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UNITED STATES
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 September 30, 2011

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number:  000-7475
              ____________________________
 
SWORDFISH FINANCIAL, INC.
 (Exact name of registrant as specified in its charter)

Minnesota
41-0831186
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

142 Wembley Way

Rockwall, TX  75032
(Address of principal executive offices)

(972) 310-1830
(Registrant’s telephone number)

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 of 1934 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 requirements for the past 90 days.

þ Yes oNo

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filero
Accelerated filero
Non-accelerated filero
Smaller reporting companyþ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes þ  No

The number of shares of issuer’s common stock, par value $0.0001 per share, outstanding as of November 1, 2011, was 284,758,340.  The number of shares of issuer’s preferred stock, par value $0.0001 per share, outstanding as of November 1, 2011 was 20,000,000.  The registrant has no other classes of securities outstanding.

 
 
 

 
 
 
SWORDFISH FINANCIAL, INC.

INDEX
 
PART I
     
FINANCIAL INFORMATION
Page Number
           
   
Item 1:
 
Condensed Financial Statements
 
           
       
Condensed Consolidated Balance Sheets – September 30, 2011 (Unaudited) and December 31, 2010
1
           
       
Condensed Consolidated Statements of Operations - Three Months and Nine Months Ended September 30, 2011 and 2010 (Unaudited)
2
           
       
Condensed Consolidated Statements of Cash Flows - Three Months and Nine Months Ended September 30, 2011 and 2010 (Unaudited)
3
           
       
Notes to Condensed Consolidated Financial Statements (Unaudited)
4
           
   
Item 2:
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
16
           
   
Item 3:
 
Quantitative and Qualitative Disclosures About Market Risk
18
           
   
Item 4T:
 
Controls and Procedures
183
           
PART II
     
OTHER INFORMATION
 
           
   
Item 1A:
 
Legal Proceedings
19
 
 
Item 1A:
 
Risk Factors
19
   
Item 2:
 
Unregistered Sales of Equity Securities and Use of Proceeds
19
   
Item 3:
 
Defaults Upon Senior Securities
19
   
Item 4:
 
Submission of Matters to a Vote of Security Holders
19
   
Item 5:
 
Other Information
19
           
   
Item 6:
 
Exhibits
20
           
       
Signatures
20
 
 
 
 

 

Part I – FINANCIAL INFORMATION
Item 1: Financial Statements
Swordfish Financial, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2011 and December 31, 2010
 
   
Unaudited
       
   
September 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
             
CURRENT ASSETS
           
Cash and Cash Equivalents
 
$
29,279
   
$
14,796
 
Accounts Receivable, net
   
0
     
8,500
 
Note Receivable – Related Party
   
3,500,000
     
3,500,000
 
Accrued Interest Receivable – Related Party
   
371,875
     
240,625
 
Total Current Assets
   
3,901,154
     
3,763,921
 
                 
PROPERTY AND EQUIPMENT, NET
   
699
     
849
 
                 
TOTAL ASSETS
 
$
3,901,853
   
      $
3,764,770
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES
               
Current Portion of Long-Term Debt
 
 $
601,421
   
      $
601,421
 
Note Payable – Affiliates, net of discounts of $20,832 and $37,500
   
1,237,502
     
1,212,500
 
Judgments Payable
   
1,066,550
     
1,035,091
 
Convertible Note Payable, net of discount of $48,583
   
4,417
     
0
 
Current Portion of Deferred Retirement Benefits
   
221,434
     
148,522
 
Accounts Payable
   
820,182
     
820,182
 
Advances from shareholders
   
0
     
71,100
 
Accrued Expenses
   
1,649,310
     
1,213,402
 
Total Current Liabilities
   
5,600,816
     
5,102,218
 
                 
LONG-TERM LIABILITIES
               
Long-term Debt, Net of Current Portion
   
0
     
0
 
Deferred Retirement Benefits, Net of Current Portion
   
217,348
     
290,260
 
Total Non-Current Liabilities
   
217,348
     
290,260
 
                 
Total Liabilities
   
5,818,164
     
5,392,478
 
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS’ EQUITY
               
Preferred Stock, $0.0001 Par Value Per Share 50,000,000 Shares Authorized, Issued and
Outstanding at September 30, 2011 and December 31, 2010 were 15,000,000 and 0,
respectively
   
2,000
     
0
 
Common Stock, $0.0001 Par Value Per Share 1,000,000,000 Shares Authorized, Issued
and Outstanding at September 30, 2011 and December 31, 2010 were 284,758,340 and
243,860,000, respectively
   
28,476
     
24,386
 
Additional Paid-In Capital
   
6,595,917
     
5,929,387
 
Accumulated Deficit
   
(8,542,704
)
   
(7,581,481
)
Total Stockholders’ Equity
   
(1,916,311
)
   
(1,627,708
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
3,901,853
   
$
3,764,770
 

See accompanying notes to condensed consolidated financial statements.


 
1

 

Swordfish Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Three Months and Nine Months Ended September 30, 2011 and 2010

                                    
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
PERATING EXPENSES:
                       
  General and
                       
   administrative
  $ 194,068     $ 307,041     $ 803,628     $ 711,162  
                                 
  Total Operating Expenses
    194,068       307,041       803,628       711,162  
                                 
LOSS FROM OPERATIONS
    (194,068 )     (307,041 )     (803,628 )     (711,162 )
                                 
OTHER INCOME:
                               
  Interest expense
    (90,201 )     (76,701 )     (295,310 )     (228,336 )
  Interest income
    43,750       43,750       131,250       131,250  
  Other income
    2,020       10,761       6,465       12,286  
                                 
Total Other Income
    (44,431 )     (22,231 )     (157,595 )     ( 84,800 )
                                 
NET (LOSS)
  $ (238,499 )   $ (329,231 )   $ (961,223 )   $ (795,962 )
                                 
Net loss per share:
                               
  Basic and diluted net
                               
  Income (loss) per share
  $ (0.00 )   $ (0.01 )   $ (0.00 )   $ (0.01 )
                                 
                                 
Weighted average shares
                               
outstanding:
                               
      Basic and diluted
    255,073,709       139,408,890       255,073,709       139,408,890  





See accompanying notes to condensed consolidated financial statements
 
 
 
2

 

Swordfish Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2011 and 2010
 
   
2011
   
2010
 
             
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
           
Net loss
 
$
(961,223
)
 
$
(795,962)
 
Adjustments to reconcile net loss to net cash flows from operating activities
               
    Depreciation expense
   
150
     
0
 
Stock based compensation
   
312,000
     
175,040
 
Amortization of debt discount
   
29,419
     
0
 
Changes in operating assets and liabilities
               
Accounts receivable
   
8,500
     
143,592
 
Accrued interest receivable – related party
   
(131,250)
     
(131,250)
 
Accounts payable
   
0
     
(5,460)
 
Judgments payable
   
31,459
     
0
 
Accrued expenses
   
435,908
     
517,074
 
                 
Net Cash Flows from (Used In) Operating Activities
   
(275,037
)
   
(96,966)
 
                 
                 
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
               
Purchases of property and equipment
   
0
     
(944)
 
                 
Net Cash Flows from (used in) Investing Activities
   
0
     
(944)
 
                 
                 
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
               
Proceeds from convertible notes
   
53,000
     
50,000
 
Advances from shareholders
   
(71,000)
         
Sale of common stock
   
307,620
     
0
 
                 
Net Cash Flows from (used in) Financing Activities
   
289,520
     
50,000
 
                 
                 
Net Change in Cash and Cash Equivalents
   
14,483
     
(47,910)
 
                 
CASH AND CASH EQUIVALENTS - January 1, 2011 and 2010
   
14,796
     
69,991
 
                 
                 
CASH AND CASH EQUIVALENTS – September 30, 2011 and 2010
 
$
29,279
   
$
22,081
 
 
See accompanying notes to condensed consolidated financial statements.


