UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549  

 

Form 10-K

 

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

 

For the fiscal year ended December 31, 2015  

 

or 

 

☐ 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: 333-173702  

 

Excel Corporation

 (Exact name of registrant as specified in its charter)

 

Delaware   27-3955524
(State or other jurisdiction of   (I.R.S. Employer)
incorporation or organization)   Identification No.)

 

6363 North State Highway 161, Suite 310,

Irving, Texas

  75038
(Address of principal executive offices)   (Zip Code)

 

972-476-1000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: 

 

Title of Each Class   Name of Each Exchange on Which Registered
None   N/A

 

Securities registered pursuant to Section 12(g) of the Act: N/A 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☒ 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐   No ☒ 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐ 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12-months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐ 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

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. (Check one): 

 

  Large accelerated filer ☐ Accelerated filer ☐
  Non-Accelerated filer ☐ Smaller reporting company ☒
  (Do not check if smaller reporting company)    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒ 

 

The number of shares of Common Stock held by non-affiliates as of April 12, 2016 was 59,579,794 shares, all of one class of common stock, par value $0.0001 per share, having an aggregate market value of approximately $2,978,990 based upon the closing price of registrant’s common stock on such date of $0.05 per share as quoted on the OTCQB Market. For purposes of the foregoing calculation, all directors, executive officers, and 5% beneficial owners have been deemed to be affiliates.

 

As of April 12, 2016, there were 98,259,070 shares of common stock, par value $0.0001 per share, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I    
     
Item 1. Business 1
Item 1A. Risk Factors 4
Item 1B. Unresolved Staff Comments 12
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Mine Safety Disclosures 13
     
PART II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 14
Item 6. Selected Financial Data 14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Financial Statements and Supplementary Data 19
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 2 0
Item 9A. Controls and Procedures 20
Item 9B. Other Information 20
     
PART III    
     
Item 10. Directors, Executive Officers and Corporate Governance 21
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 25
Item 13. Certain Relationships and Related Transactions, and Director Independence 26
Item 14. Principal Accountant Fees and Services 26
     
PART IV    
     
Item 15. Exhibits and Financial Statement Schedules 27
     
Signatures 28

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains “forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy and financial results. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.

 

Information regarding market and industry statistics contained in this Report is included based on information available to us that we believe is accurate. It is generally based on industry and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources, and cannot assure investors of the accuracy or completeness of the data included in this Report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of our services. We do not assume any obligation to update any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.

 

 

 

 

PART I

 

Item 1. Business.

 

Introduction

 

We sell integrated financial and transaction processing services to small and medium sized businesses throughout the United States. We provide these services through our wholly-owned subsidiaries, Payprotec Oregon, LLC d/b/a Securus Payments (“Securus”) and eVance Processing Inc. (“eVance”). Securus operates as a national retail Independent Sales Organization (“ISO”) and Merchant Services Provider (“MSP”), with primary sales and merchant support offices in Portland, Oregon and West Palm Beach, Florida, which supplement our network of approximately 120-150 independent sales representatives located throughout the country. Securus services approximately 5,000 merchants across the country using First Data Corporation as its primary processing partner. eVance utilizes multiple processing partners including TSYS, Cynergy, Elavon, First Data Corporation and others. These relationships allow us to provide rapid clearing of payments, using traditional terminals, POS systems and mobile applications, including Apple Pay, Samsung Pay and Android Pay. Our merchant account solutions, combined with the latest site and cloud based technologies, are designed to meet the unique needs of our over 10,000 merchant customers across the U.S.

 

Through our eVance subsidiary, we provide an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payments processing solutions to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. We also operate as a wholesale ISO generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO, eVance takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and we receive additional consideration for this service and risk. eVance also intends to acquire ISO debit and credit processing residual revenue streams paid by transaction processors to ISOs. eVance’s U.S. merchant residual portfolios, comprise over 5,000 traditional retail and e-commerce merchant accounts and several residual revenue portfolios.

 

During 2015, we began selling merchant cash advances through our Excel Business Solutions Inc. subsidiary, doing business as Securus Cash and Capital. We act as an ISO selling alternative financing and working capital solutions to small and medium sized businesses using a variety of third party funding sources. As an ISO we do not provide capital directly or take credit risk. We earn commissions from capital funders by placing their financial products with our merchant customers. This portion of our business does not yet represent a significant portion of our revenues, costs or assets.

 

Prior to the acquisition of Securus in April of 2014, we were considered a developmental stage company. With the acquisition of Securus, we are no longer in a development stage and maintain as our primary business operations the sale of merchant processing and servicing, as well as a limited number of merchant cash advance transactions on behalf of our merchant customers. We are actively seeking additional acquisition opportunities including, but not limited to, merchant services and residual revenue portfolios. Although management believes that there are multiple acquisition opportunities, there can be no assurance that we will be able to complete any such transactions.

 

Corporate History

 

Excel Corporation (the “Company”) was organized November 13, 2010 as a Delaware corporation. The Company has three wholly owned subsidiaries, eVance Processing Inc., Excel Business Solutions, Inc., and Payprotec Oregon, LLC (d/b/a Securus Payments), (“Securus”).

 

On February 17, 2014 the Company entered into a Securities Exchange Agreement (the “SEA”) with Securus, Mychol Robirds and Steven Lemma, to purchase 90% of the membership interests of Securus and its subsidiary Securus Consultants, LLC. On April 21, 2014 the Company completed the acquisition of 100% of Securus pursuant to the SEA and through a Securities Exchange Agreement (“E-Cig Agreement) with E-Cig Ventures LLC. The Company issued 22,400,000 shares of common stock for the acquisition of Securus. In addition, the Company issued one shares of Series A Preferred Stock to each of Messrs. Lemma and Robirds as a part of the SEA. As holders of the Series A Preferred Stock, each of Messrs. Lemma and Robirds are entitled to exchange one share of the Series A Preferred Stock for a 24.5% interest in Securus should the Company enter into a transaction that would sell a majority of the membership interest of Securus or its assets. Messrs. Lemma and Robirds will be entitled to these exchange rights as long as they own a total of 9,000,000 shares of our common stock individually.

 

  1  

 

 

On November 30, 2015, eVance Processing Inc. (“eVance”), a wholly owned subsidiary of the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including an aggregate of $8,279,916 of notes payable and certain of the Sellers’ outstanding contractual obligations.

 

The Company’s primary operations focus on the merchant processing and servicing business as a single source provider for virtually all types of merchant payment processing needs. The Company operates nationally as an Independent Sales Organization (“ISO”) and Merchant Services Provider (“MSP”), using its own fully integrated sales and marketing teams and systems to promote such services. The Company’s Securus operation maintains primary sales and merchant support offices in Portland, Oregon and West Palm Beach, Florida. The Company’s eVance operation is located in Alpharetta, Georgia and operates as a wholesale ISO. Through Securus and eVance the Company offers merchant account processing solutions, together with the latest physical site and cloud-based technologies, designed to meet the unique needs of each industry segment the Company services, and offer a variety of credit, debit, gift, and loyalty card processing options and equipment to scale with the distinctive business plans of each client. The Company intends to utilize the sales and distribution capabilities of Securus to augment the wholesale pricing and infrastructure of eVance to generate increased profits for the Company.

 

The Industry , The payment processing industry provides merchants with credit, debit, gift, and loyalty card and other payment processing services, along with related information services. The industry continues to grow as a result of wider merchant acceptance, increased consumer use of bankcards, and advances in payment processing and telecommunications technology. According to The Nilson Report dated February 2016, combined consumer and commercial credit, debit, and prepaid cards generated $3.95 trillion in purchase volume in 2015, up 8.8% from 2014. The proliferation of bankcards has made the acceptance of bankcard payments a virtual necessity for many businesses, regardless of size, in order to remain competitive. This use of bankcards, enhanced technology and security initiatives, efficiencies derived from economies of scale and the availability of more sophisticated products and services to all market segments has led to a highly competitive and specialized industry.

 

The detailed network of a credit card transaction includes several aspects: credit card associations (e.g.Visa and MasterCard); card issuers; merchants; merchant acquirers; processors; the consumers who are buying the goods; and merchants that are selling them. The card issuers distribute cards to consumers, bill them, and collect payment from them. The processor is responsible for delivering the transaction to the appropriate card issuer so that the customer is billed and the merchant receives funds for the purchase. The merchant acquirer recruits merchants to accept cards and provides the front-end service of routing the transaction to the network’s processing facilities. Merchant acquirers often delegate the actual processing to third-party service providers.

 

Merchant acquirer revenue is primarily comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction.

 

Bankcard processing revenue from contracted merchants is typically recurring in nature. The industry average term of a merchant processing contract is three years. Our combined product offerings in the form of receivable purchases and upgraded credit card terminal leases have the added value of establishing a longer term relationship with the customer, as they have the ability to use us for many service needs.

 

We anticipate the uptrend in credit card use to continue. As consumers age, we expect that they will continue to use the payment technology to which they have grown accustomed. Young consumers have become accustomed to using bankcards and other electronic payment methods for purchase including the growing use of mobile payments through cellphones and tablets. As these consumers, who have witnessed the wide adoption of card products, technology and the Internet, comprise a greater percentage of the population and increasingly enter the work force, it can be expected that purchases using card-based payment methods will comprise an increasing percentage of total consumer spending.

 

The proliferation of credit and debit cards has made the acceptance of bankcards a necessity for businesses, both large and small, in order to remain competitive. As a result, many of these small to medium-sized businesses are seeking to provide customers with the ability to pay for merchandise and services using credit or debit cards, including those in industries that have historically accepted cash and checks as the only forms of payment for their products. Previously, larger acquiring banks have marketed credit card processing services to national and regional merchants and have not focused on small to medium-sized merchants, as small to medium-sized merchants have often been perceived as too difficult to identify and expensive to service. These merchants generally have a lower volume of credit card transactions, are difficult to identify and have traditionally been underserved by credit card processors.

 

Market researchers expect dramatic growth in card-not-present transactions due to the rapid growth of the Internet. According to Forrester Research, US online sales were $341.7 billion in 2015 and projected to be $523 billion by 2020. This growth is based on the continued shift of sales away from traditional brick and mortar stores to online and catalog purchases and the trend is projected to continue. Furthermore, where concerns around secure transactions had once been in the forefront, as those concerns continue to subside, the reluctance to use bankcards will further diminish and the uptrend in bankcard volume will likely be bolstered.

 

  2  

 

 

Sales and Marketing , At Securus, our sales and marketing efforts consist of extensive in-house direct sales and marketing teams, combined with a large, national external sales and distribution network of Company-branded independent sales agents. We generate leads using in-house telemarketing personnel in our Portland Oregon and West Palm Beach Florida sales offices. Utilizing our customized Customer Relationship Management or CRM software, these leads are forwarded to either outside independent sales agents or our internal sales teams. We believe that our ability to continue to generate effective leads is critical to our success in attracting and retaining independent sales agents and ultimately our sales growth. Securus uses a network of approximately 120 to 150 independent sales agents throughout the United States as its primary sales force. eVance markets directly to small and medium size businesses and contracts with smaller ISO or independent agents who operate in a similar manner as Securus for their sales.

 

Government Regulations , The industry in which we operate is subject to extensive governmental regulation. In particular, there are numerous laws and regulations restricting the purchase, sale, and sharing of personal information about consumers. The electronic payment processor is subject to regulation by federal, state and professional governing bodies. Prospective financial institution customers, including commercial banks and credit unions, operate in markets that are subject to rigorous regulatory oversight and supervision. As an ISO, we are less susceptible to these regulations than processors and banks because we do not have possession of customer level data.

 

Competition, The payment processing industry is highly competitive. We compete with other ISOs for the acquisition of merchant agreements. Several large processors including First National Bank of Omaha, Chase Paymentech, L.P., Bank of America Merchant Services, as well as Wells Fargo, frequently solicit merchants directly or through their own network of ISOs. Competition is based upon a number of factors including price, service and product offerings. Many of these competitors are larger and have substantially greater resources than us. We believe we remain competitive to these processors and competitive ISOs through a combination of beneficial pricing and services to our merchant customers.

 

Material Customers , The Company utilizes First Data Corporation (“First Data”) for its processing services and leasing, First Data accounted for 81% of consolidated revenues of $17,599,332 for the year ended December 31, 2015. Securus has a preferred marketing agreement with First Data and Wells Fargo to represent Wells Fargo and First Data as an ISO. This agreement expires February 28, 2017. With eVance’s acquisition of Calpian’s US assets, the Company now intends to begin utilizing the wholesale platforms of eVance for Securus’s sales leads.

 

Employees

 

As of March 15, 2016, we have 122 full-time employees. 4 of these employees are located in our corporate offices in Irving, Texas, 100 are employed by Securus, 14 are employed by eVance, and 4 are employed by Excel Business Solutions. None of our employees are covered by collective bargaining agreements. We consider our employee relations to be satisfactory.

 

Licensing Business

 

Prior to the acquisition of Securus, we were focused on bringing national and international brands to the retail marketplace. Our objective was to develop a diversified portfolio of iconic consumer brands by creating and facilitating relationships between Licensors and retail businesses, wholesale businesses, manufacturers, etc. (“Licensees”) who would sell products under the Licensor’s brand. We do not currently have any operations in the licensing business and do not expect to develop or expand upon the previous licensing business, which does not have significant assets or operations. 

 

  3  

 

 

Item 1A. Risk Factors.

 

We may not be able to raise the additional capital necessary to execute our business strategy which includes the acquisition of other companies, operations or asset portfolios.

