SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2012
TRANSITION
REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission
File No. 000-1321002
MEDISWIPE,
INC.
(Name
of small business issuer in its charter)
Delaware
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20-8484256
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(State or other
Jurisdiction of incorporation)
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(I.R.S. Employer
Identification No.)
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2000
Town Center, Suite 1900, Southfield, Mi. 48075
(Address
and Zip Code of Principal Executive Offices)
Registrant's
Telephone Number:
(248) 262-6850
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.01 par value per share
(Title
of Class)
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes
£
No
S
Indicate
by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
£
No
S
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 during
the past 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
S
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will
not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K:
S
Indicate
by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer:
Large
accelerated filer
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|
.
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Accelerated
filer
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|
|
.
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Non-accelerated filer
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.
(Do not check if a smaller reporting company)
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Smaller reporting company
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X
.
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
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
aggregate market value of the voting common equity held by non-affiliates of the Registrant as of June 30, 2012 was
$635,400, at March 15, 2013, the Registrant had 466,632,164 shares of common stock, par value
$0.01 per share, issued
and outstanding.
Documents
incorporated by reference: None
MEDISWIPE, INC.
FORM
10-K ANNUAL REPORT
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2012
TABLE
OF CONTENTS
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PART I
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PAGE #
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ITEM 1
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BUSINESS
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4-5
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ITEM 1B
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RISK FACTORS
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6-7
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ITEM 2
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UNRESOLVED STAFF COMMENTS
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8
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ITEM 3
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PROPERTIES
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8
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ITEM 4
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MINE SAFETY DISCLOSURES
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8
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PART II
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ITEM 5
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
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9
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ITEM 6
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SELECTED FINANCIAL DATA
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10
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ITEM 7
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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10
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ITEM 7A
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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12
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ITEM 8
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CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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12
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ITEM 9
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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12
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ITEM 9A
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CONTROLS AND PROCEDURES
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12
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ITEM 9B
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OTHER INFORMATION
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12
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PART III
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ITEM 10
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DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
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13
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ITEM 11
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EXECUTIVE COMPENSATION
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14
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ITEM 12
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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14-15
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ITEM 13
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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16
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ITEM 14
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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16
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PART IV
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ITEM 15
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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17
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SIGNATURES
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18
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CERTIFICATIONS
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Exhibit 31
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Management certification
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17
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Exhibit 32
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Sarbanes-Oxley Act
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17
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INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
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F-2
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Consolidated Balance Sheets as of December 31, 2012 and 2011
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F-3
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Consolidated Statement of Operations for the years ended December 31, 2012 and 2011
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F-4
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Consolidated Statement of Changes in Stockholders Deficiency for the years ended December 31, 2012 and 2011
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F-5
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Consolidated Statement of Cash Flows for the years ended December 31, 2012 and 2011
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F-6
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Notes to Consolidated Financial Statements
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F-7 - F-12
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Forward
Looking Statements — Cautionary Language
Certain
statements made in these documents and in other written or oral statements made by MediSwipe, Inc. or on MediSwipe, Inc’s
behalf are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA").
A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that
may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: "believe",
"anticipate", "expect", "estimate", "project", "will", "shall" and
other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular,
these include statements relating to future actions, trends in our businesses, prospective products, future performance or financial
results. MediSwipe, Inc. claims the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA. Forward-looking
statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the
forward-looking statements. Risks and uncertainties may cause actual results to vary materially, some of which are described in
this filing. The risks included herein are not exhaustive. This annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and other documents filed with the SEC include additional factors which could impact MediSwipe
Inc.'s business and financial performance. Moreover, MediSwipe, Inc. operates in a rapidly changing and competitive environment.
New risk factors emerge from time to time and it is not possible for management to predict all such risk factors. Further, it
is not possible to assess the impact of all risk factors on MediSwipe, Inc.'s business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
In addition, MediSwipe, Inc disclaims any obligation to update any forward-looking statements to reflect events or circumstances
that occur after the date of the report.
PART
I
ITEM
1. DESCRIPTION OF BUSINESS.
(a)
General Business Development
Corporate
History
MediSwipe,
Inc., (referred to hereafter as “MWIP,” or, the “Company”), was initially incorporated under the laws
of the State of Delaware in February 1997 under the name Easy Street Online, Inc.
In
August of 1997, the Company changed its name to Frontline Communications Corp. (“Frontline”) and operated as a regional
Internet service provider ("ISP") providing Internet access, web hosting, website design, and related services to residential
and small business customers throughout the Northeast United States and, through a network partnership agreement, Internet access
to customers nationwide.
On
April 3, 2003, we acquired Proyecciones y Ventas
Organizadas, S.A. de C.V. ("Provo Mexico")
and in December 2003 we changed our
name to Provo International Inc.
In
September 2008, Provo changed its name to Ebenefits Direct, Inc., which, through its wholly-owned subsidiary, L.A. Marketing Plans,
LLC, engaged in the business of direct response marketing. The Company’s principal business was to market and sell non-insurance
healthcare programs designed to complement medical insurance products and to provide savings for those who cannot afford or qualify
for traditional health insurance products.
On
October 14, 2008, Ebenefits Direct, Inc. changed its name to Seraph Security, Inc. (“Seraph”).
On
April 25, 2009, Seraph acquired Commerce Online Technologies, Inc., a credit and debit card processing company.
On
May 20, 2009, Seraph Security, Inc. changed its name to Commerce Online, Inc. to more accurately reflect its core business of
merchant processing, and financial services.
As
of March 4, 2010, Commerce Online, Inc. changed its name to Cannabis Medical Solutions, Inc. as a provider of merchant processing
payment technologies for the medical marijuana and wellness sector.
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.
On
March 8, 2010 the Company completed the acquisition of 800 Commerce, Inc. (“800 Commerce”) a Florida Corporation incorporated
by the Company’s Chief Executive Officer. The company issued 10,000,000 shares of common stock to 800 Commerce for
all the issued and outstanding stock of 800 Commerce, Inc. See
NONCONTROLLING
INTEREST AND DECONSOLIDATION on page xx of this Form 10-K.
In
June 2010, 312,887,016 shares of common stock were issued as dividend shares (the “dividend”) to all existing shareholders
of common stock of record.
Unless
otherwise noted, references in this Form 10-K to “Seraph,” “Commerce Online, Inc.,” “Cannabis Medical
Solutions” the “Company,” “we,” “our” or “us” means MediSwipe, Inc.
(b)
Financial information about segments.
Through
December 31, 2012 we operated in only one business segment.
(c)
Narrative Description of Business
MediSwipe
Inc. (www.MediSwipe.com) offers a complete line of merchant services providing innovative solutions for electronically processing
merchant and patient transactions within the healthcare industry. The Company is primarily focused on providing payment and banking
solutions to licensed medical marijuana dispensaries, pharmacies and healthcare patient facilities.
Through
June 30, 2012, 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”). Effective July 1, 2012, EMS
advised all medical dispensaries that they will no longer accept their Visa and MasterCard transactions. This action had 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 through strategic partnerships within the medicinal marijuana healthcare industry to overcome
the impact of the decline in the dispensary processing credit card business. The Company is developing alternative methods of
payments, by providing credit card payment ability through the use of customized kiosks within the dispensaries as well as introducing
vertical product lines including
digital patient records and medical data management systems (“DMS”),
accounts receivable financing and elective surgery financing.
Products
and Services
Mediswipe
Stored Value Cards
The
Mediswipe Stored Valued Card system provides among other things, complete reporting, administrative functions, tracking of patient
purchases, batching of state licensing fees and taxes, customer bonus rewards and marketing via text messaging and HTML emails
to patients. The easy to install system, provides extensive reporting capabilities through live transactions and significantly
reduces fraud and theft occurrences.
The
MediSwipe solution provides a POS based tablet and virtual payment alternative allowing vendors and merchants to offer a
cashless transaction to patients and customers which will track all transactions as well as provide a bonus/loyalty and rewards
program. The Mediswipe Stored Valued Cards ma be branded to specific merchants and networked to multiple locations.
Data
Management System
MediSwipe
has an exclusive license with Digital Records Inc. for technology that enables consumers to securely file, store and conveniently
retrieve important original and authentic personal health documents via the Internet. A complex security-stressed society faces
many real and perceived threats that require on-demand access to valuable documents at home and during travel. Authentic images
of documents such as; a passport while traveling abroad, or a prescription for a medical need or a homeowner’s policy during
an evacuation are always accessible via the MediSwipe Digital Management System (“DMS”). 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
DMS is compatible with virtually all operating systems, web browsers, and file formats. It is so easy; 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 DMS provides the highest level of privacy and security and does not rely on the accuracy of user-entered data, in contrast
to many other products where that type of error could be very dangerous. Images of actual documents, uploaded easily to the patient
personal registry, form the basis for this solution. Those critical personal items are safe and timeless in a secure, encrypted
environment where privacy & 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.
Kiosks
Patients,
who have their medical records scanned to an encrypted digital patient identification card as described above, can then use the
card with the MediPay kiosks. The Medipay kiosks in addition to providing alternative forms of cash payments; will also transfer
and store all transactions onto the patient’s identification card, thereby giving the patient a full history of all their
transactions along with their medical records. MediSwipe shall receive monthly digital record storage fees similar to a virtual
medical dropbox and patient portal application, as well as transaction fees similar to an ATM designed specifically around healthcare
transactions.
All
medical data will be Patients have complete ownership and control of their medical data. This means the patient may always view
and manage his or her data at any time and from any location simply by plugging in the card to any computer or transferring the
data to a mobile device. The MediSwipe digital storage application is a secure and user-friendly way to backup and manage
your medical records than with the MediSwipe electronic, web-based software and records storage patient ID cards.
The
MediPay Kiosks will provide a cash in /coupon voucher or payment card out option to reduce cash payment only options for medicine,
and provide that service for about the same transaction fee as an ATM. We are designing the second generation of MediPay
kiosks to allow direct payment to the states for state tax revenue.
Patient
Certification and Registry Services and Caregiver’s Record Management Services
The
first patient certification center is planned to open prior to April 1, 2013, pending completion of all necessary licensing approvals
needed. Located in Washtenaw County, Michigan, the center will be the first of its kind within the state allowing patients to
receive guidance in filing required documents to the state in applying for state medical marijuana ID cards. The patient will
also receive consultations with doctors and physicians for state certification and digitization and management of medical records
within the MediSwipe system on behalf of registered caregivers. The certification centers will also allow for a central point
for the 27,000 caregivers within the state to register within the MediSwipe data management system, for maintenance and data management
of the patient count of each caregiver. The second certification center to be owned and operated by MediSwipe will include the
acquisition of real property and building structure located in Ypsilanti, Michigan.
