Item 1. Business

Business Summary

MyECheck is a payments and banking software developer, licensor and services provider.  The company was the first to commercialize the fully electronic check technology described in US Patent 7,389,913 “Method and Apparatus for Online Check Processing.”  MyECheck has successfully processed millions of fully electronic checks on behalf of major corporations, government entities, small businesses and payment processors.  MyECheck acts as a data processor for its customers. It receives transactional data from its customers, and uses the patented technology to format the data into Check 21 files, and transfer the files to a bank for clearing.

In 2015 MyECheck launched eMobile, a mobile payment system for the US market.  eMobile is a 100% software solution that can be downloaded to enable mobile payment acceptance at low cost and risk, without using credit or debit card systems.  The eMobile app can be downloaded from Google and Apple app stores. 

The “e” platform, developed for and licensed to domestic and international banks, is a cloud banking, billing and payment system that enables secure, fully electronic commerce over mobile devices, web, email, text, social media and card-less ATM.

MyECheck’s revenue is derived from transaction fees. The company collects a fee per transaction, it also collects up-front licensing fees.

Summary History of MyECheck

MyECheck started processing transactions on version one of its software platform in July of 2005 and continued through March of 2006, after which it ceased processing in order to further develop and refine its service offerings.

During the period from March of 2006 through September 2007, MyECheck redesigned and developed its software platform to better suit the demands of its prospective customers and to ensure the accurate performance of the software.

MyECheck had been sponsored by First Regional Bank, and successfully completed approval and check image file (ANSI X9.37) testing with the Federal Reserve Bank in the second quarter of 2007. On January 29, 2010, the Company’s sponsoring bank, First Regional Bank, was closed by the Federal Deposit Insurance Corporation (FDIC). The new bank acquiring the old bank from the FDIC obtained all rights to accept or reject former contracts. The new bank elected to reject the Company’s agreement with the old bank. The Company is in the process of moving its customers to one of its other processing banks, such as JP Morgan Chase and Bank of America .  While the Company does image cash letter deposits with JP Morgan Chase and Bank of America, there is currently no direct contractual relationship between MyECheck and JP Morgan Chase or Bank of America. The Company only makes deposits to their customer’s accounts.

MyECheck entered into a merger agreement in November 2007 with Sekoya Holdings Ltd., a non-trading Nevada corporation in the process of developing an online payment system for use in the Chinese online community.  This agreement was amended on February 4, 2008, and became effective on March 14, 2008. Under the merger agreement, shareholders of Sekoya at the time of the merger would own approximately 40% of the shares of the surviving company and shareholders of MyECheck would own approximately 60% of the surviving company, with all parties being diluted by additional financing to be completed following the Merger (excluding 2,000,000 shares held in escrow as remedies for breaches of the Merger Agreement). Subsequent to the acquisition by MyECheck, Sekoya’s operations were phased out.

MyECheck filed a Registration Statement with the SEC in February, 2008, to have its securities traded on the OTC:BB exchange. The Company engaged Berman & Co., PA as their auditors and became a fully reporting company in June, 2008. At that time, MyECheck commenced trading on the OTC:BB exchange. After the Company’s sponsoring bank, First Regional Bank, shut down, MyECheck had very limited revenue and few prospects for capital. As a result, the Company was unable to maintain the costs associated with being a fully reporting company. On October 5, 2012, the Company filed Form 15 with the SEC to terminate its reporting obligations and has since been trading on the OTC:PK as a limited reporting company.

On August 20, 2014, MyECheck completed the acquisition of its licensee, GreenPay, LLC. The net purchase price for the licenses sold to Sierra Global was determined to be $412,000 after the acquisition of GreenPay, LLC. The license issued to GreenPay, LLC on February 24, 2014 will remain with Sierra Global per the terms and conditions of the merger. In addition, certain other assets owned by GreenPay, LLC were retained by Sierra Global. The acquisition of GreenPay, LLC was limited to acquiring the name and the business plan for GreenPay, LLC. All other assets were excluded from the acquisition. GreenPay, LLC is now a wholly owned subsidiary of MyECheck, Inc. GreenPay assets are owned by MyECheck, however GreenPay will be operated as a separate entity and will move forward with an independent board of directors and management in 2016.

On May 6, 2015, MyECheck, Inc. completed its acquisition of Seergate, Ltd. Seergate is an Israeli corporation that has developed an innovative cloud based platform for billing and payments. MyECheck acquired 100% of the issued and outstanding shares of Seergate in exchange for 150,000,000 shares of MyECheck common stock.

The 150,000,000 shares of common stock exchanged in connection with the Seergate acquisition were valued based on a ten day average of the price prior to closing. The acquisition of Seergate, Ltd., and the integration of the Seergate system into the MyECheck payment systems, adds multiple, new international payment and banking related capabilities to MyECheck’s payment platform. Seergate assets include technical expertise, software, patents, and an established sales channel. The Seergate platform enables MyECheck to operate a closed loop payment system independent of third party software platforms. As a result of the acquisition, MyECheck will be able to bring additional value and innovation to all merchants, enabling them to transact anywhere in the cloud and/or in person with a one stop shop. The strength of the combined companies and unique business model enables MyECheck to offer revolutionary services to customers as it leverages its joint industry expertise. The IP acquired from Seergate has become the Company’s primary technology and is used with all services that the Company provides.

