1. ORGANIZATION AND OPERATIONS
Excel Corporation (the “Parent”) was organized November 13, 2010 as a Delaware corporation. The Parent has two wholly owned subsidiaries, XL Fashions Inc. formed in fiscal year 2012, (the “First Subsidiary”), Excel Business Solutions, Inc., formed in fiscal year 2013 (see note 14), (the “Second Subsidiary”), (Parent, First Subsidiary and Second Subsidiary, collectively, the “Company”).
The Company currently is considered a development stage company as defined by FASB ASC 915-205-45-6. The Company is currently devoting substantially all of its efforts in two areas. First, the Company is licensing brands in a broad range of product categories. The Company also intends to license select brands where the brand name can be leveraged into new categories. The Company’s objective is to develop a diversified portfolio of iconic consumer brands by issuing licenses and then organically growing the existing portfolio, licensing new brands and entering into joint ventures or other partnerships with the goal of leveraging the experience of management in the license of branded merchandise.
Based upon the experience of its management, the Company expects that its licenses will typically require licensees to pay royalties based upon net sales with guaranteed minimum royalties in the event that net sales do not reach specified targets. The Company further expects that any licenses issued will require licensees to pay certain minimum amounts for the advertising and marketing of the respective license brands.
The Company’s other efforts are be in the merchant processing industry. The Company will focus on acquiring merchants for credit card processing. The Company will do this through Independent Sales Organizations (“ISO”s) who will solicit small to medium sized merchants. These merchants may be underserved by the large processors in terms of pricing and customer service and may therefore be better suited to receive service from a merchant acquirer. As a result of processing relationships, the Company believes that it will be able to provide competitively priced credit and debit card processing while providing a high level of customer service.
The Company will sell electronic payment processing services, which include credit and debit card processing, check approval, and ancillary processing equipment and software services to merchants who accept credit cards, debit cards, checks, and other non-cash forms of payment. In addition, the Company will acquire monthly residual streams currently in place between ISOs and processors.
2. GOING CONCERN
The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has incurred losses since its inception and has not yet been successful in establishing profitable operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds through sales of its common stock or through loans from shareholders. There is no assurance that the Company will be successful in raising additional capital or achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform with generally accepted accounting principles (GAAP). In the opinion of management, the accompanying unaudited 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 June 30, 2013 and December 31, 2012, the consolidated statements of operations and comprehensive income for the six months ended June 30, 2013 and 2012, and the consolidated statements of cash flows for the six months ended June 30, 2013 and 2012. The accompanying unaudited 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”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the six months ended June 30, 2013 are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
Date of Management’s Review of Subsequent Events
Subsequent events were considered through August 19, 2013, which is the date the financial statements were available to be issued.
Accounting Method
The Company’s financial statements are prepared on the accrual method of accounting.
Revenue Recognition
The Company’s revenue will consist of fees from licenses issued and merchant acquirer fees. License revenues will include royalties and brand fund contributions which will be based on a percent of sales and an initial license fee. Royalties, license fees and brand fund contributions will be recognized in the period earned.
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.
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of reporting the statement of cash flows, the Company includes 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.
Loss Per Share
Basic net loss per share is computed by dividing net loss available for common stock by the weighted average number of common shares outstanding during the period. Diluted Earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised, or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity.
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.
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 2013, the FASB issued ASU No. 2013-02 Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , which is intended to improve the reporting of reclassifications out of accumulated other comprehensive income. It does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the standard requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012, with early adoption permitted. The adoption of the provision in this ASU did not have a material impact on the Company’s consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
5. 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, Prepaid Expenses, Accounts Payable, Accrued Expenses and Corporate Tax Payable.
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
5. FAIR VALUE MEASUREMENTS (Continued)
The items are generally short-term in nature, and accordingly, the carrying amounts reported in the consolidated statements of financial condition are reasonable approximations of their fair values.
License Agreements, Note Receivable and Note Payable
The carrying amounts approximate the fair value.
6. 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. At June 30, 2013, the Company has available unused operating loss carryforwards of approximately $398,000 which may be applied against future taxable income which expires in various years between 2025 and 2026. The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined because of the uncertainty surrounding the realization of the loss carryforwards. The Company has established a valuation allowance equal to the effect of the loss carryforwards and, therefore, no deferred tax asset has been recognized for the loss carryforwards.
