NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION
BUSINESS
MediSwipe
Inc. (the “Company” or “Mediswipe”)
currently offers a variety of services
and product lines to the medicinal marijuana sector including the digitization of patient records, and the distribution of hemp
based nutritional products. The Company also provides a complete line of innovative solutions for electronically processing
merchant and patient transactions within the healthcare industry. Recently, the Company began importing and distributing vaporizers
and e-cigarettes under the Company's Mont Blunt brand and the management of real property for
fully-licensed and compliant
growers and dispensaries within regulated medicinal and recreational markets.
During
the year ended December 31, 2013, the Company utilized its existing banking and merchant network within both the medicinal medical
marijuana and healthcare sector. During the three months ended March 31, 2013, through strategic partnerships with banking and
financing partners the Company received commission based fees for
arranging for third party financing
for elective surgery procedures
. Effective April 1, 2013, the Company no longer is providing these services.
On
April 30, 2013, the Company entered into a one year Distribution Agreement with Chill Drinks, LLC (“Chill Drinks”).
Chill Drinks has the rights to an energy drink called Chillo Energy Drink (“Chillo”) and a hemp ice tea drink called
C+ Swiss Ice Tea (“C+Swiss”). Chillo and C+Swiss are referred to as the “Chill Drink Products”. Pursuant
to the Distribution Agreement the Company has the exclusive distribution and placement rights of the Chill Drink Products to medical
marijuana dispensaries. The Company has not renewed the Distribution Agreement, however the Company plans on entering the infused
beverage market with its own product.
In
2013, the Company introduced a technology platform that enables consumers to securely file, store and conveniently retrieve important
original and authentic personal health documents via the Internet. The platform allows on-demand access to valuable documents
at home and during travel. Authentic images of documents such as; a passport, prescriptions and insurance policies are always
accessible. The service is an economical solution with an easy-to-use web-based application that has the potential to appeal to
a market base of at least 75 million U.S. consumers.
MediSwipe’s
platform is compatible with virtually all operating systems, web browsers, and file formats. Users can quickly upload or even
e-fax their documents into their secure “vault”, and then organize, manage, review and send document copies wherever
needed, anytime via the Internet.
The
MediSwipe platform provides the highest level of privacy and security and does not rely on the accuracy of user-entered data.
Images of actual documents, uploaded to the patient personal registry, form the basis for this solution. Critical personal items
are safe and timeless in a secure, encrypted environment where privacy and security are paramount. Patients can then load all
of the data onto their own digital patient identification card to be used throughout the MediSwipe platform.
On
June 26, 2013, the Company formed two new wholly owned Florida subsidiaries American Hemp Trading Company and Agritech Innovations,
Inc. (“AGTI”). On September 3, 2013, AGTI changed its name to Agritech Venture Holdings, Inc. (“AVHI”).
On November 12, 2013,
the Financial Industry Regulatory Authority approved the company’s 1-for-10 reverse stock split (the “Reverse Stock
Split”) on the Company’s common stock outstanding with an effective date of December 11, 2013. Pursuant to the Reverse
Stock Split, all share amounts in these consolidated financial statements have been adjusted to reflect the Reverse Stock Split.
On
March 18, 2014,
the Company announced it had completed the
purchase of 80 acres zoned for agricultural use in Pueblo County, Colorado. The Company plans to lease individual parcels of the
80 acre parcel to fully-licensed and compliant growers and dispensaries within the regulated medicinal and recreational market
of Colorado. The Company will receive rents and management fees for providing infrastructure, water, electricity, equipment leasing
and security services. The Company is presently working on its first agreements for tenants to move into the facility as early
as May of 2014.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS
OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The
accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management,
all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have
been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information
and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements
should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included
in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (SEC) on April 1, 2014. Interim
results of operations for the three months ended March 31, 2014 are not necessarily indicative of future results for the full
year. Certain amounts from the 2013 period have been reclassified to conform to the presentation used in the current period.
CASH
AND CASH EQUIVALENTS
The
Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The
Company records accounts receivable from amounts due from its customers upon the shipment of products. The allowance for losses
is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when
management believes collectibility is unlikely.
