Attached files
| file | filename |
|---|---|
| EX-32.1 - Myecheck Inc. | v166010_ex32-1.htm |
| EX-31.1 - Myecheck Inc. | v166010_ex31-1.htm |
| EX-31.2 - Myecheck Inc. | v166010_ex31-2.htm |
| EX-32.2 - Myecheck Inc. | v166010_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED September 30,
2009
|
|
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ___________ TO
____________
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COMMISSION
FILE NUMBER: 000—51977
MyECheck,
Inc.
(Exact
name of registrant as specified in its charter)
|
Nevada
|
N/A
|
|
(State
or other jurisdiction of incorporation)
|
(IRS
Employer Identification No.)
|
1190
Suncast Lane, Suite 5
El Dorado
Hills, CA 95762
(Address
of principal executive offices)
(916)
932-0900
(Registrant's
telephone number, including area code)
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
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (see definition of “large
accelerated filer and accelerated filer” in Rule 12b-2 of the Exchange
Act).
Large
Accelerated Filer o Accelerated
Filer o
Non-Accelerated Filer o Smaller Reporting
Company x
Indicate
by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act).
Yes o No x
The
number of outstanding shares of the Registrant’s Common Stock, on November 13,
2009, were _70,714,772________ shares.
FORM
10-Q
TABLE
OF CONTENTS
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Page
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PART
I.—FINANCIAL INFORMATION
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|||||
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Item
1.
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Financial
Statements
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||||
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Consolidated
Balance Sheets (Unaudited)
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1
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|||
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Consolidated
Statements of Operations (Unaudited)
|
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2
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Consolidated
Statements of Cash Flows (Unaudited)
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3
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Notes
to Consolidated Financial Statements (Unaudited)
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4-21
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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22
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risks
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24
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Item
4.
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Controls
and Procedures
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24
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PART
II—OTHER INFORMATION
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|||||
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Item
1.
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Legal
Proceedings
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24
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Item
1A.
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Risk
Factors
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25
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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25
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Item
3.
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Defaults
Upon Senior Securities
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26
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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26
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Item
5.
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Other
Information
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26
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Item
6.
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Exhibits
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26
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SIGNATURES
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27
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MYECHECK,
INC. AND SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED September 30, 2009 AND 2008
(UNAUDITED)
MYECHECK,
INC.
QUARTERLY
REPORT ON FORM 10-Q
PART 1: FINANCIAL
INFORMATION
ITEM
1: FINANCIAL STATEMENTS
Contents
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Page
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|
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Consolidated
Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008
(Audited)
|
1
|
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Consolidated
Statements of Operations for the Three and Nine Months Ended September 30,
2009 and 2008 (Unaudited)
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2
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Consolidated
Statements of Cash Flows for the Nine Months Ended September 30, 2009 and
2008 (Unaudited)
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3
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Notes
to Consolidated Financial Statements (Unaudited)
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4 -
21
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MYECHECK,
INC. AND SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Contents
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Page
|
|
|
Consolidated
Balance Sheets as of September 30, 2009 (Unaudited) and
December 31, 2008 (Audited) |
1
|
|
Consolidated
Statements of Operations for the three and nine months
ended
September 30, 2009 and 2008 (Unaudited) |
2
|
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Consolidated
Statements of Cash Flows for the nine months ended
September 30, 2009 and 2008 (Unaudited) |
3
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Notes
to Consolidated Financial Statements (Unaudited)
|
4 -
21
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Consolidated Balance
Sheets
|
September 30, 2009
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December 31,2008
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|||||||
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(Unaudited)
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(Audited)
|
|||||||
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ASSETS
|
||||||||
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Current
Assets
|
||||||||
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Cash
|
$ | 67,841 | $ | 23,999 | ||||
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Accounts
receivable
|
7,470 | 13,253 | ||||||
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Prepaid
expenses
|
10,661 | - | ||||||
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Debt
issue costs - net
|
2,071 | - | ||||||
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Total
Current Assets
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88,043 | 37,252 | ||||||
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Other
Assets
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||||||||
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Deposit
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12,864 | 12,864 | ||||||
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Total
Assets
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$ | 100,907 | $ | 50,116 | ||||
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LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
||||||||
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Current
Liabilities
|
||||||||
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Accounts
payable and accrued expenses
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$ | 190,442 | $ | 184,532 | ||||
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Accrued
compensation - related parties
|
175,810 | 96,485 | ||||||
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Loans
payable - related party
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43,864 | 38,864 | ||||||
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Loans
payable - other
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46,694 | 46,694 | ||||||
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Derivative
liabilities
|
143,962 | - | ||||||
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Redeemable
convertible note payable - net
