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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

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

 

For the quarterly period ended: September 30, 2012

or

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

For the transition period from ________________ to __________________

 

Commission File Number 000-1321002

 

___________MEDISWIPE, INC.___________

(Exact name of registrant as specified in its charter)

 

Delaware _____ 20-8484256__

(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

________477 South Rosemary Ave., Suite 203, West Palm Beach, FL, 33401__________

(Address of principal executive offices)

 

___________________(561) 296-6393_______________

(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 S            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 S

Indicate by check mark whether the registrant is a larger accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer £ Accelerated filer £
Non-accelerated filer             £   (Do not check if a smaller reporting company) Smaller reporting company S

 

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

Yes   £       No  S

The number of shares outstanding of the Registrant's $0.01 par value Common Stock as of November 10, 2012 was 444,167,878 shares.

 

(1)

 

INDEX TO FORM 10-Q 

 
Part I.  Financial Information  Page
   
Item 1.  Financial Statements  
   
Condensed Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011 3
   
Condensed Condensed Statements of Operations for the three and nine months ended September 30, 2012 and 2011(Unaudited) 4
   
Condensed Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited) 5
   
Notes to Condensed Financial Statements 6 – 12
   
Item 2.  Management’s Discussion and Analysis  14
   
Item 3.  Quantitative and Qualitative Disclosures about Market Risks 14
   
Item 4.  Controls and Procedures 14
   
Part II.  Other Information  
   
Item 1. Legal Proceedings 15
   
Item 1A. Risk Factors 15
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
   
Item 3. Defaults Upon Senior Securities 15
   
Item 4. Mine Safety Disclosures 15
 
Item 5. Other Information 15
   
Item 6. Exhibits 15
   
Signatures 16

(2)

MEDISWIPE, INC.
CONDENSED BALANCE SHEETS
         
    September 30,   December 31,
    2012   2011
    (Unaudited)    
ASSETS        
Current Assets:                
Cash and cash equivalents   $ 812     $ 3,355  
Accounts receivable     —         6,028  
Deferred financing costs     1,055       5,907  
Prepaid assets     —         5,000  
  Total current assets   $ 1,867     $ 20,290  
                 
Current Liabilities:                
Accounts payable and accrued expenses   $ 75,517     $ 62,051  
Accrued salary     15,000       90,000  
Convertible debt, net of discounts of $13,722 (2012)  and $94,477 (2011)     56,778       30,523  
Derivative liabilities     113,616       124,816  
Total current liabilities     260,911       307,390  
                 
Stockholders' Deficiency:                
Series B convertible preferred stock, $0.01 par value; 1,000,000 shares authorized, 550,000                
shares outstanding (2012)     5,500       —    
Common stock, $.01 par value; 500,000,000 shares authorized; 444,167,878 shares                
and 374,741,470 shares issued and outstanding, respectively     4,441,681       3,747,414  
Additional paid-in capital     240,009       466,446  
Accumulated deficit     (4,766,517)     (4,436,129)
Deferred compensation     (179,717)     —    
Total company stockholders' deficiency     (259,044)     (222,269)
Less noncontrolling interest     —         (64,831)
Total deficiency     (259,044)     (287,100)
                 
    $ 1,867     $ 20,290  

 See notes to condensed financial statements 

(3)

MEDISWIPE, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
             
   Three months ended September 30,  Nine months ended September 30,
   2012  2011  2012  2011
             
Fee revenue, net  $781   $19,326   $50,239   $35,222 
                     
Operating Expenses:                    
Administrative and management fees   152,641    —      213,429    150,000 
Professional fees   4,100    13,000    11,500    80,900 
Commissions   —      —      8,512    —   
Rent and other occupancy costs   3,582    —      15,265    —   
Other general and administrative expenses   1,156    34,302    34,199    58,265 
                     
Total operating expenses   161,479    47,302    282,905    289,165 
                     
Operating loss   (160,698)   (27,976)   (232,666)  (253,943)
                     
Other Income (Expense):                    
Interest expense   (35,045)   (755)   (127,981)   (755)
Derivative expense   (51,116)   (5,613)   (33,072)   (5,613)
Gain on deconsolidation of subsidiary   —      —      62,636    —   
Total other expense, net   (86,161)   (6,368)   (98,417)   (6,368)
                     