7. STOCKHOLDERS EQUITY
At June 30, 2013, the Company had 200,000,000 shares of common stock authorized par value $.0001 and 10,000,000 shares of preferred stock authorized par value $.0001. As of June 30, 2013, the Company had 65,201,223 shares of common stock issued and outstanding.
8. STOCK OPTIONS
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 of Directors 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 10% or more stockholders which shall be issued at 110% of the fair market value on the day of the grant. Each option 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.
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
8. STOCK OPTIONS (Continued)
On April 11, 2013, the Company modified its employment agreement with its Vice President of Licensing, Mr. Rob Stone, granting Mr. Stone options to purchase 250,000 shares at $0.30. Pursuant to the agreement, 150,000 options vested immediately with the 50,000 shares to vest on February 1, 2014 and 50,000 shares to vest on February 1, 2015.
9. RELATED PARTY TRANSACTIONS.
On January 14, 2013, in conjunction with the acquisition of subsidiary (see note 14), there was an issuance of stock, 33,523,446, approximately 50% of total stock issued, of which 6,789,641 was issued to current officers and directors of Excel Corp.
10. 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 June 30, 2013 has outstanding 150,000 options which would have an anti-dilutive effect on earnings.
The following is a reconciliation of the basic and diluted loss per share – common calculation for the six months ended June 30, 2013 and 2012 and for the period November 13, 2010 (date of inception) through June, 2013.
| | | For the Six | | | | | | November 13, 2010 | |
| | | Months Ended | | | Months Ended | | | (date of inception) | |
| | | June 30, 2013 | | | June 30, 2012 | | | through June 30, 2013 | |
| | | | | | | | | | |
| Loss from continuing | | | | | | | | | |
| operations available | | | | | | | | | |
| to common | | | | | | | | | |
| stockholders | | | (482,368 | ) | | | (135,343 | ) | | | (883,048 | ) |
| | | | | | | | | | | | | |
| Weighted average | | | | | | | | | | | | |
| number of common shares | | | | | | | | | | | | |
| outstanding used in earnings | | | | | | | | | | | | |
| per share during the period | | | | | | | | | | | | |
Basic and Diluted | | | | | | | 30,486,000 | | | | | |
| | | | | | | | | | | | | |
| Loss per common share | | | | | | | | | | | | |
| Basic and Diluted | | | (.00768 | ) | | | (.00444 | ) | | | (.01407 | ) |
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
11. LICENSING AGREEMENTS
Billy Martin Agreement
On October 21, 2011, the Company (the “Purchaser”) entered into an Agreement of Sale (the “Agreement”) with Real American Capital Corp (the “Seller”) to purchase the assets of the business known as “Billy Martin’s”, (collectively the “Assets”). The Assets included the following:
| | 1. | All rights, title and interest in and under the trademarks including all claims associated with the license, the “Trademarks”. |
| | 2. | The right, title and interest of the Seller in the name of Billy Martin’s, the “Name”. |
| | 3. | Any goodwill associated with the trademark, (the “Goodwill”). |
| | 4. | Any furniture, furnishings, and fixtures, (collectively, “fixtures and equipment”), as defined in the agreement. |
The purchase price for the assets above was $150,000 due as follows:
| | 1. | $30,000 was paid at the closing date, October 24, 2011. $120,000 to be paid in four annual interest free installments: $30,000 on October 17, 2012, 2013, 2014 and 2015. |
The Company did not make the October 17, 2012 payment and is in the process of negotiating out of the Agreement with the Seller.
Representation Agreement (Soupman Inc.)
On February 4, 2012, the Company, the “Agent”, entered into an Agreement with Soupman, Inc. (Principal). Pursuant to the agreement, the Principal has designated the Agent as the exclusive licensing agent in the Territory, as defined in the Agreement. As licensing agent, the Company will negotiate and service licensing agreements on behalf of the Principal.
As compensation, Excel will receive 25% of all licensing revenue from agreements executed pursuant to the terms of the Representation Agreement and five percent (5%) of other licensing revenue as defined in the Agreement. All payments from License Agreements are made payable to the Principal and after such payment, the Agent will be paid the commission as indicated above.
The initial term of the Agreement is for one year and automatically renews provided that the Agent has submitted to the Principal a minimum of five potential license applications. Subsequent to the second year, the Agreement will terminate unless extended by written agreement.
As of June 30, 2013, the agreement is still active.
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
11. LICENSING AGREEMENTS (Continued)
Camuto Consulting
On February 21, 2012, the Company entered into an Agreement with Camuto Consulting, Inc. (the “Principal”), in which the Principal engaged the Company as the Licensing Agent to identify and secure licenses as applicable. The Agreement is for a one year term and expires February 28, 2013.