 
3

 


SWORDFISH FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2011


NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           REFERENCE TO THE COMPANY
 
References to “we”, “us”, “our”, “Swordfish” or the “Company” in these notes to the consolidated financial statements refer to Swordfish Financial, Inc., a Minnesota corporation, and its subsidiaries. On August 17, 2009, Nature Vision, Inc. changed its name to Swordfish Financial, Inc.  As discussed below, the financial statements prior to August 14, 2009 are those of Swordfish Financial, Inc., a Texas corporation.

REVERSE MERGER ACQUISITION ACCOUNTING
 
Swordfish Financial, Inc., the Texas corporation, acquired 80% of the outstanding common stock of Nature Vision, Inc. pursuant to a stock acquisition/merger agreement on August 14, 2009.  Under the purchase method of accounting in a business combination effected through an exchange of equity interests, the entity that issues the equity interests is generally the acquiring entity. In some business combinations (commonly referred to as reverse acquisitions), however, the acquired entity issues the equity interests. FASB ASC 805-10, “Business Combinations” requires consideration of the facts and circumstances surrounding a business combination that generally involve the relative ownership and control of the entity by each of the parties subsequent to the merger. Based on a review of these factors, the August stock acquisition agreement with Swordfish Financial, Inc. , the Texas corporation (“the Merger”) was accounted for as a reverse acquisition (i.e. Nature Vision, Inc. was considered as the acquired company and Swordfish Financial, Inc., the Texas Company was considered as the acquiring company).  As a result, Nature Vision, Inc. assets and liabilities as of August 14, 2009, the date of the Merger closing, have been incorporated into Swordfish’s balance sheet based on the fair values of the net assets acquired, which equaled the consideration paid for the acquisition. FASB ASC 805-10 also requires an allocation of the acquisition consideration to individual assets and liabilities including tangible assets, and financial assets. Further, the Company’s operating results (post Merger) include Swordfish Financial, Inc., the Texas corporation’s operating results prior to the date of closing and the results of the combined entity following the closing of the Merger. Swordfish Financial, Inc., a Texas corporation was considered the acquiring entity for accounting purposes.
 
On August 14, 2009, Nature Vision, Inc. entered into a Stock Acquisition/Reverse Merger Agreement with Swordfish Financial, Inc., a Texas corporation,  for 10,987,417 shares (representing approximately 80% of the outstanding shares) of its common stock in exchange for a $3,500,000 promissory note.  As of the date of this filing, no payments have been made on the note and accrued interest.  The Company expects payment of the note and accrued interest to be made by the shareholders of the Texas corporation as recoveries are made.  Nature Vision’s board of directors resigned in favor of replacements, nominated by Swordfish, a Texas corporation, who also became the officers of the Company.

NATURE OF OPERATIONS
 
Swordfish Financial, Inc., (f/k/a Nature Vision, Inc. and Photo Control Corporation) (the “Company” or “we”) as Nature Vision, Inc. designed, manufactured and marketed outdoor recreation products primarily for the sport fishing and hunting markets.

The Company did not meet the minimum net worth covenants of a line of credit with M&I Business Credit LLC (M&I Bank) as of June 30, 2009, which put the Company in default on the line of credit.  On August 14, 2009, simultaneously with the signing of the Swordfish Financial, Inc., the Texas corporation stock purchase/merger agreement, M&I Business Credit LLC, who was owed approximately $1,800,000 by the Company, foreclosed on the line of credit and forced the Company to enter into a Voluntary Surrender Agreement.  The Voluntary Surrender Agreement gave M&I Business Credit LLC total possession of the Company’s Premises, its operations and all of the Company’s Collateral, which consisted of all of Nature Vision’s assets.  M&I Business Credit LLC liquidated basically all of the Nature Vision assets to recover the line of credit debt.

Based on the limited assets, product lines and resources remaining after the M&I Business Credit LLC liquidation, the Company has decided that there is not enough remaining of the Nature Vision operations to continue as an outdoor recreations products company and will concentrate on the business on being an asset recovery company and using the financial resources recovered to retire the Company’s debts and invest in other businesses domestically and internationally.
 
 
 
4

 

GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  We incurred net losses of $961,223 and $466,731, respectively, for the nine months ended September 30, 2011 and 2010 and had an accumulated deficit of $8,542,704 as of September 30, 2011.  We have managed our liquidity during the nine months ended September 30, 2011through the sale of common stock and advances from shareholders.  

Despite cost reduction initiatives, the Company will be unable to pay its obligations in the normal course of business or service its debt in a timely manner throughout 2011 without realizing one of its recovery projects, raising additional capital or issuing debt instruments.  There can be no assurance that the exploration of strategic alternatives will result in any specific action to alleviate the Company’s 12 month working capital needs.

INTERIM FINANCIAL INFORMATION

The accompanying condensed consolidated balance sheet at September 30, 2011 and the condensed consolidated statements of operations and cash flows for the three months and nine months ended September 30, 2011 and 2010 are unaudited. The unaudited interim condensed consolidated balance sheet and condensed consolidated statements of operations and cash flows have been prepared in accordance with accounting principles generally accepted in the United States of America and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and its cash flows for the three months and nine months ended September 30, 2011 and 2010. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited.  

The results of the Company’s operations for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2010 included in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission.

PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.   All significant inter-company transactions and balances have been eliminated in consolidation.

FINANCIAL INSTRUMENTS

The carrying amounts for all financial instruments approximate fair value. The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments. The fair value of long-term debt, notes payable, line of credit-bank, and deferred liabilities - retirement benefits approximates the carrying amounts based upon the Company’s expected borrowing rate for debt with similar remaining maturities and comparable risk.