Fully
licensed doctors will conduct their legal and ethical duties in full compliance with Michigan Medical Marijuana Certification
guidelines. The MediSwipe Certification Centers will abide by the Michigan's Medical Marijuana Act, where a physician must state
in writing that the patient has a debilitating medical condition that qualifies them for medical marijuana treatment. The MediSwipe
Certification Centers will provide qualified patients with physician certifications for the use of medical marijuana. This certification
is required in order to obtain valid a medical marijuana ID card from the State of Michigan. A state issued card allows patients
to use marijuana treatment legally in the State of Michigan.
Patients
suffering from the following listed conditions, may qualify for certification and Michigan state ID cards; Agitation of Alzheimer’s
Disease, Cancer, Crohn’s Disease, glaucoma, Hepatitis C, HIV, severe nausea, severe and chronic pain, seizures and severe
and persistent muscle spasms.
The
new certification centers will provide HIPAA compliant medical data management system for the medical marijuana sector on behalf
of patients and caregivers, providing patient authentication and storage of data, while at the same time streamlining the application
process for new patients to receive state ID cards, provide certifications by licensed physicians and registration within our
cloud based HIPAA compliant medical records database. Our goal will be to work with all regulated states, caregivers and patients
to allow access to a compliant reporting system that will not only ensure patient security and privacy rights, but at the same
time, provide necessary reporting data to states to increase state tax revenue.
MediSwipe
will receive processing and filing fees from the new patients for streamlining the process with the state, and receive monthly
data management fees from caregivers for managing their patient data as a revenue model.
Employees
In
addition to the Company’s executive officers, currently the Company has two employees. The Company relies on several independent
contractors and other agreements it has with other companies to provide the services needed. Each management hire has
been carefully selected to address immediate needs in particular functional areas, but also with consideration of the Company’s
future needs during a period of expected rapid growth and expansion. Value is placed not only on outstanding credentials
in specific areas of functional expertise, but also on cross-functionality, a strong knowledge of content acquisition and distribution,
along with hands-on experience in scaling operations from initial beta and development stage through successful commercial deployment.
Sales
and Marketing Strategy
MediSwipe’s
plan is to gain market share and move quickly to secure a relevant market position within the healthcare industry.
MediSwipe intends to accomplish this by continuing the development of MediSwipe software, and by cultivating relationships
with clients that will result
in a long term, repetitive business
. The Company will
target medical practices, health maintenance organizations, wellness centers, medical dispensaries and internet users. The Company will utilize public relations
campaigns, medical conferences, mobile applications, billboards, trade
shows and alliances and partnerships with third parties.
In
order to more quickly penetrate its target market, MediSwipe will need to recruit computer technicians, invest in more server
hardware and expand its staff.
Competition
There
are other companies working in the medical information technology arena such as GE Healthcare, Bio-Imaging Technologies, and Cyber
Records.
Some
competing companies offer a USB key for medical record storage, but require the customer to provide or "self-populate"
the information to be stored. The information in a self-populated record is limited and is only as accurate as the individual's
memory and understanding of their health condition.
Other
companies expect each customer to obtain their own medical records from their various healthcare providers. Some offer a CD-Rom
for record storage. Usually, the CD-Rom cannot be updated with any changes to an individual's medical status or treatment. Therefore,
a new CD-Rom needs to be obtained from that company in order for the individual to have the most current, accurate information
regarding their health.
There
are companies that are solely web-based that do not provide the customer the capability to have a copy of their records. In this
case, an Internet connection is required to view stored documents. In addition, there are companies that do not concentrate on
digitizing an individual's medical records but on converting medical facilities' records from paper to electronic format.
Some
of our systems and services may include intellectual property obtained from third parties. It may be necessary in the future to
seek or renew licenses relating to various aspects of its systems and services. There is no guarantee that such licenses could
be obtained on reasonable terms or at all. Because of technological changes in the industries in which we compete, current extensive
patent coverage, and the rapid rate of issuance of new patents, it is possible that certain components of our systems and services
may unknowingly infringe existing patents or intellectual property rights of others.
ITEM 1A
- Risk Factors
An
investment in our common stock involves a high degree of risk. You should carefully consider the following information about these
risks, together with the other information contained in this Annual Report on Form 10-K, before investing in our common stock.
If any of the events anticipated by the risks described below occur, our results of operations and financial condition could be
adversely affected which could result in a decline in the market price of our common stock, causing you to lose all or part of
your investment.
We
depend on third party providers for a reliable Internet infrastructure and the failure of these third parties, or the Internet
in general, for any reason would significantly impair our ability to conduct our business.
We
outsource all of our data center facility management to third parties who host the actual servers and provide power and security
in multiple data centers in each geographic location. These third party facilities require uninterrupted access to the Internet.
If the operation of our servers is interrupted for any reason, including natural disaster, financial insolvency of a third party
provider, or malicious electronic intrusion into the data center, our business would be significantly damaged. If either a third
party facility failed, or our ability to access the Internet was interfered with because of the failure of Internet equipment
in general or we become subject to malicious attacks of computer intruders, our business and operating results will be materially
adversely affected.
The
gathering, transmission, storage and sharing or use of personal information could give rise to liabilities or additional costs
of operation as a result of governmental regulation, legal requirements, civil actions or differing views of personal privacy
rights.
We
transmit and plan to store a large volume of personal information in the course of providing our services. Federal and state laws
and regulations govern the collection, use, retention, sharing and security of data that we receive from our customers and their
users. Any failure, or perceived failure, by us to comply with U.S. federal or state privacy or consumer protection-related laws,
regulations or industry self-regulatory principles could result in proceedings or actions against us by governmental entities
or others, which could potentially have an adverse effect on our business, operating results and financial condition. Additionally,
we may also be contractually liable to indemnify and hold harmless our customers from the costs or consequences of inadvertent
or unauthorized disclosure of their customers' personal data which we store or handle as part of providing our services.
The
interpretation and application of privacy, data protection and data retention laws and regulations are currently unsettled particularly
with regard to location-based services, use of customer data to target advertisements and communication with consumers via mobile
devices. Such laws may be interpreted and applied inconsistently from country to country and inconsistently with our current data
protection policies and practices. Complying with these varying international requirements could cause us to incur substantial
costs or require us to change our business practices in a manner adverse to our business, operating results or financial condition.
As
privacy and data protection have become more sensitive issues, we may also become exposed to potential liabilities as a result
of differing views on the privacy of personal information. These and other privacy concerns, including security breaches, could
adversely impact our business, operating results and financial condition.
In
the U.S., we have voluntarily agreed to comply with wireless carrier technological and other requirements for access to their
customers' mobile devices, and also trade association guidelines and codes of conduct addressing the provision of location-based
services, delivery of promotional content to mobile devices and tracking of users or devices for the purpose of delivering targeted
advertising. We could be adversely affected by changes to these requirements, guidelines and codes, including in ways that are
inconsistent with our practices or in conflict with the rules or guidelines in other jurisdictions.
We
have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in
material misstatements in our financial statements.
Our
management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined
in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. A material weakness is defined as a deficiency, or combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented or detected on a timely basis. During the fourth quarter of
fiscal year 2012, management identified material weaknesses in our internal control over financial reporting as discussed in Item
9A of this Annual Report on Form 10-K. As a result of these material weaknesses, our management concluded that our internal control
over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organization of the Treadway
Commission in Internal Control-An Integrated Framework. We are planning to engage in developing a remediation plan designed to
address these material weaknesses. If our remedial measures are insufficient to address the material weaknesses, or if additional
material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated
financial statements may contain material misstatements and we could be required to restate our financial results, which could
lead to substantial additional costs for accounting and legal fees and shareholder litigation.
We
may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
We
monitor our capital adequacy on an ongoing basis. To the extent that our funds are insufficient to fund future operating requirements,
we may need to raise additional funds through corporate finance transactions or curtail our growth and reduce our liabilities.
Any equity, hybrid or debt financing, if available at all, may be on terms that are not favorable to us. If we cannot obtain adequate
capital on favorable terms or at all, our business, financial condition and operating results could be adversely affected.
RISKS
RELATING TO OWNERSHIP OF OUR COMMON STOCK
Although
there is presently a market for our common stock, the price of our common stack may be extremely volatile and investors may not
be able to sell their shares at or above their purchase price, or at all. We anticipate that the market may be potentially highly
volatile and may fluctuate substantially because of:
·
Actual or anticipated fluctuations in our future business and operating results;
·
Changes in or failure to meet market expectations;
·
Fluctuations in stock market price and volume
As
a public company, we will incur substantial expenses.
The
U.S. securities laws require, among other things, review, audit, and public reporting of our financial results, business activities,
and other matters. Recent SEC regulation, including regulation enacted as a result of the Sarbanes-Oxley Act of 2002, has also
substantially increased the accounting, legal, and other costs related to becoming and remaining an SEC reporting company. If
we do not have current information about our Company available to market makers, they will not be able to trade our stock. The
public company costs of preparing and filing annual and quarterly reports, and other information with the SEC and furnishing audited
reports to stockholders, will cause our expenses to be higher than they would be if we were privately-held. These increased costs
may be material and may include the hiring of additional employees and/or the retention of additional advisors and professionals.
Our failure to comply with the federal securities laws could result in private or governmental legal action against us and/or
our officers and directors, which could have a detrimental effect on our business and finances, the value of our stock, and the
ability of stockholders to resell their stock.
FINRA
sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
The
Financial Industry Regulatory Authority (“FINRA”) has adopted rules that relate to the application of the SEC’s
penny stock rules in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment
is suitable for that customer, prior to recommending the investment. Prior to recommending speculative, low priced securities
to their non-institutional customers, broker/dealers must make reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes
that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. The
FINRA requirements make it more difficult for broker/dealers to recommend that their customers buy our Common Stock, which may
have the effect of reducing the level of trading activity and liquidity of our Common Stock. Further, many brokers charge higher
transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our Common
Stock, reducing a shareholder’s ability to resell shares of our Common Stock.
The
Company’s Common Stock is currently deemed to be “penny stock”, which makes it more difficult for investors
to sell their shares
.
The
Company’s Common Stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange
Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities
exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company
has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons
other than “established customers” complete certain documentation, make suitability inquiries of investors and provide
investors with certain information concerning trading in the security, including a risk disclosure document and quote information
under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock
rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company
remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for
the Company’s securities. If the Company’s securities are subject to the penny stock rules, investors will find it
more difficult to dispose of the Company’s securities.
We
have raised capital through the use of convertible debt instruments that causes substantial dilution to our stockholders.
