UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014
o 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 incorporation or organization) | (I.R.S. Employer Identification Number) |
595 Madison Avenue, Suite 1101, New York, NY | 10022 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 212-921-2000
Not Applicable
(Former name or former address, if changed since last report)
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | x |
(Do not check if a 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 o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date 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). x
As of May 20, 2014, there were 89,293,462 shares of Company’s common stock, par value $0.0001 per share, issued and outstanding.
EXCEL CORPORATION |
TABLE OF CONTENTS |
PART I. FINANCIAL INFORMATION | ||
ITEM 1. FINANCIAL STATEMENTS | ||
Consolidated Balance Sheets at March 31, 2014 (unaudited) and December 31, 2013 | 1 | |
Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013 (unaudited), and from inception, November 13, 2010 to March 31, 2014 (unaudited) | 2 | |
Consolidated Statements of Changes in Stockholders' Equity from inception, November 13, 2010 to March 31, 2014 (unaudited) | 3 | |
Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited), and from inception, November 13, 2010 to March 31, 2014 (unaudited) | 4 | |
Notes to Unaudited Consolidated Financial Statements | 5 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 12 | |
Overview | 12 | |
Results of Operations | 13 | |
Liquidity and Capital Resources | 13 | |
Significant Accounting Policies | 14 | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 15 | |
ITEM 4. CONTROLS AND PROCEDURES | 15 | |
PART II. OTHER INFORMATION | 16 | |
ITEM 1. LEGAL PROCEEDINGS | 16 | |
ITEM 1A. RISK FACTORS | 16 | |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 17 | |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 17 | |
ITEM 4. MINE SAFETY DISCLOSURE | 17 | |
ITEM 5. OTHER INFORMATION | 17 | |
ITEM 6. EXHIBITS | 18 | |
Ex-10.01 | ||
Ex-31.1 | ||
Ex-31.2 | ||
Ex-32.1 | ||
Ex-32.2 |
Excel Corporation and Subsidiaries | ||||||||
(A Development Stage Company) | ||||||||
Consolidated Balance Sheet | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
ASSETS | (Unaudited) | |||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 26,242 | $ | 8,328 | ||||
Accounts receivable | 2,250 | |||||||
Prepaid expenses | 13,536 | 32,979 | ||||||
Total current assets | 39,778 | 43,557 | ||||||
Other Assets | ||||||||
Security deposits | 7,939 | 7,939 | ||||||
Total other assets | 7,939 | 7,939 | ||||||
Total Assets | 47,717 | 51,496 | ||||||
LIABILITIES | ||||||||
Current Liabilities | ||||||||
Accounts payable | 142,869 | 146,949 | ||||||
Accrued payroll and payroll liabilities | 210,126 | 66,113 | ||||||
Other accrued liabilities | 14,883 | 12,039 | ||||||
Advances | 175,000 | 150,000 | ||||||
Total current liabilities | 542,878 | 375,101 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $.0001 par value, 10,000,000 shares authorized, none issued and outstanding | ||||||||
Common stock, $.0001 par value, 200,000,000 shares authorized 68,693,462 and 67,064,892 shares issued and outstanding as of March 31, 2014 and December 31, 2013 respectively | 6,869 | 6,706 | ||||||
Additional paid-in capital | 1,160,784 | 1,010,947 | ||||||
Accumulated (deficit) | (1,662,814 | ) | (1,341,258 | ) | ||||
Total stockholders' (deficit) | (495,161 | ) | (323,605 | ) | ||||
Total Liabilities and Stockholders' Equity | $ | 47,717 | $ | 51,496 |
See notes to unaudited consolidated financial statements.