 

We intend to grow in part through acquisitions, business combinations and or merchant portfolio purchases. Our ability to successfully execute these transactions may depend on our ability to raise additional debt and/or equity capital. Our ability to raise additional capital is uncertain and dependent upon numerous factors beyond our control, including but not limited to economic conditions, regulatory factors, continued high unemployment, reduced retail sales, increased taxation, reductions in consumer confidence, changes in levels of consumer spending, changes in preferences in how consumers pay for goods and services, weak housing markets and availability or lack of availability of credit. If we are unable to obtain additional capital, or if the terms thereof are too costly, we may be unable to successfully execute our acquisition strategy.

 

We may need more financing earlier than we anticipate if we:

 

  ● expand faster than our internally generated cash flow can support;
     
  ● purchase merchant portfolios from a large number of ISOs;
     
  ● need to increase merchant portfolio purchase prices in response to competition;
     
  ● acquire complementary products, businesses, technologies or residual ISO commissions.

 

We have just recently begun operations and have not yet achieved profitability.

 

Until our acquisition of Securus in April 2014, we were considered a development stage company. Since our acquisition of Securus, we have incurred losses from operations. There can be no assurance that the Company will become profitable and it may require additional capital in order to fund its operations. The Company may not be able to source such funds on acceptable terms. 

 

  4  

 

 

Our business strategy includes additional acquisitions. We may not be able to successfully identify and close any such acquisitions or successfully integrate them into our business.

 

Acquisitions are inherently uncertain. We have limited financial resources which will require us to seek debt or equity capital. There can be no assurances that we will be able to obtain financing. In addition, we compete for potential acquisition targets with other companies from within our industry as well as from financial buyers such as private equity firms and hedge funds. Many of these companies have significantly greater financial resources than the Company. Other risks related to acquisitions include:

 

  ● the due diligence, financing and related transaction activities divert management attention from our current operations;

 

  ● we may devote substantial time and resources to acquisitions that do not close and;

 

  ● we may incur potential liabilities not detected during due diligence or make financial or other assumptions about an acquisition that turn out to be inaccurate.

 

Unauthorized disclosure of merchant and cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and protracted and costly litigation.

 

We collect and store sensitive data about merchants, including names, addresses, social security numbers, driver’s license numbers and checking account numbers. Any loss of cardholder data by us or our merchants could result in significant fines and sanctions by the card networks or governmental bodies, which could have a material adverse effect upon our financial position and/or results of operations. Our computer systems could be in the future, subject to penetration by hackers and our encryption of data may not prevent unauthorized use. In this event, we may be subject to liability, including claims for unauthorized purchases with misappropriated bankcard information, impersonation or other similar fraud claims. We could also be subject to liability for claims relating to misuse of personal information, such as unauthorized marketing purposes. These claims also could result in protracted and costly litigation. In addition, we could be subject to penalties or sanctions from the card networks.

 

Although we generally require that our agreements with our service providers who have access to merchant and customer data include confidentiality obligations that restrict these parties from using or disclosing any customer or merchant data except as necessary to perform their services under the applicable agreements, these contractual measures may not prevent the unauthorized use or disclosure of data. In addition, our agreements with financial institutions most likely will require us to take certain protective measures to ensure the confidentiality of merchant and consumer data. Any failure to adequately enforce these protective measures could result in protracted and costly litigation.

 

If we fail to comply with the applicable requirements of the Visa and MasterCard bankcard networks, Visa or MasterCard could seek to fine us, suspend us or terminate our registrations. Fines could have an adverse effect on our operating results and financial condition, and if these registrations are terminated, we will not be able to conduct our business.

 

If we are unable to comply with Visa and MasterCard bankcard network requirements (including Payment Card Industry Data Security Standard, or PCI-DSS, compliance), Visa or MasterCard could seek to fine us, suspend us or terminate our registrations. We may receive notices of non-compliance and fines, which have typically related to excessive chargebacks by a merchant or data security failures on the part of a merchant. If we are unable to recover fines from our merchants, we would experience a financial loss. The termination of our registration, or any changes in the Visa or MasterCard rules that would impair our registration, could require us to stop providing Visa and MasterCard payment processing services, which would make it impossible for us to conduct our business.

 

We could face chargeback liability when our merchants refuse or cannot reimburse chargebacks resolved in favor of their customers, reject losses when our merchants go out of business, and merchant fraud. We cannot accurately anticipate these liabilities, which may adversely affect our results of operations and financial condition.

 

We have potential liability for fraudulent bankcard transactions initiated by merchants. Merchant fraud occurs when a merchant knowingly uses a stolen or counterfeit bankcard or card number to record a false sales transaction, processes an invalid bankcard or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. We rely on our financial institution and transaction processor service providers to detect and reduce the impact of merchant fraud, but these measures may not be effective. It is possible that incidents of fraud could increase in the future. Failure by our financial institutions, transaction processing partners or ourselves to effectively manage risk and prevent fraud would increase our chargeback liability. Increases in chargebacks could have an adverse effect on our operating results and financial condition.

 

  5  

 

 

Increased merchant attrition that we cannot offset with increased bankcard processing volume from same store sales growth or new accounts would cause our revenues to decline.

 

We may experience above normal attrition in merchant bankcard processing volume resulting from several factors, including business closures, transfers of merchants’ accounts to our competitors and account closures that we initiate due to heightened credit risks relating to, or contract breaches by, merchants, and when applicable same store sales contraction. We cannot predict the level of attrition in the future, and it could increase. Increased attrition in merchant bankcard processing volume may have an adverse effect on our financial condition and results of operations. If we are unable to establish accounts with new merchants or otherwise increase our bankcard processing volume in order to counter the effect of this attrition, our revenues will decline.

 

We rely on various financial institutions to provide clearing services in connection with our settlement activities. If we are unable to maintain clearing services with these financial institutions and are unable to find a replacement, our business may be adversely affected.

 

We rely on various financial institutions and transaction processing services providers to provide clearing services in connection with our settlement activities. Our primary relationships are with First Data Corporation,Wells Fargo,TSYS and Merrick Bank. If we are unable to maintain clearing services with these financial institutions and transaction processing services providers, or are unable to find a replacement for them, we may no longer be able to provide processing services to certain and various customers which could negatively impact our revenue and earnings.

 

If we cannot pass increases in bankcard network interchange fees, assessments and transaction fees along to our merchants, our operating margins will be reduced.

 

We expect to pay interchange fees and other network fees set by the bankcard networks to the card issuing bank and the bankcard networks for each transaction we process. From time to time, the bankcard networks increase the interchange fees and other network fees that they charge payment processors and the sponsor banks. We expect that our potential sponsor bank will pass any increases in interchange fees on to us. If we are unable to pass these fee increases along to our merchants through corresponding increases in our processing fees in the future, our operating margins will be reduced.

 

Current or future bankcard network rules and practices could adversely affect our business.

 

We are registered with the Visa and MasterCard networks through our bank sponsors as an ISO with Visa and a Member Service Provider with MasterCard. The rules of the bankcard networks are set by their boards, which may be strongly influenced by card issuers, and some of those card issuers are our competitors with respect to these processing services. Many banks directly or indirectly sell processing services to merchants in direct competition with us. These banks could attempt, by virtue of their influence on the networks, to alter the networks’ rules or policies to the detriment of non-members like us. The bankcard networks or issuers who maintain our future registrations or arrangements or the bankcard network or issuer rules allowing us to market and provide payment processing services may not remain in effect. The termination of our registration or our status as an ISO and/or MSP, or any material changes in card network or issuer rules that would serve to limit our ability to provide payment processing services, could have an adverse effect on our bankcard processing volumes, revenues or operating costs. In addition, if we were precluded from processing Visa and MasterCard bankcard transactions, we would lose substantially all of our revenues.

 

Any new laws and regulations, or revisions made to existing laws, regulations, or other industry standards affecting our business may have an unfavorable impact on our operating results and financial condition.

 

Our business is impacted by laws and regulations that affect the bankcard industry. The number of new and proposed regulations has increased significantly, particularly pertaining to interchange fees on bankcard transactions, which are paid to the bank card issuer. In July 2010, Congress passed The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which significantly changed financial regulation. Changes included restricting amounts of debit card fees that certain issuer banks can charge merchants and allowing merchants to offer discounts for different payment methods. The impact which the Dodd-Frank Act will have on our operating results is difficult to determine, as the changes are not directed at us and final regulations on interchange fees are still to be set by the Federal Reserve Board. When final, these regulations could adversely affect our operating results and financial condition.

 

  6  

 

 

Governmental regulations designed to protect or limit access to consumer information could adversely affect our ability to effectively provide our services to merchants.

 

Governmental bodies in the United States and abroad have adopted, or are considering the adoption of, laws and regulations restricting the transfer of, and safeguarding, non-public personal information. For example, in the United States, all financial institutions must undertake certain steps to ensure the privacy and security of consumer financial information. While our operations are subject to certain provisions of these privacy laws, we will limit our use of consumer information solely to providing services to other businesses and financial institutions. We will also limit sharing of non-public personal information to that necessary to complete the transactions on behalf of the consumer and the merchant and to that permitted by federal and state laws. In connection with providing services to the merchants and financial institutions that use our services, we will be required by regulations and contracts with our merchants to provide assurances regarding the confidentiality and security of non-public consumer information. These contracts may require periodic audits by independent companies regarding our compliance with industry standards and best practices established by regulatory guidelines. The compliance standards relate to our infrastructure, components, and operational procedures designed to safeguard the confidentiality and security of non-public consumer personal information shared by our clients with us. Our ability to maintain compliance with these standards and satisfy these audits will affect our ability to attract and maintain business in the future. The cost of such systems and procedures may increase in the future and could adversely affect our ability to compete effectively with other similarly situated service providers.

 

Our systems and our third-party providers’ systems may fail due to factors beyond our control, which could interrupt our service, cause us to lose business and increase our costs.

 

We depend on the efficient and uninterrupted operation of computer network systems, software, data center and telecommunications networks, as well as the systems of third parties. Our systems and operations or those of our third-party providers could be exposed to damage or interruption from, among other things, fire, natural disaster, power loss, telecommunications failure, unauthorized entry and computer viruses. Our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur. Defects in our systems or those of third parties, errors or delays in the processing of payment transactions, telecommunications failures or other difficulties could result in:

 

  ● loss of revenues;
     
  ● loss of merchants, although our contracts with merchants do not expressly provide a right to terminate for business interruptions;
     
  ● loss of merchant and cardholder data;
     
  ● harm to our business or reputation;
     
  ● exposure to fraud losses or other liabilities;
     
  ● negative publicity;
     
  ● additional operating and development costs; and/or
     
  ● diversion of technical and other resources.

 

We do not own or maintain a processing network and expect to depend on outsourced suppliers for this and other essential service; our inability to obtain and retain such outsourced services would require us to discontinue our operations.

 

We do not own or maintain a computer system or software or communications network necessary to process debit or credit card transactions directly. We depend on outsourced vendors for these and other key functions, including credit card transaction processing, check guarantee and gift and loyalty card processing and provision of point of sale processing equipment. We will therefore be dependent on the continued capabilities of these vendors to provide such services on terms acceptable to us. Should any one of these vendors experience difficulties in providing processing services for any reason, or if we can no longer engage other vendors to provide such services, we would be required to discontinue operations.

 

We may experience software defects, undetected errors, and development delays, which could damage customer relations, decrease our potential profitability and expose us to liability.

 

We rely on technologies and software supplied by third parties that may contain undetected errors, viruses or defects. Defects in software products and errors or delays in processing of electronic transactions could result in additional costs, diversion of technical and other resources from our other efforts, loss of credibility with current or potential customers, harm to our reputation, or exposure to liability claims. In addition, the sophisticated software and computing systems that we rely on often encounter development delays and the underlying software may also contain undetected errors, viruses, or defects that could have a material adverse effect on our business, financial condition and results of operations.

 

  7  

 

 

We are dependent on a limited number of key executives and employees, the loss of which could negatively impact our business.

 

Our business is led by our CEO, Thomas A. Hyde Jr. and our CFO, Robert L. Winspear. The operations of our Securus subsidiary are led by Steven Lemma and Mychol Robirds. Chris Anderson is President of eVance. The loss of one or more of these executives could negatively impact our business and operations.

 

We are subject to the business cycles and credit risk of our merchants, which could negatively impact our financial results.

 

A recessionary economic environment could have a negative impact on our merchants, which could, in turn, negatively impact our financial results, particularly if the recessionary environment disproportionately affects some of the market segments that represent a larger portion of our bankcard processing volume. If our merchants make fewer sales of their products and services, we will have fewer transactions to process, resulting in lower revenue. In addition, we have a certain amount of fixed and semi-fixed costs, including rent, processing contractual minimums and salaries, which could limit our ability to quickly adjust costs and respond to changes in our business and the economy.

 

In a recessionary environment our merchants could also experience a higher rate of business closures, which could adversely affect our business and financial condition. In the event of a closure of a merchant, we are unlikely to receive our fees for any transactions processed by that merchant in its final month of operation.

 

Our operating results are subject to seasonality, which could result in fluctuations in our quarterly revenue.

 

We expect to experience seasonal fluctuations in our revenues as a result of consumer spending patterns and the seasonality of our merchant customers’ businesses.

 

The payment processing industry is highly competitive and we compete with certain firms that are larger and have greater financial resources than we do. Such competition could increase, which would adversely influence our prices to merchants and, as a result, our operating margins.

