over the securities held by 5 Star Partnership. 5 Star Partnership is a lender named in the Credit Facility.

NOTE D - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

Description	September 30, 2011			January 1, 2011
Furniture, fixtures and equipment	$	1,061,103		$	1,012,599
Computer software		198,491			185,893
Leasehold improvements		196,840			196,840
		1,456,434			1,395,332
Less accumulated depreciation and amortization		(1,255,186	)		(1,110,636	)
Property and equipment – net	$	201,248		$	284,696

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 May 31, 2011, the Board amended the offering up to 7,900,000 shares for $11,850,000. 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 “ 2010 Purchase Agreements ”), with several institutional and accredited 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 into Securities 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 Price
July 8, 2010		333,334	$	500,001
August 10, 2010		400,000		600,000
September 7, 2010		1,116,670		1,675,000
September 30, 2010		606,167		909,250
November 24, 2010		366,666		550,000
December 31, 2010		583,334		875,000
March 11, 2011		911,668		1,367,500
April 1, 2011		1,381,002		2,071,500
June 30, 2011		433,334		650,000
September 30, 2011		1,426,723		2,140,083
Totals as of September 30, 2011		7,558,898	$	11,338,334

As of September 30, 2011, the Company has sold 7,558,898 shares of its Series E Preferred Stock for an aggregate cash purchase price of $10,438,334.

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. 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 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.

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 shares that were issued and outstanding under the Company’s 2004 Stock Option Plan with shares to be made available for issuance under the 2007 Plan. At each of the Company’s Annual Meetings held on May 8, 2008, June 17, 2010, and May 25, 2011, the Company’s stockholders voted to amend the 2007 Plan by increasing the number of authorized shares available for issuance by 1,000,000 shares, 9,790,150 shares and 7,000,000 shares, respectively, thus providing a total of 20,800,000 shares for issuance under the 2007 Plan. As of September 30, 2011, we had 18,976,270 total options outstanding under the 2007 Plan, consisting of 18,876,270 options issued to employees and non-employee directors and 100,000 options issued to a consultant and 1,823,730 shares available for future option grants. Such outstanding options vest over various periods up to three years and expire on various dates through 2021.

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 9 Months 2011 and the 9 Months 2010:

	9 Months 2011			9 Months 2010
Expected term in years		5			5
Expected stock price volatility		281	%		168	%
Risk free interest rate		1.98	%		2.70	%
Dividend yield		0	%		0	%

Stock options totaling 6,850,000 were granted by the Board in January 2011 which was approved by the stockholders at the Annual Meeting held on May 25, 2011. 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 9 Months 2011:

	Number of Options			Weighted average exercise price per share (price at date of grant)
Outstanding at January 1, 2011		12,474,605		$	0.77
Granted		7,979,000		$	0.50
Cancelled		(1,477,335	)	$	2.69
Outstanding at September 30, 2011		18,976,270		$	0.51

Options granted at or above market value in the 9 Months 2011		7,979,000

The following table summarizes information regarding options that are outstanding at September 30, 2011:

		Options outstanding						Options exercisable

Range 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		18,860,165		8.4	$	0.50		8,997,867	$	0.50
$	0.75-$2.20		86,605		6.7	$	1.26		84,854	$	1.27
$	3.20-$8.40		29,500		5.5	$	4.25		29,500	$	4.25

			18,976,270		8.4	$	0.51		9,112,221	$	0.52

The grant-date fair value of options granted during the 9 Months 2011 and the 9 Months 2010 was approximately $710,000 and $873,000, respectively. The total fair value of shares vested during the 9 Months 2011 was approximately $504,000. At September 30, 2011, we estimate the aggregate stock-based compensation attributable to unvested options was approximately $752,000, which amount is expected to be recognized over a period of approximately three years.

Officer Stock Options

On July 1, 2011, the Company awarded a total of 45,000 stock options to two 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 $1,300. The options were 100% vested at date of grant. The fair value of these options was recognized as stock-based compensation expense during 3Q2011.

On January 27, 2011, the Board awarded a total of 6,850,000 stock options to six 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 $614,000. These grants were approved by stockholders at the Company’s Annual Meeting held on May 25, 2011.The options vest ratably over ten calendar quarters beginning April 27, 2011. The fair value of these options is being recognized as stock-based compensation expense over the vesting period of the options.

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 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.

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 Meeting held on June 17, 2010.

Non-Employee Director Options

In July 2010, 80,000 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.

