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EX-31.1 - SWORDFISH FINANCIAL, INC.sfi10qex311033113.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
____________________________

FORM 10-Q

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

For the quarterly period ended March 31, 2013

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

For the transition period from _________ to _________

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

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

909 Independence Parkway
Southlake, TX
(Address of principal executive offices)

(817) 845-6244
(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

þ Yes   o No

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

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

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

o Yes þ   No

The number of shares of issuer’s common stock, par value $0.0001 per share, outstanding as of May 23, 2013 was 764,962,300.   The registrant has no other classes of securities outstanding.
 

 
 
 

 
 
 
SWORDFISH FINANCIAL, INC.

INDEX
 
PART I
 
FINANCIAL INFORMATION
Page
Number
           
   
Item 1 :
  Condensed Financial Statements  
           
       
Condensed Balance Sheets – March 31, 2013 (Unaudited) and December 31, 2012
1
           
       
Condensed Statements of Operations - Three Months Ended March 31, 2013 and 2012 (Unaudited)
2
           
       
Condensed Statements of Cash Flows - Three Months Ended March 31, 2012 and 2011   (Unaudited)
3
           
       
Notes to Consolidated Financial Statements   (Unaudited)
4
           
   
Item 2:
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
11
           
   
Item 3:
 
Quantitative and Qualitative Disclosures About Market Risk
13
           
   
Item 4T:
 
Controls and Procedures
13
           
PART II
 
OTHER INFORMATION
 
           
   
Item 1A:
 
Legal Proceedings
14
   
Item 1A:
 
Risk Factors
14
   
Item 2:
 
Unregistered Sales of Equity Securities and Use of Proceeds
14
   
Item 3:
 
Defaults Upon Senior Securities
14
   
Item 4:
 
Submission of Matters to a Vote of Security Holders
14
   
Item 5:
 
Other Information
14
           
   
Item 6 :
 
Exhibits
14
           
       
Signatures
15
 
 

 
 

 
 


 Part I – FINANCIAL INFORMATION

Item 1: Financial Statements

Swordfish Financial, Inc. and Subsidiaries
Condensed Balance Sheets
March 31, 2012 and December 31, 2011

   
Unaudited
       
   
March 31,
   
December 31,
 
   
2013
   
2012
 
ASSETS
           
             
CURRENT ASSETS
           
Cash
 
$
7,117
   
$
-
 
Total Current Assets
   
7,117
     
-
 
                 
     
 
     
-
 
TOTAL ASSETS
 
$
7,117
   
      $
-
 
                 
LIABILITIES AND STOCKHOLDERS’ DEFICT
               
               
 
CURRENT LIABILITIES
               
Term Notes Payable
 
 $
441,421
   
      $
441,421
 
Note Payable – Affiliates
   
1,250,000
     
1,250,000
 
Judgments Payable
   
1,039,938
     
1,030,999
 
Convertible Notes Payable, net of discounts of $49,668 and $0
   
14,332
     
-
 
Derivative Liability
   
77,029
     
-
 
Deferred Retirement Benefits
   
438,782
     
438,782
 
Accounts Payable
   
820,182
     
820,182
 
Advances from shareholders
   
149,185
     
149,185
 
Accrued Expenses
   
2,106,791
     
2,045,955
 
Total Current Liabilities
   
6,337,660
     
6,176,524
 
                 
Total Liabilities
   
6,337,660
     
6,176,524
 
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS’ DEFICT
               
    Preferred Stock, $0.0001 Par Value Per Share, 50,000,000 Shares Authorized, Issued
         and Outstanding at March 31, 2013and December 31, 2012 were 20,000,000,
         respectively
   
2,000
     
2,000
 
Common Stock, $0.0001 Par Value per Share 1,000,000,000 Shares Authorized, Issued
    and Outstanding at March 31, 2013 and December 31, 2012 were 764,962,300 and
   764,962,300, respectively
   
76,496
     
76,496
 
Additional Paid-In Capital
   
4,457,367
     
4,457,367
 
Accumulated Deficit
   
(10,866,406)
 
   
(10,712,387)
 
Total Stockholders’ Equity
   
(6,330,543)
     
(6,176,524)
 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
7,117
   
$
--
 

See accompanying notes to condensed financial statements.


