MYEC Form 10-K

MyECheck’s prior full fiscal year ending December 31, 2015 is not indicative of MyECheck’s current business plan and operations. Incorporated in October 2004, MyECheck currently has limited revenues and is deemed an early stage Company. This plan of operation will focus on MyECheck’s business plan and operations current. There can be no assurance that MyECheck will generate positive cash flow and there can be no assurances as to the level of revenues, if any, MyECheck may actually achieve from its operations.

Implementation Plan

Following is an outline of MyECheck’s plan to build a widely used payment system. The success of MyECheck depends on a number of factors including the careful selection and active participation of qualified Value Added Resellers (“VARs”) and Payment Service Providers (“PSPs”). The VARs / PSPs commitment to MyECheck will depend on the commercial viability of MyECheck’s solutions and web-based services.

MyECheck targets internet payment gateways and payments software and service providers for partnership and reseller opportunities.

Early emphasis has been on building sales channels through partnerships. MyECheck has experienced early success in partnerships with PSP Cardinal Commerce and is in discussions and other major PSPs.

In addition to its in-house direct sales department, MyECheck has engaged a number of specialized independent sales agents such as Sheffield Resource Network and others, who leverage their existing contacts for direct sales.

MyECheck has an active PR program and issues press releases on a regular basis which generate in-bound leads and interest from industry press. Company management conducts interviews with national press. MyECheck attends and exhibits at industry trade shows, conferences and other networking events.

MyECheck’s in-house sales force and independent sales agents also use email and cold calling marketing techniques, focusing on the industry’s largest target companies. MyECheck is currently in discussion with a large Independent Sales Organizations (ISOs) regarding partnership and representation opportunities.

In addition to the effective marketing and distribution of MyECheck’s services, MyECheck’s infrastructure must be able to support a significant increase in transaction volume. MyECheck plans to enhance its infrastructure by adding a new data center and new hardware in anticipation of increased transaction volume. MyECheck plans to continue to scale its infrastructure in advance of the need.

Critical Accounting Policies

The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting) are the financial statements are presented in US dollars. The Company has adopted a December 31 fiscal year end. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and the expenses during the reporting period. Actual results could differ from those estimates.

Revenue recognition

The Company records revenue when all of the following have occurred; (1) persuasive evidence of an arrangement exists, (2) product delivery has occurred,
(3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.

The Company derives its revenue primarily from the sale of software licenses, software subscriptions, maintenance services and consulting/training revenue. License revenue for a perpetual license is recognized at the time the license is sold. Subscription revenue and maintenance revenue are recognized ratably over the life of the agreement, and consulting/training revenue is recognized as work is performed. Deferred revenue is recorded for advance billings that are made prior to revenue being earned. Unbilled revenue is accrued to recognize revenue that has been earned but not billed as of the end of the accounting period and is included in accounts receivable in the accompanying consolidated balance sheets.

The Company earns revenue from services, which has included the following:
electronic check processing, financial verification, identity verification and check guarantee services. The services are performed under the terms of a contract with a customer, which states the services to be utilized and the terms and fixed price for all services under contract.

The price of these services may be a fixed fee per transaction and/or a percentage of the transaction processed depending on the service. Revenue from electronic check processing is derived from fees collected from merchants to convert merchant customer check data into an electronic image of a paper draft, which allows the Company to deposit the funds to the merchant’s bank through image clearing with the Federal Reserve on behalf of the bank. The Company recognizes the revenue related to electronic check processing fees when the services are performed.

Revenue from financial verification is derived from fees collected from merchants to process requests to validate financial verifications to an outside service provider under contract with the Company. This revenue is recognized when the transaction is processed, since the Company has no further obligations.

Revenue from check guarantee services is derived from fees collected from merchants to process transaction to an outside service provider under contract with the Company. This revenue is recognized when the transaction is processed, since the Company has no further obligations.

The Company derives revenue from monthly maintenance fees and initial customer set-up fees. Monthly maintenance fee revenue billed monthly and is recognized as services are performed. Initial set-up fees are recognized over the respective customer relationship period. Payments received in advance of completing the earnings process are recorded as deferred revenue and recognized over the remaining service period.

