Form 10 Highlights, new info and comments
Highlights :
1) Total current liabilities have increased by $400,000 in Q2
2) Loss from Operations: $397,215
3) Net Loss: $1,654,280
4) Revenues: $181,801
5) New Civil Action against MyECheck Inc. (From TCA)
6) Ed issues 90,000,000 shares to employees ($1,161,000)
7) Convertible notes are on the rise
Comments/New info :
Page 10
“Employees and Contractors
As of June 30, 2015, we employed seven (8) full-time employees. We also use outside contractors on an as needed basis.”
SEVEN (8) – LOL! Great Start!
Page 12
NXR Global is now mentioned. None of the other 20 PR’d deals are mentioned, however.
I wonder why...
“During the second quarter of 2015, MyECheck entered into agreements with two new business partners which further expands the Company’s customer base. In April of this year MyECheck entered into a Services Agreement with NXR Global, a leading distributor of health and wellness products, pursuant to which MyECheck agreed to process payments from NXR Global’s customers.”
Page 13
“We have limited operating history and may not have sufficient resources to continue operations.
There are no assurances that MyECheck will always have sufficient resources to continue operations. Management estimates that the Company will require Six Hundred Six Thousand and Six Hundred and Sixty Six dollars ($606,666) to operate for the next six (6) months.”
This means that management estimates that it will require $101,111 per month to operate. The Sales, General and Administrative expenses for the previous 6 months were, however, $1,239,727 or $201,621 per month.
Is the estimate reasonable? You decide…
Page 15
New civil action against MyECheck Inc.
“MyECheck is a defendant in a civil action initiated on July 13, 2015 by TCA Global Credit Master Fund, L.P. (as Plaintiff) in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The action is styled TCA Global Credit Master Fund, L.P. v. MyECheck, Inc., et al. TCA is a holder of the Company’s convertible notes and is seeking damages in the aforementioned action for alleged breaches by MyECheck of the provisions of the convertible notes issued to TCA. Although MyECheck disputes many of the allegations set forth in TCA’s complaint, there is a risk that TCA may ultimately prevail in its action against MyECheck and an award of damages to TCA in this case may have a material adverse effect on the Company’s financial condition.”
This is really strange. The lawsuit is dated July 13th but the company issued a PR on July 16th saying that they repaid the loan. There is NO information in the Form 10 that shows that the debt has been repaid or transferred to anyone else. Being a material transaction, this information would need to be included. The new financing agreement with the new private investor would need to be included also. IMO, TCA likely wants shares instead of having the debt transferred. They gave a notice to MyECheck in April stating that they were in default. I will need to review the agreement carefully. There may be a lot more to this story that we are not made aware of. Of course, as soon as the last TCA PR hit, I posted on the board saying that there was a lot more to this that ED was hiding from us. Looks like I was right.
Page 16
“Results of Operations
We incurred a net loss of $992,923 for the year ended December 31, 2014 and a net loss for the three and six-month periods ended June 30, 2015 of $1,675,376 and $1,777,783, respectively. At June 30, 2015 we had cash and cash equivalents of $22,850 and a working capital deficit of $1,966,936.”
The working capital deficit increased from $1,499,239 to $1,966,936 from during Q2.
The financial health of the company is worsening. Money is being burnt away leading to more debt. Ed is starting to like debt. Especially not paying it.
Page 17
Breakdown of SG&A expenses for the quarter shows that the rent expense was $38,751. If you look at the current liabilities, we see Accrued Rent for $32,904. This shows that MYEC is almost 3 full months behind on rent payments.
Furthermore, who knows what is included in the "Miscellaneous Expenses" category for $73,751. The amount of "miscellaneous expenses" is equal to over 40% of the Q2 revenues! That's significant and more details should be shown, IMO. As a financial auditor, I would be questioning this. Auditors don't like miscellaneous accounts with significant balances. That's were you find some surprises.
Page 28
“On April 16, 2015, the Company approved the partial assignment of $40,000 of a debt dated October 5, 2010. On April 21, 2015, the Company authorized the conversion of such debt into 40,000,000 shares of common stock to an accredited investor at $0.001 per share. The note was converted during the three months ended June 30, 2015 and the Company recorded a loss on conversion of $840,000.”
“On April 2, 2015, the Company issued and executed a convertible note to an accredited investor for $15,900. The Company converted accounts payable for services provided to allow the Company to become DTC eligible of $14,500 plus interest of $1,400 incurred on January 29, 2014. The note has a term of one year and bears interest at 10% and is unsecured. The debt is convertible based upon 50% of the stock price at January 29, 2014 of a price per share of $0.0016. On April 7, 2015, the note was converted to 19,875,000 shares of the Company’s common stock which resulted in a loss of $389,550.”