On January 13, 2016, the Company executed and entered into a Merchant Sales Referral Agreement with ReceivePay whereby both parties refer merchant customers to one another. ReceivePay agrees to pay MyECheck, Inc. a referral fee for promoting their payment services to the Company’s merchant customers and MyECheck agrees to pay ReceivePay a referral fee for promoting their payment services to the Company’s merchant customers, herein attached as Exhibit 10.64.

On January 15, 2016, MyECheck, Inc. executed and entered into a Services Agreement with Secure Account Service, LLC (“SAS”), which is in the business of Trust Account servicing. MyECheck will provide fully electronic check services to SAS under the terms of the Services Agreement. Secure Account Services was fully integrated on February 25, 2016, and has processed 3,380 transactions to date, herein attached as Exhibit 10.65.

On February 18, 2016, the Company executed and entered into a Software License and Agency Agreement with Centric Gateway Limited (“Licensee”). MyECheck grants the Licensee (and its successors and assigns as permitted herein) a limited, exclusive, non-transferable, sub-licensable license for the purpose of selling a right to use the Processing Solution to Licensee’s Customers in Nigeria and other African countries that the financial institutions may extend the Processing Solution to (the “Territory”) as agreed to and substantiated in writing by the Parties, herein attached as Exhibit 10.66.

Revenue

Revenue is recognized when persuasive evidence of an arrangement exists.  Persuasive evidence of an arrangement is considered to exist when there is a signed agreement, delivery of the product or performance of the service has occurred, the fee is fixed or determinable, and collectability is probable. 

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.

Revenue is also generated from transaction fees charged to companies that contract with MyECheck to utilize the Company’s services. The Company charges a flat fee per transaction that is relatively low in comparison to card interchange rates plus fees. A transaction fee is charged per electronic check and per use of MyECheck’s fraud control tools. Fees for fraud control vary according to the amount of fraud screening required per each merchant.

About Check 21

Check 21 was signed into law on October 28, 2003, and became effective on October 28, 2004. Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation. The law facilitates check truncation and permits banks to truncate original checks and to process check information electronically. As a result, the check clearing system has transformed from a paper exchange system to an electronic exchange system, whereby financial institutions can now handle and process all checks electronically, increasing efficiencies and reducing time and costs.

MyECheck leverages Check 21 by utilizing the national electronic check clearing networks that were created as a result of the law. The Company uses the national electronic check clearing system to process and clear the fully electronic checks that it creates.

The Company is aware of other companies that have emerged as a result of the opportunities created by Check 21. To date these companies have not been direct competitors to MyECheck. Primarily because most companies engaged in the Check 21 related industries have been focused on imaging, formatting and clearing checks that originated as paper items while MyECheck has focused on the processing of the fully electronic checks.

MyECheck believes that competition in the fully electronic check space will increase in the near future as changes to Reg CC, the law that defines payment instruments, further enables fully electronic checks.

The Services of MyECheck

MyECheck offers comprehensive, easily implemented solutions that include real-time check authorization, payment guarantee, check image creation and clearing and complete online reporting. Set out below are services that MyECheck provides or intends to provide as part of its business plan.

Electronic Check Service

Internet merchants and other companies wishing to accept payments online or over a telephone (“Merchants”) can directly integrate with MyECheck’s payment engine. Payer check data is collected by the Merchant either at the Merchant’s website or over the telephone, and is transmitted in real-time to MyECheck for processing.

MyECheck uses patented technology, US Patent 7389913 – Method and apparatus for online check processing, to generate electronic checks in accordance with the Federal Reserve Check 21 specification. Electronic checks are formatted and are transmitted in near real-time to banks, or more commonly directly to the Federal Reserve for clearing on behalf of MyECheck’s partner bank(s).

MyECheck believes that its electronic check service overcomes many of the shortcomings of Automated Clearing House (“ACH”) based e-check systems and cost effectively provides higher transaction success rates, faster funds clearing and fewer returned items.

MyECheck believes that it is positioned to capture a significant market share of the payments industry with a viable alternative payment method for mobile and online payments.

Check Authorization Service

MyECheck offers Check Authorization Service that enables merchants to verify consumer provided data, check the status of the customer’s bank account, provide evidence that the consumer has authorized the check and predict the likelihood of a check being returned unpaid. Businesses that accept payments online through MyECheck utilize this service to provide greater assurance that the check will clear. Transactions can be approved or declined based upon the results of the Check Authorization Service.

Check Guarantee Service

MyECheck co-markets with Giact Systems, Inc., Check Guarantee Provider, to offer Check Guarantee Services. On June 11, 2014, the Company entered into a Services Agreement with Giact Systems, Inc. for a term of one (1) year with automatic renewal for like periods unless either Party gives a 30 day written notice of its intent not to renew.

