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EXCEL - IDEA: XBRL DOCUMENT - SoOum Corp. | Financial_Report.xls |
EX-32.1 - SoOum Corp. | sfi10kex321123111.htm |
EX-31.2 - SoOum Corp. | sfi10kex312123111.htm |
EX-31.1 - SoOum Corp. | sfi10kex311123111.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2011.
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to .
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Commission file number 000-7475
SWORDFISH FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA
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41-0831186
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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142 Wembley Way, Rockwall, Texas
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75032
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number (972) 310-1830
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.0001 per share
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OTC Markets Pinksheets
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Securities registered under Section l2(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned registrant, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or l5(d) of the Exchange Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer,” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule l2b-2 of the Exchange Act). Yeso No x
As of March 29, 2012, the aggregate market value of the issued and outstanding common stock held by non-affiliates of the registrant based upon the closing price of the common stock under the symbol “SWRF” as quoted in the OTCQB was approximately $722,332. For purposes of the statement in the preceding statement, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.
The number of shares outstanding of the registrant’s common stock, par value $0.0001 per share, as of March 29, 2012 was 630,829,642.
1
FORM 10-K
Swordfish Financial, Inc.
INDEX
Page
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PART I
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Item 1. Business
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3
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Item 1A. Risk Factors
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4
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Item 2. Property
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4
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Item 3. Legal Proceedings
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4
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Item 4. Submission of Matters to a Vote of Security Holders
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4
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PART II
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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5
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Item 6. Selected Financial Data
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6
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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6
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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11
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Item 8. Financial Statements and Supplementary Data
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11
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
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11
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Item 9A(T). Controls and Procedures
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11
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Item 9B. Other Information
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12
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PART III
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Item 10. Directors, Executive Officers and Corporate Governance
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12
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Item 11. Executive Compensation
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13
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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15
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Item 13. Certain Relationships and Related Transactions, and Director Independence
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15
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Item 14. Principal Accountant Fees and Services
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16
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Item 15. Exhibits Financial Statement Schedules
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17
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Signatures
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17
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Financial Statements pages
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F-1 to F-19
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2
DOCUMENTS INCORPORATED BY REFERENCE
None.
Forward Looking Statements
Investors should consider all of the information contained in this report including the factors discussed under Item 1 - Description of Business - Factors That May Affect Future Results, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Financial Statements, before making an investment decision with regard to our securities.
Some of the statements made in this report in the sections listed above and elsewhere in this report 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.
Item 1. BUSINESS.
General
Swordfish Financial is 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.
Previous to Swordfish Financial acquiring majority ownership in 2009 of Nature Vision, Inc. (the name of the Company before the acquisition) Nature Vision designed, manufactured and marketed outdoor recreation products primarily for the sport fishing and hunting markets and other consumer and industrial products.
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. Upon the merger with Swordfish Financial, Inc., the Texas corporation 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. Our executive offices are located at 142 Wembley Way, Rockwall, Texas 75032; our telephone number is (972) 310-1830; our website is swordfishfinancial.com.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to such reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on or through our Internet website located at www.swordfishfinancial.com, as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, such as ourselves, that file electronically with the SEC at (http://www.sec.gov.)
3
Services
Swordfish Financial is 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.
Intellectual Property
The Company does not currently own any patents or trademarks.
Other financial institutions offering financial management services are sources of potential competition and have significantly more capital resources available to them.
Government Regulation
Our present and former operations have not been subject to significant government regulations other than those regulations applicable to businesses generally.
Employees
As of December 31, 2011, we had two executives, the President, Chief Executive Officer and Chief Financial Officer as set forth in Item 10.
Compliance with Environmental Laws
We believe that we are not subject to any material costs for compliance with any environmental laws.
Item 1A: RISK FACTORS
As a smaller reporting company, we are not required to provide risk factors.
Item 1B. UNRESOLVED STAFF COMMENTS
Item 2. PROPERTIES.
The Company currently maintains its executive office in leased property at 142 Wembley Way, Rockwall, Texas 75032 on a month to month basis.
Item 3. LEGAL PROCEEDINGS.
Various creditors have brought suit for collections of their claims against the Company. These liabilities are recorded on the Company’s financial statements – See Notes 5 and 11 to the financial statements included in this report for details. Management is of the opinion that the outcome will not have a material adverse effect on our business, financial condition, or results of operation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
4
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, NASDAQ DELISTING, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information. The number of record holders of our common stock on December 31, 2011 was 312. The table below sets forth the high and low sale prices for the common stock during the two years ended December 31, 2011. The information shown is based on information provided by Yahoo! Inc. and Nasdaq Stock Market. These quotations represent prices between dealers, and do not include retail markups, markdowns or commissions, and may not represent actual transactions. Our common stock is currently traded on the OTC Pinksheets Market under the symbol “SWRF.” Swordfish Financial did not pay any cash dividends on its common stock during the periods presented nor does it anticipate paying any dividends in the future as the Company plans to utilize all available resources to expand its sales base.
On August 14, 2009, Swordfish Financial, Inc. (fka Nature Vision, Inc.) (the “Company”) was delisted from The Nasdaq Stock Market to the OTC Pinksheets Market for violations of the minimum bid price and minimum equity requirements.
Common Stock
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||||||||
Quarter Ended
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Low
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High
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||||||
2010
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||||||||
March 31
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$
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1.47
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$
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1.22
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||||
June 30
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$
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0.50
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$
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0.50
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||||
September 30
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$
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0.60
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$
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0.32
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||||
December 31
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$
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1.49
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$
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1.31
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||||
2011
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||||||||
March 31
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$
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1.70
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$
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1.28
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||||
June 30
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$
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0.41
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$
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0.35
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||||
September 30
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$
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0.0028
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$
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0.0028
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||||
December 31
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$
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0.0052
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$
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0.0047
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Securities Authorized for Issuance Under Equity Compensation Plans. The following table sets forth the securities authorized for issuance under Nature Vision’s compensation plans as of December 31, 2011.
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
|
Weighted
average exercise
price of
outstanding
options, warrants
and rights
|
Number of
securities
remaining
available for future issuance under
equity
compensation plans (excluding
securities reflected
in column (a))
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||||||||||
(a)
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(b)
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(c)
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||||||||||
Equity compensation plans approved by security holders
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0
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$
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0.00
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0
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||||||||
Equity compensation plans not approved by securities holders
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0
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0.00
|
0
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|||||||||
Total
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0
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$
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0.00
|
0
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Changes in Securities
All of the Company's securities issued during 2011 have been reported in this 10-K or previously reported on its Form 10-Qs and Form 8-Ks filed with the Securities and Exchange Commission.
During the quarter ended December 31, 2011, the Company issued 30,974,023 shares of common stock for conversions of $82,000 in notes payable.
5
During the quarter ended December 31, 2011, the Company issued 5,000,000 shares of restricted common stock for legal services and valued the shares at $50,000.
The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4 (2) thereof.
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. This discussion contains forward-looking statements that involve risks and uncertainties, including information with respect to the plans, intentions and strategies for our businesses. The 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. Upon the merger with Swordfish Financial, Inc., the Texas corporation on August 17, 2009, the shareholders of Nature Vision, Inc., 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 Pinksheets 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 retire its debits and invest in companies that have the mission of being eco-friendly and providing a better standard of living for our world’s people.
Recent Developments
The consolidated financial statements were prepared assuming we will continue as a going concern and further states that our recurring losses from operations, accumulated deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern. Our plans concerning these matters are discussed in Note 1 to the accompanying audited consolidated financial statements.
In August of 2009 a stock acquisition/reverse merger agreement was entered into by Nature Vision, Inc. (nka Swordfish Financial, Inc.) (the “Company”) and Swordfish Financial, Inc., the Texas corporation. The reverse merger was closed on August 14, 2009. Pursuant to the terms of the reverse merger, the equity holders of Swordfish Financial, Inc., the Texas corporation acquired 10,987,417 shares of common stock constituting 80% of voting control of the Company in return for a $3,500,000 note, bearing interest at the rate of 5% per annum. The financial statements have been prepared to include the results of operations for the Company for the year ended December 31, 2010.
As a result of the reverse merger being accounted for as a reverse merger acquisition, Nature Vision’s assets and liabilities assets and liabilities as of the closing date of the reverse merger, have been incorporated into Swordfish Financial, Inc.’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 requires an allocation of the acquisition consideration to the individual assets and liabilities. Further, the Company’s operating results (post-Merger) include Swordfish Financial, Inc., a Texas corporation, operating results prior to the date of the 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.