These 2 entries were not included in the previous Form 10 and should have been included based on the dates. (**The information was PARTIALLY included in the notes to the financial statements but nothing shown in this section**). Note that the accredited investor is still not named and the accredited investor received the shares at a great discount. Why would Ed give out so many shares for so little debt? Is he being blackmailed or something?? Convertible notes were being issued every week or so between April 2nd and May 6th. More convertible notes were issued in June too. So, we can expect millions more shares to hit the open market at some point.
“From time to time the Company raises working capital due to issuances of convertible notes as further described below. During the six months ended June 30, 2015, we entered into multiple convertible notes payable with five (5) containing embedded derivative liabilities (conversion options).”
As per Page F-12 of the Q2 financial statements, the Company had potential common stock equivalents at June 30, 2015 totaling 68,415,043 shares (or $828,000 in shares). Meaning, that if all are converted, it would add about 70 million shares to the float. (By the way, the dollar signs on the right part of that table are another one of the mistakes I have found in the Form 10. Bruce Smith, the guy Ed had fired, is still working on this).
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2015
A large portion of the NET LOSS is attributable to the loss on convertible note(s). Because of stock issued at ridiculous PPS levels.
BUT, let’s look at the LOSS FROM OPERATIONS. If revenues had been 3 times higher, MYEC would still have suffered a loss from operations. They are spending more than $3 to make $1.
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2015
Liabilities have increased by $400,000
The $234,060 in payroll taxes payable remains
MYEC is still almost 3 months behind on rent payments ($34,776)
Convertible notes are on the rise
STATEMENT OF CASH FLOWS
Net Cash USED by Operating Activities: $388,269
Ed has the audacity to tell us they are operating near cash flow positive??? Another lie.
Ed must really think all his shareholders are fools.
Customers & Concentrations
“One customer comprised 88% of the total revenue for the six months ended June 30, 2015 and three customers comprised 98% of the total revenue for the year ended December 31, 2014.”
A little bit of math shows that $491,136 of the total revenues for the 6 months is attributable to Sierra Global. Furthermore, $55,684 of the Q2 revenue is attributable to someone other than Sierra Global. Although this doesn’t even cover miscellaneous expenses, it is interesting that MYEC has another customer generating some revenue. I haven’t yet found more information about the nature of the revenue (ex: transaction revenue, consulting revenue, other revenue). I’m assuming it’s another client generating revenue through MYEC’s normal business operations. This is the only positive point I was able to dig out. Sorry Longs...
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“The Company acquired related party debt associated with the acquisition of Seergate in the amount of $9,500”
Although this is minor, Ed said Seergate had no debt and that the acquisition price would be adjusted/lowered to account for any debt. I thought I would include it, since I don't like CEO lies.
PAGE F-25
“On July 29, 2015, the Company executed and awarded a combined total of 90,000,000 shares of MyECheck common stock to its Employees at a fair market value of $0.0129 per share”
The total dollar value on this stock issuance is $1,161,000 !
MYEC has 7 employees. This amounts to (on average) $165,857 to each employee! That is a slap in the face to all shareholders. Why were those share issued? Performance? Is it because Ed can’t pay his employees with cash? Possible.
No more net dilution? Another lie.
Note: There is no mention as to whether or not these shares are restricted
AVIDIA BANK DEAL
For those who thought that MYEC would be getting a share of all of Avidia’s processing revenues, see Exhibit A from the agreement:
Exhibit A
Fees and Revenue Sharing
For Net New Business to MYEC:
• Reseller shall receive twenty (20) percent of MYEC's Fees paid by those Customers using the Solution.
• MYEC shall not be entitled to any share of Reseller revenue associated with their monthly account fees, interest income or cross sell of other Reseller products including but not limited to loans, cards, etc.
For Net New Business to Reseller:
• Reseller shall receive no revenue share on MYEC Fees.
• MYEC shall receive only their Fees and no share of Reseller revenue associated with their monthly account fees, interest income or cross sell of other Reseller products including but not limited to loans, cards, etc
Billing:
• MyEcheck shall bill Customers using the Solution the appropriate Fee on a daily automated basis.
• MyEcheck shall pay Reseller their revenue share portion within the first five (5) business days of each calendar month for the prior month’s activity.
THINGS MISSING IN THE FILING
1) The new financing agreement with the private investor who purchased the TCA debt, if any.
2) The agreement with the United Bank for Africa (UBA), if any.
All material events need to be disclosed for SEC approval, IMO.
Looking forward to seeing the next amendment.
AI