The Check Guarantee Provider warranties all approved checks and reimburses the Payee for financial losses incurred as a result of returned checks. The Check Guarantee Provider buys the returned checks that have been warranted from merchants for the full face value of the returned checks. MyECheck merchants utilize Check Guarantee Service so that they can ship products or provide services immediately without having to wait for the check to clear.

The Check Guarantee Service also eliminates the need for Merchants to collect on returned checks from their customers. The Check Guarantee Providers are independent third parties whose services are offered to Merchants separately from the MyECheck service. MyECheck is not compensated by, and does not compensate, Check Guarantee Providers. MyECheck may in the future enter into compensated arrangements with Check Guarantee Providers.

Merchant Reporting

Through our Merchant interface, MyECheck provides the following reports:

In addition to the above reports, pertinent information is returned at the end of each transaction to facilitate reporting on the Merchant side.

Mobile Payment Apps  

On June 29, 2015, MyECheck uploaded its Mobile Commerce Platform “e” to Google and Apple app stores for approval. On August 28 ^th , 2015, after a period of beta testing, the apps were made available to the general public for free download on Google Play and in the Apple App Store on iTunes. As of the date of this filing we have had five hundred and sixty free Google Play downloads and five hundred and fifty free IOS downloads. The e Mobile commerce platform is software only, and can be adopted by simply downloading the app and registering, with no special hardware requirements or costs. It works with all Apple and Android devices.  MyECheck’s innovative e Mobile Commerce System enables businesses to accept real-time, guaranteed payments from their customers via mobile devices. Merchants pay only $0.25 per transaction or less with no other fees, no interchange or discount rates, potentially saving businesses 2% to 5% of sales in payment processing and related costs. The rewards program allows merchants to offer discounts to their customers to adopt and use the system, and build customer loyalty.

The e Mobile business app generates QR (quick response) code invoices that can be displayed on a screen or printed on a bill. To pay an invoice, the customer simply scans the QR code with their device authorizing payment from their e-Wallet. Customers load funds onto their e-Wallet from their bank account using MyECheck’s patented Electronic Check method.

Licensed Remote Payment Processing

MyECheck licenses its custom payment software solutions to payment processors, banks and enterprise clients.

G-Pay

MyECheck’s G-Pay service is a fully electronic payment service for government entities. Management is unaware of any other similar system on the market that has the same capabilities as G-Pay. The G-Pay solution enables electronic check payments from any government account, allowing government entities to transfer money fully electronically, eliminating paper checks and wire transfers from their processes. G-Pay is designed to save time and money for any government entity.

Emerging Growth Company

We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this Form 10-K and future filings.

As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an "emerging growth company" as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company.

We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large-accelerated filer under the rules of the Securities and Exchange Commission, or if we issue more than $1.0 billion of non-convertible debt over a three-year-period.

The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to "opt out" of this provision.

Company Competition

MyECheck’s competition includes other payment methods such as credit and debit card processing systems, Automated Clearing House (ACH) processing systems, paper checks and even cash, along with other electronic check processing systems.

A stream of alternative payment brands have emerged, some of which have experienced tremendous growth. However, virtually all of these payment services require consumers to pay using either a payment card or ACH-based e-Checks, and offer nothing substantially new with respect to a payment method.

Although there are a very large number of companies selling credit card services called Independent Sales Organizations (ISOs), virtually none of these sell electronic check services.

The Company has many competitive advantages over ACH based e-Checks. Since MyECheck does not use the ACH network, transactions are not subject to National Automated Clearing House Association (“NACHA”) regulation, including their rules, fees and fines. Electronic checks are governed by Uniform Commercial Code and federal Check 21 regulations which are more favorable to the Payee than NACHA rules. Electronic checks work with more bank accounts than ACH payments, resulting in fewer items being returned unpaid. Electronic checks also clear at least a day faster than ACH items. However, ACH processing systems are more well-established within the marketplace, and the industry has invested considerable resources in ACH processing systems. ACH rules make it easier for a payer to reverse a transaction after it clears affording more convenient fraud protection for consumers but a much weaker fraud protection for the recipient of the payment.

Other fully electronic check services providers have merged and some are successful within the marketplace. These companies pose the most direct competitive threat to MyECheck. Some of these companies include CheckAlt, Check21.com and The ECheck to name a few. MyECheck believes that its rights to US Patent 7389913 will help stave off some direct competition. The Company recently filed a patent infringement lawsuit against a direct competitor, Zipmark.

MyECheck provides access to more US consumers than any other payment method because it can be used to clear checks from 100% of US checking accounts, including business accounts and accounts where ACH does not work. MyECheck facilitates fast funds clearing for the Merchant, providing same day or next day availability of funds to the merchant’s bank. MyECheck does not charge interchange fees therefore it has a much lower cost than card processing systems.

E-commerce & The Mobile Payments Industry

The payments industry is going mobile, and the mobile payments industry is exploding with growth. Companies such as Apple, Google, Microsoft, Amazon and Starbucks, all companies not known for being payments companies, have entered the mobile payments arena. The industry could be the largest in the world, with trillions of dollars in processing at stake.