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9,205 | - | ||||||
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Total
Current Liabilities
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609,977 | 366,575 | ||||||
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Commitments
and Contingencies (See note 8)
|
||||||||
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Stockholders'
Deficit
|
||||||||
|
Common
stock, $0.001 par value, 200,000,000 shares authorized 70,714,772 and
69,937,501 shares issued and outstanding
|
70,715 | 69,938 | ||||||
|
Additional
paid in capital
|
2,471,995 | 1,983,923 | ||||||
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Accumulated
deficit
|
(3,051,780 | ) | (2,370,320 | ) | ||||
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Total
Stockholders' Deficit
|
(509,070 | ) | (316,459 | ) | ||||
|
Total
Liabilities and Stockholders' Deficit
|
$ | 100,907 | $ | 50,116 | ||||
See
accompanying notes to unaudited financial statements
1
MyECheck,
Inc. and Subsidiary
Consolidated Statements of
Operations
(Unaudited)
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
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Processing
Revenues
|
$ | 238,608 | $ | 156,174 | 627,434 | $ | 325,892 | |||||||||
|
General
and administrative
|
350,922 | 278,736 | 1,189,230 | 923,629 | ||||||||||||
|
Loss
from Operations
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(112,314 | ) | (122,562 | ) | (561,796 | ) | (597,737 | ) | ||||||||
|
Other
(Income)/Expense
|
||||||||||||||||
|
Derivative
expense
|
- | - | 79,044 | - | ||||||||||||
|
Change
in fair value of derivative liabilities
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23,498 | - | 29,918 | - | ||||||||||||
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Interest
expense
|
10,256 | - | 10,702 | - | ||||||||||||
|
Other
income
|
- | (1,475 | ) | - | (1,475 | ) | ||||||||||
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Total
Other (Income)/Expense
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33,754 | (1,475 | ) | 119,664 | (1,475 | ) | ||||||||||
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Net
Loss
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$ | (146,068 | ) | $ | (121,087 | ) | (681,460 | ) | $ | (596,262 | ) | |||||
|
Net
Loss Per Share - Basic and Diluted
|
$ | (0.00 | ) | $ | (0.00 | ) | (0.01 | ) | $ | (0.01 | ) | |||||
|
Weighted
average number of shares outstanding during the period - basic and
diluted
|
70,714,722 | 68,894,022 | 70,251,769 | 56,245,439 | ||||||||||||
See
accompanying notes to unaudited financial statements
2
Consolidated Statements of
Cash Flows
(Unaudited)
|
For the Nine Months Ended September 30,
|
||||||||
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2009
|
2008
|
|||||||
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Cash
Flows from Operating Activities:
|
||||||||
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Net
loss
|
$ | (681,460 | ) | $ | (596,262 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
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Amortization
|
9,934 | - | ||||||
|
Loss
on settlement of accounts payable
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52,818 | - | ||||||
|
Derivative
expense
|
79,044 | - | ||||||
|
Change
in fair value of derivative liability
|
29,918 | - | ||||||
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Stock
issued for services
|
68,000 | - | ||||||
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Stock
based compensation - employees
|
283,609 | - | ||||||
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Stock
based compensation - consultants
|
50,468 | - | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
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(Increase)
Decrease in:
|
||||||||
|
Accounts
receivable
|
5,783 | - | ||||||
|
Prepaid
expenses
|
(10,661 | ) | - | |||||
|
Increase
(Decrease) in:
|
||||||||
|
Accounts
payable and accrued expenses
|
39,864 | 124,716 | ||||||
|
Accrued
compensation - related parties
|
79,325 | - | ||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
6,642 | (471,546 | ) | |||||
|
Cash
Flows from Investing Activities:
|
||||||||
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Cash
acquired in reverse acquisition
|
- | 259 | ||||||
|
Net
Cash Provided by Investing Activities
|
- | 259 | ||||||
|
Cash
Flows from Financing Activities:
|
||||||||
|
Cash
overdraft
|
- | 1,531 | ||||||
|
Cash
paid as debt issue costs
|
(2,800 | ) | - | |||||
|
Proceeds
from loan payable - related party
|
10,000 | 12,000 | ||||||
|
Repayments
of loans payable - related parties
|
(5,000 | ) | (22,000 | ) | ||||
|
Proceeds
from loans payable - other
|
- | 1,300 | ||||||
|
Repayments
of loans payable - other
|
- | (335 | ) | |||||
|
Proceeds
from convertible note payable
|
35,000 | - | ||||||
|
Proceeds
from capital stock subscribed
|
- | 400,000 | ||||||
|
Net
Cash Provided by Financing Activities
|
37,200 | 392,496 | ||||||
|
Net
Increase (Decrease) in Cash
|
43,842 | (78,791 | ) | |||||
|
Cash
at Beginning of Period
|
23,999 | 98,732 | ||||||
|
Cash
at End of Period
|
$ | 67,841 | $ | 19,941 | ||||
|
Supplemental Disclosure of Cash Flow
Information
|
||||||||
|
Cash
Paid for:
|
||||||||
|
Taxes
|
$ | - | $ | 851 | ||||
|
Interest
|
$ | - | $ | - | ||||
|
Supplemental Disclosure of Non Cash Investing and
Financing Activities
|
||||||||
|
Derivative
liability and debt discount arising in connection with issuance of
convertible note
|
$ | 35,000 | $ | - | ||||
|
Issuance
of stock for future services
|
$ | 68,000 | $ | - | ||||
|
Stock
issued to settle accounts payable
|
$ | 86,772 | $ | - | ||||
|
Issuance
of common stock for prior common stock payable
|
$ | - | $ | 1,200,000 | ||||
|
Stock
issued for subscription receivable
|
$ | - | $ | 400,000 | ||||
See
accompanying notes to unaudited financial statements
3
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Note 1 Basis of
Presentation, Organization and Nature of Operations
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules and regulations of the United States Securities and Exchange
Commission for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
the information and footnotes necessary for a comprehensive presentation of
financial position, results of operations, or cash flows. It is management's
opinion, however, that all material adjustments (consisting of normal recurring
adjustments) have been made which are necessary for a fair financial statement
presentation. The results for the interim period are not necessarily indicative
of the results to be expected for the full year.
The
unaudited interim financial statements should be read in conjunction with the
Company’s Form 10-K, which contains the audited financial statements and notes
thereto, together with Management’s Discussion and Analysis, for the years ended
December 31, 2008 and 2007. The interim results for the period ended
September 30, 2009 are not necessarily indicative of the results for the full
fiscal year.
Organization
MyECheck,
Inc. (“MEC”) was incorporated in the state of Delaware on October 29,
2004.
Sekoya
Holdings, Ltd. (“Sekoya”) was incorporated in Nevada on May 19, 2005, and was in
the process of developing an online payment system for use in the Chinese online
community. Sekoya never achieved revenues and was a development stage
company. See discussion of reverse acquisition and
recapitalization.
Reverse
Acquisition and Recapitalization
On March
14, 2008, Sekoya, a then shell corporation, merged with MEC and MEC became the
surviving corporation. This transaction was accounted for as a reverse
acquisition. Sekoya did not have any operations and majority-voting control was
transferred to MEC. The transaction also requires a recapitalization
of MEC. Since MEC acquired a controlling voting interest, it was deemed the
accounting acquirer, while Sekoya was deemed the legal acquirer. The historical
financial statements of the Company are those of MEC, and of the consolidated
entities from the date of Merger and subsequent.
Since the
transaction was considered a reverse acquisition and recapitalization, the
guidance for purposes of presenting pro-forma financial information is not
required.
4
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Pursuant
to the Merger, Sekoya’s majority stockholder cancelled 125,000,000 shares of
common stock and the Company concurrently issues 39,562,501 shares of common
stock to MEC. Upon the closing of the reverse acquisition, MEC
stockholders held 60% of the issued and outstanding shares of common
stock.