Net loss   (246,859)   (34,344)   (331,083)   (260,311)
Less: net loss attributable to noncontrolling interest   —      —      695    —   
                     
Net loss attributable to Mediswipe, Inc.  $(246,859)  $(34,344)  $(330,388)  $(260,311)
                     
                     
Basic and diluted loss attributable to Mediswipe, Inc.                    
common shareholders, per share  $(0.00)  $(0.00)  $(0.00)  $(0.00)
                     
Weighted average number of common shares outstanding                    
Basic and diluted   440,791,373    379,741,470    403,701,126    373,100,200 

See notes to condensed financial statements 

(4)

 

MEDISWIPE, INC
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED)
                   

 

   2012  2011
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(330,388)  $(260,311)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:          
Amortization of deferred financing costs   7,352    65 
Amortization of discount on convertible notes   113,255    648 
Change in fair value of derivative liabilities   31,361    (24,943)
Initial derivative liability expense on convertible notes   1,711    30,556 
Stock issued in settlement of note payable   —      283 
Change in noncontrolling interest   (695)   —   
Gain on deconsolidation of subsisiary   (62,636)   —   
Cash effect of deconsolidation   (5,166)   —   
Preferred stock issued for services   135,061    212,000 
Changes in operating assets and liabilities:          
(Increase) decrease:          
Accounts receivable   4,934    —   
Other assets and receivables   —      (5,470)
Increase:          
Accounts payable and accrued expenses   17,588    1,029 
Accrued salary   62,080    —   
     Net cash used in operating activities   (25,543)   (46,143)
           
Cash flows from financing activities:          
Issuance of common stock for cash   —      20,000 
Issuance of subsidiary common stock for cash   5,000    —   
Proceeds from issuance of notes payable related parties   —      16,800 
Repayments on notes payable, related parties   —      (6,100)
Proceeds from issuance of convertible debt   32,500    25,000 
Payment of deferred financing costs   (2,500)   (2,500)
Repayments on convertible notes   (12,000)   —   
     Net cash provided by financing activities   23,000    53,200 
           
Net increase (decrease) in cash and cash equivalents   (2,543)   7,057 
Cash and cash equivalents, beginning   3,355    282 
           
Cash and cash equivalents, ending  $812   $7,339 
           
Supplemental disclosure of cash flow information:          
           
Cash paid for interest  $—     $—   
           
Cash paid for income taxes  $—     $—   
           
Common stock issued upon conversion of notes payable and interest  $78,000   $—   
           
Re-class of derivative liabilities to additional paid in capital upon          
conversion of convertible notes  $71,866   $—   
           
Preferred stock issued for services, deferred compensation and accrued salary          
   $451,858   $—   

See notes to condensed financial statements

 

(5)

 

MEDISWIPE, INC.

NOTES TO CONDENSED

UNAUDITED FINANCIAL STATEMENTS

 

 

NOTE 1 - ORGANIZATION

 

BUSINESS

 

MediSwipe (www.MediSwipe.com) offers a full spectrum of secure and reliable transaction processing and security solutions for the medical and healthcare industries, using traditional, Internet Point-of-Sale (POS), e-commerce and mobile (wireless) payment solutions. The Company additionally has developed a closed loop pre-paid patient stored value and loyalty card as a unique cash alternative to these regulated and e-commerce businesses specializing within the healthcare sector. The Company is headquartered in West Palm Beach, Florida.

 

On June 14, 2011, Cannabis Medical Solutions, Inc. changed its name to MediSwipe Inc. to further expand its’ merchant and mobile payment solutions to the overall health and wellness sector. In August 2012, the Company issued to officers and consultants, as consideration for services performed and for future services, 550,000 shares of Series B Preferred Stock, which is convertible into the number of shares of common stock determined by dividing the number of shares of common stock issued and outstanding on the day of conversion by 1,000,000, or 244,292,333 shares of common stock as of September 30 2012.   (See note 8.)

 

The Company generates revenues by charging fees for the electronic processing of payment transactions and related services. The Company charges certain merchants for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. The Company charges other merchant customers a flat fee per transaction, and may also charge miscellaneous fees to our customers, including fees for returns, monthly minimums, and other miscellaneous services. The Company operates solely in the United States as a single operating segment.