The coming payment systems will allow people to spend at retail locations without having to carry a traditional wallet with cash, cards and paper checks. The mobile device will replace the leather wallet, and transactions will originate from mobile devices, including consumer to business payments, business-to-business (B2B) and government payments.

MyECheck believes its product mix to be the optimum offering to engage in the mobile payments industry. The Company’s fully electronic check service clears checks the same day from any checking account, therefore MyECheck believes that the electronic check is the fastest and safest method of loading money onto mobile wallets at a low cost. The Company’s mobile app systems can be adopted by anyone, anywhere, and at any time enabling low cost, secure mobile commerce without any barriers to adoption such as swipe devices or NFC hardware.

Although many new payment schemes exist today with many more on the horizon, the vast majority of these systems continue to be based upon the two fundamental payment methods, credit and debit.

Successful payment solutions such as PayPal offer a slight twist to the traditional payment mechanism of credit cards. PayPal for example, offers consumer payment options consisting of either credit cards or bank debit through the ACH network.

Other e-check (online electronic check) solutions are based upon the ACH (automated clearing house) system. ACH transactions are bank electronic funds transfers whereby the consumer’s bank account is debited and the recipients account is credited. ACH transactions work reasonably well in most instances, however the system does suffer from some shortcomings which have impacted adoption.

The ACH system was designed in the 1970s and has experienced multiple upgrades to add new capabilities. As a payment backbone, the ACH network is a robust and reliable system, and the NACHA rules provide a regulatory framework that protects the parties involved in transactions on the system. The marketplace is familiar and somewhat comfortable with ACH which causes a resistance to change the established process.

ACH transactions are governed by NACHA, (the National Automated Clearing House Association), which imposes a substantial number of rules and regulations upon the transactions and their users. Compliance with the many, and continuously updating, NACHA operating rules can be complicated for Merchants. The rules afford the ability for payers to easily reverse a transaction, if they believe it wasn’t authorized, providing an easy charge back for the payer but leaving the merchant vulnerable to fraud.

ACH transactions take several days to clear through the system. During the clearing period the recipient has no way to determine if the transaction is even going to clear or if it will result in an administrative return. ACH has more than 60 reasons why a transaction can fail. Many times it is because the consumer’s bank has chosen not to participate in ACH, or the subject account is an ineligible account type for ACH according to NACHA rules.

Checks in 2012 continue to be the number one non-cash payment method in the US. This ACH activity is the primary market focus of MyECheck.

Federal Reserve Proposed New Rule, February 4, 2014

On February 4, 2014, the Board of Governors of the Federal Reserve System took the final step before creating a new law that will define a new payment instrument called the “electronic check”. Request for comment was made on the proposed rule through May, 2014.

The Federal Reserve Board proposes to include two new defined terms, ‘‘electronic check’’ and ‘‘electronic returned check,’’ in Regulation CC, and would define ‘‘electronic check’’ and ‘‘electronic returned check’’ as (1) an electronic image of a check, or returned check, or electronic information related to a check, or returned check, that a bank sends to a receiving bank pursuant to an agreement with the receiving bank, and (2) that conforms with ANS X9.100-187, unless the Board determines that a different standard applies or the parties otherwise agree.

The Federal Reserve Board’s proposal included the following description of an electronic check:

“Electronically-created items are electronic images that resemble images of the fronts and backs of paper checks but that were created electronically and not from, for example, scanning a paper check in order to create the electronic image. Electronically-created items are also sometimes referred to as ‘‘electronic payment orders’’ or ‘‘EPOs.’’ For example, a corporate customer sending payments might, rather than printing and mailing a paper check, electronically create an image that looks exactly like an image of the corporate customer’s paper checks, and email the image to the payee. Alternatively, a consumer might use a smart-phone application through which the consumer is able to fill in the payee and amount, and provide a signature, on the phone’s screen. The application then electronically sends the image to the payee.”

The new rule is valuable to MyECheck because it provides a regulatory framework for electronic checks and would enable banks to more easily adopt the technology and understand what the risks and liabilities are. The rule defines who is responsible for the item throughout the clearing process. As of the date of the filing, the new law has not been adopted.

MyECheck believes that US Patent 7389913 describes a method for creating a new payment instrument that the Federal Reserve is naming “electronic check”. MyECheck has the exclusive master license to US Patent 7389913 as described below.

US Patent 7389913 Method and apparatus for online check processing

On June 24, 2008, the Company entered into a Patent License Agreement with MyECheck’s CEO, Edward R. Starrs (as Licensor) for a term of nineteen (19) years to use the invention described in US Patent Number 7389913, Method and apparatus for online check processing. This license is relevant to the Company as MyECheck is in the business of providing electronic check services to businesses, payment services providers, financial institutions and other government entities. The following is an excerpt from the Patent summarizing the invention:

SUMMARY OF THE INVENTION
In general, in one aspect, this specification describes a computer-implemented method for processing an online payment for an item. The method includes receiving information from a user corresponding to the online payment for the item. The information from the user is received through a graphical user interface, and includes an authorization to pay for the item using an electronic check. The method further includes creating an electronic image of an authorized demand draft based on the authorization received from the user. The electronic image of the authorized demand draft is created directly from the information provided by the user through the graphical user interface.