ACCOUNTS RECEIVABLE

The Company reviews customers' credit history before extending unsecured credit and establishes an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers and other information. Accounts receivable are due based on agreed upon customer terms. Accounts receivable are considered past due once they are over the due date of these terms. The Company does not accrue interest on past due accounts receivable. If accounts receivable, in excess of the provided allowance, are determined to be uncollectible, they are charged to expense in the year that determination is made. Accounts receivable are written off after all collection efforts have failed. Accounts receivable have been reduced by an allowance for uncollectible accounts when deemed necessary.  The Company did not deem it necessary to provide an allowance at September 30, 2011 and December 31, 2010, respectively.

            NOTE RECEIVABLE -RELATED PARTY

On August 14, 2009, the Company closed a Stock Purchase/Merger Agreement with Swordfish Financial, Inc., the Texas corporation  (which is controlled by the Company’s Chairman of the Board, President, Chief Executive Officer and majority shareholder)  pursuant to which the Company sold an aggregate of 10,987,417 shares of its common stock in exchange for a $3,500,000 promissory note, payable in two installments of $1,750,000 each with the first installment being forty-five (45) days from the date of the note and the second installment being one-hundred twenty (120) days from the date of the note.   The note bears interest at the rate of 5% per annum the note and the related accrued interest at September 30, 2011 was $371,875.  The Company expects to collect the balance of the note and accrued interest from the Texas corporation as recoveries are made.
 
 
 
5

 

IMPAIRMENT OF LONG-LIVED ASSETS

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in accordance with ASC Topic 360, “Property, Plant and Equipment.”  An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset or asset group is expected to generate.  If an asset or asset group is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds its fair value.  If estimated fair value is less than the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.

RESEARCH AND DEVELOPMENT

The Company expenses as general and administrative expense all costs related to product research and development as incurred. Research and development expense relating to continuing consulting agreements was $234,996, and 288,738 for the nine months ended September 30, 2011 and 2010, respectively.

STOCK-BASED COMPENSATION

In accordance with ASC Topic 718, “Compensation – Stock Compensation,” cash flows from income tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards have been classified as financing cash flows prospectively from January 1, 2006. Prior to adoption of ASC Topic 718, “Compensation – Stock Compensation,” such excess income tax benefits were presented as operating cash flows. There were no cash flows from income tax benefits for the three months ended September 30, 2011.

LOSS PER COMMON SHARE

Net loss per common share was based on the weighted average number of common shares outstanding during the periods when computing the basic net loss per share. When dilutive, stock options and warrants are included as equivalents using the treasury stock market method when computing the diluted net loss per share.  There were no dilutive common stock equivalents, options and warrants, for the quarter ended September 30, 2011 and 2010.

INCOME TAXES

The Company accounts for income taxes in accordance with FASB ASC Topic 740 “Income Taxes,” which requires accounting for deferred income taxes under the asset and liability method.  Deferred income tax asset and liabilities are computed for difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.

The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws.  Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions.  The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities.  When facts and circumstances change, the Company reassesses these probabilities and records any changes in the financial statements as appropriate.

In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.  De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce stockholders equity.  This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.  Management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. Generally, the tax filings are no longer subject to income tax examinations by major taxing authorities for years before 2004. Any potential examinations may include questioning the timing and amount of deductions, the nexus
 

 
 
6

 

ESTIMATES

The preparation of 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 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. Actual results could differ significantly from those estimates. For the Company, significant estimates include the allowance for doubtful accounts receivable, reserves for inventory valuation, impairment of goodwill and long lived assets, reserves for sales returns, reserves for warranty services, and the valuation allowance for deferred tax assets.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2010, the FASB issued amended guidance related to Business Combinations. The amendments affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company will assess the impact of these amendments on its consolidated financial position and results of operations if and when an acquisition occurs.

In December 2010, the FASB issued amended guidance related to Intangibles - Goodwill and Other. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial position and results of operations.

In July 2010, the FASB issued ASU No. 2010-20, "Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (Topic 310)." ASU No. 2010-20 requires increased disclosures about the credit quality of financing receivables and allowances for credit losses, including disclosure about credit quality indicators, past due information and modifications of finance receivables. The guidance is generally effective for reporting periods ending after December 15, 2010. The adoption of ASU No. 2010-20 did not have a significant impact on the Company's consolidated financial position and results of operations.                

In April 2010, the FASB issued ASU No. 2010-17, "Revenue Recognition- Milestone Method (Topic 605)," which provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate.  This ASU is effective in fiscal years, and interim periods within those years, beginning on or after June 15, 2010.  We do not expect the adoption of ASU No. 2010-17 to have a significant impact on the Company's consolidated financial position and results of operations.

In April 2010, the FASB issued ASU No. 2010-13, "Compensation - Stock Compensation (Topic 718)," which provides guidance on the classification of a share-based payment award as either equity or a liability.  A share-based payment award that contains a condition that is not a market, performance, or service condition is required to be classified as a liability.  This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  The Company does not expect the adoption of ASU No. 2010-13 to have a significant impact on the Company's consolidated financial position and results of operations.

In February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events (Topic 855) - Amendments to Certain Disclosure Requirements."  The objective of this ASU was to remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements.  This ASU is to be applied immediately upon issuance.  The Company adopted this ASU in the first quarter of 2010 and the adoption of this ASU did not have an effect on the Company's consolidated financial position and results of operations.
 

 
 
7

 

In January 2010, the FASB issued ASU No. 2010-06, "Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements."  This ASU requires new disclosures regarding significant transfers in and out of Levels 1 and 2, and information about activity in Level 3 fair value measurements.  In addition, this ASU clarifies existing disclosures regarding input and valuation techniques, as well as the level of disaggregation for each class of assets and liabilities.  This ASU was effective for interim and annual reporting periods beginning after December 15, 2009, except for certain Level 3 activity disclosure requirements, which are effective for reporting periods beginning after December 15, 2010. The Company adopted the new guidance in the first quarter of 2010, except for the disclosures related to purchases, sales, issuance and settlements, which will be effective for the Company beginning in the first quarter of 2011. Because these new standards are related primarily to disclosures, their adoption has not had and is not expected to have a significant impact on the Company's consolidated financial position and results of operations.
 
In October 2009, the FASB issued ASU No. 2009-13 on FASB ASC 605, Revenue Recognition-Multiple Deliverable Revenue Arrangements-a consensus of the FASB Emerging Issues Task Force.” The objective of this ASU is to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Vendors often provide multiple products or services to their customers. Those deliverables are often provided at different points in time or over different time periods. This ASU provides amendments to the criteria in FASB Accounting Standards Codification (ASC”) 605-25 for separating consideration in multiple-deliverable arrangements. The amendments in this ASU establish a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor specific objective evidence nor third-party evidence is available. The amendments in this ASU also will replace the term fair value” in the revenue allocation guidance with selling price” to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. This update is effective for fiscal years beginning on or after June 15, 2010. The implementation is not expected to have a material impact on the Company’s financial position or results
of operations.
 
