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Quarterly report with a continuing view of a company's financial position

10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2014

 

OR

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ________________ to __________________

 

Commission File No. 000-1321002

 

MEDISWIPE, INC.

(Name of small business issuer in its charter)

 

Delaware   20-8484256
(State or other Jurisdiction of incorporation)   (I.R.S. Employer Identification No.)

 

319 Clematis Street, Suite 1008, West Palm Beach, FL 33401

(Address and Zip Code of Principal Executive Offices)

 

(561) 249-6511

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer:

 

Large accelerated filer   Accelerated filer
Non-accelerated filer (Do not check is smaller reporting company) Smaller reporting company

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ☐     No  ☑.

 

The number of shares outstanding of the Registrant's $0.0001 par value Common Stock as of May 12, 2014, was 63,102,909 shares

 
 

 

INDEX TO FORM 10-Q

 

  Page
Part I.  Financial Information  
Item 1.  Financial Statements  
Condensed Consolidated Balance Sheets at March 31, 2014 (Unaudited) and December 31, 2013 2
Condensed Consolidated Statement of Operations for the three months ended March 31, 2014 and 2013 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (Unaudited)   4
Notes to Condensed Financial Statements (Unaudited)    F5 – F15
Item 2. Management’s Discussion and Analysis 16-18
Item 3.  Quantitative and Qualitative Disclosures about Market Risks 18
Item 4.  Controls and Procedures  18-19
Part II.  Other Information  
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Mine Safety Disclosures 20
Item 5. Other Information 20
Item 6.  Exhibits 21

 

Signatures

 

22

 

 
 

 

 

MEDISWIPE, INC.
                   
CONDENSED CONSOLIDATED BALANCE SHEETS
 
                   
          March 31,   December 31,
          2014   2013
            (Unaudited)      
               
ASSETS
                 
Current Assets:            
  Cash and cash equivalents   $         422,082   $          108,766
  Accounts receivable, net              17,283                14,747
  Inventory              27,523                41,333
  Notes receivable          1,200,000              200,000
  Deferred financing costs              22,556                18,896
  Due from related party              82,894                67,186
  Prepaid assets and other              10,500                         -
      Total current assets          1,782,838              450,928
Licensing rights              15,000                15,000
Other                    1,525                     825
Property and equipment, net of accumulated depreciation of $390 (2014) and $187 (2013)             129,991                  3,873
          $      1,929,354   $          470,626
                   
Liabilities and Stockholders' Equity (Deficit)
                   
Current Liabilities:            
  Accounts payable and accrued expenses    $         107,615   $          207,313
  Deferred compensation              49,237                32,437
  Note payable, short term              18,719                         -
  Convertible debt, net of discounts of $27,482 (2014) and $81,537 (2013)              42,518                53,463
  Convertible note payable, net of discounts of $166,222 (2014) and $40,000 (2013)          1,493,778              557,500
  Derivative liabilities               76,426              486,160
      Total current liabilities          1,788,293            1,336,873
                       
Note payable, long term              67,031                         -
                   
      Total liabilities          1,855,324            1,336,873
                   
Commitments and Contingencies            
                   
Stockholders' Equity (Deficit):            
  Series B convertible preferred stock, $0.0001 par value; 1,000,000 shares authorized, 750,000 (2014) and 1,000,000 (2013) shares issued and outstanding                     75                     100
  Common stock, $.0001 par value; 500,000,000 shares authorized; 62,711,497 (2014) shares            
    and 45,655,245 (2013) shares issued and outstanding                6,272                  4,566
  Additional paid-in capital          9,622,232            8,448,035
  Accumulated deficit         (9,554,549)           (9,318,948)
                   
      Total stockholders' equity (deficit)              74,030             (866,247)
                   
           Total liabilities and stockholders' equity   $      1,929,354   $          470,626

 

See notes to condensed consolidated financial statements.

2
 

 

MEDISWIPE, INC.
                   
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
                   
(Unaudited)
                   
                   
         For the Three Months Ended March 31,   
        2014     2013  
                   
                   
Fee revenue, net  $                     -    $             49,818  
Product revenue              19,520                        -  
  Total revenue              19,520                49,818  
Cost of revenue              21,159                        -  
  Gross profit (loss)              (1,639)                49,818  
                   
Operating Expenses:            
  Administrative and management fees (including $44,417 (2013)             
    stock based compensation)              71,431              109,917  
  Professional and consulting fees (including $59,917 (2013)             
    stock based compensation)              47,950                88,919  
  Commissions and license fees               8,072                31,200  
  Rent and other occupancy costs               1,929                 3,752  
  Advertising and promotion               1,000                 3,644  
  Other general and administrative expenses              33,212                26,051  
                   
      Total operating expenses            163,594              263,483  
                   
      Operating loss           (165,233)             (213,665)  
                   
Other Income (Expense):            
  Interest income              10,740                        -  
  Interest expense           (111,455)               (29,930)  
  Derivative liability (expense) income              30,347                (5,093)  
      Total other expense, net             (70,368)               (35,023)  
                   
                   
Net loss  $          (235,601)    $          (248,688)  
                   
Basic and diluted loss attributable to Mediswipe, Inc.            
  common stockholders, per share  $  (0.00)    $  (0.01)  
                   
Weighted average number of common shares outstanding            
    Basic and diluted       56,814,256         37,499,400  

 

See notes to condensed consolidated financial statements.

