Quarterly Report (10-q)

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 March 31, 2016

☐ 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 May 23, 2016, there were 96,759,070 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 March 31, 2016 (unaudited) and December 31, 2015		1

Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (unaudited)		2

Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited)		3

Notes to Unaudited Consolidated Financial Statements		4

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		11

Overview		11

Results of Operations		12

Liquidity and Capital Resources		1 3

Significant Accounting Policies		13

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		15

ITEM 4. CONTROLS AND PROCEDURES		15

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		15

ITEM 1A. RISK FACTORS		15

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

ITEM 4. MINE SAFETY DISCLOSURE

ITEM 5. OTHER INFORMATION		15

ITEM 6. EXHIBITS		16

Excel Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2016			2015
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	250,562		$	362,130
Accounts receivable		958,194			1,016,141
Prepaid expenses		22,300			43,074
Other current assets		179,580			83,545
Current assets held for sale		-			167,406
Total current assets		1,410,636			1,672,296

Other Assets
Fixed assets, net of depreciation		169,207			184,960
Goodwill		7,914,269			7,914,269
Note receivable		675,000			675,000
Equity investment		204,790			164,790
Residual portfolios		2,419,705			2,505,164
Other long term assets		510,677			593,893
Other assets held for sale		-			302,898
Total other assets		11,893,648			12,340,974
Total assets	$	13,304,284		$	14,013,270

LIABILITIES & STOKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable	$	767,969		$	1,374,878
Accrued compensation		1,732,907			1,508,531
Other accrued liabilities		1,058,934			839,308
Notes payable - current portion		9,014,711			8,984,544
Accrued costs of disposal of discontinued operations		550,000			-
Total current liabilities		13,124,521			12,707,261

Long-term liabilities
Notes payable - long term portion		93,616			226,733
Other long term liabilities		722,170			41,692
Total long-term liabilities		815,786			268,425
Commitments and contingencies

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.0001 par value, 10,000,000 shares authorized, none issued and outstanding		-			-
Series A preferred stock, $.001 par value 2 shares issued and outstanding as of March 31, 2016 and December 31, 2015.		-			-
Series B preferred stock, $.0001 par value 4,600,000 and 0 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.		460			-
Common stock, $.0001 par value, 200,000,000 shares authorized 96,759,070 and 98,259,070 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.		9,676			9,826
Additional paid-in capital		4,725,868			4,428,391
Accumulated deficit		(5,372,027	)		(3,400,633	)
Total stockholders' equity (deficit)		(636,023	)		1,037,584
Total Liabilities and Stockholders' Equity (Deficit)	$	13,304,284		$	14,013,270

See notes to unaudited consolidated financial statements.

Excel Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended
	March 31,
	2016			2015
Revenues
Transaction and processing fees	$	3,965,853		$	1,153,709
Merchant cash advance revenue and other		53,805			-
Total revenues		4,019,658			1,153,709
Costs and expenses
Processing and servicing costs		2,010,009			-
Salaries and wages		975,835			374,752
Other selling general and administrative expenses		488,922			243,988
Total costs and expenses		3,474,766			618,740

Income from operations		544,892			534,969

Interest expense		328,616			78,904

Net income from continuing operations before income taxes		216,276			456,065
Income tax expense (benefit)
Current		80,022			168,744
Deferred		(80,022	)		(168,744	)
Income tax expense (benefit)		-			-

Net income from continuing operations	$	216,276		$	456,065

Loss from discontinued operations, net of tax	$	(1,347,029	)	$	(980,005	)
Loss on disposal of operations		(840,641	)		-
Net loss	$	(1,971,394	)	$	(523,940	)

Net income (loss) per share
Basic & diluted, continuing operations	$	0.002		$	0.005
Basic & Diluted, discontinued operations		(0.022	)		(0.010	)
Basic & Diluted, Total		(0.020	)		(0.005	)

Weighted Average Shares Outstanding
Basic & Diluted		97,055,773			97,259,070

See notes to unaudited consolidated financial statements.