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., a Texas corporation, stock purchase/merger agreement, M&I Business Credit LLC, 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, operations and all of the Company’s Collateral, which consisted of all of the Company’s assets. M&I Business Credit LLC liquidated basically all of the Company’s assets to recover the line of credit debt.
6
After M&I Business Credit LLC’s liquidation of virtually all of the Company’s assets at significant discounts to book value, the Company was left with no assets or product lines to market and continue the Nature Vision outdoor recreations products operations. As stated above, the Company will now operate as an asset recovery company and use the financial resources recovered to invest in other businesses domestically and internationally and also retire the Company’s debts.
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 2012 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 and (ii) debt financing. 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 twelve month working capital needs or result in any other transaction.
In 2011, the Company raised $307,620 from the sale of common stock in private placements, $106,950 from advances from shareholders and $85,500 from the issuance of debt instruments.
Plan of Operations
Swordfish Financial had no revenues from its financial asset recovery operations in 2011 and 2010. It 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. It 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, retire all of its debits and invest in companies that have the mission of being eco-friendly and providing a better standard of living for our world’s people.
Pretax Loss and Income Taxes
The Company recognized a pretax loss of $1,367,059 and $2,696,278 in fiscal years 2011 and 2010 respectively.
Loss from Continuing Operations
The loss from continuing operations was $1,367,059 and $2,696,278 for fiscal years 2011 and 2010, respectively.
Net Loss
The Company recognized a net loss of $1,367,059 and $2,696,278 for the years ended December 31, 2011and 2010, respectively.
7
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:
(thousands)
|
2011
|
2010
|
||||||
Cash provided by (used for):
|
||||||||
Operating activities
|
$
|
(417,434)
|
$
|
(326,171)
|
||||
Investing activities
|
0
|
(944)
|
||||||
Financing activities
|
428,970
|
271,920
|
||||||
Increase (decrease) in cash and cash equivalents
|
$
|
11,536
|
$
|
(55,195)
|
The following table sets forth the Company’s working capital position at the end of each of the past two years:
(thousands)
|
2011
|
2010
|
||||||
Current assets
|
$
|
3,941,957
|
$
|
3,763,921
|
||||
Current liabilities
|
5,787,209
|
5,102,218
|
||||||
Working capital
|
$
|
(1,845,252)
|
$
|
(1,338,297)
|
||||
Current ratio
|
-
|
-
|
Operating Activities
Cash flows used in operations totaled $417,434 and $326,171 in fiscal years 2011 and 2010, respectively.
Investing Activities
Cash flows used for investing activities were $0 and $944 in fiscal years 2011 and 2010, respectively.
Financing Activities
In 2011, the Company raised $307,620 from the sale of common stock in private placements, $106,950 from advances from shareholders and $85,500 from the issuance of debt instruments.
Cash flows provided by financing activities totaled $428,970 and $271,920 in fiscal years 2011 and 2010, respectively.
The Company owes $330,000 to its former Chief Executive Officer. This promissory note is unsecured and has an interest rate of 15%. The note matured on August 17, 2010 as defined in the Swordfish Financial stock purchase merger agreement. The Company is negotiating with the noteholder for an extension.
The Company owes $1,250,000 to a former member of its Board of Directors (who resigned on August 17, 2009). The demand promissory notes is unsecured and bears an interest rate of 15%. The entire principal and interest is payable upon demand on August 17, 2010 as defined in the Swordfish Financial stock purchase merger agreement. The Company is in negotiation with the noteholder to revise the maturity dates.
The Company owes approximately $105,000 to a judgment creditor who has obtained a receivership. In February 2012, the receiver’s judgment was purchased by a third party, who converted the debt to 76,836,110 shares of the Company’s common stock.
8
The Company is obligated on an additional $997,037 in judgments that it is also negotiating for settlements when the Company has funds available from recoveries.
The Company has an accrued obligation of $591,315 relating to a research and development consulting agreement with an outside entity that exist from the period prior to the merger/acquisition agreement. The agreement had two components requiring monthly installments of $14,583 for research and development services and $8,333 for product support services. At December 31, 2011 the amount remaining to be accrued on the agreement was $0. The Company recognized $174,996 of expense relating to this agreement for the year ended December 31, 2011, which is included in general and administrative expense.
The Company has an accrued obligation of $166,911 relating to a research and development consulting agreement with an outside entity that exist from the period prior to the merger/acquisition agreement. The agreement has two components for monthly installments of $5,000 for research and development services and $4,166 for product support services. At December 31, 2011 the amount remaining to be accrued on the agreement was $0. The Company recognized $60,000 of expense relating to this agreement for the year ended December 31, 2011, which is included in general and administrative expense.
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 $1,367,059 and $2,696,278 in fiscal years 2011 and 2010, respectively, and had an accumulated deficit of $8,948,540 as of December 31, 2011. We have managed our liquidity during the fourth quarter of 2011 and the first quarter of 2012 through the sales of common stock, issuance of debt and advance from shareholders.
Despite the 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 2012 without being successful on an asset recovery project, raising additional debt and/or equity capital.
The Company is currently evaluating strategic alternatives that include the following: (i) raising of capital and (ii) securing capital through the issuance of debt. 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 twelve month working capital needs or result in any other transaction.
The Company believes that the effect of inflation has not been material during the year ended December 31, 2011.
Off-Balance Sheet Financing Arrangements
As of December 31, 2011, there were no off-balance sheet arrangements, unconsolidated subsidiaries and commitments or guaranties of other parties.
Critical Accounting Policies
The accompanying consolidated financial statements are based on the selection and application of United States generally accepted accounting principles (“GAAP”), which require estimates and assumptions about future events that may affect the amounts reported in these financial statements and the accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to the financial statements. We believe that the following accounting policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our financial statements. If different assumptions or conditions were to prevail, the results could be materially different from reported results.
Statement of Financial Accounting
We adopted ASC Topic 105 – “Statement of Financial Accounting,” formerly FASB 168, which were changes issued by Financial Accounting Standards Board ("FASB") to the authoritative hierarchy of generally accepted accounting principles in the United States ("GAAP"). These changes established the FASB Accounting Standards Codification™ ("Codification") as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standard Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. 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.
9
Subsequent Events
We adopt changes issued by ASC Topic 855 – “Subsequent Events,” formerly FASB 165, which establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The pronouncement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. In conjunction with the preparation of these financial statements, an evaluation of subsequent events was performed through April 13, 2012, which is the date the financial statements were issued.
Business Combinations
We continue to evaluate the impact of ASC Topic 805 – “Business Combinations,” formerly SFAS No. 141 (R), which we adopted at the beginning of the 2009 fiscal year. This ASC provides guidance on measuring the fair value of particular identifiable assets and noncontrolling interest. The Company reported the acquisition merger with Nature Vision, Inc. in accordance with ASC 805 due to the changes in control of ownership, the board of directors and officers of the company.
Revenue Recognition
The Company’s revenues will be generated from successful recovery projects. Each project will have its own terms as to the percentage of the recovery that the Company will retain as revenue. The recovery revenues will be recognized by the Company when it takes possession of the revenues from each individual project, and be recognized in accordance with generally accepted accounting principles as outlined in the SEC’s Staff Accounting Bulletin No. 104 “Revenue Recognition” which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) reasonably assured it is collectible; and (iv) product delivery has occurred. The Company’s policy is to present tax imposed on revenue producing transactions on a gross basis.
Allowance for doubtful accounts
Management records a reserve on accounts receivable which is an estimate of the amount of accounts receivable that are uncollectible. The reserve is based on a combination of specific customer knowledge, general economic conditions and historical trends. Management believes the results could be materially different if economic conditions change for our customers. The Company has no allowance for doubtful accounts at December 31, 2009 as the receivable is equal to the collections in 2010 on 2009 receivables resulting from Nature Vision sales and turned back to the Company by M&I Business Credit LLC after is finished its foreclosure process.
Impairment of long lived assets
Considerable management judgment is necessary in estimating future cash flows and other factors affecting the valuation of long-lived assets, including intangible assets, including the operating and macroeconomic factors that may affect them. The Company uses historical financial information, internal plans and projections and industry information in making such estimates. The Company had no long lived assets at December 31, 2011 to evaluate against expected future cash flows.
Income taxes
Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. We record a current provision for income taxes based on amounts payable or refundable. Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. We recognize a valuation allowance for deferred tax assets when it is more likely than not that deferred assets are not recoverable. During fiscal 2011 and 2010, the Company established its valuation allowance for the entire amount of the deferred tax assets. If actual taxable income by jurisdiction and the period over which our deferred tax assets are recoverable are materially different than our estimate, the change could be material to our consolidated financial statements.
