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MWIP > SEC Filings for MWIP > Form 10-K on 2-Apr-2013All Recent SEC Filings

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Form 10-K for MEDISWIPE INC.


2-Apr-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR PLAN OF OPERATION.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto for the years ended December 31, 2012 and 2011.

The independent auditor's reports on our financial statements for the years ended December 31, 2012 and 2011 includes a "going concern" explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management's plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 1 to the audited consolidated financial statements.

While our independent auditor has presented our financial statements on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, they have raised a substantial doubt about our ability to continue as a going concern.

(a) Liquidity and Capital Resources.

For the year ended December 31, 2012, net cash used in operating activities was $39,463 compared to $99,927 for the year ended December 31, 2011. Net loss was $461,852 for the year ended December 31, 2012 compared to $896,510 for the year ended December 31, 2011. The net loss for the year ended December 31, 2012 was impacted by (i) $113,108 related to the initial expense and changes in the fair market value of derivative liabilities associated with convertible notes payable, the amortization of the initial discount on the convertible notes and amortization of deferred financing fees also related to the convertible promissory notes, (ii) $209,372 of stock based compensation and (iii) $46,449 of litigation contingency expenses. These expenses were offset by $68,497 of income and other adjustments related to the deconsolidation of 800 Commerce, Inc. The net loss in the prior period was impacted by (i) write off of bad debt of $243,546, (ii) $329,800 of stock based compensation, (iii) $100,000 related to a guaranty fee and (iv) $31,932 related to changes in the fair market value of derivative liabilities associated with convertible notes payable, the amortization of the initial discount on the convertible notes and amortization of deferred financing fees also related to the convertible promissory notes.

Net cash provided by financing activities for the year ended December 31, 2012 was $38,000 compared to $103,000 for the year ended December 31, 2011. During the year ended December 31, 2012 the Company received $56,000 on the issuance of convertible notes and $5,000 for the sale of 800 Commerce, Inc.'s common stock (a majority owned subsidiary of the Company at the time of the stock sale). During the year ended December 31, 2012 the Company repaid $18,000 of convertible notes and paid $5,000 closing costs on the issuance of new convertible notes.

For the year ended December 31, 2011 the Company received $75,000 on the issuance of convertible notes, $10,050 on the issuance of related party notes, $20,000 for the sale of the Company's common stock and $15,500 for the sale of 800 Commerce, Inc. (the Company's majority owned subsidiary) common stock. During the year ended December 31, 2011 the Company repaid $10,050 of related party notes payable and paid $7,500 closing costs on the newly issued convertible notes.

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

(b) Results of Operations

Results of operations for the year ended December 31, 2012 vs. December 31, 2011

REVENUES

Total revenues for 2012 were $77,400 compared to $60,818 for 2011. Revenues increased for the year ended December 31, 2012 compared to 2011 as a result of the Company effective November 1, 2012 receiving agent commissions of $27,161 pursuant to an agreement with Alternative Capital Solutions ("ACS"). Revenues from 2011 were all related to merchant processing fees the Company received. Effective July 1, 2012 the merchant processing fees ceased as a result of Mastercard and Visa declining to accept credit card charges from medical dispensaries. For the period January 1, 2012 through the declination, the Company received merchant processing fees of $43,723.

OPERATING EXPENSES

Operating expenses were $433,664 for the year ended December 31, 2012 compared to $924,301 for 2011. The decrease in operating expenses for the year ended December 31, 2012 was primarily attributable to the following expenses in 2011:
(i) write off of bad debt of $243,546 and (ii) $100,000 related to a guaranty fee. Stock compensation expense decreased from $329,800 in 2011 to $209,372 in 2012.

OTHER INCOME (EXPENSE)

Other expenses for the year ended December 31, 2012 was $105,588 and was comprised of $46,499 of litigation contingency expenses and interest expense of $148,200. The expenses were offset by $62,636, the gain recorded on the deconsolidation of 800 Commerce, Inc. and a gain of $26,425 for the fair market value change in the derivative liability associated with convertible promissory notes, Included in interest expense is $130,829 of amortization of the discount on convertible notes, $8,704 of amortization of deferred financing costs related to the convertible notes and $8,667 of interest expense on the face value of the convertible notes. The 2011 expenses were comprised of $13,051 related to the change in fair market value of the derivative liability associated with convertible promissory notes and interest expense of $19,976. Included in 2011 interest expense is $17,288 related to the amortization of the initial discount on convertible promissory notes.

OFF BALANCE SHEET ARRANGEMENTS

None

Critical Accounting Policies

Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

As such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized results may differ from management's initial estimates as reported. A summary of significant accounting policies are detailed in notes to the financial statements which are an integral component of this filing.

(10)

Table of Contents

REVENUE RECOGNITION

The Company recognizes revenue in accordance with the Securities and Exchange Commission, Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition" ("SAB No. 104"). SAB 104 clarifies application of generally accepted accounting principles related to revenue transactions. The Company also follows the guidance in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables ("EITF Issue No. 00-21"), in arrangements with multiple deliverables.

The Company recognizes revenues when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

The Company recognizes revenue during the month in which commissions are earned.

NONCONTROLLING INTEREST AND DECONSOLIDATION

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

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

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

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

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

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

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

ACCOUNTS RECEIVABLE

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

DEFERRED FINANCING COSTS

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

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

We evaluate long-lived assets and identifiable intangible assets with finite useful lives in accordance with ASC 350-30 and ASC 360 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), and accordingly, management reviews our long-lived assets and identifiable intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We recognize an impairment loss when the sum of the future undiscounted net cash flows expected to be realized from the asset is less than its carrying amount. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Considerable judgment is necessary to estimate the fair value of the assets and accordingly, actual results could vary significantly from such estimates. Our most significant estimates and judgments relating to the long-lived asset impairments include the timing and amount of projected future cash flows.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

The three hierarchy levels are defined as follows:

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

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

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

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

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

(11)

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INCOME TAXES

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

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

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

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share are computed in accordance with ASC 260, "Earnings per Share". Basic earnings (loss) per share is computed by dividing net income
(loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities, if any, outstanding during the period. There were not any outstanding warrants or options as of December 31, 2012 and 2011. As of December 31, 2012, the Company's outstanding convertible debt is convertible into 3,852,459 shares of common stock and 800,000 shares of Series B convertible preferred stock is convertible into 373,305,731 shares of common stock. These amounts are not included in the computation of dilutive loss per share because their impact is antidilutive.

ACCOUNTING FOR STOCK-BASED COMPENSATION

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

For the years ended December 31, 2012 and 2011 the Company recorded stock based compensation of $209,372 and $329,800, respectively, (See Notes 7 and 8). For the year ended December 31, 2011 the Company issued 15,600,000 shares of restricted common stock to officers and consultants for services totaling $212,000, and prior to the deconsolidation of 800 Commerce, Inc., it had issued 1,000,000 shares of its common stock to Mr. Friedman and 178,000 shares of its common stock to Mr. Hollander, in lieu of salaries. The shares were valued at $0.10 per share, the price of a private placement that 800 Commerce, Inc. sold common stock, or $117,800. As of December 31, 2012, we do not have any outstanding stock options or warrants.

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