UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-173702
Excel Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 27-3955524 | |
| (State or other jurisdiction of | (I.R.S. Employer) | |
| incorporation or organization) | Identification No.) |
6363 North State Highway 161, Suite 310, Irving, Texas |
75038 | |
| (Address of principal executive offices) | (Zip Code) |
972-476-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
| None | N/A |
Securities registered pursuant to Section 12(g) of the Act: N/A
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☒ No ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12-months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-Accelerated filer | ☐ | Smaller reporting company | ☒ | |
| (Do not check if smaller reporting company) | ||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of Common Stock held by non-affiliates as of April 13, 2017 was 62,834,262 shares, having an aggregate market value of approximately $10,047,198 based upon the closing price of registrant’s common stock on such date of $0.16 per share as quoted on the OTCQB Market. For purposes of the foregoing calculation, all directors, executive officers, and 10% beneficial owners have been deemed to be affiliates.
As of April 13, 2017, there were 97,860,366 shares of common stock, par value $0.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy and financial results. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.
Information regarding market and industry statistics contained in this Report is included based on information available to us that we believe is accurate. It is generally based on industry and other publications that are not produced for purposes of SEC filings or economic analysis. We have not reviewed or included data from all sources, and cannot assure investors of the accuracy or completeness of the data included in this Report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of our services. We do not assume any obligation to update any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.
| Item 1. | Business. |
Introduction
We sell integrated financial and transaction processing services to businesses throughout the United States. We provide these services through our wholly-owned subsidiaries, eVance Processing Inc. (“eVance”) and Payprotec Oregon, LLC d/b/a Securus Payments (“Securus”). Through our eVance subsidiary, we provide an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payments processing solutions primarily to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. We operate as an independent sales organization (“ISO”) generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO, eVance has a direct contractual relationship with the merchant and takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and we receive additional consideration for these services and risk. Securus operates as a retail ISO and receives residual income as commission for merchants it places with third party processors.
eVance utilizes multiple processing partners including TSYS, Elavon, First Data Corporation and others. These relationships allow us to provide rapid clearing of payments, using traditional terminals, POS systems and mobile applications, including Apple Pay, Samsung Pay and Android Pay.
During 2015, we began offering merchant cash advances and loans through our Excel Business Solutions Inc. subsidiary, doing business as eVance Capital. We act as an ISO providing alternative financing and working capital solutions to small and medium sized businesses using a variety of third party funding sources. As an ISO we do not provide capital directly or take credit risk. We earn commissions from independent third parties by placing their financial products with our merchant customers. This portion of our business does not currently represent a significant portion of our revenues, costs or assets.
We are actively seeking additional acquisition opportunities including, but not limited to, merchant services and residual revenue portfolios. Although management believes that there are multiple acquisition opportunities, there can be no assurance that we will be able to complete any of these transactions.
Corporate History
Excel Corporation (the “Company”) was organized November 13, 2010 as a Delaware corporation. The Company has three wholly owned subsidiaries, eVance Processing Inc., Excel Business Solutions, Inc. (d/b/a eVance Capital), and Payprotec Oregon, LLC (d/b/a Securus Payments), (“Securus”).
On February 17, 2014, the Company entered into a Securities Exchange Agreement (the “SEA”) with Securus, Mychol Robirds and Steven Lemma, to purchase 90% of the membership interests of Securus and its subsidiary Securus Consultants, LLC. On April 21, 2014, the Company completed the acquisition of 100% of Securus pursuant to the SEA and through a Securities Exchange Agreement (“E-Cig Agreement) with E-Cig Ventures LLC. The Company issued 22,400,000 shares of common stock for the acquisition of Securus.
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On November 30, 2015, eVance Processing Inc. (“eVance”), a wholly owned subsidiary of the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including $8,279,916 of notes payable and certain of the Sellers’ outstanding contractual obligations.
On April 30, 2016, Securus entered into a Purchase and Sale Agreement (the “2016 Purchase Agreement”) with Chyp LLC (“Chyp”). In connection with the 2016 Purchase Agreement, Chyp executed a three-year preferred marketing agreement with eVance. Chyp acquired substantially all of the operations of Securus including its sales and marketing operations located in Portland, Oregon and West Palm Beach, Florida. Securus retained approximately 5,000 merchants and related merchant processing residual portfolios.
On November 2, 2016, the Company and certain of the Company’s subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”) with GACP Finance Co. LLC as administrative agent (“Agent”) and the other lenders as from time to time party thereto. The Loan Agreement has a three-year term and provides for term loan commitments of up to $25,000,000 consisting of an Initial Term Loan in the amount of $13,500,000 and a Delayed Draw Term Loan in the amount of $11,500,000 (each a “Loan” or together “Loans”). The Company used the proceeds from the Initial Term Loan to repay all of its existing secured debt. The Company intends to use the Delayed Draw Term Loan to fund acquisitions of portfolios of recurring residual revenues from credit and debit card transactions or companies that own these portfolios. Funding of the Delayed Draw Term Loan is subject to certain conditions including borrowing base limitations and further lender due diligence.
The Industry, The payment processing industry provides merchants with credit, debit, gift, and loyalty card and other payment processing services, along with related information services. The industry continues to grow as a result of wider merchant acceptance, increased consumer use of bankcards, and advances in payment processing and telecommunications technology. According to The Nilson Report dated February 2016, combined consumer and commercial credit, debit, and prepaid cards generated $3.95 trillion in purchase volume in 2015, up 8.8% from 2014. The proliferation of bankcards has made the acceptance of bankcard payments a virtual necessity for many businesses, regardless of size, in order to remain competitive. This use of bankcards, enhanced technology and security initiatives, efficiencies derived from economies of scale and the availability of more sophisticated products and services to all market segments has led to a highly competitive and specialized industry.
The detailed network of a credit card transaction includes several aspects: credit card associations (e.g.Visa and MasterCard); card issuers; merchants; merchant acquirers; processors; the consumers buying the goods and services; and merchants that are selling them. The card issuers distribute cards to consumers, bill them, and collect payment from them. The processor is responsible for delivering the transaction to the appropriate card issuer so that the customer is billed and the merchant receives funds for the purchase. The merchant acquirer recruits merchants to accept cards and provides the front-end service of routing the transaction to the network’s processing facilities. Merchant acquirers often delegate the actual processing to third-party service providers.
Merchant acquirer revenue is primarily comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction.
Bankcard processing revenue from contracted merchants is typically recurring in nature. The industry average term of a merchant processing contract is three years. Our combined product offerings in the form of receivable purchases and upgraded credit card terminal leases have the added value of establishing a longer-term relationship with the customer, as they have the ability to use us for many service needs.
We anticipate the uptrend in credit card use to continue. As consumers age, we expect that they will continue to use the payment technology to which they have grown accustomed. Young consumers have become accustomed to using bankcards and other electronic payment methods for purchase including the growing use of mobile payments through cellphones and tablets. As these consumers, who have witnessed the wide adoption of card products, technology and the Internet, comprise a greater percentage of the population and increasingly enter the work force, it can be expected that purchases using card-based payment methods will comprise an increasing percentage of total consumer spending.
The proliferation of credit and debit cards has made the acceptance of bankcards a necessity for businesses, both large and small, in order to remain competitive. As a result, many of these small to medium-sized businesses are seeking to provide customers with the ability to pay for merchandise and services using credit or debit cards, including those in industries that have historically accepted cash and checks as the only forms of payment for their products. Previously, larger acquiring banks have marketed credit card processing services to national and regional merchants and have not focused on small to medium-sized merchants, as small to medium-sized merchants have often been perceived as too difficult to identify and expensive to service. These merchants generally have a lower volume of credit card transactions and have traditionally been underserved by credit card processors.
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Market researchers expect dramatic growth in card-not-present transactions due to the rapid growth of the Internet. According to Forrester Research, US online sales were $341.7 billion in 2015 and projected to be $523 billion by 2020. This growth is based on the continued shift of sales away from traditional brick and mortar stores to online and catalog purchases and the trend is projected to continue. Furthermore, where concerns around secure transactions had once been in the forefront, as those concerns continue to subside, the reluctance to use bankcards will further diminish and the uptrend in bankcard volume will likely be bolstered.
Sales and Marketing, We primarily use independent agents and other smaller ISOs to market our services. We intend to increase the number of independent agents and ISO’s that sell on our behalf. We may also gain additional agents through the acquisition of merchant portfolios or companies. We may also add to our direct sales channel for certain industry segments or customer profiles.
Government Regulations, The industry in which we operate is subject to extensive governmental regulation. In particular, there are numerous laws and regulations restricting the purchase, sale, and sharing of personal information about consumers. The electronic payment processor is subject to regulation by federal, state and professional governing bodies. Prospective financial institution customers, including commercial banks and credit unions, operate in markets that are subject to rigorous regulatory oversight and supervision. As an ISO, we are less susceptible to these regulations than processors and banks because we do not have possession of customer level data.
Competition, The payment processing industry is highly competitive. We compete with other ISOs for the acquisition of merchant agreements. Several sponsor banks and processors including First National Bank of Omaha, Chase Paymentech, L.P., Bank of America Merchant Services, First Data Corporation, Global Payments, Elavon Inc, as well as Wells Fargo, U.S. Bank and others, frequently solicit merchants directly or through their own network of ISOs. Competition is based upon a number of factors including price, service and product offerings. Many of these competitors are larger and have substantially greater resources than us. We believe we remain competitive to these processors and competitive ISOs through a combination of beneficial pricing and services to our merchant customers.
Employees
As of April 10, 2017, we have 31 full-time employees. Four of these employees are located in our corporate offices in Irving, Texas, 22 are employed by eVance, and five are employed by Excel Business Solutions. None of our employees are covered by collective bargaining agreements. We consider our employee relations to be satisfactory.
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| Item 1A. | Risk Factors. |
We may not be able to raise the additional capital necessary to execute our business strategy which includes the acquisition of other companies, operations or asset portfolios.
We intend to grow in part through acquisitions, business combinations and or merchant portfolio purchases. Our ability to successfully execute these transactions may depend on our ability to raise additional debt and/or equity capital. Our ability to raise additional capital is uncertain and dependent upon numerous factors beyond our control, including but not limited to economic conditions, regulatory factors, reduced retail sales, increased taxation, reductions in consumer confidence, changes in levels of consumer spending, changes in preferences in how consumers pay for goods and services, weak housing markets and availability or lack of availability of credit. If we are unable to obtain additional capital, or if the terms thereof are too costly, we may be unable to successfully execute our business strategy.
We may need more financing earlier than we anticipate if we:
| ● | expand faster than our internally generated cash flow can support; | |
| ● | purchase merchant portfolios from a large number of ISOs; | |
| ● | need to increase merchant portfolio purchase prices in response to competition; | |
| ● | acquire complementary products, businesses, technologies or residual ISO commissions. |
Revenues and profits generated by acquired businesses or account portfolios may be less than anticipated, resulting in losses or a decline in profits, as well as potential impairment charges.
In evaluating and determining the purchase price for a prospective acquisition, we estimate the future revenues and profits from that acquisition based on the historical revenue of the acquired provider of payment processing services or portfolio of merchant accounts. Following an acquisition, it is customary to experience some attrition in the number of merchants serviced by an acquired provider of payment processing services or included in an acquired portfolio of merchant accounts. Should the rate of post-acquisition merchant attrition exceed the rate we forecasted, the revenues and profits generated by the acquired providers of payment processing services or portfolio of accounts may be less than we estimated, which could result in losses or a decline in profits, as well as potential impairment charges.
We have historically incurred losses.
Until our acquisition of Securus in April 2014, we were considered a development stage company. Prior to our restructuring of Securus, we incurred significant operating losses. Although we had income from continuing operations in 2015 and 2016 there can be no assurance that the Company will earn net income in the future and it may require additional capital in order to fund its operations. The Company may not be able to source funds on acceptable terms.
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Our business strategy includes additional acquisitions. We may not be able to successfully identify and close any such acquisitions or successfully integrate them into our business.
Acquisitions are inherently uncertain. We have limited financial resources which may require us to seek additional debt or equity capital. There can be no assurances that we will be able to obtain financing. In addition, we compete for potential acquisition targets with other companies from within our industry as well as from financial buyers such as private equity firms and hedge funds. Many of these companies have significantly greater financial resources than the Company. Other risks related to acquisitions include:
| ● | the due diligence, financing and related transaction activities divert management attention from our current operations; |
| ● | we may devote substantial time and resources to acquisitions that do not close and; | |
| ● | we may be unable to utilize the delayed draw feature of our credit facility if we are not in compliance with its covenants and; |
| ● | we may incur potential liabilities not detected during due diligence or make financial or other assumptions about an acquisition that turn out to be inaccurate. |
Unauthorized disclosure of merchant and cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and protracted and costly litigation.
We collect and store sensitive data about merchants, including names, addresses, social security numbers, driver’s license numbers and checking account numbers. Any loss of cardholder data by us or our merchants could result in significant fines and sanctions by the card networks or governmental bodies, which could have a material adverse effect upon our financial position and/or results of operations. Our computer systems could be in the future, subject to penetration by hackers and our encryption of data may not prevent unauthorized use. In this event, we may be subject to liability, including claims for unauthorized purchases with misappropriated bankcard information, impersonation or other similar fraud claims. We could also be subject to liability for claims relating to misuse of personal information, such as unauthorized marketing purposes. These claims also could result in protracted and costly litigation. In addition, we could be subject to penalties or sanctions from the card networks.
Although we generally require that our agreements with our service providers who have access to merchant and customer data include confidentiality obligations that restrict these parties from using or disclosing any customer or merchant data except as necessary to perform their services under the applicable agreements, these contractual measures may not prevent the unauthorized use or disclosure of data. In addition, our agreements with financial institutions most likely will require us to take certain protective measures to ensure the confidentiality of merchant and consumer data. Any failure to adequately enforce these protective measures could result in protracted and costly litigation.
If we fail to comply with the applicable requirements of the Visa and MasterCard bankcard networks, Visa or MasterCard could seek to fine us, suspend us or terminate our registrations. Fines could have an adverse effect on our operating results and financial condition, and if these registrations are terminated, we will not be able to conduct our business.
If we are unable to comply with Visa and MasterCard bankcard network requirements (including Payment Card Industry Data Security Standard, or PCI-DSS, compliance), Visa or MasterCard could seek to fine us, suspend us or terminate our registrations. We may receive notices of non-compliance and fines, which have typically related to excessive chargebacks by a merchant or data security failures on the part of a merchant. If we are unable to recover fines from our merchants, we would experience a financial loss. The termination of our registration, or any changes in the Visa or MasterCard rules that would impair our registration, could require us to stop providing Visa and MasterCard payment processing services, which would make it impossible for us to conduct our business.
We could face chargeback liability when our merchants refuse or cannot reimburse chargebacks resolved in favor of their customers, reject losses when our merchants go out of business, and merchant fraud. We cannot accurately anticipate these liabilities, which may adversely affect our results of operations and financial condition.
We have potential liability for fraudulent bankcard transactions initiated by merchants. Merchant fraud occurs when a merchant knowingly uses a stolen or counterfeit bankcard or card number to record a false sales transaction, processes an invalid bankcard or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. We utilize internal risk detection and prevention measures as well as rely on our financial institution and transaction processor service providers to detect and reduce the impact of merchant fraud, but these measures may not be effective. It is possible that incidents of fraud could increase in the future. Failure by our financial institutions, transaction processing partners or ourselves to effectively manage risk and prevent fraud would increase our chargeback liability. Increases in chargebacks could have an adverse effect on our operating results and financial condition.
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Increased merchant attrition that we cannot offset with increased bankcard processing volume from same store sales growth or new accounts would cause our revenues to decline.
We may experience above normal attrition in merchant bankcard processing volume resulting from several factors, including business closures, transfers of merchants’ accounts to our competitors and account closures that we initiate due to heightened credit risks relating to, or contract breaches by, merchants, and when applicable same store sales contraction. We cannot predict the level of attrition in the future, and it could increase. Increased attrition in merchant bankcard processing volume may have an adverse effect on our financial condition and results of operations. If we are unable to establish accounts with new merchants or otherwise increase our bankcard processing volume in order to counter the effect of this attrition, our revenues will decline.
We rely on various financial institutions to provide clearing services in connection with our settlement activities. If we are unable to maintain clearing services with these financial institutions and are unable to find a replacement, our business may be adversely affected.
We rely on various financial institutions and transaction processing services providers to provide clearing services in connection with our settlement activities. Our primary relationships are with First Data Corporation, Wells Fargo, TSYS and Merrick Bank. If we are unable to maintain clearing services with these financial institutions and transaction processing services providers, or are unable to find a replacement for them, we may no longer be able to provide processing services to certain and various customers which could negatively impact our revenue and earnings.
We rely on bank sponsors, which have substantial discretion with respect to certain elements of our business practices, in order to process bankcard transactions. If these sponsorships are terminated and we are not able to secure or successfully migrate merchant portfolios to new bank sponsors, we will not be able to conduct our business.
Because we are not a bank, we are unable to belong to and directly access the Visa and MasterCard bankcard associations. Visa and MasterCard operating regulations require us to be sponsored by a bank in order to process bankcard transactions. We are currently registered with Visa and MasterCard through the sponsorship of banks that are members of the card associations. In addition, our sponsoring banks may terminate their agreements with us if we materially breach the agreements and do not cure the breach within an established cure period.
If we cannot pass increases in bankcard network interchange fees, assessments and transaction fees along to our merchants, our operating margins will be reduced.
We expect to pay interchange fees and other network fees set by the bankcard networks to the card issuing bank and the bankcard networks for each transaction we process. From time to time, the bankcard networks increase the interchange fees and other network fees that they charge payment processors and the sponsor banks. We expect that our potential sponsor bank will pass any increases in interchange fees on to us. If we are unable to pass these fee increases along to our merchants through corresponding increases in our processing fees in the future, our operating margins will be reduced.
Current or future bankcard network rules and practices could adversely affect our business.
We are registered with the Visa and MasterCard networks through our bank sponsors as an ISO with Visa and a Member Service Provider with MasterCard. The rules of the bankcard networks are set by their boards, which may be strongly influenced by card issuers, and some of those card issuers are our competitors with respect to these processing services. Many banks directly or indirectly sell processing services to merchants in direct competition with us. These banks could attempt, by virtue of their influence on the networks, to alter the networks’ rules or policies to the detriment of non-members like us. The bankcard networks or issuers who maintain our future registrations or arrangements or the bankcard network or issuer rules allowing us to market and provide payment processing services may not remain in effect. The termination of our registration or our status as an ISO and/or MSP, or any material changes in card network or issuer rules that would serve to limit our ability to provide payment processing services, could have an adverse effect on our bankcard processing volumes, revenues or operating costs. In addition, if we were precluded from processing Visa and MasterCard bankcard transactions, we would lose substantially all of our revenues.
Any new laws and regulations, or revisions made to existing laws, regulations, or other industry standards affecting our business may have an unfavorable impact on our operating results and financial condition.