10
Recent Accounting Pronouncements
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements beginning on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
Item 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Company's management evaluated, with the participation of its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), the effectiveness of the design/operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) as of December 31, 2011.
Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our principal executive officer and our principal financial officer. Based on that evaluation, management concluded that, considering the existence of material weaknesses identified, our internal control over financial reporting disclosure controls and procedures were not effective as of December 31, 2011.
Material Weaknesses Identified
We identified the following deficiencies which together constitute a material weakness in our assessment of the effectiveness of internal control over financial reporting as of December 31, 2011:
o The Company has inadequate segregation of duties within its cash disbursement control design.
o During the year ended December 31, 2011, the company internally performed all aspects of our financial reporting process, including, but not limited to the underlying accounting records and record journal entries and responsibility for the preparation of the financial statement due to the fact these duties were performed often times by the same people, a lack of review was created over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statement and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.
o The Company does not have a sufficient number of independent directors for our board and audit committee. We currently have no independent director on our board, which is comprised of two directors, and we do not have a functioning audit committee. As a publicly-traded company, we should strive to have a majority of our board of directors be independent.
11
The Company is continuing the process of remediating its control deficiencies. However, the material weakness in internal control over financial reporting that has been identified will not be remediated until numerous internal controls are implemented and operate for a period of time, are tested, and the Company is able to conclude that such internal controls are operating effectively. The Company cannot provide assurance that these procedures will be successful in identifying material errors that may exist in the financial statements. The Company cannot make assurances that it will not identify additional material weaknesses in its internal control over financial reporting in the future. Management plans, as capital becomes available to the Company, to increase the accounting and financial reporting staff and provide future investments in the continuing education and public company accounting training of our accounting and financial professionals.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"). Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control - Integrated Framework.
Changes in Internal Controls over Financial Reporting
Other than the matters discussed above, during the period covered by this report, there were no significant changes in the Company's internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the Company's internal controls over financial reporting.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control system, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Auditor Attestation
This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management's report.
Item 9B. OTHER INFORMATION
None
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
Our directors and executive officers are as follows:
Name
|
Age
|
Director Since
|
Year Term Expires
|
Position
|
||||
Michael Alexander
|
44
|
2009
|
2012
|
President, Chief Executive Officer, Director
|
||||
Randy Moseley
|
64
|
2009
|
2012
|
Chief Financial Officer, Director
|
Michael Alexander, has served as our President and Chief Executive Officer and as a Chairman of the Board of Directors since August 17, 2009. Mr. Alexander served as a consultant of various technologies related companies from July 2006 to August 2009. Mr. Alexander served as the Chief Executive Officer, President, and a director of Furia Organization, Inc. from August 2004 to July 2006. From September 2003 to June 2004, Mr. Alexander was a process analyst for Citigroup. From August 2000 to September 2003, he was a computer consultant with Cyber Communications.
12
Randy Moseley, has served as our Chief Financial Officer, Secretary and Director since August 17, 2009. Mr. Moseley currently serves as Chief Executive Officer, Chief Financial Officer and Director for Universal Media Corporation, a holding company with interest in television and mining companies. Mr. Moseley served as the Chairman of the Board and Chief Financial Officer for CytoGenix, Inc.(CYGX), a biomedical research company from August 2008 to August 2010. Mr. Moseley has been the Chief Financial Officer and Director for Utilicraft Aerospace Industries, Inc., a manufacturer of Light Observation and emergency first-response aircraft since 2007. Mr. Moseley served from 2001 to 2006 as Executive Vice President, Chief Financial Officer and director of Urban Television Network Corp, a network created to serve independent broadcast television stations and cable operators. Mr. Moseley has experience with trucking and custom software development companies during the past ten years. Mr. Moseley, a Certified Public Accountant, earned a BBA degree from Southern Methodist University. He is a member of the Texas Society of CPAs.
Corporate Governance
Audit Committee of the Board of Directors
The Board of Directors is responsible for appointing the Company’s independent auditor and discharging the Company’s responsibilities relating to our accounting, reporting and financial control practices. The Board of Directors has general responsibility for review with management of our financial controls, accounting, and audit and reporting activities. It annually reviews the qualifications and engagement of our independent accountants and reviews the scope, fees, and results of their audit and reviews their management comment letters.
Code of Business Conduct and Ethics
Each of the Company’s directors and employees, including its executive officers, are required to conduct themselves in accordance with ethical standards set forth in the Code of Business Conduct and Ethics adopted by the Board of Directors. The code is available on our website at www.swordfinancial.com. Any amendments to or waivers from the code will be posted on Swordfish Financial’s website. Information on our website does not constitute part of this filing.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and officers, and persons who own more than 10% of the Company’s common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock. Officers, directors and 10% shareholders are also required by SEC regulation to furnish us with copies of all Section 16(a) reports they file.
To our knowledge, based solely on review of the copies of such reports furnished to us, during the year ended December 31, 2011, our officers, directors and 10% shareholders complied with their Section 16(a) filing requirements in a timely manner.
Item 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation earned during the last two fiscal year by Michael Alexander, current President and Chief Executive Officer and Randy Moseley, current Chief Financial Officer and Secretary. No other executive officers’ total compensation exceeded $100,000 in the years ended December 31, 2011 and 2010.
13
SUMMARY COMPENSATION TABLE
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
All Other Compensation
($)
|
Option
Awards
($)
|
Total
($)
|
|||||||||||||||
Michael Alexander,
President and CEO
|
2011(1)
2010(1)
|
$
$
|
48,300
60,000
|
--
--
|
$
$
|
26,500
1,255,520
|
(2)
(3)
|
--
--
|
$
$
|
74,800
1,315,520
|
|||||||||||
Randy Moseley,
CFO, Secretary
|
2011(4)
2010(4)
|
$
$
|
46,750
60,000
|
--
|
$
$
|
25,500
327,520
|
(5)
(6)
|
--
--
|
$
$
|
72,250
387,520
|
|||||||||||
(1)
|
Mr. Alexander became the Company’s President and CEO on August 17, 2009. The Company has not negotiated an employment agreement with Mr. Alexander at this time.
|
(2)
|
Other Compensation for Mr. Alexander represents 2,500,000 shares of restricted common stock and 15,000,000 shares of preferred stock issued to Mr. Alexander, and valued at total of $26,500.
|
(3)
|
Other Compensation for Mr. Alexander represents 7,847,000 shares of restricted common stock issued to Mr. Alexander and valued at par value of $.16 per share.
|
(4)
|
Mr. Moseley became the Company’s CFO on August 17, 2009. The Company has not negotiated an employment agreement with Mr. Moseley at this time.
|
(5)
|
Other Compensation for Mr. Moseley represents 2,500,000 shares of restricted common stock and 5,000,000 shares of preferred stock issued to Mr. Moseley and valued at a total of $25,500.
|
(6)
|
Other Compensation for Mr. Moseley represents 2,047,000 shares of restricted common stock issued to Mr. Moseley and valued at par value of $.16 per share.
|
_____________________
Base salary. Base salary is used to recognize not only the experience, skills, knowledge and responsibilities required of the Named Executive Officers, but also the contributions they make to the Company’s performance. When determining base salaries, the Board of Directors considers a number of factors including compensation paid to executive officers by companies of similar size, internal review of the executive’s compensation (both individually and relative to other executives), level of the executive’s responsibility, individual performance of the executive, and the performance of the Company financially and strategically. The base salaries of the Named Executive Officers are reviewed on an annual basis.
Incentive cash bonus. Cash bonuses are intended to reward individual and the Company’s performance during the year. The Board of Directors also did not grant discretionary cash bonuses to the Named Executive Officers for fiscal years 2011 and 2010.
Long term incentive compensation. The Company has no long term incentive compensation agreements at December 31, 2011.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
Employment Agreements. The Company does not have any employment agreements in effect at December 31, 2011.
Swordfish Financial Stock Options
The Company had no stock options outstanding at December 31, 2011.
Board of Director Compensation
No compensation was paid to the directors for fiscal years 2011and 2010 as there were no directors who were not a Named Executive Officer. No stock options were granted to the directors during fiscal years 2011 and 2010. There are no stock options outstanding at December 31, 2011.
14
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock as of March 29, 2012, by (i) the executive officers set set forth in the summary compensation table below who are employed by the Company as of March 1, 2011(the “Named
Executives"); (ii) each director and nominee; and (iii) all directors and executive officers as a group. All persons listed have sole disposition and voting power with respect to the indicated shares except as otherwise noted.