Particular implementations can include one or more of the following features. Creating an electronic image of an authorized demand draft can include creating an electronic image of an authorized demand draft that is compliant with the Check Clearing for the 21st Century Act (Check 21). The electronic image of the authorized demand draft can be unsigned by the user. The method can further include transmitting the electronic image of the authorized demand draft to a financial institution, and receiving funds from the financial institution based on the electronic image of the authorized demand draft to provide payment for the item.

Creating an electronic image of an authorized demand draft, transmitting the electronic image of the authorized demand draft to a financial institution, and receiving funds from the financial institution based on the electronic image of the authorized demand draft can be performed substantially in real-time. The method can further include performing one or more real-time verifications on the user prior to creating the electronic image of the authorized demand draft.

A check processing system for processing an online payment from a user, the online payment being for an item that is purchasable through a website of a merchant. Particular implementations can include one or more of the following features. The item can comprise one of a physical product, a service, digital media, or digital content. The financial institution can be one of a bank, savings and loan (S&L), credit union, or Federal Reserve.
Implementations may provide one or more of the following advantages. In one implementation, a fully integrated online check processing system is provided that functions much like credit card authorization and settlement, but is much more universally available to consumers or other users.

Implementations of the present invention relates generally to data processing, and more particularly to methods and apparatus for processing a bank instrument. Various modifications to implementations and the generic principles and features described herein will be readily apparent to those skilled in the art. Thus, the present invention is not intended to be limited to the implementations shown but is to be accorded the widest scope consistent with the principles and features described herein.

MyECheck’s Mobile Product Strategy

MyECheck’s strongest competitive advantage as an electronic payment platform is its exclusive ability to enable transfers from any checking account. MyECheck believes that electronic checks clear faster, have fewer returns and are lower in cost than ACH e-Checks and card transactions. The benefits are substantial making the MyECheck platform clearly superior in many ways for mobile payments.

MyECheck provides three types of mobile payment solutions for different applications:

1) As a backend or wholesale processor to Mobile Payment Service Providers (MPSP). These include payment processors, e-wallets, stored value, and large merchant proprietary payment systems. The MPSP integrates with MyECheck in the traditional manner.


2) As a MPSP with a comprehensive solution for POS purchases on mobile devices.

3) As a licensor of customized mobile payment solutions MyECheck has developed and expects to launch new products in the coming months including an end-to-end turn-key mobile payments solution that any business can easily implement remotely. The retail Point Of Sale system will include user apps for Apple and Android devices, and a download merchant POS app that runs on Quickbooks accounting software. There are two mobile payment systems, one has higher security and has been developed for regulated industries. The other has been developed for retail sales, however the set-up and process flow is almost identical. The Merchant only requires an internet connected computer with Quickbooks and a bank account, the User only requires an internet connected mobile device or tablet and a checking account.

The process flow for remote registration apps for the regulated industries system:

Step 1: Merchant downloads, installs and registers MyECheck Merchant App

Step 2: User downloads and installs MyECheck User App

Step 3: User selects Merchant in User App Merchant Menu

Step 4: User enters Registration Data and submits to Merchant App

Step 5: Merchant App validates Bank Data and Pre-Approves/Declines User Account

Step 6: User presents ID at Merchant Location, Merchant compares to Registration Data

Step 7: Merchant App displays QR code to User App containing User Account Token

Step 8: At POS Merchant App displays QR code to User App containing Invoice

Step 9: User App displays Transaction Detail and prompts authorization

Step 10: User authorizes payment by sending Token to Merchant App

Step 11: Merchant App verifies User Bank Account and Approves/Declines Transaction

Step 12: Merchant App sends receipt to User App

Step 13: MyECheck backs up transaction data at an independent data warehouse.

With this uniquely broad range of capabilities, MyECheck can serve almost any customer in any market either directly or through one of MyECheck’s licensees or MPSP partners. This model also enables growth through leveraging partners’ existing customer base and sales and marketing resources.

Employees and Contractors

As of March 31, 2016, we employed six (6) full-time employees. We also use outside contractors on an as needed basis.

Leases

On July 1, 2014, MyECheck, leased approximately 3700 square feet of Class A Office Space from Maidu Investment, LLC (“Maidu Investment”) at the office development known as College Point Business Center, located at 2600 E. Bidwell Street in the City of Folsom, State of California as its corporate headquarters and primary product development center. This is a 42 month full service lease expiring on December 31, 2017 with an average rent per month of $4,866. The rent increases annually by $0.05 per square foot. Both physical and electronic security features are employed at this location.

