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EX-32.2 - CERTIFICATION - Excel Corpexcc_ex322.htm
EX-31.1 - CERTIFICATION - Excel Corpexcc_ex311.htm
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EX-32.1 - CERTIFICATION - Excel Corpexcc_ex321.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2015
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
Commission File Number: 333-173702
 
Excel Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
27-3955524
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
6363 North State Highway 161, Suite 310,
Irving, Texas
 
75038
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: 972-476-1000
 
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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
 
As of August 14, 2015, there were 99,259,070 shares of Company’s common stock, par value $0.0001 per share, issued and outstanding.
 


 
 
 
 
 
EXCEL CORPORATION
 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
 
   
ITEM 1. FINANCIAL STATEMENTS
 
   
Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014
3
Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (unaudited)
4
Consolidated Statements of Changes in Stockholders' Equity for the six months ended June 30, 2015 and 2014 (unaudited)
5
Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)
6
Notes to Unaudited Consolidated Financial Statements
7
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
14
   
Overview
14
   
Results of Operations
15
   
Liquidity and Capital Resources
16
   
Significant Accounting Policies
16
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
18
   
ITEM 4. CONTROLS AND PROCEDURES
18
   
PART II. OTHER INFORMATION
 
   
ITEM 1. LEGAL PROCEEDINGS
18
   
ITEM 1A. RISK FACTORS
18
   
ITEM 2. OTHER INFORMATION
18
   
ITEM 3. EXHIBITS
19
 
 
2

 
 
Excel Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
 
   
June 30,
   
December 31,
 
   
2015
   
2014
 
   
(Unaudited)
       
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 156,656     $ 326,788  
Accounts receivable
   
244,015
      383,657  
Prepaid expenses
    20,773       46,229  
Shares receivable
    90,000       90,000  
Inventory
    2,808       7,119  
Total current assets 
    514,252       853,793  
 
               
Other Assets
               
Fixed assets, net of depreciation 
    330,284       230,632  
Goodwill
    4,440,355       4,440,355  
Other long-term assets
    63,444       68,027  
Total other assets 
    4,834,083       4,739,014  
Total assets
  $ 5,348,335     $ 5,592,807  
 
               
LIABILITIES & STOKHOLDERS' EQUITY
               
Current Liabilities
               
Accounts payable 
  $ 854,228     $ 806,981  
Accrued compensation
    700,810       602,683  
Other accrued liabilities
    824,309       426,431  
Notes payable - current portion
    526,258       581,674  
Total current liabilities 
    2,905,605       2,417,769  
 
               
Long-term liabilities
               
Notes payable - long term portion 
    468,632       681,361  
Other long-term liabilities
    30,009       29,748  
Total long-term liabilities
    498,641       711,109  
Commitments and Contingencies
               
                 
STOCKHOLDERS' EQUITY
               
Preferred stock, $.0001 par value, 10,000,000 shares  authorized, none issued and outstanding 
    -       -  
Series A preferred stock, $.001 par value 2 shares issued and outstanding as of June 30, 2015 and December 31, 2014
    -       -  
Common stock, $.0001 par value, 200,000,000 shares authorized 99,259,070 and 97,259,070 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively
    9,926       9,726  
Additional paid-in capital
    4,379,717       4,232,342  
Accumulated deficit
    (2,445,554 )     (1,778,139 )
Total stockholders' equity
    1,944,089       2,463,929  
Total Liabilities and Stockholders' Equity
  $ 5,348,335     $ 5,592,807  
  
See notes to unaudited consolidated financial statements.
 