Name Executive / Director (1)
|
Number of Shares Held
|
Percent of Class
|
Equivalents
|
(1) (2) (3)
|
|
|
||
Michael D. Alexander (4)
|
322,040,000
|
38.76 %
|
|
||
Randy J. Moseley (5)
|
107,500,000
|
12.94%
|
|
||
All directors and executive officers
|
429,540,000
|
51.70%
|
as a group (total of 2 persons)
|
(1) Beneficial ownership is determined in accordance with the rules of the SEC, based on factors including voting and investment power with respect to shares. Percentage of beneficial ownership is based on the number of shares of Common Stock outstanding as of March 29, 2012.
(2) Stock issuable upon exercise of options within 60 days after March 29, 2012, are deemed outstanding for the purpose of percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership for any other persons.
(3) Based on 630,829,642 shares of common stock issued and outstanding, 20,000,000 shares of preferred stock convertible into common stock at rate of 10 shares of common for each preferred share (each preferred shares has 50 votes each, subject to a cumulative total vote of all shareholders equal to the one billion common shares authorized, on all matters voted on by the Company’s shareholders) and 100,000,000 shares assumed convertible relating to convertible promissory notes payable. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
(4) Michael D. Alexander is the President, Chief Executive Officer and a Director of the Company. Represents 172,040,000 shares of common stock and 15,000,000 shares of preferred stock owned by Mr. Alexander and his spouse.
(5) Randy J. Moseley is the Chief Financial Officer and a Director of the Company. Represents 57,500,000 shares of common stock 5,000,000 shares of preferred stock owned by Mr. Moseley and his spouse.
Item 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Current Officer and Director Loans 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.
The Company’s Chairman of the Board, President and Chief Executive Officer became beneficial owner of 7,700,000 shares of the 10,987,417 shares of the Company's common stock distributed in the stock purchase/merger transaction.
15
Former Officer and Director Loans to Company
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. The entire principal and interest is payable upon demand anytime after August 17, 2010. The Company paid no interest and accrued $150,000 of interest on this note during the year ended December 31, 2011.
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. The Company paid no interest and accrued $30,000 of interest on this note during the year ended December 31, 2011.
On August 18, 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. The Company paid no interest and accrued $7,500 of interest on this note during the year ended December 31, 2011.
There are no other related party transactions that are required to be disclosed pursuant to Regulation S-K promulgated under the Securities Act of 1933, as amended.
Director Independence
We do not have an audit, compensation or nominating committee, but our entire board of directors acts in such capacities. Although our directors are not considered as “independent directors” pursuant to the provisions of Item 407(a) of Regulation S-K, we believe that our members of our board of directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Swordfish Financial Independent Public Accountant’s Fees
The following table presents fees for professional services rendered by Patrick Rodgers, CPA, LP for the audit of the Company’s financial statements for the years 2011 and 2010:
2011
|
2010
|
|||||||
Audit Fees
|
$ | 12,000 | $ | 18,500 | ||||
Audit Related Fees
|
$ | 0 | $ | 0 | ||||
Tax Fees
|
$ | 0 | $ | 0 | ||||
All Other Fees
|
$ | 0 | $ | 0 | ||||
Total
|
$ | 12,000 | $ | 18,500 |
Audit Fees were for professional services for auditing and reviewing the Company’s financial statements, as well as for consents and assistance with and review of documents filed with the Securities and Exchange Commission.
Audit Related Fees for 2011 and 2010 were for professional services related to auditing and reviewing the Company’s financial statements, including advising Swordfish Financial as to complying with accounting policies and transactional planning.
Tax Fees were for professional services for tax planning and compliance.
All Other Fees were for professional services not applicable to the other categories.
16
Pre-Approval Policy for Services of Swordfish Financial Independent Auditors
The Board of Directors reviews the Form 10-Q or 10-K filings before their filing. In addition, the Board of Directors reviews the audit plans and anticipated fees for audit and tax work prior to the commencement of that work. All fees paid to the independent auditors are pre-approved by the Board of Directors. These services may include audit services, audit-related services, tax services and other services. The Board of Directors adopted a policy for the pre-approval of services provided by the independent auditors, which is set forth in the Amended and Restated Charter of the Audit Committee.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
For a list of Exhibits filed as a part of this report, see Exhibit Index page following the signature page to this annual report on Form 10K.
SIGNATURES
In accordance with Section 13 or 15(d) 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: April 16, 2012
|
By: /s/ Michael Alexander
|
Michael Alexander, President
|
|
and Chief Executive Officer
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Michael Alexander
|
||
April 16, 2012
|
||
Michael Alexander
|
||
(President, Chief Executive Officer
|
||
and a Director)
|
||
/s/ Randy Moseley
|
||
April 16, 2012
|
||
Randy Moseley
|
||
(Chief Financial Officer, Chief Accounting Officer,
|
||
Secretary and a Director)
|
||
17
2.1
|
Merger agreement and plan of reorganization dated April 15, 2004, by and among Nature Vision, Inc. (n/k/a Nature Vision Operating Inc.), Photo Control Corporation (n/k/a Nature Vision, Inc.), PC Acquisition, Inc., Jeffrey P. Zernov (as shareholders’ representative) and certain Nature Vision, Inc. (n/k/a Nature Vision Operating Inc.) shareholders (previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-QSB for the period ended March 31, 2004).
|
3.1
|
Amended and restated articles of incorporation (previously filed as Exhibit 3.1 to the Registrant’s Report on Form 8-K dated September 7, 2004).
|
3.2
|
Amended and restated bylaws (previously filed as Exhibit 3.2 to the Registrant’s Report on Form 8-K dated September 7, 2004).
|
3.3
|
Amended and restated articles of incorporation (previously filed as Exhibit 3.2 to the Registrant’s Report on Form 8-K dated September 4, 2009).
|
3.4
|
Amended articles of incorporation (filed as Exhibit 3.1 to Registrant’s Report on Form 8-K dated November 12, 2010.
|
10.1
|
Amended and restated retention agreement with Curtis R. Jackels (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-QSB for the period ended March 31, 2004).
|
10.2
|
Amended and Restated 2004 Stock Incentive Plan, dated June 3, 2004 (previously filed as Exhibit 10.1 to Registrant's Form 10-QSB Registration for the period ended June 30, 2005).
|
10.3
|
Executive salary continuation plan adopted August 9, 1985, including exhibits (previously filed as Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended June 30, 1986).
|
10.4
|
1983 Stock Option Plan (previously filed as Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 1989).
|
10.5
|
Form of stock option agreement under the 1983 Stock Option Plan (previously filed as Exhibit 5 to the Registrant’s Registration Statement on Form S-8, Commission File No. 2-85849).
|
10.6
|
Form of Nonstatutory Option Agreement under the 2004 Stock Incentive Plan and Form of First Amendment thereto (previously filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005).
|
10.7
|
Incentive Stock Option Agreement for Jeffrey Zernov, dated August 31, 2004 (previously filed as Exhibit 10.7 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005).
|
10.8
|
Amendment to the registrant’s 1983 Stock Option Plan dated August 29, 1994 (previously filed as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
|
10.9
|
Amendment to the registrant’s 1983 Stock Option Plan dated February 23, 1996 (previously filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
|
10.10
|
Amendment to the registrant’s 1983 Stock Option Plan dated November 7, 1997 (previously filed as Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
|
18
10.11
|
Subscription and investment representation agreement with Richard P. Kiphart, including form of irrevocable proxy (previously filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-QSB for the period ended March 31, 2004).
|
10.12
|
Employment agreement between Nature Vision, Inc. and Jeff Zernov dated August 31, 2004 (previously filed as Exhibit 10.1 to the Registrant's Report on Form 8-K dated September 7, 2004).
|
10.13
|
Bonus plan for the fiscal year ending December 31, 2005 for certain executive officers (previously disclosed in the Registrant’s Report on Form 8-K dated March 23, 2005).
|
10.14
|
Summary of director compensation for 2005 (previously filed as Exhibit 10.16 to the Registrant’s Report on Form 10-KSB dated April 14, 2005).
|
10.15
|
Asset Purchase Agreement, dated October 20, 2006, by and between Promark International, Inc. d/b/a Photogenic Professional Lighting and Nature Vision, Inc. (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated October 20, 2006).
|
10.16
|
Asset Purchase Agreement, dated February 5, 2007, by and between New Vaddio, LLC and Nature Vision, Inc. (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated February 5, 2007).