 

The Company’s card-based processing services enable merchants to process both traditional card-present, or "swipe," transactions, as well as card-not-present transactions. A traditional card-present transaction occurs whenever a cardholder physically presents a credit or debit card to a merchant at the point-of-sale. A card-not-present transaction occurs whenever the customer does not physically present a payment card at the point-of-sale and may occur over the internet, mail, fax or telephone. The Company’s electronic payment processing may take place in a variety of forms and situations. For example, the Company’s capabilities allow merchants to have their customer service representatives take e-check or card payments from their consumers by telephone, and enable their consumers to make e-check or card payments directly through the use of a web site or by calling an Interactive Voice Response telephone system.

Previously, the Company provided merchant services to approximately forty medical dispensaries and wellness centers throughout California and Colorado through our sponsor bank Electronic Merchant Systems (“EMS”). EMS has advised all medical dispensaries that they will no longer accept their Visa and MasterCard transactions. This change was effective on July 1, 2012 and will have a materially adverse effect on our business. EMS did tell their clients that they can still take Discover cards, but asked that medical dispensary merchants batch and settle any Visa and Mastercard transactions by June 30, 2012. Mediswipe has moved over the last several months to expand and offer its merchant processing and payments services to the overall health and wellness sector, as well as to seek strategic partnerships within the mobile healthcare industry to lessen the impact of the dispensary processing business division.

The Company has a number of additional merchants through our banking partner EMS in which we receive residuals from each merchant account each month. In order to provide payment-processing services for Visa, MasterCard and Discover transactions, the Company must be sponsored by a financial institution that is a principal member of the respective Visa, MasterCard and Discover card associations. The Company has agreements with several 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. The Company also maintains a bank sponsorship agreement for our prepaid card programs. Monthly revenues are derived through new existing merchant account residual payments paid to us via wire transfer or ACH each month by our three banking partners. The Company will seek to further capitalize on the health and wellness marketplace and is in the unique position to access this distribution channel, by managing and leveraging its’ merchant relationships as a vertical pipeline and distribution channel for its growing patient database and clients.

(6)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

The accompanying condensed 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 16, 2012. Interim results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of future results for the full year. Certain amounts from the 2011 period have been reclassified to conform to the presentation used in the current period.

 

The condensed financial statements include the accounts of the Company and 800 Commerce, until May 10, 2012 when 800 Commerce sold shares of its common stock to third parties resulting in the Company no longer holding a controlling interest in 800 Commerce. All material intercompany balances and transactions have been eliminated

 

NONCONTROLLING INTEREST AND DECONSOLIDATION

 

On January 1, 2011, the Company adopted authoritative accounting guidance that requires the ownership interests in subsidiaries held by parties other than the parent, and income attributable to those parties, be clearly identified and distinguished in the parent’s consolidated financial statements. The Company’s noncontrolling interest is now disclosed as a separate component of the Company’s consolidated equity deficiency on the balance sheets. Earnings and other comprehensive income are separately attributed to both the controlling and noncontrolling interests.  Earnings per share are calculated based on net income attributable to the Company’s controlling interest.

 

From January 1, 2011 through May 31, 2011, the Company owned 100% of 800 Commerce. From June 1, 2011 through October 1, 2011 800 Commerce sold 465,000 shares of its common stock and issued 3,534,000 shares of its common stock to its officers as compensation. After these transactions, the Company owned 60% of 800 Commerce. On May 10, 2012, 800 Commerce sold 3,150,000 shares of its common stock, reducing the Company’s ownership to 45%. On May 18, 2012, 800 Commerce sold 1,500,000 shares of its common stock, reducing the Company’s ownership to 40%. On June 10, 2012 issued 1,500,000 shares of common stock pursuant to a consulting agreement and 1,851,000 shares of common stock for legal services and in lieu of compensation, and since June 30, 2012, 800 Commerce has sold 500,000 shares of its common stock and issued 500,000 shares of its common stock pursuant to a consulting agreement. Subsequent to these issuances the Company currently owns approximately 32% of the outstanding common stock of 800 Commerce. Effective May 10, 2012, the Company is no longer consolidating 800 Commerce in its’ financial statements. The noncontrolling interest included in the Company’s consolidated statement of operations is a result of noncontrolling interest investments in 800 Commerce up to the date of deconsolidation of May 10, 2012. Noncontrolling interests through May 10, 2012 are classified in the condensed consolidated statements of operations as part of consolidated net loss.