 
1

 
 
 
 Swordfish Financial, Inc. and Subsidiaries
Condensed Statements of Operations (Unaudited)
For the Three Months Ended March 31, 2013 and 2012

   
2013
   
2012
 
             
             
OPERATING EXPENSES
               
General and Administrative
 
56,883
     
493,281
 
                 
Total Operating Expenses
   
56,883
     
493,281
 
                 
LOSS FROM OPERATIONS
   
(56,883)
 
   
(493,281)
 
                 
                 
OTHER INCOME (EXPENSE)
               
Interest expense
   
(115,537)
 
   
(341,669)
 
Interest income
   
-
     
43,750
 
Change in value of derivative financial instruments
   
18,401
     
168
 
                 
Net Other Expenses
   
(97,136)
 
   
(297,751)
 
                 
                 
LOSS FROM OPERATIONS BEFORE TAXES
   
(154,019)
 
   
(791,032)
 
                 
PROVISION FOR INCOME TAX BENEFIT
   
-
     
0
 
                 
NET LOSS
 
$
(154,019)
 
 
$
(791,032)
 
                 
                 
Net loss per common share
               
Basic and Diluted
 
$
(0.00)
 
 
$
(0.00)
 
   
$
(0.00)
   
$
(0.00)
 
                 
Weighted average common shares
               
Basic and Diluted
   
764,962,300
     
447,293,751
 
                 

See accompanying notes to condensed financial statements


 
2

 
 
Swordfish Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2013 and 2012
 
   
2013
   
2012
 
             
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
           
Net loss
 
$
(154,019
)
 
$
(791,032)
 
Adjustments to reconcile net loss to net cash flows from operating activities
               
Amortization of debt discount
   
14,332
     
50
 
        Non cash interest expense      31,430       299,000  
        Unrealized gain on change in value of derivative
 
 
(18,401)
     
48,568
 
Discounts on convertible notes payable
           
290,120
 
Changes in operating assets and liabilities
               
Accrued interest receivable – related party
   
-
     
(43,750)
 
Judgments payable
   
8,939
     
7,146
 
Accrued expenses
   
60,836
     
60,835
 
                 
Net Cash Flows from (Used In) Operating Activities
   
(56,883)
     
(129,063
 
                 
                 
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
               
Purchases of property and equipment
   
0
     
0
 
                 
Net Cash Flows from (used in) Investing Activities
   
-
     
0
 
                 
                 
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
             
 
Advances from shareholders
   
-
     
35,000
 
Loans Payable
   
64,000
     
85,350
 
                 
Net Cash Flows from (used in) Financing Activities
   
64,000
     
120,350
 
                 
                 
Net Change in Cash
   
7,117
     
(8,713)
 
                 
CASH - January 1, 2013 and 2012
   
-
     
26,332
 
                 
                 
CASH - March 31, 2013 and 2012
 
$
7,117
   
$
17,619
 
 
See accompanying notes to condensed financial statements.


 
3

 
 
 SWORDFISH FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS

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.

NATURE OF OPERATIONS

Swordfish Financial, Inc., (a Texas corporation), acquired 80% of the outstanding common stock of Nature Vision, Inc. pursuant to a stock acquisition/merger agreement on August 14, 2009.   Based on a review of these factors, the August 2009 stock acquisition agreement with Swordfish Financial, Inc., the merger was accounted for as a reverse acquisition (i.e. Nature Vision, Inc. was considered as the acquired company and Swordfish Financial, Inc., was considered as the acquiring company).  As a result, Nature Vision, Inc.’s 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. Further, the Company’s operating results (post-Merger) include Swordfish Financial, Inc., operating results prior to the date of closing and the results of the combined entity following the closing of the Merger. Swordfish Financial, Inc. Also as a result of the merger the Company changed its name from Nature Vision to Swordfish Financial, Inc.

Until approximately June 2009, the Company operated as an outdoor recreation products company which designed and marketed primarily outdoor recreation products for the sport fishing and sport hunting markets throughout the United States and Canada. Effective approximately in September 2009, the Company changed its operations to concentrating on diversified financial asset recovery for high net worth individuals and companies with orphaned or dormant assets held in financial institutions around the world.