INVENTORY
Inventory
is valued at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Provision for potentially
obsolete or slow moving inventory is made based on management analysis or inventory levels and future sales forecasts.
DEFERRED FINANCING COSTS
The
costs related to the issuance of debt are capitalized and amortized to interest expense using the straight-line method through
the maturities of the related debt.
PROPERTY AND EQUIPMENT
Property
and equipment are stated at cost, and except for land, depreciation is provided by use of accelerated and straight-line methods
over the estimated useful lives of the assets. The Company reviews property and equipment for potential impairment whenever events
or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The estimated useful lives of
property and equipment are as follows:
Office
equipment, furniture and vehicles 5 years
Computer
hardware and software 3 years
REVENUE RECOGNITION
The
Company recognizes revenue in accordance with FASB ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria are
met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed
or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the month in which products
are shipped or commissions are earned.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Fair
value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation
techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained
from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions
about market participant assumptions developed based on the best information available in the circumstances (“unobservable
inputs”).
Fair
value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily
uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market
approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset
or liability when compared with normal activity to identify transactions that are not orderly.
The
highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
The three
hierarchy levels are defined as follows:
Level 1 – Quoted
prices in active markets that is unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted
prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in
active markets or financial instruments for which significant inputs are observable, either directly or indirectly;
Level 3 – Prices
or valuations that require inputs that are both significant to the fair value measurement and unobservable.
Credit
risk adjustments are applied to reflect the Company’s own credit risk when valuing all liabilities measured at fair value.
The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the Company’s
own credit risk as observed in the credit default swap market.
The
Company's financial instruments consist primarily of cash, accounts receivable, notes receivable, accounts payable and
accrued expenses, note payable and convertible debt. The carrying amounts of such financial instruments approximate
their respective estimated fair value due to the short-term maturities and approximate market interest rates of these
instruments. The estimated fair value is not necessarily indicative of the amounts the Company would realize in a
current market exchange or from future earnings or cash flows.
INCOME
TAXES
The
Company accounts for income taxes in accordance with ASC 740-10, Income Taxes. Deferred tax assets and liabilities are recognized
to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. A
valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred
tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and
rates of the date of enactment.
ASC
740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements
and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure
and transition issues. Interest and penalties are classified as a component of interest and other expenses. To date, the Company
has not been assessed, nor paid, any interest or penalties.
Uncertain
tax positions are measured and recorded by establishing a threshold for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition
threshold at the effective date may be recognized or continue to be recognized. The Company’s tax years subsequent to 2005
remain subject to examination by federal and state tax jurisdictions.
EARNINGS (LOSS) PER
SHARE
Earnings
(loss) per share are computed in accordance with ASC 260, "Earnings per Share". Basic earnings (loss) per share is computed
by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average
number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income
by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities,
if any, outstanding during the period. There were 300,000 outstanding warrants as of March 31, 2014. As of March 31, 2014, the
Company’s outstanding convertible debt is convertible into 6,216,874 shares of common stock and 750,000 shares of Class
B convertible preferred stock is convertible into 47,033,623 shares of common stock. These amounts are not included in the computation
of dilutive loss per share because their impact is antidilutive.
ACCOUNTING
FOR STOCK-BASED COMPENSATION
The
Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees.
The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity
instruments is reached, or (2) the date at which the counterparty's performance is complete. Stock awards granted to non-employees
are valued at their respective measurement dates based on the trading price of the Company’s common stock and recognized
as expense during the period in which services are provided.
For
the three months ended March 31, 2014 and 2013, the Company recorded stock and warrant based compensation of $25,000 and $104,334,
respectively (See Notes 7 and 8).
USE
OF ESTIMATES
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount
of revenues and expenses during the reported period. Actual results could differ from those estimates.
NOTE 3 - RECENT
ACCOUNTING PRONOUNCEMENTS
Accounting
standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the consolidated financial statements upon adoption.
NOTE
4 - RECLASSIFICATIONS
Certain
prior period balances have been reclassified to conform to the current period's financial statement presentation. These reclassifications
had no impact on previously reported results of operations or stockholders' deficiency.