Our business is impacted by laws and regulations that affect the bankcard industry. The number of new and proposed regulations has increased significantly, particularly pertaining to interchange fees on bankcard transactions, which are paid to the bank card issuer. In July 2010, Congress passed The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which significantly changed financial regulation. Changes included restricting amounts of debit card fees that certain issuer banks can charge merchants and allowing merchants to offer discounts for different payment methods. The impact which the Dodd-Frank Act will have on our operating results is difficult to determine, as the changes are not directed at us and final regulations on interchange fees are still to be set by the Federal Reserve Board. When final, these regulations could adversely affect our operating results and financial condition.
We are also subject to Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices by all merchants, financial institutions, and all persons engaged in commerce. The Federal Trade Commission ("FTC") is authorized to take action against nonbanks that engage in such unfair or deceptive acts and, to the extent we are processing payments for a merchant engaged in unfair or deceptive acts, we may be subject to action by the FTC.
Regulatory actions such as those described above, even if not directed at us, may require us to make significant efforts to change our products and services and may require that we change how we price our services to customers. Furthermore, regulatory actions may cause changes in business practices by us and other industry participants which could affect how we market, price and distribute our products and services. Moreover, failure to comply with laws and regulations, even if inadvertent, could damage our business and our reputation. Therefore, these laws and regulations may materially and adversely affect the Company’s business or operations, either directly or indirectly.
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Governmental regulations designed to protect or limit access to consumer information could adversely affect our ability to effectively provide our services to merchants.
Governmental bodies in the United States and abroad have adopted, or are considering the adoption of, laws and regulations restricting the transfer of, and safeguarding, non-public personal information. For example, in the United States, all financial institutions must undertake certain steps to ensure the privacy and security of consumer financial information. While our operations are subject to certain provisions of these privacy laws, we will limit our use of consumer information solely to providing services to other businesses and financial institutions. We will also limit sharing of non-public personal information to that necessary to complete the transactions on behalf of the consumer and the merchant and to that permitted by federal and state laws. In connection with providing services to the merchants and financial institutions that use our services, we will be required by regulations and contracts with our merchants to provide assurances regarding the confidentiality and security of non-public consumer information. These contracts may require periodic audits by independent companies regarding our compliance with industry standards and best practices established by regulatory guidelines. The compliance standards relate to our infrastructure, components, and operational procedures designed to safeguard the confidentiality and security of non-public consumer personal information shared by our clients with us. Our ability to maintain compliance with these standards and satisfy these audits will affect our ability to attract and maintain business in the future. The cost of such systems and procedures may increase in the future and could adversely affect our ability to compete effectively with other similarly situated service providers.
Our systems and our third-party providers’ systems may fail due to factors beyond our control, which could interrupt our service, cause us to lose business and increase our costs.
We depend on the efficient and uninterrupted operation of computer network systems, software, data center and telecommunications networks, as well as other third party systems. Our systems and operations or those of our third-party providers could be exposed to damage or interruption from, among other things, fire, natural disaster, power loss, telecommunications failure, unauthorized entry and computer viruses. Our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur. Defects in our systems or those of third parties, errors or delays in the processing of payment transactions, telecommunications failures or other difficulties could result in:
| ● | loss of revenues; | |
| ● | loss of merchants, although our contracts with merchants do not expressly provide a right to terminate for business interruptions; | |
| ● | loss of merchant and cardholder data; | |
| ● | harm to our business or reputation; | |
| ● | exposure to fraud losses or other liabilities; | |
| ● | negative publicity; | |
| ● | additional operating and development costs; and/or | |
| ● | diversion of technical and other resources. |
We do not own or maintain a processing network and expect to depend on outsourced suppliers for this and other essential services; our inability to obtain and retain such outsourced services would prevent us from adding new merchant customers and could require us to discontinue our operations.
We do not own or maintain a computer system or software or communications network necessary to process debit or credit card transactions directly. We depend on large well known outsourced vendors for these and other key functions, including credit card transaction processing, check guarantee and gift and loyalty card processing and the provision of point of sale processing equipment. We will therefore be dependent on the continued capabilities of these vendors to provide such services on terms acceptable to us. Should any one of these vendors experience difficulties in providing processing services for any reason, and if we cannot engage other vendors to provide such services, we would be required to discontinue operations.
We may experience software defects, undetected errors, and development delays, which could damage customer relations, decrease our potential profitability and expose us to liability.
We rely on technologies and software supplied by third parties that may contain undetected errors, viruses or defects. Defects in software products and errors or delays in processing of electronic transactions could result in additional costs, diversion of technical and other resources from our other efforts, loss of credibility with current or potential customers, harm to our reputation, or exposure to liability claims. In addition, the sophisticated software and computing systems that we rely on often encounter development delays and the underlying software may also contain undetected errors, viruses, or defects that could have a material adverse effect on our business, financial condition and results of operations.
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We are dependent on a limited number of key executives and employees, the loss of which could negatively impact our business.
Our business is led by our Chief Executive Officer, Thomas A. Hyde Jr. and our Chief Financial Officer, Robert L. Winspear. Craig A. Jessen is President of eVance and Executive Vice President of Excel. The loss of one or more of these executives could negatively impact our business and operations.
We are subject to the business cycles and credit risk of our merchants, which could negatively impact our financial results.
A recessionary economic environment could have a negative impact on our merchants, which could, in turn, negatively impact our financial results, particularly if the recessionary environment disproportionately affects some of the market segments that represent a larger portion of our bankcard processing volume. If our merchants make fewer sales of their products and services, we will have fewer transactions to process, resulting in lower revenue. In addition, we have a certain amount of fixed and semi-fixed costs, including rent, processing contractual minimums and salaries, which could limit our ability to quickly adjust costs and respond to changes in our business and the economy.
In a recessionary environment, our merchants could also experience a higher rate of business closures, which could adversely affect our business and financial condition. In the event of a closure of a merchant, we are unlikely to receive our fees for any transactions processed by that merchant in its final month of operation.
Our operating results are subject to seasonality, which could result in fluctuations in our quarterly revenue.
We expect to experience seasonal fluctuations in our revenues as a result of consumer spending patterns and the seasonality of our merchant customers’ businesses.
The payment processing industry is highly competitive and we compete with certain firms that are larger and have greater financial resources than we do. Competition could increase, which would adversely influence our prices to merchants and, as a result, our operating margins.
The market for payment processing services is highly competitive. Other providers of payment processing services have established a sizable market share in the small- and medium-size merchant processing sector. The weakness of the current economic recovery could cause future growth in electronic payment transactions to slow compared to historical rates of growth. This competition may influence the prices we are able to charge. If the competition causes us to reduce the prices we charge, we will have to aggressively control our costs in order to maintain acceptable profit margins. In addition, some of our competitors are financial institutions, subsidiaries of financial institutions or well-established payment processing companies, including TSYS, Global Payments Inc., First Data Corporation, Vantiv Inc., Fifth Third Processing Solutions, Chase Paymentech Solutions and Elavon Inc. Our competitors that are financial institutions or subsidiaries of financial institutions do not incur the costs associated with being sponsored by a bank for registration with the card networks and can settle transactions more quickly for their merchants than we can for ours. These competitors have substantially greater financial, technological, management and marketing resources than we have. This may allow our competitors to offer more attractive fees to our current and prospective merchants, or other products or services that we do not offer. This could result in a loss of customers, greater difficulty attracting new customers, and a reduction in the price we can charge for our services.
In addition, many of our competitors may have the ability to devote more financial and operational resources than we can to the development of new payments technologies and services that provide improved operating functionality and features to their specific product and service offerings. If successful, their development efforts could render our product and services offerings less desirable to customers, again resulting in the loss of customers or a reduction in the price we could demand for our offerings. Furthermore, we are facing competition from non-traditional competitors offering alternative payment methods, such as PayPal and Google. These non-traditional competitors have significant financial resources and robust networks and are highly regarded by consumers. If these non-traditional competitors gain a greater share of total electronic payments transactions, it could also have a material adverse effect on our business, financial condition and results of operation.
We expect to be subject to increased operating margin pressure, which could erode our margins and adversely affect our ability to retain merchants and attain and maintain profitability.
We expect to experience increasingly downward pricing pressure from merchants for merchant credit and debit card processing and acquiring services, similar to what many of our competitors have experienced. The services we plan to offer are a commodity and as such are generally not differentiable except using price. Low barriers to entry in becoming an ISO/MSP means that price competition in the industry is persistent and strong. Our management has noted this trend and does not anticipate that this trend will cease in the near future, if at all. Continued margin erosion could adversely affect our merchant retention and profitability.
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Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.
We operate in a rapidly changing industry. Accordingly, our risk management policies and procedures may not be fully effective to identify, monitor, and manage our risks. If our policies and procedures are not fully effective or we are not always successful in capturing all risks to which we are or may be exposed, we may suffer uninsured liability, harm to our reputation or be subject to litigation or regulatory actions that could have a material adverse effect on our business, financial condition and results of operation.
We may become subject to additional U.S., state or local taxes that cannot be passed through to our merchants, which could negatively affect our results of operations.
Companies in the payment processing industry, including us, may become subject to taxation in various tax jurisdictions on our net income or revenues. Application of these taxes is an emerging issue in our industry and taxing jurisdictions have not yet adopted uniform positions on this topic. If we are required to pay additional taxes and are unable to pass the tax expense through to our merchants, our costs would increase and our net income would be reduced.
Our quarterly results may fluctuate and if we fail to meet the expectations of analysts or investors, our stock price could decline substantially.
Our quarterly operating results may fluctuate, and if we fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock could decline. Some of the important factors that could cause our revenue and operating results to fluctuate from quarter to quarter include:
| ● | we are a small company with limited operating history; | |
| ● | the scope of our marketing and advertising efforts; |
| ● | our ability to retain existing customers, attract new customers and satisfy our customers’ requirements; | |
| ● | general economic conditions; |
| ● | changes in our pricing policies; | |
| ● | our ability to expand our business; |
| ● | the effectiveness of our personnel; | |
| ● | new product introductions; |
| ● | costs associated with future acquisitions; and | |
| ● | extraordinary expenses such as litigation or other dispute-related settlement payments. |
Some of these factors are not within our control, and the occurrence of one or more of them may cause our operating results to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful and should not be relied upon as an indication of future performance.
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Risks Relating to Our Common Stock
There is only a limited public market for our securities.
Our common stock is traded on the OTCQB Market under the trading symbol “EXCC.” Our common stock is thinly traded, if traded at all, and a robust and active trading market may never develop. Most of our outstanding shares may not be sold into the market unless there is an effective registration statement covering the resale of the shares, or the shares are eligible to be sold under Rule 144. Stockholders who decide to sell some or all of their shares in a private transaction may be unable to locate persons who are willing to purchase the shares, given the restrictions. Also, because of the various risk factors described herein, the price of the publicly traded shares of common stock may be highly volatile and may not reflect the underlying value of the Company.
Our stock price could be volatile.
The market prices of securities of merchant services-related companies are extremely volatile and sometimes reach unsustainable levels that bear no relationship to the past or present operating performance of such companies. Factors that are expected to contribute to the volatility of the trading price of our common stock include, among others:
| ● | our quarterly results of operations; | |
| ● | the variance between our actual quarterly results of operations and predictions by stock analysts; | |
| ● | financial predictions and recommendations by stock analysts concerning companies engaged in merchant services-related and companies competing in our market in general, and concerning us in particular; | |
| ● | public announcements of regulatory changes or new ventures relating to our business, new products or services by us or our competitors, or acquisitions, joint ventures or strategic alliances by us or our competitors; | |
| ● | public reports concerning our services or those of our competitors; | |
| ● | the operating and stock price performance of other companies that investors or stock analysts may deem comparable to us; | |
| ● | large purchases or sales of our common stock; | |
| ● | investor perception of our business prospects or the merchant card processing and acquisition industry in general; and | |
| ● | general economic, political, and financial conditions, and the occurrence of natural disasters and terrorist attacks. |
In addition to the foregoing factors, the trading prices for equity securities in the stock market in general, and of merchant services-related companies in particular, have been subject to wide fluctuations that may be unrelated to the operating performance of the particular company affected by such fluctuations. Consequently, broad market fluctuations may have an adverse effect on the trading price of our common stock, regardless of our results of operations.
Our common stock may be deemed to be a “penny stock” and therefore subject to special requirements that could make the trading of our common stock more difficult than for stock of a company that is not “penny stock.”
Our common stock may be deemed to be a “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Penny stocks are stocks (i) with a price of less than $5.00 per share; (ii) that are not traded on a “recognized” national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of issuers with net tangible assets of less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than $6,000,000 for the last three years.
Section 15(g) of the Exchange Act, and Rule 15g-2 promulgated thereunder, require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of them.
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We do not intend to pay dividends.
We have not paid any cash dividends on our common stock since our inception and we do not anticipate paying any cash dividends in the foreseeable future. Earnings, if any, that we may realize will be retained in the business for further development and expansion. Our ability to pay dividends is restricted under our Loan Agreement.
We may need to raise capital, which may cause dilution or issue securities senior to our common stock.
In order to execute our business strategy which includes acquisitions, we may need to raise additional capital. We may issue stock directly for acquisitions or sell stock to third parties in order to raise capital. We may not be able to raise any such additional capital and we may not be able to raise such capital on acceptable terms. If we raise capital through the sale or issuance of equity securities, such transactions will dilute the value of our outstanding shares. We may also decide to issue debt securities or preferred stock that have rights, preferences, and privileges senior to our common stock.
Our substantial level of indebtedness could adversely affect our financial condition.
We have a substantial amount of indebtedness, which requires significant interest payments. As of December 31, 2016 we had $13,554,575 of debt bearing cash interest of 13% per year as well as an additional 5% per year that is paid in kind.
Our substantial level of indebtedness could have important consequences, including the following:
| ● | We must use a substantial portion of our cash flow from operations to pay interest, which reduces funds available to us for other purposes, such as working capital, capital expenditures, other general corporate purposes and potential acquisitions; | |
| ● | our ability to refinance such indebtedness or to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impacted; | |
| ● | our leverage may be greater than that of some of our competitors, which may put us at a competitive disadvantage and reduce our flexibility in responding to current and changing industry and financial market conditions; | |
| ● | we may be more vulnerable to economic downturns and adverse developments in our business; and | |
| ● | we may be unable to comply with financial and other restrictive covenants, some of which require us to maintain specified financial ratios which could result in an event of default that, if not cured or waived, would have an adverse effect on our business and prospects and could result in bankruptcy. |
Our ability to meet expenses, to remain in compliance with our covenants and to make future principal and interest payments in respect of our debt depends on, among other things, our operating performance, competitive developments and financial market conditions, all of which are significantly affected by financial, business, economic and other factors. We are not able to control many of these factors. If industry and economic conditions deteriorate, our cash flow may not be sufficient to allow us to pay principal and interest on our debt and meet our other obligations.
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The loan agreement imposes significant financial and operating restrictions on us.
Our loan agreement imposes significant operating and financial restrictions on us. These restrictions, among other things, limit our ability and that of our subsidiaries to:
| ● | pay dividends or distributions, repurchase equity, prepay subordinated debt and make certain investments; | |
| ● | incur additional debt; | |
| ● | sell or otherwise dispose of assets, including capital stock of subsidiaries; | |
| ● | incur liens on assets; | |
| ● | merge or consolidate with another company or sell all or substantially all assets; | |
| ● | enter into transactions with affiliates; and |
All of these covenants may adversely affect our ability to finance our operations, meet or otherwise address our capital needs, pursue business opportunities, react to market conditions or otherwise restrict activities or business plans. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the lender could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness. If repayment of our indebtedness is accelerated as a result of such default, we cannot provide any assurance that we would have sufficient assets or access to credit to repay such indebtedness.
Future sales of large amounts of our common stock could have a negative impact on our stock price.
Future sales of our common stock by existing stockholders pursuant to an effective registration statement covering the resale of such shares or Rule 144 could adversely affect the market price of our common stock and could materially impair our future ability to generate funds through sales of our equity securities.
Our Board of Directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to existing common stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control over us.
Our certificate of incorporation allows us to issue shares of preferred stock without any vote or further action by our common stockholders. Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
Preferred stock could be used to dilute a potential hostile acquirer. Accordingly, any future issuance of preferred stock or any rights to purchase preferred shares may have the effect of making it more difficult for a third party to acquire control of us. This may delay, defer or prevent a change of control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings attributable to, and assets available for distribution to, the holders of our common stock and could adversely affect the rights and powers, including voting rights, of the holders of our common stock.
Series B Convertible Preferred Stock.
We have 4,600,000 shares of Series B Convertible Preferred Stock (“Series B Shares”) outstanding. The Series B Shares are convertible into shares of the Company’s common stock par value $0.0001 (“Common Stock”) on a ratio of one to one, subject to adjustment for stock splits and stock dividends. The Series B Shares rank senior to the Common Stock and other preferred shares and carry a liquidation preference of $.05 per share. Holders of the Series B Shares are entitled to receive dividends declared on the Company’s Common Stock on an as converted basis. Each Series B Share entitles the Holder thereof to 20 votes per share on all matters subject to voting by holders of the Company’s Common Stock. The issuance of a total of 4,600,000 shares of Series B Shares, entitles the Holders thereof to vote a combined 92,000,000 shares. Under the terms of the Series B Shares, the Company has the right to require a Holder to convert the Series B Shares into Common Stock at any time after the Holder resigns, is terminated or otherwise ceases to be an officer of the Company. In addition, the Company has the right at any time to repurchase and retire all but not less than all of the Series B Preferred Stock for $0.05 per share provided that it gives notice to the Holder of the Company’s intent to redeem the shares and the Holder does not elect to convert the Series B Shares into Common Stock in lieu of the redemption.
In connection with the issuance of the Series B Shares, the Company and the Holders executed a Stockholders Agreement (the “Agreement”) whereby the Holders agreed to not to initiate directly or indirectly any stockholder vote or action, by written consent or otherwise, to increase the size or structure of the Company’s board of directors or remove any existing director, nor initiate directly or indirectly any stockholder vote or action by written consent or otherwise, to affect Holders’ executive compensation, bonus criteria and amounts, or other similar action. The Holders also agreed to convert the Series B Shares immediately upon termination, whether voluntary or involuntary, or upon their resignation for any reason.
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Provisions in our charter documents and Delaware law could discourage a takeover that our stockholders may consider favorable or could cause current management to become entrenched and difficult to replace.
Certain provisions of our Bylaws are intended to strengthen the board’s position in the event of a hostile takeover attempt. These provisions have the following effects:
| ● | they provide that only business brought before an annual meeting by the board or by a stockholder who complies with the procedures set forth in the Bylaws may be transacted at an annual meeting of stockholders; and | |
| ● | they provide for advance notice or certain stockholder actions, such as the nomination of directors and stockholder proposals. |
We are subject to the provisions of Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the voting stock.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal controls over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
We rely on our sponsor banks and transaction processing service providers to provide financial data as well as bill and collect processing fees from our merchants. As such, our internal controls over financial reporting could be materially affected, or could reasonably likely be materially affected, by the internal controls and procedures of our sponsor banks and transaction processing service providers. In order to mitigate this risk, we partner with large well established sponsor banks and service providers and regularly review their reports for accuracy.