3
 

 

MEDISWIPE, INC
                       
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       
          (Unaudited)
              For the Three Months Ended March 31,
              2014   2013
CASH FLOWS FROM OPERATING ACTIVITIES            
  Net loss   $ (235,601)   $ (248,688)
  Adjustments to reconcile net loss to net cash used in operating activities:            
    Stock issued for consulting services               25,000                   15,500
    Amortization of deferred stock compensation                       -                   88,834
    Amortization of deferred financing costs     14,340                     2,120
    Depreciation     203                            -
    Amortization of discounts on convertible notes     77,833                   25,324
    Change in fair values of derivative liabilities      (30,347)                       (144)
    Initial derivative liability expense on convertible notes                       -                     5,237
    Changes in operating assets and liabilities:            
    Decrease (increase) in :            
      Accounts receivable               (2,536)                    (3,583)
      Inventory               13,810                            -
      Prepaid assets and other              (11,200)                    (2,200)
    Increase (decrease) in :            
      Accounts payable and accrued expenses     (50,706)                   34,339
      Deferred compensation     76,800                   31,242
Net cash used in operating activities            (122,405)                  (52,019)
                       
Cash flows from investing activities:            
  Land acquisition costs              (40,571)                            -
  Advances from related party              (15,708)                            -
Net cash used in investing activities              (56,279)                            -
                       
Cash flows from financing activities:            
  Payments received on notes receivable             200,000                            -
  Proceeds from issuance of convertible debt             300,000                            -
  Proceeds from issuance of convertible debt                       -                   65,000
  Payment of deferred financing costs               (8,000)                    (5,000)
Net cash provided by financing activities             492,000                   60,000
                       
Net increase in cash and cash equivalents             313,316                     7,981
Cash and cash equivalents, beginning             108,766                     1,892
                       
Cash and cash equivalents, ending   $         422,082   $                 9,873
                       
Supplemental disclosure of cash flow information:              
                       
  Cash paid for interest   $                   -   $                        -
                       
  Cash paid for income taxes   $                   -   $                        -
                       
Schedule of non-cash financing activities:            
  Conversion of notes payable and interest into common stock   $         711,491   $               38,060
                       
  Conversion of deferred compensation into common stock   $           60,000   $                        -
                       
  Issuance of note payable for land acquisition   $           85,750   $                        -

 

See notes to condensed consolidated financial statements.

4
 

 

MEDISWIPE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - ORGANIZATION

 

BUSINESS

 

MediSwipe Inc. (the “Company” or “Mediswipe”) currently offers a variety of services and product lines to the medicinal marijuana sector including the digitization of patient records, and the distribution of hemp based nutritional products. The Company also provides a complete line of innovative solutions for electronically processing merchant and patient transactions within the healthcare industry. Recently, the Company began importing and distributing vaporizers and e-cigarettes under the Company's Mont Blunt brand and the management of real property for fully-licensed and compliant growers and dispensaries within regulated medicinal and recreational markets.

During the year ended December 31, 2013, the Company utilized its existing banking and merchant network within both the medicinal medical marijuana and healthcare sector. During the three months ended March 31, 2013, through strategic partnerships with banking and financing partners the Company received commission based fees for arranging for third party financing for elective surgery procedures. Effective April 1, 2013, the Company no longer is providing these services.

 

On April 30, 2013, the Company entered into a one year Distribution Agreement with Chill Drinks, LLC (“Chill Drinks”). Chill Drinks has the rights to an energy drink called Chillo Energy Drink (“Chillo”) and a hemp ice tea drink called C+ Swiss Ice Tea (“C+Swiss”). Chillo and C+Swiss are referred to as the “Chill Drink Products”. Pursuant to the Distribution Agreement the Company has the exclusive distribution and placement rights of the Chill Drink Products to medical marijuana dispensaries. The Company has not renewed the Distribution Agreement, however the Company plans on entering the infused beverage market with its own product.

 

In 2013, the Company introduced a technology platform that enables consumers to securely file, store and conveniently retrieve important original and authentic personal health documents via the Internet. The platform allows on-demand access to valuable documents at home and during travel. Authentic images of documents such as; a passport, prescriptions and insurance policies are always accessible. The service is an economical solution with an easy-to-use web-based application that has the potential to appeal to a market base of at least 75 million U.S. consumers.

 

MediSwipe’s platform is compatible with virtually all operating systems, web browsers, and file formats. Users can quickly upload or even e-fax their documents into their secure “vault”, and then organize, manage, review and send document copies wherever needed, anytime via the Internet.

 

The MediSwipe platform provides the highest level of privacy and security and does not rely on the accuracy of user-entered data. Images of actual documents, uploaded to the patient personal registry, form the basis for this solution. Critical personal items are safe and timeless in a secure, encrypted environment where privacy and security are paramount. Patients can then load all of the data onto their own digital patient identification card to be used throughout the MediSwipe platform.

 

On June 26, 2013, the Company formed two new wholly owned Florida subsidiaries American Hemp Trading Company and Agritech Innovations, Inc. (“AGTI”). On September 3, 2013, AGTI changed its name to Agritech Venture Holdings, Inc. (“AVHI”).

 

On November 12, 2013, the Financial Industry Regulatory Authority approved the company’s 1-for-10 reverse stock split (the “Reverse Stock Split”) on the Company’s common stock outstanding with an effective date of December 11, 2013. Pursuant to the Reverse Stock Split, all share amounts in these consolidated financial statements have been adjusted to reflect the Reverse Stock Split.

F-5
 

 

On March 18, 2014, the Company announced it had completed the purchase of 80 acres zoned for agricultural use in Pueblo County, Colorado. The Company plans to lease individual parcels of the 80 acre parcel to fully-licensed and compliant growers and dispensaries within the regulated medicinal and recreational market of Colorado. The Company will receive rents and management fees for providing infrastructure, water, electricity, equipment leasing and security services. The Company is presently working on its first agreements for tenants to move into the facility as early as May of 2014.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (SEC) on April 1, 2014. Interim results of operations for the three months ended March 31, 2014 are not necessarily indicative of future results for the full year. Certain amounts from the 2013 period have been reclassified to conform to the presentation used in the current period.

 

CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

ACCOUNTS RECEIVABLE

 

The Company records accounts receivable from amounts due from its customers upon the shipment of products. The allowance for losses is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectibility is unlikely.

 

INVENTORY

 

Inventory is valued at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow moving inventory is made based on management analysis or inventory levels and future sales forecasts.

 

DEFERRED FINANCING COSTS

 

The costs related to the issuance of debt are capitalized and amortized to interest expense using the straight-line method through the maturities of the related debt.  

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost, and except for land, depreciation is provided by use of accelerated and straight-line methods over the estimated useful lives of the assets. The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The estimated useful lives of property and equipment are as follows:

 

Office equipment, furniture and vehicles  5 years

Computer hardware and software               3 years

F-6
 

  

REVENUE RECOGNITION

 

The Company recognizes revenue in accordance with FASB ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the month in which products are shipped or commissions are earned.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”).