1
Excel Corporation and Subsidiaries | ||||||||||||
(A Development Stage Company) | ||||||||||||
Consolidated Statement of Operations | ||||||||||||
(Unaudited) | ||||||||||||
For the Three Months Ended | From Inception November 13, 2010 through | |||||||||||
March 31, | March 31, | |||||||||||
2014 | 2013 | 2014 | ||||||||||
Revenues | ||||||||||||
Commission income | $ | 11,166 | $ | - | $ | 44,181 | ||||||
Management fee income | 209,750 | |||||||||||
Residual income | 92,092 | |||||||||||
Lease income | 10,322 | 21,426 | ||||||||||
Service fee income | 22,500 | 94,000 | ||||||||||
Total Income | 21,488 | 22,500 | 461,449 | |||||||||
Cost of Sales | ||||||||||||
Commissions & other merchant costs | 3,622 | 48,692 | ||||||||||
Total Cost of Sales | 3,622 | 48,692 | ||||||||||
Gross Profit | 17,866 | 22,500 | 412,757 | |||||||||
Sales, General and Administrative Expense | ||||||||||||
Payroll | 203,258 | 139,430 | 890,295 | |||||||||
Legal & professional fees | 46,800 | 46,860 | 472,918 | |||||||||
Outside services | 24,516 | 11,818 | 359,060 | |||||||||
Rent | 12,000 | 48,000 | ||||||||||
Bad debt | 33,281 | |||||||||||
Travel | 17,926 | 8,422 | 49,107 | |||||||||
Marketing & advertising | 5,606 | 25,387 | 107,813 | |||||||||
Insurance | 8,904 | 1,640 | 37,345 | |||||||||
Miscellaneous SG&A expense | 20,412 | 16,366 | 163,892 | |||||||||
Total SG&A Expense | 339,422 | 249,923 | 2,161,711 | |||||||||
Net (loss) before other income and income taxes | (321,556 | ) | (227,423 | ) | (1,748,954 | ) | ||||||
Other Income | ||||||||||||
Gain on sale of note receivable | 220,313 | |||||||||||
Referral fee income | 1,250 | |||||||||||
Interest income | 927 | |||||||||||
Miscellaneous other income | 450 | |||||||||||
Total other income | 927 | 222,013 | ||||||||||
Other Expense | ||||||||||||
Loss on acquisition of subsidiary | 20,868 | 20,868 | ||||||||||
Miscellaneous other expense | 115,005 | |||||||||||
Total other expense | 20,868 | 135,873 | ||||||||||
Net (loss) before income taxes | (321,556 | ) | (247,364 | ) | (1,662,814 | ) | ||||||
Income Taxes | ||||||||||||
Current | ||||||||||||
Deferred | ||||||||||||
Total income taxes | - | - | - | |||||||||
Net income (loss) | $ | (321,556 | ) | $ | (247,364 | ) | $ | (1,662,814 | ) | |||
Loss Per Share | ||||||||||||
Basic & Diluted | $ | (0.005 | ) | $ | (0.004 | ) | $ | (0.025 | ) | |||
Weighted Average Shares Outstanding | ||||||||||||
Basic & Diluted | 67,191,559 | 60,357,648 | 67,191,559 |
See notes to unaudited consolidated financial statements.
2
Excel Corporation and Subsidiaries | |||||||||||||||||||||
(A Development Stage Company) | |||||||||||||||||||||
Consolidated Statement of Stockholders’ Equity (unaudited) | |||||||||||||||||||||
From November 13, 2010 (Date of Inception) to March 31, 2014 | |||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-in | Deficit Accumulated During the Development | ||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | ||||||||||||||||
Balance, November 13, 2010 | $ | - | $ | - | $ | - | $ | - | |||||||||||||
Issuance of common stock for | |||||||||||||||||||||
cash at $.002 per share | 28,986,000 | 2,899 | 55,073 | ||||||||||||||||||
Less: Stock offering costs | (16,500 | ) | |||||||||||||||||||
Net loss from inception on | |||||||||||||||||||||
November 13, 2010 to | |||||||||||||||||||||
December 31, 2010 | (750 | ) | |||||||||||||||||||
Balance, December 31, 2010 | $ | - | 28,986,000 | $ | 2,899 | $ | 38,573 | $ | (750 | ) | |||||||||||
Issuance of common stock for | |||||||||||||||||||||
cash at $.40 per share | 1,500,000 | 150 | 599,850 | ||||||||||||||||||
Less: Stock offering costs | (63,156 | ) | |||||||||||||||||||
Net loss for the year ended | |||||||||||||||||||||
December 31, 2011 | (66,291 | ) | |||||||||||||||||||
Balance, December 31, 2011 | $ | - | 30,486,000 | $ | 3,049 | $ | 575,267 | $ | (67,041 | ) | |||||||||||