|
10.17
|
Consignment Sale Agreement, dated February 5, 2007, by and between New Vaddio, LLC and Nature Vision, Inc. (previously filed as Exhibit 10.2 to the Registrant’s Report on Form 8-K dated February 5, 2007).
|
10.18
|
Collection Agreement, dated February 5, 2007, by and between New Vaddio, LLC and Nature Vision, Inc. (previously filed as Exhibit 10.3 to the Registrant’s Report on Form 8-K dated February 5, 2007).
|
10.19
|
Demand Term Note, dated September 19, 2007, in the principal amount of $2,000,000 executed by Nature Vision, Inc. in favor of M&I Business Credit, LLC (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated September 19, 2007).
|
10.20
|
Security Agreement, dated September 19, 2007, between Nature Vision, Inc. and M&I Business Credit, LLC (previously filed as Exhibit 10.3 to the Registrant’s Report on Form 8-K dated September 19, 2007).
|
10.21
|
Revolving Mortgage, Assignment of Rents, Security Agreement and Fixture Financing Statement, dated September 19, 2007, between Nature Vision, Inc. and M&I Business Credit, LLC (previously filed as Exhibit 10.4 to the Registrant’s Report on Form 8-K dated September 19, 2007).
|
10.22
|
Credit and Security Agreement, dated November 8, 2007, among Nature Vision, Inc., Nature Vision Operating, Inc. and M&I Business Credit, LLC (previously filed as Exhibit 10.5 to the Registrant’s Report on Form 8-K dated November 8, 2007).
|
10.23
|
Patent Collateral Assignment, dated November 8, 2007, among Nature Vision, Inc., Nature Vision Operating, Inc and M&I Business Credit, LLC (previously filed as Exhibit 10.6 to the Registrant’s Report on Form 8-K dated November 8, 2007).
|
10.24
|
Trademark Security Agreement, dated November 8, 2007, among Nature Vision, Inc. Nature Vision Operating, Inc. and M&I Business Credit, LLC (previously filed as Exhibit 10.7 to the Registrant’s Report on Form 8-K dated November 8, 2007).
|
19
10.25
|
Debt Subordination Agreement, dated November 8, 2007, among Nature Vision, Inc., Richard Kiphart and M&I Business Credit, LLC (previously filed as Exhibit 10.8 to the Registrant’s Report on Form 8-K dated November 8, 2007).
|
10.26
|
Support Agreement, dated November 8, 2007, among Jeffrey P. Zernov, Nature Vision, Inc. and M&I Business Credit, LLC (previously filed as Exhibit 10.9 to the Registrant’s Report on Form 8-K dated November 8, 2007).
|
10.27
|
Asset Purchase Agreement, dated September 20, 2007, among Nature Vision, Inc., Cass Creek International, LLC, Gary R. Lynn, John T. Bergstue and James G. Streib (previously filed as Exhibit 10.5 to the Registrant’s Report on Form 8-K dated September 19, 2007).
|
10.28
|
Promissory Note, dated September 20, 2007, in the principal amount of $500,000 executed by Nature Vision, Inc. in favor of Cass Creek International, LLC (previously filed as Exhibit 10.6 to the Registrant’s Report on Form 8-K dated September 19, 2007).
|
10.29
|
Noncompetition Agreement, dated September 20, 2007, among Nature Vision, Inc., Cass Creek International, LLC, Gary R. Lynn, John T. Bergstue, Todd E. Hallquist and James G. Streib (previously filed as Exhibit 10.8 to the Registrant’s Report on Form 8-K dated September 19, 2007).
|
10.30
|
Inventions Royalty Agreement, dated September 20, 2007, among Nature Vision, Inc., Gary R. Lynn, John T. Bergstue, James G. Streib, Todd E. Hallquist and Jabez Development, LLC (previously filed as Exhibit 10.9 to the Registrant’s Report on Form 8-K dated September 19, 2007).
|
10.31
|
Demand Promissory Note, dated October 19, 2007, in the principal amount of $1,000,000 executed by Nature Vision, Inc. in favor of Richard Kiphart (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated October 19, 2007).
|
10.32
|
Warrant for the Purchase of Shares of Common Stock of Nature Vision, Inc., dated October 19, 2007, issued to Richard Kiphart (previously filed as Exhibit 10.2 to the Registrant’s Report on Form 8-K dated October 19, 2007).
|
10.33
|
Employment Letter, dated November 26, 2007, between Nature Vision, Inc. and David M. Kolkind (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated November 19, 2007).
|
10.34
|
Proprietary Information and Inventions Agreement, dated November 26, 2007, between Nature Vision, Inc. and David Kolkind (previously filed as Exhibit 10.2 to the Registrant’s Report on Form 8-K dated November 19, 2007).
|
10.35
|
Summary of compensation arrangements for Chief Executive Officer and non-employee members of the board of directors (previously disclosed in the Registrant’s Report on Form 8-K dated December 12, 2007).
|
10.36
|
Purchase Agreement, dated March 10, 2008, between Nature Vision, Inc. and Natzel, LLC (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated March 14, 2008).
|
10.37
|
Demand Promissory Note, dated July 8, 2008, in the principal amount of $1,000,000 executed by Nature Vision, Inc. in favor of Richard Kiphart (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated July 11, 2008).
|
10.38
|
Warrant for the Purchase of Shares of Common Stock of Nature Vision, Inc., dated July 8, 2008, issued to Richard Kiphart (previously filed as Exhibit 10.2 to the Registrant’s Report on Form 8-K dated July 11, 2008).
|
20
10.39
|
Promissory Note dated October 27, 2008 in the principal amount of $700,000 executed by Nature Vision, Inc. in favor of Jeffrey P. Zemov (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated October 30, 2008).
|
10.40
|
Warrant for the Purchase of Shares of Common Stock of Nature Vision, Inc., dated October 27, 2008, issued to Jeffrey P. Zernov (previously filed as Exhibit 10.2 to the Registrant’s Report on Form 8-K dated October 30, 2008).
|
10.41
|
Stock Subscription Agreement with Swordfish Financial, Inc. (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K dated September 4, 2009.
|
10.42
|
Voluntary Surrender of Collateral Agreement with M&I Business Credit, LLC filed as Exhibit 10.2 to the Registrant’s Report on Form 8-K dated September 4, 2009.
|
14.1
|
Code of Business Conduct and Ethics (previously filed as Exhibit 14.1 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005).
|
21.1
|
Subsidiaries (previously filed as Exhibit 21.1 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005).
|
23.1
|
Consent of Independent Registered Public Accounting Firm.
|
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. |
21
Swordfish Financial, Inc.
(Formerly Nature Vision, Inc.)
Financial Statements
Years Ended December 31, 2011 and 2010
Contents
Report of Independent Registered Public Accounting Firm for the years ended December 31, 2011 and 2010
|
|
F-1
|
|
||
Financial Statements:
|
|
|
Balance Sheets at December 31, 2011 and 2010
|
|
F-2
|
Statements of Operations for the years ended December 31, 2011 and 2010
|
|
F-3
|
Statements of Stockholders’ Deficit for years ended December 31, 2011 and 2010
|
|
F-4
|
Statements of Cash Flows for the years ended December 31, 2011 and 2010
|
|
F-5
|
Notes to Financial Statements
|
|
F-6
|
22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Swordfish Financial, Inc.:
I have audited the accompanying balance sheet of Swordfish Financial, Inc. (the Company) as of December 31, 2011 and 2010, and the related statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2011. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. I was not engaged to perform an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Swordfish Financial, Inc. as of December 31, 2011 and 2010, and the results of its operations and cash flows for each of the years in the two-year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the company has suffered recurring losses from operations and negative cash flows from operations the past three years. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Patrick Rodgers, CPA, PA
Patrick Rodgers, CPA, PA
Altamonte Springs, FL
April 13, 2012
F - 1
Swordfish Financial, Inc. and Subsidiaries
(Formerly Nature Vision, Inc.)