Accounts Receivable

The Company typically offers credit terms to its customers. Terms are established primarily through payment clauses within customer contracts for services. The Company makes estimates of potentially uncollectible customer accounts receivable. The Company evaluates the adequacy of the allowance on a periodic basis. The evaluation includes historical loss experience and length of time receivables are past due. When a customer’s account becomes past due, the Company initiates dialog with the customer to determine the cause. When an account becomes 60 or more days past due, the account is referred to a collection agency or a legal partner. If it is determined that the customer will be unable to meet its financial obligation, such as in the case with a bankruptcy filing, deterioration in the customer’s operating results or financial position, or other material events impacting their business, the Company records a specific reserve for bad debt to reduce the related receivable to the amount it expects to recover given all information presently available. Management has recorded an allowance for doubtful accounts of $202,200 and $0 as of December 31, 2015 and 2014, respectively.

Intangible Assets

The Company capitalizes the cost of purchased customer relationships, technology and trade names. The Company amortizes the customer relationships, technology and trade names over their estimated useful life of five years using the straight line method. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Foreign Currency Transactions

From time to time the Company will enter into transactions that are settled in a foreign currency. The transactions are recorded in U.S. dollars based on the exchange rate in effect at the time a transaction is initiated. When a transaction is settled, the foreign currency received to settle the transaction is converted to U.S. dollars based on the exchange rate in effect at the time of settlement. A realized foreign currency exchange gain or loss is recorded based on the difference in the exchange rate in effect when a transaction is initiated, and the exchange rate in effect when a transaction is settled. For the years ended December 31, 2014 and 2013, the Company reported a gain (loss) in foreign currency transactions of approximately $2,000 and $0, respectively.

Stock-based compensation

Stock-based compensation is accounted for at fair value in accordance with ASC
718. To date, the Company has not adopted a stock option plan and has not granted any stock options.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

For option-based simple derivative financial instruments, the Company uses the multinomial option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

Income Taxes

Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for one year in which those temporary differences are expected to be recovered or settled. Use of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code section 382 if a change of ownership occurs.

Earnings per Share

In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

Results of Continuing Operations

We incurred a net losses of $5,114,181 and $992,923 for the years ended December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014, we had cash and cash equivalents of $5,425 and $51,261 and a working capital deficit of $2,945,710 and $1,345,517, respectively.

Years ended December 31, 2015 and 2014

We had revenue from continuing operations in December 31, 2015 of $730,777, compared to $952,156 in 2014. Cost of revenue from continuing operations in December 31, 2015 was $130,120, compared to $99,976 in 2014, for an increase of $30,144 or 130%. Selling, general and administrative expenses (“S,G &A”) was $4,497,707 in 2015 compared to $1,458,374 in 2014, an increase of $3,039,333 or 208%. S,G & A was mostly contributable to the following:

Twelve months ending:             12/31/2015      12/31/2014         $ VAR        % VAR
Salaries & Related Expense        $   663,769     $   411,080     $   252,689         61 %
Stock Compensation                  1,842,383         299,695       1,542,688        514 %
Research & Development                310,001         254,580          55,421         22 %
Legal & Professional Fees             563,604         169,164         394,440        233 %
Bad Debt expense                      202,200               -         202,200        100 %
Advertising & Marketing expense        31,166          74,461         (43,295 )       42 %
Amortization of Loan Fees             153,619          43,106         110,513        256 %
Amortization of IP                    422,676               -         422,676        100 %
Rent                                  142,813          29,797         113,016        379 %
Miscellaneous                         165,476         176,491         (11,015 )       94 %
Total Expenses                    $ 4,497,707     $ 1,458,374     $ 3,039,333        208 %

Professional fees included Audit and Review expenses while legal fees also played a role in becoming SEC compliant. The Company awarded its staff of key senior personnel with a one time employee stock grant amounting to employee stock compensation of $1,135,200 for their commitment and efforts in the development of the mobile application and the success of becoming SEC compliant. In addition, we obtained legal counsel on various legal issues as further described in Item 8. Legal Proceedings. Research and Development expense increased due to the integration of the software platform and the mobile application.