Compensation to the Licensing Agent pursuant to the agreement is as follows:
| 1) | Commissions payable at six and a half (6.5%) on Royalties earned and received by the Principal during the first term of solicited agreements with eligible Licensees that are executed. |
| 2) | Commissions payable at five (5%) on Royalties earned and received by the Principal during any renewal term of solicited agreements with eligible Licensee that are executed. |
The agreement was renewed and as of June 30, 2013, the agreement is still active.
Benedetto Arts, LLC
On May 3, 2012, the Company entered into an Agreement with Benedetto Arts, LLC (“BA”), in which BA will utilize the Company as an independent contractor for the solicitation of licensing opportunities. As compensation for its services, the Company will receive a commission based on 20% of Gross Revenue as defined in the Agreement.
The term of the Agreement is for one year commencing on May 3, 2012 with an option to extend if both parties agree. In addition, if the Company does not deliver three business opportunities from the May 3, 2012 date, BA has the right to terminate the Agreement.
The agreement is renewed and as of June 30, 2013, the agreement is still active.
Representation Agreement-Life Guard
On January 2, 2012, the Company (the “Agent”) entered into an Agreement with Lifeguard Licensing Corp, (the “Principal) in which the Principal owns rights to trademarks, packaging, designs, images, copyrights and other intellectual property, collectively the “Property”. The Principal, pursuant to the Agreement designated the Company as the Licensing Agent to negotiate and service license agreements with respect to commercial exploitation of the Property within the Territory as defined in the Agreement.
The term of the Agreement is for one year commencing on the effective date (January 2, 2012). The Principal may terminate the Agreement upon written notice if the agent does not meet certain terms as defined in the agreement. The Agents compensation will be calculated at 25%, 20% and 15% of Net Revenues for the initial term, second renewal term, and third renewal term respectively. In addition to the Agent’s Compensation the Principal will reimburse the Agent for out of pocket expenses.
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
11. LICENSING AGREEMENTS (Continued)
The agreement has been renewed and as of June 30, 2013, the agreement is still active.
12. NOTE RECEIVABLE
On August 1, 2012, the Company entered into a Secured Promissory Note with Shoutomatic LLC (the “Maker”) in which the Maker promises to pay the Company (the “Payee”) the principal sum of $60,000 at an interest rate of Six percent per annum. The interest will accrue and be paid on August 1, 2013 (“Maturity Date”). The Maker will have the right to prepay without penalty.
Currently, the payment remains past due, though management does expect to receive it.
13. SHARE SUBJECT TO MANDATORY REDEMPTION
The funds that XL Fashions utilized for the Orix Note acquisition were raised from the sale of 9,608,412 shares of its Preferred stock, at a price of $.1379 per share. The shares will convert on a one for one basis for shares of Excel Corporation common stock or will be purchased back in cash. As of June 30, 2013, 7,744,743 shares of this Preferred stock was either converted to Excel Corporation common stock or purchased back in cash. As of June 30, 2013, 1,863,669 shares outstanding. These are subject to mandatory redemption in 2013.
14. ACQUISITION OF SUBSIDIARY
On January 14, 2013, the Company entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Excel Business Solutions, Inc., a Delaware corporation (“EBSI”), and ECB Acquisition Corp., our newly formed, wholly-owned Delaware subsidiary (“Acquisition Sub”). Upon closing of the transaction contemplated under the Merger Agreement (the “Merger”), Acquisition Sub merged with and into EBSI, and EBSI, as the surviving corporation, became a wholly-owned subsidiary of the Company.
Pursuant to the terms and conditions of the Merger Agreement, at the closing of the Merger, each share of EBSI’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive an aggregate of 33,532,446 shares of common stock, par value $0.0001 per share, of the Company, with fractional shares of the Company’s common stock rounded up or down to the nearest whole share. Following the closing of the Merger, there were 65,201,223 shares of common stock issued and outstanding.