In May 2010, 222,282 options were issued to each of Mr. Harris and Mr. 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 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 for the 9 Months 2010.

Outstanding Warrants

The following table summarizes our warrant activity during the 9 Months 2011:

	Number of Warrants			Weighted average exercise price per share (price at date of grant)
Outstanding at January 1, 2011		44,746,931		$	0.08
Exercised		(1,900,000	)	$	0.01
Expired		(37,500	)	$	5.00
Outstanding at September 30, 2011		42,809,431		$	0.07

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 December 28, 2011 through November 30, 2014
$	0.30		256,250	June 29, 2012 and June 12, 2013
$	1.20		5,000	November 22, 2011
$	2.30		883,475	June 29, 2012 and June 12, 2013
$	2.53		54,575	June 12, 2013
$	5.00		105,000	June 29, 2012
$	0.07		42,809,431

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 September 30, 2011

Twelve months ending	Amounts

September 2012	$	208,400
September 2013 and after		-

Total	$	208,400

Rent expense included in net loss for the 9 Months 2011 and the 9 Months 2010, was approximately $164,100 and $171,200, respectively.

Employment Agreements

We are obligated under employment agreements with our Chief Executive Officer, Jerry R. Welch, and our Chief Financial Officer, Raymond P. Springer. Each employment agreement had an initial term from September 5, 2006 to December 31, 2008 and is 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 receive certain medical and other benefits and are eligible to earn performance-based bonuses. 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, First California Bank (“ FCB ”) ( formerly Palm Desert National Bank which sold its prepaid operations to FCB in April 2011), The Bancorp, Inc. (“ Bancorp ”) and First Bank & Trust (“ FB&T ”), our Card-issuing banks, Fidelity Information Services LLC (“ FIS ”) (formerly Metavante Corporation ), our processor, and American Express® Travel Related Services Company, Inc., a gift card program, that have initial expiration dates from February 28, 2013 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 FIS, FCB, 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 the 9 Months 2011 and the 9 Months 2010, we made aggregate payments of approximately $471,500 and $197,400, respectively, to FIS, $272,200 and $42,100, respectively, to FCB or its predecessor, $80,300 and $83,600, respectively, to FB&T and $10,000 and $0, respectively, to Bancorp under these agreements. The FB&T agreement has expired and the parties are cooperating to conclude operations by no later than November 30, 2011.

Our agreements with FCB, FB&T and Bancorp require us to maintain certain reserve balances for our Card programs. As of September 30, 2011 and January 1, 2011, the reserve balances held at FCB, 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 September 30, 2011 and January 1, 2011.

Pending or Threatened Litigation

On Monday, October 31, 2011 nFinanSe Inc. filed a civil complaint, No. 1:11-CV-3728, in the United States District Court for the Northern District of Georgia, against Interactive Communications International, Inc. (“InComm”) alleging claims for breach of contract and an antitrust conspiracy for per-se horizontal price-fixing. InComm, along with its recently acquired subsidiary formerly known as Coinstar E-Payment Services Inc., with whom we also have a distribution contract, is connected to nFinanSe retail agents representing more than 90% of our business. The Company is seeking a jury trial on all claims and issues, treble general and special damages, preliminary and permanent injunctive relief, costs and attorney’s fees, pre-judgment and post-judgment interest, and other relief as the Court deems proper. The lawsuit is in its initial stages and there can be no assurance that the Company will prevail.

Bond Collateral

We are 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. The total amount of the bonds 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 certain equity securities 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.

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

Overview. nFinanSe Inc. is a provider of prepaid access, through the sale of GPR and Cards across 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 prepaid access is a fast-growing product segment in the financial services industry. At September 30, 2011, there were approximately 55,000 locations where our Cards could be loaded including approximately 15,000 retail locations currently selling our Cards.

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 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 effect on 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 access 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 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 as of December 2010 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 distributing agents are recorded as sales and marketing expense. Maintenance fees are recorded at the amount collected and any sharing percentage with distributing agents 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 3Q2010 and the 9 Months 2010 were affected by the change in accounting:

Statement of operations 3Q2010:
	As computed prior to change in accounting			As computed under changes			Effect of Change
Total operating revenues	$	208,708		$	374,199		$	165,491
Total operating expenses	$	2,315,723		$	2,481,214		$	165,491
Loss before other expense	$	(2,107,015	)	$	(2,107,015	)	$	-

Statement of operations 9 Months 2010:

	As computed prior to change in accounting			As computed under changes			Effect of Change
Total operating revenues	$	373,872		$	753,394		$	379,522
Total operating expenses	$	7,388,841		$	7,768,363		$	379,522
Loss before other expense	$	(7,014,969	)	$	(7,014,969	)	$	-

Statement of cash flows 9 Months 2010:
	As computed prior to change in accounting			As computed under changes			Effect of Change
Provision for inventory obsolescence	$	1,022,943		$	-		$	(1,022,943	)
Provision for prepaid card supply obsolescence	$	-		$	1,022,943		$	1,022,943
Net cash used in operating activities	$	(5,408,700	)	$	(5,408,700	)	$	-

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 or purchase a reload pack from one of our retail agents.
●	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:

	Fiscal
	3Q2011						3Q2010
	Amount			% of Total Operating Revenues			Amount			% of Total Operating Revenues

Operating revenues:
Card revenues	$	951,417			65.0	%	$	282,021			75.4	%
Reload revenues		273,849			18.7			52,752			14.1
Interchange revenues		275,399			18.8			69,426			18.5
Retailer incentive compensation		(37,500	)		(2.5	)		(30,000	)		(8.0	)

Total operating revenues	$	1,463,165			100.0	%	$	374,199			100.0	%

	Fiscal
	9 Months 2011						9 Months 2010
	Amount			% of Total Operating Revenues			Amount			% of Total Operating Revenues

Operating revenues:
Card revenues	$	2,540,479			67.6	%	$	570,650			75.7	%
Reload revenues		624,639			16.6			119,307			15.8
Interchange revenues		703,731			18.7			153,437			20.4
Retailer incentive compensation		(112,500	)		(2.9	)		(90,000	)		(11.9	)

Total operating revenues	$	3,756,349			100.0	%	$	753,394			100.0	%

Card Revenues

Card revenues totaled $951,417 and $2,540,479 for 3Q2011 and 9 Months 2011, respectively, an increase of $669,396, or 237%, over 3Q2010 and an increase of $1,969,829, or 345% over 9 Months 2010. The increase was primarily the result of period-over-period growth of 229% and 276% in the number of GPR cards activated and period-over-period growth of 231% and 288% in our average active Card base during 3Q2011 and 9 Months 2011, respectively. Approximately 15,000 additional retail agent locations began offering our Visa-branded cards during December 2010 and January 2011.

Reload Revenues

Reload revenues totaled $273,849 and $624,639 for 3Q2011 and 9 Months 2011, respectively, an increase of $221,096 or 419%, over 3Q2010 and an increase of $505,332, or 424% over 9 Months 2010. The increase was primarily the result of the period over period growth of 323% and 347% in the number of reloads sold during 3Q2011 and 9 Months 2011, respectively. The increase in reload volume was driven primarily by growth in our active Card base.

Interchange Revenues

Interchange revenues totaled $275,399 and $703,731 for 3Q2011 and 9 Months 2010, an increase of $205,773, or 296%, over 3Q2010 and an increase of $550,294, or 359% over 9 Months 2010. The increase was primarily the result of period-over-period growth of our active Card base and the 286% and 323% increase in dollars loaded on our cards during 3Q2011 and 9 Months 2011, respectively.

Retailer incentive compensation

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

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:

		3Q2011		3Q2010	Change
Operating expenses:
Sales and marketing expenses	$	917,134	$	447,618	$	469,516
Compensation and benefits expenses		1,122,502		1,260,450		(137,948	)
Processing expenses		353,468		170,074		183,394
Other general and administrative expenses		533,908		603,072		(69,164	)
Total operating expenses	$	2,927,012	$	2,481,214	$	445,798

	9 Months 2011		9 Months 2010		Change
Operating expenses:
Sales and marketing expenses	$	2,531,336	$	1,773,127	$	758,209
Compensation and benefits expenses		3,749,721		3,767,059		(17,338	)
Processing expenses		1,068,177		422,198		645,979
Other general and administrative expenses		1,710,565		1,805,979		(95,414	)
Total operating expenses	$	9,059,799	$	7,768,363	$	1,291,436

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of the sales fees and commissions paid to or retained by our distributing agents and retailers for sales of our 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 distributing agents 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 distributing agents, 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 $917,134 and $2,531,336 for 3Q2011 and 9 Months 2011, respectively, an increase of $469,516, or 105%, from 3Q2010 and an increase of $758,209, or 43% for 9 Months 2010. Sales fees and commissions paid to or retained by our distributing agents and retailers increased $463.804 and $1,267,366, for 3Q2011 and 9 Months 2011, respectively. The increases are due to increases in Card sales and reloads discussed above.