In October 2009, the FASB issued ASU No. 2009-14 (ASC Topic 985)  which provides authoritative guidance for the accounting for certain revenue arrangements that include software elements. This authoritative guidance amends the scope of pre-existing software revenue guidance by removing from the guidance non-software components of tangible products and certain software components of

tangible products. This standard is effective prospectively for us no later than the beginning of fiscal 2011.  Early adoption is permitted.  The implementation is not expected to have a material impact on the Company’s financial position or results of operations.

In August 2009, the FASB issued ASU No. 2009-05 (ASC Topic 820) which amends the accounting standards related to the measurement of liabilities that are recognized or disclosed at fair value on a recurring basis.  This standard clarifies how a company should measure the fair value of liabilities and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard.  This standard is effective for the Company on October 1, 2009 and did not have a material impact on our financial statements.

In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all future
 references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the quarter ended September 30, 2009.   As a result of the Company’s implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable.  These changes and the Codification itself do not change GAAP.  Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on our consolidated financial statements.
 
FASB ASC Topic 855, "Subsequent Events" established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued. ASC Topic 855 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company. This guidance became effective for interim or annual periods ending after June 15, 2009 and did not impact the Company’s financial statements. The Company evaluated for subsequent events through the issuance date of the Company’s financial statements. No recognized or non-recognized subsequent events were noted.


 
8

 

ASC Topic 350, "Intangibles--Goodwill and Other" amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under previously issued goodwill and intangible assets topics. This change was intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under topics related to business combinations and other GAAP. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP SFAS No. 142-3 became effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of this guidance did not impact the Company’s financial statements.

FASB ASC Topic 810, "Consolidations" (formerly SFAS No. 160) changed the accounting and reporting for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component of equity. ASC Topic 810 guidance became effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company implemented ASC Topic 810 guidance (formerly SFAS No. 160) at the start of fiscal 2009 and no longer records an intangible asset when the purchase price of a noncontrolling interest exceeds the book value at the time of buyout. Any excess or shortfall for buyouts of noncontrolling interests   is recognized as an adjustment to additional paid-in capital in stockholders’ equity. Any shortfall resulting from the early buyout of noncontrolling interests will continue to be recognized as a benefit in partner investment expense up to the initial amount recognized at the time of buy-in. Additionally, operating losses can be allocated to noncontrolling interests even when such allocation results in a deficit balance (   i.e.,    book value can go negative).  The Company presents noncontrolling interests (previously shown as minority interest) as a component of equity on its consolidated balance sheets. Minority interest expense is no longer separately reported as a reduction to net income on the consolidated income statement, but is instead shown below net income under the heading “net income attributable to noncontrolling interests.” The adoption of this guidance did not have any other material impact on the Company’s financial statements.

In December 2009, the FASB issued Accounting Standards Update (ASU) 2009-17, “Consolidations (FASB ASC Topic 810) - Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which codifies FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). ASU 2009-17 represents a revision to former FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities,” and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance.  ASU 2009-17 also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements.  ASU 2009-17 is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or the Company’s fiscal year beginning January 1, 2010. Early application is not permitted. We have not yet determined the impact, if any, which of the provisions of ASU 2009-15 may have on the Company’s financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.


NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:
   
September 30,
2011
   
December 31,
2010
 
             
Office furniture and equipment
 
$
944
   
$
944
 
Less: Accumulated depreciation
   
(245
)
   
(95
)
                 
Net
 
$
699
   
$
849
 

Depreciation expense of $150 and $-0- was recorded for the nine months ended September 30, 2011 and 2010, respectively.


 
9

 

NOTE 3 – NOTE PAYABLE – RELATED PARTY

Former Member of Board of Directors

On October 19, 2007, the Company borrowed $1,000,000 from a member of its Board of Directors (who resigned on August 17, 2009) in order to meet its short-term cash flow requirement. This demand promissory note was unsecured and had an interest rate of 15%. Interest was payable on the first day of each month, commencing on December 1, 2007.

On July 8, 2008, the Company amended the terms and replaced the original demand note issued to the member of its Board of Directors (who resigned on August 17, 2009) on October 19, 2007.  The amended demand note is held by the same member of the Company’s Board of Directors.  The demand promissory note is unsecured and bears an interest rate of 15%.  Interest is payable on the first day of each month.  The Company incurred  $37,500 of interest for the three months ended September 30, 2011 and   2010, respectively.  The entire principal and interest is payable upon demand anytime after August 17, 2010.  

On August 17, 2009, the Company borrowed $200,000 from a former Board of Directors in order to meet its short-term cash flow requirement. This demand promissory note is secured by lien on the Company’s assets and has an interest rate of 15%  The entire principal and accrued interest is payable upon demand anytime after February 17, 2010.  As part of the terms of the $50,000 note described below, the noteholder, at any time prior to the maturity of the note, has the option to convert the note principal and accrued interest into the Company’s common stock at $.10 per share. The Company incurred $15,000 of interest for the three months ended September 30, 2011 and 2010, respectively.
 
In August 2010, the Company borrowed $50,000 from a former Board of Directors in order to meet its short-term cash flow requirement. This demand promissory note is secured by a lien on the Company’s assets and has an interest rate of 15%  The entire principal and accrued interest is payable upon demand 180 days from the date of the note.  At any time prior to the maturity of the note, the noteholder has the option to convert the note principal and accrued interest into the Company’s common stock at $.10 per share.  The Company incurred $1,875 of interest for the three months ended September 30, 2011 and 2010, respectively.

As the result of the $200,000 and $50,000 promissory notes being convertible into the Company’s common stock they were evaluated under ASC470-20 and considered in the money on their dates of issuance resulting in an embedded beneficial conversion feature.  The conversion price of $.10 per share compared to the market price of $.40 computed to a $.30 per share intrinsic value related to each note which the Company recorded as discount of $200,000 on the $200,000 promissory note and $50,000 on the $50,000 note, as the discounts were capped at the note value.  For the year ended December 31, 2010, the Company amortized as interest expense $200,000 the entire discount recorded on the $200,000 promissory note as payment can be demanded at anytime.   For the year ended December 31, 2010, the Company amortized as interest expense $12,500 of the discount recorded on the $50,000 promissory note which had a 180 day maturity date from its date of issue.  For the nine months ended September 30, 2011, the Company amortized as interest expense $25,002 of the discount recorded on the $50,000 promissory note which had a 180 day maturity date from its date of issue.

NOTE 4 – TERM NOTES PAYABLE
 
Term notes payable consisted of the following at September 30, 2011 and December 31, 2010:
   
September 30,
2011
   
December 31,
 2010
 
             
Unsecured Note Payable – former Chief  Executive Officer – payable August 17, 2010 – 
at 15% interest.
  $ 450,000     $ 450,000  
                 
Unsecured Note Payable – Castaic -  annual installments of $17,171, including interest at
8%, from January 2009 through January 2011
    30,620       30,620  
                 
Unsecured Note Payable – Castaic -  monthly installments of $1,175, including interest at
8%, from February 2008 through January 2011
    20,246       20,246  
                 
Unsecured Note Payable – Innovative Outdoors – monthly installments of $4,632,
including interest at 7% from August 2008 through July 2011
    100,555       100,555  
                 
Totals Term Notes Payable
  $ 601,421     $ 601,421  



 
10

 
 
Accrued interest payable on the term notes payable was $612,444 and $411,522 at September 30, 2011 and December 31, 2010, respectively.