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2013
15. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On June 7, 2013, Excel Corporation (the “Company”) through its subsidiary, Excel Business Solutions, Inc. (“Excel”), entered into a Management Services Agreement (“Agreement”) with Tribul Merchant Services, LLC, Tribul, LLC, Tribul Cash, LLC, Tribul of America, LLC and Second Source Funding LLC (collectively, the “Tribul Entities”), each a New York limited liability company, under which Tribul Entities retained the services of Excel to perform management and administrative services (with respect to the apportionment and settlement of collected commissions, fees, payments, charges and/or “residual revenues” among banks, financial institutions, credit card processors, independent sales organizations (“ISOs”), super-ISOs, sales representatives, sales agents, ancillary service providers and merchants (collectively, and as more fully described in the Agreement, “ISO Office Functions”)) as agent and on behalf of the Tribul Entities.
Under the terms of the Agreement, until Excel has purchased a minimum of $80,000 per month in residual revenues from ISOs and super-ISOs currently doing business directly with the Tribul Entities, the Tribul Entities will pay to Excel as the managing agent a service fee of $29,500 per month and reimburse Excel for its reasonable out-of-pocket expenses incurred in the course of performing the ISO Office Functions. Excel was also granted a limited, non-transferable, non-exclusive, royalty-free license and access to utilize Tribul Entities’ online systems for purposes of performing the ISO Office Functions. Pursuant to the Agreement, the Tribul Entities are not allowed to enter into similar agreements with any third parties.
The payments are current pursuant to the agreement.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the interim financial statements and the notes thereto contained elsewhere in this quarterly report on Form 10-Q/A (“Report”). Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Form 10-Q/A including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Form 10-Q/A, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
Overview
We have been in a developmental phase since inception and currently have two lines of business operations: licensing and providing credit and debit card processing services.
On January 14, 2013, the Company entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Excel Business Solutions, Inc., a Delaware corporation (“EBSI”), and ECB Acquisition Corp., our newly formed, wholly-owned Delaware subsidiary. Upon closing of the transaction contemplated under the Merger Agreement, Acquisition Sub merged with and into EBSI, and EBSI, as the surviving corporation, became a wholly-owned subsidiary of the Company.Pursuant to the terms and conditions of the Merger Agreement, at the closing of the Merger, each share of EBSI’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive an aggregate of 33,532.446 shares of common stock, par value $0.0001 per share, of the Company, with fractional shares of the Company’s common stock rounded up or down to the nearest whole share.
Our merchant acquisition business began in 2013 and therefore, we have had no revenues from such operation during 2012 or first quarter 2013. However, during the second quarter of 2013 we have begun servicing a limited amount of merchants and expect that this business may grow to become a larger part of our operations in 2013.
In our licensing business, we are focused on bringing national and international brands to the retail market. We act as agent for licensing brands of corporations, people, government agencies, etc. (“Licensors”) in a broad range of product categories. We intend to obtain agent rights to license select brands where the brand name can be leveraged into new categories. Our objective is 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 expect to organically grow the existing portfolio and enter into joint ventures or other partnerships with the goal of leveraging the experience of agent management and that of our licensees to facilitate sales of branded products.
Upon acquiring the rights to a license from a Licensor, we expect that such a license will typically require us to pay royalties based upon net sales with guaranteed minimum royalties in the event that net sales do not reach specified targets. Licenses for brands also typically require a licensee to pay to the brand owner certain minimum amounts for the advertising and marketing of the respective license brand. We intend to seek royalties from Licensees for brands where we are the agent. In addition, we will seek agent fees on minimum royalties and advertising and marketing fees which would offset any expenses we incur while acting as an agent.
We intend to seek the rights to license brands and enter into license relationships with domestic and/or international partners that have demonstrated ability to produce quality products that have been successfully marketed and sold domestically and/or internationally in a broad range of products categories.
Results of Operations
Revenues
During the 6 months ended June 30, 2013, we had licensing revenues of $49,000compared to $0 revenues for the six months ended June 30, 2012. We also had management service revenue of $29,500 pursuant to our recent management agreement. The management agreement is a step toward acquiring merchants through a potential future deal. Although we may have some revenue from licensing for 2013, we anticipate that the majority of our future revenues will come from our merchant acquisition business.
Selling, General and Administrative Expense
Our selling, general and administrative expenses increased by 85% or $245,698 to $536,026 during the six months ended June 30, 2013 from $290,328 during the six months ended June 30, 2012. The increase in our selling, general and administrative expense was primarily due to the establishment of our merchant acquiring operations. We anticipate that our general and administrative expenses will increase in absolute dollars as we further establish our merchant acquiring operations as well as operating as a publicly traded company.
Net income
As a result of the forgoing, our net losses were $482,368 and $135,343 for the six months ended June 30, 2013 and 2012, respectively. As we are a development stage company in the early parts of developing our merchant acquisition and license business, we anticipate that we may continue to incur net losses in the future.
