Attached files
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EXCEL - IDEA: XBRL DOCUMENT - SoOum Corp. | Financial_Report.xls |
EX-31.2 - SoOum Corp. | sfi10qaex312093013.htm |
EX-32.1 - SoOum Corp. | sfi10qaex321093013.htm |
EX-31.1 - SoOum Corp. | sfi10qaex311093013.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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.)
|
1400 W Northwest Hwy
Grapevine, TX 76051
(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.
x 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 x 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 x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
The number of shares of issuer’s common stock, par value $0.0001 per share, outstanding as of November 8, 2013, was 693,245,251. The registrant has no other classes of securities outstanding.
EXPLANATORY NOTE
The purpose of this Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013, filed with the Securities and Exchange Commission on November 22, 2012 (the "Form 10-Q"), is to replace in its entirety the Form 10-Q due to the fact that the Form 10-Q was not reviewed by the Company’s independent registered public accounting firm Patrick Heyn CPA prior to its filing with the Securities and Exchange Commission. The Company is filing herewith revised financial statements for the nine and three months ended September 30, 2013. The revised financial statements do not contain material changes on earnings as previously reported on the original Form 10-Q.
PART I
|
FINANCIAL INFORMATION
|
Page
Number
|
|||
Item 1:
|
Condensed Financial Statements
|
||||
Condensed Consolidated Balance Sheets – September 30, 2013 (Unaudited) and December 31, 2012
|
1
|
||||
Condensed Consolidated Statements of Operations – Nine Months Ended September 30, 2013 and 2012 (Unaudited)
|
2
|
||||
Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2013 and 2012 (Unaudited)
|
3
|
||||
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
4
|
||||
Item 2:
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
10
|
|||
Item 3:
|
Quantitative and Qualitative Disclosures About Market Risk
|
12
|
|||
PART II
|
OTHER INFORMATION
|
||||
Item 1:
|
Legal Proceedings
|
12
|
|||
Item 1A:
|
Risk Factors
|
12
|
|||
Item 2:
|
Defaults Upon Senior Securities
|
12
|
|||
Item 3:
|
Submission of Matters to a Vote of Security Holders
|
12
|
|||
Item 4:
|
Other Information
|
12
|
|||
Item 6:
|
Exhibits
|
13
|
|||
Signatures
|
13
|
Part I – FINANCIAL INFORMATION
Swordfish Financial, Inc. and Subsidiaries
September 30, 2013 and December 31, 2012
Unaudited
|
||||||||
September 30,
|
December 31,
|
|||||||
2013
|
2012
|
|||||||
CURRENT ASSETS
|
||||||||
Cash and Cash Equivalents
|
$
|
9,810
|
$
|
—
|
||||
—
|
||||||||
Total Current Assets
|
9,810
|
—
|
||||||
TOTAL ASSETS
|
$
|
9,810
|
$
|
—
|
||||
CURRENT LIABILITIES
|
||||||||
Term Notes Payable, in default
|
$
|
441,421
|
$
|
441,421
|
||||
Note Payable – Affiliates, net of discounts of $0 and $4,164, in default
|
1,250,000
|
1,250,000
|
||||||
Judgments Payable
|
1,057,816
|
1,030,999
|
||||||
Convertible Notes Payable, net of discounts of $73,278 and $0
|
34,722
|
—
|
||||||
Current Portion of Deferred Retirement Benefits
|
438,782
|
438,782
|
||||||
Derivative Liability
|
137,778
|
—
|
||||||
Accounts Payable
|
822,182
|
820,182
|
||||||
Advances from shareholders
|
149,185
|
149,185
|
||||||
Accrued Expenses
|
2,228,461
|
2,045,955
|
||||||
Total Current Liabilities
|
6,560,347
|
6,176,524
|
||||||
Total Liabilities
|
$
|
6,560,347
|
$
|
6,176,524
|
||||
STOCKHOLDERS’ EQUITY
|
||||||||
Preferred Stock, $0.0001 Par Value Per Share, 50,000,000 Shares Authorized, Issued and
Outstanding at December 31, 2012 were 20,000,000,
|
2,000
|
|||||||
Common Stock, $0.0001 Par Value per Share 1,000,000,000 Shares Authorized, Issued
and Outstanding at September 30, 2013 and December 31, 2012 were 783,662,300 and
764,962,300, respectively
|
78,366
|
76,496
|
||||||
Additional Paid-In Capital
|
4,561,984
|
4,457,367
|
||||||
Accumulated Deficit
|
(11,190,887
|
)
|
(10,712,387
|
)
|
||||
Total Stockholders’ Equity
|
(6,550,537
|
)
|
(6,176,524
|
)
|
||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
9,810
|
$
|
—
|
See accompanying notes to condensed consolidated financial statements.