 

Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.

 

The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The three hierarchy levels are defined as follows:

 

Level 1 – Quoted prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

 

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Credit risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s own credit risk as observed in the credit default swap market.

 

The Company's financial instruments consist primarily of cash, accounts receivable, notes receivable, accounts payable and accrued expenses, note payable and convertible debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.  The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

 

INCOME TAXES

 

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes. Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

F-7
 

 

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. Interest and penalties are classified as a component of interest and other expenses. To date, the Company has not been assessed, nor paid, any interest or penalties.

 

Uncertain tax positions are measured and recorded by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. The Company’s tax years subsequent to 2005 remain subject to examination by federal and state tax jurisdictions.

 

EARNINGS (LOSS) PER SHARE

 

Earnings (loss) per share are computed in accordance with ASC 260, "Earnings per Share". Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities, if any, outstanding during the period. There were 300,000 outstanding warrants as of March 31, 2014. As of March 31, 2014, the Company’s outstanding convertible debt is convertible into 6,216,874 shares of common stock and 750,000 shares of Class B convertible preferred stock is convertible into 47,033,623 shares of common stock. These amounts are not included in the computation of dilutive loss per share because their impact is antidilutive.

 

ACCOUNTING FOR STOCK-BASED COMPENSATION 

 

The Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete. Stock awards granted to non-employees are valued at their respective measurement dates based on the trading price of the Company’s common stock and recognized as expense during the period in which services are provided.

 

For the three months ended March 31, 2014 and 2013, the Company recorded stock and warrant based compensation of $25,000 and $104,334, respectively (See Notes 7 and 8).

 

USE OF ESTIMATES

 

The preparation of consolidated 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 of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

 

Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

 

NOTE 4 - RECLASSIFICATIONS

 

Certain prior period balances have been reclassified to conform to the current period's financial statement presentation. These reclassifications had no impact on previously reported results of operations or stockholders' deficiency.

F-8
 

 

 

NOTE 5 – SALES CONCENTRATION AND CONCENTRATION OF CREDIT RISK

 

CASH

 

Financial   instruments   that   potentially   subject   the   Company to concentrations of credit risk consist principally of cash. The Company maintains cash balances at one financial institution, which is insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC insured institution insures up to $250,000 on account balances. As of March 31, 2014, the Company’s cash balance exceeded the insured amount by $172,082. The company maintains its’ cash at a large financial institution and has not experienced any losses in such accounts.

 

SALES

 

For the three months ended March 31, 2014 three (3) customers each accounted for more than 10% of our business, as follows:

 

Customer  

 

Sales % Three Months Ended March 31, 2014

 

 

Sales % Three Months Ended March 31, 2013

 

Accounts

Receivable Balance as of March 31, 2014

A   42%   - $ 603
B   20%   - $ 4,346
C   18%   - $ -

 

For the three months ended March 31, 2013, none of our customers accounted for more than 10% of our business; however we relied on a few processors to provide to us, on a non-exclusive basis, transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools. 100% of our revenues were from our agreement with ACS.

 

In April 2013, ACS and the Company terminated their agreements and accordingly, the Company no longer receives fees related to the ACS agreement.

 

PURCHASES

 

For the three months ended March 31, 2014, 100% of the Company’s purchases were from one vendor related to the purchase of our tobacco product line. There was no balance due this vendor as of March 31, 2014.

 

NOTE 6 – CONVERTIBLE DEBT AND NOTE PAYABLE SHORT TERM

 

Convertible Debt

 

On January 2, 2013, February 11, 2013, April 10, 2013, July 29, 2013 and October 16, 2013, the Company entered convertible note agreements (the “2013 Notes”) with Asher Enterprises, Inc. (“Asher”) for $37,500, $27,500, $27,500, $65,000 and $70,000, respectively. We received net proceeds of $214,000 from the 2013 Notes after debt issuance costs of $13,500 paid for lender legal fees. These debt issuance costs will be amortized over the earlier of the terms of the Note or any redemptions and accordingly $3,333 has been expensed as debt issuance costs (included in interest expense) for the three months ended March 31, 2014.

 

Among other terms the 2013 Notes are due nine months from their issuance date, bear interest at 8% per annum, payable in cash or shares at the Conversion Price as defined herewith, and are convertible at a conversion price (the “Conversion Price”) for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the 2013 Notes, the Company is required to pay interest at 22% per annum and the holders may at their option declare a Note, together with accrued and unpaid interest, to be immediately due and payable. In addition, the 2013 Notes provide for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company.

F-9
 

 

The Company determined that the conversion feature of the 2013 Notes represents an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the 2013 Notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments has been recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note. Such discount will be amortized from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liability for derivative contracts will be recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. The beneficial conversion feature included in the 2013 Notes resulted in an initial debt discount of $227,500 and an initial loss on the valuation of derivative liabilities of $35,029 for a derivative liability initial balance of $262,529.

 

During the three months ended March 31, 2014, the Company issued 369,420 shares of common stock in satisfaction of $65,000 of the 2013 Notes and $2,600 of accrued and unpaid interest. The shares were issued at approximately $0.18299 per share. The fair value of the derivative liability on the dates of conversion totaling $99,147 was reclassified to paid-in-capital. As of March 31, 2014, $70,000 of principal and accrued interest of $2,567 remains outstanding of the 2013 Notes, and is carried at $42,518, net of a remaining note discount of $27,482, which will be expensed in April 2014, as the Company issued 390,995 shares of common stock in satisfaction of $70,000 of the 2013 Notes.

 

As of March 31, 2014 the Company revalued the embedded conversion feature of the remaining 2013 Notes. From January 1, 2014, the Company decreased the derivative liability of the remaining 2013 Notes by $30,347 resulting in a derivative liability of $76,426. The fair value of the 2013 Notes was calculated at March 31, 2014 utilizing the following assumptions:

 

Note

Issuance

Date

 

 

Fair Value

 

 

Term

Assumed Conversion  Price

Expected

Volatility Percentage

 

Risk free

Interest Rate

10/16/13 76,426 1 month 0.0202 127% 0.10%

 

The inputs used to estimate the fair value of the derivative liabilities are considered to be level 2 inputs within the fair value hierarchy.