Excel Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	For the Three Months Ended
	March 31,
	2016			2015
Operating activities:
Net loss	$	(1,971,394	)	$	(523,940	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		136,118			20,934
Stock based compensation		67,787			67,788
Income in investment accounted for under the equity method		(40,000	)
Loss on disposal of operations		840,641
Changes in operating assets and liabilities:
Decrease (increase)
Accounts receivable		185,539			34,975
Inventory		-			3,258
Other current assets		(96,035	)		-
Prepaid expenses		19,918			28,655
Other long term assets		89,642			2,291
Increase (decrease)
Accounts payable		(606,909	)		148,039
Accrued compensation		224,376			(25,493	)
Other accrued liabilities		219,626			199,772
Other long-term liabilities		697,575			3,463

Net cash used in operating activities		(233,114	)		(40,258	)

Cash flows from investing activities:
Purchase of property and equipment		(5,504	)		(77,805	)

Net cash used in investing activities		(5,504	)		(77,805	)

Cash flows from financing activities:
Issuance of notes		-			100,000
Issuance of preferred stock		230,000			-
Note and debt payments		(102,950	)		(174,249	)

Net cash provided by (used in) financing activities		127,050			(74,249	)

Net decrease in cash	$	(111,568	)	$	(192,312	)

Cash - Beginning	$	362,130		$	326,788

Cash - Ending	$	250,562		$	134,476

Supplemental disclosure of cash flow information
Cash paid for interest		328,616			78,904

See notes to unaudited consolidated financial statements.

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2016

Unaudited

ORGANIZATION AND OPERATIONS

Excel Corporation (the “Company”) was organized on November 13, 2010 as a Delaware corporation. The Company has three wholly owned subsidiaries, Excel Business Solutions, Inc., Payprotec Oregon, LLC (d/b/a Securus Payments), (“Securus”), and eVance Processing Inc. (“eVance”).

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.

Prior to the acquisition of Securus in April of 2014, we were considered a developmental stage company as defined by FASB ASC 915-205-45-6. With the acquisition of Securus, we ceased to be a development stage company.

On November 30, 2015, eVance entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Calpian, Inc. (“Calpian”), Calpian Residual Acquisition, LLC (“CRA”) and Calpian Commerce, Inc., a wholly owned subsidiary of Calpian (“CCI,” and collectively with Calpian and CRA, the “Sellers”). Pursuant to the Purchase Agreement, eVance acquired substantially all of the U.S. assets and operations of the Sellers. In consideration for the acquired assets, eVance assumed certain of the Sellers’ liabilities, including an aggregate of $8,279,916 of notes payable and certain of the Sellers’ outstanding contractual obligations.

On April 30, 2016, Securus entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with Chyp LLC (“Chyp”). In connection with the Purchase Agreement, Chyp executed a three year preferred marketing agreement with eVance.

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, 2015.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2016

Unaudited

FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic No. 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as described below:

Level 1: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.

Level 3: Level 3 inputs are unobservable inputs.

The following required disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows:

Cash and Cash Equivalents, Accounts Receivable, Other Receivables, 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.

Note Receivable, Other Long Term Assets, Notes Payable, and Other Long Term Liabilities.

The carrying amounts approximate the fair value as the notes bear interest rates that are consistent with current market rates.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers Topic 606 (“ASU 2014-09”) which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Revenue recorded under ASU 2014-09 will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for the Company’s fiscal year beginning January 1, 2018 and early adoption is not permitted. Management does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and noncurrent on the balance sheet and requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 may be applied retrospectively or prospectively and early adoption is permitted. The Company does not believe that this standard will have a material impact on its financial position.

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the potential effect of this standard on its consolidated financial statements.

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.

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2016

Unaudited

DISCONTINUED OPERATIONS

On April 30, 2016, Securus entered into the Purchase Agreement with Chyp. In connection with the Purchase Agreement, Chyp executed a three year preferred marketing agreement with eVance.

