SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

 

For the quarterly period ended: March 31, 2012

or

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

For the transition period from ________________ to __________________

 

Commission File Number 000-1321002

 

___________MEDISWIPE, INC.___________

(Exact name of registrant as specified in its charter)

 

Delaware _____ 20-8484256__

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

 

________477 South Rosemary Ave., Suite 202, West Palm Beach, FL, 33401__________

(Address of principal executive offices)

 

___________________(561) 296-6393_______________

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]             No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]

 

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

Larger accelerated filer	[ ]	Accelerated Filer	[ ]
Non-accelerated filer  (Do not check if a smaller reporting company)	[ ]	Smaller reporting company	[X]

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

Yes   [ ]       No  [X]

The number of shares outstanding of the Registrant's $0.001 par value Common Stock as of May 11, 2012 was 388,036,925 shares.

 

 

INDEX TO FORM 10-Q

 

	Page
Part I.  Financial Information
Item 1.  Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2012 (Unaudited) and December 31, 2011	2
Conso   Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011(Unaudited)	3
Condensed Consolidated Statement of Shareholders’ Deficiency for the three months ended March 31, 2012 (Unaudited)	4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (Unaudited)	5
Notes to Condensed Consolidated Financial Statements	6 – 17
Item 2.  Management’s Discussion and Analysis	18 - 21
Item 3.  Quantitative and Qualitative Disclosures about Market Risks	21
Item 4.  Controls and Procedures	21 - 22
Part II.  Other Information
Item 1. Legal Proceedings	23
Item 1A. Risk Factors	23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3. Defaults Upon Senior Securities	23
Item 4. Mine Safety Disclosures	23
Item 5. Other Information	23
Item 6. Exhibits	23
Signatures	24

 

			PART I  FINANCIAL INFORMATION
			Item 1. Financial Statements
MEDISWIPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
					March 31,			December 31,
					2012			2011
						(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents				$	742		$	3,355
	Accounts receivable					6,708			6,028
	Deferred financing costs					3,100			5,907
	Prepaid assets					5,000			5,000
			Total current assets		$	15,550		$	20,290
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
	Accounts payable and accrued expenses				$	68,804		$	62,051
	Deferred compensation					112,500			90,000
	Convertible debt, net of discounts of $54,148 (2012)  and $94,477 (2011)					60,852			30,523
	Derivative liabilities					68,223			124,816
			Total current liabilities			310,379			307,390
Stockholders' Deficiency:
	Series A Convertible Preferred stock, $0.01 par value; 1,000,000 shares authorized, no shares outstanding					-			-
	Common stock, $.01 par value; 500,000,000 shares authorized; 379,286,925 shares
		and 374,741,470 shares issued and outstanding, respectively				3,792,869			3,747,414
	Additional paid-in capital					442,872			466,446
	Accumulated deficit					(4,465,457)			(4,436,129)
			Total company stockholders' deficiency			(229,716)			(222,269)
			Less noncontrolling interest			(65,113)			(64,831)
			Total defeciency			(294,829)			(287,100)
					$	15,550		$	20,290

 

See notes to unaudited condensed consolidated financial statements.

MEDISWIPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)
					2012			2011
Fee revenue, net					$	26,124		$	7,160
Operating Expenses:
	Administrative and management fees					25,900			-
	Professional fees					2,350			-
	Commissions					8,512			-
	Rent and other occupancy costs					5,726			-
	Other general and administartive expenses					11,834			37,217
			Total operating expenses			54,322			37,217
			Operating loss			(28,198)			(30,057)
Other Income (Expense):
	Interest expense					(46,124)			-
	Derivative liability income					44,712			-
			Total other expense, net			(1,412)			-
Net loss						(29,610)			(30,057)
Less: net loss attributable to noncontrolling interest						282			-
Net loss attributable to Mediswipe, Inc.					$	(29,328)		$	(30,057)
Basic and diluted loss attributable to Mediswipe, Inc.
	common shareholders, per share				$	-0.01		$	-0.01
Weighted average number of common shares outstanding
		Basic and diluted				374,993,995			134,947,563

See notes to unaudited condensed consolidated financial statements.