In
connection with the reverse acquisition and recapitalization, all share and per
share amounts were retroactively restated.
Nature
of Operations
The
Company provides the following services:
(A)
Electronic Check Processing
Provided
to merchants who transact business over the internet allowing them to process
checks electronically from their customers.
(B)
Financial Verification
Provided
to merchants to check the status of their customer’s bank account in order to
greater provide assurance that the check will clear.
(C)
Guarantee Services
Guarantee
services provide the merchant with guaranteed payment on any returned items for
a fee on all items processed as a means to insure guaranteed payment for
products sold or services rendered.
Note 2 Summary of
Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of MEC and Sekoya
(collectively, the “Company”). All intercompany accounts have been
eliminated in consolidation.
Risks
and Uncertainties
The
Company operates in an industry that is subject to intense competition and rapid
technological change and is in a state of fluctuation as a result of the credit
crisis occurring in the United States. The Company's operations are
subject to significant risk and uncertainties including financial, operational,
technological, and regulatory risks including the potential risk of business
failure.
5
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Also see
Note 3 regarding going concern matters.
Use
of Estimates
The
preparation of financial statements in conformity with U. S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts 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.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash
equivalents. At September 30, 2009 and December 31, 2008, the Company
had no cash equivalents.
The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At September 30, 2009 and December
31, 2008, there were no balances that exceeded the federally insured
limit.
Accounts
Receivable
Accounts
receivable represents obligations from customers that are subject to normal
collection terms. The Company periodically evaluates the
collectability of its accounts receivable and considers the need to adjust an
allowance for doubtful accounts based upon historical collection experience and
specific customer information. Actual amounts could vary from the recorded
estimates.
Concentrations
At
September 30, 2009, the Company had a concentration of accounts receivable
with one customer of 88%. At December 31, 2008, the Company had
a concentration of accounts receivable with one customer of 97%.
During
the nine months ended September 30, 2009, the Company earned 81% and 16%,
respectively, of its revenues from two customers. During the nine
months ended September 30, 2008, the Company earned 97% of its revenues from one
customer.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s short-term financial instruments, including
accounts receivable, accounts payable and accrued expenses, accrued compensation
– related parties, loans payable – related party, loans payable – other,
derivative liabilities and convertible note payable, approximate fair value due
to the relatively short period to maturity for these
instruments.
6
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Debt
Issue Cost
The
Company has paid debt issue costs in connection with raising funds through the
issuance of convertible debt. These costs are amortized over the life
of the debt to interest expense (see Note 4).
Beneficial
Conversion Feature
If the
Company were to record a beneficial conversion feature, the relative fair value
of the beneficial conversion feature would be recorded as a discount from the
face amount of the respective debt instrument. The discount would be amortized
to interest expense over the life of the debt.
Derivative
Financial Instruments
The
Company reviews all convertible debt instruments for the existence of an
embedded conversion option, which may require bifurcation, fair value accounting
and a related mark to market adjustment at each reporting period end
date. In addition, the Company may be required to classify certain
stock equivalents issued in connection with the underlying debt instrument as
derivative liabilities.
In
determining the appropriate fair value, the Company uses the Black-Scholes
option-pricing model. In assessing convertible debt instruments, management
first reviews to determine if the convertible debt host instrument is
conventional convertible debt and further if there is a beneficial conversion
feature requiring a fair value measurement. If the instrument is not considered
conventional convertible debt, the Company will continue its evaluation process
of these instruments as potential derivative financial instruments.
Once
determined that these are derivative financial instruments, the Company records
these instruments as derivative liabilities. The fair value of these
instruments are adjusted to reflect fair value at each reporting period end,
with any increase or decrease in the fair value being recorded in results of
operations as an adjustment to fair value of derivatives. In
addition, the fair value of freestanding derivative instruments such as
warrants, are also valued using the Black-Scholes option-pricing
model.
Finally,
if necessary, the Company would apply the related guidance in determining the
existence of liquidated damage provisions. Liquidated damage
provisions are not marked to market, but evaluated based upon the probability
that a related liability should be recorded. The Company did not have any
liquidated damage clauses for any of their financing transactions as of
September 30, 2009.
7
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Revenue
Recognition
The
Company records revenue when all of the following have occurred; (1) persuasive
evidence of an arrangement exists, (2) product delivery has occurred, (3) the
sales price to the customer is fixed or determinable, and (4) collectibility is
reasonably assured.
The
Company earns revenue from services, which has included the
following: electronic check processing, financial verification,
identity verification and check guarantee services. The services are performed
pursuant to a contract with a customer, which states the services to be utilized
and the terms and fixed price for all services under contract. The
price of these services may be a fixed fee per transaction and/or a percentage
of the transaction processed depending on the service.
Revenue
from electronic check processing is derived from fees collected from merchants
to convert merchant customer check data into an electronic image of a paper
draft, which allows the Company to deposit the funds to the merchant’s bank
through check 21 image clearing with the Federal Reserve on behalf of the
bank. The Company recognizes the revenue related to electronic check
processing fees when the services are performed.
Revenue
from financial verification is derived from fees collected from merchants to
process requests to validate financial verifications to an outside service
provider under contract with the Company. This revenue is recognized
when the transaction is processed, since the Company has no further
obligations.
Revenue from check guarantee services
is derived from fees collected from merchants to process transaction to an
outside service provider under contract with the Company. This
revenue is recognized when the transaction is processed, since the Company has
no further obligations.
Earnings
Per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) by weighted
average number of shares of common stock outstanding during each
period. Diluted earnings (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares of common stock, common
stock equivalents and potentially dilutive securities outstanding during the
period.
8
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
For the
nine months ended September 30, 2009, the Company had 7,300,000 options, and for
the nine months ended September 30, 2008, the Company had no common stock
equivalents outstanding. These common stock equivalents in 2009 were
issued in connection with the Company’s stock option grants to employees and
consultants; however since the Company reflected a net loss in 2009, the effect
of considering any common stock equivalents, if outstanding, would have been
anti-dilutive. A separate computation of diluted earnings (loss) per share is
not presented.
Advertising
Advertising
is charged to operations as incurred. Advertising expense for the
nine months ended September 30, 2009 and 2008, respectively, was $3,691 and
$7,939.