Chyp acquired substantially all of the operations of Securus including its sales and marketing operations located in Portland Oregon and West Palm Beach Florida. Securus retained its approximately 5,000 merchants and related merchant processing residual portfolio. Securus also retained substantially all of its liabilities, including but not limited to, its note payable with Blue Acre Ventures, trade payables as well as liabilities to merchants.

Pursuant to the Purchase Agreement, Securus will provide financial assistance to Chyp in the form of a forgivable loan to support the transition of Securus’ operations to Chyp. Securus will advance Chyp $75,000 per month for six months and $50,000 in the seventh and eighth months for a total of $550,000. Accordingly, Chyp has executed a $550,000 promissory note (the “Chyp Note”) in favor of the Securus. The Chyp Note bears an interest rate of 12% per annum with both the principal and interest due on May 1, 2017. If Chyp is in material compliance with this Purchase Agreement and related agreements for a period of 12 months, Securus will forgive the Chyp Note. Securus will also reimburse Chyp for commissions payable to Chyp employees and agents on Securus’ residual portfolio as if those agents and employees were still employed by Securus. Chyp is owned by Steven Lemma and Mychol Robirds who are former executives of Securus.

We accounted for the sale of the Securus operations to Chyp in accordance with ASC 205-20-45-1 and have classified the assets and operations sold to Chyp as discontinued operations. The Company recorded loss on disposal of $840,641 related to the transaction. The charge includes a $290,641 write-off of the net assets acquired by Chyp and $550,000 for the financial assistance to be provided to Chyp during 2016.

A summary of results of discontinued operations is as follows:

	Quarter Ended March 31,
	2016			2015
Revenues	$	1,683,135		$	800,281
Operating expenses		(3,030,164	)		(1,780,286	)
Pre-tax loss from discontinued operations		(1,347,029	)		(980,005	)
Income tax benefit		-			-
Loss from discontinued operations, net of tax	$	(1,347,029	)	$	(980,005	)

INCOME TAXES

The Company accounts for income taxes in accordance with FASB Accounting Standards Codification Topic 740-10 which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. At March 31, 2016 and March 31, 2015, the Company had available unused operating loss carryforwards of $2,685,954 and $2,232,683, respectively, which generated a deferred tax benefits of $993,803 and $826,093, respectively. The Company had a 100% valuation allowance on the deferred tax assets at March 31, 2016.

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2016

Unaudited

INCOME TAXES (Continued)

The Company’s provision for income taxes for the three months ended March 31, 2016 and 2015 consists of the following:

	Three months Ended March 31, 2016									Three months Ended March 31, 2015
Income Tax Expense	CONTINUING OPERATIONS			DISCONTINUED OPERATIONS			TOTAL			CONTINUING OPERATIONS			DISCONTINUED OPERATIONS			TOTAL
Current	$	80,022		$	(809,438	)	$	(729,416	)	$	168,744		$	(362,602	)	$	(193,858	)
Deferred		(80,022	)		809,438			729,416			(168,744	)		362,602			193,858
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 2013 through 2015 remain subject to examination by Federal and state taxing authorities.

7.	STOCKHOLDERS’ EQUITY

On April 21, 2014 the Company issued two shares of Series A Preferred Stock to the two previous members of Securus. As long as a former member holds at least 9,000,000 shares of the Company’s common stock, then the member has the right to exchange his share of preferred stock for a 24.5% share of the membership interests of Securus upon a change of control in Securus (as defined). In connection with the transaction with Chyp on April 30, 2016, the Company acquired the two shares of Series A Preferred Stock.

On November 30, 2015, in connection with its acquisition of the U.S. assets and operations of Calpian Inc., the Company issued warrants to purchase an aggregate of 5,452,458 shares of the Company’s common stock at an exercise price of $0.05 per share, subject to adjustments. The warrants expire on November 30, 2025.

We estimate the fair value of warrants and stock options when issued or vested using the Black-Scholes options pricing model and subsequent changes in fair value are not recognized. Option pricing models require the input of highly subjective assumptions. We determined, using the Black-Scholes options pricing model, that these warrants have no current value, based on a maturity date of 5 years, a risk-free interest rate of 2.230%, and a calculated volatility rate of 8.530%, using historical stock prices of the Company.