MEDISWIPE, INC
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
THREE MONTHS ENDED MARCH 31, 2012 (UNAUDITED)
									Additional									Total
				Common stock					Paid-in				Noncontolling		Accumulated			Stockholders'
				Shares		Amount			Capital				Interest		Deficit			Deficiency
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				4,545,455			45,455			-35,455			-			-			10,000
Reclassification of embedded derivatives upon conversion of
	convertible debt			-			-			11,881			-			-			11,881
Net loss				-			-			-			(282)			(29,328)			(29,610)
Balances March 31, 2012				379,286,925		$	3,792,869		$	442,872		$	(65,113)		$	(4,465,457)		$	(294,829)

See notes to unaudited condensed consolidated financial statements.

 

MEDISWIPE, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)
							2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss						$	(29,610)		$	(30,057)
	Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
		Amortization of deferred financing costs						2,807			-
		Amortization of discount on convertible notes						40,329			-
		Change in fair market value of derivative liabilities						(44,713)			-
		Changes in operating assets and liabilities:
		(Increase) decease:
			Notes receivable					-			10,900
			Accounts receivable					(680)			-
		Increase (decrease):
			Accounts payable and accrued expenses					6,753			20,000
			Deferred compensation					22,500			-
Net cash (used in) provided by operating activities								(2,613)			843
Net increase (derease) in cash and cash equivalents								(2,613)			843
Cash and cash equivalents, beginning								3,355			282
Cash and cash equivalents, ending							$	742		$	1,125
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						$	10,000		$	-

See notes to unaudited condensed consolidated financial statements.

MEDISWIPE, INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2012

(UNAUDITED)

 

NOTE 1 - ORGANIZATION

 

BUSINESS

 

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. (“Easy Street”).

 

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

 

The Company changed its name form Easy Street to Frontline Communications Corporation in July 1997. 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.  

 

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

 

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

 

The Company also operates online payment processing services, gift and loyalty card program programs and prepaid debit cards for consumers through 800 Commerce Inc., our majority owned subsidiary, under the domain name www.800Commerce.com . The Company offers MasterCard prepaid cards branded with corporations’ brands. The prepaid cards can be used for various applications including payroll, corporate incentives, employee incentives, and general use.  Some card programs can be reloaded with funds and others cannot.  In some cases, the cards can be used at Automatic Teller Machines to withdrawal cash. Each of these activities creates a fee opportunity for us and our affiliated banks and merchants.

 

Presently, the Company provides merchant services to approximately forty medical dispensaries and wellness centers throughout California and Colorado through our sponsor bank EMS. The Company has a number of additional merchants through FrontStream Payments and Pay Ventures in which we receive residuals from each merchant account each month. In order to provide payment-processing services for Visa, MasterCard and Discover transactions, the Company must be sponsored by a financial institution that is a principal member of the respective Visa, MasterCard and Discover card associations. The Company has agreements with several processors to provide to us, on a non-exclusive basis, transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools.

 

The Company also maintains a bank sponsorship agreement for our prepaid card programs. Monthly revenues are derived through new existing merchant account residual payments paid to us via wire transfer or ACH each month by our three banking partners. The Company will seek to capitalize on this presently untapped marketplace and is in the unique position to access this distribution channel, by managing and leveraging its’ merchant relationships as a vertical pipeline and distribution channel for its’ nutraceutical product lines and social media applications for its growing patient database and clients.

 

800 Commerce (www.800commerce.com) is a payment processing company with offices located in West Palm Beach, Florida. 800 Commerce offers a full spectrum of secure and reliable transaction processing solutions using traditional, Internet Point of Sale (POS), e-commerce, social networks and mobile (wireless) solutions through our alliance partner network. Our electronic payment processing suite of services will enable clients to accept all major credit cards,  in store or online, debit and ATM cards and ACH check drafts for payment whether a retail, service, mail-order or Internet merchant. As an industry innovator, we are dedicated to delivering comprehensive services from merchant account activation, gateway connections and web development to a world-wide client base.