Stock-Based
Compensation
All
share-based payments to employees are recorded and expensed in the statement of
operations. Measurement and recognition of compensation expense for
all share-based payment awards made to employees and directors including grants
of employee stock options are based on estimated fair values. The
Company has used the Black-Scholes option-pricing model to estimate grant date
fair value for all option grants.
Share-based
compensation expense is based on the value of the portion of share-based payment
awards that is ultimately expected to vest during the year, less expected
forfeitures. Forfeitures should be estimated at the time of grant and
revised, if necessary in subsequent periods if actual forfeitures differ from
those estimates.
Non-Employee
Stock Based Compensation
Stock-based
compensation awards issued to non-employees for services is recorded at either
the fair value of the services rendered or the instruments issued in exchange
for such services, whichever is more readily determinable
Recent
Accounting Pronouncements
Effective
July 1, 2009, the Company adopted The “FASB Accounting Standards
Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC
105). This standard establishes only two levels of U.S. generally accepted
accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB
Accounting Standards Codification (the “Codification”) became the source of
authoritative, nongovernmental GAAP, except for rules and interpretive releases
of the SEC, which are sources of authoritative GAAP for SEC registrants. All
other non-grandfathered, non-SEC accounting literature not included in the
Codification became nonauthoritative. The Company began using the new guidelines
and numbering system prescribed by the Codification when referring to GAAP in
the third quarter of fiscal 2009. As the Codification was not intended to change
or alter existing GAAP, it did not have a material impact on the Company’s
financial statements.
9
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Effective
June 30, 2009, the Company adopted three accounting standard updates which
were intended to provide additional application guidance and enhanced
disclosures regarding fair value measurements and impairments of securities.
They also provide additional guidelines for estimating fair value in accordance
with fair value accounting. The first update, as codified in ASC 820-10-65,
provides additional guidelines for estimating fair value in accordance with fair
value accounting. The second accounting update, as codified in ASC 320-10-65,
changes accounting requirements for other-than-temporary-impairment
(OTTI) for debt securities by replacing the current requirement that a
holder have the positive intent and ability to hold an impaired security to
recovery in order to conclude an impairment was temporary with a requirement
that an entity conclude it does not intend to sell an impaired security and it
will not be required to sell the security before the recovery of its amortized
cost basis. The third accounting update, as codified in ASC 825-10-65, increases
the frequency of fair value disclosures. These updates were effective for fiscal
years and interim periods ended after June 15, 2009. The adoption of these
accounting updates did not have a material impact on the Company’s financial
statements.
Effective
June 30, 2009, the Company adopted a new accounting standard for subsequent
events, as codified in ASC 855-10. The update modifies the names of the two
types of subsequent events either as recognized subsequent events (previously
referred to in practice as Type I subsequent events) or non-recognized
subsequent events (previously referred to in practice as Type II subsequent
events). In addition, the standard modifies the definition of subsequent events
to refer to events or transactions that occur after the balance sheet date, but
before the financial statements are issued (for public entities) or available to
be issued (for nonpublic entities). It also requires the disclosure of the date
through which subsequent events have been evaluated. The update did not result
in significant changes in the practice of subsequent event disclosures, and
therefore the adoption did not have a material impact on the Company’s financial
statements.
Effective
January 1, 2009, the Company adopted an accounting standard update
regarding the determination of the useful life of intangible assets. As codified
in ASC 350-30-35, this update amends the factors considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under intangibles accounting. It also requires a
consistent approach between the useful life of a recognized intangible asset
under prior business combination accounting and the period of expected cash
flows used to measure the fair value of an asset under the new business
combinations accounting (as currently codified under ASC 850). The update also
requires enhanced disclosures when an intangible asset’s expected future cash
flows are affected by an entity’s intent and/or ability to renew or extend the
arrangement. The adoption did not have a material impact on the Company’s
financial statements.
10
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
In
February 2008, the FASB issued an accounting standard update that delayed
the effective date of fair value measurements accounting for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until the beginning of the first quarter of fiscal 2009. These
include goodwill and other non-amortizable intangible assets. The Company
adopted this accounting standard update effective January 1, 2009. The
adoption of this update to non-financial assets and liabilities, as codified in
ASC 820-10, did not have a material impact on the Company’s financial
statements.
Effective
January 1, 2009, the Company adopted a new accounting standard update
regarding business combinations. As codified under ASC 805, this update requires
an entity to recognize the assets acquired, liabilities assumed, contractual
contingencies, and contingent consideration at their fair value on the
acquisition date. It further requires that acquisition-related costs be
recognized separately from the acquisition and expensed as incurred; that
restructuring costs generally be expensed in periods subsequent to the
acquisition date; and that changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after the measurement
period be recognized as a component of provision for taxes. The adoption did not
have a material impact on the Company’s financial statements.
In
September 2009, the FASB issued Update No. 2009-13,
“Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force” (ASU 2009-13). It updates the existing multiple-element
revenue arrangements guidance currently included under ASC 605-25, which
originated primarily from the guidance in EITF Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance
primarily provides two significant changes: 1) eliminates the need for objective
and reliable evidence of the fair value for the undelivered element in order for
a delivered item to be treated as a separate unit of accounting, and 2)
eliminates the residual method to allocate the arrangement consideration. In
addition, the guidance also expands the disclosure requirements for revenue
recognition. ASU 2009-13 will be effective for the first annual reporting period
beginning on or after June 15, 2010, with early adoption permitted provided
that the revised guidance is retroactively applied to the beginning of the year
of adoption. The Company is currently assessing the future impact of this new
accounting update to its financial statements.
11
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s results of operations or financial
condition.
Note 3 Going
Concern
As
reflected in the accompanying financial statements, the Company has a net loss
of $681,460 for the nine months ended September 30, 2009; and had a working
capital deficit of $521,934, an accumulated deficit of $3,051,780 and a
stockholders’ deficit of $509,070 at September 30, 2009.
The
ability of the Company to continue as a going concern is dependent on
Management's plans, which include the raising of capital through debt and/or
equity markets. The Company will require additional funding during
the next twelve months to finance the growth of its current and expected
operations and achieve strategic objectives. Additionally, the Company will need
to continually generate revenues through its current business operations in
order to generate enough cash flow to fund operations through
2009. The Company is also dependent on maintaining their positive
approval status with the Federal Reserve. If the Company were to lose
this approval, their ability to provide services would be affected
negatively.