Retirement of common stock | |||||||||||||||||||||
at .0001 per share | (50,000 | ) | (5 | ) | 5 | ||||||||||||||||
Issuance of common stock for | |||||||||||||||||||||
exchange of subsidiaries | |||||||||||||||||||||
preferred stock @ .1379 per | |||||||||||||||||||||
share | 1,087,745 | 108 | 149,892 | ||||||||||||||||||
Net loss for the year ended | |||||||||||||||||||||
December 31, 2012 | (333,638 | ) | |||||||||||||||||||
Balance, December 31, 2012 | 31,523,745 | $ | 3,152 | $ | 725,164 | $ | (400,679 | ) | |||||||||||||
Issuance of common stock for | |||||||||||||||||||||
exchange of subsidiaries | |||||||||||||||||||||
preferred stock @ .1379 per | |||||||||||||||||||||
share | 2,008,701 | 201 | 276,799 | ||||||||||||||||||
Issuance of common stock for | |||||||||||||||||||||
acquisition of Excel Business Solutions | |||||||||||||||||||||
at par value (.0001 per share) | 33,532,446 | 3,353 | |||||||||||||||||||
Recognition of options vested | |||||||||||||||||||||
on April 11, 2013 | 8,984 | ||||||||||||||||||||
Net loss for the period | |||||||||||||||||||||
January 31, 2013 - December 31, 2013 | (940,579 | ) | |||||||||||||||||||
Balance, December 31, 2013 | $ | - | 67,064,892 | $ | 6,706 | $ | 1,010,947 | $ | (1,341,258 | ) | |||||||||||
Issuance of common stock | |||||||||||||||||||||
at .07 per share | 1,428,570 | 143 | 99,857 | ||||||||||||||||||
Issuance of common stock | |||||||||||||||||||||
at .25 per share | 200,000 | 20 | 49,980 | ||||||||||||||||||
Net loss for the period | |||||||||||||||||||||
January 1, 2014 - March 31, 2014 | (321,556 | ) | |||||||||||||||||||
Balance, March 31, 2014 | $ | - | 68,693,462 | $ | 6,869 | $ | 1,160,784 | $ | (1,662,814 | ) |
See notes to unaudited consolidated financial statements.
3
Excel Corporation and Subsidiaries | ||||||||||||
(A Development Stage Company) | ||||||||||||
Consolidated Statement of Cash Flows | ||||||||||||
(Unaudited) | ||||||||||||
For the Three Months Ended | From Inception November 13, 2010 through | |||||||||||
March 31, | March 31, | |||||||||||
2014 | 2013 | 2014 | ||||||||||
Operating Activities: | ||||||||||||
Net Income | $ | (321,556 | ) | $ | (247,364 | ) | $ | (1,662,814 | ) | |||
Adjustments to reconcile net loss to net cash provided | ||||||||||||
by (used in) Operating Activities: | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||
Decrease (increase) | ||||||||||||
Accounts receivable | 2,250 | (7,500 | ) | |||||||||
Prepaid and other current assets | 19,443 | (99,756 | ) | (13,536 | ) | |||||||
Security deposits | (7,939 | ) | (7,939 | ) | ||||||||
Accrued interest on note | (927 | ) | ||||||||||
Increase (decrease) | ||||||||||||
Accounts payable | (4,080 | ) | (4,745 | ) | 142,869 | |||||||
Accrued payroll & payroll liabilities | 144,013 | 26,099 | 210,126 | |||||||||
Other accrued liabilities | 2,844 | (2,896 | ) | 14,883 | ||||||||
Net cash (used in) operating activities | (157,086 | ) | (345,028 | ) | (1,316,411 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
(Increase) in due from notes receivable | (3,353 | ) | ||||||||||
Payments on notes payable | (120,000 | ) | ||||||||||
Proceeds from advances | 25,000 | 295,000 | ||||||||||
Net cash provided by (used in) investing activities | 25,000 | (3,353 | ) | 175,000 | ||||||||
Cash flows from financing activities: | ||||||||||||
Issuance of shares subject to mandatory redemption | (20,000 | ) | ||||||||||
Issuance of common stock | 150,000 | 44,122 | 1,167,653 | |||||||||
Net cash provided financing activities | 150,000 | 24,122 | 1,167,653 | |||||||||
Net increase (decrease) in cash | 17,914 | (324,259 | ) | 26,242 | ||||||||
Cash - beginning | 8,328 | 646,236 | ||||||||||
Cash - Ending | $ | 26,242 | $ | 321,977 | $ | 26,242 |
See notes to unaudited consolidated financial statements.