Advertising and marketing expenses increased $1,464 for 3Q2011 and decreased approximately $145,100 for the 9 Months 2011. The increase of advertising & marketing expenses for 3Q2011 is due to an increase in trade shows and promo materials slightly offset by a decrease in media and agency expenses. The decrease in expenses for 9 Months 2011 is due primarily to lower agency and media expenses of $170,400.

Manufacturing and distribution expenses increased $4,248for 3Q2011 and decreased $364,077, for 9 Months 2011. The overall decrease for the 9 months is due to reduced expense in amortization of prepaid card supply.

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 $1,122,502 and $3,749,721 for 3Q2011 and 9 Months, respectively, a decrease of $137,948, or 10.9% over 3Q2010 and a decrease of $17,338, or 0.4% over 9 Months 2010. The change was primarily due to net reductions in administrative departments of $169,441 and $281,024, respectively, offset by increases in cost related to additional customer service personnel of approximately $31,490 and $263,685, over 3Q2010 and 9 Months2010, respectively. The additional customer service representatives were needed to support the increase in Card sales and to service our 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 DFS, 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 $353,468 and $1,068,177 for 3Q2011 and 9 Months 2011, respectively, an increase of $183,394, or 108%, compared to 3Q2010 and $645,979, or 153%, compared to 9 Months 2010. Charges for “cards on file” increased by $49,131, or 75%, for 3Q2011 and $252,777, or 173%, for 9 Months 2010, primarily due to our increased number of active cards. Transactional and other charges on activated Cards increased approximately $134,262 or 128% in 3Q2011 from 3Q2010 and $393,202 or 142% in 9 Months 2011 from 9 Months 2010. 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 and Card-issuing banks.

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 unauthorized purchase transactions 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 $533,908 for 3Q2011 and $1,710,565 for 9 Months 2011, a decrease of $69,164, or 11%, from 3Q2010 and a decrease of $95,413, or 5% from 9 Months 2010. This decrease is composed of the following variances:

Category		3Q2011		3Q2010	Change
Professional fees	$	93,198	$	113,140	$	(19,942	)
Occupancy and related expenses		261,527		282,266		(20,739	)
Business travel expenses		35,933		72,188		(36,255	)
Other office expenses		143,250		135,478		7,772
Total	$	533,908	$	603,072	$	(69,164	)

Category	9 Months 2011		9 Months 2010		Change
Professional fees	$	302,119	$	400,886	$	(98,767	)
Occupancy and related expenses		834,562		827,939		6,623
Business travel expenses		183,019		229,825		(46,805	)
Other office expenses		390,865		347,329		43,536
Total	$	1,710,565	$	1,805,979	$	(95,413	)

Liquidity and Capital Resources

Net cash used in operating activities was approximately $5.8 million and $5.4 million for the 9 Months 2011 and the 9 Months 2010, respectively. The increase in cash used in operating activities was primarily due to increased card load volumes which impact our restricted cash balance and accounts receivable 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 the 9 Months 2011 when compared to the 9 Months 2010.

Net cash used in investment activities for the 9 Months 2011was approximately $61,100 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 9 Months 2010 was approximately $51,200 consisting of purchases of property and equipment, primarily for additional computer hardware to improve the capacity of the nFinanSe Network.

As described in Note C to our consolidated financial statements, on November 26, 2008, the Company and its wholly owned subsidiary, nFinanSe Payments Inc., entered into the Credit Facility with the Lenders. The maturity date of the notes issued pursuant to the Credit Facility was November 25, 2009, one year after the initial borrowing. 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 Credit Facility. The Credit Facility 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 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 9 Months 2011, financing activities included net borrowings of $1,000,000, $5,329,083 from the sale of 4,152,727 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 $3,089 in costs incurred for the Series E Preferred Stock offering. During the 9 Months 2010, cash provided by financing activities was $3,602,281 from the cash exercise of 1,703,146 warrants at an exercise price of $0.01 per share, the sale of 333,334 shares of Series D Preferred Stock, and the sale of 2,122,837 shares of Series E Preferred Stock. As of September 30, 2011, we had drawn $2,000,000 under the Credit Facility.

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.