NOTE 5 – SALES CONCENTRATION AND CONCENTRATION
OF CREDIT RISK
CASH
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash. The Company maintains cash balances at one
financial institution, which is insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC
insured institution insures up to $250,000 on account balances. As of March 31, 2014, the Company’s cash balance
exceeded the insured amount by $172,082. The company maintains its’ cash at a large financial institution and has not
experienced any losses in such accounts.
SALES
For
the three months ended March 31, 2014 three (3) customers each accounted for more than 10% of our business, as follows:
Customer
|
|
Sales
% Three Months Ended March 31, 2014
|
|
Sales
% Three Months Ended March 31, 2013
|
|
Accounts
Receivable
Balance as of March 31, 2014
|
A
|
|
42%
|
|
-
|
$
|
603
|
B
|
|
20%
|
|
-
|
$
|
4,346
|
C
|
|
18%
|
|
-
|
$
|
-
|
For
the three months ended March 31, 2013, none of our customers accounted for more than 10% of our business; however we relied on
a few processors to provide to us, on a non-exclusive basis, transaction processing and transmittal, transaction authorization
and data capture, and access to various reporting tools. 100% of our revenues were from our agreement with ACS.
In
April 2013, ACS and the Company terminated their agreements and accordingly, the Company no longer receives fees related to the
ACS agreement.
PURCHASES
For
the three months ended March 31, 2014, 100% of the Company’s purchases were from one vendor related to the purchase of our
tobacco product line. There was no balance due this vendor as of March 31, 2014.
NOTE
6 – CONVERTIBLE DEBT AND NOTE PAYABLE SHORT TERM
Convertible
Debt
On
January 2, 2013, February 11, 2013, April 10, 2013, July 29, 2013 and October 16, 2013, the Company entered convertible note agreements
(the “2013 Notes”) with Asher Enterprises, Inc. (“Asher”) for $37,500, $27,500, $27,500, $65,000 and $70,000,
respectively. We received net proceeds of $214,000 from the 2013 Notes after debt issuance costs of $13,500 paid for lender legal
fees. These debt issuance costs will be amortized over the earlier of the terms of the Note or any redemptions and accordingly
$3,333 has been expensed as debt issuance costs (included in interest expense) for the three months ended March 31, 2014.
Among
other terms the 2013 Notes are due nine months from their issuance date, bear interest at 8% per annum, payable in cash or shares
at the Conversion Price as defined herewith, and are convertible at a conversion price (the “Conversion Price”) for
each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements)
per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. Upon the
occurrence of an event of default, as defined in the 2013 Notes, the Company is required to pay interest at 22% per annum and
the holders may at their option declare a Note, together with accrued and unpaid interest, to be immediately due and payable.
In addition, the 2013 Notes provide for adjustments for dividends payable other than in shares of common stock, for reclassification,
exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization,
merger, consolidation, or sale of assets, where there is a change in control of the Company.
The
Company determined that the conversion feature of the 2013 Notes represents an embedded derivative since the Notes are convertible
into a variable number of shares upon conversion. Accordingly, the 2013 Notes are not considered to be conventional debt under
EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability.
Accordingly, the fair value of these derivative instruments has been recorded as a liability on the consolidated balance sheet
with the corresponding amount recorded as a discount to each Note. Such discount will be amortized from the date of issuance to
the maturity dates of the Notes. The change in the fair value of the liability for derivative contracts will be recorded in other
income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative
liability on the balance sheet. The beneficial conversion feature included in the 2013 Notes resulted in an initial debt discount
of $227,500 and an initial loss on the valuation of derivative liabilities of $35,029 for a derivative liability initial balance
of $262,529.
During
the three months ended March 31, 2014, the Company issued 369,420 shares of common stock in satisfaction of $65,000 of the 2013
Notes and $2,600 of accrued and unpaid interest. The shares were issued at approximately $0.18299 per share. The fair value of
the derivative liability on the dates of conversion totaling $99,147 was reclassified to paid-in-capital. As of March 31, 2014,
$70,000 of principal and accrued interest of $2,567 remains outstanding of the 2013 Notes, and is carried at $42,518, net of a
remaining note discount of $27,482, which will be expensed in April 2014, as the Company issued 390,995 shares of common stock
in satisfaction of $70,000 of the 2013 Notes.