 

 

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 consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (SEC) on April 16, 2012. Interim results of operations for the three months ended March 31, 2012 are not necessarily indicative of future results for the full year. Certain amounts from the 2011 period have been reclassified to conform to the presentation used in the current period.

 

The condensed consolidated financial statements include the accounts of the Company and 800 Commerce, which was wholly owned until June 1, 2011 when 800 Commerce began to sell shares of its common stock. All material intercompany balances and transactions have been eliminated

 

NONCONTROLLING INTEREST

 

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 defeciency on the balance sheets. Earnings and other comprehensive income are separately attributed to both the controlling and noncontrolling interests.  Earnings per share is 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 155,000 shares of its common stock and issued 1,178,000 shares of its common stock to its officers as compensation. Therefore, for the three months ended March 31, 2012 and 2011, the Company owned 60% and 100%, respectively, of 800 Commerce.

 

USE OF ESTIMATES

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

CASH AND CASH EQUIVALENTS

 

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

 

ACCOUNTS RECEIVABLE

 

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

 

DEFERRED FINANCING COSTS

 

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

 

 

REVENUE RECOGNITION

 

The Company recognizes revenue in accordance with 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.

 

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 are 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

We account for income taxes in accordance with ASC 740-10, Income Taxes. We recognize deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. We record a valuation allowance related to a deferred tax asset 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. We classify interest and penalties as a component of interest and other expenses. To date, we have not been assessed, nor have we paid, any interest or penalties.

We measure and record uncertain tax positions 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 is computed in accordance with SFAS No. 128, "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 March 31, 2012 and 2011. As of March 31, 2012, the Company’s outstanding convertible debt is convertible into 40,762,661 shares of common stock.

 

 

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, 2012 and 2011, the Company did not grant any stock options. As of March 31, 2012, we do 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 amounts that are not insured by FDIC limitations are held in short-term securities. The company has not experienced any losses in such accounts.

 

 

Sales

 

None of our customers account for more than 10% of our business, however we rely on a few processors to provide to us, on a non-exclusive basis, transaction processing and transmittal, transaction authorization and data capture, and access to various reporting tools.

 

NOTE 6 – CONVERTIBLE DEBT

 

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

 

				Market
			Assumed	Price on	Expected	Risk free
Issuance			Conversion	Grant	Volatility	Interest
Date	Fair Value	Term	Price	Date	Percentage	Rate
12/20/11	$  36,765	1 Year	$     0.00272	$  0.00330	147%	0.02

 

As of December 31, 2011, the Company revalued the Guaranty Note. For the period from issuance to December 31, 2011, the Company decreased the derivative liability of $36,765 by $1,050 resulting in a derivative liability balance of $35,714 at December 31, 2011. The Company revalued the Guaranty Note as of March 31, 2012 and based on the valuation, the Company decreased the derivative liability balance by $22,416 resulting in a derivative liability balance of $13,298 at March 31, 2012.

 

The fair value of the embedded conversion feature of the Guaranty Note was calculated at March 31, 2012 utilizing the following assumptions:

 

 

 

		Assumed	Expected	Risk free
Fair		Conversion	Volatility	Interest
Value	Term	Price	Percentage	Rate
$13,298	6 months	$0.00376	147.30%	0.07%

 

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. 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. As of March 31, 2012, the outstanding principal balance of the 2011 Notes was $65,000.

 

We received net proceeds of $67,500 after debt issuance costs of $7,500 paid for lender legal fees. These debt issuance costs will be amortized over the earlier of the terms of the Note or any redemptions and accordingly $2,807 has been expensed as debt issuance costs (included in interest expense) during the three months ended March 31, 2012.