4
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2014
1. ORGANIZATION AND OPERATIONS
Excel Corporation (the “Parent”) was organized November 13, 2010 as a Delaware corporation. The Parent has three wholly owned subsidiaries, LifeguardCig Inc., formerly XL Fashions Inc., formed in fiscal year 2012, (the “Lifeguard”), Excel Business Solutions, Inc., formed in fiscal year 2013, (“EBSI”), and 420 Solutions Corporation formed in March 2014, (the “420S”), (Parent, Lifeguard, EBSI, and 420S, collectively, the “Company”).
The Company has been considered a development stage company as defined by FASB ASC 915-205-45-6. However, on April 21, 2014, the Company acquired 100% of the membership interests of Payprotec Oregon LLC (d/b/a Securus Payments) (“Payprotec”) (see note 14). Following this transaction, the Company will cease to be a development stage company. The Company is currently devoting substantially all of its efforts in two areas.
The Company’s primary efforts are in the merchant processing industry. The Company focuses on acquiring merchants for various business needs such as advances on receivables, credit card terminal leases, and credit card processing. The Company does some of this work through Independent Sales Organizations (“ISO”s) who solicit small to medium sized merchants.
The Company sells 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 looks to acquire monthly residual streams currently in place between ISOs and processors.
The other focus of the Company is in its licensing arm, and primarily on the e-cigarette market. The Company believes that with its ability to interact with many small to midsize merchants by assisting them with their merchant services, particularly merchants in product distribution, there will exist opportunities to foray into wholesale distribution.
2. GOING CONCERN |
The accompanying 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. The acquisition of Securus on April 21, 2014 provides the Company with substantially greater revenues and assets than those that existed on March 31, 2014. There is no assurance that the Company will be successful in integrating Securus into its operations or that Securus will continue to be profitable or that the combined companies will achieve profitable operations. In addition, the Company may need or desire to raise capital through debt or equity financing and there is no assurance that the Company will be able to do so.
The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
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 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 March 31, 2014 and March 31, 2013, the consolidated statements of operations and comprehensive income for the three months ended ended March 31, 2014 and 2013, and the consolidated statements of cash flows for the three months ended March 31, 2014 and 2013. 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”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three months ended March 31, 2014 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, 2013.
5
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2014
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company’s revenue consists mainly of fees from licenses issued and merchant acquirer fees. License revenues include royalties and brand fund contributions which are based on a percent of sales and an initial license fee. Royalties, license fees and brand fund contributions are 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.
As part of being a merchant acquirer, the Company does also receive fees for management of potential acquired portfolios, as well as subsidy payments to aid the company in growth for a period. Typically these are negotiated through a contract.
In addition, the Company may also receive payment for brokering deals between a funder and a merchant where the funder purchases a portion of the merchant’s future receivables. The commission the Company receives is typically calculated as a percentage on the profit the funder makes from such purchase.
The company also leases credit card terminals to merchants. These leases are not held by the company, but instead are sold to a third party lessor. Revenue for the sale of leases is recognized when the third party lessor accepts the lease.
Cash and Cash Equivalents
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.
6
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2014
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 March 31, 2014 has no options which would have a dilutive effect on earnings.
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.
Reclassification
Certain amounts as of the three months ended March 31, 2013 have been reclassified to conform to the current year’s presentation. These changes have no effect on the company’s results of operations or financial position.
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.
7
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2014
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, Security Deposits, Accounts Payable, Accrued Payroll and Payroll Liabilities, and Other Accrued Liabilities.
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.
License Agreements, Note Receivable, Note Payable and Advances.
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 March 31, 2014, the Company has available unused operating loss carryforwards of approximately $1,500,000 which may be applied against future federal and state taxable income which expire in 2033. The Company is carrying a valuation allowance against the deferred tax asset as the Company believes that it is more likely than not that the net operating losses will not be utilized. 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.
8
Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2014
7. STOCKHOLDERS EQUITY |
At March 31, 2014, 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 May 20, 2014, the Company had 89,293,462 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.
On April 11, 2013, the Company modified its employment agreement with an executive, granting the executive an option to purchase 250,000 shares at $0.30 per share. The executive is longer employed by the Company and the option has expired.
As of May 20, 2014, there are no other options issued under the plan.
9. RELATED PARTY TRANSACTIONS. |
On January 14, 2013, in conjunction with the acquisition of subsidiary, there was an issuance of stock, 33,523,446, approximately 50% of total stock issued, of which 6,789,641 was issued to current (or recent) officers and directors of Excel Corp.
On January 14, 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.
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 March 31, 2014 has no options issued which would have an effect on earnings.