Consolidated Balance Sheets
December 31, 2011 and 2010
2011
|
2010
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash and Cash Equivalents
|
$
|
26,332
|
$
|
14,796
|
||||
Accounts Receivable, net
|
0
|
8,500
|
||||||
Note Receivable – Related Party
|
3,500,000
|
3,500,000
|
||||||
Accrued Interest Receivable –Related Party
|
415,625
|
240,625
|
||||||
Other Receivables
|
0
|
0
|
||||||
Total Current Assets
|
3,941,957
|
3,763,921
|
||||||
Office equipment – net
|
649
|
849
|
||||||
TOTAL ASSETS
|
$
|
3,942,606
|
$
|
3,764,770
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Term Notes Payable
|
$
|
481,421
|
$
|
601,421
|
||||
Notes Payable - Affiliate, net of discounts of $4,164 and $37,500
|
1,245,836
|
1,212,500
|
||||||
Judgments Payable
|
1,102,037
|
1,035,091
|
||||||
Convertible Notes Payable, net of discount of $25,600
|
71,900
|
0
|
||||||
Current Portion of Deferred Retirement Benefits
|
245,738
|
148,522
|
||||||
Accounts Payable
|
820,182
|
820,182
|
||||||
Advances from shareholders
|
106,950
|
71,100
|
||||||
Accrued Expenses
|
1,713,145
|
1,213,402
|
||||||
Total Current Liabilities
|
5,787,209
|
5,102,218
|
||||||
LONG-TERM LIABILITIES
|
||||||||
Deferred Retirement Benefits, Net of Current Portion
|
193,044
|
290,260
|
||||||
Total Non-Current Liabilities
|
193,044
|
290,260
|
||||||
Total Liabilities
|
5,980,253
|
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 December 31, 2011 and 2010 were 20,000,000 and 0, respectively
|
2,000
|
0
|
||||||
Common Stock, $0.0001Par Value per Share, 1,000,000,000 Shares Authorized, Issued and
outstanding at December 31, 2011 and 2010 were 320,732,363 and 243,860,000, respectively
|
32,073
|
24,386
|
||||||
Additional Paid-In Capital
|
6,876,820
|
5,929,387
|
||||||
Accumulated Deficit
|
(8,948,540)
|
(7,581,481)
|
||||||
Total Stockholders’ Equity
|
(2,037,647)
|
(1,627,708)
|
||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
3,942,606
|
$
|
3,764,770
|
See accompanying notes to consolidated financial statements.
F - 2
Swordfish Financial, Inc. and Subsidiaries
(Formerly Nature Vision, Inc.)
Consolidated Statements of Operations
Years Ended December 31, 2011 and 2010
2011
|
2010
|
|||||||
SALES, NET
|
$
|
0
|
$
|
0
|
||||
COST OF GOOD SOLD
|
0
|
0
|
||||||
GROSS PROFIT
|
0
|
0
|
||||||
OPERATING EXPENSES
|
||||||||
General and Administrative
|
1,021,256
|
2,272,985
|
||||||
Total Operating Expenses
|
1,021,256
|
2,272,985
|
||||||
LOSS FROM OPERATIONS
|
(1,021,256)
|
(2,272,985)
|
||||||
OTHER INCOME (EXPENSE)
|
||||||||
Interest Expense
|
(527,917)
|
(610,580)
|
||||||
Interest Income
|
175,000
|
175,000
|
||||||
Other Income (Expense)
|
7,114
|
12,287
|
||||||
Net Other Expenses
|
(345,803)
|
(423,293)
|
||||||
LOSS FROM OPERATIONS BEFORE TAXES
|
(1,367,059)
|
(2,698,278)
|
||||||
PROVISION FOR INCOME TAX EXPENSE
|
0
|
0
|
||||||
NET LOSS
|
$
|
(1,367,059)
|
$
|
(2,696,278)
|
||||
Net Loss per Common Share
|
||||||||
Basic
|
$
|
(0.005)
|
$
|
(0.017)
|
||||
Diluted
|
$
|
(0.005)
|
$
|
(0.017)
|
||||
Weighted Average Common Shares
|
||||||||
Basic
|
267,351,143
|
157,160,000
|
||||||
Diluted
|
267,351,143
|
157,160,000
|
See accompanying notes to consolidated financial statements.
F - 3
Swordfish Financial, Inc. and Subsidiaries
(Formerly Nature Vision, Inc.)
Consolidated Statement of Stockholders’ Equity
Years Ended December 31, 2011 and 2010
Shares
|
Common
Stock
|
Additional
Paid-In
Capital
|
Retained
Earnings
(Accumulated
Deficit)
|
Total
Stockholders’
Equity
|
||||||||||||||||
Balance, December 31, 2009
|
13,400,000 | $ | 2,144,002 | $ | 1,756,011 | $ | (4,885,203 | ) | $ | (985,190 | ) | |||||||||
Shares issued for cash
|
1,092,000 | 174,720 | 34,000 | 208,720 | ||||||||||||||||
Shares issued for services
|
9,894,000 | 1,583,040 | - | 1,583,040 | ||||||||||||||||
Warrants issued to creditors
|
12,000 | 12,000 | ||||||||||||||||||
Discount on convertible notes
|
250,000 | 250,000 | ||||||||||||||||||
Net loss
|
— | — | — | (2,696,278 | ) | (2,696,278 | ) | |||||||||||||
Balance, December 31, 2010
|
24,386,000 | $ | 3,901,762 | $ | 2,052,011 | $ | (7,581,481 | ) | $ | (1,627,708 | ) | |||||||||
Adjust beginning of year
Numbers for restated par to
$0.0001 per share
|
(3,899,323 | ) | 3,899,323 | |||||||||||||||||
Shares returned to treasury
|
2,500,000 | (250 | ) | 250 | ||||||||||||||||
Adjust shares for 10 to 1 split
|
218,757,006 | 21,876 | (21,876 | ) | ||||||||||||||||
Reissue shares previously
returned to treasury, adjusted
for 10 to 1 split
|
25,000,000 | 2,500 | (2,500 | ) | ||||||||||||||||
Shares issued for cash
|
8,115,334 | 811 | 306,809 | 307,620 | ||||||||||||||||
Shares issued for services
|
16,000,000 | 1,600 | 358,400 | 360,000 | ||||||||||||||||
Shares issued for note
payable conversions
|
30,974,023 | 3,097 | 160,903 | 164,000 | ||||||||||||||||
Discount on convertible notes
payable
|
123,500 | 123,500 | ||||||||||||||||||
Net loss
|
- | - | - | (1,367,059 | ) | (1,367,059 | ) | |||||||||||||
Balance, December 31, 2011
|
320,732,363 | $ | 32,073 | $ | 6,876,820 | $ | (8,948,540 | ) | $ | (2,039,647 | ) | |||||||||
Preferred
Stock
|
2,000 | |||||||||||||||||||
$ | (2,037,647 | ) |
See accompanying notes to consolidated financial statements.
F - 4
Swordfish Financial, Inc. and Subsidiaries
(Formerly Nature Vision, Inc.)
Consolidated Statements of Cash Flows
For Years Ended December 31, 2011 and 2010
2011
|
2010
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net loss
|
$
|
(1,367,059)
|
$
|
(2,696,278)
|
||||
Adjustments to reconcile net loss to net cash flows from operating activities:
|
||||||||
Depreciation
|
200
|
95
|
||||||
Amortization of discount on convertible notes payable
|
187,236
|
212,500
|
||||||
Expense of discount on common stock sales
|
0
|
57,900
|
||||||
Stock based compensation
|
50,000
|
1,583,040
|
||||||
Stock issued for services
|
312,000
|
0
|
||||||
Warrants issued to creditors
|
0
|
12,000
|
||||||
Adjustment of note payable for previous warrant expenses
|
0
|
45,971
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
8,500
|
135,092
|
||||||
Accrued interest receivable
|
(175,000)
|
(175,000)
|
||||||
Judgments
|
66,946
|
0
|
||||||
Accounts payable
|
0
|
(5,460)
|
||||||
Warranty reserve
|
0
|
(200,000)
|
||||||
Accrued expenses
|
499,743
|
703,969
|
||||||
Net Cash Flows Used by Operating Activities
|
(417,434)
|
(326,171)
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchase of equipment
|
0
|
(944)
|
||||||
Net Cash Flows from Investing Activities
|
0
|
(944)
|
||||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds from note payable – related party
|
0
|
50,000
|
||||||
Proceeds from convertible notes payable
|
85,500
|
0
|
||||||
Proceeds from sale of common stock
|
307,620
|
208,720
|
||||||
Payment of advances from shareholders
|
(71,100)
|
0
|
||||||
Discount to par on common stock sales
|
0
|
(57,900)
|
||||||
Advances from shareholders
|
106,950
|
71,100
|
||||||
Net Cash Flows from Financing Activities
|
428,970
|
271,920
|
||||||
Net Change in Cash and Cash Equivalents
|
11,536
|
(55,195)
|
||||||
CASH AND CASH EQUIVALENTS - January 1, 2011 and 2010
|
14,796
|
69,991
|
||||||
CASH AND CASH EQUIVALENTS - December 31, 2011 and 2010
|
$
|
26,332
|
$
|
14,796
|
See accompanying notes to consolidated financial statements
F - 5
SWORDFISH FINACIAL, INC. AND SUBSIDIARIES
(Formerly Nature Vision, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 Texas corporation. 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.