 
3

 
 
Excel Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
 
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
    2015     2014     2015     2014  
Revenues
                       
Equipment lease revenue 
  $ 3,435,205     $ 1,775,221     $ 5,717,322     $ 1,796,709  
Transaction and processing fees 
    1,060,225       404,556       2,213,934       404,556  
Total revenues 
    4,495,430       2,179,777       7,931,256       2,201,265  
                                 
Costs and expenses 
                               
Cost of products sold 
    712,746       344,696       1,231,586       346,233  
Salaries and wages  
    2,773,364       2,026,203       5,190,096       2,229,462  
Outside commissions 
    503,262       301,705       880,022       303,017  
Other selling, general, and administrative expenses 
    581,838       609,595       1,150,368       746,531  
Total costs & expenses  
    4,571,210       3,282,199       8,452,072       3,625,243  
 
                               
Net loss from operations  
    (75,780 )     (1,102,422 )     (520,816 )     (1,423,978 )
 
                               
Other income
                               
Gain on sale of residual portfolio 
    -       2,800,000       -       2,800,000  
Gain on settlement of debt
    -       175,101       -       175,101  
Total other income
    -       2,975,101       -       2,975,101  
                                 
Interest expense     67,695       203,385       146,599       203,385  
                                 
Net income (loss) before income taxes 
    (143,475 )     1,669,294       (667,415 )     1,347,738  
                                 
Income tax expense (benefit) 
                               
Current 
    (53,086 )     (573,350 )     (246,944 )     (573,350 )
Deferred 
    53,086       560,071       246,944       560,071  
Total income tax expense (benefit) 
    -       (13,279 )     -       (13,279 )
 
                               
Net income (loss) 
  $ (143,475 )   $ 1,656,015     $ (667,415 )   $ 1,334,459  
 
                               
Income (Loss) Per Share 
                               
Basic & Diluted 
  $ (0.001 )   $ 0.019     $ (0.007 )   $ 0.017  
 
                               
Weighted Average Shares Outstanding 
                               
Basic & Diluted 
    97,918,411       88,983,013       97,590,562       78,357,270  
 
See notes to unaudited consolidated financial statements.
 
 
4

 
  
Excel Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(unaudited)
  
   
Preferred Stock
   
Series A Preferred Stock
   
Common Stock
   
Additional
Paid-in
   
Accumulated
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
 
                                                 
Balances, January 1, 2014
          $               $         67,064,892     $ 6,706     $ 1,010,947     $ (1,341,258 )
                                                                 
Issuance of common stock at .09 per share
                                    1,628,570       163       149,837          
                                                                 
Issuance of common stock at .30 per share
                                    200,000       20       59,980          
                                                                 
Issuance of stock for acquisition of Securus                     2               22,400,000       2240       2,537,024          
                                                                 
Stock compensation expense                                     5,465,608       547       278,427          
                                                                 
Net income for the period January 1, 2014 - June 30, 2014
                                                            1,334,459  
                                                                 
Balances, June 30, 2014
          $         2     $         96,759,070     $ 9,676     $ 4,036,215     $ (6,799 )
                                                                 
Balances, January 1, 2015
          $         2     $         97,259,070     $ 9,726     $ 4,232,342     $ (1,778,139 )
                                                                 
Stock compensation expense                                     2,000,000       200       147,375          
                                                                 
Net  loss for the period January 1, 2015 - June 30, 2015
                                                            (667,415 )
                                                                 
Balances, June 30, 2015
          $         2     $         99,259,070     $ 9,926     $ 4,379,717     $ (2,445,554 )
 
See notes to unaudited consolidated financial statements.
 
 
5

 
 
Excel Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
   
For the Six Months Ended
 
   
June 30,
 
   
2015
   
2014
 
Operating activities:
           
Net income (loss)
  $ (667,415 )   $ 1,334,459  
Adjustments to reconcile net income (loss)  to net cash provided by operating activities:
               
Depreciation
    49,004       25,114  
Stock based compensation
    147,575       278,974  
Gain on settlement of debt
    -       (175,101 )
Changes in operating assets and liabilities:
               
Decrease (increase)
               