The following is a reconciliation of the basic and diluted loss per share – common calculation for the three months ended March 31, 2014 and 2013 and for the period November 13, 2010 (date of inception) through March 31, 2014.
For the Three | For the Three | November 13, 2010 (date of inception) | ||||||||||
Months Ended | Months Ended | through | ||||||||||
March 31, 2014 | March 31, 2013 | March 31, 2014 | ||||||||||
Loss from continuing operations available to common stockholders | (321,556 | ) | (247,364 | ) | (1,662,814 | ) | ||||||
Weighted average number of common shares outstanding used in earnings per share during the period Basic and Diluted | 67,191,559 | 60,357,648 | 67,191,559 | |||||||||
Loss per common share Basic and Diluted | (.005 | ) | (.004 | ) | (.025 | ) |
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Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2014
11. LICENSING AGREEMENTS
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.
The agreement has been renewed and as of December 31, 2013, the agreement is still active.
12. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT |
Exclusive Reseller Agreement
On March 24, 2014, Excel Corporation (the “Company”), through its wholly owned subsidiary 420 Solutions Corporation (“420 Solutions”), entered into an Exclusive Reseller Agreement (the “Agreement”) with TransBlue, LLC (“TransBlue”). The Agreement gives 420 Solutions the exclusive right to resell TransBlue’s Point of Banking (“POB”) processing services to certain merchant types/market segments during the term of the Agreement (“Reseller Rights”). The term of the Agreement (the “Term”) is for a period of four years having commenced on March 24, 2014. Thereafter, the Agreement automatically renews for consecutive, additional one year terms unless either party provides the other party written notice of non-renewal at least 30 days prior to the commencement of any additional one year term.
In exchange for the Reseller Rights, the Company, upon signing of the Agreement, agreed to issue to Trans Blue 200,000 shares of the Company’s Common Stock (the “Initial Shares”). In addition to the Initial Shares, during the Term, the Company has agreed to issue up to 800,000 shares of the Company’s Common Stock entirely dependant on and proportionally related to the Company’s ability to successfully sell TransBlue’s POB services.
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Excel Corporation and Subsidiaries
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2014
13. ISSUANCE OF STOCK
In 2014, during the quarter ended March 31, 2014, the company raised $150,000 through the issuance of 1,628,570 shares of its Common Stock.
14. SUBSEQUENT EVENTS
Completion of Acquisition
On February 17, 2014, Excel Corporation (the "Company"), entered into a Securities Exchange Agreement (the "Agreement") with Payprotec, Mychol Robirds and Steven Lemma, to effectuate the purchase of 90% of the membership interests of Payprotec and its subsidiary Securus Consultants, LLC ("Securus"). On April 10, 2014, the Parties entered into an amendment (the "Amendment") to the Agreement that extended the termination date to April 21, 2014. On April 21, 2014, the parties to the Agreement closed the transaction (the "Transaction").
In exchange for the membership interests in Payprotec and Securus, 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. Payprotec also entered into three year employment agreements (the "Employment Agreements") with each of Messrs. Robirds and Lemma. The company has filed a certificate of designation for the Series A Preferred Stock ("Certificate of Designation") with the state of Delaware.
Also on April 21, 2014, 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 an additional 10% of the membership interests of Payprotec in exchange for the issuance of 2,000,000 shares of the Company's common stock and the agreement to guaranty a $1.5 million loan (the "Guaranty") from Shadow Tree Income Fund A LP ("Shadow Tree") to E-Cig (the "E-Cig Transaction"). The Company now owns 100% of the membership interests of Payprotec.
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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 (“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 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, 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 merchant services, including credit and debit card processing, credit card terminal leases, advances on receivables, and more.
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 and third quarter of 2013 we had 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 addition, on February 17, 2014 the Company entered into a Securities Exchange Agreement (the “SEA”) with Payprotec Oregon, LLC, (dba Securus Payments) (“Payprotec”), Mychol Robirds and Steven Lemma, to effectuate the purchase of 90% of the membership interests of Payprotec and its subsidiary Securus Consultants, LLC ("Securus"). On April 21, 2014 the Company completed the acquisition of 100% of Payprotec pursuant to the SEA and through a Securities Exchange Agreement (“E-Cig Agreement) with E-Cig Ventures LLC.
As a result of these transactions Payprotec will constitute the majority of the Company’s operations.
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.
