PINX:SWRF Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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

FORM 10-Q

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

For the quarterly period ended June 30, 2012

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

For the transition period from _________ to _________

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

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

142 Wembley Way
Rockwall, TX  75032
(Address of principal executive offices)

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

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

þ Yes oNo

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

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

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

o Yes þ  No

The number of shares of issuer’s common stock, par value $0.0001 per share, outstanding as of July 31, 2012, was 667,583,032.   The registrant has no other classes of securities outstanding.
 

 
 
 

 
 
 
SWORDFISH FINANCIAL, INC.

INDEX
 
PART I
     
FINANCIAL INFORMATION
Page Number
           
   
Item 1:
   
           
       
Condensed Consolidated Balance Sheets – June 30, 2012 (Unaudited) and December 31, 2011
1
           
       
Condensed Consolidated Statements of Operations - Six Months Ended June 30, 2012 and 2011 (Unaudited)
2
           
       
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2012 and 2011 (Unaudited)
3
           
       
Notes to Condensed 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 Consolidated Balance Sheets
June 30, 2012 and December 31, 2011

   
Unaudited
       
   
June 30,
   
December 31,
 
   
2012
   
2011
 
ASSETS
           
             
CURRENT ASSETS
           
Cash and Cash Equivalents
 
$
7,978
   
$
26,332
 
Accounts Receivable, net
   
0
     
0
 
Note Receivable – Related Party
   
3,500,000
     
3,500,000
 
Accrued Interest Receivable – Related Party
   
503,125
     
415,625
 
Total Current Assets
   
4,011,103
     
3,941,957
 
                 
PROPERTY AND EQUIPMENT, NET
   
549
     
649
 
TOTAL ASSETS
 
$
4,011,652
   
      $
3,942,606
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES
               
Term Notes Payable
 
 $
441,421
   
      $
481,421
 
Note Payable – Affiliates, net of discounts of $0 and $4,164
   
1,250,000
     
1,245,836
 
Judgments Payable
   
1,013,121
     
1,102,037
 
Convertible Notes Payable, net of discounts of $72,196 and $25,600
   
32,522
     
71,900
 
Current Portion of Deferred Retirement Benefits
   
294,346
     
245,738
 
Accounts Payable
   
820,182
     
820,182
 
Advances from shareholders
   
160,650
     
106,950
 
Accrued Expenses
   
1,834,817
     
1,713,145
 
Total Current Liabilities
   
5,847,059
     
5,787,209
 
                 
LONG-TERM LIABILITIES
               
Deferred Retirement Benefits, Net of Current Portion
   
144,436
     
193,044
 
Total Non-Current Liabilities
   
144,436
     
193,044
 
                 
Total Liabilities
   
5,991,495
     
5,980,253
 
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS’ EQUITY
               
    Preferred Stock, $0.0001 Par Value Per Share, 50,000,000 Shares Authorized, Issued
         and Outstanding at June 30, 2012 and December 31, 2011 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 June 30, 2012 and December 31, 2011 were 666,083,032 and
    320,732,363, respectively
   
66,608
     
32,073
 
Additional Paid-In Capital
   
7,806,555
     
6,876,820
 
Accumulated Deficit
   
(9,855,006
)
   
(8,948,540
)
Total Stockholders’ Equity
   
(1,979,843
)
   
(2,037,647
)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
4,011,652
   
$
3,942,606
 

See accompanying notes to condensed consolidated financial statements.


 
1

 



Swordfish Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

Three Months and Six Months Ended June 30, 2012 and 2011


    Three Months Ended      Six Months Ended   
    June 30,       June 30,       June 30,       June 30,    
    2012      2011      2012      2011   
OPERATING EXPENSES:
                       
  General and
                       
   administrative
  $ 52,706     $ 208,639     $ 545,987     $ 609,560  
  Total Operating Expenses
    52,706       208,629       545,987       609,560  
                                 
LOSS FROM OPERATIONS
    ( 52,706 )     (208,629 )     (545,987 )     (609,560 )
                                 
OTHER INCOME:
                               