On June 1, 2015, the Company issued 2,000,000 shares of its Common Stock to an executive in connection with the executive’s employment and the use of certain trade names and brands owned by the executive. 500,000 shares vested upon grant and an additional 500,000 shares were scheduled to vest on June 1, 2016, June 1, 2017, and June 1, 2018. The Company terminated the executive’s employment in January 2016, and the shares subject to vesting (1,500,000) were forfeited. The executive is currently disputing the forfeiture of these shares.

On March 18, 2016, the Company issued 2,300,000 Shares of Series B Convertible Preferred Stock (“Series B Shares”) to each of Thomas A. Hyde Jr. and Robert L. Winspear (each a “Holder” and collectively the “Holders”) at a price of $0.05 per share pursuant to subscription agreements between the Company and the Holders. Mr. Hyde is the President, Chief Executive Officer and a Director of the Company. Mr. Winspear is the Chief Financial Officer of the Company.

The Series B Shares are convertible into shares of the Company’s common stock par value $0.0001 (“Common Stock”) on a ratio of 1-to-1, subject to adjustment for stock splits and stock dividends. The Series B Shares rank senior to the Common Stock and other preferred shares and carry a liquidation preference of $.05 per share. Holders of the Series B Shares are entitled to receive dividends declared on the Company’s Common Stock on an as converted basis. Each Series B Share entitles the Holder thereof to 20 votes per share on all matters subject to voting by holders of the Company’s Common Stock. The issuance of a total of 4,600,000 shares of Series B Shares, entitles the Holders thereof to vote a combined 92,000,000 shares. Under the terms of the Series B Shares, the Company has the right to require a Holder to convert the Series B Shares into Common Stock at any time after the Holder resigns, is terminated or otherwise ceases to be an officer of the Company. In addition, the Company has the right at any time after July 18, 2016 to repurchase and retire all but not less than all of the Series B Preferred Stock for $0.05 per share provided that it gives notice to the Holder of the Company’s intent to redeem the shares and the Holder does not elect to convert the Series B Shares into Common Stock in lieu of the redemption.

In connection with the issuance of the Series B Shares, the Company and the Holders executed a Stockholders Agreement (the “Agreement”) whereby the Holders agreed to not to initiate directly or indirectly any stockholder vote or action, by written consent or otherwise, to increase the size or structure of the Company’s board of directors or remove any existing director, nor initiate directly or indirectly any stockholder vote or action by written consent or otherwise, to affect Holders’ executive compensation, bonus criteria and amounts, or other similar action. The Holders also agreed to convert the Series B Shares immediately upon termination, whether voluntary or involuntary, or upon their resignation for any reason.

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2016

Unaudited

8 .

ACQUISITION OF SUBSIDIARY

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 Calpian’s US assets had been consummated as of January 1, 2015. Such information is unaudited and is based on estimates and assumptions which the Company believes are reasonable.

These results are not necessarily indicative of the consolidated statements of operations in future periods or the results that would have actually been realized had the Company and Calpian been a combined entity during 2015.

Selected Pro Forma Financial Information	Excel			Calpian US Operations		Pro Forma

Revenues	$	1,153,709		$	4,487,397	$	5,641,106
Net income attributable to the Company	$	(523,940	)	$	901,492	$	377,552
Net loss attributable to the Company per common share - basic and diluted	$	(0.005	)	$	0.009	$	0.004

9 .

PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of March 31, 2016 and December 31, 2015:

	March 31, 2016			December 31, 2015
Computer software	$	44,319		$	35,595
Equipment		124,730			123,074
Furniture & fixtures		33,336			33,336
Leasehold improvements		3,471			3,471
Total cost		205,856			195,476
Less accumulated depreciation and amortization		(36,649	)		(10,516	)
Property and equipment – net	$	169,207		$	184,960

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2016

Unaudited

10 .