On October 28, 2014, MyECheck amended its original lease agreement with Maidu Investment, LLC (Maidu Investment) at the office development known as College Point Business Center, located at 2600 E. Bidwell Street in the City of Folsom, State of California, to include an expansion space defined as Suite 190. The lease term on the expansion space is 42 months expiring on June 30, 2018 with an average combined rent per month of $10,998. MyECheck paid an additional security deposit in the amount of $20,000, for a combined deposit amount of $52,812.

In addition, MyECheck entered into a secured networking co-location lease with QTS Data Center. The term of this lease agreement is thirty nine (39) months, and the monthly lease payment is at $500. MyECheck uses the services of QTS Data Center, located about 90 miles from San Francisco in seismically-neutral Sacramento. The data center and the Folsom office are connected via a secure VPN, allowing the development staff to interact with the MyECheck development, test, and production equipment.

On January 27, 2015, MyECheck entered into a copier equipment lease with Caltronics Business Systems. The term of this lease agreement is thirty nine (39) months and the monthly lease payments are $155, with a fair market value buyout at the end of the thirty nine month lease.

On March 1, 2015, Seergate, Ltd. (a recently acquired subsidiary of the Company) entered into a sublease with YK. Multimedia, Ltd. renting two rooms within the offices of an Executive Suite located on level 1 at “Gamla Building in Park” in Ra’anana, Israel. This lease is open ended and can be terminated with a thirty day written notice of intent to vacate the premises at any time. The monthly rent is $900 U.S. and is prepaid in increments of three months in advance. There was no deposit or guarantee required.

Regulation

Since MyECheck processes but does not conduct transactions, and does not directly hold or transfer cash, we are not subject to direct federal, state or local regulations regarding money transfer. We are also not subject to any regulation or law that applies to accessing or conducting Internet commerce. We are only subject to regulations applicable to general business conduct. However, there are no assurances that MyECheck will not be subject to financial regulations in the future.

Cost of Compliance with Environmental Regulation

MyECheck currently has no costs associated with compliance with environmental regulations. However, there can be no assurances that MyECheck will not incur such costs in the future.

Software Development

In April 2006, MyECheck entered into an open ended software development agreement with R Systems International Ltd., a software product development company. At December 31, 2007, MyECheck no longer utilized these services. MyECheck also develops some of its software in-house and utilizes independent contractors. Per the contractual agreements with the independent contractors, the Company owns all intellectual property created by the independent contractors. We have architected the MyECheck ‘Engine’ to run on the rock-solid RHEL (Red Hat Enterprise Linux) platform. Security and scalability has been our priority from the beginning, resulting in a multi-threaded check engine that is capable of automatically scaling to any load.

By taking a modular approach to systems design, we will avoid being orphaned as new technologies emerge. This approach has served us well for the past 10 years, allowing us to improve our system without a complete redesign. An example of this is in our service APIs. Our original web services were created using SOAP (Simple Object Access Protocol). SOAP is a way for a program running in one operating system to communicate with a program with the same or different type of operating system. Current methods “consume” our web services based upon REST (REpresentational State Transfer). REST is a simple stateless architecture that generally runs over HTTP. REST is often used in mobile applications. SOAP and REST both allow us to roll-out new technologies without orphaning our existing customers.

With the acquisition of GreenPay LLC., in August of 2014, MyECheck has assumed primary responsibility for significantly improving the mobile payments platform. We believe this platform will greatly extend MyECheck’s ability to leverage the ubiquity of smartphones and capitalize on the growth of mobile payments. We currently have both Android and iOS apps in our product pipeline. We have avoided some mobile technologies that have inherent security blind spots and embraced others that are more robust. We are creating products that will offer both complete security and ease of use.

Our web site (www.MyECheck.com) is not only a community outreach and marketing tool, but has been securely designed as a merchant/user gateway to the MyECheck services. This gives our customers a comprehensive, single point of access to all their merchant needs and reporting.

During the past four years, research and development costs associated with the development of the software have been approximately $987,257.

MyECheck owns proprietary software and intellectual property, and licenses patented technology from the Company founder Edward R. Starrs.

Business Partners

In 2008, we entered into an agreement with Forever Living Products and Simplifile, the leading provider of electronic recording services. The agreement with Simplifile facilitates the MyECheck Electronic Check solution in the Simplifile e-recording service. The Forever Living Products and Simplifile agreement remains in effect as of the date of this filing.

In the second half of 2013 we signed independent licensing agreements with InterPay (a related party) and Sierra Global, which will allow them to develop and sell their own payment solutions using our technology. Sierra Global is also considered a related party as Sierra Global is a shareholder of MyECheck, sold GreenPay, LLC to MyECheck, and the MyECheck has assisted Sierra Global in certain transactions in the United States.

During 2014 we are continuing to nurture existing and develop new partner relationships. During the first quarter GreenPay and Itonis licensed our software to develop their own Check21 payment solutions. We also added VX Gateway in the first quarter to our Electronic Check Service.