1
Swordfish Financial, Inc. and Subsidiaries
Three Months and Nine Months Ended September 30, 2013 and 2012
Three Months Ended
|
Nine months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
September 30,
|
September 30,
|
|||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
OPERATING EXPENSES:
|
||||||||||||||||
General and administrative
|
$
|
80,886
|
$
|
540,111
|
$
|
157,570
|
$
|
1,086,598
|
||||||||
Total Operating Expenses
|
80,886
|
540,111
|
157,570
|
$
|
1,086,598
|
|||||||||||
LOSS FROM OPERATIONS
|
(80,886
|
)
|
(540,111
|
)
|
(157,570
|
)
|
(1,086,598
|
)
|
||||||||
OTHER INCOME:
|
||||||||||||||||
Fix the formatting
Interest expense
|
(123,385
|
)
|
(103,542
|
)
|
(326,165
|
)
|
(556,003
|
)
|
||||||||
Interest income
|
—
|
—
|
—
|
87,500
|
||||||||||||
Other income
|
2,560
|
—
|
5,235
|
4,482
|
||||||||||||
Net Other Expense
|
(120,825
|
)
|
(103,542
|
)
|
(320,930
|
)
|
(464,021
|
)
|
||||||||
NET (LOSS)
|
$
|
(201,711
|
)
|
$
|
(643,653
|
)
|
$
|
(478,500
|
)
|
$
|
(1,550,619
|
)
|
||||
Net loss per share:
|
||||||||||||||||
Basic and diluted net
|
||||||||||||||||
Income (loss) per share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic and diluted
|
773,581,647
|
497,888,524
|
767,835,416
|
255,073,709
|
See accompanying notes to condensed consolidated financial statements
2
Swordfish Financial, Inc. and Subsidiaries
Nine Months Ended September 30, 2013 and 2012
2013
|
2012
|
|||||||
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
|
||||||||
Net loss
|
$
|
(478,500
|
)
|
$
|
(1,550,619
|
)
|
||
Adjustments to reconcile net loss to net cash flows from operating activities
|
||||||||
Depreciation expense
|
—
|
150
|
||||||
Stock based compensation
|
—
|
299,000
|
||||||
Amortization of debt discount
|
82,222
|
77,564
|
||||||
Discounts on convertible notes payable
|
—
|
290,120
|
||||||
Unrealized Gain in change of Value in Derivatives
|
(6,051
|
)
|
||||||
Non-cash interest expense
|
32,622
|
|||||||
Changes in operating assets and liabilities
|
||||||||
Accounts receivable
|
—
|
—
|
||||||
Accrued interest receivable – related party
|
—
|
415,625
|
||||||
Accounts payable
|
2,000
|
0
|
||||||
Judgments payable
|
26,817
|
25,023
|
||||||
Accrued expenses
|
182,506
|
182,496
|
||||||
Net Cash Flows from (Used In) Operating Activities
|
(158,384
|
)
|
(260,641
|
)
|
||||
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
|
||||||||
Purchases of property and equipment
|
—
|
—
|
||||||
Net Cash Flows from (used in) Investing Activities
|
—
|
—
|
||||||
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
|
||||||||
Advances from shareholders
|
80,600
|
|||||||
Contributions from Shareholder
|
12,694
|
|||||||
Proceeds from convertible notes
|
155,500
|
|||||||
Sale of common stock
|
—
|
154,150
|
||||||
Net Cash Flows from (used in) Financing Activities
|
168,194
|
234,750
|
||||||
Net Change in Cash and Cash Equivalents
|
9,810
|
(25,891
|
)
|
|||||
CASH AND CASH EQUIVALENTS – January 1, 2013 and 2012
|
—
|
26,332
|
||||||
CASH AND CASH EQUIVALENTS – September 30, 2013 and 2012
|
$
|
9,810
|
$
|
441
|
||||
Supplemental Cash Flow Information:
|
||||||||
Cash Paid for interest expense | $ |
—
|
$ |
—
|
||||
Cash Paid for income taxes | $ |
—
|
$ |
—
|
||||
Supplemental disclosures of non-cash investing and financing activities
|
||||||||
Conversion of Notes Payable | $ |
48,800
|
$ |
—
|
||||
Settlement of Subscription Receivable | $ | 3,500,000 | $ |
—
|
See accompanying notes to condensed consolidated financial statements.