 

The market for payment processing services is highly competitive. Other providers of payment processing services have established a sizable market share in the small- and medium-size merchant processing sector. The weakness of the current economic recovery could cause future growth in electronic payment transactions to slow compared to historical rates of growth. This competition may influence the prices we are able to charge. If the competition causes us to reduce the prices we charge, we will have to aggressively control our costs in order to maintain acceptable profit margins. In addition, some of our competitors are financial institutions, subsidiaries of financial institutions or well-established payment processing companies, including but not limited to, Heartland Payment Systems, Inc., TSYS, Global Payments Inc., First Data Corporation, Vantiv Inc., Calpian Inc., Fifth Third Processing Solutions, Chase Paymentech Solutions and Elavon, Inc. Our competitors that are financial institutions or subsidiaries of financial institutions do not incur the costs associated with being sponsored by a bank for registration with the card networks and can settle transactions more quickly for their merchants than we can for ours. These competitors have substantially greater financial, technological, management and marketing resources than we have. This may allow our competitors to offer more attractive fees to our current and prospective merchants, or other products or services that we do not offer. This could result in a loss of customers, greater difficulty attracting new customers, and a reduction in the price we can charge for our services.

 

In addition, many of our competitors may have the ability to devote more financial and operational resources than we can to the development of new payments technologies and services, including Internet payment processing services and mobile payment processing services that provide improved operating functionality and features to their product and service offerings. If successful, their development efforts could render our product and services offerings less desirable to customers, again resulting in the loss of customers or a reduction in the price we could demand for our offerings. Furthermore, we are facing competition from non-traditional competitors offering alternative payment methods, such as PayPal and Google. These non-traditional competitors have significant financial resources and robust networks and are highly regarded by consumers. If these non-traditional competitors gain a greater share of total electronic payments transactions, it could also have a material adverse effect on our business, financial condition and results of operation.

 

We expect to be subject to increased operating margin pressure, which could erode our margins and adversely affect our ability to retain merchants and attain and maintain profitability.

 

We expect to experience increasingly downward pricing pressure from merchants for merchant credit and debit card processing and acquiring services, similar to what many of our competitors have experienced. The services we plan to offer are a commodity and as such are not differentiable except using price. Low barriers to entry in becoming an ISO/MSP means that price competition in the industry is persistent and strong. Our management has noted this trend and does not anticipate that this trend will cease in the near future, if at all. Continued margin erosion could adversely affect our merchant retention and profitability. In addition, we may not be able to fully pass the cost of more expensive point of sale terminals on to our merchant customers through our leasing program resulting in lower margins.

 

  8  

 

 

Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.

 

We operate in a rapidly changing industry. Accordingly, our risk management policies and procedures may not be fully effective to identify, monitor, and manage our risks. If our policies and procedures are not fully effective or we are not always successful in capturing all risks to which we are or may be exposed, we may suffer uninsured liability, harm to our reputation or be subject to litigation or regulatory actions that could have a material adverse effect on our business, financial condition and results of operation.

 

We may become subject to additional U.S., state or local taxes that cannot be passed through to our merchants, which could negatively affect our results of operations.

 

Companies in the payment processing industry, including us, may become subject to taxation in various tax jurisdictions on our net income or revenues. Application of these taxes is an emerging issue in our industry and taxing jurisdictions have not yet adopted uniform positions on this topic. If we are required to pay additional taxes and are unable to pass the tax expense through to our merchants, our costs would increase and our net income would be reduced.

 

Our quarterly results may fluctuate and if we fail to meet the expectations of analysts or investors, our stock price could decline substantially.

 

Our quarterly operating results may fluctuate, and if we fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock could decline. Some of the important factors that could cause our revenue and operating results to fluctuate from quarter to quarter include:

 

  ●

we are a small company with limited operating history;

 

  ● the scope of our marketing and advertising efforts;

 

  ●

our ability to retain existing customers, attract new customers and satisfy our customers’ requirements;

 

  ● general economic conditions;

 

  ●

changes in our pricing policies;

 

  ● our ability to expand our business;

 

  ●

the effectiveness of our personnel;

 

  ● new product introductions;

 

  ●

costs associated with future acquisitions; and

 

  ● extraordinary expenses such as litigation or other dispute-related settlement payments.

 

Some of these factors are not within our control, and the occurrence of one or more of them may cause our operating results to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful and should not be relied upon as an indication of future performance.

 

  9  

 

 

Risks Relating to Our Common Stock

 

There is only a limited public market for our securities.

 

Our common stock is traded on the OTCQB Market under the trading symbol “EXCC.” Our common stock is thinly traded, if traded at all, and a robust and active trading market may never develop. Most of our shares may not be sold into the market unless there is an effective registration statement covering the resale of such shares, or the shares are eligible to be sold under Rule 144. Stockholders who decide to sell some or all of their shares in a private transaction may be unable to locate persons who are willing to purchase the shares, given the restrictions. Also, because of the various risk factors described herein, the price of the publicly traded shares of common stock may be highly volatile and may not reflect the underlying value of the Company.

 

Our stock price could be volatile.

 

The market prices of securities of merchant services-related companies are extremely volatile and sometimes reach unsustainable levels that bear no relationship to the past or present operating performance of such companies. Factors that are expected to contribute to the volatility of the trading price of our common stock include, among others:

 

  ● our quarterly results of operations;
     
  ● the variance between our actual quarterly results of operations and predictions by stock analysts;
     
  ● financial predictions and recommendations by stock analysts concerning companies engaged in merchant services-related and companies competing in our market in general, and concerning us in particular;
     
  ● public announcements of regulatory changes or new ventures relating to our business, new products or services by us or our competitors, or acquisitions, joint ventures or strategic alliances by us or our competitors;
     
  ● public reports concerning our services or those of our competitors;
     
  ● the operating and stock price performance of other companies that investors or stock analysts may deem comparable to us;
     
  ● large purchases or sales of our capital stock;
     
  ● investor perception of our business prospects or the merchant card processing and acquisition industry in general; and
     
  ● general economic, political, and financial conditions, and the occurrence of natural disasters and terrorist attacks.

 

In addition to the foregoing factors, the trading prices for equity securities in the stock market in general, and of merchant services-related companies in particular, have been subject to wide fluctuations that may be unrelated to the operating performance of the particular company affected by such fluctuations. Consequently, broad market fluctuations may have an adverse effect on the trading price of our common stock, regardless of our results of operations.

 

Our common stock may be deemed to be a “penny stock” and therefore subject to special requirements that could make the trading of our common stock more difficult than for stock of a company that is not “penny stock.”

 

Our common stock may be deemed to be a “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Penny stocks are stocks (i) with a price of less than $5.00 per share; (ii) that are not traded on a “recognized” national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of issuers with net tangible assets of less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than $6,000,000 for the last three years.

 

Section 15(g) of the Exchange Act, and Rule 15g-2 promulgated thereunder, require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of them.

 

  10  

 

  

We do not intend to pay dividends.

 

We have not paid any cash dividends on our common stock since our inception and we do not anticipate paying any cash dividends in the foreseeable future. Earnings, if any, that we may realize will be retained in the business for further development and expansion.

 

We need to raise capital, which may cause dilution or issue securities senior to our common stock.

 

In order to execute our business strategy which includes acquisitions, we will need to raise additional capital. We may issue stock directly for acquisitions or sell stock to third parties in order to raise capital. We may not be able to raise any such additional capital and we may not be able to raise such capital on acceptable terms. If we raise capital through the sale or issuance of equity securities, such transactions will dilute the value of our outstanding shares. We may also decide to issue securities, including debt securities or preferred stock that have rights, preferences, and privileges senior to our common stock.

 

We have significant debt which matures on December 1, 2016.

 

In connection with our acquisition of the U.S. assets and operations of Calpian Inc., eVance assumed $8,279,916 in amended and restated notes payable (“eVance Notes”) which mature on December 1, 2016. The parent company owns $250,000 of the eVance Notes. In addition, Excel issued a corporate guarantee on the eVance Notes. The Company will be required to either refinance or renegotiate the terms of this debt during 2016. There can be no assurances that the Company will be able obtain such financing or on what terms it may be able to do so.

 

Future sales of large amounts of our common stock could have a negative impact on our stock price.

 

Future sales of our common stock by existing stockholders pursuant to an effective registration statement covering the resale of such shares or Rule 144 could adversely affect the market price of our common stock and could materially impair our future ability to generate funds through sales of our equity securities.

 

Our Board of Directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to existing common stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control over us.

 

Our certificate of incorporation allows us to issue shares of preferred stock without any vote or further action by our common stockholders. Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.

 

Preferred stock could be used to dilute a potential hostile acquirer. Accordingly, any future issuance of preferred stock or any rights to purchase preferred shares may have the effect of making it more difficult for a third party to acquire control of us. This may delay, defer or prevent a change of control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings attributable to, and assets available for distribution to, the holders of our common stock and could adversely affect the rights and powers, including voting rights, of the holders of our common stock.

 

Series B Convertible Preferred Stock.

 

We have 4,600,000 shares of Series B Convertible Preferred Stock (“Series B Shares”) outstanding. The Series B Shares are convertible into shares of the Company’s common stock par value $0.0001 (“Common Stock”) on a ratio of 1-to-1, subject to adjustment for stock splits and stock dividends. The Series B Shares rank senior to the Common Stock and other preferred shares and carry a liquidation preference of $.05 per share. Holders of the Series B Shares are entitled to receive dividends declared on the Company’s Common Stock on an as converted basis. Each Series B Share entitles the Holder thereof to 20 votes per share on all matters subject to voting by holders of the Company’s Common Stock. The issuance of a total of 4,600,000 shares of Series B Shares, entitles the Holders thereof to vote a combined 92,000,000 shares. Under the terms of the Series B Shares, the Company has the right to require a Holder to convert the Series B Shares into Common Stock at any time after the Holder resigns, is terminated or otherwise ceases to be an officer of the Company. In addition, the Company has the right at any time after July 18, 2016 to repurchase and retire all but not less than all of the Series B Preferred Stock for $0.05 per share provided that it gives notice to the Holder of the Company’s intent to redeem the shares and the Holder does not elect to convert the Series B Shares into Common Stock in lieu of the redemption.

 

In connection with the issuance of the Series B Shares, the Company and the Holders executed a Stockholders Agreement (the “Agreement”) whereby the Holders agreed to not to initiate directly or indirectly any stockholder vote or action, by written consent or otherwise, to increase the size or structure of the Company’s board of directors or remove any existing director, nor initiate directly or indirectly any stockholder vote or action by written consent or otherwise, to affect Holders’ executive compensation, bonus criteria and amounts, or other similar action. The Holders also agreed to convert the Series B Shares immediately upon termination, whether voluntary or involuntary, or upon their resignation for any reason.

 

  11  

 

 

Provisions in our charter documents and Delaware law could discourage a takeover that our stockholders may consider favorable or could cause current management to become entrenched and difficult to replace.

 

Certain provisions of our Bylaws are intended to strengthen the board’s position in the event of a hostile takeover attempt. These provisions have the following effects:

 

  ● they provide that only business brought before an annual meeting by the board or by a stockholder who complies with the procedures set forth in the Bylaws may be transacted at an annual meeting of stockholders; and
     
  ● they provide for advance notice or certain stockholder actions, such as the nomination of directors and stockholder proposals.

 

We are subject to the provisions of Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the voting stock.

 

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

 

Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal controls over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. 

 

We may rely on our member sponsors to provide financial data, such as revenue billed to merchants, to assist us with compiling our accounting records. As such, our internal controls over financial reporting could be materially affected, or could reasonably likely be materially affected, by the internal controls and procedures of our member sponsors in these markets. In order to mitigate this risk, we plan to implement internal controls over financial reporting which monitor the accuracy of the financial data being provided by our member sponsors.

 

While we continue to dedicate resources and management time to ensuring that we have effective controls over financial reporting, failure to achieve and maintain an effective internal control environment could have a material adverse effect on the market’s perception of our business and our stock price.

 

Item 1B. Unresolved Staff Comments.

 

Not Applicable

 

  12  

 

 

Item 2. Properties.

 

We lease our executive offices in Irving, Texas, as well as, office space for our subsidiaries in Portland Oregon, West Palm Beach Florida, and Alpharetta, Georgia.

 

Location   Square Feet   Lease term
Irving, Texas (Corporate headquarters)   2,755   Expires 2019
Portland, Oregon (Securus headquarters)   15,744   Expires 2019
West Palm Beach, Florida (Securus sales office)   5,719   Expires 2016
Alpharetta, Georgia (eVance)   4,930   Expires 2016
Carlsbad, California (not used)   3,672   Expires 2016

 

Item 3. Legal Proceedings.

 

The Company is party to a number of legal proceedings that arise in the ordinary course of business. Although litigation is subject to inherent uncertainties, the Company does not expect the outcome of these matters to have a material adverse effect on the business or operations of the Company.

 

Item 4. Mine Safety Disclosures.

 

Not applicable. 

 

  13  

 

 

PART II

 

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our shares of common stock are quoted on the Over the Counter Bulletin Board (OTCBB) under the trading symbol “EXCC.” The following table sets forth the high and low sales prices as reported on the OTCBB. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

FISCAL YEAR 2014   HIGH     LOW  
First Quarter   $ .43     $ .05  
Second Quarter   $ .33     $ .07  
Third Quarter   $ .14     $ .08  
Fourth Quarter   $ .08     $ .03  

 

FISCAL YEAR 2015   HIGH     LOW  
First Quarter   $ .04     $ .03  
Second Quarter   $ .04     $ .02  
Third Quarter   $ .05     $ .02  
Fourth Quarter   $ .05     $ .03  

 

Holders

 

According to the records of our transfer agent, as of March 28, 2016, there were approximately 108 holders of record of our common stock. This number does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers.