Because
of the size of our Company and its status as a "penny stock" as well as the current economy and difficulties in companies
our size finding adequate sources of funding, we have been forced to raise capital through the issuance of convertible notes and
other debt instruments. These debt instruments carry favorable conversion terms to their holders of up to 50% discounts
to the market price of our common stock on conversion and in many cases provide for the immediate sale of our securities into
the open market. Accordingly, this has caused significant dilution to our stockholders in 2012 and may for the foreseeable
future. As of December 31, 2012, we had approximately $55,500 in convertible debt outstanding. This convertible debt
balance as well as additional convertible debt we incur in the future will cause substantial dilution to our stockholders.
Because
we are quoted on the OTCQB instead of an Exchange or national quotation system, our investors may have a tougher time selling
their stock or experience negative volatility on the market price of our common stock.
Our
common stock is traded on the OTCQB. The OTCQB is often highly illiquid, in part because it does not have a national quotation
system by which potential investors can follow the market price of shares except through information received and generated by
a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of volatility for securities
that trade on the OTCQB as compared to a national exchange or quotation system. This volatility may be caused by a variety of
factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid
and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations
in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative
effect on the market price for our securities. Accordingly, our stockholders may not be able to realize a fair price from their
shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common
stock improves.
We
do not intend to pay dividends.
We
do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally
pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to
pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors,
and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital
requirements, and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends
in the future, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
Operating
history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your common shares
at or above your purchase price, which may result in substantial losses to you. The market price for our common shares is particularly
volatile given our status as a relatively unknown company with a small and thinly traded public float.
The
market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our
share price is attributable to a number of factors. First, our common shares are sporadically and thinly traded. As a consequence
of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence
the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event
that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer
which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky”
investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our
potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most
of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond
our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether
our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of
common shares for sale at any time will have on the prevailing market price.
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic
price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling
broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to
be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
The occurrence of these patterns or practices could increase the volatility of our share price.
SHOULD
ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
FORWARD-LOOKING
STATEMENTS
This
Annual Report contains certain forward-looking statements regarding management’s plans and objectives for future operations
including plans and objectives relating to our planned marketing efforts and future economic performance. The forward-looking
statements and associated risks set forth in this Annual Report include or relate to, among other things, (a) our growth
strategies, (b) anticipated trends in our industry, (c) our ability to obtain and retain sufficient capital for future
operations, and (d) our anticipated needs for working capital. These statements may be found under “Management’s
Discussion and Analysis or Plan of Operations” and “Business,” as well as in this Annual Report generally. Actual
events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including,
without limitation, the risks outlined under “Risk Factors” and matters described in this Annual Report generally.
In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Annual
Report will in fact occur.
The
forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions described herein. The assumptions are based on judgments with respect to, among other things,
future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond our control. Accordingly, although we believe that the assumptions underlying
the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no
assurance that the results contemplated in forward-looking statements will be realized. In addition, as disclosed elsewhere in
the “Risk Factors” section of this prospectus, there are a number of other risks inherent in our business and operations
which could cause our operating results to vary markedly and adversely from prior results or the results contemplated by the forward-looking
statements. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to
reflect actual conditions and business developments, the impact of which may cause us to alter marketing, capital investment and
other expenditures, which may also materially adversely affect our results of operations. In light of significant uncertainties
inherent in the forward-looking information included in this prospectus, the inclusion of such information should not be regarded
as a representation by us or any other person that our objectives or plans will be achieved.
Some
of the information in this annual report contains forward-looking statements that involve substantial risks and uncertainties.
Any statement in this prospectus and in the documents incorporated by reference into this prospectus that is not a statement of
an historical fact constitutes a “forward-looking statement”. Further, when we use the words “may”, “expect”,
“anticipate”, “plan”, “believe”, “seek”, “estimate”, “internal”,
and similar words, we intend to identify statements and expressions that may be forward- looking statements. We believe it is
important to communicate certain of our expectations to our investors. Forward-looking statements are not guarantees of future
performance. They involve risks, uncertainties and assumptions that could cause our future results to differ materially from those
expressed in any forward-looking statements. Many factors are beyond our ability to control or predict. You are accordingly cautioned
not to place undue reliance on such forward-looking statements. Important factors that may cause our actual results to differ
from such forward-looking statements include, but are not limited to, the risk factors discussed herein.
ITEM
2. DESCRIPTION OF PROPERTY
.
Effective
on December 1, 2011 a company controlled by our Chief Executive Officer 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. The monthly rent for approximately 1,200 square feet was $2,500. Effective March
1, 2012, the rent became $3,500. The Company realized an expense of $18,605 for the year ending December 31, 2012 for the space
utilized. Effective in February 2013, the Company is no longer utilizing the space in West Palm Beach and has agreed to pay $750
per month through June 1, 2013. On March 11, 2013 the Company entered into a one year lease for office space in Southfield, Michigan
for $867 per month.
ITEM
3. LEGAL PROCEEDINGS
.
We
are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition
or results of operations with the exception of the Stephen J. Cole-Hatchard Frontline/Provo matter. During the year ended
December 31, 2012 the Company recorded an expense of $46,449 pursuant to judgment in this matter. There is no other action, suit,
proceeding, inquiry, or investigation before or by any court, public board, government agency, self-regulatory organization, or
body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting
our company, our common stock, any of our subsidiaries, or of our company’s or our company’s subsidiaries’ officers
or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
ITEM
4. MINE SAFETY DISCLOSURES
None.
PART
II
ITEM
5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
.
The
Company’s common stock is traded in the over-the-counter market, and quoted in the National Association of Securities Dealers
over The Counter Quotation Board under the symbol “MWIP.”
(a)
Market Information
The
following table sets forth for the periods indicated the high and low bid quotations for our common stock. These quotations
represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual
transactions.
Periods
|
High
|
Low
|
Fiscal Year 2012
|
|
|
First
Quarter (January 1, 2012 – March 31, 2012)
|
$ .0058
|
$ .0029
|
Second
Quarter (April 1, 2012 – June 30, 2012)
|
$ .0045
|
$ .0018
|
Third
Quarter (July 1, 2012 – September 30, 2012)
|
$ .0024
|
$ .0012
|
Fourth
Quarter (October 1, 2012– December 31, 2012)
|
$ .0155
|
$
.0023
|
|
|
|
Fiscal
Year 2011
|
|
|
First
Quarter (January 1, 2011 – March 31, 2011)
|
$ .015
|
$ .009
|
Second
Quarter (April 1, 2011 – June 30, 2011)
|
$ .02
|
$ .009
|
Third
Quarter (July 1, 2011 – September 30, 2011)
|
$ .013
|
$ .004
|
Fourth
Quarter (October 1, 2011– December 31, 2011)
|
$ .006
|
$ .003
|
|
|
|
(b)
Holders.
The
number of record holders of our common stock as of January 29, 2013 was approximately 5,397.
(c)
Dividends
We
did not declare any dividends for the year ended December 31, 2012. Our Board of Directors does not intend to distribute
any cash dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion
of the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition,
operating and capital requirements, and other factors as the Board of Directors considers relevant. There is no assurance that
future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
(d)
Securities authorized for issuance under equity compensation plans.
None
Recent
Sales of Unregistered Equity Securities
On
March 26, 2012, the Company issued 4,545,455 shares of common stock upon the conversion of $10,000 of outstanding convertible
notes. The shares were issued at approximately $0.0022 per share.
On
April 23, 2012, the Company issued 5,000,000 shares of common stock upon the conversion of $10,000 of outstanding convertible
notes. The shares were issued at $0.002 per share.
On
May 3, 2012, the Company issued 3,750,000 shares of common stock upon the conversion of $5,000 of outstanding convertible notes
and $1,000 of accrued and unpaid interest. The shares were issued at $0.0016 per share.
On
May 16, 2012, the Company issued 8,571,429 shares of common stock upon the conversion of $12,000 of outstanding convertible notes.
The shares were issued at $0.0014 per share.
On
May 31, 2012, the Company issued 14,000,000 shares of common stock upon the conversion of $13,000 of outstanding convertible notes
and $1,000 of accrued and unpaid interest. The shares were issued at $0.001 per share.
On
June 21, 2012, the Company issued 6,000,000 shares of common stock upon the conversion of $6,000 of outstanding convertible notes.
The shares were issued at $0.001 per share.
On
July 9, 2012, the Company issued 11,250,000 shares of common stock upon the conversion of $9,000 of outstanding convertible notes.
The shares were issued at $0.0008 per share.
On
July 11, 2012, the Company issued 12,142,857 shares of common stock upon the conversion of $8,500 of outstanding convertible notes.
The shares were issued at $0.0007 per share.
On
July 24, 2012, the Company issued 4,166,667 shares of common stock upon the conversion of $1,500 of outstanding convertible notes
and $1,000 of accrued and unpaid interest. The shares were issued at $0.0006 per share.
On
October 25, 2012, the Company issued 10,714,286 shares of common stock upon the conversion of $15,000 of outstanding convertible
notes. The shares were issued at $0.0014 per share.
On
November 11, 2012, the Company issued 11,750,000 shares of common stock upon the conversion of $17,500 of outstanding convertible
notes and $1,300 of accrued and unpaid interest. The shares were issued at $0.0016 per share
On
February 1, 2011, the Company entered into a subscription agreement with an investor in a private placement exempt from the registration
requirements of the Securities Act of 1933, as amended. The Company issued and sold to the investor an aggregate of 3,850,000
shares of its common stock. This issuance resulted in aggregate gross proceeds to the Company of $20,000.
On
February 1, 2011 the Company issued B. Michael Friedman, our Chief Executive Officer, and a Director of the Company, 2,500,000
shares of the Company’s Common Stock in consideration for his services to the Company. The Company recorded compensation
expense of $25,000 based on the fair market value of the shares on the date of issuance.
On
February 1, 2011 the Company issued Cherish Adams, at the time, our President, and a Director of the Company, 2,500,000 shares
of the Company’s Common Stock in consideration for her services to the Company. The Company recorded compensation
expense of $25,000 based on the fair market value of the shares on the date of issuance.
On
February 28, 2011 the Company issued Piedmont Capital (“Piedmont”) 12,639,230 shares of the Company’s Common
Stock in consideration for notes payable due to Piedmont from the Company. The note was reclassed to paid in capital at December
31, 2010 and the recording of common stock was recognized in 2011.
On
March 1, 2011 the Company issued Charm City, a consultant for the Company 5,000,000 shares of the Company’s Common Stock
in consideration for their services to the Company. The Company recorded consulting expense of $50,000 based on the
fair market value of the shares on the date of issuance.
On
April 1, 2011, the Company issued Cherish Adams, at the time, our President, and a Director of the Company, 2,500,000 shares of
the Company’s Common Stock in consideration for her services to the Company. The Company recorded compensation
expense of $50,000 based on the fair market value of the shares on the date of issuance.