Liquidity and Capital Resources
The following summarizes our cash flows:
| | | 6 Months ended June 30, | |
| | | 2013 | | | 2012 | |
| Net cash used in operating activities | | $ | (659,829 | ) | | $ | (67,694 | ) |
| Net cash used in investing activities | | $ | (3,353 | ) | | $ | - | |
| Net cash provided by financing activities | | $ | 33,207 | | | $ | 1,325,000 | |
Net cash used in operating activities for the six months ended June 30, 2013 was ($659,829) as compared with ($67,694) for the six months ended June 30, 2012. This increase in net cash used in operating activities of $592,135 was mainly attributable to an increased net loss of $347,025 as well as an increase in accounts receivable of $192,146 and an increase of prepaid expenses of $114,816. As we have established our merchant acquiring operations, there has been an increase to our general and administrative expenses. In addition, our management agreement with Tribul has resulted in receivables.
Net cash used in investing activities was ($3,353) for the six months ended June 30, 2013, compared with $0 for the six months ended June 30, 2012. There was immaterial investing activities in both periods.
Net cash provided by financing activities was $33,207 for the six months ended June 30, 2013 as compared to $1,325,000 during the six months ended June 30, 2012. During the six months ended June 30, 2012 the increase in cash provided by financing activities was a result of the purchase of preferred shares in our subsidiary.
As of June 30, 2013, we had cash and cash equivalents of $16,161, total current assets of $394,007 and total current liabilities of $674,341. Since inception, we have raised $657,972 to date through the sale of 30,486,000 shares of our common stock. While we expect that this may be sufficient to operate our business through September 2013, there can be no assurance that we will not need additional capital for operations prior to such date. If we require additional capital, we may attempt to raise additional funds through sales of common stock or borrowings, but there are no assurances that we will raise sufficient amounts to meet our current needs.
Going Concern
Our independent registered public accountants have included a going concern explanatory paragraph in their opinion of our 2012 and 2011 financial statements.
Off-Balance Sheet Financing Arrangements
We do not have any off-balance sheet financing arrangements.
Significant Accounting Policies
Basis of Presentation
The accounting and reporting policies of the Company conform with GAAP. The accompanying consolidated financial statements reflect the results of operations, financial position and cash flows of the Company, and include the accounts of the Company and subsidiaries, after elimination of all intercompany transactions in the consolidation.
Date of Management’s Review of Subsequent Events
Subsequent events were considered through August 19, 2013, which is the date the financial statements were available to be issued.
Accounting Method
The Company’s financial statements are prepared on the accrual method of accounting.
Revenue Recognition
The Company’s revenue consists of agent fees from client licenses issued and merchant acquirer fees. Agent fee revenues include royalties and brand fund contributions which will be based on a percent of sales and an initial license fee. Royalties, agent fees and brand fund contributions will be recognized in the period earned.
Merchant acquirer revenue will primarily be 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. Fees will be recognized in the period earned.
Cash and Cash Equivalents
For purposes of reporting the statement of cash flows, the Company includes 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.
Loss Per Share
Basic net loss per share is computed by dividing net loss available for common stock by the weighted average number of common shares outstanding during the period. Diluted Earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised, or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity.
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.
We have identified the following as our significant accounting policies.
Net Loss Per Common Share
Basic net loss per share is computed by dividing net loss available for common stock by the weighted average number of common shares outstanding during the period. Diluted Earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised, or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted loss per share was not presented, as the company as of June 30, 2013 has outstanding 150,000 options which would have an anti-dilutive effect on earnings.
Use of Estimates
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.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 4. CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed 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 and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2013. Based on their evaluation, our principal executive officer and principal financial officer have concluded that, as of June 30, 2013, our disclosure controls and procedures were not effective.
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 fiscal quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
None.
Factors that could cause our actual results to differ materially from those in this report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on April 16, 2013. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
As of the date of this Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on April 16, 2013, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURE |
None.
None.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q/A.
| Exhibit Number | | Description |
| | | |
| 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 |
| | | |
| 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. |
| * | Filed herewith. |
| ** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | EXCEL CORPORATION |
| | |
| /s/ David Popkin |
| | David Popkin Chief Executive Officer (Principal executive officer) |
| /s/ Shawn Alcoba |
| | /s/ Shawn Alcoba Comptroller (Principal financial and accounting officer) |
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