 

Dividend Policy

 

We have never declared or paid dividends on our common stock. We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

In 2014, we issued options to purchase 1,000,000 shares of common stock with an exercise price of $0.09 per share pursuant to our 2010 Equity Incentive Plan. The options have a ten year term subject to certain restrictions.

 

Item 6. Selected Financial Data.

 

We are a smaller reporting company; as a result, we are not required to report selected financial data disclosures as required by Item 301 of Regulation S-K.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of our results of operations and financial condition for the fiscal years ended December 31, 2015 and 2014 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this annual report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,” “Cautionary Notice Regarding Forward-Looking Statements” and “Description of Business” sections and elsewhere in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “predict,” and similar expressions to identify forward-looking statements. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business, our actual results could differ materially from those discussed in these statements. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.

 

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Current Overview

 

We sell integrated financial and transaction processing services to small and medium sized businesses throughout the United States. We provide these services through our wholly-owned subsidiaries, Securus and eVance. Securus operates as a national retail ISO and MSP with primary sales and merchant support offices in Portland, Oregon and West Palm Beach, Florida, which supplement our network of approximately 120-150 independent sales representatives located throughout the country. Securus services approximately 5,000 merchants across the country using First Data Corporation as its primary processing partner. eVance utilizes multiple processing partners including TSYS, Cynergy, Elavon, First Data Corporation and others. These relationships allow us to provide rapid clearing of payments, using traditional terminals, POS systems and mobile applications, including Apple Pay, Samsung Pay and Android Pay. Our merchant account solutions, combined with the latest site and cloud based technologies, are designed to meet the unique needs of our over 10,000 merchant customers across the U.S.

 

Through our eVance subsidiary, we provide an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payments processing solutions to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. We also operate as a wholesale ISO generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO eVance takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and we receive additional consideration for this service and risk. eVance also intends to acquire ISO debit and credit processing residual revenue streams paid by transaction processors to ISOs. eVance’ s U.S. merchant residual portfolios, comprise over 5,000 traditional retail and e-commerce merchant accounts, and several residual revenue portfolios.

 

During 2015, we began selling merchant cash advances through our Excel Business Solutions Inc. subsidiary doing business as Securus Cash and Capital. We act as an ISO selling alternative financing and working capital solutions to small and medium sized businesses using a variety of third party funding sources. As an ISO we do not provide capital directly or take credit risk. We earn commissions from capital funders by placing their financial products with our merchant customers. This portion of our business does not yet represent a significant portion of our revenues, costs, or assets.

 

On February 17, 2014 the Company entered into a Securities Exchange Agreement (the “SEA”) with Securus, Mychol Robirds and Steven Lemma, to purchase 90% of the membership interests of Securus and its subsidiary Securus Consultants, LLC. On April 21, 2014 the Company completed the acquisition of 100% of Securus pursuant to the SEA and through a Securities Exchange Agreement (“E-Cig Agreement) with E-Cig Ventures LLC. The Company issued 22,400,000 shares of common stock for the acquisition of Securus. In addition, the Company issued two shares of Series A Preferred Stock to Messrs Lemma and Robirds as a part of the SEA. As holders of the Series A Preferred Stock. Each of Messrs Lemma and Robirds are entitled to exchange one share of the Series A Preferred Stock for a 24.5% interest in Securus should the Company enter into a transaction that would sell a majority of the membership interest of Securus or its assets. Messrs Lemma and Robirds will be entitled to these exchange rights as long as they own a total of 9,000,000 shares individually.

 

Prior to the acquisition of Securus in April 2014, we were considered a developmental stage company. With the acquisition of Securus, we are no longer in a development stage and maintain as our primary business operations the sale of merchant processing and servicing, as well as a limited number of merchant cash advance transactions on behalf of our merchant customers. We are actively seeking additional acquisition opportunities in related industries including, but not limited to, merchant services and merchant cash advance companies. Although management believes that there are multiple acquisition opportunities, there can be no assurance that the Company will be able to complete any such transactions.

 

Critical Accounting Policies

 

Our management’s discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements included with this report that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Our significant accounting policies are described in Note 2 to our audited consolidated financial statements. Our critical accounting policies are those where we have made the most difficult, subjective or complex judgments in making estimates, and/or where these estimates can significantly impact our financial results under different assumptions and conditions. Our critical accounting policies are:

 

Basis of presentation and consolidation

 

Our accounting and reporting policies conform with generally accepted accounting principles (“GAAP”) and include our subsidiaries, after elimination of all intercompany transactions in the consolidation.

 

  15  

 

 

Business Combinations

 

Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred.

 

Goodwill

 

Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwill is assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred.

 

Revenue Recognition

 

The Company’s revenue includes proceeds from the sale of equipment leases of point of sale terminals and systems used to process credit and debit transactions. The Company records revenue when the sales process with respect to terminals and point of sale equipment is substantially complete.

 

In addition, the Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue.

 

Cash and Cash Equivalents

 

The Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents. The carrying amount of financial instruments included in cash and cash equivalents approximates fair value because of the short maturities for the instruments held. 

 

Income Taxes

 

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.

 

Reclassification

 

Certain prior period amounts have been reclassified to conform to the current year’s presentation.

 

Accounts Receivable

 

Accounts receivable represent contractual residual payments due from the Company's customers. These residual payments are determined based on the credit and debit card processing activity of merchants for which the Company initiated lease transactions. Based on collection experience and periodic reviews of outstanding receivables, management considers all accounts receivable to be fully collectible and accordingly, no allowance for doubtful accounts is required.

 

Inventory

 

The Company accounts for inventory at the lower of cost (using the first-in first-out method) or market. Inventory consists entirely of terminals and point of sale equipment classified as finished goods.

 

  16  

 

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to ten years. Leasehold improvements are amortized over the lesser of the expected term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred.

 

Loss Per Share

 

Loss per share is based on the weighted average number of common shares. Diluted loss per share was not presented, as the company as of December 31, 2015 had outstanding warrants and options to purchase 5,452,458 shares of common stock which would have an anti-dilutive effect on earnings.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Off-Balance Sheet Financing Arrangements

 

We did not have any off-balance sheet financing arrangements as of December 31, 2015.

 

Results of Operations

 

We acquired Securus in April 2014 and eVance acquired the US operations of Calpian Inc. on November 30, 2015. As a result of these acquisitions, operating results for 2015 and 2014 are not comparable. 2014 results include the operations of Securus from April 21 through December 31. 2014 and do not include any of the results of eVance. 2015 results include only one month of operations of eVance and, therefore, are not representative of future financial performance and not comparable to other periods.

 

Revenues

 

During the year ended December 31, 2015, we had equipment lease revenues of $11,950,253 compared to $7,295,419 in revenues for the year ended December 31, 2014. The increase of 63.8% was due to the full year of operations and increased sales volume in 2015 of Securus. During the year ended December 31, 2015, we had transaction and processing fees revenues of $5,549,482, as compared to $2,228,878 for the year ended December 31, 2014. The transaction and processing fee revenue increased by $3,320,604 as a result of the November 30, 2015 acquisition by eVance of Calpian’s U.S. assets which contributed $1,022,073 in sales for the month of December as well as the inclusion of a full year of revenue from Securus in 2015. 

 

Costs and Expenses

 

Our operating costs and expenses were $19,295,972 for the year ended December 31, 2015 as compared to $12,586,146 for the year ended December 31, 2014. Operating costs and expenses increased 53.3% for the year ended December 31, 2015 as compared to an increase in revenue of 84.0%. Equipment and other merchant acquisition costs increased to $2,365,300 in 2015 as compared to $1,422,013 in 2014, but declined as a percentage of sales from 14.9% to 13.4%. Merchant refunds increased by $681,866 to $1,135,213 for 2015. Outside commissions were $1,600,815 for the year ended December 31, 2015 or 9.1% of net revenues as compared to $1,281,595, or 13.4% of net revenues in 2014. The Company uses independent sales agents for a substantial portion of its business. Salaries and wages were $11,280,640 for the year ended December 31, 2015 as compared to $7,412,124 for the year ended December 31 2014. The increase of salaries and wages of $3,868,516 represented a 52.2% increase in 2015 over 2014 as compared to an 84.0% increase in net revenues. Other selling, general and administrative costs increased from $2,017,067 for the year ended December 31, 2014 to $2,239,829 for the year ended December 31, 2015. Processing and servicing expenses of $674,175 include interchange and related processing fees generated by eVance in its one month of operation during 2015.

 

  17  

 

 

Other Income

 

Our other income was $445,742 for the year ended December 31, 2015, as compared to $2,975,101 for the year ended December 31, 2014. Other income in both years resulted primarily from the sale of residual portfolios. A gain on settlement contributed $175,101 to the 2014 other income.

 

Interest expense was $371,596 for the year ended December 31, 2015.

 

Net Losses

 

Our net losses were $1,622,494 and $436,881 for the years ended December 31, 2015 and 2014, respectively. The increase in the net loss was due to lower gains from the sale of residual portfolios which was partially offset by a $1,324,267 lower loss from operations. Although it is possible we may continue to incur net losses in the future, our anticipation is that we will be able to achieve profitability in 2016.

 

Liquidity and Capital Resources

 

The following summarizes our cash flows:

 

    Years ended December 31,  
    2015     2014  
Net cash provided by operating activities   $ 280,067     $ 881,517
Net cash provided by investing activities   $ 86,951     $ 177,066  
Net cash used in financing activities   $ (331,676 )   $ (740,123 )
Net increase in cash   $ 35,342     $ 318,460  

 

Net cash provided by operating activities in 2015 was $280,067 as compared with $881,517 in 2014. This decrease of $601,450 was due to a larger net loss of $1,622,494 in 2015 as compared $436,881 in 2014. This was partially offset by lower working capital requirements in 2015.

 

Net cash provided by investing activities was $86,951 in 2015, compared with $177,066 in 2014. The decrease of $90,115 was primarily the result of the purchase of software.

 

Net cash used in financing activities was $331,676 for the year ended December 31, 2015 as compared to $740,123 during the year ended December 31, 2014.

 

As of December 31, 2015, we had cash and cash equivalents of $362,130, total current assets of $1,672,296 and total current liabilities of $12,707,261.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

  18  

 

 

Item 8. Financial Statements and Supplementary Data.

 

INDEX TO FINANCIAL STATEMENTS

 

Excel Corporation and Subsidiaries

December 31, 2015

 

Contents

 

Report of Independent Registered Public Accounting Firm F-1
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Financial Statements
   
Consolidated Balance Sheets, December 31, 2015 and December 31, 2014 F-3
   
Consolidated Statements of Operations
For the Years Ended December 31, 2015 and December 31, 2014 F-4
   
Consolidated Statements of Stockholders' Equity
From the Years Ended December 31, 2014 to December 31, 2015 F-5
   
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2015 and December 31, 2014 F-6
   
Notes to Consolidated Financial Statements F-7 - F-16

 

  19  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Excel Corporation and Subsidiaries

 

We have audited the accompanying consolidated balance sheet of Excel Corporation (the “Company”), as of December 31, 2015, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company, as of December 31, 2015, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Whitley Penn LLP

 

Dallas, Texas

 

April 13, 2016 

 

  F- 1  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Excel Corporation and Subsidiaries

 

We have audited the accompanying consolidated balance sheets of Excel Corporation and Subsidiaries (a Delaware Corporation) as of December 31, 2014, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2014.  Excel Corporation’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Excel Corporation and Subsidiaries as of December 31, 2014, and the consolidated results of its operations and its cash flows for the for the year ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Connolly, Grady & Cha, P.C.

 

Certified Public Accountants

 

Philadelphia, Pennsylvania

 

March 31, 2015

  

  F- 2  

 

 

Excel Corporation and Subsidiaries

Consolidated Balance Sheets

 

    December 31,     December 31,  
    2015     2014  
           
ASSETS            
Current Assets            
Cash and cash equivalents   $ 362,130     $ 326,788  
Accounts receivable     1,174,141       383,657  
Prepaid expenses     45,218       46,229  
Other receivables     -       90,000  
Inventory     7,262       7,119  
Other current assets     83,545       -  
Total current assets     1,672,296       853,793  
                 
Other Assets                
Fixed assets, net of depreciation     468,068       230,632  
Goodwill     7,914,269       4,440,355  

Note receivable

    675,000       -  
Equity investment     164,790       -  
Residual portfolios     2,505,164       -  
Other long term assets     613,683       68,027  
Total other assets     12,340,974       4,739,014  
Total assets   $ 14,013,270     $ 5,592,807  
                 
LIABILITIES & STOCKHOLDERS' EQUITY                
Current Liabilities                
Accounts payable   $ 1,374,878     $ 806,981  
Accrued compensation     1,508,531       602,683  
Other accrued liabilities     839,308       426,431  
Notes payable - current portion     8,984,544       581,674  
Total current liabilities     12,707,261       2,417,769  
                 
Long-term liabilities                
Notes payable - long term portion     226,733       681,361  
Other long term liabilities     41,692       29,748  
Total long term liabilities     268,425       711,109  
                 
Commitments and contingencies                
                 
STOCKHOLDERS' EQUITY                
Preferred stock, $.0001 par value, 10,000,000 shares  authorized, none issued and outstanding     -       -  
Series A preferred stock, $.001 par value 2 shares issued and outstanding as of December 31, 2015 and December 31, 2014.     -       -  
Common stock, $.0001 par value, 200,000,000 shares authorized 98,259,070 and 97,259,070 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively.     9,826       9,726  
Additional paid-in capital     4,428,391       4,232,342  
Accumulated deficit     (3,400,633 )     (1,778,139 )
Total stockholders' equity     1,037,584       2,463,929  
Total Liabilities and Stockholders' Equity   $ 14,013,270     $ 5,592,807  

 

See accompanying notes to consolidated financial statements.