F - 6
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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, contract payable 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.
CASH AND CASH EQUIVALENTS
The Company maintains its cash balances in various area banks. Cash balances are insured up to $250,000 per bank by the FDIC. The balances, at times, may exceed federally insured limits. The Company defines cash and cash equivalents as highly liquid, short-term investments with a maturity at the date of acquisition of three months or less.
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 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 not been reduced by an allowance for uncollectible accounts at December 31, 2011 and 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 was 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 Company expects payment of the note and accrued interest to be made by the Texas corporation. The note bears interest at the rate of 5% per annum the note and the related accrued interest at December 31, 2011 and 2010 was $415,625 and $240,625, respectively. 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 from the Texas corporation.
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 FASB ASC Topic "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.
If we determine that the carrying amount of long-lived assets, including intangible assets, may not be recoverable, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model or another valuation technique. Considerable management judgment is necessary in estimating future cash flows and other factors affecting the valuation of long-lived assets, including intangible assets, including the operating and macroeconomic factors that may affect them. We use historical financial information, internal plans, and projections and industry information in making such estimates.
F - 7
GOODWILL
The Company applies ASC Topic 3650, "Intangibles--Goodwill and Other," which sets forth financial and reporting standards for the acquisition of intangible assets, other than those acquired in a business combination, and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill no longer be amortized but tested for impairment on a periodic basis.
The Company had no goodwill as of December 31, 2011.
DEPRECIATION
Property and equipment are recorded at cost. Depreciation for leasehold improvements is provided for using the straight-line method over the shorter of the lease term or useful life. Depreciation for property and equipment is provided for using the straight-line method over useful lives ranging from three to seven years. Improvements are capitalized while maintenance and repairs are expensed when incurred.
Upon retirement or disposition, cost and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
REVENUE RECOGNITION
The Company’s revenues will be generated from successful recovery projects. Each project will have its own terms as to the percentage of the recovery that the Company will retain as revenue. The recovery revenues will be recognized by the Company when it takes possession of the revenues from each individual project, and be recognized in accordance with generally accepted accounting principles as outlined in the SEC’s Staff Accounting Bulletin No. 104 “Revenue Recognition” which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) reasonably assured it is collectible; and (iv) product delivery has occurred. The Company’s policy is to present tax imposed on revenue producing transactions on a gross basis.
RESEARCH AND DEVELOPMENT
The Company expenses as general and administrative expense all costs related two product research and development agreements carried over from the previous company over the term of the agreements. Research and development expense expensed relating to these two consulting agreements as detailed in Note 11 was $235,000 and $384,984 for the years ended December 31, 2011 and 2010, respectively.
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted the fair value recognition and measurements provisions of SFAS No. 123(R) (now ASC Topic 505, “Equity”), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS No. 123(R) is being applied on the modified-prospective-transition method. Prior to the adoption of SFAS 123(R), the Company accounted for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and accordingly, recognized no compensation expense related to the stock-based plans.
In accordance with SFAS No. 123(R), 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 SFAS No. 123(R), such excess income tax benefits were presented as operating cash flows. There were no cash flows from income tax benefits for the years ended December 31, 2011 and 2010.
The Company did not issue any stock options during the year ended December 31, 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 years ended December 31, 2011 and 2010, respectively. There were no anti-dilutive options and warrants at December 31, 2011.
F - 8
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.
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 Company files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. state and local jurisdictions. 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 net assets. 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. It must be applied to all existing tax positions upon initial adoption and the cumulative effect, if any, is to be reported as an adjustment to stockholder’s equity.
Based on its analysis, the Company has determined that the adoption of this policy did not have a material impact on the Company’s financial statements upon adoption. However, 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.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The federal and state tax returns are open to examination for the years 2005-2011.
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 May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-04, Fair Value Measurement (Topic 820) . This ASU is intended to create consistency between U.S. GAAP and International Financial Reporting Standards on the definition of fair value and on the guidance on how to measure fair value and on what to disclose about fair value measurements. This ASU will be effective for financial statements issued for fiscal periods beginning after December 15, 2011, with early adoption prohibited for public entities. The Company is currently evaluating the impact ASU 2011-04 will have on its consolidated financial statements and disclosures.
In December 2011, theFinancial Accounting Standards Board (FASB) issuedAccounting Standards Update (ASU) No. 2011-11 “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 requires an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective disclosure is required for all comparative periods presented. We are assessing the impact of ASU 2011-11 on our disclosures.
In September 2011, the FASB issued ASU No. 2011-08 “Intangibles — Goodwill and Other (Topic 350) - Testing Goodwill for Impairment.” ASU 2011-08 allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of the reporting unit. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We are assessing the impact of ASU 2011-08 on our goodwill impairment test but do not expect an impact on our financial condition or results of operations.
F - 9
In June 2011, the FASB issued ASU No. 2011-05 “Comprehensive Income (Topic 220) — Presentation of Comprehensive Income.” ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In December 2011, FASB issued ASU No. 2011-12 which defers the effective date of the requirement in ASU 2011-05 to present items that are reclassified from accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. ASU 2011-05 is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. We are assessing the impact of ASU 2011-05 on our comprehensive income presentation.
In May 2011, the FASB issued ASU No. 2011-04 “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Consequently, the amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs (International Financial Reporting Standards). ASU 2011-04 is effective prospectively during interim and annual periods beginning on or after December 15, 2011. Early application by public entities is not permitted. We are assessing the impact of ASU 2011-04 on our fair value disclosures.
In April 2011, the FASB issued ASU No. 2011-03 “Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreement.” ASU 2011-03 removes from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. We are assessing the impact of ASU 2011-03 on our financial condition, results of operations, and disclosures.
In April 2011, the FASB issued ASU No. 2011-02 “Receivables (Topic 310) — A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” ASU 2011-02 clarifies whether loan modifications constitute troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 was effective July 1, 2011 and was applied retrospectively to January 1, 2011. The new disclosures are presented in Note 4 - Loan and Lease Financings. The effect of applying this standard was not material.
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 – GOING CONCERN
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 $1,367,059 in 2011 and $2,696,278 in 2010 and had an accumulated deficit of $8,948,540 as of December 31, 2011. We have managed our liquidity during the fourth quarter of 2011 and first part of first quarter of 2012 through cost reduction initiatives and the proceeds from the sale of common stock and advances from shareholders. The Company is in default on notes payable and outstanding judgments totaling $1,731,421 and $1,102,037, respectively, and expects to repay the notes payable, judgments and accrued interest plus all of its other liabilities from the proceeds derived from the first asset recovery it completes.
NOTE 3 – NOTES PAYABLE - Affiliate
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 approximately $150,000 and $150,000 of interest for the years ended December 31, 2011 and 2010, respectively. The entire principal and interest became payable upon demand anytime after August 17, 2010.
F - 10
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. The Company incurred approximately $30,000 and $30,000 of interest for the years ended December 31, 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 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. The Company incurred approximately $ 7,500 and $2,759 of interest expense for the years ended December 31, 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.
NOTE 4 – TERM NOTES PAYABLE
Term notes payable consisted of the following at December 31, 2011 and 2010:
December 31,
2011
|
December 31,
2010
|
|||||||
Unsecured Note Payable – former Chief Executive Officer – payable August 17, 2010 – at 15% interest.
|
330,000
|
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
|
481,421
|
601,421
|
||||||
Less: Current portion
|
481,421
|
601,421
|
||||||
Term Notes Payable - Long term portion
|
$
|
0
|
$
|
0
|
Accrued interest payable on the term notes payable was $676,269 and $411,522 at December 31, 2011 and 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.