Accounts receivable
    139,642       (101,513 )
Inventory
    4,311       41,809  
Prepaid expenses
    25,456       19,554  
Other receivables     -       (1,524,167 )
Other long-term assets
    4,583       (117,500 )
Increase (decrease)
               
Accounts payable
    47,247       212,165  
Accrued compensation
    98,127       206,595  
Other accrued liabilities
    397,878       91,556  
Other long-term liabilities
    261       11,959  
                 
Net cash provided by operating activities
    246,669       303,904  
                 
Cash flows from investing activities:
               
Purchase  of fixed assets
    (148,656 )     (3,282 )
Acquisition of Securus
    -       34,563  
                 
Net cash provided by (used in) investing activities
    (148,656 )     31,281  
                 
Cash flows from financing activities:
               
Proceeds from issuance of notes payable
    100,000       1,600,000  
Issuance of common stock
    -       210,000  
Payments on notes payable
    (368,145 )     (2,147,497 )
                 
Net cash  used in financing activities
    (268,145 )     (337,497 )
                 
Net decrease in cash
    (170,132 )     (2,312 )
                 
Cash – Beginning
    326,788       8,328  
                 
Cash – Ending
  $ 156,656     $ 6,016  
                 
Supplemental disclosure of cash flow information
               
Cash paid for interest
  $ 67,695     $ 206,778  
 
See notes to unaudited consolidated financial statements.
 
 
6

 
 
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2015
Unaudited
 
1.         ORGANIZATION AND OPERATIONS
 
Excel Corporation (the “Company”) was organized on November 13, 2010 as a Delaware corporation.  The Company has two wholly owned subsidiaries, Excel Business Solutions, Inc., and Payprotec Oregon, LLC (d/b/a Securus Payments), (“Securus”).
 
The Company had been considered a development stage company as defined by FASB ASC 915-205-45-6. However, on April 21, 2014, the Company acquired 100% of the membership interests of Payprotec Oregon LLC (d/b/a Securus Payments) (see note 8). Following this transaction, the Company ceased to be a development stage company. The Company is currently devoting substantially all of its efforts to providing services in the merchant payment processing industry.
  
The Company provides payment processing services, which include credit and debit card processing, check approval, and ancillary processing equipment and software services to merchants that accept credit cards, debit cards, checks, and other non-cash forms of payment. In addition, the Company provides leases for point of sale and similar processing equipment to merchants which are in turn sold to a third party.    In June 2015 our subsidiary Excel Business Solutions began selling merchant cash advances under the trade name Mom and Pop Merchant Solutions “Mom and Pop”.  Mom and Pop operates as an ISO and does not directly fund any advances. The impact of Mom and Pop on the Company’s results of operations and financial position for the quarter ended June 30, 2015 was not material.
 
2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”).  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, these unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results of the interim periods.  These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
 
Reclassification
 
Certain prior period amounts have been reclassified to conform to the current year’s presentation.
 
 
7

 
 
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2015
Unaudited
 
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 six broad levels, as described below:
 
Level 1: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
 
Level 2: Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.
 
Level 3: Level 3 inputs are unobservable inputs.
 
The following required disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies.  However, considerable judgment is required to interpret market data to develop the estimates of fair value.  Accordingly, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
 
The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows:
 
Cash and Cash Equivalents, Accounts Receivable, Prepaid Expenses, Inventory, Accounts Payable, Accrued Compensation, Other Accrued Liabilities, and Income Taxes Payable.
 
The items are generally short-term in nature, and accordingly, the carrying amounts reported on the consolidated balance sheets are reasonable approximations of their fair values.
 
Notes Payable
 
The carrying values of notes payable approximate fair values, since these instruments bear market rates of interest.
 
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, 2017 and early adoption is not permitted. Management does not expect the adoption of this guidance to have a material impact on the Company’s 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.         INCOME TAXES
 
The Company accounts for income taxes in accordance with FASB Accounting Standards Codification Topic 740-10 which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. At June 30, 2015, the Company had available unused operating loss carryforwards of $2,376,158 which generated a deferred tax benefit of $879,178. The Company had a 100% valuation allowance on the deferred tax assets at June 30, 2015.
 