 

  F- 3  

 

 

Excel Corporation and Subsidiaries

Consolidated Statements of Operations

 

    For the Years Ended  
    December 31,  
    2015     2014  
Revenues            
Equipment lease revenue   $ 11,950,253     $ 7,295,419  
Transaction and processing fees     5,549,482       2,228,878  
Merchant cash advance revenue and other     99,597       40,942  
Total revenues     17,599,332       9,565,239  
Costs and expenses                
Equipment and other merchant acquisition costs     2,365,300       1,422,013  
Merchant refund     1,135,213       453,347  
Processing and servicing costs     674,175       -  
Salaries and wages     11,280,640       7,412,124  
Outside commissions     1,600,815       1,281,595  
Other selling general and administrative expenses     2,239,829       2,017,067  
Total costs and expenses     19,295,972       12,586,146  
                 
Net loss from operations     (1,696,640 )     (3,020,907 )
                 
Other income                
Gain on sale of residual portfolio     445,742       2,800,000  
Gain on settlement of debt     -       175   ,101  
Total other income     445,742       2,975,101  
Interest expense     371,596       391,075  
                 
Net loss before income taxes     (1,622,494 )     (436,881 )
Income tax expense (benefit)                
Current     (714,560 )     (490,605 )
Deferred     714,560       490,605  
Total income tax expense (benefit)     -       -  
                 
Net loss   $ (1,622,494 )   $ (436,881 )
                 
Loss Per Share                
Basic & Diluted   $ (0.017 )   $ (0.005 )
                 
Weighted Average Shares Outstanding                
Basic & Diluted     98,261,810       94,009,760  

 

See accompanying notes to consolidated financial statements.

 

  F- 4  

 

 

Excel Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

 

    Preferred Stock     Series A Preferred Stock     Common Stock     Additional Paid-in     Accumulated  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit  
                                                 
Balances, January 1, 2014         $           $       67,064,892     $ 6,706     $ 1,010,947     $ (1,341,258 )
                                                                 
Issuance of common stock at .09 per share                                     1,628,570       163       149,837          
                                                               
Issuance of common stock at .30 per share                                     200,000       20       59,980          
                                                                 
Issuance of stock for acquisition of Securus                     2               22,400,000       2240       2,537,024          
                                                               
Issuance of common stock at .10 per share                                     500,000       50       49,950          
                                                                 
Stock compensation expense                                     5,465,608       547       424,604          
                                                                 
Net loss for the year ended December 31, 2014                                                             (436,881 )
                                                                 
Balances, December 31, 2014     -        $ -       2      $ -       97,259,070     $ 9,726     $ 4,232,342     $ (1,778,139 )
                                                                 
Balances, January 1, 2015     -        $ -      2      $   -     97,259,070     $ 9,726     $ 4,232,342     $ (1,778,139 )
                                                                 
Stock compensation expense                                     2,000,000       200       285,949          
                                                                 
Return of common stock at .09 per share                                     (1,000,000 )     (100 )     (89,900 )        
                                                                 
Net loss for the year ended December 31, 2015                                                            

(1,622,494

)
                                                                 
Balances, December 31, 2015     -        $ -       2     $    -     98,259,070     $ 9,826     $ 4,428,391     $

(3,400,633

)

 

See accompanying notes to consolidated financial statements.

 

  F- 5  

 

 

Excel Corporation and Subsidiaries

Consolidated Statements of Cash Flows

 

    For the Years Ended  
    December 31,  
    2015     2014  
Operating activities:            
Net loss   $ (1,622,494 )   $ (436,881 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     143,428       76,161  
Stock based compensation     286,149       425,151  
Gain on settlement of debt     -       (175,101 )
Changes in operating assets and liabilities:                
Decrease (increase)                
Accounts receivable     (328,837 )     (147,276 )
Prepaid expenses    

1,011

     

55,535

 
Inventory     (143 )     48,295  
Other current assets     83,513       -  
Other long term assets     (13,039 )     47,033  
Increase (decrease)                
Accounts payable     542,898       364,816  
Accrued compensation     905,848       468,907  
Other accrued liabilities     269,789       142,512  
Other long term liabilities     11,944       12,365  
                 
Net cash provided by operating activities     280,067       881,517  
                 
Cash flows from investing activities:                
Purchase of property and equipment     (170,935 )     -  
Disposal of property and equipment     -       142,503  
Acquisition of Securus     -       34,563  
Acquisition of eVance assets     257,886       -  
                 
Net cash provided by investing activities     86,951       177,066  
                 
Cash flows from financing activities:                
Issuance of notes     600,000       1,600,000  
Issuance of common stock     -       260,000  
Note and debt payments     (931,676 )     (2,600,123 )
                 
Net cash used in financing activities     (331,676 )     (740,123 )
                 

Net increase in cash and cash equivalents

  $ 35,342     $ 318,460  
                 

Cash and cash equivalents – Beginning

  $ 326,788     $ 8,328  
                 

Cash and cash equivalents- Ending

  $ 362,130     $ 326,788  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest     371,596       314,739  
                 
Supplemental disclosure of noncash items                
Net assets and liabilities acquired     Calpian US Assets       Securus  
Accounts receivable     461,647       234,131  
Inventory     -       55,414  
Prepaid expenses     -       68,785  
Other current assets     167,058       -  
Fixed assets, net of depreciation     174,403       449,296  

Note receivable

    675,000       -  
Equity investment     164,790       -  
Residual portfolios     2,540,690       -  
Other long term assets     532,617       197,122  
Accounts payable     25,000       295,216  
Accrued compensation     -       67,663  
Other accrued liabilities     143,089       121,880  
Notes payable     8,279,916       2,438,260  
Other long term liabilities     -       17,383  

 

See accompanying notes to consolidated financial statements.

 

  F- 6  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

1. ORGANIZATION AND OPERATIONS

 

Excel Corporation (the “Company”) was organized on November 13, 2010 as a Delaware corporation. The Company has three wholly owned subsidiaries, Excel Business Solutions, Inc., Payprotec Oregon, LLC (d/b/a Securus Payments), (“Securus”), and eVance Processing Inc. (“eVance”).

 

On February 17, 2014 the Company entered into a Securities Exchange Agreement (the “SEA”) with Securus, Mychol Robirds and Steven Lemma, to purchase 90% of the membership interests of Securus and its subsidiary Securus Consultants, LLC. On April 21, 2014 the Company completed the acquisition of 100% of Securus pursuant to the SEA and through a Securities Exchange Agreement (“E-Cig Agreement) with E-Cig Ventures LLC.

 

Prior to the acquisition of Securus in April of 2014, we were considered a developmental stage company as defined by FASB ASC 915-205-45-6. With the acquisition of Securus, we ceased to be a development stage company.

 

On November 30, 2015, eVance entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including an aggregate of $8,279,916 of notes payable and certain of the Sellers’ outstanding contractual obligations 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The Company’s financial statements are prepared on the accrual method of accounting.

 

The accounting and reporting policies of the Company conform with generally accepted accounting principles (GAAP). In the opinion of management, the accompanying consolidated financial statements of the Company contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the consolidated balance sheets as of December 31, 2015 and December 31, 2014, the consolidated statements of operations and comprehensive income for the years ended December 31, 2015 and 2014, and the consolidated statements of cash flows for the years ended December 31, 2015 and 2014. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”).

 

Business Combinations

 

Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred.

 

Goodwill

 

Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwill is assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred.

 

Revenue Recognition

 

The Company’s revenue includes proceeds from the sale of equipment leases of point of sale terminals and systems used to process credit and debit transactions. The Company records revenue when the sales process with respect to terminals and point of sale equipment is substantially complete.

 

In addition, the Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue.

 

The Company acts as an ISO selling alternative financing and working capital solutions (merchant cash advances) to small and medium sized businesses using a variety of third party funding sources. As an ISO, we earn commissions from capital funders by placing their financial products with our merchant customers. This portion of our business does not yet represent a significant portion of our revenues, costs or assets.

 

  F- 7  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Cash and Cash Equivalents

 

The Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents. The carrying amount of financial instruments included in cash and cash equivalents approximates fair value because of the short maturities for the instruments held. 

 

Income Taxes

 

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.

 

Reclassification

 

Certain prior period amounts have been reclassified to conform to the current year’s presentation.

 

Accounts Receivable

 

Accounts receivable represent contractual residual payments due from the Company's processing partners. These residual payments are determined based on transaction fees and revenues from the credit and debit card processing activity of merchants for which the Company’s processing partners pay the Company. Based on collection experience and periodic reviews of outstanding receivables, management considers all accounts receivable to be fully collectible and accordingly, no allowance for doubtful accounts is required.

 

Inventory

 

The Company accounts for inventory at the lower of cost (using the first-in first-out method) or market. Inventory consists entirely of terminals and point of sale equipment classified as finished goods.

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to ten years. Leasehold improvements are amortized over the lesser of the expected term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred.

 

Residual Portfolios

 

Residual portfolios are valued at fair value on the date of acquisition and are amortized over their estimated useful lives (7 years).

 

Equity Investments

 

Equity investments are valued at fair value on the date of acquisition using the equity method of accounting and adjusted in subsequent periods for the Company’s share of the investment’s earnings and distributions.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Material estimates that are particularly susceptible to significant change relate to the evaluation of deferred tax assets, purchase accounting, allowances, and equity investments.

   

  F- 8  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

3. FAIR VALUE MEASUREMENTS

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic No. 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as described below:

 

Level 1: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2: Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.

 

Level 3: Level 3 inputs are unobservable inputs.

 

The following required disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows:

 

Cash and Cash Equivalents, Accounts Receivable, Other Receivables, Inventory, Accounts Payable, Accrued Compensation, Other Accrued Liabilities, and Income Taxes Payable.

   

The items are generally short-term in nature, and accordingly, the carrying amounts reported on the consolidated balance sheets are reasonable approximations of their fair values.

 

Note Receivable, Other Long Term Assets, Notes Payable, and Other Long Term Liabilities.

 

The carrying amounts approximate the fair value as the notes bear interest rates that are consistent with current market rates.

 

4. RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers Topic 606 (“ASU 2014-09”) which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Revenue recorded under ASU 2014-09 will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for the Company’s fiscal year beginning January 1, 2018 and early adoption is not permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and noncurrent on the balance sheet and requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 may be applied retrospectively or prospectively and early adoption is permitted. The Company does not believe that this standard will have a material impact on its financial position.

 

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements.

 

5. INCOME TAXES

 

The Company accounts for income taxes in accordance with FASB Accounting Standards Codification Topic 740-10 which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards.

 

  F- 9  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

5. INCOME TAXES (Continued)

 

The Company reports its deferred tax asset net of a 100% valuation allowance at December 31, 2015 as the Company has not yet achieved profitability in any full year.

 

The reconciliation of the statutory rate to the Company’s effective income tax rate for the year ended December 31, 2015 is as follows:

 

    For the Year Ended December 31, 2015     For the Year Ended December 31, 2014  
             
Statutory Rate     (34 )%     (34 )%
State income tax, net of federal income tax benefit     (3 )%     (3 )%
Valuation Allowance     37 %     37 %
Effective Rate     - %     - %

 

Significant components of the Company’s deferred income taxes are as follows:

 

    For the Years Ended
December 31, 		 
    2015     2014  
             
Deferred Tax Assets                
Net operating loss carryforwards   $ 714,560     $ 490,605  
Accrued compensation     289,523       150,324  
Other accrued liabilities     52,503       36,183  
Depreciation and amortization     34,860       22,033  
Total deferred tax assets     1,091,446       699,145  
Valuation allowance     (1,091,446 )     (699,145 )
Net deferred tax asset     -       -  
Deferred tax liabilities     -       -  

 

The Company accounts for uncertainties in income taxes in accordance with FASB ASC Topic 740 “Accounting for Uncertainty in Income Taxes”. The Company has determined that there are no significant uncertain tax positions requiring recognition in its financial statements.

 

In the event the Company is assessed for interest and/or penalties by taxing authorities, such assessed amounts will be classified in the financial statements as income tax expense. Tax years 2012 through 2014 remain subject to examination by Federal and state taxing authorities. 

   

6. STOCKHOLDERS EQUITY

 

On April 21, 2014 the Company issued one share of Series A Preferred Stock to the each of the two previous members of Securus. As long as a former member holds at least 9,000,000 shares of the Company’s common stock, then that member has the right to exchange his share of preferred stock for a 24.5% share of the membership interests of Securus upon a change of control in Securus (as defined).

 

The Company issued 200,000 shares of common stock to TransBlue LLC in February 2014. The shares were issued in connection with the execution of an agreement with TransBlue LLC whereby the two companies would provide a form of transaction processing generally known as “point of banking” processing solutions. The agreement provides for the issuance of an additional 800,000 shares upon meeting certain operational goals. The Company does not presently expect these goals to be met nor any additional shares to be issued. In December 2014, The Company issued 500,000 shares of common stock to a law firm for services rendered during 2014, including services related to the acquisition of Securus.

 

  F- 10  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

6. STOCKHOLDERS EQUITY (Continued)

   

On November 30, 2015, in connection with its acquisition of the U.S. assets and operations of Calpian Inc., the Company issued warrants to purchase an aggregate of 5,452,458 shares of the Company’s common stock at an exercise price of $0.05 per share, subject to adjustments. The warrants expire on November 30, 2025.

  

We estimate the fair value of warrants and stock options when issued or vested using the Black-Scholes options pricing model and subsequent changes in fair value are not recognized. Option pricing models require the input of highly subjective assumptions. We determined, using the Black-Scholes options pricing model, that these warrants have no current value, based on a maturity date of 5 years, a risk-free interest rate of 2.230%, and a calculated volatility rate of 8.530%, using historical stock prices of the Company.