As
of March 31, 2014 the Company revalued the embedded conversion feature of the remaining 2013 Notes. From January 1, 2014, the
Company decreased the derivative liability of the remaining 2013 Notes by $30,347 resulting in a derivative liability of $76,426.
The fair value of the 2013 Notes was calculated at March 31, 2014 utilizing the following assumptions:
Note
Issuance
Date
|
Fair
Value
|
Term
|
Assumed
Conversion Price
|
Expected
Volatility
Percentage
|
Risk
free
Interest
Rate
|
10/16/13
|
76,426
|
1
month
|
0.0202
|
127%
|
0.10%
|
The
inputs used to estimate the fair value of the derivative liabilities are considered to be level 2 inputs within the fair value
hierarchy.
On
May 20, 2013, the Company entered into a Securities Purchase Agreement with Typenex Co-Investment, LLC ("Typenex"),
for the sale of an 8% convertible note in the principal amount of up to $667,500 (which includes Typenex legal expenses in the
amount of $7,500 and a $60,000 original issue discount) (the “2013 Company Note”) for a purchase price of $600,000,
consisting of $100,000 paid in cash at closing on May 21, 2013 (the “Initial Cash Purchase Price”) and five secured
promissory notes, aggregating $500,000 (the “Investor Notes”), bearing interest at the rate of 8% per annum. Three
of the Investor Notes aggregating $300,000 were funded in 2013 and the two remaining Investor Notes of $100,000 each were funded
in January 2014.
The
2013 Company Note bears interest at the rate of 8% per annum, and was due in four equal monthly installments (the “Redemption
Price”) beginning on the six month anniversary of the initial funding. All interest and principal was to be repaid on February
21, 2014. The 2013 Company Note was convertible into common stock, at Typenex’s option, at a price of $0.055 per share.
In the event the Company elected to prepay all or any portion of the 2013 Company Note, the Company was required to pay to Typenex
an amount in cash equal to 125% multiplied by the sum of all principal, interest and any other amounts owing. Beginning on the
date that is six (6) months after the later of (i) the Issuance Date, and (ii) the date the Initial Cash Purchase Price is paid
to the Company (the “Initial Installment Date”), and on each applicable Installment Date thereafter, the Company was
to pay the Holder of this Note the applicable Installment Amount due on such date. Payments of the Installment Amount may be made
(a) in cash (a “Company Redemption”), (b) by converting such Installment Amount into shares of Common Stock (a “Company
Conversion”), or (c) by any combination of a Company Conversion and a Company Redemption so long as the entire amount of
such Installment Amount due shall be converted and/or redeemed by the Company on the applicable Installment Date.
At any time prior to the payment of the applicable
Redemption Price by the Company, the Holder shall have the option, in lieu of redemption, to cancel the Event of Default Redemption
Notice by written notice to the Company (the “Redemption Cancellation Notice”). Upon the Company’s receipt of
a Redemption Cancellation Notice, the Outstanding Balance of the Note as of the date of the Redemption Notice shall thereafter
be due and payable upon demand, with payment of the Outstanding Balance being due ten (10) Trading Days after written demand therefor
from the Holder; (y) the Conversion Price of this Note shall be automatically adjusted with respect to each conversion under this
Note effected thereafter by the Holder to the lowest of (A) 75% of the lowest Closing Bid Price of the Common Stock during the
period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on
and including the date of the Redemption Cancellation Notice, (B) the Market Price as of the date of the Redemption Cancellation
Notice, (C) the then current Market Price, and (D) the then current Conversion Price.
The
Company determined that the conversion feature of the 2013 Company Note represents an embedded derivative since the Note is convertible
into a variable number of shares upon conversion. Accordingly, the 2013 Company Note is not considered to be conventional debt
under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability.