 

We have determined that the conversion feature of the 2011 Notes represent an embedded derivative since each Note is convertible into a variable number of shares upon conversion. Accordingly, the 2011 Notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of this derivative instrument has been recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note. Such discount will be accreted from the date of issuance to the maturity dates of each Note. The change in the fair value of the liability for derivative contracts will be recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. The beneficial conversion feature included in the 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 value of the embedded conversion feature 2011 Notes was calculated at each issue date utilizing the following assumptions:

 

 

				Market
			Assumed	Price on	Expected	Risk free
Issuance			Conversion	Grant	Volatility	Interest
Date	Fair Value	Term	Price	Date	Percentage	Rate
9/23/2011	$        55,556	9 months	$     0.00225	$    0.0069	141%	0.03%
10/25/2011	$        31,915	9 months	$     0.00235	$    0.0045	142%	0.03%
12/20/2011	$        29,412	9 months	$       0.0017	$    0.0033	147%	0.03%

 

At December 31, 2011, the Company revalued the embedded conversion feature of the 2011 Notes. For the period from their issuance to December 31, 2011, the Company decreased the derivative liability of $116,862 by $27,781 resulting in a derivative liability balance of $89,101 at December 31, 2011.

 

As of March 31, 2012, the Company revalued the embedded conversion feature of the 2011 Notes. For the period from January 1, 2012 through March 31, 2012, the Company decreased the derivative liability of $89,101 by $34,177 resulting in a derivative liability balance of $54,925.

 

		Assumed	Expected	Risk Free
Fair		Conversion	Volatility	Interest
Value	Term	Price	Percentage	Rate
$54,925	6 months	$0.0024	147.30%	0.07%

 

The fair values of the 2011 Notes were calculated at March 31, 2012 utilizing the following assumptions:

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

In April and May 2012, holders of the Company’s convertible debt converted the remaining principal balance of the September 2011 Note of $15,000 and accrued interest of $1,000 into 8,750,000 shares of common stock at approximately $0.0018 per share.

 NOTE 7 – RELATED PARTY TRANSACTIONS

 

Management and administration fees

 

During the three months ended March 31, 2012 the Company paid management fees of $1,900 to Michael Friedman (CEO) and $1,500 to Barry Hollander, our Chief Financial Officer (“CFO”). Additionally the Company has agreed to annual compensation of $90,000 for its CEO and accordingly has expensed $22,500 for the three months ended March 31, 2012, which is included in deferred compensation, which totaled $112,500 and $90,000 as of the March 31, 2012 and December 31, 2011, respectively. The Company also paid Michele Friedman, the wife of our CEO, $2,100 during the three months ended March 31, 2012 for compensation for office administration and bookkeeping. No such amounts were incurred during the three months ended March 31, 2011.

 

 

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.

 

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

 

NOTE 8 – 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, 2012 and 2011.

 

As of March 31, 2012, the Company had a tax net operating loss carry forward of approximately $432,000. Any unused portion of this carry forward expires in 2029. Utilization of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.

 

NOTE 9 – CONTINGENCIES AND COMMITMENTS

 

The Company is not aware of any legal proceedings against it as of March 31, 2012. No contingencies have been provided in the financial statements.

 

Lease Agreement

 

Effective on December 1, 2011 the Company and its majority owned subsidiary entered into a two year agreement to rent executive office space in West Palm Beach, Florida. The lease automatically renews for 3 month periods unless terminated in writing 30 days prior to the then current end date by either party. Totaling approximately 1,200 square feet, effective March 1, 2012 the monthly rent is $2,500.  Our annual payment obligation under the lease is as follows:

 

2012	$22,500
2013	$30,000

 

 

NOTE 10 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of March 31, 2012 the Company had an accumulated deficit of $4,465,457 and a working capital deficit of $294,829. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management’s Plans

 

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

 

NOTE 11 – SUBSEQUENT EVENTS

 

In April and May 2012, holders of the Company’s convertible debt converted the remaining principal balance of the September 2011 Note of $15,000 and accrued interest of $1,000 into 8,750,000 shares of common stock at approximately $0.0018 per share.