 

7. STOCK OPTIONS AND COMPENSATION

 

On November 13, 2010 the Company’s Board of Directors (the “Board”) approved a stock plan pursuant to which the Company may grant incentive and non-statutory options to employees, non-employee members of the Board and consultants and other independent advisors who provide services to the Corporation. The maximum shares of common stock which may be issued over the term of the plan shall not exceed 4,000,000 shares. Awards under this plan are made by the Board or a committee of the Board. Options under the plan are to be issued at the market price of the stock on the day of the grant except to those issued to holders of 10% or more of the Company’s Common Stock which is required to be issued at a price not less than 110% of the fair market value on the day of the grant. Each option is exercisable at such time or times, during such period and for such numbers of shares shall be determined by the Plan Administrator. However, no option shall have a term in excess of 10 years from the date of the grant.

 

On May 13, 2014, The Company issued 2,732,804 shares of the Company’s Common Stock to each of two executives in connection with their employment agreements. One third of the shares vested upon grant and the balance vest ratably over a two-year period. The Company recorded stock compensation expense in the amount of $267,816 and $424,040 for the fiscal years ended December 31, 2015 and 2014, respectively, related to these grants.

 

On August 28, 2014, the Company issued options for a total of 1,000,000 shares at an exercise price of $.09 per share. The options vest ratably over 36 consecutive months with 27,778 shares vesting on the last day of each calendar month commencing with September 30, 2014, and 27,805 shares vesting on the last day of the 36 th month. Compensation expense recorded for the fiscal years ended December 31, 2015 and 2014 was $3,333 and $1,111, respectively.

 

On June 1, 2015, the Company issued 2,000,000 shares of its Common Stock to an executive in connection with the executive’s employment and the use of certain trade names and brands owned by the executive. 500,000 shares vested upon grant and an additional 500,000 shares were scheduled to vest on June 1, 2016, June 1, 2017, and June 1, 2018. The Company terminated the executive’s employment in January 2016, and the shares subject to vesting were forfeited. The executive is currently disputing the forfeiture of these shares. Compensation expense related to these grants recorded for the fiscal year ended December 31, 2015 was $15,000.

 

    For the Years Ended December 31,
Restricted Stock Grants   2015   2014
Shares outstanding on January 1     5,465,608       —  
Granted     2,000,000       5,465,608  
Forfeited     —       —  
Shares outstanding on December 31     7,465,608       5,465,608  
Shares vested at December 31     4,143,739       2,884,573  

 

    For the Years Ended December 31,
Stock Options   2015   2014
    Shares   Weighted Average Exercise Price   Shares   Weighted Average Exercise Price
Options outstanding at January 1     1,000,000     $ 0.09       —       —  
Granted     —       —       1,000,000     $ 0.09  
Exercised     —       —       —       —  
Forfeited     —       —       —       —  
Options outstanding December 31     1,000,000     $ 0.09       1,000,000     $ 0.09  
Shares exercisable at December 31     444,448     $ 0.09       111,112     $ 0.09  

 

  F- 11  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

8. ACQUISITIONS

 

On April 21, 2014, the Company purchased 90% of the membership interests of Payprotec Oregon, LLC (d/b/a Securus Payments) (“Securus”) and its subsidiary Securus Consultants, LLC (“Securus Consultants”), through a Securities Exchange Agreement (the “Agreement”) with Mychol Robirds and Steven Lemma.

 

In exchange for their membership interests in Securus and Securus Consultants, the Company issued to Messrs. Robirds, and Lemma a total of 20,400,000 shares of the Company’s common stock and two shares of the Company’s Series A Preferred Stock. Securus also entered into three-year employment agreements (the “Employment Agreements”) with each of Messrs. Robirds and Lemma. 

 

Pursuant to a Securities and Exchange Agreement ("E-Cig Agreement") dated April 21, 2014 between the Company and E-Cig Ventures, LLC ("E-Cig"), the Company acquired the remaining 10% of the membership interests of Securus in exchange for the issuance of 2,000,000 shares of the Company's common stock and the agreement to guarantee a $1.5 million loan (the “Guaranty”) from Shadow Tree Income Fund A LP (“Shadow Tree”) to E-Cig (the "E-Cig Transaction"). As a result of the two transactions, the Company owns 100% of the membership interests of Securus.

 

Securus focuses on servicing merchants primarily through its partnership with First Data Corporation and providing credit card processing services. Securus provides merchants with competitive pricing on processing fees and services, and leases credit card terminals to the merchants. Securus generates revenues through the sales of these leases, and through a percentage share in residual fees from the merchants’ processing volumes.

 

The following is a summary of the estimated fair values of the assets acquired and liabilities assumed on April 22, 2014:

 

Cash and cash equivalents   $ 34,563  
Accounts receivable     234,131  
Inventory     55,414  
Prepaid expenses     68,785  
Fixed assets, net of depreciation     449,296  
Other long term assets     197,122  
Total assets     1,039,311  
         
Accounts payable     295,216  
Accrued compensation     67,663  
Other accrued liabilities     121,880  
Notes payable     2,438,260  
Other long term liabilities     17,383  
Total liabilities     2,940,402  
         
Fair value of net assets acquired   $ (1,901,091 )
Fair value of stock issued   $ 2,539,264  
Goodwill recognized on acquisition   $ 4,440,355  

 

The fair value of the net assets acquired less the fair value of stock issued resulted in an amount of $4,440,355, which was recorded as goodwill on the Company’s consolidated balance sheet.

 

  F- 12  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

8. ACQUISITIONS (Continued)

 

On November 30, 2015, eVance Processing Inc. (“eVance”), a wholly owned subsidiary of the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including an aggregate of $9,000,000 of notes payable and certain of the Sellers’ outstanding contractual obligations.

 

On April 12, 2016, eVance entered into an agreement with the Sellers and a cancellation of securities acknowledgement with one of eVance’s note holders whereby the noteholder cancelled their note in the amount of $720,084 and Calpian issued eVance a note in the amount of $675,000 in exchange for eVance waiving any claims for breach of the Purchase Agreement between eVance and Sellers. The $675,000 note bears simple interest of 12% per annum payable monthly, matures on November 30, 2017 and is secured by 2,000,000 shares of Calpian common stock. As part of the Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and Seller and has claimed damages in excess of $1,500,000. eVance has agreed to apply any recovery from such litigation (less costs) against the principle balance of the $675,000 note up to a maximum of $675,000. The Company reflected the cancellation of the $720,084 note and the receipt of the $675,000 Calpian note as a $1,395,084 reduction in goodwill. In addition, the noteholder cancelled and returned a warrant to purchase 360,042 shares of the Company’s common stock. 

The following is a summary of the estimated fair values of the assets acquired and liabilities assumed on November 30, 2015:

 

Cash and cash equivalents   $ 257,886  
Accounts receivable     461,647  
Other current assets     167,058  
Property and equipment, net     174,403  
Residual portfolios     2,540,690  
Equity investments     164,790  
Deposits     532,617  
Total assets     4,299,091  
         
Accounts payable     25,000  
Accrued liabilities     143,089  
Total liabilities     168,089  
         
Fair value of net assets acquired   $ 4,131,002  

Calpian note received

  $ 675,000  
Fair value of debt assumed   $ 8,279,916  
Goodwill recognized on acquisition   $ 3,473,914  

 

The fair value of the net assets acquired less the fair value of debt assumed resulted in a difference of $3,473,914, which has been recorded as goodwill in the Company’s consolidated balance sheets.

 

The consolidated statements of operations for the fiscal year ended December 31, 2015 includes the financial results of eVance since the date of acquisition, November 30, 2015, through December 31, 2015. During this period, eVance’s revenues were $1,022,073 and its net income was $64,965.

 

Pro Forma Financial Information (Unaudited)

 

The information that follows provides supplemental information about pro forma revenues and net income (loss) attributable to the Company as if the acquisitions of Calpian’s US assets by eVance and the acquisition of Securus had been consummated as of January 1, 2014. Such information is unaudited and is based on estimates and assumptions which the Company believes are reasonable.

 

  F- 13  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

8. ACQUISITIONS (Continued)

 

Pro Forma Financial Information (Continued)

 

These results are not necessarily indicative of the consolidated statements of operations in future periods or the results that would have actually been realized had the Company and eVance been a combined entity during 2014 and 2015.

 

    Years Ended  
Selected Pro Forma Financial Information   December 31,  
    2015     2014  
    Excel     Calpian U.S. Assets     Total     Excel     Calpian U.S. Assets     Securus     Total  
Revenues   $ 17,599,332     $ 14,621,149     $ 32,220,481     $ 9,565,239     $ 21,468,887     $ 3,622,141     $ 34,656,267  
Net income (loss) attributable to the Company   $ (1,622,494 )   $ 72,942     $ (1,549,552 )   $ (436,881 )   $ 3,639,431     $ (542,294 )   $ 2,660,256  
Net income (loss) attributable to the Company per common share - basic and diluted   $ (0.02 )   $ 0.001     $ (0.02 )   $ (0.005 )   $ 0.04     $ (0.006 )   $ 0.03  

 

9. PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following for the years ending:

 

    December 31, 2015     December 31, 2014  
Computer software   $ 219,146     $ 6,588  
Equipment     285,597       162,524  
Furniture & fixtures     99,688       75,162  
Construction in process     -       30,000  
Leasehold improvements     119,942       110,041  
Total cost     724,373       384,315  
Less accumulated depreciation and amortization     (256,305 )     (153,683 )
Property and equipment – net   $ 468,068     $ 230,632  

 

10. LEASES

 

Securus leases its Oregon office facilities under an operating lease expiring in June 2019. Monthly lease payments range from $16,153 to $24,795 throughout the term of the lease.

 

Securus leases its California office facilities under an operating lease expiring in March 2016. Monthly lease payments range from $6,059 to $6,426 throughout the term of the lease.

 

Securus leases its Florida office facilities under an operating lease expiring in December 2016. Monthly lease payments range from $3,180 to $3,374 throughout the term of the lease.

 

The Company executed a lease for its corporate offices in Irving Texas. The lease began on November 1, 2014 and has a term of 63 months with monthly payments ranging from $0 to $6,428.

 

eVance leases its Georgia office facilities under an operating lease expiring in June 2016. Monthly lease payments range from $2,248 to $7,295 throughout the term of the lease.

 

Total rent expense for the year ended December 31, 2015 was $438,109, compared to $279,995 for the year ended December 31, 2014.

 

The future minimum lease payments required under long-term operating leases as of December 31, 2015 are as follows:

 

2016   $ 455,324  
2017     361,010  
2018     369,558  
2019     225,795  
2020     6,429  
Total   $ 1,418,116  

 

  F- 14  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

11. NOTES PAYABLE

 

The following summarizes the Company’s outstanding notes payable for the years ending: 

 

    December 31, 2015     December 31, 2014  
Note payable to BAV, due in monthly installments of $48,333 through May 2017, including simple interest at 15%, secured by the Company’s residual portfolio   $ 681,361     $ 1,032,960  
                 
Note payable to Ecig, due in monthly installments of $26,207 beginning October 2014 through September 2015, including interest at 6%, secured by 1,000,000 shares of the Company’s common stock owed to the Company by Ecig     -       230,075  
                 
Note payable to SME Funding LLC, due December 1,2016, bearing simple interest at 12%, secured by the Company’s residual portfolio     500,000       -  
                 
Notes payable due December 1, 2016, bearing interest at 12%, secured by the assets of eVance     8,029,916       -  
                 
Total     9,211,277       1,263,035  
                 
Less current portion     (8,984,544 )     (581,674 )
                 
Long-term portion of notes payable   $ 226,733     $ 681,361  

 

Future maturities of notes as of December 31, 2015 are as follows:

 

2016     8,984,544  
2017     226,733  
Total   $ 9,211,277  

 

On June 30, 2014, the Company executed new financing arrangements with BlueAcre Ventures LLC (“BAV”) whereby Securus sold $100,000 of its monthly residuals for an immediate cash payment of $2,800,000, recognized as a gain on the Company’s statement of operations.

 

Simultaneous with the residual portfolio sale, BAV loaned $1.2 million to the Company under a promissory note bearing simple interest of 15% per year that may be reduced to as low as 11% per year (the “BAV Note”). Any interest rate reduction is conditioned on the achievement of certain milestones with respect to signing new merchant customer applications. The BAV Note is secured by certain of the Company’s residuals. In connection with the sale of the monthly residuals and the issuance of the BAV Note, Securus entered into a marketing agreement whereby it agreed to sign new customers for merchant processing services with an affiliate of BlueAcre.

 

On November 30, 2015, in connection with the purchase of the U.S. assets and operations of Calpian, eVance assumed an aggregate of $9,000,000 of notes payable, including $6.0 million of debt issued pursuant to a note offering conducted by Calpian and in which the Company invested $250,000. Concurrently, eVance issued amended promissory notes (the “Notes”) in favor of each lender (collectively, the “Lenders”) evidencing eVance’s assumption of $9,000,000 of indebtedness. Pursuant to a purchase price adjustment agreement dated April 12, 2016, the principal value of the notes was reduced to $8,279,916 (see Note 13). The Notes and eVance’s obligations under the Loan Agreement are unconditionally guaranteed by the Company, as set forth in the Guarantee, dated November 30, 2015 (the “Guarantee”), entered into by the Company in favor of each of the Lenders. The Notes bear interest at an annual rate of 12% for the first seven months, after which the annual interest rate will increase by one percentage point per month each month until the annual interest rate is 17%. Interest payments on the Notes are payable monthly, with the first payment being made on December 5, 2015. Principal on the Notes are due November 30, 2016, and may be prepaid without penalty at eVance’s discretion. The Loan Agreement contains customary events of default, including, but not limited to, non-payment of principal or other amounts under the Notes, breach of covenants, certain voluntary and involuntary bankruptcy events, and the occurrence of a sale of all or substantially all of eVance’s assets. If any event of default occurs and is continuing, any Lender may upon notice to eVance and the other Lenders declare all amounts owed to be due (except for a bankruptcy event of default), in which case such amounts will automatically become due and payable. The $250,000 of Notes purchased by the Company have been eliminated in consolidation to reflect a net balance of $8,029,916.