 

On May 20, 2013, the Company entered into a Securities Purchase Agreement with Typenex Co-Investment, LLC ("Typenex"), for the sale of an 8% convertible note in the principal amount of up to $667,500 (which includes Typenex legal expenses in the amount of $7,500 and a $60,000 original issue discount) (the “2013 Company Note”) for a purchase price of $600,000, consisting of $100,000 paid in cash at closing on May 21, 2013 (the “Initial Cash Purchase Price”) and five secured promissory notes, aggregating $500,000 (the “Investor Notes”), bearing interest at the rate of 8% per annum. Three of the Investor Notes aggregating $300,000 were funded in 2013 and the two remaining Investor Notes of $100,000 each were funded in January 2014.

  

The 2013 Company Note bears interest at the rate of 8% per annum, and was due in four equal monthly installments (the “Redemption Price”) beginning on the six month anniversary of the initial funding. All interest and principal was to be repaid on February 21, 2014. The 2013 Company Note was convertible into common stock, at Typenex’s option, at a price of $0.055 per share. In the event the Company elected to prepay all or any portion of the 2013 Company Note, the Company was required to pay to Typenex an amount in cash equal to 125% multiplied by the sum of all principal, interest and any other amounts owing. Beginning on the date that is six (6) months after the later of (i) the Issuance Date, and (ii) the date the Initial Cash Purchase Price is paid to the Company (the “Initial Installment Date”), and on each applicable Installment Date thereafter, the Company was to pay the Holder of this Note the applicable Installment Amount due on such date. Payments of the Installment Amount may be made (a) in cash (a “Company Redemption”), (b) by converting such Installment Amount into shares of Common Stock (a “Company Conversion”), or (c) by any combination of a Company Conversion and a Company Redemption so long as the entire amount of such Installment Amount due shall be converted and/or redeemed by the Company on the applicable Installment Date.

F-10
 

 

At any time prior to the payment of the applicable Redemption Price by the Company, the Holder shall have the option, in lieu of redemption, to cancel the Event of Default Redemption Notice by written notice to the Company (the “Redemption Cancellation Notice”). Upon the Company’s receipt of a Redemption Cancellation Notice, the Outstanding Balance of the Note as of the date of the Redemption Notice shall thereafter be due and payable upon demand, with payment of the Outstanding Balance being due ten (10) Trading Days after written demand therefor from the Holder; (y) the Conversion Price of this Note shall be automatically adjusted with respect to each conversion under this Note effected thereafter by the Holder to the lowest of (A) 75% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on and including the date of the Redemption Cancellation Notice, (B) the Market Price as of the date of the Redemption Cancellation Notice, (C) the then current Market Price, and (D) the then current Conversion Price. 

 

The Company determined that the conversion feature of the 2013 Company Note represents an embedded derivative since the Note is convertible into a variable number of shares upon conversion. Accordingly, the 2013 Company Note is not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of this derivative instrument has been recorded as a liability on the consolidated balance sheet with since the corresponding amount recorded as an expense

 

During the year ended December 31, 2013, the Company issued 570,090 shares of common stock in satisfaction of $70,000 of the 2013 Company Note. As of December 31, 2103, the outstanding principal balance of the 2013 Company Note was $597,500.

 

During the three months ended March 31, 2014, the Company issued 9,311,042 shares of common stock in satisfaction of $597,500 of the 2013 Company Note and $46,391 of accrued and unpaid interest. The shares were issued at $0.06915 per share.

 

A summary of the derivative liability balance as of December 31, 2013 and March 31, 2014 is as follows:

 

Fair Value

Derivative

Liability Balance

12/31/13

Initial Derivative Liability

 

Notes Converted

Fair value change – three months ended 3/31/14 Derivative Liability Balance 3/31/14
2013 Notes $205,920 - (99,147) $(30,347) $76,426
2013 Company Note $280,239 - (280,239) - -
Total $486,159 - $(379,386)     $(30,347) $76,426

 

In January 2014, the Company entered into a Secured Promissory Note for $1,660,000 (the “2014 Company Note”) to Tonaquint, Inc. (“Tonaquint”) (the same principals as Typenex) which includes a purchase price of $1,500,000 and transaction costs of $160,000. On January 31, 2014, the Company received $300,000 of the purchase price. Tonaquint also issued to the Company 6 secured promissory notes, each in the amount of $200,000 (the 2014 “Investor Notes”). The 2014 Investor Notes may be prepaid, without penalty, all or portion of the outstanding balance along with accrued but unpaid interest at any time prior to maturity. The Company has no obligation to pay Tonaquint any amounts on the unfunded portion of the 2014 Company Note. The 2014 Company Note bears interest at 8% per annum (increases to 22% per annum upon an event of default) and is convertible into shares of the Company’s common stock at Tonaquint’s option at a price of $0.55 per share, exercisable in seven tranches, consisting of a first tranche of $340,000 of principal and any interest, fees costs or charges, and six additional tranches of $220,000 each, plus any interest, costs, fees or charges.

F-11
 

 

Beginning on the date that is six (6) months after the later of (i) the Issuance Date, and (ii) the date the Initial Cash Purchase Price is paid to the Company (the “Initial Installment Date”), and on each applicable Installment Date thereafter, the Company is to pay the Holder, the applicable Installment Amount due on such date. Ten Installment Amounts of $166,000 plus the sum of any accrued and unpaid interest, fees, costs or charges may be made (a) in cash (a “Company Redemption”), (b) by converting such Installment Amount into shares of Common Stock (a “Company Conversion”), or (c) by any combination of a Company Conversion and a Company Redemption so long as the entire amount of such Installment Amount due shall be converted and/or redeemed by the Company on the applicable Installment Date. The 2014 Company Note matures fifteen months after the Issuance Date.