The Company is in default on all of the notes payable and expects to repay all the notes payables from the proceeds it receives on the first asset recovery it makes.

NOTE 5 – JUDGMENTS PAYABLE

Judgments Payable consisted of the following at September 30, 2011 and December 31, 2010:

   
September 30,
2011
   
December 31,
 2010
 
             
Judgment awarded to Esox Designs, Inc. for $179,166.63  granted  by Ninth Judicial
District Court, Crow Wing County, State of Minnesota on October 28, 2009.  $26,629 was
paid on the judgment in 2010.
  $ 152,538     $ 152,538  
                 
Jabez Development, LLC sued the Company for non-payment of a note.  On October 11,
2010, the Fourth Judicial District Court of Hennepin County, State of Minnesota
confirmed an American Arbitration Award and granted Jabez Development, LLC a
judgment in the amount of $509,600 and continuing accrued interest at the rate of 9%.
    544,077       517,556  
                 
Altus Brands II, LLC sued the Company for non-payment of a note.  On October 21,
2010, the United States District Court, District of Minnesota granted Altus Brands II, LLC
a judgment in the amount of $289,886.88.
    289,887       289,887  
                 
Fishhawk sued the Company for non-payment of a note.  On January 28, 2010, Circuit
Court of McHenry County, Illinois warded a judgment in the amount of $74,175 plus
interest at the rate of 9%.
    80,048       75,110  
                 
                                                               Total Judgments Payable
  $ 1,066,550     $ 1,035,091  


NOTE 6 – CONVERTIBLE PROMISSORY NOTE

On September 9, 2011, the Company entered into a Securities Purchase Agreement with an accredited investor for the sale of a $53,000 convertible promissory note bearing interest at 8.0% per annum, payable on or before June 12, 2012.  Pursuant to the convertible promissory note the investor may convert the amount paid towards the Securities Purchase Agreement into common stock of the Company at a conversion price equal to 55% of the average of the 3 lowest volume weighted average trading prices during the 10 day period ending on the latest complete trading day prior to the conversion date.  Trading price means the closing bid price on the OTC Market Over-the-Counter Bulletin Board Pink Sheets.

If any portion of the principal or accrued interest on this convertible debenture is not paid within ten (10) days of when it is due, the note shall become immediately due and payable and the Company shall to the noteholder in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of the Note plus (x) accrued and unpaid interest on the unpaid principle amount of the Note to the date of payment plus (y) Default interest, if any, on the amounts referred to in clauses (w) and/or (y) and (z) shall be known as the Default Sum or (ii) the parity value of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with conversion formula set forth above.

The Company shall have the right to prepay the principle and accrued interest of the convertible promissory note during the first 180 days from the issue date at amount from 130% to 150%.    The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible Note did not result in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature on the note was valued at $53,000 based on intrinsic value. The discount related to the beneficial conversion feature is being amortized over the term of the debt (one year). For the three month period ended September 30, 2011, the Company recognized $4,417 of interest expense related to the amortization of the discount.

As required by Emerging Issues Task Force Issue 98-05 “Accounting for Convertible Securities with Beneficial Conversion Features,” we valued the beneficial conversion feature related to the outstanding debt which was treated as a loan discount of $53,000 and $4,417 was amortized to interest expense during the three months ended September 30, 2011.
 
 
 
11

 

NOTE 7 – ACCRUED EXPENSES

Accrued expenses consisted of the following at September 30, 2011 and December 31, 2010:

   
September 30,
 2011
   
December 31,
 2010
 
                 
Accrued consulting fees
  $ 809,951     $ 574,955  
                 
Accrued commissions
    71,033       71,033  
                 
Accrued interest expense
    612,434       411,522  
                 
Accrued royalties
    11,589       11,589  
                 
Accrued miscellaneous expenses
    144,303       144,303  
                 
                                Total Accrued Expenses
  $ 1,649,310     $ 1,213,402  
 
NOTE 8 – STOCKHOLDERS’ EQUITY

Common Stock

On June 1, 2011, the Company held a shareholders’ meeting and by majority voted authorized amendments to its articles of incorporation to increase its authorized shares of common stock from 25,000,000 to 1,000,000,000 and change its par value from $.16 per share to $0.0001 per shares.  The Company’s shareholders also voted in favor of a 10 to 1 forward split of its common stock.  The common stock account was reduced by $3,864,709  to adjust it to the new par value of $0.0001 per share outstanding and the additional paid in capital accounts was increased by the same $3,864,709 amount.   At September 30, 2011, there were 284,758,340 shares of common stock issued and outstanding.   Each common stock share has one voting right and the right to dividends if and when declared by the Board of Directors.

During the three months ended September 30, 2011, the Company issued 3,695,000 shares of its restricted common stock in private placements for a total of $34,500.

During the three months ended September 30, 2011, the Company issued 5,000,000 share of its restricted common stock for consulting services and valued the shares at $100,000.

During the three months ended June 30, 2011, the Company issued 3,000,000 shares of its restricted common stock in private placements for a total of $15,000.

On June 27, 2011, the Company issued its Chief Executive Officer and Chief Financial Officer, each, 2,500,000 shares of restricted common stock as stock based compensation and valued  the shares at $.01 per share.

On June 27, 2011, the Company issued 25,000,000 shares of restricted common stock to shareholders who had voluntarily surrendered
2,500,000  shares to the company in March 2011 to keep the  Company below its authorized  number of 25 million at the time, with the understanding that they would be replaced at such time as the authorized shares were increased and that the replacement shares would maintain their same status as they had at the time of the voluntary surrender.

During the three months ended March 31, 2011, the Company issued 1,420,334 shares of its restricted common stock in private placements for a total of $258,120.

During the three months ended March 31, 2011, a total of 50,000 warrants were exercised at $0.50 per share for a total of $25,000.

During the three months ended March 31, 2011, the Company issued 1,000,000 share of its restricted common stock for consulting services and valued the shares at $160,000.
 
 
 
12

 

In March, 2010 the Company issued its Chief Executive Officer and Chief Financial Officer, each, 268,000 shares of restricted common stock as stock based compensation.

In July, 2010 the Company issued its Chief Executive Officer and Chief Financial Officer, each, 279,000 shares of restricted common stock as stock based compensation.

In October 2010, the Company issued its Chief Executive Officer 7,300,000 shares of restricted common stock as stock based compensation.

In October 2010, the Company issued its Chief Financial Officer 1,500,000 shares of restricted common stock as stock based compensation.
 