On March 31, 2014, Itonis, Inc. signed a Licensing Agreement with MyECheck, Inc. for Itonis to acquire a software license for MyECheck’s patented mobile payment app that will facilitate point of purchase transactions. The license agreement calls for Itonis to pay a one-time licensing fee of $300,000 to MyECheck as well as a portion of the per-transaction fees collected at the point of sale. There is no expiration date on that license. In addition, the agreement provided for a 12 month maintenance services contract. The maintenance contract was recognized ratably over the term of the contract. At present, Itonis, is working to obtain a U.S. based bank that will allow them to establish their separate payment application.

On February 24, 2014, MyECheck was selected by GreenPay, LLC to provide a comprehensive processing solution. MyECheck sold a continuous non-exclusive license and a mobile license to GreenPay for $1,000,000 and will share in a percentage of transaction fee revenue. On June 13, 2014, the Company announced that it would acquire GreenPay, LLC. The merger was completed on August 20, 2014. The net purchase price for the licenses sold to Sierra Global was determined to be $412,000 after the acquisition of GreenPay, LLC. The license issued to GreenPay, LLC on February 24, 2014 will remain with Sierra Global per the terms and conditions of the merger. The acquisition of GreenPay, LLC was limited to acquiring the name and the business plan for GreenPay, LLC. All other assets were excluded from the acquisition.

In October, 2014, the Software License and Services Agreement between the Company and Sierra Global, LLC, dated November 23, 2013, was amended to include a 2014 Software Module License Fee in the amount of $500,000. In addition, the agreement provided for a 12 month maintenance services contract. The maintenance contract was recognized ratably over the term of the contract. At present, Sierra Global, is working to obtain a U.S. based bank that will allow them to establish their separate payment application. As a result of non-payment of the maintenance fee approximately $192,000 was reserved for during 2015.

The Company entered into a License Agreement with GreenPay, LLC on February 24, 2014. Subsequent to that Agreement, the Company and Sierra Global, LLC entered into business discussions, the point of which was the purchase of GreenPay by the Company. In anticipation of that transaction, the Company’s CEO became an unpaid business consultant to GreenPay and was authorized to establish a bank account for GreenPay.

After the acquisition of GreenPay by the Company, the bank account was retained by Sierra Global (the Company executed a license under which Sierra Global was permitted to use the GreenPay trade name for limited purposes). During this time, the Company’s CEO did not participate in any ownership of either Sierra Global or GreenPay. 

During the fiscal year ended December 31, 2014, The Company was able to utilize cash flow generated from operations to purchase 1,000,000,000 shares of MyECheck’s Common stock from its major shareholder, Edward Starrs, for $10,000.

In the second quarter of 2014, our longtime customer Simplifile renewed their contract and expanded their use of our payment processing services. In the third and fourth quarters of 2015, the Company processed 39,682 transactions resulting in transactional fees in the amount of $9,919. In addition, our other longtime customer Forever Living processed 1,890 transactions in the third and fourth quarters of 2015 resulting in transactional fees in the amount of $4,732. Two of the three largest customers in 2014 and 2015 were related parties, Itonis, Inc. and Sierra Global.

During the fiscal years ended December 31, 2015 and 2014, three (3) of the Company’s customers accounted for approximately 97% and 98% of the Company’s revenues. The loss of any one of these customers or a sustained decrease in demand by any of such customers could result in a substantial loss of revenues and could have a material adverse effect on MyECheck’s results of operations.

During the third and fourth quarters of 2014, MyECheck entered into Service Agreements with ten (10) customers.  The Services Agreement required MyECheck to complete the integration process with MyECheck’s bank partner, Avidia Bank.  Under the terms of the Reseller Agreement between MyECheck and Avidia Bank executed on May 7, 2015. MyECheck agreed to authorize Avidia Bank to sell MyECheck’s data processing services and its mobile payment system to Avidia’s customers. The integration process with Avidia Bank has now been completed and the services contemplated under the aforementioned Service Agreements will now become operational.  As of the integration with Avidia, the Company has received a total of $57,299.85 in Commission revenue as a result of Avidia selling our services to a third party. In the third quarter the Company signed Services Agreements with Monthly Filter Club, LLC, Cuallix Consumer Services, Inc. and SionicMobile. During the fourth quarter of 2014 the Company executed Services Agreements with (i) Withum Smith & Brown, (ii) Dad’s Roast Custom Coffee, (iii) New Age Telecom, Inc., (iv) Mesorah Heritage Foundation, (v) Artscroll Mesorah Publications, Ltd., (vi) Sushi Groove, LLC, and (vii) eze System, Inc. Under the terms of the Services Agreement, MyECheck will provide fully electronic check services to each customer.

During the third quarter of 2014, the Company’s wholly owned subsidiary, GreenPay, LLC, also entered into a Software License and Services Agreement with MJ SafePay, LLC pursuant to which GreenPay agreed to provide software and payment data processing services to MJ SafePay. In the fourth quarter of 2014, GreenPay, LLC, executed an Authorized Reseller Agreement with Maverick Bankcard, LLC to sell GreenPay’s Check 21 Electronic Check Services, Mobile Payment Applications and Consulting Services.