On
April 1, 2011 the Company issued B. Michael Friedman, our Chief Executive Officer, and a Director of the Company, 2,500,000 shares
of the Company’s Common Stock in consideration for his services to the Company. The Company recorded compensation
expense of $50,000 based on the fair market value of the shares on the date of issuance.
On
April 1, 2011 the Company issued 600,000 shares of the Company’s common stock to a consultant. The Company recorded an expenses
of $12,000 based upon the fair market value of the shares issued.
We
offered and sold the securities in reliance on an exemption from federal registration under Section 4(2) of the Securities Act
of 1933 and Rule 506 promulgated thereunder. We relied on this exemption and rule based on the fact that there were a limited
number of investors, all of whom were accredited investors and (i) either alone or through a purchaser representative, had knowledge
and experience in financial and business matters such that each was capable of evaluating the risks of the investment, and (ii)
we had obtained subscription agreements from such investors indicating that they were purchasing for investment purposes only.
The securities were not registered under the Securities Act and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements. The disclosure contained herein does not constitute an offer to sell
or a solicitation of an offer to buy any securities of the Company, and is made only as permitted by Rule 135c under the Securities
Act.
ITEM
6. SELECTED FINANCIAL DATA.
Not
required for smaller reporting Companies
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 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
consolidated financial statements and notes thereto for the years ended December 31, 2012 and 2011.
The
independent auditor’s reports on our financial statements for the years ended December 31, 2012 and 2011 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 1 to the audited consolidated
financial statements.
While
our independent auditor has presented our financial statements on the basis that we are a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, they
have raised a substantial doubt about our ability to continue as a going concern.
(a)
Liquidity and Capital Resources.
For
the year ended December 31, 2012, net cash used in operating activities was $39,463 compared to $99,927 for the year ended December
31, 2011. Net loss was $461,852 for the year ended December 31, 2012 compared to $896,510 for the year ended December 31, 2011.
The net loss for the year ended December 31, 2012 was impacted by (i) $113,108 related to the initial expense and changes in the
fair market value of derivative liabilities associated with convertible notes payable, the amortization of the initial discount
on the convertible notes and amortization of deferred financing fees also related to the convertible promissory notes, (ii) $209,372
of stock based compensation and (iii) $46,449 of litigation contingency expenses. These expenses were offset by $68,497 of income
and other adjustments related to the deconsolidation of 800 Commerce, Inc. The net loss in the prior period was impacted by (i)
write off of bad debt of $243,546, (ii) $329,800 of stock based compensation, (iii) $100,000 related to a guaranty fee and (iv)
$31,932 related to changes in the fair market value of derivative liabilities associated with convertible notes payable, the amortization
of the initial discount on the convertible notes and amortization of deferred financing fees also related to the convertible promissory
notes.
Net
cash provided by financing activities for the year ended December 31, 2012 was $38,000 compared to $103,000 for the year ended
December 31, 2011. During the year ended December 31, 2012 the Company received $56,000 on the issuance of convertible notes and
$5,000 for the sale of 800 Commerce, Inc.’s common stock (a majority owned subsidiary of the Company at the time of the
stock sale). During the year ended December 31, 2012 the Company repaid $18,000 of convertible notes and paid $5,000 closing costs
on the issuance of new convertible notes.
For
the year ended December 31, 2011 the Company received $75,000 on the issuance of convertible notes, $10,050 on the issuance of
related party notes, $20,000 for the sale of the Company’s common stock and $15,500 for the sale of 800 Commerce, Inc. (the
Company’s majority owned subsidiary) common stock. During the year ended December 31, 2011 the Company repaid $10,050 of
related party notes payable and paid $7,500 closing costs on the newly issued convertible notes.
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 and has received term sheets for additional credit facilities for working capital if needed.
(b)
Results of Operations
Results
of operations for the year ended December 31, 2012 vs. December 31, 2011
REVENUES
Total
revenues for 2012 were $77,400 compared to $60,818 for 2011. Revenues increased for the year ended December 31, 2012 compared
to 2011 as a result of the Company effective November 1, 2012 receiving agent commissions of $27,161 pursuant to an agreement
with Alternative Capital Solutions (“ACS”). Revenues from 2011 were all related to merchant processing fees the Company
received. Effective July 1, 2012 the merchant processing fees ceased as a result of Mastercard and Visa declining to accept credit
card charges from medical dispensaries. For the period January 1, 2012 through the declination, the Company received merchant
processing fees of $43,723.
OPERATING
EXPENSES
Operating
expenses were $433,664 for the year ended December 31, 2012 compared to $924,301 for 2011. The decrease in operating expenses
for the year ended December 31, 2012 was primarily attributable to the following expenses in 2011: (i) write off of bad debt of
$243,546 and (ii) $100,000 related to a guaranty fee. Stock compensation expense decreased from $329,800 in 2011 to $209,372 in
2012.
OTHER
INCOME (EXPENSE)
Other
expenses for the year ended December 31, 2012 was $105,588 and was comprised of $46,499 of litigation contingency expenses and
interest expense of $148,200. The expenses were offset by $62,636, the gain recorded on the deconsolidation of 800 Commerce, Inc.
and a gain of $26,425 for the fair market value change in the derivative liability associated with convertible promissory notes,
Included in interest expense is $130,829 of amortization of the discount on convertible notes, $8,704 of amortization of deferred
financing costs related to the convertible notes and $8,667 of interest expense on the face value of the convertible notes. The
2011 expenses were comprised of $13,051 related to the change in fair market value of the derivative liability associated with
convertible promissory notes and interest expense of $19,976. Included in 2011 interest expense is $17,288 related to the amortization
of the initial discount on convertible promissory notes.
OFF
BALANCE SHEET ARRANGEMENTS
None
Critical
Accounting Policies
Accounting
Policies and Estimates
The
preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America
requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.
As
such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized
results may differ from management’s initial estimates as reported. A summary of significant accounting policies
are detailed in notes to the financial statements which are an integral component of this filing.
REVENUE
RECOGNITION
The
Company recognizes revenue in accordance with the Securities and Exchange Commission, Staff Accounting Bulletin (SAB) No. 104,
“Revenue Recognition” (“SAB No. 104”). SAB 104 clarifies application of generally accepted accounting
principles related to revenue transactions. The Company also follows the guidance in EITF Issue No. 00-21, Revenue Arrangements
with Multiple Deliverables ("EITF Issue No. 00-21"), in arrangements with multiple deliverables.
The
Company recognizes revenues when all of the following 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.
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
|
|
$-
|
Carring 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.
IMPAIRMENT
OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
|
We
evaluate long-lived assets and identifiable intangible assets with finite useful lives in accordance with ASC 350-30 and ASC 360
(formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), and accordingly, management reviews our
long-lived assets and identifiable intangible assets with finite useful lives for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. We recognize an impairment loss when the sum of the future
undiscounted net cash flows expected to be realized from the asset is less than its carrying amount. If an asset is considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its
fair value. Considerable judgment is necessary to estimate the fair value of the assets and accordingly, actual results could
vary significantly from such estimates. Our most significant estimates and judgments relating to the long-lived asset impairments
include the timing and amount of projected future cash flows.
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 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 December 31, 2012 and 2011.
As of December 31, 2012, the Company’s outstanding convertible debt is convertible into 3,852,459 shares of common stock
and 800,000 shares of Series B convertible preferred stock is convertible into 373,305,731 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 years ended December 31, 2012 and 2011 the Company recorded stock based compensation of $209,372 and $329,800, respectively,
(See Notes 7 and 8). For the year ended December 31, 2011 the Company issued 15,600,000 shares of restricted common stock
to
officers and consultants for services totaling $212,000, and prior to the deconsolidation of 800 Commerce, Inc., it had issued
1,000,000 shares of its common stock to Mr. Friedman and 178,000 shares of its common stock to Mr. Hollander, in lieu of salaries.
The shares were valued at $0.10 per share, the price of a private placement that 800 Commerce, Inc. sold common stock, or $117,800.
As of December 31, 2012, we do not have any outstanding stock options or warrants.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required for smaller reporting Companies
ITEM
8. FINANCIAL STATEMENTS
The
audited financial statements of the Company required pursuant to this Item 8 are included in the Annual Report on Form 10-K, as
a separate section commencing on page F-1 and are incorporated herein by reference.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
For
the years ended December 31, 2012 and 2011 the Company had engaged the services of
D.
Brooks and Associates CPA's, P.A.
to be the Company’s independent auditor.
ITEM
9A(T). CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
A
review and evaluation was performed by the Company's management, including the Company's Chief Executive Officer (the "CEO")
and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company's disclosure
controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the CEO
and CFO have concluded that as of December 31, 2012 disclosure controls and procedures, were not effective at ensuring that the
material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required
in the application of SEC rules and forms.
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).
As
a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of December 31,
2012
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.
This
Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting
firm pursuant to the rules of the SEC that permit us to provide only management’s report in this annual report.
Changes
in Internal Control over Financial Reporting
There
have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably
likely to materially affect, the Company’s internal controls over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a)
(b) Identification of directors and executive officers.
Set
forth below is information regarding the Company’s current directors and executive officers. There are no family relationships
between any of our directors or executive officers. The directors are elected annually by stockholders. The executive officers
serve at the pleasure of the Board of Directors:
|
|
|
|
|
Name
|
|
Age
|
|
Positions
Held and Tenure
|
B.
Michael Friedman
|
|
45
|
|
Chief
Executive Officer, Director
|
Erick
Rodriguez
|
|
45
|
|
President
and Director
|
Barry
Hollander
|
|
55
|
|
Chief
Financial Officer
|
(c)
Identification of significant employees.
None
(d)
Identification of family relationships
None
(e)Business
experience
B.
Michael Friedman,
Chief Executive Officer.
Mr. Friedman specializes in private equity, mergers &
acquisitions and financial consulting to publicly traded companies and start-up deals. Mr. Friedman’s companies presently
represent an umbrella of accounting, legal and financial services for public markets . Mr. Friedman has strategic funding alliances
with Maxim group, MidTown Partners, Spencer Edwards, Iroquois Capital, and Divine Capital. Mr. Friedman received his Bachelor
of Science (BS) in Marketing and Management in 1986 from the University of Florida, in Gainesville, Florida.
Erick
Rodriguez, President and Secretary
since April 12, 2011, brings over 20 years experience in sales and marketing
and brings a breadth of consumer-direct and B2B sales knowledge and success to CMSI. Over the last 15 years , Erick has
been on the forefront of several leading technologies including Health Care, Loyalty Platforms, Online Travel and e-Commerce.
Erick received his degree in Business Administration from the University of San Diego.