During the fourth quarter of 2010, the Company sold 1,092,000 shares of its common stock in private placements for $151,500.

The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4 (2) thereof.

Preferred Stock

At the shareholder’s meeting on June 1, 2011 referred to above, the shareholders  voted to authorized  to authorize the issuance of up to 50,000,000 shares of preferred stock, $0.0001 par value ("Preferred Stock"). The Board of Directors will be authorized to fix the designations, rights, preferences, powers and limitations of each series of the Preferred Stock.  .

In August 2011, the Company issued 10,000,000 and 5,000,000 shares of its preferred stock to its chief Executive Officer and Chief Financial Officer, respectively, and valued the preferred shares at their par value equal to a total value of $2,000.   These preferred shares are convertible at preferred shareholders’ option at the rate of one preferred share for ten shares of common stock.  The  holders of these preferred shares have voting rights equal to fifty votes per preferred shares on any matters voted on by the Company’s shareholders, but not to exceed the difference between the authorized common stock shares and the actual issued and outstanding common shares.

Warrants

In 2010, the Company issued 50,000 warrants to a creditor exercisable at $0.50 per shares.  The creditor exercised the warrants in March 1, 2011.  The Company valued the warrants in 2010 at $12,000 based on the Black Scholes method using the assumptions of; exercise price of $0.50 per share; value on date of measurement of $0.25 per share; one year term; computed volatility of 450%; annual dividend of 0; and discount rate of .64%.

NOTE 9 -  INCOME TAXES
 
The provision for income taxes for continuing operations consists of the following components for the three months ended  September  30:
  
 
2011
   
2010
 
             
Current
 
$
-
   
$
-
 
Deferred
   
-
     
-
 
Total Provision for (Benefit from) Income Taxes
 
$
-
   
$
-
 

A comparison of the provision for income tax expense at the federal statutory rate of 34% for the three months ended September 30 to the Company’s effective rate is as follows:
   
2011
   
2010
 
             
Federal statutory rate
   
(34.0
)%
   
(34.0
)%
State tax, net of federal benefit
   
(3.3
)
   
(3.3
)
Permanent differences and other including surtax exemption
   
0.1
     
0.1
 
Valuation allowance
   
37.2
     
37.2
 
                 
Effective Tax Rate
   
0
%
   
0
%



 
13

 






The net deferred tax assets and liabilities included in the financial statements consist of the following amounts:

   
9/30/2011
   
12/31/2010
 
Deferred Tax Assets
           
Net operating loss carryforwards
 
$
2,000,000
   
$
1,296,000
 
Deferred compensation
   
0
     
0
 
Other allowances
   
0
     
0
 
Total
   
2,000,000
     
1,296,000
 
Less valuation allowances
   
(2,000,000
)
   
1,296,000
)
Deferred Tax Asset
 
$
0
   
$
0
 
                 
Deferred Tax Liabilities
               
Depreciation & amortization
 
$
0
   
$
0
 
                 
Net long-term deferred tax asset
 
$
0
   
$
0
 

The change in the valuation allowance was $704,000 for the nine months ended September 30, 2011.  There was an 80% change in ownership control in 2009 making it highly unlikely that subject to limitations set forth in Internal Revenue Code 382, the Company will be able to carry forward any benefits of the deferred tax assets created before the change in ownership.  The Company has recorded a 100% valuation allowance related to the deferred tax asset for the loss from operations, interest expense, interest income and other income subsequent to the Swordfish Financial change in ownership, which amounted to $2,000,000 at September 30, 2011. 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, historical taxable income including available net operating loss carryforwards to offset taxable income, and projected future taxable income in making this assessment.

The Company has federal and state net operating losses of approximately $2,000,000 available at September 30, 2011 which, if not used, will begin to expire in 2024. Future changes in the ownership of the Company may place limitations on the use of these net operating losses.

NOTE 10 – RELATED PARTY TRANSACTIONS

Current Officer and Director Promissory Note to Company

On August 14, 2009, the Company, (formerly Nature Vision, Inc.), closed a Stock Purchase/Merger Agreement with Swordfish Financial, Inc., a Texas corporation, pursuant to which the Company sold an aggregate of 10,987,417 shares of its common stock in exchange for a $3,500,000 promissory note, payable in two installments of $1,750,000 each with the first installment being forty-five (45) days from the date of the note and the second installment being one-hundred twenty (120) days from the date of the note.  The note bears interest at the rate of 5% per annum.  As the date of this filing, no payments have been made on the promissory note and accrued interest.  The Company expects to be paid in full by the Texas corporation as recoveries are made.

The Company’s Chairman of the Board, President and Chief Executive Officer became the beneficial owner of 7,700,000 shares of the 10,987,417 shares of the Company's common stock from the share distribution in the stock purchase/merger transaction.

Former Officer and Director Loans to Company

In October 2008, the Company borrowed $700,000 from Jeffrey P. Zernov, its former Chief Executive Officer (Mr. Zernov resigned on August 17, 2009), in order to meet its short-term cash flow requirements. This promissory note was unsecured and had an interest rate of 15%. The entire principal and accrued interest was payable on January 1, 2009, of which the Company paid $250,000 in January 2009 (the maturity date was extended to August 17, 2010 by agreement).  The Company accrued $16,875 of interest on this loan during the three months ended September 30, 2011. 

In July 2008, the Company amended the terms and replaced the original $1,000,000 demand note issued to Richard P. Kiphart, a member of its Board of Directors (Mr. Kiphart resigned on August 17, 2009), in October 2007.  The amended $1,000,000 demand note is held by the same former member of the Company’s Board of Directors.  The demand promissory note is unsecured and bears an interest rate of 15% (the maturity date was extended to August 17, 2010 by agreement).  Interest is payable on the first day of each month, commencing on August 1, 2008.  The Company accrued $37,500 of interest on this loan during the three months ended September 30, 2011.   The entire principal and interest is payable upon demand anytime after August 17, 2010. 
 
 
 
14

 

On August 17, 2009, the Company borrowed $200,000 from a former Board of Directors in order to meet its short-term cash flow requirement. This demand promissory note is secured by a second lien on the Company’s assets and has an interest rate of 15%  The entire principal and accrued interest is payable upon demand anytime after February 17, 2010.  As part of the terms of the $50,000 note described below, the noteholder, at any time prior to the maturity of the note, has the option to convert the note principal and accrued interest into the Company’s common stock at $.10 per share.

In August 2010, the Company borrowed $50,000 from a former Board of Directors in order to meet its short-term cash flow requirement. This demand promissory note is secured by a second lien on the Company’s assets and has an interest rate of 15%  The entire principal and accrued interest is payable upon demand 180 days from the date of the note.  At any time prior to the maturity of the note, the noteholder has the option to convert the note principal and accrued interest into the Company’s common stock at $.10 per share.