 

As of March 31, 2014, $1,660,000 of principal and accrued interest of $4,458 remains outstanding of the 2014 Company Notes, and is carried at $1,493,778, net of a remaining note discount of $166,222, and $1,200,000 of the 2014 Investor Notes are included in Notes receivable on the condensed consolidated financial statements included herein.

 

Note Payable Short Term

 

On March 18, 2014, in conjunction with the land purchase of 80 acres in Pueblo County, Colorado, the Company paid $36,000 cash and entered into a promissory note in the amount of $85,750. The promissory note is being amortized on the basis of five (5) years, payable at $18,719 per year, including principal and interest at 3.5% per annum. Payments begin December 1, 2014, and shall be due on the first day of each succeeding December, with any balance of principal and accrued interest due December 1, 2020.

 

Date   Amount
December 1, 2014 $ 18,719
December 1, 2015   18,719
December 1, 2016   18,719
December 1, 2017   18,719
December 1, 2018   18,719
  $ 93,595

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

Management fees and stock compensation expense

 

Effective January 1, 2013, the Company has agreed to annual compensation of $150,000 for its CEO and $96,000 for the CFO. The Company and the CFO have agreed that $3,000 per month will be paid in cash and $5,000 per month will be paid in restricted shares of common stock. For the three months ended March 31, 2014 and 2013, the Company expensed $61,500 and $105,917, respectively, included in Administrative and Management Fees in the Unaudited Condensed Consolidated Statements of Operations, included herein. As of March 31, 2014, the Company owed the CEO $49,237 and the CFO $18,000.

 

On January 13, 2014, the Company issued 545,454 shares of common stock to Venture Equity upon the conversion of $60,000 of accrued management fees. The shares were issued at $0.11 per share, the market price of the common stock on December 31, 2013.

 

In June 2013, Mr. Friedman agreed to exchange 3,033,500 shares of common stock in partial consideration for the issuance of 450,000 shares of Class B preferred stock (see note 8). The Company recognized expenses of $0 and $88,834 for the three months ended March 31, 2014 and 2013, respectively, from the amortization of deferred equity compensation related to the Class B Preferred Stock.

 

Amounts due FROM 800 COMMERCE, Inc.

 

800 Commerce, Inc. owed Mediswipe $82,894 and $73,894 as of March 31, 2014 and December 31, 2013, respectively, as a result of advances received from or payments made by Mediswipe on behalf of 800 Commerce. These advances are non-interest bearing and are due on demand and are included in Due from Related Party on the balance sheet herein.

 

NOTE 8 – COMMON AND PREFERRED STOCK

 

Common Stock

 

On November 12, 2013, the Board of Directors of the Company approved by unanimous written consent a 1-for-10 Reverse Stock Split and to decrease the authorized common stock of the Company to 250,000,000. Pursuant to the Reverse Stock Split, each ten (10) shares of the Company’s Common Stock automatically converted into one share of Common Stock. All the following share issuances are stated to reflect the reverse stock split.

F-12
 

 

On March 19, 2013, the Company issued 25,000 shares of restricted common stock, to Empire Relations Holdings, LLC, as consideration under a consulting agreement dated March 7, 2013 for public and financial relations services. The fair value was $15,500 based on the closing stock price of $0.62 per share on the measurement date as the shares are non-refundable and no future performance obligation exists.

 

Previously the Company appointed Mr. Jayme Canton to be an advisor to the Company’s Board of Directors. In April 2013, the Company agreed to issue to Mr. Canton 200,000 shares of common stock, a warrant to purchase 300,000 shares of common stock at an exercise price of $0.50 per share with an expiration date on the third year anniversary of the grant, and $25,000 to be paid in shares of common stock to be issued at the end of each calendar quarter beginning on June 30, 2013 and ending on the earlier of March 31, 2015 (the term of Canton’s advisor role) or the date Canton is no longer serving as an advisor to the board of directors. On March 31, 2014, the Company issued 56,948 shares of common stock, valued at $25,000 based on the market price of the common stock of $0.439 on March 31, 2014. The Company included $25,000 in stock based compensation expense for the three months ended March 31 2014.

 

In January 2014 the Company issued in the aggregate 8,467,388 shares of common stock to Typenex upon the conversion of $523,564 of the Company Note and accrued and unpaid interest of $3,716. The shares were issued at approximately $0.06227 per share.

 

On January 13, 2014, the Company issued 545,454 shares of common stock to Venture Equity upon the conversion of $60,000 of accrued management fees. The shares were issued at $0.11 per share, the market price of the common stock on December 31, 2013.

 

On January 14, 2014, the Company issued 2,460,968 shares of common stock upon the conversion of 100,000 shares of Class B Preferred Stock.

 

On January 30, 2014, February 3, 2014 and February 5, 2014, the Company issued in the aggregate 369,420 shares of common stock to Asher upon the conversion of $65,000 of the 2013 Notes and accrued and unpaid interest of $2,600. The shares were issued at approximately $0.18299.

 

In March 2014, the Company issued 843,654 shares of common stock to Typenex upon the conversion of $116,611 of the Company note and accrued and unpaid interest. The shares were issued at approximately $0.1382 per share.

 

On March 17, 2014, the Company issued 4,312,420 shares of common stock upon the conversion of 150,000 shares of Class B Preferred Stock.

 

On March 31, 2014, the Company issued 56,948 shares of common stock to Jayme Canton upon the conversion of $25,000 of accrued stock compensation.

 

Preferred Stock

 

On June 20, 2012 the Company cancelled and returned to authorized but unissued one million shares of Preferred A Stock, and authorized 1,000,000 shares of Class B Convertible Preferred Stock (the “Class B Preferred Stock”), par value $0.01. The rights, preferences and restrictions of the Class B Preferred Stock as amended, state; i) each share of the Class B Convertible Preferred Stock shall automatically convert (the “Conversion”) into shares of the Corporation’s common stock at the moment there are sufficient authorized and unissued shares of common stock to allow for the Conversion. The Class B Convertible Preferred Stock will convert in their entirety, simultaneously to equal one half (1/2) the amount of shares of common stock outstanding on a fully diluted basis immediately prior to the Conversion. The Conversion shares will be issued pro rata so that each holder of the Class B Convertible Preferred Stock will receive the appropriate number of shares of common stock equal to their percentage ownership of their Class B Convertible Preferred Stock and ii) all of the outstanding shares of the Class B Preferred Stock in their entirety will have voting rights equal to the amount of shares of common stock outstanding on a fully diluted basis immediately prior to any vote. The shares eligible to vote will be calculated pro rata so that each holder of the Class B Convertible Preferred Stock will be able to vote the appropriate number of shares of common stock equal to their percentage ownership of their Class B Convertible Preferred Stock. The Class B Convertible Preferred Stock shall have a right to vote on all matters presented or submitted to the Corporation’s stockholders for approval in pari passu with holders of the Corporation’s common stock, and not as a separate class.