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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 three months ended March 31, 2014, we had advance commissions of $11,166 and lease income of $10,322 compared to $0 revenues for the three months ended March 31, 2013. We had $0 in service fee income for the three months ended March 31, 2014, while we had $23,000 for the three months ended March 31, 2013. The service fee revenue in 2013 was from licensing. Although we may have some revenue from licensing for 2014 as well, we anticipate that the majority of our future revenues will come from our merchant services business.
Selling, General and Administrative Expense
Our selling, general and administrative expenses increased by 36% or $89,499 to $339,422 during the three months ended March 31, 2014, as compared to $249,923 during the three months ended March 31, 2013. The increase is due primarily to higher payroll costs offset by lower marketing expenses.
Net income
As a result of the forgoing, our net losses were $321,556 and $247,364 for the three months ended March, 2014 and 2013, respectively.
Liquidity and Capital Resources
The following summarizes our cash flows:
Three Months ended March 31, | ||||||||
2014 | 2013 | |||||||
Net cash (used in) operating activities | $ | (157,086 | ) | $ | (345,028 | ) | ||
Net cash provided by (used in) investing activities | $ | 25,000 | $ | (3,353 | ) | |||
Net cash provided by financing activities | $ | 150,000 | $ | 24,122 |
Net cash used in operating activities for the three months ended March 31, 2014 was ($157,086) as compared with ($345,028) for the three months ended March 31, 2013. This increase in net cash used in operating activities of $187,942 was mainly attributable to lower working capital levels which were partially offset by higher operating losses.
Net cash provided by investing activities was $25,000 for the three months ended March 31, 2014, compared with ($3,353) used in the three months ended March 31, 2013.
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Net cash provided by financing activities was $150,000 for the three months ended March 31, 2014 as compared to $24,122 during the three months ended March 31, 2013. During the three months ended March 31, 2014, the increase resulted from the Company raising capital through the issuance of 1,628,570 shares.
As of March 31, 2014, we had cash and cash equivalents of $26,242, total current assets of $39,778 and total current liabilities of $542,878. Since inception, we have raised $1,167,653 to date through the sale of 35,161,016 shares of our common stock. With the completion of the acquisition of Payprotec on April 21, the Company will have substantially greater revenues and breadth of operations. There can be no assurances that the Company will be able to integrate Payprotec successfully or that Payprotec will continue to be profitable.
Going Concern
Our independent registered public accountants have included a going concern explanatory paragraph in their opinion of our 2013 and 2012 financial statements.
Off-Balance Sheet Financing Arrangements
We do not have any off-balance sheet financing arrangements.
Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.. Actual results could differ from those estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. The accompanying unaudited 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.
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
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.
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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 loss per share was not presented, as the Company as of March 31, 2014 has no outstanding options which would have an effect on earnings.
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 loss per share was not presented, as the Company as of March 31, 2014 has no outstanding options which would have an effect on earnings.
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 March 31, 2014. Based on their evaluation, our principal executive officer and principal financial officer have concluded that, as of March 31, 2014, our disclosure controls and procedures were 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 March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS |
None.
ITEM 1A. RISK FACTORS
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 15, 2014. 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 15, 2014, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
During the quarter ended March 31, 2014, the Company sold 1,628,570 shares of its Common Stock for gross proceeds of $150,000. The proceeds were for general corporate use.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. MINE SAFETY DISCLOSURE |
None.
ITEM 5. OTHER INFORMATION |
None
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ITEM 6. EXHIBITS |
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit Number | Description | |
10.01* | Filed Form of Certificate of Designation. | |
10.02 | 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 Company’s Current Report on Form 8-K dated February 21, 2014. | |
10.03 | Form of Employment Agreement is incorporated herein by reference to Exhibit 10.01 of Company’s Current Report on Form 8-K dated February 21, 2014. | |
10.04 | Exclusive Reseller Agreement, dated March 24, 2014, between 420 Solutions Corporation and TransBlue, LLC is incorporated herein by reference to Exhibit 10.01 of Company’s Current Report on Form 8-K dated March 28, 2014. | |
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. |
** | 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. |
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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 | |
Dated: May 20, 2014 | /s/ Thomas A. Hyde, Jr. |
Thomas A. Hyde, Jr. Chief Executive Officer (Principal executive officer) |
Dated: May 20, 2014 | /s/ Robert L. Winspear |
Robert L. Winspear Chief Financial Officer (Principal financial and accounting officer) |
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