LEASES

The Company executed a lease for its corporate offices in Irving Texas. The lease began on November 1, 2014 and has a term of 63 months with monthly payments ranging from $0 to $6,428.

eVance leases its Georgia office facilities under an operating lease expiring in June 2016. Monthly lease payments range from $2,248 to $7,295 throughout the term of the lease.

Total rent expense for the three months ended March 31, 2016 was $132,623, compared to $100,524 for the three months ended March 31, 2015.

The future minimum lease payments required under long-term operating leases as of March 31, 2016 are as follows:

2016	$	78,062
2017		74,270
2018		75,648
2019 and after		83,454
Total	$	311,434

11 .

CONTINGENCIES

On December 23, 2015, a former employee filed a complaint against Securus alleging, among other things, interference with the Oregon Family Leave Act and unlawful employment practices. The former employee is seeking $500,000 in economic and non-economic damages. The Company intends to defend the matter vigorously.

12.

NOTES PAYABLE

The following summarizes the Company’s current outstanding notes payable:

	March 31, 2016			December 31, 2015
Note payable to BAV, due in monthly installments of $48,333 through May 2017, including simple interest at 15%, secured by the Company’s residual portfolio	$	578,411		$	681,361

Note payable to SME Funding LLC, due December 1,2016, bearing simple interest at 12%, secured by the Company’s residual portfolio		500,000			500,000

Notes payable due December 1, 2016, bearing interest at 12%, secured by the assets of eVance		8,029,916			8,029,916

Total		9,108,327			9,211,277

Less current portion		(9,014,711	)		(8,984,544	)

Long-term portion of notes payable	$	93,616		$	226,733

Excel Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2016

Unaudited

12.

NOTES PAYABLE (Continued)

Future maturities of notes as of March 31, 2016 are as follows:

2016		9,014,711
2017		93,616
Total	$	9,108,327

13.

RELATED PARTY TRANSACTIONS

On February 15, 2016, SME Funding LLC purchased $35,000 of the Company’s residuals for $700,000 cash pursuant to a residual purchase agreement (“RPA”). Under the terms of the RPA, the Company is obliged to maintain the residual at $35,000 for a period of 20 months. In addition, the Company has the right to repurchase the residuals for $770,000 until October 17, 2017. As a result of the repurchase option, the Company accounted for the transaction as a liability and not as a sale. The $700,000 is included in other long term liabilities on the accompanying balance sheet.

14.	SUBSEQUENT EVENTS

On April 12, 2016, eVance entered into an agreement with the Sellers and a cancellation of securities acknowledgement with one of eVance’s note holders whereby the noteholder cancelled their note in the amount of $720,084 and Calpian issued eVance a note in the amount of $675,000 in exchange for eVance and the Sellers mutually waiving any claims either party has or could have under the Purchase Agreement against one another. The $675,000 note bears simple interest of 12% per annum payable monthly and matures on November 30, 2017. As part of the Purchase Agreement, eVance acquired several residual portfolios including the supporting contracts (residual purchase agreements). eVance, as successor under one of these residual purchase agreements, has sued a third party for breach of contract on the residual purchase agreement between the third party and Seller and has claimed damages in excess of $1,500,000. eVance has agreed to apply any recovery from such litigation (less costs) against the principle balance of the $675,000 note up to a maximum of $675,000. The Company reflected the reduction in the assumed debt by $720,084 as a reduction in goodwill and a reduction in the debt assumed. In addition, the noteholder returned a warrant to purchase 360,042 shares of the Company’s common stock.

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 three months ended March 31, 2016 and 2015 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, 2015. 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 subsidiaries, Securus and eVance. Securus operates as a national retail ISO and MSP with primary sales and merchant support offices in Portland, Oregon and West Palm Beach, Florida, which supplement a network of approximately 120-150 independent sales representatives located throughout the country. Securus services approximately 5,000 merchants across the country using First Data Corporation as its primary processing partner. eVance utilizes multiple processing partners including TSYS, Cynergy, Elavon, First Data Corporation and others. These relationships allow us to provide rapid clearing of payments, using traditional credit card terminals, POS systems and mobile applications, including Apple Pay, Samsung Pay and Android Pay. Our merchant account solutions, combined with the latest mobile site and cloud based technologies, are designed to meet the unique needs of our over 10,000 merchant customers across the U.S.