F-13
 

 

On August 13, 2012 the Board of Directors of the Company authorized the issuance of 800,000 shares of Class B Preferred stock. The shares were issued as follows: B. Michael Friedman, 250,000 shares issued in lieu of accrued and unpaid salary due Mr. Friedman and stock based compensation (see Note 7) for his role as CEO of the Company; Erick Rodriguez, 250,00 shares issued for his role as President of the Company; Philip Johnston, 100,000 shares issued pursuant to legal services to be provided for one year beginning August 12, 2012; Barry Hollander, 50,000 shares issued for his services as CFO (see Note 7) and Capital Strategy Corp., 150,000 shares for consulting services, including merger and acquisition consulting. The shares issued for legal services and consulting were recorded as deferred compensation (originally $355,334) and are being amortized over the term of their respective agreements. Accordingly, the Company has expensed and included $88,834 and $0, for the three months ended March 31, 2013 and 2014, respectively, as the deferred compensation was fully amortized expensed during the year ended December 31, 2013.

 

As of March 31, 2014 and December 31, 2013, the Company had 1,000,000 and 750,000 shares of Series B Preferred Stock (the “Class B Preferred Stock”), par value $0.01 outstanding, respectively.

 

Warrants

 

On April 26, 2013 and in connection with the appointment of Mr. Jayme Canton to the Company’s advisory board, the Company issued a warrant to Mr. Canton to purchase 300,000 shares of common stock. The warrant has an exercise price of $0.50 per share, remains outstanding and expires April 26, 2016.

 

NOTE 9 – INCOME TAXES

 

Deferred income taxes reflect the net tax effects of operating loss and tax credit carry forwards and temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the deferred tax assets are fully offset by a valuation allowance at March 31, 2014 and 2013.

 

As of March 31, 2014, the Company had a tax net operating loss carry forward of approximately $1,356,000. Any unused portion of this carry forward expires in 2030. Utilization of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.

     

 

NOTE 10 – CONTINGENCIES AND COMMITMENTS

 

Effective on April 1, 2013, the Company entered into a three year agreement to rent approximately 2,500 square feet of office space (the “Office Lease”) in Detroit, Michigan. The monthly rent under this lease was $2,200 per month.

 

Effective August 28, 2013, the Company and the landlord amended the Office Lease allowing the Company to move to a new location in downtown Detroit. The new lease was for 3,657 square feet for monthly rent of $3,047. In November 2013, the Company was notified that the owner of the building (the Company’s landlord) was delinquent in their obligations to the mortgage holder of the building. In January 2014, due to the uncertainty of the Company’s Office Lease in Detroit, Michigan, the Company decided to relocate its administrative offices to West Palm Beach, Florida. Effective April 1, 2014, the Company has entered into a rent sharing agreement for the use of 1,300 square feet with a company controlled by the Company’s CFO. The Company has agreed to pay $1,350 per month for the space.

 

Effective May 15, 2013 through September 15, 2013, the Company leased warehouse space on a month to month basis for the shipping and logistics of the Company’s Chillo drink products for $250 per month. Subsequent to September 15, 2013, the Company compensates the landlord on a per pallet fee.

 

Rent expense for the three months ended March 31, 2014 and March 31, 2013 was $1,929 and $3,752, respectively.

F-14
 

 

The Company is not aware of any legal proceedings against it as of March 31, 2014. No contingencies have been provided in the financial statements.

 

NOTE 11 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of March 31, 2014 the Company had an accumulated deficit of $9,554,549 and working capital of $72,306. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 12 – SEGMENT REPORTING

 

Description of segments

 

During the three months ended March 31, 2014, the Company had operated in one reportable segment, wholesale sales. Beginning in the quarter ended June 30, 2013, the Company began wholesaling products (Chillo drinks). The accounting policies of the segments are the same as those described in the Note 1.  The Company’s reportable segments are strategic business units that offer products. 

 

For the three months ended March 31, 2013, the Company operated in one segment, merchant services.

 

NOTE 13 – SUBSEQUENT EVENTS

 

On April 17, 2014, the Company issued 188,088 shares of common stock in satisfaction of $36,000 of the October 2013 Asher Note. The shares were issued at approximately $0.19 per share.

 

On April 20, 2014, the Company issued 202,867 shares of common stock in satisfaction of $34,000 of the October 2013 Asher convertible note and accrued and unpaid interest of $2,800. The shares were issued at approximately $0.18 per share.

 

In April 2014, the Company entered into a multi-year sublease agreement for the use of up to 7,500 square feet with a Colorado based oncology clinical trial and drug testing company and facility presently doing cancer research and testing for established pharmaceutical companies seeking FDA approval for new drugs. The Company has agreed to pay $2,000 per month for the space, and it will be utilized to market, sell and distribute products to Colorado dispensaries, including managing the banking and credit card services described below.

 

On April 28, 2014, the Company announced it executed and closed a lease agreement for 20 acres of an agricultural farming facility located in South Florida following the approval of the so-called “Charlotte’s Web” legislation, aimed at decriminalizing low grade marijuana specifically for the use of treating epilepsy and cancer patients.  The agreement includes a 10 year lease on the producing nursery farm with unlimited water sources and electricity, including infrastructure already in place, with the first year obligation paid in full. Pursuant to the lease agreement, through November 1, 2014, the Company has an option to purchase the land for $1,100,000 and maintains a first right of refusal to purchase the property for three years.