As a result of the deconsolidation of 800 Commerce, Inc., the Company recorded a gain of $62,636, consisting of the following:

 

Fair value of consideration received  $—   
Carrying value of the non-controlling interest in 800 Commerce, Inc. in as of the change in control date   (65,526)
Less: Net deficit of 800 Commerce, Inc. as of May 10, 2012   (128,162)
   $62,636 

 

Subsequent to May 10, 2012, the Company’s investment in 800 Commerce is accounted for using the equity method and was reduced to zero.

 

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.

 

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 processors. The Company charges certain merchants for processing services at a bundled rate based on a percentage of the dollar amount of each transaction and, in some instances, additional fees are charged for each transaction. The Company charges other merchant customers a flat fee per transaction, and may also charge miscellaneous fees to our customers, including fees for returns, monthly minimums, and other miscellaneous services. All the charges and collections thereon flow through our processors who then remit the fee due the Company within the month following the actual charges.

 

DEFERRED FINANCING COSTS

 

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

 

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 commissions are earned.

 

(7)

 

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, accounts payable and accrued expenses, 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.

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 not any outstanding warrants or options as of September 30, 2012 and 2011. As of September 30, 2012, the Company’s outstanding convertible debt is convertible into 69,308,112 shares of common stock and 550,000 shares of Series B convertible preferred stock is convertible into 244,292,333 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 and nine months ended September 30, 2012 the Company recorded stock based compensation of $135,061 (See Notes 7 and 8). For the nine months ended September 30, 2011 the Company issued 15,600,000 shares of restricted common stock to officers and consultants for services totaling $212,000. As of September 30, 2012, we do not have any outstanding stock options or warrants.

 

(8)

 

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 will result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, with early application not permitted, and became effective for the Company on January 1, 2012. The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

 

Other 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.

 

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. The company has not experienced any losses in such accounts.

 

Sales

 

None of our customers account for more than 10% of our business, however we rely 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.

 

Industry

Previously, the Company generated substantially all of its’ revenue from providing merchant services to approximately forty medical dispensaries and wellness centers throughout California and Colorado through our sponsor bank Electronic Merchant Systems (“EMS”). EMS has advised all medical dispensaries that they will no longer accept their Visa and MasterCard transactions. This change was effective on July 1, 2012 and will have a materially adverse effect on our business.

(9)

 

NOTE 6 – CONVERTIBLE DEBT

 

In December 2011 the Company issued a $50,000 convertible promissory note as part of a guaranty fee due (the “Guaranty Note”) to a Company that is affiliated with a former shareholder of the Company. Terms of the note include an eight percent per annum interest rate and the note matures on the one year anniversary on December 20, 2012. Additionally, the holder of the Note has the right to convert the note into shares of common stock of the Company at a conversion price equal to eighty percent (80%) of the lowest closing bid price of the common stock within five (5) days of the conversion. The beneficial conversion feature included in the Guaranty Note resulted in an initial debt discount and derivative liability of $36,765. The fair value of the embedded conversion feature of the Guaranty Note was calculated at the issue date utilizing the following assumptions:

 

 

Issuance Date

 

Fair Value

 

Term

 

Assumed Conversion Price

 

Market Price on Grant Date

 

Expected

Volatility Percentage

 

Risk free

Interest

Rate

12/20/11 $36,765 1 Year $0.00272 $0.0033 147% 0.02

 

As of December 31, 2011, the Company revalued the Guaranty Note. For the period from issuance to December 31, 2011, the Company decreased the derivative liability of $36,765 by $1,050 resulting in a derivative liability balance of $35,715 at December 31, 2011. During the nine months ended September 30, 2012, the company made payments of $12,000, reducing the balance of the Guaranty Note to $38,000 as of September 30, 2012. The Company revalued the remaining balance of the Guaranty Note as of September 30, 2012 and based on the valuation, the Company decreased the derivative liability balance by $10,714 resulting in a derivative liability balance of $25,000 at September 30, 2012.