 Effective in approximately December 2012, the Company changed its business focus to the pursuit of the acquisition of Internet media companies which provide services to home entertainment and cable business.

The Company believes that the Internet’s direct connection to homes has provided the opportunity to build out an infrastructure that is uniquely suited to deliver high quality, high definition (HD), standard definition (SD) and creatively produced TV and Radio networks with programming at a dramatically reduced price to the network creators, TV and movie producers and of course subscribers. We believe that these programs could benefit the growing community who have recognized the sincere demand for quality, entertaining, and family friendly and clean moral lifestyle.

Management believes that acquisitions in this “space” could compete with the major cable systems by providing alternative programming that the cable community does not provide and does not desire to provide, especially when combined with the top networks that the cable community does provide.  Such acquisitions could function as an addition to the present cable system in homes or as a standalone subscription service.


 
4

 
 
BASIS OF PRESENTATION

The accompanying condensed balance sheet at March 31, 2013 and the condensed statements of operations and cash flows for the three months ended March 31, 2013 and 2012 are unaudited. The unaudited interim condensed balance sheet and condensed statements of operations and cash flows have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly they do not include all of the footnotes required by generally accepted accounting principles for the year end financial statements. In the opinion of management,  all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and its cash flows for the three months ended March 31, 2013 and 2012 have been included.

The results of the Company’s operations for the quarter ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2012 included in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission.

Business Operations

Effective December 2012, the Company changed its business focus to the pursuit of the acquisition of Internet media companies which provide services to home entertainment and cable business.
 
The Company believes that the Internet’s direct connection to homes has provided the opportunity to build out an infrastructure that is uniquely suited to deliver high quality, high definition (HD), standard definition (SD) and creatively produced TV and Radio networks with programming at a dramatically reduced price to the network creators, TV and movie producers and of course subscribers. We believe that these programs could benefit the growing community who have recognized the sincere demand for quality, entertaining, and family friendly and clean moral lifestyle.
 
Management believes that acquisitions in this “space” could compete with the major cable systems by providing alternative programming that the cable community does not provide and does not desire to provide, especially when combined with the top networks that the cable community does provide.  Such acquisitions could function as an addition to the present cable system in homes or as a standalone subscription service.
 
Letter of Intent With iPoint Television
 
Effective February 13, 2013, the Company entered into a Letter of Intent to acquire iPoint Television, LLC ("iPoint"). The Letter of Intent sets forth the framework pursuant to which the Company, iPoint and certain of its members will enter into a Share Exchange Agreement pursuant to which it is contemplated that the Company will exchange shares of common and preferred stock providing the members of iPoint majority voting control over the Company for over 90% of the outstanding ownership interests of iPoint. The result of the transaction will be that the members of iPoint (or certain of such members) will become the Company's majority shareholders and iPoint will become a majority owned subsidiary of the Company. The parties plan to enter into a definitive Share Exchange Agreement, provided that the closing of the acquisition is subject to certain closing conditions, including conditions typical of acquisitions of this type and size.  iPoint Television, also known as iPoint TV, is a Smart media and entertainment company, which holds development licenses from Apple, Android, Google, Roku, Kindle and most every smart device. iPoint is a full service Internet Protocol television (IPTV), media entertainment company which develops applications for mobile and TV smart devices.

GOING CONCERN
The accompanying 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 $154,019 in 2013 and $791,032 in 2012 respectively, for the three months ended March 31, 2012 and 2012 and had an accumulated deficit of $10,866,406 as of March 31, 2013.  We have managed our liquidity during the fourth quarter of 2012 and first quarter of 2013 through cost reduction initiatives and the proceeds from the sale of common stock and issuances of convertible notes.  The Company is in default on notes payable and outstanding judgments totaling $1,691,421 and $1,039,938 respectively, and expects to repay the notes payable, judgments and accrued interest plus all of its other liabilities from the proceeds derived from the operations of acquired companies, sell of stock, or a combination of both. This factors raise substantial doubt about the Company’s abilities to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
 
5

 
 
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 three months ended March 31, 2013 and March 31, 2012, respectively.     Diluted net loss per share for the quarter ended March 31, 2013 and 2012 excluded the potentially dilutive effect of the 200,000,000 share of common stock upon the conversion of the Company’s preferred stock.