 

On April 30, 2014, the Company received final approval through its exclusive merchant processing partnership and associated banking network to offer banking and card services to medical dispensaries nationally. All licensed medical dispensaries in regulated jurisdictions are now eligible to utilize card services as an alternative to "cash only" transactions through partnering with the Company’s processing division.  Medicinal and recreational businesses in licensed jurisdictions who take advantage of the Company’s card program are also eligible to receive a corporate bank account.  The Company has submitted approximately 400 medical dispensaries based in Colorado under the exclusive agent relationship to its banking arm for immediate consideration and to begin the application process this month. The Company expects to begin activating first accounts for card services and banking during the second quarter of 2014. 

 

The Company’s Management performed an evaluation of the Company’s activity through the date these financials were issued to determine if they must be reported. The Management of the Company determined that there were no other reportable subsequent events to be disclosed.

F-15
 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2013 and 2012, included in our annual report on Form 10-K filed with the SEC on April 1, 2014.

 

The independent auditors reports on our financial statements for the years ended December 31, 2013 and 2012 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 11 to the condensed consolidated financial statements filed herein.

 

(a) Liquidity and Capital Resources.

 

For the three months ended March 31, 2014, net cash used in operating activities was $122,405 compared to $52,019 for the three months ended March 31, 2013. The company had a net loss $235,601 for the three months ended March 31, 2014 compared to a net loss of $248,688 for the three months ended March 31, 2013. The net loss for the three months ended March 31, 2014 was impacted by $25,000 for the 56,948 shares of common stock for services provided to the Company. Additional non-cash expenses for the three months ended March 31, 2014 were the amortization of the initial discounts of $77,833 on the convertible notes and amortization of deferred financing fees of $14,340 also related to the convertible promissory notes. These amounts were offset by the change in the fair value of the derivatives of $30,347.

 

The net loss for the three months ended March 31, 2013 was impacted by stock compensation expense of $104,334 comprised of the amortization of deferred stock compensation of $88,834 from the previous issuance of Series B preferred stock and $15,500 for the issuance of 25,000 shares for services provided to the Company. Additional non-cash expenses for the three months ended March 31, 2013 were the amortization of the initial discounts of $25,324 on the convertible notes, the initial derivative liability expense, net of the change in the fair value of the derivatives of $5,093 and amortization of deferred financing fees of $2,120 also related to the convertible promissory notes.

 

During the three months ended March 31, 2014, net cash provided by financing activities was $492,000. This was comprised of proceeds received from the issuance of convertible promissory notes of $300,000 and proceeds of $200,000 related to the Typenex note receivable (see note 6 to the condensed consolidated unaudited financial statements contained herein) and the payment of deferred financing fees of $8,000. During the three months ended March 31, 2013, net cash provided by financing activity was $60,000. This was comprised of issuance of convertible promissory notes of $65,000 and the payment of deferred financing fees of $5,000.

 

For the three months ended March 30, 2014, cash and cash equivalents increased by $313,316 compared to an increase of $7,981 for the three months ended March 31, 2013. Ending cash and cash equivalents at March 31, 2014 was $422,082 compared to $108,766 at December 31, 2013.

 

We have cash and cash equivalents on hand to meet our obligations. We presently maintain our daily operations and capital needs through the sale of our products and financings available to us from our lender.

16
 

 

(b) Results of Operations

 

Results of operations for the three months ended March 31, 2014 vs. March 31, 2013

 

REVENUES

 

Revenues during the three months ended March 31, 2014 and 2013 were comprised of the following:

 

    2014   2013
ACS $ - $ 49,818
Chillo products   12,342   -
Tobacco products   7,178    
Total $ 19,520 $ 49,818

 

In April 2013, Alternative Capital Solutions (“ACS”) and the Company terminated their agreements and accordingly, the Company will no longer be receiving fees related to the ACS agreement. During 2013, the Company entered into an exclusive distributorship agreement with Chill Drinks, LLC (See Note 1) for sales of Chill Drink’s products to dispensaries. Sales began in April 2013.

OPERATING EXPENSES

 

Operating expenses were $163,594 for the three months ended March 31, 2014 compared to $263,483 for the three months ended March 31, 2013. The expenses were comprised of:

 

    2014   2013
Description        
Administration and management fees $ 71,431 $ 65,500
Stock compensation expense, management   -   44,417
Stock compensation expense, other   25,000   59,917
Professional and consulting fees   22,950   29,002
Commissions and license fees    8,072   31,200
Advertising and promotional expenses    1,000   3,644
Rent and occupancy costs   1,929   3,752
General and other administrative    33,212   26,051
Total $ 163,594 $ 263,483

 

There was no stock compensation expense, management for the three months ended March 31, 2014 compared to $44,417 for the three months ended March 31, 2013, comprised of the amortization of preferred stock issued to our President in August 2012. Stock compensation expense, other for the three months ended March 31, 2014 is comprised of $25,000 to our advisor of the board of directors for the issuance of 56,948 shares of common stock for services provided to the Company. The three month period ended March 31, 2013 included $15,500 related to the issuance of 25,000 shares of common stock issued to a consultant and amortization of $44,417 of preferred stock issued to consultants in August 2012.

 

Professional and consulting fees for the three months ended March 31, 2014 was comprised of investor relation costs of $2,250 compared to $14,302 for the three months ended March 31, 2013. Professional and consulting fees of $20,700 were incurred for the three months ended March 31, 2014 compared to $14,700 for the three months ended March 31, 2013. Commissions and license fees of $8,072 were also incurred for the three months ended March 31, 2014 compared to $31,200 for the three months ended March 31, 2013 pursuant to the ACS Agreement.

17
 

 

General and other administrative costs for the three months ended March 31, 2014, were $33,212 compared to $26,051 for the three months ended March 31, 2013. Expenses for the three months ended March 31, 2014, include public company filing and transfer agent fees of $3,503, travel and entertainment costs of $17,752 and internet and web based service costs of $2,301 and $9,656 of other general and administrative costs. General and other administrative costs for the three months ended March 31, 2013, included public company filing fees of $8,895, travel and entertainment costs of $5,636, internet and web based service costs of $5,447, certification station set up costs of $2,904 and $3,169 of other general and administrative costs.