 
8

 
 
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2015
Unaudited
 
5.         INCOME TAXES (Continued)
 
The Company’s provision for income taxes for the six months ended June 30, 2015 consists of the following:
 
Income Tax Expense
 
Six months Ended
June 30,
2015
 
Current
 
$
(246,944
)
Deferred
   
246,944
 
Total
 
$
-
 
 
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 2011 through 2014 remain subject to examination by Federal and state taxing authorities. 
 
6.         STOCKHOLDERS’ EQUITY
 
On April 21, 2014 the Company issued two shares of Series A Preferred Stock to the two previous members of Payprotec. As long as a former member holds at least 9,000,000 shares of the Company’s common stock, the member has the right to exchange his share of preferred stock for a 24.5% share of the membership interests of Payprotec upon a change of control in Payprotec (as defined). 
 
7.         STOCK OPTIONS AND COMPENSATION
 
On November 13, 2010, the Company’s Board of Directors (the “Board”) approved a stock plan pursuant to which the Company may grant incentive and non-statutory options to employees, non-employee members of the Board and consultants and other independent advisors who provide services to the Corporation.  The maximum shares of common stock which may be issued over the term of the plan shall not exceed 4,000,000 shares.  Awards under this plan are made by the Board of Directors or a committee of the Board.  Options under the plan are to be issued at the market price of the stock on the day of the grant except to those issued to 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 August 28, 2014, the Company issued options to purchase a total of 1,000,000 shares of the Company’s Common Stock at an exercise price of $.09 per share. The options are exercisable for a ten year period subject to certain restrictions. The shares vest ratably over 36 months. The following table summarizes the Company’s stock options.
 
Options outstanding
   
1,000,000
 
Vested
   
277,778
 
Unvested
   
722,222
 
 
On May 13, 2014, The Company issued 2,732,804 shares of the Company’s Common Stock to each of two executives in connection with their employment agreements. One third of the shares vested upon grant and the balance vest ratably over a two-year period.  

On June 1, 2015, the Company issued 2,000,000 shares of stock to an executive.  500,000 of the shares vested upon grant and an additional 500,000 will vest on June 1, 2016, 2017, and 2018.  The Company recorded stock compensation expense in the amount of $147,575 for the six months ended June 30, 2015 related to the stock grants and issuance of stock options.
 
 
9

 
 
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2015
Unaudited
 
8.         ACQUISITION OF SUBSIDIARY
 
On April 21, 2014, the Company purchased 90% of the membership interests of Securus and its subsidiary Securus Consultants, LLC through a Securities Exchange Agreement (the “Agreement”) with Mychol Robirds and Steven Lemma.
 
In exchange for their membership interests in Securus and Securus Consultants LLC, the Company issued to Messrs. Robirds and Lemma a total of 20,400,000 shares of the Company’s Common Stock and two shares of the Company’s Series A Preferred Stock.  Payprotec also entered into three-year employment agreements (the “Employment Agreements”) with each of Messrs. Robirds and Lemma. 
 
Pursuant to a Securities and Exchange Agreement ("E-Cig Agreement") dated April 21, 2014 between the Company and E-Cig Ventures, LLC ("E-Cig"), the Company acquired the remaining 10% of the membership interests of Securus in exchange for the issuance of 2,000,000 shares of the Company's common stock and the agreement to guaranty a $1.5 million loan (the “Guaranty”) from Shadow Tree Income Fund A LP (“Shadow Tree”) to E-Cig (the "E-Cig Transaction"). As a result of the two transactions, the Company owns 100% of the membership interests of Securus.
  