3
September 30, 2013
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 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. 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 September 30, 2013 and the condensed statements of operations and cash flows for the three and nine months ended September 30, 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 and nine months ended September, 2013 and 2012 have been included.
The results of the Company’s operations for the three and nine months ended September 30, 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. The Company previously suspended its acquisition of I-Point TV, however management anticipates the acquisition closing in the first quarter of 2014.
GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We incurred net losses of $478,500 and $1,550,619, respectively, for the nine months ended September 30, 2013 and 2012 and had an accumulated deficit of $11,190,887 as of September 30, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
We have managed our liquidity during the first three quarters 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 $1,057,816 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. These 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.
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. As of the date of this filing, the company has convertible debt which is convertible into approximately, 47,991,970 shares of common stock, additionally, There were no additional dilutive options and warrants, for the three and nine months ended September 30, 2013 and September 30, 2012, respectively.
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.
5
NOTE 2 – TERM NOTES PAYABLE
Term notes payable consisted of the following at September 30, 2013 and December 31, 2012:
September 30,
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 2012
|
30,620
|
30,620
|
||||||
Unsecured Note Payable – Castaic – monthly installments of $1,175,
including interest at 8%, from February 2008 through January 2012
|
20,246
|
20,246
|
||||||
Unsecured Note Payable – Innovative Outdoors – monthly installments
of $4,632, including interest at 7% from August 2008 through July 2012
|
100,555
|
100,555
|
||||||
Totals Term Notes Payable
|
$
|
441,421
|
$
|
441,421
|
The Company is in default on all of the notes payable.
6
NOTE 3 – CONVERTIBLE PROMISSORY NOTES
As of September 30, 2013, The Company has outstanding four (4) 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 the 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 nine (9) 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 $151,337, for all four notes combined.
Convertible Promissory Notes consisted of the following notes and discounts at September 30, 2013
|
||||
February 28, 2013 convertible promissory note
|
$
|
16,500
|
||
Less: Unamortized discounts
|
$
|
(3,667
|
)
|
|
Balance at quarter end
|
$
|
12,833
|
||
July 1, 2013 convertible promissory note
|
$
|
41,500
|
||
Less: Unamortized discounts
|
(27,667
|
)
|
||
Balance at quarter end
|
$
|
13,833
|
||
August 6, 2013 convertible promissory note
|
$
|
22,500
|
||
Less: Unamortized discounts
|
(17,500
|
)
|
||
Balance at quarter end
|
$
|
5,000
|
||
September 9, 2013 convertible promissory note
|
$
|
27,500
|
||
Less: Unamortized discounts
|
(24,444
|
)
|
||
Balance at quarter end
|
$
|
3,056
|
||
Total Convertible Note Balance as of September 30, 2013
|
$
|
34,722
|
NOTE 4 – ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2013 and December 31, 2012:
September 30,
2013
|
December 31,
2012
|
|||||||
|
||||||||
Accrued consulting fees
|
$
|
820,716
|
$
|
820,716
|
||||
Accrued commissions
|
71,033
|
71,033
|
||||||
Accrued interest expense
|
1,180,820
|
998,314
|
||||||
Accrued royalties
|
11,589
|
11,589
|
||||||
Accrued miscellaneous expenses
|
144,303
|
144,303
|
||||||
Total Accrued Expenses
|
$
|
2,228,461
|
$
|
2,045,955
|
7
NOTE 5 – STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue 1,000,000,000 shares of common stock with a par value of $0.0001 per share. At September 30, 2013, there were 783,662,300 shares of common stock issued and outstanding. Each common stock share has one voting right and the right to dividends if and when declared by the Board of Directors.