Accordingly, the fair value of this derivative instrument has been recorded as a liability on the consolidated balance sheet with
since the corresponding amount recorded as an expense
During
the year ended December 31, 2013, the Company issued 570,090 shares of common stock in satisfaction of $70,000 of the 2013 Company
Note. As of December 31, 2103, the outstanding principal balance of the 2013 Company Note was $597,500.
During
the three months ended March 31, 2014, the Company issued 9,311,042 shares of common stock in satisfaction of $597,500 of the
2013 Company Note and $46,391 of accrued and unpaid interest. The shares were issued at $0.06915 per share.
A summary of the
derivative liability balance as of December 31, 2013 and March 31, 2014 is as follows:
Fair
Value
|
Derivative
Liability
Balance
12/31/13
|
Initial
Derivative Liability
|
Notes
Converted
|
Fair
value change – three months ended 3/31/14
|
Derivative
Liability Balance 3/31/14
|
2013
Notes
|
$205,920
|
-
|
(99,147)
|
$(30,347)
|
$76,426
|
2013
Company Note
|
$280,239
|
-
|
(280,239)
|
-
|
-
|
Total
|
$486,159
|
-
|
$(379,386)
|
$(30,347)
|
$76,426
|
In
January 2014, the Company entered into a Secured Promissory Note for $1,660,000 (the “2014 Company Note”) to Tonaquint,
Inc. (“Tonaquint”) (the same principals as Typenex) which includes a purchase price of $1,500,000 and transaction
costs of $160,000. On January 31, 2014, the Company received $300,000 of the purchase price. Tonaquint also issued to the Company
6 secured promissory notes, each in the amount of $200,000 (the 2014 “Investor Notes”).
The 2014 Investor Notes may be prepaid, without penalty, all or portion of the outstanding balance along with accrued but unpaid
interest at any time prior to maturity. The Company has no obligation to pay Tonaquint any amounts on the unfunded portion of
the 2014 Company Note. The 2014 Company Note bears interest at 8% per annum (increases to 22% per annum upon an event of default)
and is convertible into shares of the Company’s common stock at Tonaquint’s option at a price of $0.55 per share,
exercisable in seven tranches, consisting of a first tranche of $340,000 of principal and any interest, fees costs or charges,
and six additional tranches of $220,000 each, plus any interest, costs, fees or charges.
Beginning on the date that is six (6) months after
the later of (i) the Issuance Date, and (ii) the date the Initial Cash Purchase Price is paid to the Company (the “Initial
Installment Date”), and on each applicable Installment Date thereafter, the Company is to pay the Holder, the applicable
Installment Amount due on such date. Ten Installment Amounts of $166,000 plus the sum of any accrued and unpaid interest, fees,
costs or charges may be made (a) in cash (a “Company Redemption”), (b) by converting such Installment Amount into
shares of Common Stock (a “Company Conversion”), or (c) by any combination of a Company Conversion and a Company Redemption
so long as the entire amount of such Installment Amount due shall be converted and/or redeemed by the Company on the applicable
Installment Date. The 2014 Company Note matures fifteen months after the Issuance Date.
As
of March 31, 2014, $1,660,000 of principal and accrued interest of $4,458 remains outstanding of the 2014 Company Notes, and is
carried at $1,493,778, net of a remaining note discount of $166,222, and $1,200,000 of the 2014 Investor Notes are included in
Notes receivable on the condensed consolidated financial statements included herein.
Note Payable Short
Term
On March 18, 2014,
in conjunction with the land purchase of 80 acres in Pueblo County, Colorado, the Company paid $36,000 cash and entered into a
promissory note in the amount of $85,750. The promissory note is being amortized on the basis of five (5) years, payable at $18,719
per year, including principal and interest at 3.5% per annum. Payments begin December 1, 2014, and shall be due on the first day
of each succeeding December, with any balance of principal and accrued interest due December 1, 2020.