 
10

 
 
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2015
Unaudited
 
8.         ACQUISITION OF SUBSIDIARY (Continued)
 
Pro Forma Financial Information
 
The information that follows provides supplemental information about pro forma revenues and net income (loss) attributable to the Company as if the acquisition of Securus had been consummated as of January 1, 2014. Such information is unaudited and is based on estimates and assumptions which the Company believes are reasonable.
 
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 Securus been a combined entity during 2014.
  
Selected Pro Forma Financial Information
 
Six months ended
June 30,
2014
 
Revenues
 
$
6,256,665
 
Net income attributable to the Company
 
$
724,635
 
Net income attributable to the Company per common share - basic and diluted
 
$
.009
 
  
9.        PROPERTY AND EQUIPMENT
 
Property and equipment consists of the following as of June 30, 2015:
 
   
June 30, 2015
 
Computer software
 
$
168,266
 
Equipment
   
162,524
 
Furniture & fixtures
   
83,299
 
Leasehold improvements
   
118,882
 
Total cost
   
532,971
 
Less accumulated depreciation and amortization
   
(202,687
)
Property and equipment – net
 
$
330,284
 
 
 
11

 
 
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2015
Unaudited
 
10.       LEASES
 
Securus leases its Oregon office facilities under an operating lease expiring in June 2017. Monthly lease payments range from $16,153 to $17,808 throughout the term of the lease.
 
Securus leases its California office facilities under an operating lease expiring in March 2016. Monthly lease payments range from $6,059 to $6,426 throughout the term of the lease.
 
Securus leases its Florida office facilities under an operating lease expiring in December 2016. Monthly lease payments range from $3,180 to $3,374 throughout the term of the lease.
 
The Company executed a lease for its corporate offices in Irving Texas. The lease began on November 1, 2014 and has a term of 63 months with monthly payments ranging from $0 to $6,428.
 
Total rent expense for the six months ended June 30, 2015 was $202,808, compared to $87,186 for the six months ended June 30, 2014.
 
The future minimum lease payments required under long-term operating leases as of June 30, 2015 are as follows:
 
2015
 
$
189,520
 
2016
   
343,751
 
2017
   
181,118
 
2018
   
75,648
 
2019 and after
   
83,454
 
Total
 
$
873,491
 
 
11.       NOTES PAYABLE
 
The following summarizes the Company’s current outstanding notes payable:
 
Note payable to Blue Acre Ventures, due in monthly installments of $48,333 through May 2017, including simple interest at 15%, secured by the Company’s primary  residual portfolio
 
$
868,441
 
Note payable to E-Cig, due in monthly installments of $26,207 beginning October 2014 through September 2015, including interest at 6%, secured by 1,000,000 shares of the Company's common stock owed to the Company by E-Cig
   
75,000
 
Note payable to Payment Processing Technologies LLC, due in monthly installments of $10,653 beginning January 2015 through October 2015, including interest at 14%, secured by the Company’s residual portfolio with Payment Processing Technologies LLC
   
51,449
 
Total
   
994,890
 
         
Less current portion
   
(526,258
)
         
Long-term portion of notes payable
 
$
468,632
 
 
 
12

 
 
Excel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2015
 
11.       NOTES PAYABLE (Continued)
 
Future maturities of notes as of June 30, 2015 are as follows:
 
 
2015
 
$
313,529
 
2016
   
454,628
 
2017
   
226,733
 
Total
 
$
994,890
 
  
12.       RELATED PARTY TRANSACTIONS
 
On January 14, 2014, Ruben Azrak, Chairman of the Board and then Interim Chief Executive Officer, advanced the Company $25,000.  This advance bears no interest and does not provide for a specific repayment date.
 
 
13

 
 
ITEM 2. 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 six months ended June 30, 2015 and 2014 should be read in conjunction with our interim financial statements and the notes to those financial statements that are included elsewhere in this quarterly report on Form 10-Q.  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 included in our Annual Report on Form 10-K for the year ended December 31, 2014.  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.
 