While we continue to dedicate resources and management time to ensuring that we have effective controls over financial reporting, failure to achieve and maintain an effective internal control environment could have a material adverse effect on the market’s perception of our business and our stock price.
| Item 1B. | Unresolved Staff Comments. |
Not Applicable
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| Item 2. | Properties. |
We lease our executive offices in Irving, Texas, as well as, office space for our subsidiary in Alpharetta, Georgia.
| Location | Square Feet | Lease term | ||||
| Irving, Texas (Corporate headquarters) | 2,755 | Expires 2019 | ||||
| Alpharetta, Georgia (eVance) | 5,298 | Expires 2019 | ||||
| Item 3. | Legal Proceedings. |
The Company is party to a number of legal proceedings that arise in the ordinary course of business. Although litigation is subject to inherent uncertainties, the Company does not expect the outcome of these matters to have a material adverse effect on the business or operations of the Company.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
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| Item 5. | Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market Information
Our shares of common stock are quoted on the OTCQB under the trading symbol “EXCC.” The following table sets forth the high and low sales prices during each period as reported on the OTCQB. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
| FISCAL YEAR 2015 | HIGH | LOW | ||||||
| First Quarter | $ | .04 | $ | .03 | ||||
| Second Quarter | $ | .04 | $ | .02 | ||||
| Third Quarter | $ | .05 | $ | .02 | ||||
| Fourth Quarter | $ | .05 | $ | .03 | ||||
| FISCAL YEAR 2016 | HIGH | LOW | ||||||
| First Quarter | $ | .04 | $ | .03 | ||||
| Second Quarter | $ | .04 | $ | .03 | ||||
| Third Quarter | $ | .10 | $ | .03 | ||||
| Fourth Quarter | $ | .14 | $ | .05 | ||||
Holders
According to the records of our transfer agent, as of April 13, 2017, there were approximately 108 holders of record of our common stock. This number does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers.
Dividend Policy
We have never declared or paid dividends on our common stock. We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs. Our ability to pay dividends is restricted under the terms of our Loan Agreement.
Securities Authorized for Issuance Under Equity Compensation Plans
We have 4,000,000 shares of common stock available for issuance pursuant to our 2010 Equity Incentive Plan. There are no options currently outstanding.
| Item 6. | Selected Financial Data. |
We are a smaller reporting company; as a result, we are not required to report selected financial data disclosures as required by Item 301 of Regulation S-K.
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis of our results of operations and financial condition for the fiscal years ended December 31, 2016 and 2015 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this annual report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,” “Cautionary Notice Regarding Forward-Looking Statements” and “Description of Business” sections and elsewhere in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “predict,” and similar expressions to identify forward-looking statements. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business, our actual results could differ materially from those discussed in these statements. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.
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Overview
We sell integrated financial and transaction processing services to businesses throughout the United States. We provide these services through our wholly-owned subsidiaries, eVance Processing Inc. (“eVance”) and Payprotec Oregon, LLC d/b/a Securus Payments (“Securus”). Through our eVance subsidiary, we provide an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payments processing solutions primarily to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. We operate as an independent sales organization (“ISO”) generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO, eVance has a direct contractual relationship with the merchants and takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and we receive additional consideration for this service and risk. Securus operates as a retail ISO and receives residual income as commission for merchants it places with third party processors.
On April 30, 2016, Securus entered into a Purchase and Sale Agreement (the “2016 Purchase Agreement”) with Chyp LLC (“Chyp”). In connection with the Purchase Agreement, Chyp executed a three-year preferred marketing agreement with eVance.
Chyp acquired substantially all of the operations of Securus including its sales and marketing operations located in Portland Oregon and West Palm Beach Florida. Securus retained its approximately 5,000 merchants and the related merchant processing residual portfolios. Securus also retained substantially all of its liabilities, including its note payable with Blue Acre Ventures, trade payables as well as liabilities to merchants. As a result of this transaction, the Company classified the revenues and expenses of Securus that were not directly attributable to the residual portfolios as discontinued operations.
During 2015, we began offering merchant cash advances and loans through our Excel Business Solutions Inc. subsidiary, doing business as eVance Capital. We act as an ISO providing alternative financing and working capital solutions to small and medium sized businesses using a variety of third party funding sources. As an ISO we do not provide capital directly or take credit risk. We earn commissions from independent third parties by placing their financial products with our merchant customers. This portion of our business does not yet represent a significant portion of our revenues, costs or assets.
Prior to the acquisition of Securus in April 2014, we were considered a developmental stage company. With the acquisition of Securus, we are no longer in a development stage and maintain as our primary business operations the sale of merchant processing and servicing, as well as a limited number of merchant cash advance transactions on behalf of our merchant customers. We are actively seeking additional acquisition opportunities in related industries including, but not limited to, merchant services and merchant cash advance companies. Although management believes that there are multiple acquisition opportunities, there can be no assurance that the Company will be able to complete any such transactions.
Results of Operations
We acquired the U.S. operations of Calpian Inc. on November 30, 2015 through our eVance subsidiary. As a result of this acquisition, operating results for 2015 and 2016 are not comparable. 2015 results include only one month of operations of eVance and, therefore, are not representative of future financial performance and not comparable to other periods.
Revenues
During the year ended December 31, 2016, we had revenues of $17,115,210 compared to revenues of $5,629,240 for the year ended December 31, 2015. The increase of 204.0% was primarily due to the full year of operations of the Company’s eVance subsidiary in connection with its acquisition of Calpian’s US assets on November 30, 2015. In addition, processing fee revenue from Securus and merchant cash advance revenue from Excel Business Solutions also increased during 2016.
Costs and Expenses
Our operating costs and expenses were $14,292,448 for the year ended December 31, 2016 as compared to $3,625,810 for the year ended December 31, 2015. Processing and services costs include interchange and other processing costs and were $7,045,624 or 41.9% of transaction and processing revenue for the year ended December 31, 2016 as compared to $546,803 or 9.9% of transaction and processing fee revenue for the year ended December 31, 2015. The increase in total costs and as a percentage of revenue is due to a full years operation at eVance. Prior to eVance’s acquisition of Calpian’s US assets, the Company did not record processing revenue gross of interchange and processing costs because it only received commission based revenue from its Securus operation which had no related processing and servicing costs. Salaries, wages and benefits increased by $1,456,735 to $3,644,365 for the year ended December 31, 2016 due to the acquisition discussed above but decreased as a percentage of total sales from 38.9% to 21.3%. The decrease as a percentage of revenue was due to increased leverage of corporate overhead which remained relatively flat for 2016 and 2015. Other selling, general and administrative costs were $1,184,936 for the year ended December 31, 2016 as compared to $221,437 for the year ended December 31, 2015. The increase was primarily due to the eVance acquisition of Calpian’s US assets.
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Other Income (expense)
Other income was $445,742 for the year ended December 31, 2015, as compared to a loss due to the early extinguishment of debt of $33,602 for the year ended December 31, 2016. Other income in 2015 resulted primarily from the sale of residual portfolios.
Net interest expense was $1,556,105 for the year ended December 31, 2016 as compared to $371,596 for the year ended December 31, 2015. The increase was due primarily to interest expense on the $8,029,916 of debt assumed with the acquisition of the US assets of Calpian as well as interest on the Company’s new credit facility with Great American Capital Partners LLC (“GACP”) which retired the debt assumed with the Calpian acquisition as well as the Company’s other notes payable.
Discontinued Operations
Losses on discontinued operations were $2,188,571 for the year ended December 31, 2016 as compared to $3,700,070 for the year ended December 31, 2015. The losses reflect the sale of the Company’s sales and leasing operations of its Securus subsidiary to Chyp LLC on April 30, 2016. The Company also recorded a loss on disposal of $840,641 in connection with the sale.
Net Losses
Our net losses were $1,796,157 and $1,622,494 for the years ended December 31, 2016 and 2015, respectively. Higher income from operations resulting from the acquisition of the US assets of Calpian in November 2015 were more than offset by higher interest expense in 2016 and non-operating gains in 2015.
Liquidity and Capital Resources
The following summarizes our cash flows:
| Years ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net cash provided (used) by operating activities | $ | (1,907,237 | ) | $ | 280,067 | |||
| Net cash provided (used) by investing activities | $ | (536,663 | ) | $ | 86,951 | |||
| Net cash provided (used) by financing activities | $ | 3,667,977 | $ | (331,676 | ) | |||
| Net increase in cash | $ | 1,224,077 | $ | 35,342 | ||||
Net cash used in operating activities in 2016 was $1,907,237 as compared to cash provided by operating activities of $280,067 in 2015. This decrease of $2,115,304 was primarily the result of a reduction in current liabilities throughout the fiscal year and a larger net loss of $1,796,157 in 2016 as compared $1,622,494 in 2015.
Net cash used by investing activities was $536,663 in 2016, compared to cash provided by investing activities of $86,950 in 2015. The positive cash flow in 2015 was due to the cash acquired in the Calpian acquisition.
Net cash provided by financing activities was $3,667,977 for the year ended December 31, 2016 as compared to cash used by financing activities of $331,676 during the year ended December 31, 2015. On November 2, 2016, the Company borrowed $13,500,000 under a new credit facility and repaid its existing notes payable.
As of December 31, 2016, we had cash and cash equivalents of $1,586,207, total current assets of $3,677,011 and current liabilities excluding notes payable of $2,233,199. We believe that our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet the Company’s operating costs for the next twelve months.
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On November 2, 2016, the Company and certain of the Company’s subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”) with GACP Finance Co. LLC as administrative agent (“Agent”) and the other lenders as from time to time party thereto. The Loan Agreement has a three-year term and provides for term loan commitments of up to $25,000,000 consisting of an Initial Term Loan in the amount of $13,500,000 and a Delayed Draw Term Loan in the amount of $11,500,000 (each a “Loan” or together “Loans”). The Company used the proceeds from the Initial Term Loan to repay all of its existing secured debt. The Company intends to use the Delayed Draw Term Loan to fund acquisitions of portfolios of recurring residual revenues from credit and debit card transactions or companies that own these portfolios. Funding of Delayed Draw Term Loan is subject to certain conditions including but not limited to borrowing base limitations and further lender due diligence.
The Loan Agreement requires the maintenance of certain financial covenants. The Company was in compliance with its covenants at year end but was not in compliance with certain financial covenants subsequent to December 31, 2016. The Company is in discussions with the Lender on a resolution to the covenant breach. The Company believes that, if required by the Lender, it would be able to refinance the Loan with a different lender. The Company also has identified potential transactions and acquisitions which, if completed, would be expected to improve income from operations and the ability to service debt. In addition, the Company could also sell a portion of its residual portfolio and use the proceeds to pay down all or a portion of the Loan. Although the Company believes that it will be able to resolve the covenant breach with the Lender or if it is unable to do so, either refinance the Loan or sell a portion of its residual portfolio to repay the Loan or some combination of all of these options, there can be no assurance that it will be to do so.
Contractual Obligations
We have contractual obligations arising from indebtedness and operating leases. Future payments aggregated by type of obligation are set forth as follows:
| Payments due by period | ||||||||||||||||||||
| Total | less than 1 year | 1-3 years | 3-5 years | more than 5 years | ||||||||||||||||
| Notes payable | $ | 13,500,000 | $ | - | $ | 13,500,000 | $ | - | $ | - | ||||||||||
| Interest on notes | 5,520,662 | 1,803,016 | 3,717,646 | - | - | |||||||||||||||
| PIK interest payment | 2,177,706 | 2,177,706 | - | - | ||||||||||||||||
| Operating leases | 535,955 | 175,091 | 360,864 | - | - | |||||||||||||||
| Total payments | $ | 21,734,323 | $ | 1,978,107 | $ | 19,756,216 | $ | - | $ | - | ||||||||||
Critical Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements included with this report that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in Note 2 to our audited consolidated financial statements. Our critical accounting policies are those where we have made the most difficult, subjective or complex judgments in making estimates, and/or where these estimates can significantly impact our financial results under different assumptions and conditions. Our critical accounting policies are:
Basis of presentation and consolidation
Our accounting and reporting policies conform with generally accepted accounting principles (“GAAP”) and include our subsidiaries, after elimination of all intercompany transactions in the consolidation.
| 18 |
Business Combinations
Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwill is assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred.
Revenue Recognition
The Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company is a primary party to the merchant contract, bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.
Reclassification
Certain prior period amounts have been reclassified to conform to the current year’s presentation.
Accounts Receivable
Accounts receivable represent contractual residual payments due from the Company's customers. These residual payments are determined based on the credit and debit card processing activity of merchants for which the Company initiated lease transactions. Based on collection experience and periodic reviews of outstanding receivables, management considers all accounts receivable to be fully collectible and accordingly, no allowance for doubtful accounts is required.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Off-Balance Sheet Financing Arrangements
We did not have any off-balance sheet financing arrangements as of December 31, 2016.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
| 19 |
| Item 8. | Financial Statements and Supplementary Data. |
INDEX TO FINANCIAL STATEMENTS
Excel Corporation and Subsidiaries
December 31, 2016
Contents
| 20 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Excel Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Excel Corporation (the “Company”), as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company, as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Whitley Penn LLP
Dallas, Texas
April 14, 2017
| F-1 |
Excel Corporation and Subsidiaries
| December 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 1,586,207 | $ | 362,130 | ||||
| Accounts receivable | 1,220,759 | 1,016,141 | ||||||
| Note receivable | 675,000 | - | ||||||
| Prepaid expenses | 105,995 | 43,074 | ||||||
| Other current assets | 89,050 | 83,545 | ||||||
| Current assets held for sale | - | 167,406 | ||||||
| Total current assets | 3,677,011 | 1,672,296 | ||||||
| Other Assets | ||||||||
| Fixed assets, net of depreciation | 170,442 | 184,960 | ||||||
| Goodwill | 7,914,269 | 7,914,269 | ||||||
| Note Receivable | - | 675,000 | ||||||
| Equity investment | 171,469 | 164,790 | ||||||
| Residual portfolios | 2,147,488 | 2,505,164 | ||||||
| Other long term assets | 631,271 | 593,893 | ||||||
| Other assets held for sale | - | 302,898 | ||||||
| Total other assets | 11,034,939 | 12,340,974 | ||||||
| Total assets | $ | 14,711,950 | $ | 14,013,270 | ||||
| LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 577,220 | $ | 1,374,878 | ||||
| Accrued compensation | 1,054,532 | 1,508,531 | ||||||
| Other accrued liabilities | 551,447 | 839,308 | ||||||
| Notes payable - current portion | 12,809,252 | 8,984,544 | ||||||
| Accrued costs of disposal of discontinued operations | 50,000 | - | ||||||
| Total current liabilities | 15,042,451 | 12,707,261 | ||||||
| Long-term liabilities | ||||||||
| Notes payable - long term portion | - | 226,733 | ||||||
| Other long term liabilities | 41,705 | 41,692 | ||||||
| Total long-term liabilities | 41,705 | 268,425 | ||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Preferred stock, $.0001 par value, 10,000,000 shares authorized, none issued and outstanding | - | - | ||||||
| Series A preferred stock, $.001 par value 0 and 2 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively. | - | - | ||||||
| Series B preferred stock, $.0001 par value 4,600,000 and 0 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively. | 460 | - | ||||||
| Common stock, $.0001 par value, 200,000,000 shares authorized 97,759,070 and 98,259,070 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively. | 9,776 | 9,826 | ||||||
| Additional paid-in capital | 4,814,348 | 4,428,391 | ||||||
| Accumulated deficit | (5,196,790 | ) | (3,400,633 | ) | ||||
| Total stockholders' equity (deficit) | (372,206 | ) | 1,037,584 | |||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | 14,711,950 | $ | 14,013,270 | ||||
See accompanying notes to consolidated financial statements.
| F-2 |
Excel Corporation and Subsidiaries
Consolidated Statements of Operations
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Revenues | ||||||||
| Transaction and processing fees | $ | 16,809,208 | $ | 5,549,482 | ||||
| Merchant cash advance revenue and other | 306,002 | 79,758 | ||||||
| Total revenues | 17,115,210 | 5,629,240 | ||||||
| Costs and expenses | ||||||||
| Processing and servicing costs | 7,045,624 | 546,803 | ||||||
| Salaries and wages | 3,644,365 | 2,187,630 | ||||||
| Outside commissions | 2,417,523 | 669,940 | ||||||
| Other selling general and administrative expenses | 1,184,936 | 221,437 | ||||||
| Total costs and expenses | 14,292,448 | 3,625,810 | ||||||
| Income from operations | 2,822,762 | 2,003,430 | ||||||
| Interest expense, net | 1,556,105 | 371,596 | ||||||
| Other income (expense) | (33,602 | ) | 445,742 | |||||
| Net income from continuing operations before income taxes | 1,233,055 | 2,077,576 | ||||||
| Income tax expense (benefit) | ||||||||
| Current | 456,230 | 768,703 | ||||||
| Deferred | (456,230 | ) | (768,703 | ) | ||||
| Income tax expense | - | - | ||||||
| Net income from continuing operations | 1,233,055 | 2,077,576 | ||||||
| Loss from discontinued operations, net of tax | (2,188,571 | ) | (3,700,070 | ) | ||||
| Loss on disposal of operations | (840,641 | ) | - | |||||
| Net loss | $ | (1,796,157 | ) | $ | (1,622,494 | ) | ||
| Basic earnings per share | ||||||||
| Income from continuing operations | $ | 0.013 | $ | 0.021 | ||||
| Loss from discontinued operations, net of tax | (0.031 | ) | (0.038 | ) | ||||
| Net loss | $ | (0.018 | ) | $ | (0.017 | ) | ||
| Diluted earnings per share | ||||||||
| Income from continuing operations | $ | 0.012 | $ | 0.021 | ||||
| Loss from discontinued operations, net of tax | (0.030 | ) | (0.038 | ) | ||||
| Net loss | $ | (0.018 | ) | $ | (0.017 | ) | ||
| Weighted Average Shares Outstanding | ||||||||
| Basic | 97,215,234 | 98,261,810 | ||||||
| Diluted | 100,811,296 | 98,261,810 | ||||||
See accompanying notes to consolidated financial statements.