F - 11
NOTE 5 – JUDGMENTS PAYABLE
Judgments Payable consisted of the following at December 31, 2011 and 2010:
December 31,
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%.
|
553,114
|
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 awarded a judgment in the amount of $74,175 plus
interest at the rate of 9%. Judgment converted to receivership in January 2011 by
District Court in Harris County, Texas.
|
106,498
|
75,110
|
||||||
Total Judgments Payable
|
$
|
1,102,037
|
$
|
1,035,091
|
NOTE 6 – CONVERTIBLE PROMISSORY NOTES
Convertible Promissory Notes consisted of the following notes and discounts at December 31, 2011:
September 9, 2011 convertible promissory note
|
$ | 53,000 | ||
November 22, 2011 convertible promissory note
|
32,500 | |||
December 9, 2011 convertible promissory note
|
38,000 | |||
Less discounts on the convertible promissory notes
|
(51,600 | ) | ||
$ | 71,900 |
The Company has entered into two Security Purchase Agreements with an accredited investor for the sale of convertible promissory notes bearing interest at 8.0% per annum. The first note dated September 9, 2011 for $53,000 is payable on or before June 12, 2012. The second note dated November 22, 2011 is payable on or before August 28, 2012. Pursuant to the convertible promissory notes the investor may convert the amount paid towards the Securities Purchase Agreements 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 these convertible debentures is not paid within ten (10) days of when it is due, the note shall become immediately due and payable and the Company shall pay to the noteholder in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of the then outstanding principal amount of the Note plus accrued and unpaid interest on the unpaid principle amount of the Note to the date of payment plus default interest, if any.
F - 12
The Company shall have the right to prepay the principle and accrued interest of the convertible promissory notes during the first 180 days from the issue date at amount from 130% to 150%. The Company evaluated the terms of the convertible notes in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible Notes did not result in a derivative. The Company evaluated the terms of the convertible notes and concluded that there was a beneficial conversion feature since the convertible notes are convertible into shares of common stock at a discount to the market value of the common stock. 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 convertible promissory notes which were treated as loan discounts of $53,000 and $32,500, based on intrinsic values. The discounts related to the beneficial conversion features are being amortized over the term of the promissory notes. For the year ended December 31, 2011, the Company recognized $20,376 of interest expense related to the amortization of the discounts.
On December 9, 2011, the Company converted $40,000 of a note payable to a convertible promissory note due December 31, 2012 with interest at 15% per annum. Pursuant to the convertible promissory notes the investor may convert the amount paid towards the Securities Purchase Agreements into common stock of the Company at a conversion price equal to 50% 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 these convertible debentures is not paid within ten (10) days of when it is due, the note shall become immediately due and payable and the Company shall pay to the noteholder in full satisfaction of its obligations hereunder, an amount equal to the greater of 150% times the sum of the then outstanding principal amount of the Note plus accrued and unpaid interest on the unpaid principle amount of the Note to the date of payment plus default interest, if any. The note was fully converted ($2,000 in 2012 and $38,000 by the middle of January 2012.) The Company evaluated the terms of the convertible notes and concluded that there was a beneficial conversion feature since the convertible notes are convertible into shares of common stock at a discount to the market value of the common stock. The Company recorded a discount equal to the value of the convertible promissory note and amortized the total discount to interest expense in 2012.
NOTE 7 – ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 2011 and 2010:
December 31,
2011
|
December 31,
2010
|
|||||||
Accrued consulting fees
|
$
|
809,951
|
$
|
574,955
|
||||
Accrued commissions
|
71,033
|
71,033
|
||||||
Accrued interest expense
|
676,269
|
411,522
|
||||||
Accrued royalties
|
11,589
|
11,589
|
||||||
Accrued miscellaneous expenses
|
144,303
|
144,303
|
||||||
Total Accrued Expenses
|
$
|
1,713,145
|
$
|
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 December 31, 2011, there were 320,732,363 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.
F - 13
During the three months ended December 31, 2011, the Company issued 30,974,023 shares for the conversion of $82,000 of notes payable.
During the three months ended December 31, 2011, the Company issued 5,000,000 for legal services and valued the shares at $50,000.
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.
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 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 15,000,000 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.
The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4 (2) thereof.
F - 14
Warrants
In 2010, the Company issued 50,000 warrants to a creditor exercisable at $0.50 per shares. The warrants were exercised on March 1, 2011. The Company valued the warrants 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 years ended December 31:
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 years ended December 31 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
|
%
|
The net deferred tax assets and liabilities included in the financial statements consist of the following amounts at December 31:
2011
|
2010
|
|||||||
Deferred Tax Assets
|
||||||||
Net operating loss carryforwards
|
$
|
1,937,800
|
$
|
1,353,000
|
||||
Deferred compensation
|
0
|
0
|
||||||
Other allowances
|
0
|
0
|
||||||
Total
|
1,937,800
|
1,353,000
|
||||||
Less valuation allowances
|
(1,937,800
|
)
|
(1,353,000)
|
|||||
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 $584,800 and $839,000 for the years ended December 31, 2011 and 2010, respectively. 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 $817,058 and $606,570 for the years ended December 31, 2011 and 2010, respectively.
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.
F - 15
The Company has federal and state net operating losses of approximately $1,937,800 available at December 31, 2011 which, if not used, will begin to expire in 2025. Future changes in the ownership of the Company may place limitations on the use of these net operating losses.
NOTE 10 - DEFERRED RETIREMENT BENEFITS
The Company has retirement benefit agreements with past employees, which are funded by life insurance. Under the agreements, covered individuals become vested immediately upon death or if employed at age 65. Benefit costs were recognized over the period of service and recorded as accrued retirement benefits. The total accrued balance due was $438,782 at December 31, 2011 and 2010.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Employment Agreement
The Company has no employment agreements as of December 31, 2011.
Other Commitments
The Company has an obligation of $591,315 relating to a research and development consulting agreement with an outside entity that exist from the period prior to the merger/acquisition agreement. The agreement had two components requiring monthly installments of $14,583 for research and development services and $8,333 for product support services. At December 31, 2011 the amount remaining to be accrued on the agreement was $0. The Company recognized $174,996 of expense relating to this agreement for the year ended December 31, 2011, which is included in general and administrative expense.
The Company has an obligation of $166,911relating to a research and development consulting agreement with an outside entity that exist from the period prior to the merger/acquisition agreement. The agreement has two components for monthly installments of $5,000 for research and development services and $4,166 for product support services. At December 31, 2011 the amount remaining to be accrued on the agreement was $0. The Company recognized $60,000 of expense relating to this agreement for the year ended December 31, 2011, which is included in general and administrative expense.
Legal Proceedings
Various creditors have brought suit for collections of their claims against the Company. These liabilities are recorded above in Note 5 – Judgments Payable. Management is of the opinion that the outcome will not have a material adverse effect on our business, financial condition, or results of operation.
NOTE 12 – 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.
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 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 entire principal and interest is payable upon demand anytime after August 17, 2010.
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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 13 – CONCENTRATIONS AND OTHER RISKS
The Company had no major customers or suppliers as of December 31, 2011 and 2010 as the operations of the former company, Nature Vision, were discontinued as the result of the M&I Business Credit LLC foreclosure and sell-off of the Company’s assets in 2009. The Company is now concentrating on the recovery of assets assigned to the Company, which when recovered will be use to retire the Company’s debits and invest in other operations deemed appropriate by the management.
NOTE 14 - SUPPLEMENTAL CASH FLOWS
2011
|
2010
|
|||||||
Supplemental Cash Flow Disclosures
|
||||||||
Cash paid for interest
|
$
|
0
|
$
|
0
|
||||
Cash paid for income taxes
|
$
|
0
|
$
|
0
|
||||
Noncash investing and financing activities
|
||||||||
Fair value of common stock issued for services
|
$
|
360,000
|
$
|
1,583,040
|
NOTE 15 - RETIREMENT PLAN
The Company had a 401(K) Employee Retirement Plan that was terminated in 2009.
NOTE 16 –SUBSEQUENT EVENTS
In January 2012, the Company issued 17,808,547 shares for the conversion of $38,000 of convertible notes payable.
In January and February 2012, the Company issued 69,968,750 shares of restricted common stock to individuals in private placements for a total of $85,350.
In January and February 2012, the Company issued 22,500,000 shares of restricted common stock to its Chief Executive Officer for services and valued the shares at $0.001 per share.
In January and February 2012, the Company issued 22,500,000 shares of restricted common stock to its Chief Financial Officer for services and valued the shares at $0.001 per share.
In February 2012, the Company issued 36,363,636 shares for the conversion of $40,000 of convertible notes payable.
In February 2012, the Company issued 14,000,000 shares for legal services valued at $70,000.
In February 2012, a judgment of $105,000 held by a receiver was purchased by a third party, who converted the debt to 76,836,110 shares of the Company’s common stock in February and March of 2012.
In March 2012, the Company issued 49,320,236 shares for the conversion of $53,000 of a convertible note payable plus $2,120 in accrued interest.
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