Current Overview
 
We sell integrated financial and transaction processing services to small and medium sized businesses throughout the United States. We provide these services through our wholly-owned subsidiary, Securus, which we acquired in April 2014. We are a national full service retail credit/debit card processor Independent Sales Organization (“ISO”) and Merchant Services Provider (“MSP”), with primary sales and merchant support offices in Portland, Oregon and West Palm Beach, Florida, which supplement our network of approximately 120 to 150 independent sales representatives located throughout the country. Working with the Company's primary processing partner, First Data Corporation, we provide for the rapid clearing of payments, including Apple Pay, a mobile payment and digital wallet service by Apple Inc. that lets users make payments using the iPhone 6 and iPhone 6 Plus. Our merchant account solutions, married with the latest site and cloud based technologies, are designed to meet the unique needs of each business segment serviced, and offer a variety of credit, debit, gift and loyalty card processing options and equipment to scale with the distinctive business plans of each client. In June 2015, our subsidiary Excel Business Solutions began selling merchant cash advances under the trade name Mom and Pop Merchant Solutions “Mom and Pop”.  Mom and Pop operates as an ISO and does not directly fund any advances. The impact of Mom and Pop on the Company’s results of operations and financial position for the quarter ended June 30, 2015 was not material.
 
On February 17, 2014 the Company entered into a Securities Exchange Agreement (the “SEA”) with Securus, Mychol Robirds and Steven Lemma, to purchase 90% of the membership interests of Securus and its subsidiary Securus Consultants, LLC.  On April 21, 2014 the Company completed the acquisition of 100% of Securus pursuant to the SEA and through a Securities Exchange Agreement (“E-Cig Agreement) with E-Cig Ventures LLC. The Company issued 22,400,000 shares of common stock for the acquisition of Securus. In addition, the Company issued two shares of Series A Preferred Stock to Messrs Lemma and Robirds as a part of the SEA. As holders of the Series A Preferred Stock. Each of Messrs Lemma and Robirds are entitled to exchange one share of the Series A Preferred Stock for a 24.5% interest in Securus should the Company enter into a transaction that would sell a majority of the membership interest of Securus or its assets. Messrs Lemma and Robirds will be entitled to these exchange rights as long as they own a total of 9,000,000 shares individually.
  
Prior to the acquisition of Securus in April 2014, we were considered a developmental stage company. With the acquisition of Securus, we are no longer in a development stage and maintain as our primary business operations the sale of merchant processing and servicing, as well as a limited number of merchant cash advance transactions on behalf of our merchant customers. We are actively seeking acquisition opportunities in related industries including, but not limited to, merchant services and merchant cash advance companies. Although management believes that there are acquisition opportunities, there can be no assurance that the Company will be able to complete any such transactions.
 
 
14

 
 
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 June 30, 2015.
 
Results of Operations
 
We acquired Securus in April 2014. As a result of this acquisition, operating results for the three and six months ended June 30, 2015 and 2014 are not directly comparable. The quarter ended June 30, 2014 included 70 days of operations for Securus as opposed to 91 days in 2015. The six months ended June 30, 2014 included 161 days of operations for Securus as opposed to 182 days for the 2015 period.
 
Revenues
 
Net revenues for the three month and six month periods ended June 30, 2015 were $4,495,430 and $7,931,256 as compared to net revenues of $2,179,777 and $2,201,265 for the three and six month periods ended June 30, 2014. The increase in net revenues of 206.2% for the three months ended June 30, 2015 as compared to June 2014 was due not only to a full quarters of operations in 2015 but also to significantly higher equipment lease volume in the 2015 period as well as higher transaction and processing fees earned during the 2015 period.
 