Other Income (Expense)

Interest income (expense) for the years ended December 31, 2015 and 2014 was ($322,706) and ($24,266), respectively for an increase of $298,359 or 1330% from the same period in 2014.

Other income (expense) for the years ended December 31, 2015 and 2014 was $72,288 and $140,685 respectively for a decrease of $68,397 or 49% over the same period in 2014.

Liquidity and Capital Resources

As of December 31, 2015, we had cash and cash equivalents of totaling $5,425 and a working capital deficit of $2,945,710. For the year ended December 31, 2015, we incurred a net loss of $5,114,181 and at December 31, 2015, we had an accumulated deficit of $9,992,442 and a total stockholders’ equity of $30,653. However, there is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to achieve and maintain profitability and have sustainable cash flows.

Management estimates that the Company will require Nine Hundred and Ninety Thousand Dollars ($990,000) to operate for the next twelve (12) months. Any required expenditure will be completed through internally generated funding or from proceeds of sale of common or preferred stock, or borrowings.

Cash Flows

Cash used in operating activities

Net cash used by operating activities for the year ended December 31, 2015 amounted to $1,106,172, which mainly consisted of the following: a decrease in accounts receivable of $55,984, an increase in payroll expense of $81,100, an increase of accounts payable and accrued expenses of $88,183, an increase in depreciation and amortization of $203,062, an increase of stock issued for services of $31,600, an increase of stock compensation of $1,810,783, an increase in loss on debt conversion of $1,198,100, an increase in bad debt expense of $202,200, an increase in amortization of IP of $431,426, a decrease in deferred revenue of $24,275 and a decrease of fair value of derivative liabilities of $903,798.

In the year ended December 31, 2014, net cash used by operating activities amounted to $398,966, which mainly consisted of the following: an increase in accounts receivable of $140,740, an increase in deferred revenue of $25,000, an increase in prepaid expenses of $135,444, an increase of accounts payable and accrued expenses of $125,730, an increase in depreciation and amortization of $47,311 which comprised depreciation expense of $4,205 and amortization of loan fees and website fees of $43,106, an increase of loss on debt conversion of $62,980 offset by income from forgiveness of debt of $147,164, an increase of stock compensation of $299,965 and an increase of fair value of derivative liabilities of $48,878.

Cash used in investing activities

Net cash provided (used) by investing activities totaled ($58,859), for the year ended December 31, 2015. During the period we purchased additional equipment and furniture in the amount of $56,013, the purchase of the new website for $10,623 in addition to investments in other assets in the amount of $7,777.

Net cash provided (used) in investing activities for the year ended December 31, 2014, totaled ($152,064) and comprised $70,502 in security deposits for the new facility, the purchase of new computer equipment amounted to $62,561 along with the purchase of the website for $9,000 and the purchase of treasury stock in the amount of $10,001.

Cash from financing activities

Net cash provided (used) in financing activities was $1,119,195 in the year ended December 31, 2015. We received proceeds from a convertible debenture in the amount of $1,131,095, proceeds from related party loan payable for $76,981 in addition to the repayment of a related party loan payable in the amount of $128,233. This period also included proceeds from a note payable of $47,000 and net cash disbursements from acquisition in the amount of $7,648.

Net cash provided (used) by financing activities was $602,226 in the year ended December 31, 2014. This amount was comprised of proceeds from a related party loan payable of $34,036, proceeds from a stock subscription receivable of $45,500, proceeds from a convertible debenture in the amount of $489,025 in addition to proceeds from a note payable for $56,415. There was a repayment on convertible debt in the amount of $22,750.

Financial Condition

As of December 31, 2015, we had cash and cash equivalents totaling $5,425, a working capital deficit of $2,945,710 and stockholders’ equity of $30,653. We have a line of credit facility and have relied on short-term borrowings to provide cash to finance our operations. We believe that we will need to raise additional capital in 2016 to sustain our operations. The future of the Company as an operating business will depend on its ability to obtain sufficient capital contributions and/or financing as may be required to sustain its operations.

Management’s plans to address these issues includes a continued exercise of tight cost controls to conserve cash and obtaining additional debt and/or equity financing.

As we continue our activities, we will continue to experience net negative cash flows from operations, pending receipt of significant revenues that generate a positive sales margin.