 

The fair value of the embedded conversion feature of the Guaranty Note was calculated at September 30, 2012 utilizing the following assumptions:

 

 

 

 

Fair Value

 

 

Term

Assumed Conversion  Price

Expected

Volatility Percentage

 

Risk free

Interest Rate

$25,000 3 months $0.00152 158% 0.1%

 

In September, October and December 2011, the Company entered into three separate note agreements with an unaffiliated investor for the issuance of three convertible promissory notes each in the amount of $25,000 (the “2011 Notes”). Among other terms the 2011 Notes are due nine months from their issuance dates, 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 2011 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 2011 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. The Company may at its own option prepay the 2011 Notes and must maintain sufficient authorized shares reserved for issuance under the 2011 Notes.

 

We received net proceeds of $67,500 from the 2011 Notes after debt issuance costs of $7,500 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 $972 and $5,598 and has been expensed as debt issuance costs (included in interest expense) during the three and nine months ended September 30, 2012.

 

The beneficial conversion feature included in the 2011 Notes resulted in an initial debt discount of $75,000 and an initial loss on the valuation of derivative liabilities of $41,882 for a derivative liability initial balance of $116,882.

 

On March 26, 2012, the investor converted $10,000 of the September 2011 Note. Pursuant to the Conversion Price, the Company issued 4,545,455 shares of common stock at approximately $0.0022 per share.

 

On April 23, 2012, the investor converted $10,000 of the September 2011 Note. Pursuant to the Conversion Price, the Company issued 5,000,000 shares of common stock at $0.002 per share.

On May 3, 2012, the investor converted $5,000 of the September 2011 Note and $1,000 of accrued and unpaid interest. Pursuant to the Conversion Price, the Company issued 3,750,000 shares of common stock at $0.0016 per share. This conversion resulted in the September 2011 Note having been paid in full.

 

On May 16, 2012, the investor converted $12,000 of the October 2011 Note. Pursuant to the Conversion Price, the Company issued 8,571,429 shares of common stock at $0.0014 per share.

 

On May 31, 2012, the investor converted $13,000 of the October 2011 Note and $1,000 of accrued and unpaid interest. Pursuant to the Conversion Notice, the Company issued 14,000,000 shares of common stock at $0.001 per share. This conversion resulted in the October 2011 Note having been paid in full.

 

On June 21, 2012, the investor converted $6,000 of the December 2011 Note. Pursuant to the Conversion Price, the Company issued 6,000,000 shares of common stock at $0.001 per share.

 

On July 9, 2012, the investor converted $9,000 of the December 2011 Note. Pursuant to the Conversion Price, the Company issued 11,250,000 shares of common stock at $0.0008 per share.

 

On July 11, 2012, the investor converted $8,500 of the December 2011 Note. Pursuant to the Conversion Price, the Company issued 12,142,857 shares of common stock at $0.0007 per share.

 

On July 24, 2012, the investor converted $1,500 of the December 2011 Note and $1,000 of accrued and unpaid interest. Pursuant to the Conversion Price, the Company issued 4,166,667 shares of common stock at $0.0006 per share. This conversion resulted in the December 2011 Note having been paid in full.

 

On April 24, 2012, the Company entered into a $32,500 convertible note agreement (the 2012 Note) with the same investor under the same terms and conditions as the 2011 Notes. We received net proceeds of $30,000 from the 2012 Note after debt issuance costs of $2,500 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 $833 and $1,444 has been expensed as debt issuance costs (included in interest expense) during the three and nine months ended September 30, 2012.

 

The Company determined that the conversion feature of the 2011 Notes and 2012 Note (together the “Notes”) represent an embedded derivative since each Note is convertible into a variable number of shares upon conversion. Accordingly, the 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 this derivative instrument 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 accreted from the date of issuance to the maturity dates of each Note. 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 2012 Notes resulted in an initial debt discount of $32,500 and an initial loss on the valuation of derivative liabilities of $1,711 for a derivative liability initial balance of $34,211.