Most
recently, Erick has been directing the sales and strategy for Fusion Care Systems, a health care technology company focusing on
delivering solutions for Aging in Place and Disease Management. Prior to helping found Fusion Care Systems, Erick was Vice
President of Sales for FideliSoft. While at FideliSoft, Erick was instrumental in securing the company’s largest loyalty
client, Harrah’s Entertainment. Prior to joining FideliSoft, Erick was involved in running several online travel companies
including LasVegas.com and Key2Travel. Erick was also instrumental in developing Travelscape which sold to Expedia and later
became the core hotel product in Expedia’s market leading hotel merchant program. Travelscape sold to Expedia in 2000
for $100 million. Erick also held management roles with Sprint and Sabre, both fortune 500 companies.
Barry
S. Hollander,
Chief Financial Officer.
Mr. Hollander has been the CFO of the Registrant since April 12, 2011. Mr.
Hollander is also the CFO of SurgLine International, Inc. (formerly China Nuvo Solar Energy, Inc.), a publicly traded Company,
since 2002. From February 2010 through February 2013, Mr. Hollander was the Chief Financial Officer of Quture International, Inc.
(formerly known as Techs Loanstar, Inc.), a publicly traded Company. Mr. Hollander was the Chief Financial Officer of ZZUSA since
its inception in June 2009 and the Chief Financial Officer of ZZPartners, Inc. from its inception (April 2008) through its merger
with ZZUSA. Mr. Hollander has been the acting Chief Executive Officer of FastFunds Financial Corporation, a publicly traded company
with limited business operations, since January 2007. From 1994 to 1999, Mr. Hollander was the chief financial officer of California
Pro Sports, Inc., an in-line skate importer, marketer and distributor.
(f)
Involvement in certain legal proceedings
None
(g)
Promoters and control persons
None
Code
of Ethics
We
adopted a Code of Ethics for Senior Financial Management to promote honest and ethical conduct and to deter wrongdoing. This Code
applies to our Chief Executive Officer, Chief Financial Officer, controller, principal accounting officer and other employees
performing similar functions. The obligations of the Code of Ethics supplement, but do not replace, any other code of conduct
or ethics policy applicable to our employees generally.
Under
the Code of Ethics, all members of the senior financial management shall:
·
|
Act
honestly
and
ethically
in
the
performance
of
their
duties
at
our
company,
|
·
|
Avoid
actual
or
apparent
conflicts
of
interest
between
personal
and
professional
relationships,
|
·
|
Provide
full,
fair,
accurate,
timely
and
understandable
disclosure
in
reports
and
documents
that
we
file
with,
or
submits
to,
the
SEC
and
in
other
public
communications
by
our
company,
|
·
|
Comply
with
rules
and
regulations
of
federal,
state
and
local
governments
and
other
private
and
public
regulatory
agencies
that
affect
the
conduct
of
our
business
and
our
financial
reporting,
|
·
|
Act
in
good
faith,
responsibly,
with
due
care,
competence
and
diligence,
without
misrepresenting
material
facts
or
allowing
the
member's
independent
judgment
to
be
subordinated,
|
·
|
Respect
the
confidentiality
of
information
acquired
in
the
course
of
work,
except
when
authorized
or
legally
obtained
to
disclosure
such
information,
|
·
|
Share
knowledge
and
maintain
skills
relevant
to
carrying
out
the
member's
duties
within
our
company,
|
·
|
Proactively
promote
ethical
behavior
as
a
responsible
partner
among
peers
and
colleagues
in
the
work
environment
and
community,
|
·
|
Achieve
responsible
use
of
and
control
over
all
assets
and
resources
of
our
company
entrusted
to
the
member,
and
|
·
|
Promptly
bring
to
the
attention
of
the
Chief
Executive
Officer
any
information
concerning
(a)
significant
deficiencies
in
the
design
or
operating
of
internal
controls
which
could
adversely
to
record,
process,
summarize
and
report
financial
date
or
(b)
any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
our
financial
reporting
or
internal
controls.
|
Corporate
Governance
There
have been no material changes to procedures by which security holders may recommend nominees to our board of directors.
We
currently have no standing audit or nominating committees of our board of directors. Our entire board of directors currently performs
these functions. While we currently have no standing audit or nominating committee, we have determined that Mr. Friedman would
be considered an audit committee financial expert.
Director
Independence
Our
board of directors currently has two directors and has no standing sub-committees at this time due to the associated expenses
and the small size of our board. We are not currently listed on a national securities exchange that has requirements that a majority
of the board of directors be independent.
In
performing the functions of the audit committee, our board oversees our accounting and financial reporting process. In this function,
our board performs several functions. Our board, among other duties, evaluates and assesses the qualifications of the Company’s
independent auditors; determines whether to retain or terminate the existing independent auditors; meets with the independent
auditors and financial management of the Company to review the scope of the proposed audit and audit procedures on an annual basis;
reviews and approves the retention of independent auditors for any non-audit services; reviews the independence of the independent
auditors; reviews with the independent auditors and with the Company’s financial accounting personnel the adequacy and effectiveness
of accounting and financial controls and considers recommendations for improvement of such controls; reviews the financial statements
to be included in our annual and quarterly reports filed with the Securities and Exchange Commission; and discusses with the Company’s
management and the independent auditors the results of the annual audit and the results of our quarterly financial statements.
While we do not currently have a standing compensation committee, our non-employee director considers executive officer compensation,
and our entire board participates in the consideration of director compensation. Our non-employee board members oversee our compensation
policies, plans and programs. Our non-employee board members further review and approve corporate performance goals and objectives
relevant to the compensation of our executive officers; review the compensation and other terms of employment of our Chief Executive
Officer and our other executive officers; and administer our equity incentive and stock option plans. Each of our directors participates
in the consideration of director nominees. In addition to nominees recommended by directors, our board will consider nominees
recommended by shareholders if submitted in writing to our secretary. Our board believes that any candidate for director, whether
recommended by shareholders or by the board, should be considered on the basis of all factors relevant to our needs and the credentials
of the candidate at the time the candidate is proposed. Such factors include relevant business and industry experience and demonstrated
character and judgment.
ITEM
11 EXECUTIVE COMPENSATION.
The
following tables set forth all of the compensation awarded to, earned by or paid to:
(i)
each individual serving as our principal executive officer during the fiscal years ended December 31, 2012 and 2011; (ii) each
other individual that served as an executive officer at the conclusion of the fiscal year ended December 31, 2012 and who received
in excess of $100,000 in the form of salary and bonus during such fiscal year.
Table
1. Summary Compensation of Executive Officers
Name & Principal Position
|
|
Year
|
|
|
Salary
|
|
Bonus
|
|
Restricted Stock
Awards (2)
|
Option Awards
|
Non-Equity Incentive Plan Compensation
|
All Other Compensation (3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Michael Friedman(1)
|
|
2012
|
|
$
|
90,000
|
$
|
-
|
|
$ -
|
-
|
$ -
|
$ 40,587
|
$
|
130,587
|
Chief Executive Officer
|
|
2011
|
|
|
95,093
|
|
-
|
|
125,000
|
-
|
$ -
|
-
|
$
|
225,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry Hollander
|
|
2012
|
|
$
|
15,000
|
|
-
|
|
-
|
-
|
-
|
35,533
|
$
|
50,533
|
Chief Financial Officer
|
|
2011
|
|
|
7,500
|
|
-
|
|
17,800
|
-
|
-
|
-
|
$
|
25,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erick Rodriguez
|
|
2012
|
|
$
|
3,260
|
|
-
|
|
-
|
-
|
-
|
66,625
|
$
|
69,885
|
President
|
|
2011
|
|
|
1,500
|
|
-
|
|
-
|
-
|
-
|
-
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cherish Adams
|
|
2012
|
|
$
|
-
|
|
-
|
|
-
|
-
|
-
|
-
|
$
|
-
|
Chief Financial Officer
|
|
2011
|
|
|
-
|
|
-
|
|
25,000
|
-
|
-
|
-
|
$
|
25,000
|
(1)
Includes $90,000 expensed to our CEO as deferred compensation authorized by the Board of Directors of the Company.
|
(2)
|
On
February
1,
2011
the
Company
issued
B.
Michael
Friedman,
our
Chief
Executive
Officer,
2,500,000
shares
of
the
Company’s
Common
Stock
in
lieu
of
salary,
in
consideration
for
his
services
to
the
Company. The
Company
recorded
compensation
expense
of
$25,000
based
on
the
fair
market
value
of
the
shares
on
the
date
of
issuance.
On
October
1,
2011,
800
Commerce,
Inc.
(the
Company’s
majority
owned
subsidiary
at
the
time
of
issuance)
Mr.
Friedman
and
Mr.
Hollander
received
1,000,000
and
178,000
shares
of
800
Commerce,
Inc.
respectively.
The
shares
were
valued
at
$0.10
per
share,
the
last
price,
prior
to
the
issuance,
of
a
private
placement
that
800
Commerce,
Inc.
sold
common
stock.
On
February
1,
2011
the
Company
issued
Cherish
Adams,
then
our
Chief
Financial
Officer,
2,500,000
shares
of
the
Company’s
common
stock
in
lieu
of
salary,
in
consideration
for
her
services
to
the
Company.
The
Company
recorded
compensation
expense
of
$25,000
based
on
the
fair
market
value
of
the
shares
on
the
date
of
issuance.
|
|
(3)
|
All
Other
Compensation
includes
shares
of
Class
B
Preferred
stock
issued
during
the
year
ended
December
31,
2012.
The
Company
issued
250,000
shares
to
Mr.
Friedman,
250,000
shares
to
Mr.
Rodriguez
and
50,000
shares
to
Mr.
Hollander.
The
amount
for
Mr.
Friedman
represents
the
value
of
the
Class
B
preferred
stock
in
excess
of
the
deferred
compensation
due
Mr.
Friedman
at
the
time
of
the
issuance.
The
amount
for
Mr.
Hollander
represents
the
value
of
the
stock
issued
for
services
performed
by
Mr.
Hollander.
The
amount
for
Mr.
Rodriguez
represents
the
amortization
from
August
thru
December
31,
2012
of
the
value
of
the
Class
B
preferred
stock
issued
to
Mr.
Rodriguez.
As
of
December
31,
2012
the
balance
of
deferred
compensation
included
in
shareholder’s
equity
for
Mr.
Rodriguez
is
$128,369,
which
amount
will
be
expensed
in
2013.
|
Option
Grants
No
options were granted during the year ended December 31, 2012. We have no outstanding warrants or stock options.
Director
Compensation
We
do not pay fees to our directors for attendance at meetings of the board; however, we may adopt a policy of making such payments
in the future. We will reimburse out-of-pocket expenses incurred by directors in attending board and committee meetings.
Employment
Agreements
None.
Report
on Repricing of Options
None.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
(a) Security
ownership of certain beneficial owners.
(b) Security
ownership of management.