  Interest expense
    (110,792 )     (75,076 )     (452,461 )     (205,109 )
  Interest income
    43,750       43,750       87,500       87,500  
  Other income
    4,314       4,445       4,482       4,445  
  Net Other Expense
    ( 62,828 )     (26,881 )     (360,479 )     (113,164 )
                                 
NET (LOSS)
  $ (115,434 )   $ (235,520 )   $ (906,466 )   $ (722,724 )
                                 
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
    499,904,199       248,828,893       499,904,199       248,828,893  





See accompanying notes to condensed consolidated financial statements


 
2

 


 

Swordfish Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2012 and 2011
 
   
2012
   
2011
 
             
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
           
Net loss
 
$
(906,466
)
 
$
(722,725)
 
Adjustments to reconcile net loss to net cash flows from operating activities
               
    Depreciation expense
   
100
     
100
 
Stock based compensation
   
299,000
     
210,000
 
Amortization of debt discount
   
89,586
     
16,668
 
Discounts on convertible notes payable
   
290,120
     
0
 
Changes in operating assets and liabilities
               
Accounts receivable
   
0
     
8,500
 
Accrued interest receivable – related party
   
(87,500)
     
(87,500)
 
Accounts payable
   
0
     
0
 
Judgments payable
   
16,084
     
20,973
 
Accrued expenses
   
121,672
     
326,441
 
                 
Net Cash Flows from (Used In) Operating Activities
   
(177,404
)
   
(227,543)
 
                 
                 
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
               
Purchases of property and equipment
   
0
     
0
 
                 
Net Cash Flows from (used in) Investing Activities
   
0
     
0
 
                 
                 
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
               
Advances from shareholders
   
53,700
     
(46,100)
 
Sale of common stock
   
105,350
     
273,120
 
                 
Net Cash Flows from (used in) Financing Activities
   
159,050
     
227,020
 
                 
                 
Net Change in Cash and Cash Equivalents
   
(18,354)
     
(523)
 
                 
CASH AND CASH EQUIVALENTS - January 1, 2012 and 2011
   
26,332
     
14,796
 
                 
                 
CASH AND CASH EQUIVALENTS – June 30, 2012 and 2011
 
$
7,978
   
$
14,273
 
 
See accompanying notes to condensed consolidated financial statements.



 
3

 

 


SWORDFISH FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2012


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., (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.  Based on the limited assets, product lines and resources remaining after the M&I Business Credit LLC liquidation in 2009, the Company has decided that there were 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.


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 $906,466 and $722,724, respectively, for the six months ended June 30, 2012 and 2011 and had an accumulated deficit of $9,855,006 as of June 30, 2012.  We have managed our liquidity during the first part of 2012 through the sale of common stock and advances from shareholders.  

Despite cost reduction initiatives, the Company will be unable to pay its obligations in the normal course of business or service its debt in a timely manner throughout 2012 without realizing one of its recovery projects, raising additional capital or issuing debt instruments.  There can be no assurance that the exploration of strategic alternatives will result in any specific action to alleviate the Company’s 12 month working capital needs.

INTERIM FINANCIAL INFORMATION

The accompanying condensed consolidated balance sheet at June 30, 2012 and the condensed consolidated statements of operations and cash flows for the six months ended June 30, 2012 and 2011 are unaudited. The unaudited interim condensed consolidated balance sheet and condensed consolidated statements of operations and cash flows have been prepared in accordance with accounting principles generally accepted in the United States of America and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and its cash flows for the six months ended June 30, 2012 and 2011. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited.  

The results of the Company’s operations for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. The condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2011 included in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission.

PRINCIPLES OF CONSOLIDATION

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

FINANCIAL INSTRUMENTS

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



 
4

 

ACCOUNTS RECEIVABLE

The Company reviews customers' credit history before extending unsecured credit and establishes an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers and other information. Accounts receivable are due based on agreed upon customer terms. Accounts receivable are considered past due once they are over the due date of these terms. The Company does not accrue interest on past due accounts receivable. If accounts receivable in excess of the provided allowance, are determined to be uncollectible, they are charged to expense in the year that determination is made. Accounts receivable are written off after all collection efforts have failed. Accounts receivable have been reduced by an allowance for uncollectible accounts when deemed necessary.  The Company did not deem it necessary to provide an allowance at June 30, 2012 and December 31, 2011, respectively.