| F-3 |
Excel Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
| Series A | Series B | Additional | ||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | |||||||||||||||||||||||||||||||
| Balances, January 1, 2015 | $ | 2 | $ | 0 | $ | 97,259,070 | $ | 9,726 | $ | 4,232,342 | $ | (1,778,139 | ) | |||||||||||||||||||||||||||
| Stock Compensation Expense | 2,000,000 | 200 | 285,949 | |||||||||||||||||||||||||||||||||||||
| Return of Common Stock at .09 per share | (1,000,000 | ) | (100 | ) | (89,900 | ) | ||||||||||||||||||||||||||||||||||
| Net loss | (1,622,494 | ) | ||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2015 | 2 | 0 | 98,259,070 | 9,826 | 4,428,391 | $ | (3,400,633 | ) | ||||||||||||||||||||||||||||||||
| Issuance of preferred stock at .05 per share | 4,600,000 | 460 | 229,540 | |||||||||||||||||||||||||||||||||||||
| Stock Compensation Expense | 1,000,000 | 100 | 156,417 | |||||||||||||||||||||||||||||||||||||
| Return of Common Stock | (1,500,000 | ) | (150 | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | (1,796,157 | ) | ||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2016 | $ | 2 | $ | 4,600,000 | $ | 460 | 97,759,070 | $ | 9,776 | $ | 4,814,348 | $ | (5,196,790 | ) | ||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
| F-4 |
Excel Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (1,796,157 | ) | $ | (1,622,494 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 485,784 | 143,428 | ||||||
| Loss on early extinguishment of debt | (33,602 | ) | - | |||||
| Paid in kind interest | 112,734 | - | ||||||
| Stock based compensation | 156,367 | 286,149 | ||||||
| Income in investment accounted for under the equity method | (6,679 | ) | - | |||||
| Loss on disposal of operations | 840,641 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) | ||||||||
Accounts receivable | (54,618 | ) | (328,837 | ) | ||||
Prepaid expenses | (62,921 | ) | 1,011 | |||||
| Other current assets | (5,505 | ) | 83,513 | |||||
| Inventory | (143 | ) | ||||||
| Other long term assets | (3,776 | ) | (13,039 | ) | ||||
| Increase (decrease) | ||||||||
| Accounts payable | (797,658 | ) | 542,898 | |||||
| Accrued compensation | (453,999 | ) | 905,848 | |||||
| Other accrued liabilities | (287,861 | ) | 269,789 | |||||
| Other long-term liabilities | 13 | 11,944 | ||||||
| Net cash provided by (used in) operating activities | (1,907,237 | ) | 280,067 | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (36,663 | ) | (170,935 | ) | ||||
| Payments from disposal of operations | (500,000 | ) | - | |||||
| Acquisition of eVance assets | - | 257,886 | ||||||
| Net cash provided by (used in) investing activities | (536,663 | ) | 86,951 | |||||
| Cash flows from financing activities: | ||||||||
| Issuance of notes | 12,649,254 | 600,000 | ||||||
| Issuance of preferred stock | 230,000 | - | ||||||
| Note and debt payments | (9,211,277 | ) | (931,676 | ) | ||||
| Net cash provided by (used in) financing activities | 3,667,977 | (331,676 | ) | |||||
| Net increase in cash | 1,224,077 | 35,342 | ||||||
| Cash - Beginning | 362,130 | 326,788 | ||||||
| Cash - Ending | $ | 1,586,207 | $ | 362,130 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 1,500,160 | $ | 371,596 | ||||
| State Income Taxes | $ | 11,545 | $ | 5,126 | ||||
See accompanying notes to consolidated financial statements.
| F-5 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 1. | ORGANIZATION AND OPERATIONS |
Excel Corporation (the “Company”) was organized on November 13, 2010 as a Delaware corporation. The Company has three wholly owned subsidiaries, Excel Business Solutions, Inc. (d/b/a eVance Capital), Payprotec Oregon, LLC (d/b/a Securus Payments), (“Securus”), and eVance Processing Inc. (“eVance”).
We sell integrated financial and transaction processing services to businesses throughout the United States. We provide these services through our wholly-owned subsidiaries, eVance and Securus. Through our eVance subsidiary, we provide an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payments processing solutions primarily to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. We operate as an independent sales organization (“ISO”) generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO, eVance has a direct contractual relationship with the merchants and takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and we receive additional consideration for this service and risk. Securus operates as a retail ISO and receives residual income as commission for merchants it places with third party processors.
On November 30, 2015, eVance entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including an aggregate of $9,000,000 of notes payable and certain of the Sellers’ outstanding contractual obligations.
On April 12, 2016, eVance entered into an agreement with the Sellers and a cancellation of securities acknowledgement with one of eVance’s note-holders whereby the noteholder cancelled its note in the amount of $720,084 and Calpian issued eVance a note in the amount of $675,000 in exchange for eVance and the Sellers mutually waiving any claims either party has or could have under the Purchase Agreement against the other. The $675,000 note bears simple interest of 12% per annum payable monthly and matures on November 30, 2017. As part of the Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and Seller and claimed damages in excess of $1,500,000. eVance has agreed to apply any recovery from such litigation (less costs) against the principal balance of the $675,000 note up to a maximum of $675,000. The Company reflected the reduction in the assumed debt by $720,084 as a reduction in goodwill and a reduction in the debt assumed. In addition, the noteholder returned a warrant to purchase 360,042 shares of the Company’s common stock. As a result of this agreement, the $9,000,000 of notes payable was reduced to $8,279,916.
On April 30, 2016, Securus entered into a Purchase and Sale Agreement (the “2016 Purchase Agreement”) with Chyp LLC (“Chyp”). In connection with the 2016 Purchase Agreement, Chyp executed a three-year preferred marketing agreement with eVance. Chyp acquired substantially all of the operations of Securus including its sales and marketing operations located in Portland, Oregon and West Palm Beach, Florida. Securus retained the approximately 5,000 merchants and related merchant processing residual portfolios.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The Company’s financial statements are prepared on the accrual method of accounting.
The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for annual financial reporting.
Principles of Consolidation
The consolidated financial statements include the accounts of Excel Corporation and subsidiaries in which the Company has a controlling financial interest. All intercompany transactions and account balances between Excel Corporation and its subsidiaries have been eliminated in consolidation. Transactions with its consolidated subsidiaries are generally settled in cash. Investments in unconsolidated affiliated entities are accounted for under the equity method and are included in “Equity investment” in the accompanying consolidated balance sheets.
Business Combinations
Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwill is assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred.
| F-6 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Revenue Recognition
The Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company has a direct contractual relationship with the merchant, bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability and has no or limited contractual relationship with the merchant, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue.
The Company acts as an ISO offering alternative financing and working capital solutions (merchant cash advances) to small and medium sized businesses using a variety of third party funding sources. As an ISO, we earn commissions from capital funders by placing their financial products with our merchant customers. This portion of our business does not yet represent a significant portion of our revenues, costs or assets.
Cash and Cash Equivalents
The Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents. The carrying amount of financial instruments included in cash and cash equivalents approximates fair value because of the short maturities for the instruments held.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.
Reclassification
Certain prior period amounts have been reclassified to conform to the current year’s presentation.
Accounts Receivable
Accounts receivable represent contractual residual payments due from the Company's processing partners. These residual payments are determined based on transaction fees and revenues from the credit and debit card processing activity of merchants for which the Company’s processing partners pay the Company. Based on collection experience and periodic reviews of outstanding receivables, management considers all accounts receivable to be fully collectible and accordingly, no allowance for doubtful accounts is required.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to ten years. Leasehold improvements are amortized over the lesser of the expected term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred.
Residual Portfolios
Residual portfolios are valued at fair value on the date of acquisition and are amortized over their estimated useful lives (7 years).
Equity Investments
Equity investments are valued at fair value on the date of acquisition using the equity method of accounting and adjusted in subsequent periods for the Company’s share of the investment’s earnings and distributions.
| F-7 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the evaluation of deferred tax assets, purchase accounting, allowances, and equity investments.
| 3. | FAIR VALUE MEASUREMENTS |
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic No. 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as described below:
Level 1: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.
Level 3: Level 3 inputs are unobservable inputs.
The following required disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows:
Cash and Cash Equivalents, Accounts Receivable, Other Current Assets, Accounts Payable, Accrued Compensation 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.
Note Receivable, Other Long Term Assets, Notes Payable, and Other Long Term Liabilities.
The carrying amounts approximate the fair value as the notes bear interest rates that are consistent with current market rates.
| 4. | RECENT ACCOUNTING PRONOUNCEMENTS |
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers Topic 606 (“ASU 2014-09”) which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Revenue recorded under ASU 2014-09 will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for the Company’s fiscal year beginning January 1, 2018 and early adoption is not permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and noncurrent on the balance sheet and requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The guidance in the ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company had a 100% valuation allowance on the deferred tax assets at December 31, 2016, as such this standard does not impact the financial position at December 31, 2016.
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements.
| F-8 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 4. | RECENT ACCOUNTING PRONOUNCEMENTS (Continued) |
On August 26, 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230).” This ASU is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. The ASU’s amendments add or clarify guidance on eight cash flow issues:
| ● | Debt prepayment or debt extinguishment costs. | |
| ● | Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing. | |
| ● | Contingent consideration payments made after a business combination. | |
| ● | Proceeds from the settlement of insurance claims. | |
| ● | Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies. | |
| ● | Distributions received from equity method investees. | |
| ● | Beneficial interests in securitization transactions. | |
| ● | Separately identifiable cash flows and application of the predominance principle. |
The guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
Early adoption is permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements.
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. | DISCONTINUED OPERATIONS |
On April 30, 2016, Securus entered into the 2016 Purchase Agreement with Chyp. In connection with the 2016 Purchase Agreement, Chyp executed a three-year preferred marketing agreement with eVance.
Pursuant to the 2016 Purchase Agreement, Chyp acquired substantially all of the operations of Securus including its sales and marketing operations located in Portland, Oregon and West Palm Beach, Florida. Securus retained its approximately 5,000 merchants and related merchant processing residual portfolio. Securus also retained substantially all of its liabilities, including but not limited to, its note payable with Blue Acre Ventures (BAV), trade payables as well as liabilities to merchants.
Pursuant to the 2016 Purchase Agreement, Securus provided financial assistance to Chyp in the form of a forgivable loan to support the transition of Securus’ operations to Chyp. Securus advanced Chyp $500,000 during 2016 and has one remaining payment of $50,000 to be paid in 2017 for a total of $550,000. Accordingly, Chyp executed a $550,000 promissory note (the “Chyp Note”) in favor of Securus. The Chyp Note bears an interest rate of 12% per annum with both the principal and interest due on May 1, 2017. If Chyp is in material compliance with the 2016 Purchase Agreement and related agreements through May 1, 2017, Securus will forgive the Chyp Note. Securus will also reimburse Chyp for commissions payable to Chyp employees and agents on Securus’ residual portfolio as if those agents and employees were still employed by Securus. Chyp is owned by Steven Lemma and Mychol Robirds, who are former executives of Securus.
We accounted for the sale of the Securus operations to Chyp in accordance with ASC 205-20-45-1 and have classified the assets and operations sold to Chyp as discontinued operations. The Company recorded a loss on disposal of $840,641 related to the transaction. The charge includes a $290,641 write-off of the net assets acquired by Chyp and $550,000 for the financial assistance to be provided to Chyp.
A summary of results of discontinued operations is as follows:
| For the Years ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Revenues | $ | 2,027,684 | $ | 11,970,092 | ||||
| Operating expenses | (4,216,255 | ) | (15,670,162 | ) | ||||
| Pre-tax loss from discontinued operations | (2,188,571 | ) | (3,700,070 | ) | ||||
| Loss from discontinued operations, net of tax | $ | (2,188,571 | ) | $ | (3,700,070 | ) | ||
| F-9 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 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 net operating loss or tax credit carryforwards. At December 31, 2016 and December 31, 2015, the Company had available
unused net operating loss carryforwards of $4,194,335 and $2,241,453, respectively, which generated a deferred tax benefits of
$1,551,904 and $829,338, respectively. The Company had a 100% valuation allowance on the deferred tax assets at December 31, 2016
and December 31, 2015, respectively. The net operating loss carryforwards will begin to expire in 2035. After analyzing
our forecasted tax position at December 31, 2016 we currently expect to utilize all of our net operating loss carryforwards prior
to their expiration dates.
The reconciliation of the statutory rate to the Company’s effective income tax rate are as follows:
| For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||
| Statutory Rate | (34 | )% | (34 | )% | ||||
| State income tax, net of federal income tax benefit | (3 | )% | (3 | )% | ||||
| Valuation Allowance | 37 | % | 37 | % | ||||
| Effective Rate | 0 | % | 0 | % | ||||
The Company’s provision for income taxes for the year ended December 31, 2016 and 2015 consists of the following:
| For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||||||||||||||||
| Income Tax Expense | Continuing Operations | Discontinued Operations | Total | Continuing Operations | Discontinued Operations | Total | ||||||||||||||||||
| Current | $ | 456,230 | $ | (1,120,808 | ) | $ | (664,578 | ) | $ | 768,703 | $ | (1,369,026 | ) | $ | (600,323 | ) | ||||||||
| Deferred | (456,230 | ) | 1,120,808 | 664,578 | (768,703 | ) | 1,369,026 | 600,323 | ||||||||||||||||
| Total | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Significant components of the Company’s deferred income taxes are as follows:
| For the Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Deferred Tax Assets | ||||||||
| Net operating loss carryforwards | $ | 1,493,916 | $ | 452,452 | ||||
| Accrued compensation | 128,253 | 289,523 | ||||||
| Other accrued liabilities | (74,125 | ) | 52,503 | |||||
| Depreciation and amortization | 3,860 | 34,860 | ||||||
| Total deferred tax assets | 1,551,904 | 829,338 | ||||||
| Valuation allowance | (1,551,904 | ) | (829,338 | ) | ||||
| Net deferred tax asset | - | - | ||||||
| Deferred tax liabilities | - | - | ||||||
The Company accounts for uncertainties in income taxes in accordance with FASB ASC Topic 740 “Accounting for Uncertainty in Income Taxes”. The Company has determined that there are no significant uncertain tax positions requiring recognition in its financial statements.
In the event the Company is assessed for interest and/or penalties by taxing authorities, such assessed amounts will be classified in the financial statements as income tax expense. Tax years 2013 through 2015 remain subject to examination by Federal and state taxing authorities.
| F-10 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 7. | STOCKHOLDERS’ EQUITY |
On March 18, 2016, the Company issued 2,300,000 Shares of Series B Convertible Preferred Stock (“Series B Shares”) to each of Thomas A. Hyde Jr. and Robert L. Winspear (each a “Holder” and collectively the “Holders”) at a price of $0.05 per share pursuant to subscription agreements between the Company and the Holders. Mr. Hyde is the President, Chief Executive Officer and a Director of the Company. Mr. Winspear is the Chief Financial Officer of the Company.
The Series B Shares are convertible into shares of the Company’s common stock par value $0.0001 (“Common Stock”) on a ratio of 1-to-1, subject to adjustment for stock splits and stock dividends. The Series B Shares rank senior to the Common Stock and other preferred shares and carry a liquidation preference of $.05 per share. Holders of the Series B Shares are entitled to receive dividends declared on the Company’s Common Stock on an as converted basis. Each Series B Share entitles the Holder thereof to 20 votes per share on all matters subject to voting by holders of the Company’s Common Stock. The issuance of a total of 4,600,000 shares of Series B Shares, entitles the Holders thereof to a combined 92,000,000 votes. Under the terms of the Series B Shares, the Company has the right to require a Holder to convert the Series B Shares into Common Stock at any time after the Holder resigns, is terminated or otherwise ceases to be an officer of the Company. In addition, the Company has the right at any time after July 18, 2016 to repurchase and retire all but not less than all of the Series B Preferred Stock for $0.05 per share provided that it gives notice to the Holder of the Company’s intent to redeem the shares and the Holder does not elect to convert the Series B Shares into Common Stock in lieu of the redemption.
In connection with the issuance of the Series B Shares, the Company and the Holders executed a Stockholders Agreement (the “Agreement”) whereby the Holders agreed not to initiate directly or indirectly any stockholder vote or action, by written consent or otherwise, to increase the size or structure of the Company’s board of directors or remove any existing director, nor initiate directly or indirectly any stockholder vote or action by written consent or otherwise, to affect Holders’ executive compensation, bonus criteria and amounts, or other similar action. The Holders also agreed to convert the Series B Shares immediately upon termination, whether voluntary or involuntary, or upon their resignation for any reason.
On November 30, 2015, in connection with its acquisition of the U.S. assets and operations of Calpian Inc., the Company issued warrants to purchase an aggregate of 5,452,458 shares of the Company’s common stock at an exercise price of $0.05 per share, subject to adjustments. The warrants expire on November 30, 2025.
We estimate the fair value of warrants and stock options when issued or vested using the Black-Scholes options pricing model and subsequent changes in fair value are not recognized. Option pricing models require the input of highly subjective assumptions. We determined, using the Black-Scholes options pricing model, that these warrants have no current value, based on a maturity date of five years, a risk-free interest rate of 2.230%, and a calculated volatility rate of 8.530%, using historical stock prices of the Company at the time of issuance.
| 8. | STOCK OPTIONS AND COMPENSATION |
On November 13, 2010 the Company’s Board of Directors (the “Board”) approved a stock plan pursuant to which the Company may grant incentive and non-statutory options to employees, non-employee members of the Board and consultants and other independent advisors who provide services to the Corporation. The maximum shares of common stock which may be issued over the term of the plan cannot exceed 4,000,000 shares. Awards under this plan are made by the Board or a committee of the Board. Options under the plan are to be issued at the market price of the stock on the day of the grant except to those issued to holders of 10% or more of the Company’s Common Stock which is required to be issued at a price not less than 110% of the fair market value on the day of the grant. Each option is exercisable at such time or times, during such period and for such numbers of shares shall be determined by the Plan Administrator. However, no option shall have a term in excess of 10 years from the date of the grant.
| F-11 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 8. | STOCK OPTIONS AND COMPENSATION (Continued) |
On June 1, 2015, the Company issued 2,000,000 shares of its Common Stock to an executive in connection with the executive’s employment and the use of certain trade names and brands owned by the executive. 500,000 shares vested upon grant and an additional 500,000 shares were scheduled to vest on June 1, 2016, June 1, 2017, and June 1, 2018. The Company terminated the executive’s employment in January 2016, and the shares subject to vesting were forfeited.
On August 12, 2016, the Company granted 1,000,000 shares of its common stock to an employee. 333,333 of these shares vested upon grant, 333,333 vested on December 1, 2016 and 333,334 vest on December 1, 2017. On August 12, 2016, the Company also issued a warrant to purchase 500,000 of its common stock to a consultant. The warrant has an exercise price of $0.06 per share and a term of 18 months.
| For the Years Ended December 31, | ||||||||
| Restricted Stock Grants | 2016 | 2015 | ||||||
| Shares outstanding on January 1 | 7,465,608 | 5,465,608 | ||||||
| Granted | 1,000,000 | 2,000,000 | ||||||
| Forfeited | (1,500,000 | ) | — | |||||
| Shares outstanding on December 31 | 6,965,608 | 7,465,608 | ||||||
| Shares vested at December 31 | 6,632,274 | 4,143,739 | ||||||
| For the Years Ended December 31, | ||||||||||||||||
| Stock Options | 2016 | 2015 | ||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
| Options outstanding at January 1 | 1,000,000 | $ | .09 | 1,000,000 | $ | 0.09 | ||||||||||
| Granted | — | — | — | — | ||||||||||||
| Exercised | — | — | — | — | ||||||||||||
| Forfeited | 1,000,000 | $ | .09 | — | — | |||||||||||
| Options outstanding December 31 | — | — | 1,000,000 | $ | 0.09 | |||||||||||
| Shares exercisable at December 31 | — | — | 444,448 | $ | 0.09 | |||||||||||
| F-12 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 9. | ACQUISITIONS |
On November 30, 2015, eVance Processing Inc. (“eVance”), a wholly owned subsidiary of the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including an aggregate of $9,000,000 of notes payable and certain of the Sellers’ outstanding contractual obligations.