 

On October 23, 2015, SME Funding LLC advanced the Company $500,000 to help finance the acquisition of the US assets of Calpian Inc by eVance. This advance was converted into a note maturing December 1, 2016 with interest only payable monthly at an annual rate of 12%. The note is secured by certain assets of the Company’s residual portfolios.

 

  F- 15  

 

 

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2015

 

12. RELATED PARTY TRANSACTIONS

 

On January 14, 2014, Ruben Azrak, Chairman of the Board and then Interim Chief Executive Officer, advanced the Company $25,000. This advance bears no interest and does not provide for a specific repayment date.

 

In connection with its acquisition of Securus, the Company acquired an advance made by Securus to Securus Contact Systems, LLC (“SCS”) in the amount of $178,246. SCS is owned by the former members of Securus who are currently key employees of the Company. The advance was repaid in October 2014.

 

On October 15, 2015, SME Funding LLC purchased a residual portfolio of $13,000 of monthly recurring revenue from the Company in exchange for $445,742. SME is wholly owned by Steven Lemma who is the Chief Executive Officer of the Securus. The $445,742 was recorded as a gain on the sale of residual portfolio on the accompanying statements of operations.

 

On October 23, 2015, SME Funding LLC advanced the Company $500,000 to help finance the acquisition of the US assets of Calpian by eVance. This advance was converted into a note maturing December 1, 2016 with interest only payable monthly at an annual rate of 12%. The note is secured by certain assets of the Company’s residual portfolios.

 

13. SUBSEQUENT EVENTS

 

On February 15, 2016, SME Funding LLC purchased $35,000 of the Company’s residuals for $700,000 cash pursuant to a residual purchase agreement (“RPA”). Under the terms of the RPA, the Company is obliged to maintain the residual at $35,000 for a period of 20 months. In addition, the Company has the right to repurchase the residuals for $770,000 until October 17, 2017. As a result of the repurchase option, the Company will not account for the transaction as a sale but as a liability.

 

On March 18, 2016, the Company issued 2,300,000 Shares of Series B Convertible Preferred Stock (“Series B Shares”) to each of Thomas A. Hyde Jr. and Robert L. Winspear (each a “Holder” and collectively the “Holders”) at a price of $0.05 per share pursuant to subscription agreements between the Company and the Holders. Mr. Hyde is the President, Chief Executive Officer and a Director of the Company. Mr. Winspear is the Chief Financial Officer of the Company.

 

The Series B Shares are convertible into shares of the Company’s common stock par value $0.0001 (“Common Stock”) on a ratio of 1-to-1, subject to adjustment for stock splits and stock dividends. The Series B Shares rank senior to the Common Stock and other preferred shares and carry a liquidation preference of $.05 per share. Holders of the Series B Shares are entitled to receive dividends declared on the Company’s Common Stock on an as converted basis. Each Series B Share entitles the Holder thereof to 20 votes per share on all matters subject to voting by holders of the Company’s Common Stock. The issuance of a total of 4,600,000 shares of Series B Shares, entitles the Holders thereof to vote a combined 92,000,000 shares. Under the terms of the Series B Shares, the Company has the right to require a Holder to convert the Series B Shares into Common Stock at any time after the Holder resigns, is terminated or otherwise ceases to be an officer of the Company. In addition, the Company has the right at any time after July 18, 2016 to repurchase and retire all but not less than all of the Series B Preferred Stock for $0.05 per share provided that it gives notice to the Holder of the Company’s intent to redeem the shares and the Holder does not elect to convert the Series B Shares into Common Stock in lieu of the redemption.

 

In connection with the issuance of the Series B Shares, the Company and the Holders executed a Stockholders Agreement (the “Agreement”) whereby the Holders agreed not to initiate directly or indirectly any stockholder vote or action, by written consent or otherwise, to increase the size or structure of the Company’s board of directors or remove any existing director, nor initiate directly or indirectly any stockholder vote or action by written consent or otherwise, to affect Holders’ executive compensation, bonus criteria and amounts, or other similar action. The Holders also agreed to convert the Series B Shares immediately upon termination, whether voluntary or involuntary, or upon their resignation for any reason. 

 

On April 12, 2016, eVance entered into an agreement with the Sellers and a cancellation of securities acknowledgement with one of eVance’s note holders whereby the noteholder cancelled their note in the amount of $720,084 and Calpian issued eVance a note in the amount of $675,000 in exchange for eVance and the Sellers mutually waiving any claims either party has or could have under the Purchase Agreement against one another. The $675,000 note bears simple interest of 12% per annum payable monthly and matures on November 30, 2017. As part of the Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and Seller and has claimed damages in excess of $1,500,000. eVance has agreed to apply any recovery from such litigation (less costs) against the principle balance of the $675,000 note up to a maximum of $675,000. The Company reflected the reduction in the assumed debt by $720,084 as a reduction in goodwill and a reduction in the debt assumed. In addition, the noteholder returned a warrant to purchase 360,042 shares of the Company’s common stock.

 

On April 8, 2016 Securus and two executives of Securus signed a non-binding Memorandum of Understanding (“MOU”) whereby Securus would transfer the leasing operations of Securus to a new company formed by the executives (“Newco”) in return for a preferred marketing agreement whereby Newco would act as an ISO or agent for Excel. Under the terms of the MOU, Securus will provide Newco financial support totaling $550,000 over eight months and transfer substantially all of its assets except for is portfolio of recurring residual revenues to Newco. In addition, Securus will reimburse Newco for commissions that are currently payable to Securus employees and outside agents related to the residual portfolio. There can be no assurance that Securus will execute a definitive transaction with its executives or that the terms of that transaction differ materially from the MOU.

 

  F- 16  

 

 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

At no time have there been any disagreements with our accountants regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

 

Item 9A. Controls and Procedures.

 

Evaluation of disclosure controls and procedures  

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 15d-15(e) promulgated under the Exchange Act, as of December 31, 2015. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with United States’ generally accepted accounting principles (“US GAAP”), including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting.  Based on this evaluation, management has concluded that as of December 31, 2015, our internal control over financial reporting was effective. 

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant rules of the SEC that permit the Company to provide only management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal control over financial reporting that occurred during the year ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None

 

  20  

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The following table sets forth the names, ages, and positions of our executive officers, directors and key employees as of the date of this report. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board, or his successor is elected and qualified. Directors are elected annually by our stockholders at the annual meeting. Each director holds his office until his successor is elected and qualified or his earlier resignation or removal.

 

Name   Age   Position with the Company
         
Thomas A. Hyde Jr.   54   Director, President and Chief Executive Officer
Robert L. Winspear   50   Vice President, Secretary, and Chief Financial Officer
Ruben Azrak   64   Chairman of the Board
Karl Power   54   Director

 

The term of office of each director ends at the next annual meeting of our stockholders or when such director's successor is elected and qualified. No date for the next annual meeting of stockholders is specified in our bylaws or has been fixed by the Board of Directors. The term of office of each officer ends at the next annual meeting of our Board of Directors, expected to take place immediately after the next annual meeting of stockholders, or when such officer's successor is elected and qualifies.

 

Biographies

 

Thomas A. Hyde Jr., Director, President and Chief Executive Officer. Mr. Hyde, was elected President and Chief Executive Officer on May 13, 2014. On November 30, 2015 Mr. Hyde was appointed a director of the Company. Prior to joining the Company, Mr. Hyde had been the Principal, Managing Partner and Director of Red Shark Investments, LLC, since August 2014. From 2002 to 2014 Mr. Hyde served in various capacities for Teletouch Communications, Inc. (formerly OTC: TLLE) and its affiliates, most recently as a Director, President and COO. Subsequent to his tenure there, Teletouch filed for chapter 7 bankruptcy. Mr. Hyde currently sits on the Board Executive Committee for the ESPN Armed Forces Bowl. Mr. Hyde was awarded U.S. Patent #6,038,553 for the self-service check cashing and automated financial services technology platform now known as Vcom™. Mr. Hyde holds a B.A. degree in Finance from the University of Texas at Austin.

 

Robert L. Winspear, Vice President, Secretary, and Chief Financial Officer. Mr. Winspear was elected Vice President, Secretary and Chief Financial Officer on May 13, 2014. Prior to joining the Company, Mr. Winspear had been the President of Winspear Investments LLC, a Dallas based private investment firm specializing in lower middle market transactions, since 2002. Winspear Investments has made investments in a wide range of industries including banking, real estate, distribution, supply chain management, mega yacht marinas and hedge funds. Mr. Winspear earned a Bachelor of Business Administration and a Masters of Professional Accounting from the University of Texas at Austin. Mr. Winspear is on the board of directors of Alpha Financial Technologies/EAM Corporation, located in Grapevine Texas and VII Peaks Co-Optivist Income BDC II, Inc. an investment management company located in Orinda, California.

 

Ruben Azrak, Chairman of the Board of Directors. Ruben Azrak is a founder of the Company and has been a director since our incorporation in November 2010. Mr. Azrak was our Chief Executive Officer from inception until January 2014 and also served as Chief Executive Officer from February to May 2014. Beginning in 1998, along with Russell Simmons, Mr. Azrak developed Phat Farm Licensing. Phat Farm Licensing was sold in 2004. Mr. Azrak is Chairman and a Director of RVC Enterprises. RVC licenses and produces Rocawear, the ladies sportswear line from the entertainer-entrepreneur Jay-Z. In addition, RVC owns the license for Ellen Tracy sportswear and Beverly Hills Polo Club. Mr. Azrak is also President and the sole director of Lifeguard Licensing Corp. and Lucky Star licensing. Mr. Azrak’s prior experience with both Phat Farm Licensing and RVC qualifies him to serve as a member of our Board of Directors.

 

Karl Power, Director. Karl Power was appointed as a director of the Company on November 30 2015. Mr. Power has been Chairman and CEO of Active In Home Therapy a healthcare services provider since August 2011. Mr. Power was appointed a director in connection with the acquisition of the US assets of Calpian Inc. by the Company on November 30, 2015.

 

  21  
 

 

Compliance With Section 16(a) of the Exchange Act

 

Our common stock is not registered under Section 12 of the Exchange Act and therefore our directors, executive officers and beneficial holders of 10% or more of our outstanding common stock are not subject to Section 16 of the Exchange Act. Section 16(a) of the Exchange Act requires executive officers and directors, and persons who beneficially own more than 10% of a registered class of equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of common stock and other equity securities.

 

Code of Ethics

 

We have adopted a written code of business conduct and ethics, to be known as our code of ethics, which applies to our principal executive officer, principal financial officer, principal accounting officer and all persons providing similar functions.

 

A code of ethics is a written standard designed to deter wrongdoing and to promote:

 

  ● honest and ethical conduct;
     
  ● full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements;
     
  ● compliance with applicable laws, rules and regulations;
     
  ● the prompt reporting violation of the code; and
     
  ● accountability for adherence to the code.

 

We will provide a copy of the code of ethics free of charge upon request to any person submitting a written request to our Chief Executive Officer.

 

Board Committees

 

Our Board of Directors has no separate committees. No member of our Board of Directors qualifies as an audit committee financial expert.

 

  22  
 

 

Item 11. Executive Compensation.

 

Summary Compensation Table

 

The table below summarizes the total compensation paid or awarded to our Named Executive Officers by Company during the years ended December 31, 2015 and 2014. Prior to 2014, none of our officers received compensation.

 

Summary Compensation Table
Name and Principal Position   Year     Salary     Bonus     Stock Awards     Other Compensation     Total Compensation  
Thomas A. Hyde, Jr., President and Chief Executive Officer (Principal Executive Officer) (a)     2014     $ 222,727     $ 200,000     $ 401,722       -     $ 824,449  
      2015     $ 350,000     $ 350,000       -       -     $ 700 ,000  
                                                 
Robert L. Winspear, Vice President, Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) (a)     2014     $ 222,727     $ 200,000     $ 401,722       -     $ 824,449  
      2015     $ 350,000     $ 350,000       -       -     $ 700,000  

 

(a) Messrs. Hyde and Winspear receive base salaries of $350,000 per year pursuant to their employment agreements. They joined the Company on May 13, 2014.

 

  23  
 

 

Outstanding Equity Awards at Year end update

 

The following table sets forth the outstanding equity awards at December 31, 2015 for the named executive officers.