The
following table sets forth information known to the Company with respect to the beneficial ownership (as such term is defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of the outstanding common stock of the Company as of March
15, 2013 by: (1) each person known by the Company to beneficially own 5% or more of the Company’s outstanding common
stock; (2) each of the named executive officers as defined in Item 402(a)(3); (3) each of the Company’s directors;
and (4) all of the Company’s named executive officers and directors as a group. The number of shares beneficially owned
is determined under rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for
any other purpose. Including those shares in the tables does not, however, constitute an admission that the named stockholder
is a direct or indirect beneficial owner of those shares.
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Class B Preferred Stock
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Percentage of
|
|
|
|
Number of
|
|
|
Percentage of
|
|
|
|
|
Shares
|
|
|
Shares
|
|
|
|
Shares
|
|
|
Shares
|
|
Name and Address
|
|
|
Beneficially Owned
|
|
|
Beneficially Owned (1)
|
|
|
|
Beneficially Owned
|
|
|
Beneficially Owned (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Michael Friedman
477 South Rosemary Ave., Suite 203
West Palm Beach, FL 33401
|
|
|
49,075,000
|
|
|
10.5
|
%
|
|
|
250,000
|
|
|
31.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erick Rodriguez
477 South Rosemary Ave., Suite 203
West Palm Beach, Fl. 33401
|
|
|
-
|
|
|
-
|
%
|
|
|
250,000
|
|
|
31.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry Hollander
477 South Rosemary Ave.
Suite 203
West Palm Beach, FL. 33401
|
|
|
1,600,745
|
|
|
.3
|
%
|
|
|
50,000
|
|
|
31.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ender Company Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 De Castro Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tortola VG110
|
|
|
44,000,000
|
|
|
9.4
|
%
|
|
|
—
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip Johnston (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 King Street
St.Pacome,Quiebec,Canada GOL3XO
|
|
|
-
|
|
|
-
|
%
|
|
|
250,000
|
|
|
31.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Strategies Corp. (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 King Street
St. Pacome, Quebec,Canada G0L3X0
|
|
|
-
|
|
|
-
|
%
|
|
|
150,000
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
executive officers as
|
|
|
50,675,745
|
|
|
10.9
|
%
|
|
|
550,000
|
|
|
68.8
|
%
|
a group (2 persons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based
on a total of an aggregate of 466,632,164 shares of common stock outstanding and 800,000 shares of Class B Preferred stock
outstanding.
|
(2)
|
Includes 150,000
shares owned by Capital Strategies Corp.
|
(3)
|
Philip Johnston
is the sole shareholder of Capital Strategies and has voting power of the shares owned by Capital Strategies Corp.
|
Changes
in Control
There
were no significant changes in control for the period ending December 31, 2012.
DESCRIPTION
OF SECURITIES
General
Our
authorized capital stock consists of 500,000,000 shares of common stock, par value $ .01 and 1,000,000 shares of Series B Preferred
Stock, par value $0.01.
Common
Stock
The
shares of our common stock presently outstanding, and any shares of our common stock issues upon exercise of stock options and/or
warrants, will be fully paid and non-assessable. Each holder of common stock is entitled to one vote for each share owned on all
matters voted upon by shareholders, and a majority vote is required for all actions to be taken by shareholders. In the event
we liquidate, dissolve or wind-up our operations, the holders of the common stock are entitled to share equally and ratably in
our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares
of preferred stock that may then be outstanding. The common stock has no preemptive rights, no cumulative voting rights, and no
redemption, sinking fund, or conversion provisions. Since the holders of common stock do not have cumulative voting rights, holders
of more than 50% of the outstanding shares can elect all of our Directors, and the holders of the remaining shares by themselves
cannot elect any Directors. Holders of common stock are entitled to receive dividends, if and when declared by the
Board of Directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred
stock that may then be outstanding.
Voting
Rights
Each
holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders.
Dividends
Subject
to preferences that may be applicable to any then-outstanding shares of Preferred Stock, if any, and any other restrictions, holders
of Common Stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Company’s
board of directors out of legally available funds. The Company and its predecessors have not declared any dividends in the past.
Further, the Company does not presently contemplate that there will be any future payment of any dividends on Common Stock.
Preferred
Stock
Series
A
In
April 2011, the Company authorized 1,000,000 shares of Series A Preferred Stock. Pursuant to the Certificate of Designation the
Series A Preferred Stock entitles the holder of the Series A Preferred Stock to vote on all shareholder matters 66-2/3% of the
total vote. The holder also has the right to convert the preferred shares to 51% of the issued and outstanding common stock of
the Company following such conversion. The Series A Preferred Stock, with respect to distributions upon liquidation, dissolution
or winding up, ranks senior to the Common Stock of the Company. The holders of the Series A Preferred Stock are entitled to a
liquidation preference of $0.50 per share. As of December 31, 2011 there were no shares of Series A Preferred Stock outstanding.
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.
Series
B
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
(373,305,731 shares as of December 31, 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 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, 250,000 shares for his role as
President; Phillip 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 $133,250 in stock based compensation for the year ended December 31, 2012.
Amendment
of our Bylaws
Our
bylaws may be adopted, amended or repealed by the affirmative vote of a majority of our outstanding shares. Subject to applicable
law, our bylaws also may be adopted, amended or repealed by our board of directors.
Transfer
Agent
Island
Stock Transfer serves in the capacity of transfer agent.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
|
(a)
|
Transactions
with
related
persons.
|
Officer
advances and repayments
During
the year ended December 31, 2011, our Chief Executive Officer (“CEO”) loaned or advanced the Company $10,050. As of
December 31, 2011 the Company had repaid $10,050 and there was no balance due as of December 31, 2012.
Management
fees
During
the year ended December 31, 2011 the Company paid management fees of $3,151 to B. Michael Friedman (CEO) and additionally, the
Company has agreed to annual compensation of $90,000 for its’ CEO and accordingly has expensed such amount for the years
ended December 31, 2012 and 2011. There was a balance due Mr. Friedman as of December 31, 2011 of $90,000. During the year ended
December 31, 2012 the Company accrued and expensed $90,000 for Mr. Friedman’s annual salary. During the year ended the Company
applied payments to Mr. Friedman of $5,040 and also reduced the amount owed Mr. Friedman by $137,080 for the issuance of 250,000
Class B Preferred Stock. As of December 31, 2012, the Company owed Mr. Friedman $37,880 which is included in deferred compensation
on the December 31, 2012 balance sheet.
During
the years ended December 31, 2012 and 2011 the Company expensed management fees of $15,000 and $7,500 for payments made to Venture
Equity, LLC, a Florida limited Liability Company, controlled by Barry Hollander, our Chief Financial Officer (“CFO”).
As of December 31, 2012 the Company owed Venture Equity $3,000, which liability is included in deferred compensation on the Company’s
balance sheet.
During
the years ended December 31, 2012 and 2011 the Company expensed management fees of $3,260 and $1,500 for payments made to Erick
Rodriguez, our President.
Agreements
with prior management
In
December 2011 the Company issued a $50,000 convertible promissory note 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. During the
year ended December 31, 2012 the Company made payments of $18,000 to the noteholder and there is a balance of $32,000 as of December
31, 2012, which is included in convertible debt on the balance sheet presented herein.
The
Company has agreed to pay an additional $50,000 in common stock, which is included in accounts payable and accrued expenses on
the December 31, 2012 and 2011 balance sheets.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Fees
Fees
for audit services billed for the fiscal year ended December 31, 2012 and 2011 were
$10,250
and $11,250 respectively and consisted of (i) audit of the Company’s annual financial statements; (ii) reviews of the Company’s
quarterly financial statements; (iii) consultations on financial accounting and reporting matters arising during the course of
the audit and reviews.
Audit-Related
Fees
There
were no other aggregated fees billed in the fiscal years ended December 31, 2012 and 2011 for assurance and related services by
the principal accountants that were reasonably related to the performance of the audit or review of the financial statements that
were not reported above.
Tax
Fees
There
were no fees in the fiscal years ended December 31, 2012 and 2011 for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning.
All
Other Fees
There
were no other fees billed in the fiscal year ended December 31, 2012 and 2011 for any other services.
PART
IV
ITEM
15. EXHIBITS AND REPORTS.
Exhibits
|
31.1
|
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. (2)
|
|
|
|
|
|
|
31.2
|
|
|
Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. (2)
|
|
|
|
|
|
|
32.1
|
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. (2)
|
|
|
|
|
|
|
32.2
|
|
|
Certification of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. (2)
|
(2) Filed
herein.
(a) EXHIBITS
Signatures
In
accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements of filing on Form 10-K and authorized this registration statement to be signed on its behalf
by the undersigned, on the 29th day of March, 2013.
|
|
Mediswipe,
Inc.
|
|
|
|
|
|
|
|
/S/
B. Michael Friedman
|
|
|
|
B.
Michael Friedman
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
/S/
Barry Hollander
|
|
|
|
Barry
Hollander
|
|
|
|
Chief
Financial Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the
capacities and on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
/S/ Erick Rodriguez
|
|
|
|
|
Erick
Rodriguez
|
|
Director
|
|
March
29, 2013
|
|
|
|
|
|
/s/
B. Michael Friedman
|
|
Director
|
|
March
29, 2013
|
B.
Michael Friedman
|
|
|
|
|
|
|
|
|
|
MEDISWIPE,
INC.
FOR
THE YEARS ENDED DECEMBER 31, 2012 AND 2011
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registrered Public Accounting Firm
|
F-2
|
|
|
Consolidated Balance Sheets as of December 31, 2012 and 2011
|
F-3
|
Consolidated Statement of Operations for the years ended December 31, 2012 and 2011
|
F-4
|
Consolidated Statement of Changes in Stockholders Deficiency for the years ended December 31, 2012 and 2011
|
F-5
|
Consolidated Statement of Cash Flows for the years ended December 31, 2012 and 2011
|
F-6
|
Notes to Consolidated Financial Statements
|
F-7 - F-12
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Mediswipe, Inc.
We have audited the accompanying balance sheets of Mediswipe, Inc.
as of December 31, 2012 and 2011, and the related statements of income, stockholders’ deficiency, and cash flows for the
years then ended. Mediswipe, Inc.’s management is responsible for these financial statements. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mediswipe, Inc. as of December 31, 2012 and 2011, and the results of
its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the financial statements, the Company
has incurred operating losses, has incurred negative cash flows from operations and has a working capital deficit. These and other
factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding
these matters is also described in Note 11 to the financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
D. Brooks and Associates CPA’s, P.A.
West Palm Beach, Florida
April 1, 2013
PART I FINANCIAL INFORMATION
|
MEDISWIPE, INC.