 

The fair value of the embedded conversion feature of the 2012 Note was calculated at issue date utilizing the following assumptions:

 

  

Issuance Date

 

Fair Value

 

Term

 

Assumed Conversion Price

 

 

Market Price on Grant Date

 

Expected

Volatility Percentage

 Risk free

Interest

Rate

4/24/12 $34,211 9 months $0.0019 $0.0038 149.2% 0.09%

 

As of September 30, 2012, the Company revalued the embedded conversion feature of the 2012 Note. For the period from April 24, 2012 through September 30, 2012, the Company increased the derivative liability of $34,211 by $54,406 resulting in a derivative liability balance of $88,616. The fair value of the 2012 Note was calculated at September 30, 2012 utilizing the following assumptions:

 

 

 

Fair Value

 

 

Term

Assumed Conversion  Price

Expected

Volatility Percentage

 

Risk free

Interest Rate

$88,616   1 month $0.00073 165.4% 0.06%

 

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

 

A summary of the derivative liability balance as of December 31, 2011 and September 30, 2012 is as follows:

 

 

 

Fair Value

 

Derivative

Liability Balance

12/31/11

 

 

Initial Derivative Liability

 

 

Redeemed convertible notes

Fair value change- six months ended 9/30/12

 

Derivative Liability Balance 9/30/12

2011 Notes   $89,101 - $(71,866) $(17,235)      $    -
Guaranty Note    35,715 -      (4,906)     (5,810)  25,000
2012 Note - $34,211 -    54,406  88,616
Total $124,816 $34,211* $(76,772) $31,361 $113,616

 

*Comprised of $32,500, the discount on the face value of the convertible note and the initial derivative liability expense of $1,711 which is included in the derivative liability expense of $33,072 on the condensed statement of operations for the nine months ended September 30, 2012, included herein.

(10)

NOTE 7 – RELATED PARTY TRANSACTIONS

Management and administration fees and stock compensation expense

 

Effective January 1, 2011, the Company has agreed to annual compensation of $90,000 for its CEO. For the three and nine months ended September 30, 2012 the Company recorded management fee expenses for management as follows:

 

 

Payee

 

Three months ended

September 30, 2012

 

Nine months ended

September 30, 2012

B. Michael Friedman (CEO $ 17,580 $ 68,608
Erick Rodriguez (Pres.)     -     3,260
Barry Hollander (CFO)     -     6,500
TOTAL $ $17,580 $ 78,368
         

 

In August 2012, the Company issued 250,000 shares of Class B Preferred Stock to the CEO, valued at $205,390 and reduced the amount owed of accrued salaries owed to Mr. Friedman by $137,080 and recorded an expense of $68,310; included in stock compensation expense for the three and nine months ended September 30, 2012. As of September 30, 2012 Mr. Friedman is owed $15,000 in accrued salary. In August 2012, Mr. Hollander received 50,000 shares of Series B preferred stock valued at $41,078 which is included in stock compensation expense for the three and nine months ended September 30, 2102.

 

Agreements with prior management

 

In December 2011 the Company issued a $50,000 convertible promissory note (see Note 6) as part of a guaranty fee due to a Company that is affiliated with a former officer of the Company. Terms of the note include an eight percent per annum interest rate and the note matures on the one year anniversary on December 20, 2012. Additionally, the holder of the Note has the right to convert the note into shares of common stock of the Company at a conversion price equal to eighty percent (80%) of the lowest closing bid price of the common stock within five (5) days of the conversion.

 

The Company has agreed to pay an additional $50,000 in common stock, which is included in accounts payable and accrued expenses on the September 30, 2012 and December 31, 2011 balance sheets.

 

NOTE 8 – COMMON AND PREFERRED STOCK

 

Common Stock

 

During the quarter ended September 30, 2012, the Company issued 27,559,524 shares of common stock upon the conversion of $19,000 of debentures and $1,000 of accrued and unpaid interest. The shares were issued at an average price of approximately $0.00073 per share.

 

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 state; i) each share of the Class B Convertible Preferred Stock shall be entitled to a number of votes determined at any time and from time to time determined by dividing the number of then issued and outstanding shares of the Corporation’s common stock by one million; ii) 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; iii) each share of the Class B Preferred Stock shall be convertible into shares of the Company’s common stock at the option of the holder into a number of shares of common stock determined by dividing the number of then issued and outstanding shares of the Company’s common stock by one million (244,292,333 shares as of September 30, 2012).  The preferred stock cannot be converted into a number of common shares that causes the number of issued and outstanding common stock to exceed the number of authorized shares of common stock.

 

On August 13, 2012 the Board of Directors of the Company authorized the issuance of 550,000 shares of Series 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; 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 $205,390) and are being amortized over the term of their respective agreements. Accordingly, the Company has expensed and included $25,674 in stock based compensation for the three and nine months ended September 30, 2012.