On April 12, 2016, eVance entered into an agreement with the Sellers and a cancellation of securities acknowledgement with one of eVance’s note holders whereby the noteholder cancelled their note in the amount of $720,084 and Calpian issued eVance a note in the amount of $675,000 in exchange for eVance waiving any claims for breach of the Purchase Agreement between eVance and Sellers. The $675,000 note bears simple interest of 12% per annum payable monthly, matures on November 30, 2017 and is secured by 2,000,000 shares of Calpian common stock. As part of the Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and Seller and has claimed damages in excess of $1,500,000. eVance has agreed to apply any recovery from such litigation (less costs) against the principle balance of the $675,000 note up to a maximum of $675,000. The Company reflected the cancellation of the $720,084 note and the receipt of the $675,000 Calpian note as a $1,395,084 reduction in goodwill. In addition, the noteholder cancelled and returned a warrant to purchase 360,042 shares of the Company’s common stock.
The following is a summary of the estimated fair values of the assets acquired and liabilities assumed on November 30, 2015:
| Cash and cash equivalents | $ | 257,886 | ||
| Accounts receivable | 461,647 | |||
| Other current assets | 167,058 | |||
| Property and equipment, net | 174,403 | |||
| Residual portfolios | 2,540,690 | |||
| Equity investments | 164,790 | |||
| Deposits | 532,617 | |||
| Total assets | 4,299,091 | |||
| Accounts payable | 25,000 | |||
| Accrued liabilities | 143,089 | |||
| Total liabilities | 168,089 | |||
| Fair value of net assets acquired | $ | 4,131,002 | ||
| Calpian note received | $ | 675,000 | ||
| Fair value of debt assumed | $ | 8,279,916 | ||
| Goodwill recognized on acquisition | $ | 3,473,914 |
The fair value of the net assets acquired less the fair value of debt assumed resulted in a difference of $3,473,914, which has been recorded as goodwill in the Company’s consolidated balance sheets. All of the recorded goodwill is tax-deductible.
The consolidated statements of operations for the fiscal year ended December 31, 2015 includes the financial results of eVance since the date of acquisition, November 30, 2015, through December 31, 2015. During this period, eVance’s revenues were $1,022,073 and its net income was $64,965.
Pro Forma Financial Information (Unaudited)
The information that follows provides supplemental information about pro forma revenues and net income (loss) attributable to the Company as if the acquisition of Calpian’s US assets by eVance been consummated as of January 1, 2015. Such information is unaudited and is based on estimates and assumptions which the Company believes are reasonable.
| F-13 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 9. | ACQUISITIONS (Continued) |
Pro Forma Financial Information (Continued)
These results are not necessarily indicative of the consolidated statements of operations in future periods or the results that would have actually been realized had the Company and eVance been a combined entity during 2014 and 2015.
| Selected Pro Forma Financial Information | Years Ended December 31, | |||||||||||
| 2015 | ||||||||||||
| Excel | Calpian U.S. Assets | Total | ||||||||||
| Revenues | $ | 5,628,540 | $ | 14,621,149 | $ | 20,249,689 | ||||||
| Net income (loss) attributable to the Company | $ | (1,622,494 | ) | $ | 72,942 | $ | (1,549,552 | ) | ||||
| Net income (loss) attributable to the Company per common share - basic and diluted | $ | (0.02 | ) | $ | 0.001 | $ | (0.02 | ) | ||||
| 10. | PROPERTY AND EQUIPMENT |
Property and equipment consists of the following for the years ending:
| December 31, 2016 | December 31, 2015 | |||||||
| Computer software | $ | 38,607 | 35,595 | |||||
| Equipment | 163,394 | 123,074 | ||||||
| Furniture & fixtures | 38,882 | 33,336 | ||||||
| Leasehold improvements | 16,538 | 3,471 | ||||||
| Total cost | 257,421 | 195,476 | ||||||
| Less accumulated depreciation and amortization | (86,979 | ) | (10,516 | ) | ||||
| Property and equipment – net | $ | 170,442 | 184,960 | |||||
| 11. | LEASES |
The Company executed a lease for its corporate offices in Irving Texas. The lease began on November 1, 2014 and has a term of 63 months with monthly payments ranging from $0 to $6,428.
eVance leases its Georgia office facilities under an operating lease expiring in November 2019. Monthly lease payments range from $8,278 to $9,046 throughout the term of the lease.
Total rent expense for the year ended December 31, 2016 was $298,816, compared to $438,109 for the year ended December 31, 2015.
The future minimum lease payments required under long-term operating leases as of December 31, 2016 are as follows:
| 2017 | $ | 175,091 | ||
| 2018 | 179,489 | |||
| 2019 | 174,946 | |||
| 2020 | 6,430 | |||
| 2021 and after | - | |||
| Total | $ | 535,956 |
| F-14 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 12. | NOTES PAYABLE |
The following summarizes the Company’s outstanding notes payable for the years ending:
| December 31, 2016 | December 31, 2015 | |||||||
| Note payable to BAV, due in monthly installments of $48,333 through May 2017, including simple interest at 15%, secured by the Company’s residual portfolio | $ | - | $ | 681,361 | ||||
| Note payable to SME Funding LLC, due December 1,2016, bearing simple interest at 12%, secured by the Company’s residual portfolio | - | 500,000 | ||||||
| Notes payable due December 1, 2016, bearing interest at 12%, secured by the assets of eVance | - | 8,029,916 | ||||||
| Term Loan due November 2019, bearing interest at 18%, secured by substantially all of the assets of the Company | 12,809,252 | - | ||||||
| Total | 12,809,252 | 9,211,277 | ||||||
| Less current portion | 12,809,252 | (8,984,544 | ) | |||||
| Long-term portion of notes payable | $ | - | $ | 226,733 | ||||
On November 30, 2015, in connection with the purchase of the U.S. assets and operations of Calpian, eVance assumed an aggregate of $9,000,000 of notes payable, including $6.0 million of debt issued pursuant to a note offering conducted by Calpian and in which the Company invested $250,000. Concurrently, eVance issued amended promissory notes (the “eVance Notes”) in favor of each lender (collectively, the “eVance Lenders”) evidencing eVance’s assumption of $9,000,000 of indebtedness. Pursuant to a purchase price adjustment agreement dated April 12, 2016, the principal value of the eVance Notes was reduced to $8,279,916 (see Note 13). The $250,000 of eVance Notes purchased by the Company have been eliminated in consolidation to reflect a net balance of $8,029,916 as of December 31, 2015. The eVance Notes were repaid in full in connection with the completion of the credit facility discussed below.
On October 23, 2015, SME Funding LLC advanced the Company $500,000 to help finance the acquisition of the US assets of Calpian Inc by eVance. This advance was converted into a note maturing December 1, 2016 with interest only payable monthly at an annual rate of 12%. This note was repaid in full in connection with the completion of the credit facility discussed below.
On November 2, 2016, the Company and certain of the Company’s subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”) with GACP Finance Co. LLC as administrative agent (“Agent”) and the other lenders as from time to time party thereto. The Loan Agreement has a three-year term and provides for term loan commitments of up to $25,000,000 consisting of an Initial Term Loan in the amount of $13,500,000 and a Delayed Draw Term Loan in the amount of $11,500,000 (each a “Loan” or together “Loans”). The Company used the proceeds from the Initial Term Loan to repay all of its existing secured debt. The Company expects to use the Delayed Draw Term Loan to fund acquisitions of portfolios of recurring residual revenues from credit and debit card transactions or companies that own these portfolios. Funding of Delayed Draw Term Loan is subject to certain conditions including but not limited to borrowing base limitations and further lender due diligence.
The Loan accrues interest of 18% per annum of which 13% is payable in cash monthly and 5% is payable in kind (PIK). Pursuant to the Loan Agreement, the Loan is secured by substantially all of the assets of the Company including but not limited to the Company’s residual portfolios. In addition, certain of Excel’s subsidiaries are guarantors under the Loan Agreement.
The Company incurred financing costs in the amount of $850,746 in connection with the Loan Agreement. These costs are shown as a reduction of the loan amount on the accompanying consolidated balance sheet as of December 31, 2016, and are being amortized as interest expense over the term of the Loan. In addition, the interest that is payable in kind is added to the Loan balance. The following chart summarizes the amount outstanding under the Loan.
| December 31, 2016 | ||||
Term Loan | $ | 13,500,000 | ||
Net deferred financing costs | (803,482 | ) | ||
| Accrued interest payable in kind | 112,734 | |||
| Note payable | $ | 12,809,252 | ||
| F-15 |
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016
| 12. | NOTES PAYABLE (Continued) |
The Loan Agreement contains customary events of default, non-payment of principal or other amounts under the Loan Agreement, breach of covenants and certain voluntary and involuntary bankruptcy events. The Loan Agreement also contains certain financial covenants including maintenance of certain EBITDA levels and minimum liquidity. If any event of default occurs and is continuing, the Lender may declare all amounts owed to be due (except for a bankruptcy event of default), in which case such amounts will automatically become due and payable. The Company was not in compliance with certain of its financial covenants for the month ended January 31, 2017. As a result of the covenant breach, the debt is classified as current on the accompanying consolidated balance sheets in accordance with ASC 470-10-45. In accordance with ASU 205-40, the classification of the debt as current raises substantial doubt about the Company’s ability to continue as a going concern. Management has evaluated its financial position and future planned operating results with respect to the breach of covenants and determined that it is not probable that the Lender will declare all amounts due and payable and that in the improbable case that if the Lender declares all amounts under the Loan Agreement due and payable that the Company would be able to satisfy the obligations. The Company is discussing a resolution of the covenant breach with the Lender and believes that it will be able to do so. The Company is currently able to meet its debt service requirements and operating expenses out of its cash flows from operations and expects to be able to do so for at least the next twelve months. In addition, the Company’s borrowing base under the Loan Agreement exceeds the outstanding debt providing the Lender with sufficient collateral to secure the debt. The Company’s strategy includes acquisitions of residual portfolios and the execution of any such portfolio would likely be accretive to earnings and improve the Company’s cash flow and debt service capabilities. In the event that the Lender accelerates all amounts due or requested that the Company reduce the outstanding debt, management currently believes that it would be able to satisfy such obligations by selling a portion of its residual portfolio of monthly recurring revenue without disrupting its operations. Management also believes that if required, the debt outstanding under the Loan Agreement could be refinanced with another lender. There can be no assurance that the Company will be able to resolve the matter with the Lender or execute on its contingency plans in the event it is unable to resolve the matter with the Lender.
| 13. | RELATED PARTY TRANSACTIONS |
On October 15, 2015, SME Funding LLC purchased a residual portfolio of $13,000 of monthly recurring revenue from the Company in exchange for $445,742. SME is wholly owned by Steven Lemma who was the Chief Executive Officer of the Securus. The $445,742 was recorded as a gain on the sale of residual portfolio on the accompanying statements of operations.
On October 23, 2015, SME Funding LLC advanced the Company $500,000 to help finance the acquisition of the US assets of Calpian by eVance. This advance was converted into a note maturing December 1, 2016 with interest only payable monthly at an annual rate of 12%. The note was repaid in November 2016.
On February 15, 2016, SME Funding LLC purchased $35,000 of monthly recurring revenue for $700,000 cash pursuant to a residual purchase agreement (“RPA”). In November 2016, the Company exercised its right to repurchase the residuals for $770,000. As a result of the repurchase option, the Company accounted for the transaction not as a sale but as a liability.
| F-16 |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
At no time have there been any disagreements with our accountants regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
| Item 9A. | Controls and Procedures. |
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 15d-15(e) promulgated under the Exchange Act, as of December 31, 2016. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with United States’ generally accepted accounting principles (“US GAAP”), including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based on this evaluation, management has concluded that as of December 31, 2016, our internal control over financial reporting was effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant rules of the SEC that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal control over financial reporting that occurred during the year ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information. |
None
| 21 |
| Item 10. | Directors, Executive Officers and Corporate Governance. |
The following table sets forth the names, ages, and positions of our executive officers, directors and key employees as of the date of this report. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board, or his successor is elected and qualified. Directors are elected annually by our stockholders at the annual meeting. Each director holds his office until his successor is elected and qualified or his earlier resignation or removal.
| Name | Age | Position with the Company | ||||
| Thomas A. Hyde Jr. | 55 | Director, President and Chief Executive Officer | ||||
| Robert L. Winspear | 51 | Vice President, Secretary, and Chief Financial Officer | ||||
| Craig A. Jessen | 58 | Executive Vice President and President of eVance | ||||
| Ruben Azrak | 65 | Chairman of the Board | ||||
| Karl Power | 55 | Director | ||||
The term of office of each director ends at the next annual meeting of our stockholders or when such director's successor is elected and qualified. No date for the next annual meeting of stockholders is specified in our bylaws or has been fixed by the Board of Directors. The term of office of each officer ends at the next annual meeting of our Board of Directors, expected to take place immediately after the next annual meeting of stockholders, or when such officer's successor is elected and qualifies.
Biographies
Thomas A. Hyde Jr., Director, President and Chief Executive Officer. Mr. Hyde was elected President and Chief Executive Officer on May 13, 2014. On November 30, 2015 Mr. Hyde was appointed a director of the Company. Prior to joining the Company, Mr. Hyde had been the Principal, Managing Partner and Director of Red Shark Investments, LLC, since August 2013. From 2002 to 2014 Mr. Hyde served in various capacities for Teletouch Communications, Inc. (formerly OTC: TLLE) and its affiliates, most recently as a Director, President and COO. Subsequent to his tenure there, Teletouch filed for chapter 7 bankruptcy. Mr. Hyde currently sits on the Board Executive Committee for the ESPN Armed Forces Bowl. Mr. Hyde was awarded U.S. Patent #6,038,553 for the self-service check cashing and automated financial services technology platform now known as Vcom™. Mr. Hyde holds a BBA. degree in Finance from the University of Texas at Austin.
Robert L. Winspear, Vice President, Secretary, and Chief Financial Officer. Mr. Winspear was elected Vice President, Secretary and Chief Financial Officer on May 13, 2014. Prior to joining the Company, Mr. Winspear had been the President of Winspear Investments LLC, a Dallas based private investment firm specializing in lower middle market transactions, since 2002. Winspear Investments has made investments in a wide range of industries including banking, real estate, distribution, supply chain management, mega yacht marinas and hedge funds. Mr. Winspear earned a BBA and a MPA from the University of Texas at Austin. Mr. Winspear is on the board of directors of Alpha Financial Technologies/EAM Corporation, located in Grapevine, Texas and VII Peaks Co-Optivist Income BDC II, Inc. an investment management company located in Orinda, California.
Craig A. Jessen, Executive Vice President and President of eVance. Mr. Jessen joined the Company in December 2015 as Executive Vice President. In June 2016, Mr. Jessen was named President of eVance. Prior to joining the Company, Mr. Jessen had been President and a director of Calpian Inc. (OTCQX:MOMT) since 2010. Mr. Jessen has a BBA degree in Finance from the University of Texas at Arlington and an MBA from Southern Methodist University.
Ruben Azrak, Chairman of the Board of Directors. Ruben Azrak is a founder of the Company and has been a director since our incorporation in November 2010. Mr. Azrak was our Chief Executive Officer from inception until January 2014 and also served as Chief Executive Officer from February to May 2014. Beginning in 1998, along with Russell Simmons, Mr. Azrak developed Phat Farm Licensing. Phat Farm Licensing was sold in 2004. Mr. Azrak is Chairman and a Director of RVC Enterprises. RVC licenses and produces ROCAwear, the ladies sportswear line from the entertainer-entrepreneur Jay-Z. In addition, RVC owns the license for Ellen Tracy sportswear and Beverly Hills Polo Club. Mr. Azrak is also President and the sole director of Lifeguard Licensing Corp. and Lucky Star licensing. Mr. Azrak’s prior experience with both Phat Farm Licensing and RVC qualifies him to serve as a member of our Board of Directors.
Karl Power, Director. Karl Power was appointed as a director of the Company on November 30 2015. Mr. Power was Chairman and CEO of Active In Home Therapy a healthcare services provider from August 2011 until its sale in 2016. Mr. Power was appointed a director in connection with the acquisition of the US assets of Calpian Inc. by the Company on November 30, 2015.
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Compliance With Section 16(a) of the Exchange Act
Our common stock is not registered under Section 12 of the Exchange Act and therefore our directors, executive officers and beneficial holders of 10% or more of our outstanding common stock are not subject to Section 16 of the Exchange Act. Section 16(a) of the Exchange Act requires executive officers and directors, and persons who beneficially own more than 10% of a registered class of equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of common stock and other equity securities.
Code of Ethics
We have adopted a written code of business conduct and ethics, to be known as our code of ethics, which applies to our principal executive officer, principal financial officer, principal accounting officer and all persons providing similar functions.
A code of ethics is a written standard designed to deter wrongdoing and to promote:
| ● | honest and ethical conduct; | |
| ● | full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements; | |
| ● | compliance with applicable laws, rules and regulations; | |
| ● | the prompt reporting violation of the code; and | |
| ● | Ongoing accountability for adherence to the code. |
We will provide a copy of the Code of Ethics free of charge upon request to any person submitting a written request to our Chief Executive Officer.