12
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
The
Company believes its current available cash, along with anticipated revenues,
may be insufficient to meet its cash needs for the near future. There
can be no assurance that financing will be available in amounts or terms
acceptable to the Company, if at all.
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
Note 4 Convertible Debt,
Debt Discount. Debt Issue Costs and Fair Value Measurement of Derivative
Financial Instruments
Terms
On June
26, 2009, the Company issued redeemable convertible debt totaling
$35,000. The Company paid $2,800 in debt issue costs and received net
proceeds of $32,200. The note has a term of one year and bears
interest at 8%.
Conversion
|
(1)
|
The
debt is convertible based upon 60% of the average of the three lowest
closing bid prices within the prior fifteen trading day
period. The conversion option may be exercised in the event of
default or in whole or part at the option of the holder of the note prior
to the debt’s maturity. If any portion of the principal and/or
interest are not paid within 10 days of when it is due (beginning June 26,
2010), the discount multiplier used to determine the conversion price
decreases 1% for each period of 10 business days that any portion of the
amount due remains unpaid by the Company for all conversions
thereafter.
|
|
(2)
|
If
the average price per share (as computed above based upon a 60% discount)
of the Company’s stock is below $0.10, the Company has the right to prepay
the portion of the Debenture that the Holder elected to convert, plus any
unpaid interest, at 150% of such amount. The Company has the
option with written notice to the Holder to prepay the note at 150% of the
principal amount and accrued interest to the date of
payment.
|
|
(3)
|
If
conversion is held up by a third party or the company cannot convert the
note into common stock, all amounts are accelerated for payment and
redeemable in cash at a price of 175% of principal plus all unpaid accrued
interest to date.
|
13
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
|
(4)
|
If
the note goes into default, the holder may elect to cancel any outstanding
conversion notice and declare all amounts due and payable in cash at a
price of 150% of principal plus all unpaid accrued interest to
date.
|
On or
before the 4th
business day following the receipt of debt proceeds, June 30, 2009, the Company
was required to file a Form 8-K announcing this debt
transaction. Since the Company did not file an 8-K within this time
period, the discount multiplier used to determine the conversion price decreases
by 1% for each period of 5 business days that the 8-K is not filed by the
Company following the June 30th due
date. The Company did not file an 8-K by June 30, 2009 and is seeking
a waiver from the Holder for this penalty. The
financial impact for the additional 1% discount penalty as of September 30, 2009
was 13%. On November 9, 2009, the debt holder waived the condition to file the
8-K. At the next reporting period, the Company will remeasure the
derivative financial instrument using a fixed discount multiplier of
60%.
Derivative
Financial Instruments
The
$35,000 convertible debt instrument was determined to have three separate
derivative liability instruments requiring bifurcation and the computation of
fair value. These features are:
|
(1)
|
Variability
of the conversion price at 60%
discount.
|
|
(2)
|
Debt
is redeemable in cash at 175% of face amount, due to clause allowing for
acceleration of payment. Since there is a contingent put option
(exercisable by the holder in event of default), then the put option is
not clearly and closely related to the debt host
contract. Additionally, the contingent put option was indexed
to an extraneous factor, the event of default, rather than interest rates
or credit risk.
|
|
(3)
|
In
the event of default, holder can cancel any outstanding conversion notice
and redeem outstanding amount at
150%.
|
The
Company has computed the commitment date fair value based upon the following
management assumptions:
|
Expected
dividends
|
0 | % | ||
|
Expected
volatility
|
247.45 | % | ||
|
Expected
term
|
1
year
|
|||
|
Risk
free interest rate
|
0.45 | % | ||
The fair
value of these three embedded conversion options at the commitment date was
$114,044. Of the total, $35,000 was assigned to debt discount and
$79,044 was recorded as a derivative expense.
14
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Debt
Discount
In
connection with the issuance of the secured convertible note, the Company
recorded a debt discount of $35,000. These debt issue costs are being amortized
to interest expense through June 26, 2010. For the three and nine months ended
September 30, 2009, the Company recorded amortization of $8,892 and $9,205,
respectively. At September 30, 2009, debt discount is presented net totaling
$25,795. At September 30, 2009, redeemable convertible debt, net of
debt discount is $9,205.
Mark
to Market Adjustment
The
Company has marked to market these derivative financial instruments at September
30, 2009, based upon the following management assumptions:
|
Expected
dividends
|
0 | % | ||
|
Expected
volatility
|
284.72 | % | ||
|
Expected
term
|
0.74
years
|
|||
|
Risk
free interest rate
|
0.40 | % | ||
Debt
Issue Costs
In
connection with the issuance of the secured convertible note, the Company paid
debt-offering costs of $2,800. These debt issue costs are being amortized to
interest expense through June 26, 2010. For the three and nine months ended
September 30, 2009, the Company recorded amortization of $698 and $729,
respectively. Debt issue costs are presented net totaling $2,071.
Note 5 Loans Payable -
Related Party
During
2009, the Company received an advance from its Chief Executive Officer of
$10,000. This advance is non-interest bearing, unsecured and due on
demand.
During
2009, the Company repaid $5,000 to the Company’s Chief Technical
Officer.
During
2008, the Company received an advance from its Chief Executive Officer of
$12,000.
During
2008, the Company repaid $22,000 in advances to its Chief Executive Officer and
Chief Technical Officer.
15
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Note 6 Capital Stock
Subscribed and Related Stock Issuance
In
connection with the March 14, 2008 Merger, the Company had agreed to sell
4,000,000 units of common stock at $0.50/unit for $2,000,000 to third
parties. Each unit consists of one share of common stock and one
warrant. The Company will issue 2,000,000 warrants exercisable at
$2/share and 2,000,000 warrants exercisable at $4/share. The warrants
expire two years from the grant date. The shares and warrants will not be issued
until the entire $2,000,000 has been received from these third
parties. During the nine months ended September 30, 2008, the Company
received $400,000. At September 30, 2009, the warrants have not been
issued.