 

 

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 September 30, 2012 and 2011.

 

As of September 30, 2012, the Company had a tax net operating loss carry forward of approximately $442,000. Any unused portion of this carry forward expires in 2029. Utilization of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.

 

(11)

 

NOTE 10 – CONTINGENCIES AND COMMITMENTS

 

The Company is not aware of any legal proceedings against it as of September 30, 2012. No contingencies have been provided in the financial statements.

 

Lease Agreement

 

Effective on December 1, 2011 the Company and its then majority owned subsidiary entered into a two year agreement to rent executive office space in West Palm Beach, Florida. The lease automatically renews for 3 month periods unless terminated in writing 30 days prior to the then current end date by either party. Totaling approximately 1,200 square feet, effective March 1, 2012 the Company’s portion of the monthly rent is $1,250.  

 

 

NOTE 11 – GOING CONCERN

 

The accompanying condensed financial statements have been prepared assuming the Company will continue as a going concern. As of September 30, 2012 the Company had an accumulated deficit of $4,766,517 and a working capital deficit of $259,044. 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.

 

Management’s Plans

 

We presently maintain our daily operations and capital needs through the receipts of the monthly account residuals we receive directly from the Company’s processors. From time to time when we need additional working capital we have been able to issue convertible promissory notes to an unaffiliated investor. Additionally, the Company’s CEO. B. Michael Friedman has loaned the Company money in the past. The Company plans to increase sales of additional merchant accounts over the course of this fiscal year.

 

NOTE 12 – SUBSEQUENT EVENTS

 

On October 11, 2012, the Board of Directors of the Company approved the distribution to shareholders on a pro-rata basis of the six million (6,000,000) shares of common of 800 Commerce, owned by the Company (the “Distribution”). 800 Commerce filed an S-1 Registration Statement on October 17, 2012 with the Securities and Exchange Commission (“SEC”). Upon approval from the SEC, the Company and other regulatory approvals required, the Company will announce a shareholder record date, whereby shareholders of the Company as of that date will be entitled to their pro-rata share of the Distribution.

On October 25, 2012, the holder of the Company’s convertible debt converted $15,000 of the April 2012 Note into 10,714,286 shares of common stock at approximately $0.0014 per share. As a result, the outstanding Series B preferred stock is convertible into an additional 5,892,857 shares of common stock, for an aggregate of 250,185,190 shares of common stock.

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.

 

(12)

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, 2011 and 2010, included in our annual report on Form 10-K filed with the SEC on April 16, 2012.

 

The independent auditors reports on our financial statements for the years ended December 31, 2011 and 2010 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 financial statements filed herein.

 

 

(a) Liquidity and Capital Resources.

 

For the nine months ended September 30, 2012, net cash used in operating activities was $25,543 compared to $46,143 for the nine months ended September 30, 2011. The company had a net loss $330,388 for the nine months ended September 30, 2012 compared to a net loss of $260,311 for the nine months ended September 30, 2011. The net loss for the nine months ended September 30, 2012 was impacted by a gain of $62,636 for the deconsolidation of 800 Commerce. The results in the current period were also impacted by stock compensation expense of $135,061 related to the issuance of Series B preferred stock, the amortization of the initial discount of $113,255 on the convertible notes, the initial derivative liability expense and the change in the fair market value of the derivatives of $33,072 and amortization of deferred financing fees of $7,352 also related to the convertible promissory notes.

 

During the nine months ended September 30, 2012, net cash provided by financing activity was $23,000. This was comprised of issuance of a convertible promissory note of $32,500 and sales of stock by our subsidiary of $5,000. Payments of $12,000 on a convertible promissory note and a deferred financing fee of $2,500 were expended during the nine months ended September 30, 2012.

 

For the nine months ended September 30, 2012, cash and cash equivalents decreased by $2,543 compared to an increase of $7,057 for the nine months ended September 30, 2011. Ending cash and cash equivalents at September 30, 2012 was $812 compared to $7,339 at September 30, 2011.

 

We have limited cash and cash equivalents on hand. We presently maintain our daily operations and capital needs through the receipts of our monthly account residuals. We will need to raise funds to continue to be able to support our operating expenses and to meet our other obligations as they become due. Sources available to us that we may utilize include the sale of unsecured convertible debentures from unaffiliated investors which may cause dilution to our stockholders. Additionally, our CEO has loaned the Company money in the past. The company expects to increase sales of additional merchant accounts over the course of this fiscal year.