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.


 

 
6

 
 

RECENT ACCOUNTING PRONOUNCEMENTS
 
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.

Reclassification
 
Certain prior period immaterial amounts have been reclassified to conform with the current period presentation.

NOTE 2 – TERM NOTES PAYABLE
 
Term notes payable consisted of the following at March 31, 2013 and December 31, 2012:
 
   
March  31,
 2013
   
December 31,
 2012
 
             
Unsecured Note Payable – former Chief  Executive Officer – payable August 17, 2010 –            
    at 15% interest.
 
$
290,000
   
$
290,000
 
                 
Unsecured Note Payable – Castaic -  annual installments of $17,171, including interest at
8%, from January 2009 through January 2011
   
30,620
     
30,620
 
                 
Unsecured Note Payable – Castaic -  monthly installments of $1,175, including interest at
8%, from February 2008 through January 2011
   
20,246
     
20,246
 
                 
Unsecured Note Payable – Innovative Outdoors – monthly installments of $4,632,
including interest at 7% from August 2008 through July 2011
   
100,555
     
100,555
 
                 
Totals Term Notes Payable
 
$
441,421
   
$
441,421
 

The Company is in default on all of the notes payable.


 
 
7

 

NOTE 3 – CONVERTIBLE PROMISSORY NOTES

During the Quarter Ended March 31, 2013, The Company has entered into two (2) Security Purchase Agreements with accredited investors for the sale of convertible promissory notes bearing interest at 8.0% 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.  

The conversion rights embedded in the 8% Notes are accounted for as a derivative financial instruments because of the down round feature of the conversion price.  The beneficial conversion feature was valued at date of issuance using the Black-Scholes-Merton options pricing model with the following assumptions:  risk free interest rates ranging from .11%, contractual expected life of six (6) months, expected volatility of 236%, calculated using the historical closing price of the Company’s common stock, and dividend yield of zero, resulting in fair value at date of issuance of $95,429, for both notes combined.

Convertible Promissory Notes consisted of the following notes and discounts at March 31, 2013:
 
       
   
March 31, 
2013
 
       
       
January 28, 2013 convertible promissory note
  $ 32,500  
Less Unamortized discounts
    (16,370 )
Balance at quarter end
  $ 16,130  

 
February 28, 2013 convertible promissory note
  $ 31,500  
Less Unamortized discounts
    ( 23,660 )
Balance at quarter end
  $ 7,840  
 
 
Total Convertible Note Balance as of March 31, 2013    $ 23,970  
 

                                                                                                                                    
 
8

 

NOTE 4 – ACCRUED EXPENSES

Accrued expenses consisted of the following at March 31, 2013 and December 31, 2012:

   
March 31,
 2013
   
December 31,
 2012
 
                 
Accrued consulting fees
 
$
820,716
   
$
820,716
 
             
 
 
Accrued commissions
   
71,033
     
71,033
 
                 
Accrued interest expense
   
1,059,150
     
998,314
 
                 
Accrued royalties
   
11,589
     
11,589
 
                 
Accrued miscellaneous expenses
   
144,303
     
144,303
 
                 
                                Total Accrued Expenses
 
$
2,106,791
   
$
2,045,955
 


NOTE 5 – STOCKHOLDERS’ EQUITY
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 authorized to fix the designations, rights, preferences, powers and limitations of each series of the Preferred Stock.
 
In May of 2013 the preferred shareholders agreed to return the 20,000,000 preferred shares to the Company for no consideration.  Each of the preferred shareholders agreed and confirmed that the preferred shares were never properly designated and therefore were never validly issued.
 



 
9

 

NOTE 6 – FAIR VALUE MEASUREMENTS

The Company follows the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”.  This Topic defines fair value, establishes a measurement framework and expands disclosures about fair value measurements.

The Company measures financial assets in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  These levels are:

Level 1 – Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value (“NAV”) on a daily basis.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities or funds

Level 2 – Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active

Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, such as options pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions.  Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The availability of observable inputs can vary from instrument to instrument and in certain cases the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument.