In 2013, Seergate entered into a Memorandum of Understanding with Centric Gateway authorizing them to be a sales agent for their software license platform and services.  Subsequently, in February of 2015, Centric Gateway entered into a Memorandum of Understanding with a major bank in Africa to license the Seergate Software Platform and Services, and was awarded the contract with the Bank in Africa to license the Seergate Software Platform and Services.  The identity of the Bank is redacted due to the confidentiality agreement between Centric Gateway and the Bank.

The first quarter of 2015 produced seven (7) executed Services Agreements, one (1) executed Reseller Agreement and one (1) executed Partnership Agreement.  The customers executing Services Agreements with MyECheck during the first quarter were (i) truCrowd Texas, Inc., (ii) Lucid Integrated Systems, (iii) Boss Tech Support, LLC, (iv) Vergence Entertainment, LLC, (v) The Mother of All Kits, (vi) Credit Shop, Incorporated and (vii) Nutronix Revolution, Inc. a leading distributor of health and wellness products, pursuant to which MyECheck agreed to process payments from NXR Global’s customers. MyECheck provides fully electronic check services to its customers under the Services Agreement. On January 25, 2015, MyECheck entered into a Partnership Agreement with Hercules Credit Union pursuant to which MyECheck agreed to integrate its electronic check processing technology into Hercules Credit Union’s existing payment processing system.  Subsequently, on March 5, 2015 the Company entered into an Authorized Reseller Agreement with Access Payment Systems, Inc. authorizing Access Payment Systems to sell MyECheck’s Check 21 data processing services to its customers.

In addition to the new customers MyECheck acquired during the previous three quarters, during the second quarter of 2015 the Company continued the expansion of its customer base through the execution of four (4) Services Agreements and one (1) Reseller Agreement.  The four Services Agreements were executed between MyECheck, Inc. and Fantasy Grudge, LLC, Elite Tech Help, LLC, Kokopay, Inc., and PacNet Services, Ltd. On April 17, 2015, the Company executed an Authorized Reseller Agreement with Peter Farinas DBA PK and Maverick, Inc. pursuant to which PK and Maverick was authorized to sell MyECheck’s Check 21 data processing services to its customers.

In September of 2015, PacNet Services, Ltd became fully integrated with the Company’s processing services. In the third and fourth quarters of 2015, PacNet processed 29,201 transactions resulting in transaction fees in the amount of $7,318.

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 3 ^rd and 4 ^th quarters of 2016.

The Company believes that the additional customers acquired during the previous four quarters will result in increased revenue for MyECheck during the first three quarters of 2016.

We continue to explore additional banking relationships to support future growth and strategic flexibility.

Mergers and Acquisitions

Sekoya Holdings, Limited Transaction

MyECheck, Inc., a Wyoming corporation (“MEC”) and Sekoya Holdings, Limited (a Nevada corporation) entered into a Merger Agreement in November 2007, which was amended and restated as of February 4, 2008, and was filed as an exhibit to the Report on Form 8-K filed on February 7, 2008 (the Report on Form 8-K and Merger Agreement are incorporated herein by reference). The merger was effective March 14, 2008.

A total of 2,000,000 shares otherwise issuable to MEC’s shareholders were held back (the “Escrow Shares”) for purposes of compensating MEC and its officers, directors, employees, agents and affiliates should they sustain any loss due to a breach of Company’s representations, warranties, covenants or agreements contained in the Merger Agreement or any related document (a “Loss”). Subsequent to the acquisition by MyECheck, Sekoya’s operations were phased out. Even though the agreement stated that 2,000,000 shares were to be reserved, no physical share reserve happened.  No stock was issued or otherwise encumbered as a result of the agreement.  

GreenPay, LLC Transaction

On August 20, 2014, MyECheck completed the acquisition of its licensee, GreenPay, LLC. GreenPay, LLC is now a wholly owned subsidiary of MyECheck, Inc. GreenPay assets are owned by MyECheck, however GreenPay will be operated as a separate entity and will move forward with an independent board of directors and management in 2016. The net purchase price for the licenses sold to Sierra Global was determined to be $412,000 after the acquisition of GreenPay, LLC. The license issued to GreenPay, LLC on February 24, 2014 will remain with Sierra Global per the terms and conditions of the merger. In addition, certain other assets owned by GreenPay, LLC were retained by Sierra Global. The acquisition of GreenPay, LLC was limited to acquiring the name and the business plan for GreenPay, LLC. All other assets were excluded from the acquisition.

Seergate, Ltd. Transaction

On January 30, 2015, MyECheck signed an agreement to acquire 100% of the stock of Seergate, Ltd, developer of a comprehensive electronic payment platform for banks. The Seergate system will be integrated with the MyECheck payment systems adding multiple new capabilities to MyECheck’s payment platform. The acquisition closed on May 6, 2015. The December 31, 2014 and 2013 Seergate, Ltd Audited Annual Report (Financial Statements) and the Unaudited Pro Forma Condensed Combined Financial Information for the Twelve Months Ended December 31, 2014 and the Six Months Ended June 30, 2015 (incorporated herein by reference to Exhibit 10.46 of the registrant’s Quarterly Report on Form10-Q for the quarter ended September 30, 2015).