During the three months ended September 30, 2013, the Company issued 18,692,266 shares of common stock for the conversion notes payable and accrued interest totaling $48,800.
Preferred Stock
On June 1, 2011, 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.
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.
8
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 June 30, 2013 instruments measured at fair value on a recurring basis categorized as Level 3 represented approximately 1.38% 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 – September 30, 2013
|
$
|
137,778
|
$
|
137,778
|
NOTE 7 – 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. Two 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 $343,999 of accrued interest in accrued expenses.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Various creditors have brought suit for collections of their claims against the Company. These liabilities are recorded above in the balance sheet. 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 9 – SUBSEQUENT EVENT
As of the date of this filing the company has canceled and suspended its planned acquisition of I-Point TV, LLC
NOTE 10 – SUPPLEMENTAL CASH FLOWS
2013
|
2012
|
|||||||
Supplemental Cash Flow Disclosures
|
||||||||
Cash paid for interest
|
$
|
0
|
$
|
0
|
||||
Cash paid for income taxes
|
0
|
0
|
9
Forward Looking Statements
Some of the statements made in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of the terminology such as may, will, expect, anticipate, intend, believe, estimate, should or continue or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of our business, you should be aware that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. These differences may be caused by a variety of factors including, but not limited to, adverse economic conditions, intense competition, including entry of new competitors, inability to obtain sufficient financing to support our operations, progress in research and development activities, variations in costs, fluctuations in foreign currencies against the U.S. dollar in countries where we source products, adverse federal, state and local government regulation, unexpected costs, lower sales and net income (or higher net losses, than forecasted), price increases for equipment, inability to raise prices, failure to obtain new customers, the possible fluctuation and volatility of our operating results and financial condition, inability to carry out marketing and sales plans, loss of key executives and other specific risks that may be alluded to in this report.
The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with our audited consolidated financial statements and notes thereto appearing elsewhere in this report, which have been prepared assuming that we will continue as a going concern, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012. 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.
10
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 $80,886 for the three months ended September 30, 2013 compared to $540,111 for the three months ended September 30, 2012. The primary expenses for the three months ended September 30, 2013 were professional and consulting fees of approximately $48,000 and management fees of approximately $28,000.
Total operating expenses were $157,570 for the nine months ended September 30, 2013 compared to $1,086,598 for the nine months ended September 30, 2012. The primary expenses for the nine months ended September 30, 2013 were professional and consulting fees of $82,000, Management fees of approximately $45,000, and travel fees of $14,000.
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 nine months ended September 30:
(thousands)
|
2013
|
2012
|
||||||
Cash provided by (used for):
|
||||||||
Operating activities
|
$
|
(158,384
|
)
|
$
|
(260,641
|
)
|
||
Investing activities
|
0
|
0
|
||||||
Financing activities
|
168,194
|
234,750
|
||||||
Increase (decrease) in cash and cash equivalents
|
$
|
9,810
|
$
|
(25,891
|
)
|
11
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 $478,500 and $1,550,619 respectively, for the nine months ended September 30, 2013 and 2012 and had an accumulated deficit of $11,190,887 as of September 30, 2013. We have managed our liquidity during the first nine months of 2013 through advances from shareholders and the issuance of convertible notes.
Off-Balance Sheet Financing Arrangements
As of September 30, 2013, there were no off-balance sheet arrangements, unconsolidated subsidiaries and commitments or guaranties of other parties.
Critical Accounting Policies
The Company’s critical accounting policies are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2012 in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Critical Accounting Policies.” There were no significant changes to the Company’s critical accounting policies during the nine months ended September 30, 2013.
Item 3: Quantitative and Qualitative Disclosures About Market Risk.
Not applicable for small reporting company.
Item 1. 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.
Item 1A. Risk Factors
Not required by small reporting company.
Item 2. Defaults Upon Senior Securities. Not applicable.
Item 3. Submission of Matters to a Vote of Security Holders. Not applicable.
12
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.
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: January 7, 2014
|
By:
|
/s/ Clark Ortiz
|
Its: Chief Executive Officer and President
|
||
Date: January 7, 2014
|
By:
|
/s/ K. Bryce Toussaint
|
Its: Acting Chief Financial Officer
|
13