Date
|
|
Amount
|
December
1, 2014
|
$
|
18,719
|
December
1, 2015
|
|
18,719
|
December
1, 2016
|
|
18,719
|
December
1, 2017
|
|
18,719
|
December
1, 2018
|
|
18,719
|
|
$
|
93,595
|
NOTE 7 –
RELATED PARTY TRANSACTIONS
Management
fees and stock compensation expense
Effective
January 1, 2013, the Company has agreed to annual compensation of $150,000 for its CEO and $96,000 for the CFO. The Company and
the CFO have agreed that $3,000 per month will be paid in cash and $5,000 per month will be paid in restricted shares of common
stock. For the three months ended March 31, 2014 and 2013, the Company expensed $61,500 and $105,917, respectively, included in
Administrative and Management Fees in the Unaudited Condensed Consolidated Statements of Operations, included herein. As of March
31, 2014, the Company owed the CEO $49,237 and the CFO $18,000.
On
January 13, 2014, the Company issued 545,454 shares of common stock to Venture Equity upon the conversion of $60,000 of accrued
management fees. The shares were issued at $0.11 per share, the market price of the common stock on December 31, 2013.
In
June 2013, Mr. Friedman agreed to exchange 3,033,500 shares of common stock in partial consideration for the issuance of 450,000
shares of Class B preferred stock (see note 8). The Company recognized expenses of $0 and $88,834 for the three months ended March
31, 2014 and 2013, respectively, from the amortization of deferred equity compensation related to the Class B Preferred Stock.
Amounts
due FROM 800 COMMERCE, Inc.
800
Commerce, Inc. owed Mediswipe $
82,894
and
$
73,894
as of March 31, 2014 and December 31, 2013, respectively, as a result of advances received
from or payments made by Mediswipe on behalf of 800 Commerce. These advances are non-interest bearing and are due on demand and
are included in Due from Related Party on the balance sheet herein.
NOTE
8 – COMMON AND PREFERRED STOCK
Common
Stock
On
November 12, 2013, the Board of Directors of the Company approved by unanimous written consent a 1-for-10 Reverse Stock Split
and to decrease the authorized common stock of the Company to 250,000,000. Pursuant to the Reverse Stock Split, each ten (10)
shares of the Company’s Common Stock automatically converted into one share of Common Stock. All the following share issuances
are stated to reflect the reverse stock split.
On
March 19, 2013, the Company issued 25,000 shares of restricted common stock, to Empire Relations Holdings, LLC, as consideration
under a consulting agreement dated March 7, 2013 for public and financial relations services. The fair value was $15,500 based
on the closing stock price of $0.62 per share on the measurement date as the shares are non-refundable and no future performance
obligation exists.
Previously
the Company appointed Mr. Jayme Canton to be an advisor to the Company’s Board of Directors. In April 2013, the Company
agreed to issue to Mr. Canton 200,000 shares of common stock, a warrant to purchase 300,000 shares of common stock at an exercise
price of $0.50 per share with an expiration date on the third year anniversary of the grant, and $25,000 to be paid in shares
of common stock to be issued at the end of each calendar quarter beginning on June 30, 2013 and ending on the earlier of March
31, 2015 (the term of Canton’s advisor role) or the date Canton is no longer serving as an advisor to the board of directors.
On March 31, 2014, the Company issued 56,948 shares of common stock, valued at $25,000 based on the market price of the common
stock of $0.439 on March 31, 2014. The Company included $25,000 in stock based compensation expense for the three months ended
March 31 2014.
In
January 2014 the Company issued in the aggregate 8,467,388 shares of common stock
to
Typenex upon the conversion of $523,564 of the Company Note and accrued and unpaid interest of $3,716. The shares were issued
at approximately $0.06227 per share.
On
January 13, 2014, the Company issued 545,454 shares of common stock to Venture Equity upon the conversion of $60,000 of accrued
management fees. The shares were issued at $0.11 per share, the market price of the common stock on December 31, 2013.
On
January 14, 2014, the Company issued 2,460,968 shares of common stock upon the conversion of 100,000 shares of Class B Preferred
Stock.
On
January 30, 2014, February 3, 2014 and February 5, 2014, the Company issued in the aggregate 369,420 shares of common stock to
Asher upon the conversion of $65,000 of the 2013 Notes and accrued and unpaid interest of $2,600. The shares were issued at approximately
$0.18299.
In
March 2014, the Company issued 843,654 shares of common stock to Typenex upon the conversion of $116,611 of the Company note and
accrued and unpaid interest. The shares were issued at approximately $0.1382 per share.