 

(b) Results of Operations

 

Results of operations for the three and nine months ended September 30, 2012 vs. September 30, 2011

 

REVENUES

 

Revenues for the three and nine months ended September 30, 2012 were $781 and $50,239 respectively, compared to $19,326 and $35,222 for the three and nine months ended September 30, 2011, respectively. Revenues decreased substantially in the current three month period due to the Company no longer being able to provide merchant services to approximately forty medical dispensaries and wellness centers throughout California and Colorado through our sponsor bank Electronic Merchant Systems (“EMS”). EMS has advised all medical dispensaries that they will no longer accept their Visa and MasterCard transactions. This change was effective on July 1, 2012 and will continue to have a materially adverse effect on our medical dispensary processing business. The company is expanding its merchant processing and payment servies to the overall health and wellness sector.

OPERATING EXPENSES

 

Operating expenses were $161,479 and $282,905 for the three and nine months ended September 30, 2012 compared to $47,302 and $289,165 for the three and nine months ended September 30, 2011. The increase in operating expenses for the three months ended September 30, 2012 compare to September 30, 2011 was a result of stock based compensation of $135,061 in the current period. For the nine months ended September 30, 2012 operating expenses decreased by $6,260 compared to September 30, 2011. The decrease was a result of stock based compensation decreasing by $76,939; from $212,000 for the nine months ended September 30, 2011 to $135,061 for the nine months ended September 30, 2012. The decrease in stock based compensation was partially offset by increases in administrative and management fees and other general and administrative expenses.

 

OTHER INCOME (EXPENSE)

 

Other expense for the three and nine months ended September 30, 2012 was $86,161 and $98,417, respectively. Included in this amount for the nine months is the gain of $62,636 recorded on the deconsolidation of 800 Commerce. Also included is interest expense of $35,045 and $127,981 for the three and nine months ended September 30, 2012 respectively. For the three months ended September 30, 2012, interest expense is comprised of $31,449 related to the amortization of the initial discount on convertible promissory notes, $1,806 for the amortization of the deferred financing costs and $1,790 for the interest expense on the face value of the notes. For the nine months ended September 30, 2012, interest expense is comprised of $113,255 related to the amortization of the initial discount on convertible promissory notes, $7,352 for the amortization of the deferred financing costs and $7,374 for the interest expense on the face value of the notes. Also included in other expenses for the three and nine months ended September 30, 2012 was $51,116 and $33,072, respectively, for the fair market value change in the derivative liability associated with convertible promissory notes.

 

OFF BALANCE SHEET ARRANGEMENTS

 

None

 

 Critical Accounting Policies

 

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

 

(13)

 

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.  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 September 30, 2012, our disclosure controls and procedures are not effective.

 

Management’s Report on Internal Controls over Financial Reporting

 

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.

 

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

(14)

 

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.

 

During the quarter ended September 30, 2012, the Company issued 27,559,524 shares of common stock upon the conversion of $19,000 of debentures and $1,000 of accrued and unpaid interest. The shares were issued at an average price of approximately $0.0007 per share.

 

ITEM 3. Defaults upon Senior Securities

 

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. Other Information

 

None

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.

 

(b) Reports on Form 8-K. During the fiscal quarter ended September 30, 2012, the Company filed the following reports:

 

Form 8-K/A was filed on July 18, 2012

 

Form 8-K/A was filed on July 27, 2012

 

Form 8-K/A was filed on August 9, 2012

 

SIGNATURES

 

(15)

 

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: November 13, 2012

MEDISWIPE, INC. 

By: /s/ B. Michael Friedman

B. Michael Friedman

Chief Executive Officer and Director

(Principal Executive Officer)

 

 

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: November 13, 2012 By: /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: November 13, 2012 By/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 September 30, 2012, 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.

 

 Date: November 13, 2012 By/s/ B. Michael Friedman         
  B. Michael Friedman
  Principal Executive Officer
  November 13, 2012

 

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 September 30, 2012, 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.

 

 Date: November 13, 2012 By:/s/ Barry S. Hollander           
  Barry S. Hollander
  Principal Accounting Officer
  November 13, 2012

 

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.