Board Committees
Our Board of Directors has no separate committees. No member of our Board of Directors qualifies as an audit committee financial expert.
| 23 |
| Item 11. | Executive Compensation. |
Summary Compensation Table
The table below summarizes the total compensation paid or awarded to our Named Executive Officers by Company during the years ended December 31, 2016 and 2015.
| Summary Compensation Table | ||||||||||||||||||||||||
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Other Compensation | Total Compensation | ||||||||||||||||||
| Thomas A. Hyde, Jr., President and Chief Executive Officer (a) | 2015 | $ | 350,000 | $ | 350,000 | - | - | $ | 700,000 | |||||||||||||||
| 2016 | $ | 350,000 | $ | 350,000 | - | - | $ | 700,000 | ||||||||||||||||
| Robert L. Winspear, Vice President, Secretary and Chief Financial Officer (a) | 2015 | $ | 350,000 | $ | 350,000 | - | - | $ | 700,000 | |||||||||||||||
| 2016 | $ | 350,000 | $ | 350,000 | - | - | $ | 700,000 | ||||||||||||||||
| Craig A. Jessen | 2015 | $ | 20,833 | $ | - | - | - | $ | 20,833 | |||||||||||||||
| Executive Vice President and President of eVance (b) | 2016 | $ | 250,000 | $ | - | $ | 60,000 | - | $ | 310,000 | ||||||||||||||
| (a) | Messrs. Hyde and Winspear receive base salaries of $350,000 per year pursuant to their employment agreements. They joined the Company on May 13, 2014. | |
| (b) | Mr. Jessen joined the Company on December 1, 2015 as Executive Vice President and was named President of eVance on June 1, 2016. |
| 24 |
Outstanding Equity Awards at Year end
The following table sets forth the outstanding equity awards at December 31, 2016 for the named executive officers.
| Stock Awards | ||||||||
| Number of shares of stock that have not vested | Market
value of shares that have not vested | |||||||
| Thomas A. Hyde Jr. | 0 | - | ||||||
| Robert L. Winspear | 0 | |||||||
| Craig A. Jessen | 333,334 | $ | 53,333 | |||||
Employment Agreements and Compensation
The Company has employment agreements with Thomas A. Hyde, Jr. and Robert L. Winspear. The terms of their employment agreements are identical. Mr. Hyde, our Chief Executive Officer earns a base salary of $350,000 per year. Mr. Winspear, our Chief Financial Officer, earns a base salary of $350,000 per year. They are each entitled to receive an annual bonus (the “Annual Bonus”) equal to a minimum of 100% of the employee’s Base Salary, and according to performance criteria established and mutually agreed upon by the Company’s Board of Directors and the employee has achieved. They are also entitled to participate in the Company’s benefit plans. The employment agreements can be terminated, among the other things, by the Company for cause or by the employee for certain good reasons. The employment agreements also contain customary provisions of confidentiality and non-competition or non-solicitation. In the event that the Company terminates the employee for reasons other than cause or if the employee terminates the agreement for good reason, the employee shall be entitled to severance in an amount equal to 100% of his annual salary.
Except as provided for in agreements that the Company may enter into with its executive officers, any bonus compensation to executive officers will be determined by our Board of Directors or a compensation committee based on factors it deems appropriate, including the achievement of specific performance targets and our financial and business performance.
Compensation of Directors
None of our directors received compensation for the years ended December 31, 2016 or 2015. They are reimbursed for reasonable expenses incurred in connection with attending board meetings.
| 25 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The following tables set forth certain information as of April 14, 2017 regarding the beneficial ownership of our stock by (i) each person or entity who, to our knowledge, owns more than 5% of any class of our stock; (ii) our executive officers; (iii) each director; and (iv) all of our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power.
| Name of Beneficial Owner | Shares | % | Shares | % | % of Total Voting Power (1) | |||||||||||||||
| Executive Officers and Directors : | ||||||||||||||||||||
| Thomas A. Hyde Jr. (2) | 2,732,804 | 2.8 | 2,300,000 | 50 | 25.7 | |||||||||||||||
| Robert L. Winspear (2) | 2,982,804 | 3.0 | 2,300,000 | 50 | 25.8 | |||||||||||||||
| Craig A. Jessen (2) | 1,000,000 | 1.0 | 0 | 0 | 0.5 | |||||||||||||||
| Ruben Azrak (2) (3) | 6,344,833 | 6.5 | 0 | 0 | 3.3 | |||||||||||||||
| Karl Power (2)(4) | 1,650,633 | 1.7 | 0 | 0 | 0.9 | |||||||||||||||
| All executive officers and directors as a group (five persons) | 13,389,808 | 13.7 | 4,600,000 | 100 | 55.5 | |||||||||||||||
| Other 5% stockholders : | - | |||||||||||||||||||
| Steven Lemma | 10,200,000 | 10.4 | 0 | 0 | 5.4 | |||||||||||||||
| Mychol Robirds | 10,200,000 | 10.4 | 0 | 0 | 5.4 | |||||||||||||||
| Samuel Chanin Irrevocable Insurance Trust December 21, 2006 (5) | 6,474,468 | 6.6 | 0 | 0 | 3.4 | |||||||||||||||
| (1) | Percentage of total voting power represents voting power with respect to all shares of our Common Stock and Series B Preferred Stock voting as a single class. The holders of our Series B Preferred Stock are entitled to twenty votes per share and holders of our Common Stock are entitled to one vote per share. | |
| (2) | The address for all officers and directors is c/o Excel Corporation 6363 N. State Hwy 161, Suite 310 Irving TX 75038. | |
| (3) | Includes 3,104,600 shares held by Sarah Azrak, the wife of Ruben Azrak. | |
| (4) | Includes a warrant for the issuance of 1,500,000 shares of common stock and direct ownership of 100,000 shares of our common stock. | |
| (5) | Lieba Chanin has voting and dispositive power over 6,474,468 shares of our common stock as trustee for The Samuel Chanin Irrevocable Insurance Trust. The address for the trust is 1 MetroTech Center Suite 2001 Brooklyn NY, 11201. |
| 26 |
Change in Control
Pursuant to their employment agreements, Mr. Hyde and Mr. Winspear may be entitled to the following payments under a change in control as defined in their respective employment agreements:
| Mr. Hyde | $ | 350,000 | ||
| Mr. Winspear | $ | 350,000 |
| Item 13. | Certain Relationships and Related Transactions. |
On October 15, 2015, SME Funding LLC purchased a residual portfolio of approximately $13,000 of monthly recurring revenue from the Company in exchange for $445,742. SME is wholly owned by Steven Lemma who is the Chief Executive Officer of Securus. The $445,742 was recorded as a gain on the sale of residual portfolio on the Company’s statement of operations.
On October 23, 2015, SME Funding LLC advanced the Company $500,000 to help finance the acquisition of the US assets of Calpian, Inc. by eVance. This advance was exchanged for a note maturing December 1, 2016 with interest only payable monthly at an annual rate of 12%. The note was repaid in November 2016.
On February 15, 2016, SME Funding LLC purchased $35,000 of monthly recurring revenue for $700,000 pursuant to a residual purchase agreement (“RPA”). The Company exercised its right to repurchase the residuals for $770,000 in November 2016.
Director Independence
The Company has determined that Karl Power would be considered an independent director.
| Item 14. | Principal Accountant Fees and Services. |
For the years ended December 31, 2016 and 2015, the firm of Whitley Penn was our principal accounting firm.
Audit Fees: Aggregate fees billed by Whitley Penn for professional services rendered for the audit of our annual financial statements and review of our interim financial statements for the year ended December 31, 2016 and 2015 were $76,500 and $45,193 respectively.
All Other Fees: There were $3,940 of additional consulting and research fees billed by Whitley Penn for the year ended December 31, 2015 relating to eVance’s acquisition of Calpian’s US assets.
| 27 |
| Item 15. | Exhibits, Financial Statement Schedules. |
| (a) | List of Financial Statements |
The following consolidated financial statements of the Company are included in “Financial Statements and Supplementary Data”:
| Consolidated Balance Sheets | F-2 | ||
| Consolidated Statements of Operations | F-3 | ||
| Consolidated Statements of Stockholders’ Deficit | F-4 | ||
| Consolidated Statements of Cash Flows | F-5 | ||
| Notes to Consolidated Financial Statements | F-6 - F-16 |
| (b) | Exhibits |
The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
| Exhibit Number | Description | |
| 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. |
| 28 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EXCEL CORPORATION | ||
| April 14, 2017 | By: | /s/ Thomas A. Hyde, Jr. |
| Thomas
A. Hyde, Jr. Chief Executive Officer | ||
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Thomas A. Hyde, Jr. | Chief Executive Officer and Director | April 14, 2017 | ||
| Thomas A. Hyde, Jr. | (principal executive officer) | |||
| /s/ Robert L. Winspear | Chief Financial Officer and Treasurer | April 14, 2017 | ||
| Robert L. Winspear | (principal financial and accounting officer) | |||
| /s/ Ruben Azrak | Chairman of the Board | April 14, 2017 | ||
| Ruben Azrak | ||||
| /s/ Karl Power | Director | April 14, 2017 | ||
| Karl Power |
| 29 |
Exhibit Index
| Exhibit No | Description | |
| 2.1 | Agreement of Merger and Plan of Reorganization, dated January 14, 2013 by and among Excel Corporation, ECB Acquisition Corp and Excel Business Solutions, Inc., is incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated January 18, 2013. | |
| 2.2 | Certificate of Merger, dated January 14, 2013, merging ECB Acquisition with Excel Business Solutions, is incorporated herein by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K dated January 18, 2013. | |
| 2.3 | Asset Purchase Agreement, dated November 30, 2015, between eVance Processing Inc., Calpian Residual Acquisition, LLC and Calpian Commerce, Inc., is incorporated herein by reference to Exhibit 2.01 of the Company’s Current Report on Form 8-K dated November 30, 2015. | |
| 3.1 | Certificate of Incorporation of Ruby Worldwide Ltd., dated November 11, 2010, is incorporated herein by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702). | |
| 3.2 | Certificate of Amendment of Certificate of Incorporation of Ruby Worldwide Ltd., dated December 1, 2012, is incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702). | |
| 3.3 | Certificate of Amendment of Certificate of Incorporation of Excel Corporation, dated January 19, 2011, is incorporated herein by reference to Exhibit 3.3 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702). | |
| 3.4 | By-Laws of Excel Corporation is incorporated herein by reference to Exhibit 3.4 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702). | |
| 3.5 | Certificate of Designation of Series B Convertible Preferred Stock, is incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated March 18, 2016. | |
| 4.1 | Promissory Note, dated January 29, 2016, issued by Excel Corporation, is incorporated herein by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated January 29, 2016. | |
| 10.01 | Employment Agreement dated May 14, 2014 by and between Excel Corporation and Thomas A. Hyde, Jr., is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated May 15, 2014. | |
| 10.02 | Employment Agreement, dated May 14, 2014 by and between Excel Corporation and Robert L. Winspear, is incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K May 15, 2014. | |
| 10.03 | Form of Lockup Agreement, dated January 14, 2013, by and between Excel Business Solutions and Excel Corporation, is incorporated herein by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K dated January 18, 2013. | |
| 10.04 | Equity Incentive Plan by Excel Corporation, dated for the year 2011, is incorporated herein by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702). | |
| 10.05 | Subscription Agreement, dated as of April 31, 2011, of and between Excel Corporation and Purchaser, is incorporated herein by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1/A, as filed with the SEC on April 31, 2011 (File No. 333-173702). | |
| 10.06 | Portfolio Purchase Agreement effective June 30, 2014 between Payprotec Oregon, LLC (dba Securus Payments) and BlueAcre Ventures LLC is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated July 7, 2014. | |
| 10.07 | Secured Residual Loan Agreement effective June 30, 2014 between Payprotec Oregon, LLC (dba Securus Payments) and BlueAcre Ventures LLC. is incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated July 7, 2014. | |
| 10.08 | Promissory Note effective June 30, 2014 between Payprotec Oregon, LLC (dba Securus Payments) and BlueAcre Ventures LLC is incorporated herein by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K dated July 7, 2014. | |
| 10.09 | Loan and Security Agreement Dated November 2, 2016 Among GACP Finance Co. LLC., as Agent, the Lenders as time to time party hereto, as lenders, Excel Corporation, as Borrower, and certain subsidiaries of Borrower, as Guarantors is incorporated herein by reference to exhibit 10.01 of the Company’s Current Report on Form 8-K dated November 2, 2016 |
| 30 |
| 10.09 | Settlement Agreement and Release effective June 30, 2014 between Payprotec Oregon, LLC (dba Securus Payments), Excel Corporation, Steven Lemma, Mychol Robirds, Shalom Auerbach, and E-Cig Ventures, LLC is incorporated herein by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K dated July 7, 2014. | |
| 10.10 | Third Amended and Restated Operating Agreement of Payprotec Oregon, LLC (dba Securus Payments) effective June 30, 2014 is incorporated herein by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K dated July 7, 2014. | |
| 10.11 | Promissory Note effective June 30, 2014 between Excel Corporation and E-Cig Ventures, LLC is incorporated herein by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K dated July 7, 2014. | |
| 10.12 | Securities Exchange Agreement, dated February 17, 2014, between the Company, Payprotec Oregon, LLC (d/b/a Securus Payments), Mychol Robirds and Steven Lemma is incorporated herein by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K dated February 21, 2014. | |
| 10.13 | Amendment dated as of April 10, 2014 to the Securities Exchange Agreement, dated February 17, 2014, between the Company, Payprotec Oregon, LLC (d/b/a Securus Payments), Mychol Robirds and Steven Lemma is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K/A dated April 11, 2014. | |
| 10.14 | Form of Amended and Restated Secured Promissory Note, dated November 30, 2015, issued by eVance Processing Inc., is incorporated herein by reference to Exhibit 10.01 of Company’s Current Report on Form 8-K dated November 30, 2015. | |
| 10.15 | Amended and Restated Loan and Security Agreement, dated November 30, 2015, is incorporated herein by reference to Exhibit 10.02 of Company’s Current Report on Form 8-K dated November 30, 2015. | |
| 10.16 | Form of Warrant to purchase common stock of the Company, is incorporated herein by reference to Exhibit 10.03 of Company’s Current Report on Form 8-K dated November 30, 2015. | |
| 10.17 | Guarantee, dated November 30, 2015, is incorporated herein by reference to Exhibit 10.04 of Company’s Current Report on Form 8-K dated November 30, 2015. | |
| 10.18 | Agreement, dated January 29, 2016, between Excel Corporation and SME Funding LLC, is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated January 29, 2016. | |
| 10.19 | Form of Stockholder Agreement, is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated March 18, 2016. | |
| 10.20 | Purchase Price Adjustment Agreement, dated April 12, 2016. | |
| 10.21 | Promissory Note to Excel Corporation, dated April 12, 2016. | |
| 10.22 | Loan and Security Agreement Dated November 2, 2016 Among GACP Finance Co. LLC., as Agent, the Lenders as time to time party hereto, as lenders, Excel Corporation, as Borrower, and certain subsidiaries of Borrower, as Guarantors is incorporated herein by reference to exhibit 10.01 of the Company’s Current Report on Form 8-K dated November 2, 2016 | |
| 14.1 | Code of Business Conduct and Ethics Agreement by Excel Corporation, dated April 22, 2011, is incorporated herein by reference to Exhibit 14.1 of the Company’s Registration Statement on Form S-1, as filed with the SEC on April 25, 2011 (File No. 333-173702). | |
| 31.1 | Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Principal Executive Officer of Excel Corporation. | |
| 31.2 | Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Principal Financial Officer of Excel Corporation. | |
| 32.1 | Certification pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Principal Executive Officer and Principal Financial Officer of Excel Corporation. | |
| 32.2 | Certification pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Principal Executive Officer and Principal Financial Officer of Excel Corporation. |
| 31 |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
32
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas A. Hyde Jr., certify that:
1. I have reviewed this Annual Report on Form 10-K of Excel Corporation (the “report”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial
reporting.
Dated: April 14, 2017
| By: | /s/ Thomas A. Hyde, Jr. | |
| Name: | Thomas A. Hyde, Jr. | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert L. Winspear, certify that:
1. I have reviewed this Annual Report on Form 10-K of Excel Corporation (the “report”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: April 14, 2017
| By: | /s/ Robert L. Winspear | |
| Name: | Robert L. Winspear | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual Report on Form 10-K of Excel Corporation (the “Company”) for the year ended December 31, 2016, (the “Report”), I, Thomas A. Hyde Jr., the Principal Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: April 14, 2017
| By: | /s/ Thomas A. Hyde, Jr. | |
| Name: | Thomas A. Hyde, Jr. | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) |
This certification accompanies this report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purpose of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual Report on Form 10-K of Excel Corporation (the “Company”) for the year ended December 31, 2016, (the “Report”), I, Robert L. Winspear, the Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: April 14, 2017
| By: | /s/ Robert L. Winspear | |
| Name: | Robert L. Winspear | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Principal Accounting Officer) |
This certification accompanies this report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purpose of Section 18 of the Securities Exchange Act of 1934, as amended.
Document and Entity Information - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2016 |
Apr. 13, 2017 |
|
| Document and Entity Information [Abstract] | ||
| Entity Registrant Name | Excel Corp | |
| Entity Central Index Key | 0001512890 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Document Type | 10-K | |
| Document Period End Date | Dec. 31, 2016 | |
| Document Fiscal Period Focus | FY | |
| Document Fiscal Year Focus | 2016 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Well-known Seasoned Issuer | No | |
| Entity Voluntary Filers | Yes | |
| Entity Current Reporting Status | No | |
| Entity Public Float | $ 10,047,198 | |
| Entity Common Stock, Shares Outstanding | 97,860,366 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Preferred stock, par value | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding | ||
| Common stock, par value | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 200,000,000 | 200,000,000 |
| Common stock, shares issued | 97,759,070 | 98,259,070 |
| Common stock, shares outstanding | 97,759,070 | 98,259,070 |
| Series A preferred stock | ||
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred stock, shares issued | 0 | 2 |
| Preferred stock, shares outstanding | 0 | 2 |
| Series B preferred stock | ||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares issued | 4,600,000 | 0 |
| Preferred stock, shares outstanding | 4,600,000 | 0 |
Consolidated Statements of Stockholders' Equity (Deficit) - USD ($) |
Total |
Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Series A preferred stock |
Series B preferred stock |
|---|---|---|---|---|---|---|---|
| Balances at Dec. 31, 2014 | $ 9,726 | $ 4,232,342 | $ (1,778,139) | ||||
| Balances (in shares) at Dec. 31, 2014 | 97,259,070 | 2 | |||||
| Stock Compensation Expense | $ 200 | 285,949 | |||||
| Stock Compensation Expense, Shares | 2,000,000 | ||||||
| Return of Common Stock | $ (100) | (89,900) | |||||
| Return of Common Stock, Shares | (1,000,000) | ||||||
| Net loss | $ (1,622,494) | (1,622,494) | |||||
| Balances at Dec. 31, 2015 | 1,037,584 | $ 9,826 | 4,428,391 | (3,400,633) | |||
| Balances (in shares) at Dec. 31, 2015 | 98,259,070 | 2 | |||||
| Issuance of preferred stock at .05 per share | 229,540 | $ 460 | |||||
| Issuance of preferred stock at .05 per share, Shares | 4,600,000 | ||||||
| Stock Compensation Expense | $ 100 | 156,417 | |||||
| Stock Compensation Expense, Shares | 1,000,000 | ||||||
| Return of Common Stock | $ (150) | ||||||
| Return of Common Stock, Shares | (1,500,000) | ||||||
| Net loss | (1,796,157) | (1,796,157) | |||||
| Balances at Dec. 31, 2016 | $ (372,206) | $ 9,776 | $ 4,814,348 | $ (5,196,790) | $ 460 | ||
| Balances (in shares) at Dec. 31, 2016 | 97,759,070 | 2 | 4,600,000 |
Consolidated Statements of Stockholders' Equity (Deficit) (Parenthetical) - $ / shares |
Dec. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Preferred stock at .05 per share | ||
| Shares issued, price per share | $ 0.05 | |
| Common Stock at .09 per share | ||
| Shares issued, price per share | $ 0.09 |
Organization and Operations |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2016 | |||
| Organization and Operations [Abstract] | |||
| ORGANIZATION AND OPERATIONS |
Excel Corporation (the “Company”) was organized on November 13, 2010 as a Delaware corporation. The Company has three wholly owned subsidiaries, Excel Business Solutions, Inc. (d/b/a eVance Capital), Payprotec Oregon, LLC (d/b/a Securus Payments), (“Securus”), and eVance Processing Inc. (“eVance”).