Note 7 Stockholders’
Deficit
On April
7, 2009 the Company adopted the 2009 Equity Incentive Plan (the “Plan”) covering
10,000,000 stock rights including options, restricted stock and stock
appreciation rights. Under the Plan, employees, and consultants receive initial
grants of options, which vest immediately, and the remaining unvested portion of
a grant vests ratably over a three-year period.
(A)
Stock Issuance
On May
22, 2009, the Company issued 400,000 shares of common stock to a consultant for
future services through August 22, 2009, having a fair value of $68,000
($0.17/share), based upon the quoted closing trading price. The
Company expensed $68,000 during the three and nine months ended September 30,
2009.
On June
25, 2009, the Company issued 377,271 shares of common stock in settlement of
accounts payable totaling $33,954. The fair value of the shares
issued was $86,772, based upon the quoted closing trading price ($0.23/share).
The Company recorded a loss on settlement of $52,818 for the three and nine
months ended September 30, 2009.
(B)
Stock Option Grants
On May
11, 2009, the Company granted 7,300,000 non-qualified stock options to employees
and non-employee consultants for services to be rendered. The options
are exercisable over a 5 - 10 year term at $0.13 per share and vest 25%
immediately while the remaining 75% vests monthly in equal increments over a
three-year period. These options had a fair value of $871,828 using
the Black-Scholes option-pricing model.
16
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
The fair
value of these options was estimated on the date of grant using the following
management weighted average assumptions:
|
Risk-free
interest rate
|
1.44 | % | ||
|
Expected
dividend yield
|
0 | % | ||
|
Expected
volatility
|
223.25 | % | ||
|
Expected
life
|
5-10
years
|
|||
|
Expected
forfeitures
|
0 | % | ||
For the
nine months ended September 30, 2009, the Company recognized $302,327 in stock
based compensation expense related to 7,300,000 options granted during
2009.
The
following is a summary of the Company’s stock option activity:
|
Options
|
Weighted Average Exercise Price
|
|||||||
|
Outstanding
– December 31, 2007
|
||||||||
|
Granted
|
- | $ | - | |||||
|
Exercised
|
- | $ | - | |||||
|
Forfeited
|
- | $ | - | |||||
|
Outstanding
– December 31, 2008
|
- | $ | - | |||||
|
Granted
|
7,300,000 | $ | 0.13 | |||||
|
Exercised
|
- | $ | - | |||||
|
Forfeited
|
- | $ | - | |||||
|
Outstanding
– September 30, 2009
|
7,300,000 | $ | 0.13 | |||||
|
Exercisable
– September 30, 2009
|
2,585,417 | $ | 0.13 | |||||
|
Weighted
average fair value of options granted during the
period ended
September
30, 2009
|
$ | 871,828 | $ | 0.12 | ||||
|
Weighted
average fair value of options exercisable
at September 30, 2009
|
$ | 308,772 | $ | 0.12 | ||||
17
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
|
Options Outstanding
|
|||||||||
|
Range of
exercise price
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
Weighted
Average
Exercise
Price
|
||||||
|
$0.13
|
7,300,000 |
8.90
years
|
$ | 0.13 | |||||
|
Options Exercisable
|
|||||||||
|
Range of
exercise price
|
Number
Exercisable
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
Weighted
Average
Exercise
Price
|
||||||
|
$0.13
|
2,585,417 |
8.90
years
|
$ | 0.13 | |||||
At
September 30, 2009, the total intrinsic value of options outstanding and
exercisable was $146,000 and $51,708, respectively.
The
following summarizes the activity of the Company’s stock options that have not
vested for the nine months ended September 30, 2009:
|
Options
|
Weighted
Average
Grant Date
Fair Value
|
|||||||
|
Outstanding
– December 31, 2007
|
||||||||
|
Granted
|
- | - | ||||||
|
Vested
|
- | - | ||||||
|
Cancelled
or forfeited
|
- | - | ||||||
|
Outstanding
– December 31, 2008
|
- | - | ||||||
|
Granted
|
7,300,000 | $ | 0.12 | |||||
|
Vested
|
(2,585,417 | ) | 0.12 | |||||
|
Cancelled
or forfeited
|
- | - | ||||||
|
Outstanding
– September 30, 2009
|
4,714,583 | $ | 0.12 | |||||
Total
unrecognized share-based compensation expense from non-vested stock options at
September 30, 2009 was $563,055 which is expected to be recognized over a
weighted average period of approximately of 2.61 years.
18
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
Note 8 Commitments and
Contingencies
(A)
Litigations, claims and assessments
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims, other than
disclosed below; that they believe will have, individually or in the aggregate,
a material adverse affect on its business, financial condition or operating
results.
During
2005, a lawsuit against the Company was filed in the State of California. The
plaintiffs claimed the Company was using the technology created by the plaintiff
company. The Company was defending these claims based on its position
that the technology was different and the parties entered into a settlement
agreement regarding the investment when the relationship with the plaintiffs had
ended.
On
January 13, 2009, the parties involved in the litigation entered into and filed
with the court a conditional settlement agreement. The Plaintiffs had until
April 16, 2009 to accept or reject the terms of the settlement. The
Plaintiffs failed to show up at the hearing on April 16, 2009, and the case was
dismissed. Plaintiffs had until May 24, 2009 to show
cause. The Plaintiffs failed to appear at the May 24, 2009 hearing
but were later granted a hearing in July 2009.
Counsel
representing the Company appeared on July 30, 2009 in Department 9 of the El
Dorado Superior Court. The matter was continued to October 22,
2009. At the October 22, 2009 hearing, Counsel representing the
Company requested and received a 90 day extension. Next hearing date
is set for January 21, 2010.
At
September 30, 2009, it was not possible to provide an assessment as to the
likelihood of an unfavorable outcome; therefore, no estimate of the range of
potential loss is possible.
(B)
Employment Agreement
On
January 1, 2007, the Company executed a three-year employment agreement with its
Chief Executive Officer. Compensation is $240,000 per
year. At September 30, 2009, the company had accrued compensation of
$96,057 to the Chief Executive Officer.
19
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
(C)
Investor Relations Agreement
On August
3, 2009, the Company entered into a consulting agreement with a third party to
provide investor relations services over a six month period. The
consultant will be paid $10,000 per month and will receive three tranches of
three year, 250,000 cashless warrants on September 3, 2009, October 3, 2009 and
November 2, 2009 with exercise prices of $0.25, $0.35 and $0.45,
respectively.