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
December 31, 2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,892
|
|
|
$
|
3,355
|
|
Accounts receivable
|
|
|
14,133
|
|
|
|
6,028
|
|
Deferred financing costs
|
|
|
2,203
|
|
|
|
5,907
|
|
Prepaid assets
|
|
|
—
|
|
|
|
5,000
|
|
Total current assets
|
|
$
|
18,228
|
|
|
$
|
20,290
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Defeciency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
99,130
|
|
|
$
|
62,051
|
|
Deferred compensation
|
|
|
40,880
|
|
|
|
90,000
|
|
Convertible debt, net of discounts of $19,648 (2012) and $94,477 (2011)
|
|
|
35,852
|
|
|
|
30,523
|
|
Derivative liabilities
|
|
|
38,590
|
|
|
|
124,816
|
|
Litigation contingency
|
|
|
46,449
|
|
|
|
—
|
|
Total current liabilities
|
|
|
260,901
|
|
|
|
307,390
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficiency:
|
|
|
|
|
|
|
|
|
Series B Convertible Preferred stock, $0.01 par value; 1,000,000 shares authorized, 800,000 (2012) and no shares (2011) issued and outstanding
|
|
|
8,000
|
|
|
|
—
|
|
Common stock, $.01 par value; 500,000,000 shares authorized; 466,632,164 (2012) shares and 374,741,470 (2011) shares issued and outstanding
|
|
|
4,666,324
|
|
|
|
3,747,414
|
|
Additional paid-in capital
|
|
|
202,372
|
|
|
|
466,446
|
|
Deferred stock compensation
|
|
|
(222,083
|
)
|
|
|
—
|
|
Accumulated deficit
|
|
|
(4,897,286
|
)
|
|
|
(4,436,129
|
)
|
|
|
|
|
|
|
|
|
|
Total company stockholders' deficiency
|
|
|
(242,673
|
)
|
|
|
(222,269
|
)
|
Less noncontrolling interest
|
|
|
—
|
|
|
|
(64,831
|
)
|
Total deficiency
|
|
|
(242,673
|
)
|
|
|
(287,100
|
)
|
|
|
|
|
|
|
|
|
|
Total liabiities and deficiency
|
|
$
|
18,228
|
|
|
$
|
20,290
|
|
See
Notes to consolidated financial statements
MEDISWIPE, INC.
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
For the Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Fee revenue, net
|
|
$
|
77,400
|
|
|
$
|
60,818
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Administrative and management fees
|
|
|
318,740
|
|
|
|
441,468
|
|
Professional fees
|
|
|
13,900
|
|
|
|
25,268
|
|
Commissions
|
|
|
28,012
|
|
|
|
31,721
|
|
Rent and other occupancy costs
|
|
|
21,357
|
|
|
|
19,831
|
|
Bad debt expense
|
|
|
—
|
|
|
|
243,546
|
|
Guaranty fee
|
|
|
—
|
|
|
|
100,000
|
|
Other general and administartive expenses
|
|
|
51,655
|
|
|
|
62,467
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
433,664
|
|
|
|
924,301
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(356,264
|
)
|
|
|
(863,483
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(148,200
|
)
|
|
|
(19,976
|
)
|
Derivative liability (expense) income
|
|
|
26,425
|
|
|
|
(13,051
|
)
|
Gain on deconsolidation of subsidiary
|
|
|
62,636
|
|
|
|
—
|
|
Litigation contingency
|
|
|
(46,449
|
)
|
|
|
—
|
|
Total other expense, net
|
|
|
(105,588
|
)
|
|
|
(33,027
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(461,852
|
)
|
|
|
(896,510
|
)
|
Less: net loss attributable to noncontrolling interest
|
|
|
695
|
|
|
|
64,831
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Mediswipe, Inc.
|
|
$
|
(461,157
|
)
|
|
$
|
(831,679
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss attributable to Mediswipe, Inc.
|
|
|
|
|
|
|
|
|
common shareholders, per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
Basic and diluted
|
|
|
417,445,094
|
|
|
|
374,778,763
|
|
See
Notes to consolidated financial statements
MEDISWIPE, INC
|
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
|
YEARS ENDED DECEMBER 31, 2012 and 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Common stock
|
|
|
Series B Preferred stock
|
|
Paid-in
|
|
|
Noncontolling
|
|
|
Deferred Stock
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
|
Interest
|
|
|
Compensation
|
|
Deficit
|
|
Deficiency
|
|
|
Balances, January 1, 2011
|
|
347,652,240
|
|
$
|
3,476,522
|
|
|
-
|
|
$
|
-
|
|
$
|
371,755
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(3,604,450)
|
|
$
|
243,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
3,850,000
|
|
|
38,500
|
|
|
-
|
|
|
-
|
|
|
(18,500)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
15,600,000
|
|
|
156,000
|
|
|
-
|
|
|
-
|
|
|
56,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
212,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in exchange for debt cancellation
|
|
12,639,320
|
|
|
126,392
|
|
|
-
|
|
|
-
|
|
|
(126,109)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of subsidiary common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock returned
|
|
(5,000,000)
|
|
|
(50,000)
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of subsidiary common stock for services
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
117,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
117,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(64,831)
|
|
|
-
|
|
|
(831,679)
|
|
|
(896,510)
|
|
|
Balances, December 31, 2011
|
|
374,741,470
|
|
|
3,747,414
|
|
|
-
|
|
|
-
|
|
|
466,446
|
|
|
(64,831)
|
|
|
-
|
|
|
(4,436,129)
|
|
|
(287,100)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and accrued interest
|
|
91,890,694
|
|
|
918,910
|
|
|
-
|
|
|
-
|
|
|
(807,110)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
111,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary common stock sold for cash
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of embedded derivatives upon conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible debt
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
115,801
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
115,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock for services
|
|
-
|
|
|
-
|
|
|
800,000
|
|
|
8,000
|
|
|
560,535
|
|
|
-
|
|
|
(355,333)
|
|
|
-
|
|
|
213,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
133,250
|
|
|
-
|
|
|
133,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of subsidiary
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(138,300)
|
|
|
65,526
|
|
|
-
|
|
|
-
|
|
|
(72,774)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(695)
|
|
|
-
|
|
|
(461,157)
|
|
|
(461,852)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances December 31, 2012
|
|
466,632,164
|
|
$
|
4,666,324
|
|
|
800,000
|
|
$
|
8,000
|
|
$
|
202,372
|
|
$
|
-
|
|
$
|
(222,083)
|
|
$
|
(4,897,286)
|
|
$
|
(242,673)
|
See
Notes to consolidated financial statements
MEDISWIPE, INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
YEAR ENDED DECEMBER 31, 2012 AND 2011
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(461,852)
|
|
|
$
|
(896,510)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock issued for compensation and consulting services
|
|
|
209,372
|
|
|
|
212,000
|
|
Subsidiary common stock issued for compensation
|
|
|
—
|
|
|
|
117,800
|
|
Issuance of convertible note payable and account payable for guaranty fees
|
|
|
—
|
|
|
|
100,000
|
|
Bad debt expense
|
|
|
—
|
|
|
|
243,546
|
|
Amortization of deferred financing costs
|
|
|
8,704
|
|
|
|
1,593
|
|
Amortization of discount on convertible notes
|
|
|
130,829
|
|
|
|
17,288
|
|
Change in fair market value of derivative liabilities
|
|
|
(30,909)
|
|
|
|
13,051
|
|
Stock issued for settlement of note payable
|
|
|
—
|
|
|
|
282
|
|
Litigation contingency
|
|
|
46,449
|
|
|
|
|
|
Initial derivative liability expense on convertible notes
|
|
|
4,484
|
|
|
|
|
|
Gain on deconsolidation of subsidiary
|
|
|
(62,636
|
)
|
|
|
—
|
|
Cash effect of deconsolidation
|
|
|
(5,166)
|
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in :
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(9,199)
|
|
|
|
(6,028
|
)
|
Prepaid assets
|
|
|
—
|
|
|
|
(5,000
|
)
|
Increase in :
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
42,501
|
|
|
|
12,051
|
|
Deferred compensation
|
|
|
87,960
|
|
|
|
90,000
|
|
Net cash used in operating activities
|
|
|
(39,463)
|
|
|
|
(99,927)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
—
|
|
|
|
20,000
|
|
Issuance of subsidiary common stock for cash
|
|
|
5,000
|
|
|
|
15,500
|
|
Proceeds from issuance of notes payable related parties
|
|
|
—
|
|
|
|
10,050
|
|
Repayments on notes payable, related parties
|
|
|
—
|
|
|
|
(10,050)
|
|
Proceeds from issuance of convertible debt
|
|
|
56,000
|
|
|
|
75,000
|
|
Payment of deferred financing costs
|
|
|
(5,000)
|
|
|
|
(7,500)
|
|
Repayments of convertible notes
|
|
|
(18,000)
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
38,000
|
|
|
|
103,000
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,463
|
)
|
|
|
3,073
|
|
Cash and cash equivalents, beginning
|
|
|
3,355
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, ending
|
|
$
|
1,892
|
|
|
$
|
3,355
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for conversion of notes payable and interest
|
|
$
|
111,800
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Reclassification of derivative liabilities to additional paid in capital upon
|
|
|
|
|
|
|
|
|
conversion of convertible notes
|
|
$
|
169,335
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Preferred stock issued for services and deferred compensation
|
|
$
|
568,535
|
|
|
$
|
—
|
|
See
Notes to consolidated financial statements
MEDISWIPE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
BUSINESS
MediSwipe (www.MediSwipe.com) provides
innovative patient solutions for electronically processing transactions within the healthcare industry. MediSwipe provides terminal-based
service packages and integrated Web Portal add-ons for physicians, clinics, hospitals and medical dispensaries that include: Digital
Patient Records, Electronic Referrals, Credit/Debit Card merchant services, Check Guarantee and Accounts Receivable Financing.
The Company can provide online and wireless merchant payment solutions worldwide. The Company offers a spectrum of transaction
processing solutions using traditional, Internet point-of-sale, e-commerce, and mobile (wireless) terminals in conjunction with
industry alliance partners. The Company's alliances provide an electronic payment processing suite of services enabling merchants
to accept various credit and debit cards, as well as ATM cards and ACH check drafts for payment of a retail, service, mail-order,
or Internet merchant. Services offered include merchant account activation, gateway connections, Web development, and social network
engines.
The Company is headquartered in Birmingham, Michigan.
On June 14, 2011, we changed our name to MediSwipe
Inc. from Cannabis Medical Solutions, Inc.
During the year ended December 31, 2012,
the Company issued to officers and consultants, as consideration for services performed and for future services, 800,000 shares
of Series B 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
(373,305,731 shares as of December 31, 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.
See note 8.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION AND PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States
of America ("US GAAP"). The consolidated financial statements include the accounts of the Company and 800
Commerce, Inc. (“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
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, 800 Commerce 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
on May 10, 2012. Noncontrolling interests through May 10, 2012 are classified in the 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 through the maturities 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.