Recurring Fair Value Measurement Valuation Techniques

The fair value for certain financial instruments is derived using pricing models and other valuation techniques that involve significant management judgment.  The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments.  Financial instruments for which actively quoted prices or pricing parameters are available will generally have a higher degree of price transparency than financial instruments that are thinly traded or not quoted.  In accordance with ASC Topic 820, the criteria used to determine whether the market for a financial instrument is active or inactive is based on the particular asset or liability.  As a result, the valuation of these financial instruments included significant management judgment in determining the relevance and reliability of market information available.

Derivative Financial Instruments

The Company’s derivative financial instruments consist of conversion options embedded in 8% convertible notes.  These instruments are valued with pricing models commonly used by the financial services industry using inputs generally observable in the financial services industry.  These models require significant judgment on the part of management, including the inputs utilized in its pricing models.  The Company’s derivative financial instruments are categorized in Level 3 of the fair value hierarchy.  The Company estimates the fair value of derivatives utilizing the Black-Scholes-Merton option pricing model and the following assumptions:

Convertible Note 1
 
   Beneficial
Conversion
 
       
Date of Issuance January 28, 2013
     
U.S. Treasury interest rate
    .11 %
Expected volatility
    236 %
Expected life (in years)
    .5  
Expected dividend yield
    -  
Quarter Ended March 31, 2013
       
U.S. Treasury interest rate
    .11 %
Expected volatility
    236 %
Expected life (in years)
    .33  
Expected dividend yield
    -  
 
 
 
 
10

 
 
Convertible Note 2
                      Beneficial
Conversion
 
       
Date of Issuance February 28, 2013
     
U.S. Treasury interest rate
    .13 %
Expected volatility
    236 %
Expected life (in years)
    .5  
Expected dividend yield
    -  
Quarter Ended March 31, 2013
       
U.S. Treasury interest rate
    .11 %
Expected volatility
    236 %
Expected life (in years)
    .42  
Expected dividend yield
    -  
 
Level 3 Assets and Liabilities

Level 3 liabilities include instruments whose value is determined using pricing models and for which the determination of fair values requires significant management judgment or estimation.  As of March 31, 2013 instruments measured at fair value on a recurring basis categorized as Level 3 represented approximately 1.25% of the Company’s total liabilities.

Fair values of liabilities measured on a recurring basis at as follows:
 
Liabilities
Fair value
Level 1
Level 2
Level 3
Derivative financial instruments – March 31, 2013
$ 77,028
 
 
$77,028

NOTE 7 – SUBSCRIPTION RECEIVABLE - RELATED PARTY
 
On August 14, 2009, the Company closed a Stock Purchase/Merger Agreement with Swordfish Financial, Inc., the Texas corporation  (“Swordfish Texas”)(which was controlled by the Company’s then Chairman of the Board, President, Chief Executive Officer and majority shareholder, Michael Alexander) pursuant to which the Company sold an aggregate of 109,874,170 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 accrued interest at the rate of 5% per annum. No payments were ever made on the promissory note.
 
Effective September 30, 2012, the Company and Swordfish Texas entered into a Mutual Termination of Common Stock Purchase Agreement (the “Termination Agreement”), whereby the parties agreed that the Company was in breach of the August 14, 2009, Stock Purchase/Merger Agreement; Swordfish Texas agreed to return the 109,874,170 shares of common stock which were issued to various affiliates of Swordfish Texas (mainly our former Chief Executive Officer, Michael Alexander); and the parties agreed to release each other from any and all claims and causes of actions that they had in connection with the transaction. The Company reclassified the subscription receivable to additional paid in capital.

NOTE 8 – NOTES PAYABLE - Affiliate
 
Former Member of Board of Directors

The Company has borrowed $1,250,000 for a former member of the Board of Directors.  The two of the notes totaling $1,200,000 are unsecured.  The third note totaling $50,000 is secured by a second is lien on the Company’s assets.  The notes are default and the Company has included approximately $ 269,512 of accrued interest in accrued expenses.
 