On
March 17, 2014, the Company issued 4,312,420 shares of common stock upon the conversion of 150,000 shares of Class B Preferred
Stock.
On
March 31, 2014, the Company issued 56,948 shares of common stock to Jayme Canton upon the conversion of $25,000 of accrued stock
compensation.
Preferred
Stock
On
June 20, 2012 the Company cancelled and returned to authorized but unissued one million shares of Preferred A Stock, and authorized
1,000,000 shares of Class B Convertible Preferred Stock (the “Class B Preferred Stock”), par value $0.01. The rights,
preferences and restrictions of the Class B Preferred Stock as amended, state; i) each share of the Class B Convertible Preferred
Stock shall automatically convert (the “Conversion”) into shares of the Corporation’s common stock at the moment
there are sufficient authorized and unissued shares of common stock to allow for the Conversion. The Class B Convertible Preferred
Stock will convert in their entirety, simultaneously to equal one half (1/2) the amount of shares of common stock outstanding
on a fully diluted basis immediately prior to the Conversion. The Conversion shares will be issued pro rata so that each holder
of the Class B Convertible Preferred Stock will receive the appropriate number of shares of common stock equal to their percentage
ownership of their Class B Convertible Preferred Stock and ii) all of the outstanding shares of the Class B Preferred Stock in
their entirety will have voting rights equal to the amount of shares of common stock outstanding on a fully diluted basis immediately
prior to any vote. The shares eligible to vote will be calculated pro rata so that each holder of the Class B Convertible Preferred
Stock will be able to vote the appropriate number of shares of common stock equal to their percentage ownership of their Class
B Convertible Preferred Stock. The Class B Convertible Preferred Stock shall have a right to vote on all matters presented or
submitted to the Corporation’s stockholders for approval in pari passu with holders of the Corporation’s common stock,
and not as a separate class.
On
August 13, 2012 the Board of Directors of the Company authorized the issuance of 800,000 shares of Class B Preferred stock. The
shares were issued as follows: B. Michael Friedman, 250,000 shares issued in lieu of accrued and unpaid salary due Mr. Friedman
and stock based compensation (see Note 7) for his role as CEO of the Company; Erick Rodriguez, 250,00 shares issued for his role
as President of the Company; Philip Johnston, 100,000 shares issued pursuant to legal services to be provided for one year beginning
August 12, 2012; Barry Hollander, 50,000 shares issued for his services as CFO (see Note 7) and Capital Strategy Corp., 150,000
shares for consulting services, including merger and acquisition consulting. The shares issued for legal services and consulting
were recorded as deferred compensation (originally $355,334) and are being amortized over the term of their respective agreements.
Accordingly, the Company has expensed and included $88,834 and $0, for the three months ended March 31, 2013 and 2014, respectively,
as the deferred compensation was fully amortized expensed during the year ended December 31, 2013.
As
of March 31, 2014 and December 31, 2013, the Company had 1,000,000 and 750,000 shares of Series B Preferred Stock (the “Class
B Preferred Stock”), par value $0.01 outstanding, respectively.
Warrants
On
April 26, 2013 and in connection with the appointment of Mr. Jayme Canton to the Company’s advisory board, the Company issued
a warrant to Mr. Canton to purchase 300,000 shares of common stock. The warrant has an exercise price of $0.50 per share, remains
outstanding and expires April 26, 2016.
NOTE
9 – INCOME TAXES
Deferred
income taxes reflect the net tax effects of operating loss and tax credit carry forwards and temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing
the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.
Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the deferred tax assets
are fully offset by a valuation allowance at March 31, 2014 and 2013.
As
of March 31, 2014, the Company had a tax net operating loss carry forward of approximately $1,356,000.
Any unused portion of this carry forward expires in 2030. Utilization of this loss may be limited in the event of an ownership
change pursuant to IRS Section 382.
NOTE 10 –
CONTINGENCIES AND COMMITMENTS
Effective
on April 1, 2013, the Company entered into a three year agreement to rent approximately 2,500 square feet of office space (the
“Office Lease”) in Detroit, Michigan. The monthly rent under this lease was $2,200 per month.