We sell integrated financial and transaction processing services to businesses throughout the United States. We provide these services through our wholly-owned subsidiaries, eVance and Securus. Through our eVance subsidiary, we provide an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payments processing solutions primarily to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. We operate as an independent sales organization (“ISO”) generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO, eVance has a direct contractual relationship with the merchants and takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and we receive additional consideration for this service and risk. Securus operates as a retail ISO and receives residual income as commission for merchants it places with third party processors.
On November 30, 2015, eVance entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including an aggregate of $9,000,000 of notes payable and certain of the Sellers’ outstanding contractual obligations.
On April 12, 2016, eVance entered into an agreement with the Sellers and a cancellation of securities acknowledgement with one of eVance’s note-holders whereby the noteholder cancelled its note in the amount of $720,084 and Calpian issued eVance a note in the amount of $675,000 in exchange for eVance and the Sellers mutually waiving any claims either party has or could have under the Purchase Agreement against the other. The $675,000 note bears simple interest of 12% per annum payable monthly and matures on November 30, 2017. As part of the Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and Seller and claimed damages in excess of $1,500,000. eVance has agreed to apply any recovery from such litigation (less costs) against the principal balance of the $675,000 note up to a maximum of $675,000. The Company reflected the reduction in the assumed debt by $720,084 as a reduction in goodwill and a reduction in the debt assumed. In addition, the noteholder returned a warrant to purchase 360,042 shares of the Company’s common stock. As a result of this agreement, the $9,000,000 of notes payable was reduced to $8,279,916.
On April 30, 2016, Securus entered into a Purchase and Sale Agreement (the “2016 Purchase Agreement”) with Chyp LLC (“Chyp”). In connection with the 2016 Purchase Agreement, Chyp executed a three-year preferred marketing agreement with eVance. Chyp acquired substantially all of the operations of Securus including its sales and marketing operations located in Portland, Oregon and West Palm Beach, Florida. Securus retained the approximately 5,000 merchants and related merchant processing residual portfolios. |
Summary of Significant Accounting Policies |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2016 | |||
| Summary of Significant Accounting Policies [Abstract] | |||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The Company’s financial statements are prepared on the accrual method of accounting.
The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for annual financial reporting.
Principles of Consolidation The consolidated financial statements include the accounts of Excel Corporation and subsidiaries in which the Company has a controlling financial interest. All intercompany transactions and account balances between Excel Corporation and its subsidiaries have been eliminated in consolidation. Transactions with its consolidated subsidiaries are generally settled in cash. Investments in unconsolidated affiliated entities are accounted for under the equity method and are included in “Equity investment” in the accompanying consolidated balance sheets.
Business Combinations
Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwill is assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred.
Revenue Recognition
The Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company has a direct contractual relationship with the merchant, bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability and has no or limited contractual relationship with the merchant, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue.
The Company acts as an ISO offering alternative financing and working capital solutions (merchant cash advances) to small and medium sized businesses using a variety of third party funding sources. As an ISO, we earn commissions from capital funders by placing their financial products with our merchant customers. This portion of our business does not yet represent a significant portion of our revenues, costs or assets.
Cash and Cash Equivalents
The Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents. The carrying amount of financial instruments included in cash and cash equivalents approximates fair value because of the short maturities for the instruments held.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.
Reclassification
Certain prior period amounts have been reclassified to conform to the current year’s presentation.
Accounts Receivable
Accounts receivable represent contractual residual payments due from the Company's processing partners. These residual payments are determined based on transaction fees and revenues from the credit and debit card processing activity of merchants for which the Company’s processing partners pay the Company. Based on collection experience and periodic reviews of outstanding receivables, management considers all accounts receivable to be fully collectible and accordingly, no allowance for doubtful accounts is required.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to ten years. Leasehold improvements are amortized over the lesser of the expected term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred.
Residual Portfolios
Residual portfolios are valued at fair value on the date of acquisition and are amortized over their estimated useful lives (7 years).
Equity Investments
Equity investments are valued at fair value on the date of acquisition using the equity method of accounting and adjusted in subsequent periods for the Company’s share of the investment’s earnings and distributions. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the evaluation of deferred tax assets, purchase accounting, allowances, and equity investments. |
Fair Value Measurements |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2016 | |||
| Fair Value Measurements [Abstract] | |||
| FAIR VALUE MEASUREMENTS |
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic No. 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as described below:
Level 1: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.
Level 3: Level 3 inputs are unobservable inputs.
The following required disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows:
Cash and Cash Equivalents, Accounts Receivable, Other Current Assets, Accounts Payable, Accrued Compensation 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.
Note Receivable, Other Long Term Assets, Notes Payable, and Other Long Term Liabilities.
The carrying amounts approximate the fair value as the notes bear interest rates that are consistent with current market rates. |
Recent Accounting Pronouncements |
12 Months Ended | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||
| Recent Accounting Pronouncements [Abstract] | |||||||||||||||||||||||||||
| RECENT ACCOUNTING PRONOUNCEMENTS |
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers Topic 606 (“ASU 2014-09”) which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Revenue recorded under ASU 2014-09 will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for the Company’s fiscal year beginning January 1, 2018 and early adoption is not permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and noncurrent on the balance sheet and requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The guidance in the ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.The Company had a 100% valuation allowance on the deferred tax assets at December 31, 2016, as such this standard does not impact the financial position at December 31, 2016.
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements. On August 26, 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230).” This ASU is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. The ASU’s amendments add or clarify guidance on eight cash flow issues:
The guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
Early adoption is permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements.
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. |
Discontinued Operations |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISCONTINUED OPERATIONS |
On April 30, 2016, Securus entered into the 2016 Purchase Agreement with Chyp. In connection with the 2016 Purchase Agreement, Chyp executed a three-year preferred marketing agreement with eVance.
Pursuant to the 2016 Purchase Agreement, Chyp acquired substantially all of the operations of Securus including its sales and marketing operations located in Portland, Oregon and West Palm Beach, Florida. Securus retained its approximately 5,000 merchants and related merchant processing residual portfolio. Securus also retained substantially all of its liabilities, including but not limited to, its note payable with Blue Acre Ventures (BAV), trade payables as well as liabilities to merchants.
Pursuant to the 2016 Purchase Agreement, Securus provided financial assistance to Chyp in the form of a forgivable loan to support the transition of Securus’ operations to Chyp. Securus advanced Chyp $500,000 during 2016 and has one remaining payment of $50,000 to be paid in 2017 for a total of $550,000. Accordingly, Chyp executed a $550,000 promissory note (the “Chyp Note”) in favor of Securus. The Chyp Note bears an interest rate of 12% per annum with both the principal and interest due on May 1, 2017. If Chyp is in material compliance with the 2016 Purchase Agreement and related agreements through May 1, 2017, Securus will forgive the Chyp Note. Securus will also reimburse Chyp for commissions payable to Chyp employees and agents on Securus’ residual portfolio as if those agents and employees were still employed by Securus. Chyp is owned by Steven Lemma and Mychol Robirds, who are former executives of Securus.
We accounted for the sale of the Securus operations to Chyp in accordance with ASC 205-20-45-1 and have classified the assets and operations sold to Chyp as discontinued operations. The Company recorded a loss on disposal of $840,641 related to the transaction. The charge includes a $290,641 write-off of the net assets acquired by Chyp and $550,000 for the financial assistance to be provided to Chyp.
A summary of results of discontinued operations is as follows:
|
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Income Taxes |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 net operating loss or tax credit carryforwards. At December 31, 2016 and December 31, 2015, the Company had available unused net operating loss carryforwards of $4,194,335 and $2,241,453, respectively, which generated a deferred tax benefits of $1,551,904 and $829,338, respectively. The Company had a 100% valuation allowance on the deferred tax assets at December 31, 2016 and December 31, 2015, respectively. The net operating loss carryforwards will begin to expire in 2035. After analyzing our forecasted tax position at December 31, 2016 we currently expect to utilize all of our net operating loss carryforwards prior to their expiration dates.
The reconciliation of the statutory rate to the Company’s effective income tax rate are as follows:
The Company’s provision for income taxes for the year ended December 31, 2016 and 2015 consists of the following:
Significant components of the Company’s deferred income taxes are as follows:
The Company accounts for uncertainties in income taxes in accordance with FASB ASC Topic 740 “Accounting for Uncertainty in Income Taxes”. The Company has determined that there are no significant uncertain tax positions requiring recognition in its financial statements.
In the event the Company is assessed for interest and/or penalties by taxing authorities, such assessed amounts will be classified in the financial statements as income tax expense. Tax years 2013 through 2015 remain subject to examination by Federal and state taxing authorities. |
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Stockholders' Equity |
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Dec. 31, 2016 | |||
| Stockholders' Equity [Abstract] | |||
| STOCKHOLDERS' EQUITY |
On March 18, 2016, the Company issued 2,300,000 Shares of Series B Convertible Preferred Stock (“Series B Shares”) to each of Thomas A. Hyde Jr. and Robert L. Winspear (each a “Holder” and collectively the “Holders”) at a price of $0.05 per share pursuant to subscription agreements between the Company and the Holders. Mr. Hyde is the President, Chief Executive Officer and a Director of the Company. Mr. Winspear is the Chief Financial Officer of the Company.
The Series B Shares are convertible into shares of the Company’s common stock par value $0.0001 (“Common Stock”) on a ratio of 1-to-1, subject to adjustment for stock splits and stock dividends. The Series B Shares rank senior to the Common Stock and other preferred shares and carry a liquidation preference of $.05 per share. Holders of the Series B Shares are entitled to receive dividends declared on the Company’s Common Stock on an as converted basis. Each Series B Share entitles the Holder thereof to 20 votes per share on all matters subject to voting by holders of the Company’s Common Stock. The issuance of a total of 4,600,000 shares of Series B Shares, entitles the Holders thereof to a combined 92,000,000 votes. Under the terms of the Series B Shares, the Company has the right to require a Holder to convert the Series B Shares into Common Stock at any time after the Holder resigns, is terminated or otherwise ceases to be an officer of the Company. In addition, the Company has the right at any time after July 18, 2016 to repurchase and retire all but not less than all of the Series B Preferred Stock for $0.05 per share provided that it gives notice to the Holder of the Company’s intent to redeem the shares and the Holder does not elect to convert the Series B Shares into Common Stock in lieu of the redemption.
In connection with the issuance of the Series B Shares, the Company and the Holders executed a Stockholders Agreement (the “Agreement”) whereby the Holders agreed not to initiate directly or indirectly any stockholder vote or action, by written consent or otherwise, to increase the size or structure of the Company’s board of directors or remove any existing director, nor initiate directly or indirectly any stockholder vote or action by written consent or otherwise, to affect Holders’ executive compensation, bonus criteria and amounts, or other similar action. The Holders also agreed to convert the Series B Shares immediately upon termination, whether voluntary or involuntary, or upon their resignation for any reason.
On November 30, 2015, in connection with its acquisition of the U.S. assets and operations of Calpian Inc., the Company issued warrants to purchase an aggregate of 5,452,458 shares of the Company’s common stock at an exercise price of $0.05 per share, subject to adjustments. The warrants expire on November 30, 2025.
We estimate the fair value of warrants and stock options when issued or vested using the Black-Scholes options pricing model and subsequent changes in fair value are not recognized. Option pricing models require the input of highly subjective assumptions. We determined, using the Black-Scholes options pricing model, that these warrants have no current value, based on a maturity date of five years, a risk-free interest rate of 2.230%, and a calculated volatility rate of 8.530%, using historical stock prices of the Company at the time of issuance. |
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| Stock Options and Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK OPTIONS AND COMPENSATION |
On November 13, 2010 the Company’s Board of Directors (the “Board”) approved a stock plan pursuant to which the Company may grant incentive and non-statutory options to employees, non-employee members of the Board and consultants and other independent advisors who provide services to the Corporation. The maximum shares of common stock which may be issued over the term of the plan cannot exceed 4,000,000 shares. Awards under this plan are made by the Board or a committee of the Board. Options under the plan are to be issued at the market price of the stock on the day of the grant except to those issued to holders of 10% or more of the Company’s Common Stock which is required to be issued at a price not less than 110% of the fair market value on the day of the grant. Each option is exercisable at such time or times, during such period and for such numbers of shares shall be determined by the Plan Administrator. However, no option shall have a term in excess of 10 years from the date of the grant.
On June 1, 2015, the Company issued 2,000,000 shares of its Common Stock to an executive in connection with the executive’s employment and the use of certain trade names and brands owned by the executive. 500,000 shares vested upon grant and an additional 500,000 shares were scheduled to vest on June 1, 2016, June 1, 2017, and June 1, 2018. The Company terminated the executive’s employment in January 2016, and the shares subject to vesting were forfeited.
On August 12, 2016, the Company granted 1,000,000 shares of its common stock to an employee. 333,333 of these shares vested upon grant, 333,333 vested on December 1, 2016 and 333,334 vest on December 1, 2017. On August 12, 2016, the Company also issued a warrant to purchase 500,000 of its common stock to a consultant. The warrant has an exercise price of $0.06 per share and a term of 18 months.
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Acquisitions |
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| Acquisitions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITIONS |
On November 30, 2015, eVance Processing Inc. (“eVance”), a wholly owned subsidiary of the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including an aggregate of $9,000,000 of notes payable and certain of the Sellers’ outstanding contractual obligations.
On April 12, 2016, eVance entered into an agreement with the Sellers and a cancellation of securities acknowledgement with one of eVance’s note holders whereby the noteholder cancelled their note in the amount of $720,084 and Calpian issued eVance a note in the amount of $675,000 in exchange for eVance waiving any claims for breach of the Purchase Agreement between eVance and Sellers. The $675,000 note bears simple interest of 12% per annum payable monthly, matures on November 30, 2017 and is secured by 2,000,000 shares of Calpian common stock. As part of the Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and Seller and has claimed damages in excess of $1,500,000. eVance has agreed to apply any recovery from such litigation (less costs) against the principle balance of the $675,000 note up to a maximum of $675,000. The Company reflected the cancellation of the $720,084 note and the receipt of the $675,000 Calpian note as a $1,395,084 reduction in goodwill. In addition, the noteholder cancelled and returned a warrant to purchase 360,042 shares of the Company’s common stock.
The following is a summary of the estimated fair values of the assets acquired and liabilities assumed on November 30, 2015:
The fair value of the net assets acquired less the fair value of debt assumed resulted in a difference of $3,473,914, which has been recorded as goodwill in the Company’s consolidated balance sheets. All of the recorded goodwill is tax-deductible.
The consolidated statements of operations for the fiscal year ended December 31, 2015 includes the financial results of eVance since the date of acquisition, November 30, 2015, through December 31, 2015. During this period, eVance’s revenues were $1,022,073 and its net income was $64,965.
Pro Forma Financial Information (Unaudited)
The information that follows provides supplemental information about pro forma revenues and net income (loss) attributable to the Company as if the acquisition of Calpian’s US assets by eVance been consummated as of January 1, 2015. Such information is unaudited and is based on estimates and assumptions which the Company believes are reasonable.
These results are not necessarily indicative of the consolidated statements of operations in future periods or the results that would have actually been realized had the Company and eVance been a combined entity during 2014 and 2015.
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Property and Equipment |
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| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT |
Property and equipment consists of the following for the years ending:
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Leases |
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||
| LEASES |
The Company executed a lease for its corporate offices in Irving Texas. The lease began on November 1, 2014 and has a term of 63 months with monthly payments ranging from $0 to $6,428.
eVance leases its Georgia office facilities under an operating lease expiring in November 2019. Monthly lease payments range from $8,278 to $9,046 throughout the term of the lease.
Total rent expense for the year ended December 31, 2016 was $298,816, compared to $438,109 for the year ended December 31, 2015.
The future minimum lease payments required under long-term operating leases as of December 31, 2016 are as follows:
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Notes Payable |
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| NOTES PAYABLE |
The following summarizes the Company’s outstanding notes payable for the years ending:
On November 30, 2015, in connection with the purchase of the U.S. assets and operations of Calpian, eVance assumed an aggregate of $9,000,000 of notes payable, including $6.0 million of debt issued pursuant to a note offering conducted by Calpian and in which the Company invested $250,000. Concurrently, eVance issued amended promissory notes (the “eVance Notes”) in favor of each lender (collectively, the “eVance Lenders”) evidencing eVance’s assumption of $9,000,000 of indebtedness. Pursuant to a purchase price adjustment agreement dated April 12, 2016, the principal value of the eVance Notes was reduced to $8,279,916 (see Note 13). The $250,000 of eVance Notes purchased by the Company have been eliminated in consolidation to reflect a net balance of $8,029,916 as of December 31, 2015. The eVance Notes were repaid in full in connection with the completion of the credit facility discussed below.
On October 23, 2015, SME Funding LLC advanced the Company $500,000 to help finance the acquisition of the US assets of Calpian Inc by eVance. This advance was converted into a note maturing December 1, 2016 with interest only payable monthly at an annual rate of 12%. This note was repaid in full in connection with the completion of the credit facility discussed below.
On November 2, 2016, the Company and certain of the Company’s subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”) with GACP Finance Co. LLC as administrative agent (“Agent”) and the other lenders as from time to time party thereto. The Loan Agreement has a three-year term and provides for term loan commitments of up to $25,000,000 consisting of an Initial Term Loan in the amount of $13,500,000 and a Delayed Draw Term Loan in the amount of $11,500,000 (each a “Loan” or together “Loans”). The Company used the proceeds from the Initial Term Loan to repay all of its existing secured debt. The Company expects to use the Delayed Draw Term Loan to fund acquisitions of portfolios of recurring residual revenues from credit and debit card transactions or companies that own these portfolios. Funding of Delayed Draw Term Loan is subject to certain conditions including but not limited to borrowing base limitations and further lender due diligence.
The Loan accrues interest of 18% per annum of which 13% is payable in cash monthly and 5% is payable in kind (PIK). Pursuant to the Loan Agreement, the Loan is secured by substantially all of the assets of the Company including but not limited to the Company’s residual portfolios. In addition, certain of Excel’s subsidiaries are guarantors under the Loan Agreement.
The Company incurred financing costs in the amount of $850,746 in connection with the Loan Agreement. These costs are shown as a reduction of the loan amount on the accompanying consolidated balance sheet as of December 31, 2016, and are being amortized as interest expense over the term of the Loan. In addition, the interest that is payable in kind is added to the Loan balance. The following chart summarizes the amount outstanding under the Loan.