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 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 December 31, 2012 and 2011. As of December 31, 2012, the Company’s
outstanding convertible debt is convertible into 6,730,157 shares of common stock and 800,000 shares of Class B convertible preferred
stock is convertible into 373,305,731 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 year ended December 31, 2012
the Company recorded stock based compensation of $209,372 (See Notes 7 and 8). For the year ended December 31, 2011 the Company
issued 15,600,000 shares of restricted common stock
to officers and consultants for services totaling
$212,000.
As of December 31, 2012, the Company does not have any outstanding stock options or warrants.
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
Through June 30, 2012, 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 advised
all medical dispensaries that they will no longer accept their Visa and MasterCard transactions. This change was effective on July
1, 2012 had a materially adverse effect on our business. For the year ended December 31, 2012 and 2011revenue generated through
EMS was $43,773and $36,766 respectively. Accordingly, the Company received
approximately 56% of its’
2012 revenues from EMS and approximately 35% of its revenues from providing financing for medical procedures as an agent for Alternative
Capital Solutions, Inc. (“ACS”)
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 embedded 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
|
Year
|
$0.00272
|
$0.0033
|
147%
|
0.02
|
As of December 31, 2011, the Company
revalued the embedded derivative. 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 year ended December
31, 2012, the company made payments of $18,000, reducing the balance of the Guaranty Note to $32,000 as of December 31, 2012. The
Company revalued the remaining portion of the embedded derivative as of December 31, 2012 and based on the valuation, the Company
decreased the derivative liability balance by $13,652 resulting in a derivative liability balance of $13,209 at December 31, 2012.
The fair value of
the embedded conversion feature of the Guaranty Note was calculated at December 31, 2012 and 2011 utilizing the following assumptions:
Year
|
Fair Value
|
Term
|
Assumed Conversion Price
|
Expected
Volatility Percentage
|
Risk free
Interest Rate
|
2012
|
$13,652
|
1 month
|
$0.0139
|
175%
|
0.02%
|
2011
|
$35,715
|
1 year
|
$0.0028
|
147.9%
|
0.02%
|
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 were amortized over
the earlier of the terms of the Note or any redemptions and accordingly $1,593 and $5,907 and has been expensed as debt issuance
costs (included in interest expense) for the years ended December 31, 2012 and 2011, respectively.
The embedded 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.
The fair values of the 2011 Notes were
calculated at December 31, 2011 utilizing the following assumptions:
Fair Value
|
Term
|
Assumed Conversion Price
|
Expected
Volatility Percentage
|
Risk free
Interest Rate
|
$89,101
|
9 months
|
$0.0017
|
147.9%
|
0.02%
|
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 and on November 28, 2012 into a $23,500 convertible note agreement (the 2012 Notes) with
the same investor under the same terms and conditions as the 2011 Notes. We received net proceeds of $51,000 from the 2012 Notes
after debt issuance costs of $5,000 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 $2,796 has been expensed as debt issuance costs (included in interest
expense) for the year ended December 31, 2012.
The Company determined that the
conversion feature of the 2011 and 2012 Notes (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
amortized 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 $56,000 and an initial loss on the valuation of derivative liabilities
of $4,484 for a derivative liability initial balance of $60,484.
The fair value of the embedded conversion
feature of the 2012 Notes 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
|
$35,158
|
9 months
|
$0.0019
|
$0.0038
|
149.2%
|
0.09%
|
11/28/12
|
25,326
|
9 months
|
0.0017
|
0.0042
|
149.1%
|
0.14%
|
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.
On November 12, 2012, the holder of
the Company’s convertible debt converted $17,500 of the April 2012 Note and $1,300 of accrued and unpaid interest into 11,750,000
shares of common stock at approximately $0.0016 per share. This conversion resulted in the April 2012 Note having been paid in
full.
As of December 31, 2012, the Company
revalued the embedded conversion feature of the November 2012 Note. For the period from November 28, 2012 through December 31,
2012, the Company increased the derivative liability of $25,326 by $55 resulting in a derivative liability balance of $25,381.
The fair value of the 2012 Note was calculated at December 31, 2012 utilizing the following assumptions:
Fair Value
|
Term
|
Assumed Conversion Price
|
Expected
Volatility Percentage
|
Risk free
Interest Rate
|
$25,381
|
6 months
|
$0.0061
|
156.7%
|
0.11%
|
The inputs used to 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 December 31, 2012 is as follows:
Fair Value
|
Derivative
Liability Balance
12/31/11
|
Initial Derivative Liability
|
Redeemed convertible notes
|
Fair value change- year ended 12/31/12
|
Derivative Liability Balance 12/31/12
|
2011 Notes
|
$89,101
|
-
|
$(71,866)
|
$(17,235)
|
$ -
|
Guaranty Note
|
35,715
|
-
|
(8,853)
|
(13,653)
|
13,209
|
2012 Notes
|
-
|
$60,484
|
(35,082)
|
(21)
|
25,381
|
Total
|
$124,816
|
$60,484*
|
$(115,801)
|
$(30,909)
|
$38,590
|
Comprised of $56,000, the discount
on the face value of the convertible note and the initial derivative liability expense of $4,484 which is included in the derivative
liability income of $26,425 on the condensed statement of operations for the year ended December 31, 2012, included herein.
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 years ended December 31, 2012 and 2011, the
Company recorded management fee expenses for management as follows:
|
|
|
Year
ended December 31,
|
Payee
|
|
|
2012
|
|
|
2011
|
B.
Michael Friedman (CEO)
|
|
$
|
90,000
|
|
$
|
95,093
|
Erick
Rodriguez (Pres)
|
|
|
3,260
|
|
|
1,500
|
Barry
Hollander (CFO)
|
|
|
15,000
|
|
|
7,500
|
|
|
|
|
|
|
|
Total
|
|
$
|
108,260
|
|
$
|
104,093
|
In August 2012, the Company issued 250,000
shares of Class B Preferred Stock to the CEO, valued at $177,667, reduced the amount of accrued salaries owed to Mr. Friedman by
$137,080 and recorded stock compensation expense of $40,587 for the year ended December 31, 2012. As of December 31, 2012, Mr.
Friedman is owed $37,880 in accrued salary. In August 2012, Mr. Hollander received 50,000 shares of Class B preferred stock valued
at $35,533 which is included in stock compensation expense for the year ended December 31, 2012. Mr. Rodriguez received 250,000
shares of Class B preferred stock valued at $177,667, of which $66,625 is included in stock compensation expense for the year ended
December 31, 2012. There remains $111,042 in deferred compensation regarding the preferred stock issued to Mr. Rodriguez, which
amount will be expensed through July, 15, 2013.
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 matured 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. During the year ended December 31, 2012 the Company made payments of $18,000
and as of December 31, 2012 there is a balance of $32,000. Pursuant to the terms, the Note is currently in default.
The Company has agreed to pay an additional
$50,000 in common stock, which is included in accounts payable and accrued expenses on the December 31, 2012 and 2011 balance sheets.
NOTE 8 – COMMON AND PREFERRED
STOCK
Common Stock
During the three months ended December
31, 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
(373,305,731
shares as of December 31, 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 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 $133,250 in stock based compensation for the year ended December 31, 2012. As of December 31, 2012 there remains
$222,084 in deferred compensation, which will be expensed in 2013.
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
December 31, 2012 and 2011.
Income
tax expense for 2012 and 2011 is as follows:
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
-
|
|
$
|
-
|
|
State
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(156,968)
|
|
|
$(197,877)
|
|
State
|
|
(16,759)
|
|
|
(21,126)
|
|
Change
in
Valuation
allowance
|
|
173,726
|
|
|
219,003
|
|
|
$
|
-
|
|
$
|
-
|
|
The
following is a summary of the Company’s deferred tax assets at December 31, 2012 and 2012:
|
|
2012
|
|
2012
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
257,996
|
|
|
$
|
163,055
|
|
Stock compensation
|
|
|
202,890
|
|
|
|
124,104
|
|
Debt discounts and derivatives
|
|
|
7,104
|
|
|
|
7,104
|
|
Net deferred tax assets
|
|
|
467,990
|
|
|
|
294,263
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(467,990)
|
|
|
|
(294,263)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
A
reconciliation between the expected tax expense (benefit)
and the
effective tax rate for the years ended December 31, 2012 and 2011 are as
follows:
|
|
2012
|
|
2011
|
Statutory federal income tax rate
|
|
|
(34.00)
|
%
|
|
|
(34.00)
|
%
|
State taxes, net of federal income tax
|
|
|
(3.63)
|
%
|
|
|
(3.63)
|
%
|
Effect of change in valuation allowance
|
|
|
—
|
|
|
|
—
|
|
Non deductible expenses and other
|
|
|
37.63
|
%
|
|
|
37.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
As of December 31, 2012, the Company
had a tax net operating loss carry forward of approximately $442,000.
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
The Company is not aware of any legal
proceedings against it as of December 31, 2012. No contingencies have been provided in the financial statements.
Lease Agreement
Effective on December 1, 2011 a company
controlled by our Chief Executive Officer 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. The monthly rent for approximately 1,200 square feet is $2,500. Effective March 1, 2012, additional space
was added to the lease and the rent became $3,500 per month. The Company realized an expense of $18,605 for the year ending December
31, 2012 for the space utilized. Effective in February 2013, the Company is no longer utilizing the space in West Palm Beach and
has agreed to pay $750 per month through June 1, 2013. On March 11, 2013 the Company entered into a one year lease for office space
in Southfield, Michigan for $867 per month.
NOTE 11 – GOING CONCERN
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going concern. As of December 31, 2012 the Company had an
accumulated deficit of $4,897,286 and a working capital deficit of $242,673. 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. On January 7, 2013 and February 12, 2013 the Company issued convertible notes (“the Notes’) in the amount
of $37,500 and $27,500, respectively. The Company received proceeds of $60,000 pursuant to the Notes. The Company plans to increase
sales of additional merchant accounts over the course of this fiscal year.
NOTE 12 - SUBSEQUENT EVENTS
On February 8, 2013, 800 Commerce filed
Amendment No.2 to its’ S-1 Registration Statement with the Securities and Exchange Commission (“SEC”). Upon approval
from the SEC 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 six million shares of 800 Commerce common stock
owned by the Company.
On March 19, 2013 the Board of directors
of the Company issued 200,000 shares of Class B Preferred Stock to Mr. James Canton PhD. Effective with the issuance there are
now 1,000,000 shares of Class B Preferred Stock issued and outstanding.
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.
Agritek (CE) (USOTC:AGTK)
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Agritek (CE) (USOTC:AGTK)
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부터 7월(7) 2023 으로 7월(7) 2024