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EXCEL CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

May 20, 2014

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the interim financial statements and the notes thereto contained elsewhere in this quarterly report on Form 10-Q ("Report"). Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Form 10-Q, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

Overview

We have been in a developmental phase since inception and currently have two lines of business operations: licensing and providing merchant services, including credit and debit card processing, credit card terminal leases, advances on receivables, and more.

On January 14, 2013, the Company entered into an Agreement of Merger and Plan of Reorganization (the "Merger Agreement") with Excel Business Solutions, Inc., a Delaware corporation ("EBSI"), and ECB Acquisition Corp., our newly formed, wholly-owned Delaware subsidiary. Upon closing of the transaction contemplated under the Merger Agreement, Acquisition Sub merged with and into EBSI, and EBSI, as the surviving corporation, became a wholly-owned subsidiary of the Company. Pursuant to the terms and conditions of the Merger Agreement, at the closing of the Merger, each share of EBSI's common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive an aggregate of 33,532.446 shares of common stock, par value $0.0001 per share, of the Company, with fractional shares of the Company's common stock rounded up or down to the nearest whole share.

Our merchant acquisition business began in 2013 and therefore, we have had no revenues from such operation during 2012 or first quarter 2013. However, during the second and third quarter of 2013 we had begun servicing a limited amount of merchants and expect that this business may grow to become a larger part of our operations in 2013.

In addition, on February 17, 2014 the Company entered into a Securities Exchange Agreement (the "SEA") with Payprotec Oregon, LLC, (dba Securus Payments) ("Payprotec"), Mychol Robirds and Steven Lemma, to effectuate the purchase of 90% of the membership interests of Payprotec and its subsidiary Securus Consultants, LLC ("Securus"). On April 21, 2014 the Company completed the acquisition of 100% of Payprotec pursuant to the SEA and through a Securities Exchange Agreement ("E-Cig Agreement) with E-Cig Ventures LLC.

As a result of these transactions Payprotec will constitute the majority of the Company's operations.

In our licensing business, we are focused on bringing national and international brands to the retail market. We act as agent for licensing brands of corporations, people, government agencies, etc. ("Licensors") in a broad range of product categories. We intend to obtain agent rights to license select brands where the brand name can be leveraged into new categories. Our objective is to develop a diversified portfolio of iconic consumer brands by creating and facilitating relationships between Licensors and retail businesses, wholesale businesses, manufacturers, etc. ("Licensees") who would sell products under the Licensor's brand. We expect to organically grow the existing portfolio and enter into joint ventures or other partnerships with the goal of leveraging the experience of agent management and that of our licensees to facilitate sales of branded products.

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Upon acquiring the rights to a license from a Licensor, we expect that such a license will typically require us to pay royalties based upon net sales with guaranteed minimum royalties in the event that net sales do not reach specified targets. Licenses for brands also typically require a licensee to pay to the brand owner certain minimum amounts for the advertising and marketing of the respective license brand. We intend to seek royalties from Licensees for brands where we are the agent. In addition, we will seek agent fees on minimum royalties and advertising and marketing fees which would offset any expenses we incur while acting as an agent.

We intend to seek the rights to license brands and enter into license relationships with domestic and/or international partners that have demonstrated ability to produce quality products that have been successfully marketed and sold domestically and/or internationally in a broad range of products categories.

Results of Operations Revenues



During the three months ended March 31, 2014, we had advance commissions of $11,166 and lease income of $10,322 compared to $0 revenues for the three months ended March 31, 2013. We had $0 in service fee income for the three months ended March 31, 2014, while we had $23,000 for the three months ended March 31, 2013. The service fee revenue in 2013 was from licensing. Although we may have some revenue from licensing for 2014 as well, we anticipate that the majority of our future revenues will come from our merchant services business.

Selling, General and Administrative Expense

Our selling, general and administrative expenses increased by 36% or $89,499 to $339,422 during the three months ended March 31, 2014, as compared to $249,923 during the three months ended March 31, 2013. The increase is due primarily to higher payroll costs offset by lower marketing expenses.

Net income

As a result of the forgoing, our net losses were $321,556 and $247,364 for the three months ended March, 2014 and 2013, respectively.

Liquidity and Capital Resources

The following summarizes our cash flows:

Three Months ended March 31, 2014 2013 Net cash (used in) operating activities $ (157,086 )$ (345,028 )



Net cash provided by (used in) investing activities $ 25,000$ (3,353 ) Net cash provided by financing activities

$ 150,000$ 24,122



Net cash used in operating activities for the three months ended March 31, 2014 was ($157,086) as compared with ($345,028) for the three months ended March 31, 2013. This increase in net cash used in operating activities of $187,942 was mainly attributable to lower working capital levels which were partially offset by higher operating losses.

Net cash provided by investing activities was $25,000 for the three months ended March 31, 2014, compared with ($3,353) used in the three months ended March 31, 2013.

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Net cash provided by financing activities was $150,000 for the three months ended March 31, 2014 as compared to $24,122 during the three months ended March 31, 2013. During the three months ended March 31, 2014, the increase resulted from the Company raising capital through the issuance of 1,628,570 shares.

As of March 31, 2014, we had cash and cash equivalents of $26,242, total current assets of $39,778 and total current liabilities of $542,878. Since inception, we have raised $1,167,653 to date through the sale of 35,161,016 shares of our common stock. With the completion of the acquisition of Payprotec on April 21, the Company will have substantially greater revenues and breadth of operations. There can be no assurances that the Company will be able to integrate Payprotec successfully or that Payprotec will continue to be profitable.

Going Concern

Our independent registered public accountants have included a going concern explanatory paragraph in their opinion of our 2013 and 2012 financial statements.

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's revenue consists of agent fees from client licenses issued and merchant acquirer fees. Agent fee revenues include royalties and brand fund contributions which will be based on a percent of sales and an initial license fee. Royalties, agent fees and brand fund contributions will be recognized in the period earned.

Merchant acquirer revenue will primarily be comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, 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. Fees will be recognized in the period earned.

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.

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Loss Per Share

Basic net loss per share is computed by dividing net loss available for common stock by the weighted average number of common shares outstanding during the period. Diluted loss per share was not presented, as the Company as of March 31, 2014 has no outstanding options which would have an effect on earnings.

Net Loss Per Common Share

Basic net loss per share is computed by dividing net loss available for common stock by the weighted average number of common shares outstanding during the period. Diluted loss per share was not presented, as the Company as of March 31, 2014 has no outstanding options which would have an effect on earnings.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company's financial statements.


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