OTHER INCOME (EXPENSE)

 

Other expense for the three months ended March 31, 2014 was $70,368 compared to $35,023 for the three months ended March 31, 2013. Included in the current period is interest expense of $111,455 comprised of $77,833 related to the amortization of the initial discount on convertible promissory notes, $14,340 for the amortization of the deferred financing costs and $19,282 for the interest expense on the face value of the notes. Also included in other expenses for the three months ended March 31, 2014 was a credit to expense of $30,347 for the fair value change on the derivative liability associated with the convertible promissory notes and interest income of $10,740 was recorded related to the Typenex note receivables. Included in the interest expense for the three months ended March 31, 2103 of $29,930 was $25,324 related to the amortization of the initial discount on convertible promissory notes, $2,120 for the amortization of the deferred financing costs and $2,486 for the interest expense on the face value of the notes. Also included in other expenses for the three months ended March 31, 2013 was $5,237 for the initial derivative liability expense for the embedded derivative in newly issued convertible notes and a credit to expense of $144 for the fair value change on the derivative liability associated with the convertible promissory notes.

 

OFF BALANCE SHEET ARRANGEMENTS

 

None

 

Critical Accounting Policies

 

See Note 2 to the condensed consolidated financial statements included herein.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.


We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our President, who serves as our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and he determined that our disclosure controls and procedures were not effective due to a control deficiency. During the period we did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. Due to the size and operations of the Company, we are unable to remediate this deficiency until we acquire or merge with another company.

 

Changes in Internal Control Over Financial Reporting


Evaluation of Disclosure Controls and Procedures.  As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, at March 31, 2014, our disclosure controls and procedures are not effective.

 

Management’s Report on Internal Controls over Financial Reporting

18
 

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our CEO and CFO have evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to the extent possible given the limited personnel resources and technological infrastructure in place to perform the evaluation. Based upon our management’s discussions with our auditors and other advisors, our CEO and CFO believe that, during the period covered by this report, such internal controls and procedures were not effective as described below.

 

We assessed the effectiveness of the Company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:

 

Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.

 

Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.

 

Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.

 

We are committed to improving the internal controls and will (1) consider to use third party specialists to address shortfalls in staffing and to assist us with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future.

 

We have discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of this material weakness, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.

19
 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

 

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

 

On March 31, 2014, the Company issued 56,948 shares of common stock, valued at $25,000 based on the market price of the common stock of $0.439 on March 31, 2014. The Company included $25,000 in stock based compensation expense for the three months ended March 31 2014.

 

In January 2014 the Company issued in the aggregate 8,467,388 shares of common stock to Typenex upon the conversion of $523,564 of the Company Note and accrued and unpaid interest of $3,716. The shares were issued at approximately $0.06227 per share.

 

On January 13, 2014, the Company issued 545,454 shares of common stock to Venture Equity upon the conversion of $60,000 of accrued management fees. The shares were issued at $0.11 per share, the market price of the common stock on December 31, 2013.

 

On January 14, 2014, the Company issued 2,460,968 shares of common stock upon the conversion of 100,000 shares of Class B Preferred Stock.

 

On January 30, 2014, February 3, 2014 and February 5, 2014, the Company issued in the aggregate 369,420 shares of common stock to Asher upon the conversion of $65,000 of the 2013 Notes and accrued and unpaid interest of $2,600. The shares were issued at approximately $0.18299.

 

In March 2014, the Company issued 843,654 shares of common stock to Typenex upon the conversion of $116,611 of the Company note and accrued and unpaid interest. The shares were issued at approximately $0.1382 per share.

 

On March 17, 2014, the Company issued 4,312,420 shares of common stock upon the conversion of 150,000 shares of Class B Preferred Stock.

 

On March 31, 2014, the Company issued 56,948 shares of common stock to Jayme Canton upon the conversion of $25,000 of accrued stock compensation.

 

ITEM 3. Defaults upon Senior Securities

 

None.

 

Item 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. Other Information

 

None

20
 

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

 

(a) Exhibit index

 

31.1 Certification of Chief Executive Officer, and Director Pursuant to Section 302 of the Sarbanes-Oxley Act.

 

31.2 Certification of Chief Financial Officer, and Director Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

32.1 Certification of Chief Executive Officer, and Director Pursuant to Section 302 of the Sarbanes-Oxley Act.

 

32.2 Certification of Chief Financial Officer, and Director Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

21
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: May 15, 2014

MEDISWIPE, INC.

 

By: /s/ B. Michael Friedman

B. Michael Friedman

Chief Executive Officer and Director

(Principal Executive Officer)

22
 

 

EXHIBIT 31.1

 

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, B. Michael Friedman, certify that:

 

1.I have reviewed this Quarterly Report on Form 10-Q of Mediswipe, Inc.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.I am responsible for establishing and maintaining internal disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))for the registrant and have:

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

 

c.Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report my conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

 

5.I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

 

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

 

Date: May 15, 2014 /s/ B. Michael Friedman           
  B. Michael Friedman
  Principal Executive Officer

 

EXHIBIT 31.2

 

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Barry S. Hollander, certify that:

 

1.I have reviewed this Quarterly Report on Form 10-Q of Mediswipe, Inc.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.I am responsible for establishing and maintaining internal disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))for the registrant and have:

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

 

c.Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report my conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

 

5.I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

 

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

 

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

 

Date: May 15, 2014 /s/ Barry S. Hollander             
  Barry S. Hollander
  Principal Accounting Officer

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Mediswipe, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, B. Michael Friedman, Principal Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  1. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for the periods presented in the Report.

 

  /s/ B. Michael Friedman          
  B. Michael Friedman
  Principal Executive Officer
  May 15, 2014

 

A signed original of this written statement required by Section 906 has been provided to Mediswipe, Inc. and will be retained by Mediswipe, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Mediswipe, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry S. Hollander, Principal Accounting Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  1. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for the periods presented in the Report.

 

  /s/ Barry S. Hollander            
  Barry S. Hollander
  Principal Accounting Officer
  May 15, 2014

 

A signed original of this written statement required by Section 906 has been provided to Mediswipe, Inc. and will be retained by Mediswipe, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.