Off-Balance Sheet Arrangements:

Operating Leases

Twelve months ending	Amounts

September 2012	$	208,400
September 2013 and after		-

Total	$	208,400

Employment Agreements

Service and Purchase Agreements

We have entered into renewable contracts with DFS and VISA, our Card networks, FCB, Bancorp and FB&T, our Card-issuing banks, FIS, our processor, and American Express® Travel Related Services Company, Inc., a gift card program, that have initial expiration dates from February 28, 2013 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 FIS, FCB, 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 the 9 Months 2011 and the 9 Months 2010, we made aggregate payments of approximately $471,500 and $197,400, respectively, to FIS, 272,200 and $42,100, respectively, to FCB or its predecessor, $80,300 and $83,600, respectively, to FB&T and $10,000 and $12,350, respectively, to Bancorp under these agreements. The FB&T agreement has expired and the parties are cooperating to conclude operations by no later than November 30, 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

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.

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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 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.

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 and processing capacity. Any capital restrictions or delays in our plans to replace or upgrade 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.

Information system processing interruptions as the result of vendor support failure of our licensed software 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 contains some licensed proprietary software. If the software vendor is unable to support and or maintain the vendor’s proprietary software then system failures may result. These system 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 March 29, 2011, the Board amended the offering up to 5,900,000 shares for up to $8,850,000. On May 31, 2011, the Board amended the offering up to 7,900,000 shares for $11,850,000.

On September 30, 2011, the Company entered into Securities Purchase Agreements with certain institutional and accredited investors, for the sale of an additional 1,426,723 shares of Series E Preferred Stock for an aggregate cash purchase price of $2,140,083. As of September 30, 2011, the Company has sold 7,558,898 shares of its Series E Preferred Stock for an aggregate cash purchase price of $11,338,334.

The proceeds are to be used for Company operations.

Item 5. Other Information

Preferred Stock

In connection with negotiating and completing the Company’s offering of its Series E Preferred Stock, discussions with potential investors and legal counsel revealed the following errors and omissions to the Series E Preferred Stock’s Certificate of Designations, Rights and Preferences:

●

Section 3(a) Rights on Liquidation : An event of Liquidation was corrected to include the omitted words “merger or sale of all or substantially all of the assets or securities of the Corporation ”;

●

Section 4(a) Actions Requiring the Consent of Holders of Series E Convertible Preferred Stock : The consent of holders of shares outstanding was corrected from 33% to a majority for effecting or validating certain enumerated actions; and

●

Section 5(e) Conversion Value : The initial conversion value was corrected from $0.15 to $0.45.

The above-listed corrections were made on November 10, 2011 by filing a Certificate of Correction with the State of Nevada.

The Company’s other classes of preferred stock include many of the same sections and definitions. It was determined that the section on Rights of Liquidation in the applicable Certificate of Designations, Rights and Preferences included the same error in describing an event of liquidation. Accordingly, a Certificate of Correction was filed on November 10, 2011 with the State of Nevada for the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock to add the omitted words as noted in the first bullet point above.

Pending or Threatened Litigation

Item 6. Exhibits.

Exhibit Number		Description of Exhibit

*3.1		Certificate of Amendment to Articles of Incorporation, filed with the State of Nevada on July 7, 2011

3.2		Certificate of Correction to the Certificate of Amendment of the Statement of Designations, Rights and Preferences of the Series E Convertible Preferred Stock, filed on July 7, 2011 (incorporated by reference from Exhibit 3.1 to the Company’s Current report on Form 8-K, filed by the Company on July 12, 2011)

*3.3		Certificate of Correction to the Statement of Designations, Rights and Preferences of the Series A Convertible Preferred Stock, filed on November 10, 2011

*3.4		Certificate of Correction to the Statement of Designations, Rights and Preferences of the Series B Convertible Preferred Stock, filed on November 10, 2011

*3.5		Certificate of Correction to the Statement of Designations, Rights and Preferences of the Series C Convertible Preferred Stock, filed on November 10, 2011

*3.6		Certificate of Correction to the Statement of Designations, Rights and Preferences of the Series D Convertible Preferred Stock, filed on November 10, 2011

*3.7		Certificate of Correction to the Statement of Designations, Rights and Preferences of the Series E Convertible Preferred Stock, filed on November 10, 2011

10.1		Form of Securities Purchase Agreement entered into by the Company and those investors party thereto on June 30, 2011 (incorporated by reference from Exhibit 10.3 to the Company’s Form 10-Q, filed by the Company on August 16, 2010)

*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.

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: November 14, 2011	By:	/s/ Jerry R. Welch

		Jerry R. Welch, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)

	NFINANSE INC.

Date: November 14, 2011	By:	/s/ Raymond P. Springer

		Raymond P. Springer, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)