Costs and Expenses
 
Our operating costs and expenses were $4,571,210 and $8,452,072 for the three and six months ended June 30, 2015 as compared to $3,282,199 and $3,625,243 for the three and six months ended June 30, 2014. Cost of products sold for the three and six months ended June 30, 2015 were 20.7% and 21.5% of equipment lease revenues respectively as compared to 19.4% and 19.3% of equipment lease revenues for the same periods in 2014. The increase in cost of products sold as a percentage of equipment lease revenues was due to increased sales of more sophisticated point of sale units. Outside commissions increased from $301,705 to $503,262 for the three month period ended June 30, 2015 as compared to the same period in 2014 but declined as a percentage of net revenue from 13.8% to 11.2%. For the six months ended June 30, 2015 outside commission expenses were $880,022 and remained fairly consistent at 11.1% of net revenues as compared to $303,017 or 13.8% of net revenues for the same period in 2014. The Company uses independent sales agents for a substantial portion of its business. Salaries and wages were $2,773,364 and $5,190,096 for the three and six months ended June 30, 2015 as compared to $2,026,203 and $2,229,462 for the three and six months ended June 30, 2014. The increase for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 of 36.9% was due to the variable compensation associated with the increased sales volume as well as a full three months operations for Securus. Other selling, general, and administrative expenses were $581,838 and $1,150,368 for the three and six months ended June 30, 2015 as compared to $609,595 and $746,531 for the three months and six months ended June 30, 2014. For the three and six months ended June 30, 2015, other selling, general, and administrative expenses included a one-time charge of $160,000 for a litigation settlement with a former executive of the Company. Corporate overhead accounted for $1,058,359 and $1,331,136 of total costs and expenses for the six months ended June 30, 2015 and 2014 respectively.
 
 
15

 
 
Other Income

On June 30, 2014, the Company and Payprotec entered into a refinancing pursuant to a Settlement and Release (“Settlement Agreement”) with E-Cig Ventures LLC (“E-Cig”) whereby the Company exercised an option to repurchase $200,000 of monthly residuals sold to E-Cig Ventures LLC (“E-Cig”) on January 28, 2014. The Company paid $2,400,000 cash and issued a note in favor of E-Cig in the amount of $300,000 in return for settling all amounts due under the Residual Purchase Agreement executed by Securus and E-Cig. In addition, upon final payment of the $300,000 note to E-Cig, E-Cig shall surrender 1,000,000 shares of the Company’s Common Stock previously issued to E-Cig in connection with the Company’s purchase of E-Cig’s 10% membership interest in Securus on April 21, 2014. The note to E-Cig bears interest at 6% per annum and is due in 12 equal monthly payments starting on October 1, 2014. The Company recorded a one-time gain of $175,101 in connection with this transaction. Simultaneously with the Settlement Agreement referred to above, the Company and Securus executed new financing arrangements with Blue Acre Ventures (“BAV”) including a Portfolio Purchase Agreement whereby Securus sold monthly residuals in the amount of $100,000 for a cash payment of $2,800,000 and the ability to receive additional payments totaling $400,000 over the next three years. The Company recorded a one-time gain in the amount of $2,800,000 in connection with this transaction.
 
Interest expense
 
Interest expense was $67,695 and $146,599 for the three months and six months ended June 30, 2015 as compared to $203,385 for the three months and six months ended June 30, 2014.  The higher interest expense in the 2014 periods was primarily due to the transaction with E-Cig executed by Payprotec in January 2014, which was refinanced on June 30, 2014 as described above.
 
Net loss from operations
 
Net loss from operations decreased from $1,102,422 for the three months ended June 30, 2014 to $75,780 for the three month ended June 30, 2015. The significant decrease in the operating loss of $1,026,642 was due primarily to improved sales volume and operating margins at Securus. For the six months ended June 30, 2015, net loss from operations decreased from $1,423,978 to $520,816. Excluding corporate overhead, Securus had operating income of $437,256 and $390,944 for the three months and six months ended June 30, 2015.
 