NOTE 9 - COMMITMENTS AND CONTINGENCIES

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 10 - SUPPLEMENTAL CASH FLOWS
 
   
2013
   
2012
 
Supplemental Cash Flow Disclosures
           
Cash paid for interest
 
$
0
   
$
0
 
Cash paid for income taxes
   
0
     
0
 



 
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 NOTE 11 – SUBSEQUENT EVENTS

In May of 2013 the preferred shareholders agreed to return the 20,000,000 preferred shares to the Company for no consideration.  Each of the preferred shareholders agreed and confirmed that the preferred shares were never properly designated and therefore were never validly issued.



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

Forward Looking Statements

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

Please revise and update
 
The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with our audited consolidated financial statements and notes thereto appearing elsewhere in this report, which have been prepared assuming that we will continue as a going concern, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011.  As discussed in Note 1 to the condensed consolidated financial statements, our recurring net losses and inability to generate sufficient cash flows to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.  Management’s plans concerning these matters are also discussed in Note 1 to the condensed consolidated financial statements.  This discussion contains forward-looking statements that involve risks and uncertainties, including information with respect to our plans, intentions and strategies for our businesses. Our actual results may differ materially from those estimated or projected in any of these forward-looking statements.

Overview

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 2013 without raising additional debt and/or equity capital.

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


 
 
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Results of Operations

Plan of Operations

Effective in approximately December 2012, the Company changed its business focus to the pursuit of the acquisition of Internet media companies which provide services to home entertainment and cable business.
 
The Company believes that the Internet’s direct connection to homes has provided the opportunity to build out an infrastructure that is uniquely suited to deliver high quality, high definition (HD), standard definition (SD) and creatively produced TV and Radio networks with programming at a dramatically reduced price to the network creators, TV and movie producers and of course subscribers. We believe that these programs could benefit the growing community who have recognized the sincere demand for quality, entertaining, and family friendly and clean moral lifestyle.
 
Management believes that acquisitions in this “space” could compete with the major cable systems by providing alternative programming that the cable community does not provide and does not desire to provide, especially when combined with the top networks that the cable community does provide.  Such acquisitions could function as an addition to the present cable system in homes or as a standalone subscription service.

Operating Expenses

Total operating expenses were $182,056 for the three months ended March 31, 2013 compared to $493,281for the three months ended March 31, 2012.  The primary expenses for the three months ended March 31, 2013 were interest expense of approximately$116,000, and professional consulting fees of approximately $18,000

Liquidity and Capital Resources

The Company’s cash flow from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, is summarized in the following table for the three months ended March 31:

 (thousands)
 
2013
   
2012
 
Cash provided by (used for):
           
Operating activities
 
$
(56,883
 
$
(129,063)
 
Investing activities
   
-
     
0
 
Financing activities
   
64,000
     
120,350
 
Increase (decrease) in cash and cash equivalents
 
$
7,177
   
$
(8,713)
 

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 $154,019and $791,032 respectively, for the three months ended March 31, 2013 and 2012 and had an accumulated deficit of $ 10,912,844 as of March 31, 2013.  We have managed our liquidity during the first quarter of 2013 through the issuance of convertible notes.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
 
 
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Off-Balance Sheet Financing Arrangements

As of March 31, 2013, there were no off-balance sheet arrangements, unconsolidated subsidiaries and commitments or guaranties of other parties.

Critical Accounting Policies and Estimates


Item 3: Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for small reporting company.

Part II – OTHER INFORMATION

Item 1.  Legal Proceedings.

Various creditors have brought suit for collections of their claims against the Company.  

Item 1A.  Risk Factors

Not required by small reporting company.


Item 3.  Defaults Upon Senior Securities.   Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.   Not applicable.

Item 5.  Other Information.   Not applicable.


 
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 Item 6.   Exhibits.

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

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


 
SWORDFISH  FINANCIAL,  INC.
 
       
       
Date:  June 24,  2013
By:
 /s/ Clark Ortiz
 
   
Its:  Chief Executive Officer and President
 
       
Date:  June 24,  2013
By:
 /s/ K. Bryce Toussaint
 
   
Its:  Acting Chief Financial Officer
 
 
 
 
 

 
 
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