The Loan Agreement contains customary events of default, non-payment of principal or other amounts under the Loan Agreement, breach of covenants and certain voluntary and involuntary bankruptcy events. The Loan Agreement also contains certain financial covenants including maintenance of certain EBITDA levels and minimum liquidity. If any event of default occurs and is continuing, the Lender may declare all amounts owed to be due (except for a bankruptcy event of default), in which case such amounts will automatically become due and payable. The Company was not in compliance with certain of its financial covenants for the month ended January 31, 2017. As a result of the covenant breach, the debt is classified as current on the accompanying consolidated balance sheets in accordance with ASC 470-10-45. In accordance with ASU 205-40, the classification of the debt as current raises substantial doubt about the Company’s ability to continue as a going concern. Management has evaluated its financial position and future planned operating results with respect to the breach of covenants and determined that it is not probable that the Lender will declare all amounts due and payable and that in the improbable case that if the Lender declares all amounts under the Loan Agreement due and payable that the Company would be able to satisfy the obligations. The Company is discussing a resolution of the covenant breach with the Lender and believes that it will be able to do so. The Company is currently able to meet its debt service requirements and operating expenses out of its cash flows from operations and expects to be able to do so for at least the next twelve months. In addition, the Company’s borrowing base under the Loan Agreement exceeds the outstanding debt providing the Lender with sufficient collateral to secure the debt. The Company’s strategy includes acquisitions of residual portfolios and the execution of any such portfolio would likely be accretive to earnings and improve the Company’s cash flow and debt service capabilities. In the event that the Lender accelerates all amounts due or requested that the Company reduce the outstanding debt, management currently believes that it would be able to satisfy such obligations by selling a portion of its residual portfolio of monthly recurring revenue without disrupting its operations. Management also believes that if required, the debt outstanding under the Loan Agreement could be refinanced with another lender. There can be no assurance that the Company will be able to resolve the matter with the Lender or execute on its contingency plans in the event it is unable to resolve the matter with the Lender. |
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Related Party Transactions |
12 Months Ended | ||
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Dec. 31, 2016 | |||
| Related Party Transactions [Abstract] | |||
| RELATED PARTY TRANSACTIONS |
On October 15, 2015, SME Funding LLC purchased a residual portfolio of $13,000 of monthly recurring revenue from the Company in exchange for $445,742. SME is wholly owned by Steven Lemma who was the Chief Executive Officer of the Securus. The $445,742 was recorded as a gain on the sale of residual portfolio on the accompanying statements of operations.
On October 23, 2015, SME Funding LLC advanced the Company $500,000 to help finance the acquisition of the US assets of Calpian by eVance. This advance was converted into a note maturing December 1, 2016 with interest only payable monthly at an annual rate of 12%. The note was repaid in November 2016.
On February 15, 2016, SME Funding LLC purchased $35,000 of monthly recurring revenue for $700,000 cash pursuant to a residual purchase agreement (“RPA”). In November 2016, the Company exercised its right to repurchase the residuals for $770,000. As a result of the repurchase option, the Company accounted for the transaction not as a sale but as a liability. |
Summary of Significant Accounting Policies (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
| Summary of Significant Accounting Policies [Abstract] | |
| Basis of Presentation | Basis of Presentation
The Company’s financial statements are prepared on the accrual method of accounting.
The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for annual financial reporting. |
| Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of Excel Corporation and subsidiaries in which the Company has a controlling financial interest. All intercompany transactions and account balances between Excel Corporation and its subsidiaries have been eliminated in consolidation. Transactions with its consolidated subsidiaries are generally settled in cash. Investments in unconsolidated affiliated entities are accounted for under the equity method and are included in “Equity investment” in the accompanying consolidated balance sheets. |
| Business Combinations | Business Combinations
Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred. |
| Goodwill | Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with an acquisition. Goodwill is assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred. |
| Revenue Recognition | Revenue Recognition
The Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company has a direct contractual relationship with the merchant, bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability and has no or limited contractual relationship with the merchant, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue.
The Company acts as an ISO offering alternative financing and working capital solutions (merchant cash advances) to small and medium sized businesses using a variety of third party funding sources. As an ISO, we earn commissions from capital funders by placing their financial products with our merchant customers. This portion of our business does not yet represent a significant portion of our revenues, costs or assets. |
| Cash and Cash Equivalents | 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
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term. |
| Reclassification | Reclassification
Certain prior period amounts have been reclassified to conform to the current year’s presentation. |
| Accounts Receivable | Accounts Receivable
Accounts receivable represent contractual residual payments due from the Company's processing partners. These residual payments are determined based on transaction fees and revenues from the credit and debit card processing activity of merchants for which the Company’s processing partners pay the Company. Based on collection experience and periodic reviews of outstanding receivables, management considers all accounts receivable to be fully collectible and accordingly, no allowance for doubtful accounts is required. |
| Property and Equipment | Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to ten years. Leasehold improvements are amortized over the lesser of the expected term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred. |
| Residual Portfolios | Residual Portfolios
Residual portfolios are valued at fair value on the date of acquisition and are amortized over their estimated useful lives (7 years). |
| Equity Investments | Equity Investments
Equity investments are valued at fair value on the date of acquisition using the equity method of accounting and adjusted in subsequent periods for the Company’s share of the investment’s earnings and distributions. |
| Use of Estimates in the Preparation of Financial Statements | Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the evaluation of deferred tax assets, purchase accounting, allowances, and equity investments. |
Discontinued Operations (Tables) |
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| Schedule of discontinued operations |
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Income Taxes (Tables) |
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| Schedule reconciliation of statutory rate |
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| Schedule of provision for income taxes |
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| Schedule of deferred income taxes |
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Stock Option and Compensation (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Options and Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of restricted stock grants |
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| Schedule of stock options, activity |
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Acquisitions (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of estimated fair values of assets acquired and liabilites assumed |
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| Schedule of selected pro forma financial information |
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Property and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment |
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Leases (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||
| Schedule of future minimum lease payments |
|
Notes Payable (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of notes payable |
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| Schedule of GACP Term Loan |
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Organization and Operations (Details) |
1 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
|
Apr. 30, 2016
Merchants
|
Apr. 12, 2016
USD ($)
shares
|
Nov. 30, 2015
USD ($)
|
Dec. 31, 2016
USD ($)
Subsidiary
|
|
| Organization and Operations (Textual) | ||||
| Notes payable | $ 9,000,000 | |||
| Number of wholly owned subsidiaries | Subsidiary | 3 | |||
| Reduction goodwill | $ 720,084,000 | |||
| eVance Processing Inc. [Member] | ||||
| Organization and Operations (Textual) | ||||
| Cancelled noteholder amount | $ 720,084 | |||
| Notes payable | 675,000 | |||
| Litigation cost | $ 675,000 | |||
| Bears simple interest rate | 12.00% | |||
| Damages claim amount | $ 1,500,000 | |||
| Principal amount | $ 675,000 | |||
| Reduction goodwill | $ 8,279,916 | |||
| Warrant purchase to common stock | shares | 360,042 | |||
| Maturity date for re-purchase | Nov. 30, 2017 | |||
| Notes payable reduced | $ 8,279,916 | |||
| Chyp [Member] | ||||
| Organization and Operations (Textual) | ||||
| Bears simple interest rate | 12.00% | |||
| Number of merchants | Merchants | 5,000 | |||
| Maturity date for re-purchase | May 01, 2017 | |||
| Description of purchase and sale agreement | Securus entered into a Purchase and Sale Agreement (the "2016 Purchase Agreement") with Chyp LLC ("Chyp"). In connection with the 2016 Purchase Agreement, Chyp executed a three-year preferred marketing agreement with eVance. Chyp acquired substantially all of the operations of Securus including its sales and marketing operations located in Portland Oregon and West Palm Beach Florida. Securus retained the approximately 5,000 merchants and related merchant processing residual portfolios. |
Summary of Significant Accounting Policies (Details) |
12 Months Ended |
|---|---|
Dec. 31, 2016 | |
| Summary of Significant Accounting Policies (Textual) | |
| Estimated useful lives residual portfolios | 7 years |
| Maximum [Member] | |
| Summary of Significant Accounting Policies (Textual) | |
| Estimated useful lives of assets | P10Y |
| Minimum [Member] | |
| Summary of Significant Accounting Policies (Textual) | |
| Estimated useful lives of assets | P5Y |
Discontinued Operations (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Discontinued Operations [Abstract] | ||
| Revenues | $ 2,027,684 | $ 11,970,092 |
| Operating expenses | (4,216,255) | (15,670,162) |
| Pre-tax loss from discontinued operations | (2,188,571) | (3,700,070) |
| Loss from discontinued operations, net of tax | $ (2,188,571) | $ (3,700,070) |
Discontinued Operations (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
| Promissory note | $ 12,809,252 | $ 9,211,277 |
| Loss on disposal of operations | $ 840,641 | |
Income Taxes (Details) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Income Taxes [Abstract] | ||
| Statutory Rate | (34.00%) | (34.00%) |
| State income tax, net of federal income tax benefit | (3.00%) | (3.00%) |
| Valuation Allowance | 37.00% | 37.00% |
| Effective Rate | 0.00% | 0.00% |
Income Taxes (Details 1) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Income Tax Expense | ||
| Current | $ 456,230 | $ 768,703 |
| Deferred | (456,230) | (768,703) |
| Total | ||
| Continuing Operations [Member] | ||
| Income Tax Expense | ||
| Current | 456,230 | 768,703 |
| Deferred | (456,230) | (768,703) |
| Total | ||
| Discontinued Operations [Member] | ||
| Income Tax Expense | ||
| Current | (1,120,808) | (1,369,026) |
| Deferred | 1,120,808 | 1,369,026 |
| Total | ||
Income Taxes (Details 2) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Deferred Tax Assets | ||
| Net operating loss carryforwards | $ 1,493,916 | $ 452,452 |
| Accrued compensation | 128,253 | 289,523 |
| Other accrued liabilities | (74,125) | 52,503 |
| Depreciation and amortization | 3,860 | 34,860 |
| Total deferred tax assets | 1,551,904 | 829,338 |
| Valuation allowance | (1,551,904) | (829,338) |
| Net deferred tax asset | ||
| Deferred tax liabilities |
Income Taxes (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Income Taxes (Textual) | ||
| Net operating loss carryforwards | $ 4,194,335 | $ 2,241,453 |
| Percentage of valuation allowance on deferred tax benefit | 100.00% | |
| Deferred tax benefits | $ 1,551,904 | $ 829,338 |
| Net operating loss carryforwards, Expiration date | Dec. 31, 2035 |
Stock Option and Compensation (Details Textual) - $ / shares |
12 Months Ended | |||
|---|---|---|---|---|
Aug. 12, 2016 |
Jun. 01, 2015 |
Nov. 13, 2010 |
Dec. 31, 2016 |
|
| Stock Option and Compensation (Textual) | ||||
| Maximum shares of common stock issued | 4,000,000 | |||
| Description under stock option plan | Options under the plan are to be issued at the market price of the stock on the day of the grant except to those issued to holders of 10% or more of the Company's Common Stock which is required to be issued at a price not less than 110% of the fair market value on the day of the grant. | |||
| Percentage of fair market value | 110.00% | |||
| Term period | 18 months | 10 years | ||
| Shares issued for vested | 500,000 | |||
| Vesting rights, description | Company granted 1,000,000 shares of its common stock to an employee. 333,333 of these shares vested immediately, 333,333 vest on December 1, 2016 and 333,334 vest on December 1, 2017. | |||
| Issued a warrant to purchase of common stock | 500,000 | |||
| Warrants exercise price | $ 0.06 | |||
| Description of term in excess | No option shall have a term in excess of 10 years from the date of the grant. | |||
| Executive [Member] | ||||
| Stock Option and Compensation (Textual) | ||||
| Stock issued during period, Shares | 2,000,000 | |||
| June 1, 2016 [Member] | ||||
| Stock Option and Compensation (Textual) | ||||
| Stock issued during period, Shares | 500,000 | |||
| June 1, 2017 [Member] | ||||
| Stock Option and Compensation (Textual) | ||||
| Stock issued during period, Shares | 500,000 | |||
| June 1, 2018 [Member] | ||||
| Stock Option and Compensation (Textual) | ||||
| Stock issued during period, Shares | 500,000 |
Acquisitions (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
Nov. 30, 2015 |
|---|---|---|---|
| Summary of estimated fair values of assets acquired and liabilites assumed | |||
| Cash and cash equivalents | $ 257,886 | ||
| Accounts receivable | 461,647 | ||
| Other current assets | 167,058 | ||
| Property and equipment, net | 174,403 | ||
| Residual portfolios | 2,540,690 | ||
| Equity investments | 164,790 | ||
| Deposits | 532,617 | ||
| Total assets | 4,299,091 | ||
| Accounts payable | 25,000 | ||
| Accrued liabilities | 143,089 | ||
| Total liabilities | 168,089 | ||
| Fair value of net assets acquired | 4,131,002 | ||
| Calpian note received | $ 675,000 | $ 675,000 | 675,000 |
| Fair value of debt assumed | 8,279,916 | ||
| Goodwill recognized on acquisition | $ 7,914,269 | $ 7,914,269 | $ 3,473,914 |
Acquisitions (Details 1) |
12 Months Ended |
|---|---|
|
Dec. 31, 2015
USD ($)
$ / shares
| |
| Schedule of selected pro forma financial information | |
| Revenues | $ 20,249,689 |
| Net income (loss) attributable to the Company | $ (1,549,552) |
| Net income (loss) attributable to the Company per common share - basic and diluted | $ / shares | $ (0.02) |
| Excel [Member] | |
| Schedule of selected pro forma financial information | |
| Revenues | $ 5,628,540 |
| Net income (loss) attributable to the Company | $ (1,622,494) |
| Net income (loss) attributable to the Company per common share - basic and diluted | $ / shares | $ (0.02) |
| Calpian U.S. Assets [Member] | |
| Schedule of selected pro forma financial information | |
| Revenues | $ 14,621,149 |
| Net income (loss) attributable to the Company | $ 72,942 |
| Net income (loss) attributable to the Company per common share - basic and diluted | $ / shares | $ 0.001 |
Acquisitions (Details Textuals) - USD ($) |
12 Months Ended | |||
|---|---|---|---|---|
Apr. 12, 2016 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Nov. 30, 2015 |
|
| Acquisitions (Textuals) | ||||
| Goodwill recognized on acquisition | $ 7,914,269 | $ 7,914,269 | $ 3,473,914 | |
| Notes payable | 12,809,252 | 9,211,277 | ||
| Warrant to purchase of common stock shares | 360,042 | |||
| Reduction in goodwill and debt assumed | $ 720,084 | |||
| Revenues | 17,115,210 | 5,629,240 | ||
| Net income | $ (1,796,157) | (1,622,494) | ||
| Residual Purchase Agreement [Member] | ||||
| Acquisitions (Textuals) | ||||
| Loss contingency,litigation description | Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and Seller and has claimed damages in excess of $1,500,000. eVance has agreed to apply any recovery from such litigation (less costs) against the principle balance of the $675,000 note up to a maximum of $675,000. | |||
| eVance Processing Inc. [Member] | ||||
| Acquisitions (Textuals) | ||||
| Notes payable aggregate amount | 9,000,000 | |||
| Principal amount | $ 675,000 | |||
| Litigation amount | 675,000 | |||
| Notes payable | $ 720,084 | $ 9,000,000 | ||
| Interest rate | 12.00% | |||
| Revenues | 1,022,073 | |||
| Net income | $ 64,965 | |||
| Calpian [Member] | ||||
| Acquisitions (Textuals) | ||||
| Notes payable | $ 675,000 | |||
| Reduction in goodwill and debt assumed | $ 1,395,084 | |||
| Common stock issued, shares | 2,000,000 | |||
Property and Equipment (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total cost | $ 257,421 | $ 195,476 |
| Less accumulated depreciation and amortization | (86,979) | (10,516) |
| Property and equipment - net | 170,442 | 184,960 |
| Computer software [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total cost | 38,607 | 35,595 |
| Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total cost | 163,394 | 123,074 |
| Furniture & fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total cost | 38,882 | 33,336 |
| Leasehold improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total cost | $ 16,538 | $ 3,471 |
Leases (Details) |
Dec. 31, 2016
USD ($)
|
|---|---|
| Future Minimum Lease Payments | |
| 2017 | $ 175,091 |
| 2018 | 179,489 |
| 2019 | 174,946 |
| 2020 | 6,430 |
| 2021 and after | |
| Total | $ 535,956 |
Leases (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Operating Loss Carryforwards [Line Items] | ||
| Rent expense | $ 298,816 | $ 438,109 |
| Operating lease term | 63 months | |
| Irving Texas [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Operating lease expiration date | Nov. 01, 2014 | |
| Irving Texas [Member] | Maximum [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Monthly lease payments | $ 6,428 | |
| Irving Texas [Member] | Minimum [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Monthly lease payments | $ 0 | |
| Georgia [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Operating lease expiration date | Nov. 30, 2019 | |
| Georgia [Member] | Maximum [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Monthly lease payments | $ 9,046 | |
| Georgia [Member] | Minimum [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Monthly lease payments | $ 8,278 | |
Notes Payable (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Notes payable | $ 12,809,252 | $ 9,211,277 |
| Less current portion | 12,809,252 | 8,984,544 |
| Long-term portion of notes payable | 226,733 | |
| Secured Debt [Member] | ||
| Debt Instrument [Line Items] | ||
| Notes payable | 681,361 | |
| Secured Debt One [Member] | ||
| Debt Instrument [Line Items] | ||
| Notes payable | 500,000 | |
| Secured Debt Two [Member] | ||
| Debt Instrument [Line Items] | ||
| Notes payable | 8,029,916 | |
| Secured Debt Four [Member] | ||
| Debt Instrument [Line Items] | ||
| Notes payable | $ 12,809,252 |
Notes Payable (Details 1) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Notes Payable [Abstract] | ||
| Term Loan | $ 13,500,000 | |
| Net deferred financing costs | (803,482) | |
| Accrued interest payable in kind | 112,734 | |
| Notes payable | $ 12,809,252 | $ 9,211,277 |
Related Party Transactions (Details) - SME Funding LLC [Member] - USD ($) |
1 Months Ended | |
|---|---|---|
Oct. 23, 2015 |
Feb. 15, 2016 |
|
| Related Party Transactions (Textual) | ||
| Advance from related parties | $ 500,000 | |
| Annual rate of interest | 12.00% | |
| Residual Purchase Agreement [Member] | ||
| Related Party Transactions (Textual) | ||
| Monthly recurring revenue | $ 13,000 | |
| Advance from related parties | 445,742 | |
| Gain on sale of residual portfolio | 445,742 | |
| Sale of residual portfolio to SME Funding LLC | 35,000 | |
| Residual purchase agreement | $ 700,000 | |
| Right to repurchase the residuals | $ 770,000 |