On
September 3, 2009 the Company applied the Black-Scholes model to determine the
fair value of the first tranche of warrants. The Company has used the following
weighted average assumptions to compute the fair value of these
warrants:
|
Expected
dividends
|
0 | % | ||
|
Expected
volatility
|
275.10 | % | ||
|
Expected
term – warrants
|
3
years
|
|||
|
Risk
free interest rate
|
1.42 | % | ||
|
Expected
forfeiture
|
0 | % | ||
On
October 3, 2009 the Company applied the Black-Scholes model to determine the
fair value of the second tranche of warrants. The Company has used the following
weighted average assumptions to compute the fair value of these
warrants:
|
Expected
dividends
|
0 | % | ||
|
Expected
volatility
|
284.72 | % | ||
|
Expected
term – warrants
|
3
years
|
|||
|
Risk
free interest rate
|
1.38 | % | ||
|
Expected
forfeiture
|
0 | % | ||
On
November 2, 2009 the Company applied the Black-Scholes model to determine the
fair value of the third tranche of warrants. The Company has used the following
weighted average assumptions to compute the fair value of these
warrants:
|
Expected
dividends
|
0 | % | ||
|
Expected
volatility
|
290.19 | % | ||
|
Expected
term – warrants
|
3
years
|
|||
|
Risk
free interest rate
|
1.44 | % | ||
|
Expected
forfeiture
|
0 | % | ||
The
Company recognized the grant date fair value of these warrants with a
corresponding expense of $31,750, $36,750 and $36,750 on September 3, 2009,
October 3, 2009 and November 2, 2009, respectively.
20
MyECheck,
Inc. And Subsidiary
Notes
to Consolidated Financial Statements
September 30,
2009
(Unaudited)
The
Company is disputing the delivery of all three tranches of warrants due to
nonperformance. The Company intends to pursue all remedies in resolving this
matter.
Note 9 Subsequent
Events
The
Company has evaluated for subsequent events between the balance sheet date of
September 30, 2009 and November 13, 2009, the date the financial
statements were issued.
21
Item
2: Management's Discussion and Analysis of Financial Condition and Results of
Operations
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this quarterly report on Form 10-Q contain
forward-looking statements that involve risks and uncertainties. Forward-looking
statements can also be identified by words such as “intends,” “anticipates,”
“expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking
statements are not guarantees of future performance and our actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those set forth below under “Certain Risk Factors.” The following
discussion should be read in conjunction with our unaudited consolidated
financial statements and notes thereto included in this Form 10-Q and the
audited financial statements of the Company, included in our Report on Form 10-K
for the year ended December 31, 2008, filed with the Securities and Exchange
Commission and management’s discussion and analysis contained therein. We assume
no obligation to revise or update any forward-looking statements for any reason,
except as require by law.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants discuss their most
“critical accounting policies” in management’s discussion and analysis of
financial condition and results of operations. The SEC indicated that a
“critical accounting policy” is one which is both important to the portrayal of
the company’s financial condition and results and requires management’s most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
See note
2 “Summary of Significant Accounting Policies” in the Notes to the Consolidated
Financial Statements and our current report on Form 10-Q for the period ended
September 30, 2009, for discussion of significant accounting policies, recent
accounting pronouncements and their effect, if any, on the Company.
Results
of Operations
Three
and Nine Months Ended September 30, 2009 and 2008.
MyECheck
currently has limited revenues. The Company will rely on outside investment
capital to supply cash until the time, if any, that its operations are
profitable and cash flow positive. There can be no assurance that MyECheck will
generate positive cash flow and there can be no assurances as to the level of
revenues, if any, MyECheck may actually achieve from its
operations.
For the
three months ended September 30, 2009, we reported revenue from operations of
$238,608 compared to $156,154 reported for the same period in
2008. The operating loss for the three months ended September 30,
2009 was $146,068
compared to an operating loss of $121,087 for the same period in
2008.
For the
nine months ended September 30, 2009, we reported revenue from operations of
$627,434 compared to $325,892 reported for the same period in
2008. The operating loss for the nine months ended September 30,
2009 was $681,460
compared to an operating loss of $596,262 for the same period in
2008.
22
The
Company commenced revenue generating operations with clients since September 30,
2007. The Company believes that its revenue generating operations will continue
and expand during 2009.
There are
trends in sales that would have a material affect on MyECheck. In recent months
there has been a marked increase in the number of applications and inquiry for
MyECheck’s services. Management expects this trend to continue throughout 2009,
however there can be no assurances that the current trend will
continue.
In 2009
the Company’s revenue increases over the prior year is attributed to increased
volume from additional merchant customers.
The
general and administrative expenses associated with the Company’s operations
increased primarily due to non-cash expenses related to stock based compensation
of $344,077, common stock issued for services of $68,000 and loss incurred by
the issuance of common stock for the settlement of accounts payable of
$52,818. Other non-cash expenses were attributed to recognition of
derivative expense of $79,044 and the change in fair value of derivative
liabilities of $29,918. In addition, legal fees have decreased in 2009 because
of the current disposition of legal proceedings described in Part II: Other
Information, Item 1: Legal Proceedings.
Research
and development costs for 2009 were slightly lower than 2008 as the Company
continues to enhance its information technology systems and
operations.
Liquidity
As of
September 30, 2009, MyECheck had cash on hand amounting to $67,841. MyECheck is
currently operating cash flow positive and reflects a net gain. Management
believes that the combination of revenue from operations and the proceeds from
outside investment will be sufficient to fund operations, however there can be
no assurance that revenues will be earned or that the expected investments will
materialize.
Net cash
provided by financing activities was $37,200 for the nine months ended September
30, 2009, compared to $392,496 of net cash provided by financing activities for
the nine months ended September 30, 2008. The net cash provided by financing
activities for the nine months ended September 30, 2009, resulted from proceeds
from a $35,000 convertible note, cash paid for debt issue costs of $2,800,
proceeds from a loan payable from a related party of $10,000 and a repayment of
a loan payable to a related party of $5,000. The net cash
provided by financing activities for the nine months ended September 30, 2008
resulted from $400,000 for stock subscriptions from outside investors, $1,300
from proceeds from loans payable from a third party and a $10,000 repayment of a
loan payable from a related party, repayment of a loan payable of $335 and a
cash overdraft of $1,531.