 

    Stock Awards  
    Number of shares of stock that have not vested     Market value of shares that have not vested  
Thomas A. Hyde, Jr.     910,935     $ 36,437  
Robert L. Winspear    

910,935

    $ 36,437  

 

Employment Agreements and Compensation

 

The Company has employment agreements with Thomas A. Hyde, Jr. and Robert L. Winspear. The terms of their employment agreements are identical. Mr. Hyde, our Chief Executive Officer earns a salary of $350,000 per year.  Mr. Winspear, our Chief Financial Officer, earns a salary of $350,000 per year. They are each entitled to receive an annual bonus (the “Annual Bonus”) equal to a minimum of 100% of the employee’s Base Salary, and according to performance criteria established and mutually agreed upon by the Company’s Board of Directors (or the compensation committee thereof) and the employee has been achieved. For the 2015 fiscal year, the Annual Bonus shall be $465,000, subject to adjustment based upon the reasonable discretion of the Board of Directors of the Company or the compensation committee thereof. They each received a grant of common stock (the “Stock Grant”) equal to 2,732,804 or three percent (3%) of the Company’s outstanding common stock. One third (910,934 shares) vested immediately and an additional one-third (910,935 shares) shall vest on the first and second anniversary of the Effective Date. They are also entitled to participate in the Company’s benefit plans. Their employment agreements can be terminated, among the other things, by the Company for cause or by the employee for certain good reasons. Their employment agreements also contain customary provisions of confidentiality and non-competition or non-solicitation. In the event that the Company terminates the employee for reasons other than cause or if the employee terminates the agreement for good reason, the employee shall be entitled to severance in an amount equal to 100% of his annual salary.

 

Except as provided for in agreements that the Company may enter into with its executive officers, any bonus compensation to executive officers will be determined by our Board of Directors or a compensation committee based on factors it deems appropriate, including the achievement of specific performance targets and our financial and business performance.

 

  24  
 

 

Compensation of Directors

 

None of our directors received compensation for the years ended December 31, 2015 or 2014.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following tables set forth certain information as of April 13, 2016 regarding the beneficial ownership of our stock by (i) each person or entity who, to our knowledge, owns more than 5% of any class of our stock; (ii) our executive officers; (iii) each director; and (iv) all of our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power.

 

              Percentage  
        Number of     Beneficially  
        Shares     Owned of  
Name of Beneficial Owner   Title of
Class of Stock 		  Beneficially Owned     Respective Class (1)  
5% Owners :                
Steven Lemma (2)   Common     10,200,000       10.4 %
    Series A Preferred     1       50.0 %
    Series B Preferred     -         -
Mychol Robirds (2)   Common     10,200,000       10.4 %
    Series A Preferred     1       50.0 %
    Series B Preferred     -         -
Samuel Chanin Irrevocable Insurance Trust December 21, 2006 (4)   Common     6,474,468       6.6 %
    Series A Preferred     -       -  
    Series B Preferred     -         -
Executive Officers and Directors :                    
Thomas A. Hyde Jr. (2)   Common     2,732,804       2.8 %
    Series A Preferred     -       -  
    Series B Preferred     2,300,000       50.0 %
Robert L. Winspear (2)   Common     2,732,804       2.8 %
    Series A Preferred     -       -  
    Series B Preferred     2,300,000       50.0 %
Ruben Azrak (2) (3)   Common    

6,294,20 0

      6.4 %
    Series A Preferred     -       -  
    Series B Preferred     -         -
Karl Power (5)   Common     1,630,000       1.7 %
    Series A Preferred     -       -  
    Series B Preferred     -         -
All executive officers and directors as a group (four persons)   Common    

13,389,808

      13.6 %
    Series A Preferred     -       - %
    Series B Preferred     4,600,000     100 %

 

  (1) Based on 98,259,070 shares of our common stock issued and outstanding.
  (2) The address for all officers and directors, as well as Mr. Lemma and Mr. Robirds is c/o Excel Corporation 6363 N. State Hwy 161, Suite 310 Irving TX 75038
  (3)

Includes 3,104,600 shares held by Sarah Azrak, the wife of Ruben Azrak.  

  (4)

Lieba Chanin is a natural person with voting and dispositive power over 6,474,468 shares of our common stock as trustee for The Samuel Chanin Irrevocable Insurance Trust December 21, 2006. The address for the trust is 1 MetroTech Center Suite 2001 Brooklyn NY, 11201.

  (5) Includes a warrant for the issuance of 1,500,000 shares of common stock and direct ownership of 130,000 shares of our common stock.

 

  25  
 

 

Change in Control

 

Pursuant to their employment agreements, Mr. Hyde and Mr. Winspear may be entitled to the following payments under a change in control as defined in their respective employment agreements:

 

Mr. Hyde   $ 350,000  
Mr. Winspear   $ 350,000  

 

Item 13. Certain Relationships and Related Transactions.

 

On October 15, 2015, SME Funding LLC purchased a residual portfolio of approximately $13,000 of monthly recurring revenue from the Company in exchange for $445,742. SME is wholly owned by Steven Lemma who is the Chief Executive Officer of Securus. The $445,742 was recorded as a gain on the sale of residual portfolio on the accompanying statement of operations.

 

On October 23, 2015, SME Funding LLC advanced the Company $500,000 to help finance the acquisition of the US assets of Calpian, Inc. by eVance. This advance was converted into a note maturing December 1, 2016 with interest only payable monthly at an annual rate of 12%. The note is secured by certain assets of the Company’s residual portfolios.

 

On February 15, 2016, SME Funding LLC purchased $35,000 of the Company’s residuals for $700,000 cash pursuant to a residual purchase agreement (“RPA”). Under the terms of the RPA, the Company is obliged to maintain the residual at $35,000 for a period of 20 months. In addition, the Company has the right to repurchase the residuals for $770,000 until October 17, 2017. As a result of the repurchase option, the Company will not account for the transaction as a sale but as a liability.

 

Director Independence

 

The Company has determined that Karl Power would be considered an independent director.

 

Item 14. Principal Accountant Fees and Services.

 

For the year ended December 31, 2015, the firm of Whitley Penn was our principal accounting firm. For the year ended December 31, 2014, Connolly Grady and Cha, P.C. was our principal accounting firm. The following is a summary of fees paid or to be paid to them for services rendered.

 

Audit Fees : Aggregate fees billed by Whitley Penn and Connolly, Grady & Cha, P.C. for professional services rendered for the audit of our annual financial statements and review of our interim financial statements for the year ended December 31, 2015 and 2014 were $45,193 and $35,168 respectively.

 

All Other Fees : There were $3,940 of additional consulting and research fees billed by Whitley Penn for the year ended December 31, 2015 relating to eVance’s acquisition of Calpian’s US assets.

 

  26  
 

 

PART IV 

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a)            List of Financial Statements

 

The following consolidated financial statements of the Company are included in “Financial Statements and Supplementary Data”:

 

Consolidated Balance Sheets     F-2
Consolidated Statements of Operations     F-3
Consolidated Statements of Stockholders’ Deficit     F-4
Consolidated Statements of Cash Flows     F-5
Notes to Consolidated Financial Statements     F-6 - F-15

 

(b)           Exhibits

 

The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.

 

Exhibit Number   Description
     
10.20*   Purchase Price Adjustment Agreement, dated April 12, 2016.
     
10.21*   Promissory Note to Excel Corporation, dated April 12, 2016.
     
23.1*   Consent of Independent Registered Public Accounting Firm, dated April 12, 2016.
     
31.1*     Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
     
31.2*     Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
     
32.1*     Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
     
32.2*     Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
     
101.INS *   XBRL Instance Document
     
101.SCH *   XBRL Taxonomy Extension Schema Document
     
101.CAL *   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF *   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB *   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE *   XBRL Taxonomy Extension Presentation Linkbase Document

  

* Filed herewith.

 

  27  
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  EXCEL CORPORATION
   

April 13, 2016

By:  /s/ Thomas A. Hyde, Jr.
    Thomas A. Hyde, Jr.
Chief Executive Officer

 

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Thomas A. Hyde, Jr.   Chief Executive Officer and Director  

April 13, 2016

Thomas A. Hyde, Jr.   (principal executive officer)    
         
/s/ Robert L. Winspear   Chief Financial Officer and Treasurer  

April 13, 2016

Robert L. Winspear   (principal financial and accounting officer)     
         
/s/ Ruben Azrak   Chairman of the Board  

April 13, 2016

Ruben Azrak        
         
/s/ Karl Power   Director  

April 13, 2016

Karl Power        

 

  28  
 

 

Exhibit Index

  

Exhibit No   Description
     
2.1  

Agreement of Merger and Plan of Reorganization, dated January 14, 2013 by and among Excel Corporation, ECB Acquisition Corp and Excel Business Solutions, Inc., is incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated January 18, 2013.

     
2.2  

Certificate of Merger, dated January 14, 2013, merging ECB Acquisition with Excel Business Solutions, is incorporated herein by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K dated January 18, 2013.

     
2.3  

Asset Purchase Agreement, dated November 30, 2015, between eVance Processing Inc., Calpian Residual Acquisition, LLC and Calpian Commerce, Inc., is incorporated herein by reference to Exhibit 2.01 of the Company’s Current Report on Form 8-K dated November 30, 2015.

     
3.1   Certificate of Incorporation of Ruby Worldwide Ltd., dated November 11, 2010, is incorporated herein by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702).
     
3.2   Certificate of Amendment of Certificate of Incorporation of Ruby Worldwide Ltd., dated December 1, 2012, is incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702).
     
3.3   Certificate of Amendment of Certificate of Incorporation of Excel Corporation, dated January 19, 2011, is incorporated herein by reference to Exhibit 3.3 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702).
     
3.4   By-Laws of Excel Corporation is incorporated herein by reference to Exhibit 3.4 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702).
     
3.5   Certificate of Designation of Series B Convertible Preferred Stock, is incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated March 18, 2016.
     
4.1   Promissory Note, dated January 29, 2016, issued by Excel Corporation, is incorporated herein by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated January 29, 2016.
     
10.01  

Employment Agreement dated May 14, 2014 by and between Excel Corporation and Thomas A. Hyde, Jr., is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated May 15, 2014.

     
10.02  

Employment Agreement, dated May 14, 2014 by and between Excel Corporation and Robert L. Winspear, is incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K May 15, 2014.

     
10.03  

Form of Lockup Agreement, dated January 14, 2013, by and between Excel Business Solutions and Excel Corporation, is incorporated herein by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K dated January 18, 2013.

     
10.04   Equity Incentive Plan by Excel Corporation, dated for the year 2011, is incorporated herein by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702).
     
10.05   Subscription Agreement, dated as of April 31, 2011, of and between Excel Corporation and Purchaser, is incorporated herein by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1/A, as filed with the SEC on April 31, 2011 (File No. 333-173702).
     
10.06  

Portfolio Purchase Agreement effective June 30, 2014 between Payprotec Oregon, LLC (dba Securus Payments) and BlueAcre Ventures LLC is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated July 7, 2014.

     
10.07   Secured Residual Loan Agreement effective June 30, 2014 between Payprotec Oregon, LLC (dba Securus Payments) and BlueAcre Ventures LLC. is incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated July 7, 2014.
     
10.08   Promissory Note effective June 30, 2014 between Payprotec Oregon, LLC (dba Securus Payments) and BlueAcre Ventures LLC is incorporated herein by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K dated July 7, 2014.

 

  29  
 

10.09   Settlement Agreement and Release effective June 30, 2014 between Payprotec Oregon, LLC (dba Securus Payments), Excel Corporation, Steven Lemma, Mychol Robirds, Shalom Auerbach, and E-Cig Ventures, LLC is incorporated herein by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K dated July 7, 2014.
     
10.10   Third Amended and Restated Operating Agreement of Payprotec Oregon, LLC (dba Securus Payments) effective June 30, 2014 is incorporated herein by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K dated July 7, 2014.
     
10.11   Promissory Note effective June 30, 2014 between Excel Corporation and E-Cig Ventures, LLC is incorporated herein by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K dated July 7, 2014.
     
10.12   Securities Exchange Agreement, dated February 17, 2014, between the Company, Payprotec Oregon, LLC (d/b/a Securus Payments), Mychol Robirds and Steven Lemma is incorporated herein by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K dated February 21, 2014.
     
10.13   Amendment dated as of April 10, 2014 to the Securities Exchange Agreement, dated February 17, 2014, between the Company, Payprotec Oregon, LLC (d/b/a Securus Payments), Mychol Robirds and Steven Lemma is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K/A dated April 11, 2014.
     
10.14   Form of Amended and Restated Secured Promissory Note, dated November 30, 2015, issued by eVance Processing Inc., is incorporated herein by reference to Exhibit 10.01 of Company’s Current Report on Form 8-K dated November 30, 2015.
     
10.15   Amended and Restated Loan and Security Agreement, dated November 30, 2015, is incorporated herein by reference to Exhibit 10.02 of Company’s Current Report on Form 8-K dated November 30, 2015.
     
10.16   Form of Warrant to purchase common stock of the Company, is incorporated herein by reference to Exhibit 10.03 of Company’s Current Report on Form 8-K dated November 30, 2015.
     
10.17   Guarantee, dated November 30, 2015, is incorporated herein by reference to Exhibit 10.04 of Company’s Current Report on Form 8-K dated November 30, 2015.
     
10.18   Agreement, dated January 29, 2016, between Excel Corporation and SME Funding LLC, is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated January 29, 2016.
     
10.19   Form of Stockholder Agreement, is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated March 18, 2016.
     
10.20   Purchase Price Adjustment Agreement, dated April 12, 2016.
     
10.21   Promissory Note to Excel Corporation, dated April 12, 2016.
     
14.1   Code of Business Conduct and Ethics Agreement by Excel Corporation, dated April 22, 2011, is incorporated herein by reference to Exhibit 14.1 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702).
     
23.1   Consent of Independent Registered Public Accounting Firm, dated April 12, 2016.
     
31.1   Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed  by Principal Executive Officer of Excel Corporation.
     
31.2   Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed  by Principal Financial Officer of Excel Corporation.
     
32.1   Certification pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Principal Executive Officer and Principal Financial Officer of Excel Corporation.

 

 

  30  

 

 

101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

 

 

31

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