Through our eVance subsidiary, we provide an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payments processing solutions to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. We operate as a wholesale ISO generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO eVance takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and we receive additional consideration for this service and risk. eVance also intends to acquire merchant debit and credit processing residual revenue streams paid by transaction processors to ISOs. eVance’ s U.S. merchant residual portfolios, comprise over 5,000 traditional retail and e-commerce merchant accounts, and several residual revenue portfolios.

During 2015, we began selling merchant cash advances through our Excel Business Solutions Inc. subsidiary. We sell alternative financing and working capital solutions to small and medium sized businesses as eVance Capital utilizing a variety of third party funding sources. We do not provide capital directly or take credit risk. We earn commissions from third-party capital funders by placing their financial products with our merchant customers. This portion of our business does not yet represent a significant portion of our revenues, costs, or assets.

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.

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.

Results of Operations

On November 30, 2015, eVance acquired substantially all of the US operations of Calpian Inc. As a result of this acquisition, operating results for the three months ended March 31, 2016 and 2015 are not comparable. Virtually all of the changes in the results of operations are due to the acquisition of Calpian’s US assets by eVance.

Revenues

During the three months ended March 31, 2016, we had revenues of $4,019,658 compared to revenues of $1,153,709 for the three months ended March 31, 2015.

Costs and Expenses

Our operating costs and expenses were $3,474,766 for the three months ended March 31, 2016 as compared to $618,740 for the three months ended March 31, 2015. Salaries and wages were $975,835 for the three months ended March 31, 2016 as compared to $374,752 for the three months ended March 31, 2015. Corporate overhead accounted for $741,009 of total costs and expenses for the three months ended March 31, 2016, as compared to $477,628 for the three months ended March 31, 2015.

Interest expense

Interest expense was $328,616 for the three months ended March 31, 2016 as compared to $78,904 for the three months ended March 31, 2015. The increase was due to the debt assumed by eVance’s purchase of Calpian’s US assets.

Net income from continuing operations

Net income from continuing operations was $216,276 and $456,065 for the three months ended March 31, 2016 and 2015, respectively. Additional income generated in the first quarter of 2016 from the acquisition of eVance was offset by higher corporate overhead.

Liquidity and Capital Resources

The following summarizes our cash flows:

	Three months ended March 31,
	2016			2015
Net cash used in operating activities	$	(233,114	)	$	(40,258	)
Net cash used in investing activities		(5,504	)		(77,805	)
Net cash provided by (used in) financing activities		127,050			(74,249	)
Net decrease in cash	$	(111,568	)	$	(192,312	)

Net cash used in operating activities for the three months ended March 31, 2016 was $233,114 as compared with $40,258 in 2015. Net losses for the three months ended March 31, 2016 were partially offset by changes in working capital.

Net cash used in investing activities was $5,504 for the three months ended March 31, 2016 as compared to $77,805 used in investing activities for the three months ended March 31, 2015.

Net cash provided by financing activities was $127,050 for the three months ended March 31, 2016 as compared to $74,249 used in financing activities for the three months ended March 31, 2015.

As of March 31, 2016, we had cash and cash equivalents of $250,562, total current assets of $1,410,636 and total current liabilities of $13,124,521.

The Company is currently seeking to refinance the debt assumed in connection with its acquisition of Calpian’s US assets as well obtain additional capital for general corporate purposes and to fund our growth including potential acquisitions of residual portfolios. There can be no assurance that the Company will be able to refinance its existing debt or obtain additional capital 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.

Revenue Recognition

The Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue.

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. Restricted cash is not included as cash and cash equivalents.

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.

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 March 31, 2016 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 March 31, 2016 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, 2015 filed with the SEC on April 13, 2016. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

As of the date of this Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

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

Exhibit Number		Description

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.

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.