There are
currently no commitments for capital expenditures.
There are
currently no guarantees or other off balance sheet arrangements.
Our
continued operations will depend on whether we are able to raise additional
funds through various potential sources, such as equity and debt financing. Such
additional funds may not become available on acceptable terms and there can be
no assurance that any additional funding that we do obtain will be sufficient to
meet our needs in the long term. We will continue to fund operations from cash
on hand and through revenues previously described. We can give no assurances
that any additional capital that we are able to obtain will be sufficient to
meet our needs long term.
23
Going
Concern Consideration
We had a
net loss of $681,460 for the nine months ended September 30, 2009. In addition,
we have an accumulated deficit of $3,051,780 as of September 30, 2009. At
September 30, 2009, due to numerous negative indicators such as a loss from
operations, and an accumulated deficit, there are concerns regarding our ability
to continue as a going concern. Our financial statements included in this
report, and the audited financial statements included in our Annual Report for
the year ended December 31, 2008, contain additional note disclosures describing
the circumstances that lead to this disclosure by our independent
auditors.
Item
3. Quantitative and Qualitative Disclosure About Market Risk.
Not
applicable.
ITEM 4T. CONTROLS AND
PROCEDURES
(a) Under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this quarterly
report.
(b) There
has been no change in our internal control over financial reporting during the
nine months ended September
30, 2009, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II: OTHER
INFORMATION
Item
1: Legal Proceedings
MyECheck
may from time to time be involved in various claims, lawsuits, and disputes with
third parties, actions involving allegations of discrimination, intellectual
property infringement, or breach of contract actions incidental to the operation
of its business. However, litigation is subject to inherent uncertainties, and
an adverse result in these or other matters may arise from time to time that may
harm its business. MyECheck is currently not aware of any such legal proceedings
or claims that it believes will have, individually or in the aggregate, a
material adverse affect on its business, financial condition or operating
results.
MyECheck
and Edward R. Starrs were sued in 2005 by an investor in a prior company in
which Mr. Starrs was involved and which was developing a related, but different,
technology. MyECheck intends to defend these claims vigorously. The investor is
seeking return of approximately $350,000 and additional damages. On January 13,
2009, the parties involved in the litigation entered into and filed with the
court a conditional settlement agreement. The Plaintiffs had until April 16,
2009, to accept or reject the terms of the settlement. The Plaintiffs failed to
show up at the hearing on April 16 and the case was dismissed. Plaintiffs had
until May 24, 2009, to show cause. The Plaintiffs failed to appear
at the May 24, 2009 hearing but was later granted a hearing in July. Counsel representing the
Company appeared on July 30, 2009, in Department 9 of the El Dorado Superior
Court. The matter was continued to October 22, 2009. At the October 22, 2009
hearing, Counsel representing the Company requested and received a 90 day
extension. The next hearing date is set for January
21, 2010.
24
Item
1A. Risk Factors
An
investment in our securities is highly speculative and involves a high degree of
risk. Therefore, in evaluating us and our business you should carefully consider
the risks set forth below, which are only a few of the risks associated with our
business and our common stock. You should be in a position to risk the loss of
your entire investment.
Item 2. Unregistered Sales of Equity
Securities and Use of
Proceeds
On June
26, 2009, we entered into an 8% Convertible Debenture to obtain $35,000 in gross
proceeds from a non-affiliated party (the "Lender"). The Maturity Date of the
Debenture is June 26, 2010.
At the
option of the Holder, the Debenture may be converted, either in whole or in
part, up to the full Principal Amount hereof into shares of our Common Stock
(calculated as to each such conversion to the nearest 1/100th of a share), at
any time and from time to time until the outstanding balance is
paid.
The
number of Common Shares into which this Debenture may be converted is equal to
the dollar amount of the Debenture being converted divided by the Conversion
Price. The “Conversion Price” is equal to 60% of the average of the 3 lowest
Volume Weighted Average Prices during the fifteen Trading Days prior to Holder’s
election to convert (the percentage figure being a “Discount Multiplier”). The
“Volume Weighted Average Price” per Common Share means the volume weighted
average price of the Common Shares during any Trading Day.
The
Registration Rights Agreement requires the Company to register the resale of the
Securities within certain time limits and to be subject to certain penalties in
the event the Company fails to timely file the Registration Statement, fails to
obtain an effective Registration Statement or, once effective, to maintain an
effective Registration Statement until the Securities are saleable pursuant to
Rule 144 without volume restriction or other limitations on sale.
In the
event the Debentures are converted in their entirety, the Company would be
required to issue and aggregate of approximately 500,000 shares of the Company's
Common Stock, subject to anti-dilution protection for stock splits, stock
dividends, combinations, reclassifications and sale of the Company's Common
Stock a price below the Conversion Price.
The
Debenture was issued pursuant to the exemption from registration contained in
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act’).
On
December 1, 2007, we entered in an agreement with an unrelated non-affiliate to
provide us with investor relations services. This company was not to be and has
not been engaged in fund raising for us. By December 11, 2008, we were indebted
to this company in the amount of $33,954. Earlier, in March of 2008, it was
agreed that we would issue stock (shares of our Common Stock) to this company in
lieu of cash, and on June 6, 2009, it was determined that this Balance Due would
be satisfied by the issuance of 377,271 Shares of our Common Stock.
Those
shares of our Common Stock were issued pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act.
25
Item
3. Defaults Upon Senior Securities.
Not
Applicable.
Item 4. Submission of Matters to a Vote of
Security Holders.
Not
Applicable.
Item 5. Other
information.
Not
Applicable.
Item 6. Exhibits
(a) Exhibits
|
Exhibit No.
|
Description
|
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
32.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
26
SIGNATURES
Pursuant
to the requirements of the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
SIGNATURES
Pursuant
to the requirements 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. November 13, 2009.
|
November
13, 2009
|
MYECHECK,
INC.
|
|
/s/
"Edward R. Starrs"
|
|
|
Edward
R. Starrs, President
|
|
|
/s/
“James Heidinger”
|
|
|
James
Heidinger, Chief Financial
Officer
|
27
EXHIBIT
INDEX
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
28