The Company expects that additional operating losses will occur until net margins gained from sales revenue is sufficient to offset the costs incurred for marketing, sales and product development. Until the Company has achieved a sales level sufficient to break even, it will not be self-sustaining or be competitive in the areas in which it intends to operate.

We will need to secure additional funds to finance our operations in 2016, but there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

On May 17, 2015, entered into an Authorized Reseller Agreement with Avidia Bank. Under the terms of the Reseller Agreement between MyECheck and Avidia Bank, MyECheck agreed to authorize Avidia Bank to sell MyECheck’s data processing services and its mobile payment system to Avidia’s customers. In addition Avidia bank has agreed to authorize MyECheck to sell its data processing services and its mobile payment system to its customers. For the year ended December 31, 2015, this contract resulted in gross commission revenue in the amount of $155,594 of which $107,617 was paid out as commission to a third party vendor for transaction fees resulting in net revenue to the Company in the amount of $47,977.

On September 9, 2015 the Company entered into a Services Agreement with PacNet Services, Ltd. After the integration process was complete, the first transaction was processed on September 28, 2015. In the third and fourth quarters of 2015, PacNet processed 29,201 transactions resulting in transaction fees in the amount of $7,318.The cost of processing these items to an outside vendor is $0.10 per item resulting in an amount owed the vendor of $2,920.

On September 21, 2015, executed and entered into a Service Agreement with Charleston Enterprise Group to provide fully electronic check services for Charleston’s property management business. Under the terms of the agreement, MyECheck will provide a rent payment solution that enables electronic rent payments by tenants to landlords’ existing bank accounts. As of the date of the filing the Company has integrated Charleston Enterprise Group and is processing rent payments per the terms of the Agreement. The Company Invoices Charleston Enterprise Group a flat rate each month and has received a total of $2,935 since inception.

On September 29, 2015, the Company executed and entered into a Services Agreement with TradeRocket, Inc., operator of the TradeRocket invoicing and payments platform, providing them with fully electronic payment services to facilitate secure, low cost, high speed electronic payments for business customers using the TradeRocket platform. As of the date of the filing the integration has not been complete. TradeRocket planned to integrate in the first quarter but they delayed due to higher internal priorities.

On October 6, 2015, the balance on the initial assignment owed by MyECheck to Conwell Kirkpatrick relating to debt incurred prior to December 21, 2015 of $53,055 was paid and executed. In addition, the Board of Directors authorized the conversion of the Conwell Kirkpatrick Note of $53,055 at a conversion price of $0.002 or 26,527,455 shares of common stock.

On October 9, 2015, the Company issued and executed a Convertible Promissory Note to Microcap Equity Group, LLC for $15,000, due October 9, 2016, bearing interest at the rate of 12% per annum. This note shall be paid in full in part to Holder by conversion at the maturity date based upon the discounted price of fifty percent (50%) of the lowest closing price for the Common stock during the thirty Trading Days ending on the latest complete Trading Day prior to the Conversion Date. At September 30, 2015, the conversion factor represents a price per share of $0.0079 for a total common stock issuance of 1,910,828.

On October 23, 2015, the Company entered into a Services Agreement with General Payment Systems, Inc. (“GPSI”), a payment processing, technology company that specializes in the $500 billion government payment space. MyECheck will provide fully electronic payment services to its customer under the Services Agreement. GPSI provides high volume payment automation solutions to courts, municipalities and other government agencies through Kiosks currently located in Kern County and Los Angeles County. Integration was complete and live on March 23, 2016. As of the date of the filing we are in the ramp up stage and expect to generate revenue in the 3rd and 4thquarters, 2016, herein attached as Exhibit 10.63.

On October 22, 2015, the Promissory Note for Cardinal Commerce was purchased by an accredited investor and converted to stock at a price per share of $0.001 for a total common stock issuance of 11,790,000.

On November 2nd, 2015, Mr. Bill Delgado, a former member of the Company’s Board of Directors and the Company reached an agreement by which the Company agreed to compensate Mr. Delgado with 25,000,000 shares of the Company’s common stock. There were no legal proceedings filed at any time.

Inflation

We do not believe that inflation has had a material effect on our results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).