 NOTE 11 - COMMITMENTS AND CONTINGENCIES

Other Commitments

The Company has a research and development consulting agreement with an outside entity that exist from the period prior to the reverse merger acquisition agreement.  The agreement has two components requiring it to pay monthly installments of $14,583 for research and development services and $8,333 for product support services.  At September 30, 2011the total due on the consulting agreement has been accrued as an accrued expense on the Company’s financial statement.  The Company recognized $7,500 of expense relating to this agreement for the three months ended September 30, 2011, which is included in administrative expense.

The Company has a research and development consulting agreement with an outside entity that exists from the period prior to the reverse merger acquisition agreement.  The agreement has two components requiring it to pay monthly installments of $5,000 for research and development services and $4,166 for product support services.  At September 30, 2011the total due on the consulting agreement has been accrued as an accrued expense on the Company’s financial statement.  The Company recognized $5,004 of expense relating to this agreement for the three months ended September 30, 2011, which is included in administrative expense.


Legal Proceedings

            Various creditors have brought suit for collections and obtained judgments for their claims against the Company.  These liabilities are recorded above in Note 5 – Judgments Payable.  Management has recorded these liabilities in these financial statements and is of the opinion that the outcome will not have a material adverse effect on our business, financial condition, or results of operation.

NOTE 7 - SUPPLEMENTAL CASH FLOWS
   
2011
   
2010
 
Supplemental Cash Flow Disclosures
           
Cash paid for interest
 
$
0
   
$
0
 
Cash paid for income taxes
   
0
     
0
 



 
15

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Some of the statements made in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of the terminology such as may, will, expect, anticipate, intend, believe, estimate, should or continue or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of our business, you should be aware that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. These differences may be caused by a variety of factors including, but not limited to, adverse economic conditions, intense competition, including entry of new competitors, inability to obtain sufficient financing to support our operations, progress in research and development activities, variations in costs, fluctuations in foreign currencies against the U.S. dollar in countries where we source products, adverse federal, state and local government regulation, unexpected costs, lower sales and net income (or higher net losses, than forecasted), price increases for equipment, inability to raise prices, failure to obtain new customers, the possible fluctuation and volatility of our operating results and financial condition, inability to carry out marketing and sales plans, loss of key executives and other specific risks that may be alluded to in this report.

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with our audited consolidated financial statements and notes thereto appearing elsewhere in this report, which have been prepared assuming that we will continue as a going concern, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010.  As discussed in Note 1 to the condensed consolidated financial statements, our recurring net losses and inability to generate sufficient cash flows to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.  Management’s plans concerning these matters are also discussed in Note 1 to the condensed consolidated financial statements.  This discussion contains forward-looking statements that involve risks and uncertainties, including information with respect to our plans, intentions and strategies for our businesses. Our actual results may differ materially from those estimated or projected in any of these forward-looking statements.

Overview

Swordfish Financial, Inc., (f/k/a Nature Vision, Inc. and Photo Control Corporation) (the “Company” or “we”) was incorporated as a Minnesota corporation in 1959.  On August 31, 2004, the Company changed its name to Nature Vision, Inc. in connection with a merger transaction with Nature Vision Operating Inc. (f/k/a Nature Vision, Inc.) a Minnesota corporation that was incorporated in 1998. As a part of the merger, Nature Vision Operating Inc. became a wholly-owned subsidiary of the Company. On August 17, 2009, the shareholders of the Company owning a majority of the outstanding common stock voted to change its name to Swordfish Financial, Inc.  The shares of the Company trade on the OTC:QB PK Market under the symbol, “SWRF.”

 Swordfish Financial operates as a diversified financial asset recovery company for high net worth individuals and companies with orphaned or dormant assets held in financial institutions around the world.  Swordfish Financial will recognize its share of the recovered assets on its financial statements upon the successful completion of each recovery project.  Swordfish Financial plans to take the financial capital resources recovered and invest in companies that have the mission of being eco-friendly and providing a better standard of living for our world’s people.

Despite cost reduction initiatives, the Company will be unable to pay its obligations in the normal course of business or service its debt in a timely manner throughout 2011 without completing a recovery project, raising additional debt or equity capital.  There can be no assurance that the Company will complete a recovery project, raise additional debt or equity capital.

The Company is currently evaluating strategic alternatives that include the following: (i)  raising of capital, or (ii) issuance of debt instruments.  This process is ongoing and can be lengthy and has inherent costs.  There can be no assurance that the exploration of strategic alternatives will result in any specific action to alleviate the Company’s 12 month working capital needs or result in any other transaction.

Results of Operations

Plan of Operations

Swordfish Financial operates as a diversified financial asset recovery company for high net worth individuals and companies with orphaned or dormant assets held in financial institutions around the world.  Swordfish Financial will recognize its share of the recovered assets on its financial statements upon the successful completion of each recovery project.  Swordfish Financial plans to take the financial capital resources recovered and invest in companies that have the mission of being eco-friendly and providing a better standard of living for our world’s people.
 
 
 
16

 

Operating Expenses

Total operating expenses were $194,068 for the three months ended September 30, 2011 compared to $307,041 for the three months ended September 30, 2010. The decrease of $112,973 for the three months ended September 30, 2011 is attributable primarily to increases of $46,258 in consulting expenses, $5,370 in travel expenses and decreases of 425,165 in legal expenses, $19,950 in management fees, $28,467 in recovery project expenses, $87,280 in stock based compensation expenses and $7,173 in office supplies.

Total operating expenses were $803,628 for the nine months ended September 30, 2011 compared to $711,162 for the nine months ended September 30, 2010.  The increase of $92,466 for the nine months ended September 30, 2011 is attributable primarily to increase of $39,258 in consulting expenses, $29,893 in recovery project expenses, $23,919 in shareholder meeting expenses and $36,960 in stock based compensation expenses and decreases of 422,080 in legal expenses, $14,950 in management fee expenses and $6,237 in office supply expenses.

Other Income and Expenses

Interest expense for the three and nine months ended September 30, 2011 and 2010 are composed of accrued interest expense on the Company’s outstanding notes payable and judgments.  Interest income for the three and nine months ended September 30, 2011 and 2010 represented accrued interest on the note receivable – related party.

Loss from Operations

The Company recognized a loss from operations of $194,068 for the three months ended September 30, 2011, compared to a loss from operations of $307,041 for the three months ended September 30, 2010.  The decrease in the pretax loss is as a result of the change in general and administrative expenses as discussed above.

The Company recognized a loss from operations of $803,628 for the nine months ended September 30, 2011, compared to a loss from operations of $711,162 for the nine months ended September 30, 2010.   The increase in the pretax loss is as a result of the change in administrative expense as discussed above.

Net Loss

The Company recognized a net loss of  $238,499 for the three months ended September 30, 2011 compared to a net loss of $329,231 for the three months ended September 30, 2010.  The decrease in the net loss is as a result of the change in administrative expenses as discussed above.

The Company recognized a net loss of  $961,223for the nine months ended September 30, 2011 compared to a net loss of $795,962 for the nine months ended September 30, 2010.  The increase in the net loss is as a result of the change in administrative expenses as discussed above.