Our net losses were $143,475 and $667,415 for the three and six months ended June 30, 2015 respectively. Net income was $1,656,015 and $1,334,459 for the three and six months ended June 30, 2014, respectively. Net income for the 2014 periods was the result of the $2,800,000 gain on the sale of the monthly residuals and the $175,101 gain on the settlement of debt described above which more than offset the operating losses incurred in the 2014 periods.
 
             It is possible we may continue to incur net losses in the future.  However, we currently anticipate that we will be able to achieve profitability during either the third or fourth quarter of 2015.
 
Liquidity and Capital Resources
 
The following summarizes our cash flows:
 
   
Six months  ended June 30,
 
   
2015
   
2014
 
Net cash provided operating activities
 
$
246,669
   
$
303,904
 
Net cash provided by (used in) investing activities
   
(148,656
)
   
31,281
 
Net cash used in financing activities
   
(268,145
)
   
(337,497
)
Net decrease in cash
 
$
(170,132
)
 
$
(2,312
)
 
Net cash provided by operating activities for the six months ended June 30, 2015 was $246,669 as compared with $303,904 in 2014.
 
Net cash used  in investing activities was $148,656 for the six months ended June 30, 2015 as compared to $31,281 provided by investing activities for the six months ended June 30, 2014. Capital expenditures were primarily related to improvements in the Company’s information systems. 

Net cash used in financing activities was $268,145 for the six months ended June 30, 2015 as compared to $337,497 for the six months ended June 30, 2014. 
 
As of June 30, 2015, we had cash and cash equivalents of $156,656, total current assets of $514,252 and total current liabilities of $2,905,605.
 
The Company may seek to raise capital through  the sale of debt or equity securities or a possible sale of a portion of its residual portfolio in order to improve its liquidity and financial position. There can be no assurances that such financing can be obtained on terms that are acceptable to the Company.
 
Off-Balance Sheet Financing Arrangements
 
We do not have any off-balance sheet financing arrangements.
 
Significant Accounting Policies
 
Basis of Presentation
 
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. The accompanying unaudited consolidated financial statements reflect the results of operations, financial position and cash flows of the Company, and include the accounts of the Company and subsidiaries, after elimination of all intercompany transactions in the consolidation.
 
 
16

 
 
Revenue Recognition
 
The Company’s revenue consists of proceeds from the sale of equipment leases of point of sale terminals and systems used to process credit and debit transactions. The Company records revenue when the sales process with respect to terminals and point of sale equipment is substantially complete.
 
In addition, the Company receives a percentage of recurring residual 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.
 
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.
 
Earnings Per Share
 
Basic earnings per share is computed by dividing net income (loss) available for common stock by the weighted average number of common shares outstanding during the period.  Fully diluted earnings per share is the same as basic earnings per share as the Company had no material common stock equivalents outstanding during the periods presented.
 
 
17

 
 
Recent Accounting Pronouncements
 
Management does not currently believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.
 
ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2015 and found them to be effective.
 
Changes in Internal Control over Financial Reporting
 
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2015 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
 
None.
 
ITEM 1A. Risk Factors 
 
Factors that could cause our actual results to differ materially from those in this report are any of the risks described in our Annual Report on Form 10-K for the year ended December 31 2014 filed with the SEC on March 31, 2015. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem not material may also impair our business or results of operations.
 
As of the date of this Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.
 
ITEM 2.   OTHER INFORMATION
 
None
 
 
18

 
 
ITEM 3.   EXHIBITS
 
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
 
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.
 
 
19

 
 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
EXCEL CORPORATION
 
       
Dated: August 14, 2015
By:
/s/ Thomas A. Hyde, Jr.
 
   
Thomas A. Hyde, Jr.
 
   
Chief Executive Officer
 
   
(Principal executive officer)
 
 
       
Dated: August 14, 2015
By:
/s/ Robert L. Winspear
 
   
Robert L. Winspear
 
   
Chief Financial Officer
 
   
(Principal financial and accounting officer)
 
 
 
20