Effective
August 28, 2013, the Company and the landlord amended the Office Lease allowing the Company to move to a new location in downtown
Detroit. The new lease was for 3,657 square feet for monthly rent of $3,047. In November 2013, the Company was notified that the
owner of the building (the Company’s landlord) was delinquent in their obligations to the mortgage holder of the building.
In January 2014, due to the uncertainty of the Company’s Office Lease in Detroit, Michigan, the Company decided to relocate
its administrative offices to West Palm Beach, Florida. Effective April 1, 2014, the Company has entered into a rent sharing agreement
for the use of 1,300 square feet with a company controlled by the Company’s CFO. The Company has agreed to pay $1,350 per
month for the space.
Effective
May 15, 2013 through September 15, 2013, the Company leased warehouse space on a month to month basis for the shipping and logistics
of the Company’s Chillo drink products for $250 per month. Subsequent to September 15, 2013, the Company compensates the
landlord on a per pallet fee.
Rent
expense for the three months ended March 31, 2014 and March 31, 2013 was $1,929 and $3,752, respectively.
The Company is not aware of any legal proceedings
against it as of March 31, 2014. No contingencies have been provided in the financial statements.
NOTE
11 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of
March 31, 2014 the Company had an accumulated deficit of $9,554,549 and working capital of $72,306. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
NOTE
12 – SEGMENT REPORTING
Description
of segments
During
the three months ended March 31, 2014, the Company had operated in one reportable segment, wholesale sales. Beginning in the quarter
ended June 30, 2013, the Company began wholesaling products (Chillo drinks). The accounting policies of the segments are the same
as those described in the Note 1. The Company’s reportable segments are strategic business units that offer products.
For
the three months ended March 31, 2013, the Company operated in one segment, merchant services.
NOTE
13 – SUBSEQUENT EVENTS
On
April 17, 2014, the Company issued 188,088 shares of common stock in satisfaction of $36,000 of the October 2013 Asher Note. The
shares were issued at approximately $0.19 per share.
On
April 20, 2014, the Company issued 202,867 shares of common stock in satisfaction of $34,000 of the October 2013 Asher convertible
note and accrued and unpaid interest of $2,800. The shares were issued at approximately $0.18 per share.
In
April 2014, the Company entered into a multi-year sublease agreement for the use of up to 7,500 square feet with a
Colorado
based oncology clinical trial and drug testing company and facility presently doing cancer research and testing for established
pharmaceutical companies seeking FDA approval for new drugs
. The Company has agreed to pay $2,000 per month for the space,
and it will be utilized to market, sell and distribute products to Colorado dispensaries, including managing the banking and credit
card services described below.
On
April 28, 2014, the Company
announced it executed and closed a lease agreement for 20 acres of an agricultural
farming facility located in South Florida following the approval of the so-called “Charlotte’s Web” legislation,
aimed at decriminalizing low grade marijuana specifically for the use of treating epilepsy and cancer patients. The agreement
includes a 10 year lease on the producing nursery farm with unlimited water sources and electricity, including infrastructure
already in place, with the first year obligation paid in full. Pursuant to the lease agreement, through November 1, 2014, the
Company has an option to purchase the land for $1,100,000 and maintains a first right of refusal to purchase the property for
three years.
On
April 30, 2014, the Company
received final approval through its exclusive merchant processing
partnership and associated banking network to offer banking and card services to medical dispensaries nationally. All licensed
medical dispensaries in regulated jurisdictions are now eligible to utilize card services as an alternative to "cash only"
transactions through partnering with the Company’s processing division.
Medicinal and recreational businesses
in licensed jurisdictions who take advantage of the Company’s card program are also eligible to receive a corporate bank
account. The Company has submitted approximately 400 medical dispensaries based in Colorado under the exclusive agent relationship
to its banking arm for immediate consideration and to begin the application process this month. The Company expects to begin activating
first accounts for card services and banking during the second quarter of 2014.
The
Company’s Management performed an evaluation of the Company’s activity through the date these financials were issued
to determine if they must be reported. The Management of the Company determined that there were no other reportable subsequent
events to be disclosed.