 Liquidity and Capital Resources

The Company’s cash flow from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, is summarized in the following table for the nine months ended September 30:

 (thousands)
 
2011
   
2010
 
Cash provided by (used for):
           
Operating activities
 
$
(275,037
 
$
(96,966)
 
Investing activities
   
0
     
(944)
 
Financing activities
   
289,520
     
50,000
 
Increase (decrease) in cash and cash equivalents
 
$
14,483
   
$
(47,910)
 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  We incurred net losses of $961,223 and $795,962 respectively, for the nine months ended September 30, 2011 and 2010 and had an accumulated deficit of $8,542,704 as of September 30, 2011.  We have managed our liquidity during the nine months ended September 30, 2011 through the sale of common stock, shareholder advances and notes payable.
 
 

 
17

 

Despite cost reduction initiatives, the Company will be unable to pay its obligations in the normal course of business or service its debt in a timely manner throughout 2011 without realizing one of its recovery projects, raising additional capital or issuing debt instruments.

The Company is currently evaluating strategic alternatives that include the following: (i) raising of new capital, or (ii) issuance of debt instruments.  This process is ongoing and may be lengthy and has inherent costs.  There can be no assurance that the exploration of strategic alternatives will result in any specific action to alleviate the Company’s 12 month working capital needs or result in any other transaction.

The Company believes that the effect of inflation has not been material during the three months ended September 30, 2011.

Off-Balance Sheet Financing Arrangements

As of September 30, 2011, there were no off-balance sheet arrangements, unconsolidated subsidiaries and commitments or guaranties of other parties.

Critical Accounting Policies

The Company’s critical accounting policies are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2010 in  Management’s Discussion and Analysis of Financial Condition and Results of Operations  under the heading “Critical Accounting Policies.” There were no significant changes to the Company’s critical accounting policies during the three months ended September 30, 2011.

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for small reporting company.

Item 4T: Controls and Procedures.

Disclosure Controls and Procedures

          Our  management  is  responsible  for   establishing  and  maintaining adequate  internal  control  over  financial  reporting.  Internal  control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)  promulgated under the Exchange  Act as a process  designed by, or under the supervision of, the company's  principal executive officer and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and  includes those policies and procedures that:
 
pertain to the  maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
   
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting  principles, and that receipts and expenditures  of the company are being made only in accordance with authorizations of management and directors of the company; and
   
provide reasonable assurance regarding prevention or timely detection of  unauthorized  acquisition,  use or disposition of the company's assets that could have a material effect on the financial statements.
 
          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.

          In September 2011, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in "Internal Control -- Integrated Framework," issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.  Based upon this assessment, we determined that there are material weaknesses affecting our internal control over financial reporting.

          The  matters  involving  internal  controls  and  procedures  that our management considers to be material weaknesses under COSO and SEC rules are: (1) lack of a functioning  audit committee and lack of independent  directors on our board of  directors,  resulting in potentially ineffective oversight in the establishment and monitoring of required internal controls and procedures;  (2)
inadequate segregation of  duties consistent with control objectives; (3) insufficient written policies and procedures for accounting  and financial reporting with respect to the requirements  and application of US GAAP and SEC disclosure requirements;  and (4) ineffective controls over period end financial disclosure and reporting  processes.  The aforementioned potential material weaknesses were identified by our Chief Financial Officer in connection with the preparation  of our financial  statements as of September 30, 2011 who communicated the matters to our management and board of directors.
 
 
 
18

 

Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on our financial results.   However, the lack of a functioning  audit committee and lack of a majority of independent directors  on our  board of  directors,  resulting  in  potentially  ineffective oversight in the  establishment and monitoring of required internal controls and
procedures, can impact our financial statements.

Management's Remediation Initiatives
 
Although we are unable to meet the standards under COSO because of the limited funds available to a company of our size, we are committed to improving our financial organization. As funds become available, we will undertake to: (1) create a position to segregate duties  consistent with control  objectives,  (2) increase our personnel resources and technical  accounting  expertise within the accounting  function (3) appoint one or more  outside  directors to our board of directors  who shall be appointed to a Company  audit  committee  resulting in a fully  functioning  audit  committee  who will  undertake  the  oversight in the establishment and monitoring of required  internal controls and procedures;  and (4) prepare and implement  sufficient written policies and checklists which will set forth procedures for accounting and financial  reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

We will  continue to monitor and  evaluate  the  effectiveness  of our internal  controls  and  procedures  and our  internal  control  over  financial reporting on an ongoing  basis and are  committed to taking  further  action and implementing additional enhancements or improvements,  as necessary and as funds allow.  However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controls effectiveness to future periods are subject to risks.

Part II – OTHER INFORMATION

Item 1.  Legal Proceedings.

Various creditors have brought suit for collections and obtained judgments for their claims against the Company.  These liabilities are recorded above in Note 5 – Judgments Payable.  Management has recorded these liabilities in these financial statements and is of the opinion that the outcome will not have a material adverse effect on our business, financial condition, or results of operation.

Item 1A.  Risk Factors

Not required by small reporting company.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.  

During the three months ended September 30, 2011, the Company issued 3,695,000 shares of its restricted common stock in private placements for a total of $34,500.

During the three months ended September 30, 2011, the Company issued 5,000,000 share of its restricted common stock for consulting services and valued the shares at $100,000.

During the three months ended June 30, 2011, the Company issued 3,000,000 shares of its restricted common stock in private placements for a total of $15,000.

On June 27, 2011, the Company issued its Chief Executive Officer and Chief Financial Officer, each, 2,500,000 shares of restricted common stock as stock based compensation and valued  the shares at $.01 per share.

During the three months ended March 31, 2011, the Company issued 1,420,334 shares of its restricted common stock in private placements for a total of $258,120.



 
19

 
 
During the three months ended March 31, 2011, a total of 50,000 warrants were exercised at $0.50 per share for a total of $25,000.

During the three months ended March 31, 2011, the Company issued 1,000,000 share of its restricted common stock for consulting services and valued the shares at $160,000.

The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4 (2) thereof.


Item 3.  Defaults Upon Senior Securities.  Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.  

         No matters were submitted for a vote of Security Holders

Item 5.  Other Information.  Not applicable.

Item 6.   Exhibits.
 
 
Listing of Exhibits:
     
 
31.1
Certification of Chief Executive Officer. 
     
 
31.2
Certification of Chief Financial Officer. 
     
 
32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 
     
  101  Interactive data files pursuant to Rule 405 of Regulation S-T. 


Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
SWORDFISH  FINANCIAL,  INC.
 
       
       
Date:  November 17,  2011
By:
 /s/ Michael Alexander
 
   
Its:  Chief Executive Officer and President
 
       
Date:  November 17,  2011
By:
 /s/ Randy Moseley
 
   
Its:  Chief Financial Officer
 



 
20