On May 10, 2012, 800 Commerce issued a $50,000 convertible promissory note. The note matures on May 10, 2013, has an eight percent (8%) per annum interest rate and at option of note-holder can convert to shares of 800 Commerce common stock at a conversion price equal to 65% of the lowest closing bid price for the five days preceding the date of conversion.

In May 2012, 800 Commerce received proceeds of $105,000 upon the sale of 1,050,000 shares of its restricted common stock. The shares of common stock were sold for $0.10 per share.  

 

  

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

 

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

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2011 and 2010, included in our annual report on Form 10-K filed with the SEC on April 16, 2012.

 

The independent auditors reports on our financial statements for the years ended December 31, 2011 and 2010 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 10 to the condensed consolidated financial statements filed herein.

 

 

(a) Liquidity and Capital Resources.

 

For the three months ended March 31, 2012, net cash used in operating activities was $2,613 compared to cash provided by operations of $843 for the three months ended March 31, 2011. Net loss was $29,610 and $30,057 for the three months ended March 31, 2012 and 2011, respectively. The net loss in the current period was impacted by $43,136 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. The current period loss was partially offset by a decrease in the change of the market value of derivative liabilities of $44,712.

 

For the three months ended March 31, 2012, cash and cash equivalents decreased by $2,613 compared to an increase of $843 for the three months ended March 31, 2011. Ending cash and cash equivalents at March 31, 2012 was $742 compared to $1,125 at March 31, 2011.

 

We have limited cash and cash equivalents on hand. We presently maintain our daily operations and capital needs through the receipts of our monthly account residuals. We will need to raise funds to continue to be able to support our operating expenses and to meet our other obligations as they become due. Sources available to us that we may utilize include the sale of unsecured

 

 

convertible debentures from unaffiliated investors which may cause dilution to our stockholders. Additionally, our CEO has loaned the Company money in the past. The company expects to increase sales of additional merchant accounts over the course of this fiscal year and has received term sheets for additional credit facilities for working capital if needed.

 

(b) Results of Operations

 

Results of operations for the three months ended March 31, 2012 vs. March 31, 2011

 

REVENUES

 

Revenues for the three months ended March 2012 were $26,124 compared to $7,160 for the three months ended March 31, 2011. Revenues increased for the three months ended March 31, 2012 compared to 2011 as a result of additional merchant accounts.

OPERATING EXPENSES

 

Operating expenses were $54,322 for the three months ended March 31, 2012 compared to $37,217 for the three months ended March 2011. The increase in operating expenses for the three months ended March 31, 2012 was primarily attributable to $25,900 of management fees, of which $22,500 was deferred by our CEO.

 

OTHER INCOME (EXPENSE)

 

Other expenses for the three months ended March 31, 2012 was $1,412, including interest expense of $46,124. Included in interest expense is $40,329 related to the amortization of the initial discount on convertible promissory notes, $2,807 for the amortization of the deferred financing costs and $2,988 for the interest expense on the face value of the notes. These amounts were partially offset for the fair market value change (decrease) of $44,712 in the derivative liability associated with 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

 

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 on the balance sheets. Earnings and other comprehensive income are separately attributed to both the controlling and noncontrolling interests.  Earnings per share is calculated based on net income attributable to the Company’s controlling interest.

 

 

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.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.  As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, at March 31, 2012, our disclosure controls and procedures are not effective.

 

Management’s Report on Internal Controls over Financial Reporting

 

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

 

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;

•

Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

Item 1A. RISK FACTORS

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

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

 

None.

ITEM 3. Defaults upon Senior Securities

 

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. Other Information

 

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

 

(a) Exhibit index

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

 

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

 

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

 

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

 

(b) Reports on Form 8-K. During the fiscal quarter ended March 31, 2012, the Company filed the following reports:

 

None.

 

SIGNATURES

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

Dated: May 16, 2012

MEDISWIPE, INC.

 

By: /s/ B. Michael Friedman

B. Michael Friedman

Chief Executive Officer and Director

(Principal Executive Officer)