            NOTE RECEIVABLE -RELATED PARTY

On August 14, 2009, the Company closed a Stock Purchase/Merger Agreement with Swordfish Financial, Inc., a Texas corporation  (which is controlled by the Company’s Chairman of the Board, President, Chief Executive Officer and majority shareholder)  pursuant to which the Company sold an aggregate of 10,987,417 shares of its common stock in exchange for a $3,500,000 promissory note, payable in two installments of $1,750,000 each with the first installment being forty-five (45) days from the date of the note and the second installment being one-hundred twenty (120) days from the date of the note.  The Company expects for the note and accrued interest to be paid by the shareholders of the Texas corporation.  The note bears interest at the rate of 5% per annum the note and the related accrued interest at June 30, 2012 was $503,125.  The Company expects to collect the balance 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 ASC Topic 360, “Property, Plant and Equipment.”  An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset or asset group is expected to generate.  If an asset or asset group is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds its fair value.  If estimated fair value is less than the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.

BASED COMPENSATION

In accordance with ASC Topic 718, “Compensation – Stock Compensation,” cash flows from income tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards have been classified as financing cash flows prospectively from January 1, 2006. Prior to adoption of ASC Topic 718, “Compensation – Stock Compensation,” such excess income tax benefits were presented as operating cash flows. There were no cash flows from income tax benefits for the six months ended June 30, 2012.

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 six months ended June 30, 2012 and 2011.

INCOME TAXES

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

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


 
5

 
 
In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.  De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce stockholders equity.  This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.  Management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. Generally, the tax filings are no longer subject to income tax examinations by major taxing authorities for years before 2006. Any potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, state and local tax laws.  The Company's management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

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.

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, the Financial Accounting Standards Board (FASB) issued Accounting 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.
 
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.
 


 
6

 

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 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:
   
June 30,
2012
   
December 31,
2011
 
             
Office furniture and equipment
 
$
944
   
$
944
 
Less: Accumulated depreciation
   
(395
)
   
(295
)
                 
Net
 
$
549
   
$
649
 

Depreciation expense of $100 and $100 was recorded for the six months ended June 30, 2012 and 2011, respectively.


NOTE 3 – NOTE PAYABLE – RELATED PARTY

Former Member of Board of Directors

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

On July 8, 2008, the Company amended the terms and replaced the original demand note issued to the member of its Board of Directors (who resigned on August 17, 2009) on October 19, 2007.  The amended demand note is held by the same member of the Company’s Board of Directors.  The demand promissory note is unsecured and bears an interest rate of 15%.  Interest is payable on the first day of each month.  The Company incurred  $75,000 of interest for the six months ended June 30, 2012 and   2011, respectively.  The entire principal and interest became payable upon demand anytime after August 17, 2010.  



 
7

 

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 $15,000 of interest for the six months ended June 30, 2012 and 2011, 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 $3,750 of interest for the six months ended June 30, 2012 and 2011, respectively.

As the result of the $200,000 and $50,000 promissory notes being convertible into the Company’s common stock they were evaluated under ASC470-20 and considered in the money on their dates of issuance resulting in an embedded beneficial conversion feature.  The conversion price of $.10 per share compared to the market price of $.40 computed to a $.30 per share intrinsic value related to each note which the Company recorded as discount of $200,000 on the $200,000 promissory note and $50,000 on the $50,000 note, as the discounts were capped at the note value.  For the year ended December 31, 2010, the Company amortized as interest expense $200,000 the entire discount recorded on the $200,000 promissory note as payment can be demanded at anytime.   For the year ended December 31, 2010, the Company amortized as interest expense $12,500 of the discount recorded on the $50,000 promissory note which had a 180 day maturity date from its date of issue.  For the six months ended June 30, 2012, the Company amortized as interest expense $4,164 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 June 30, 2012 and December 31, 2011:
   
June 30,
 2012
   
December 31,
 2011
 
             
Unsecured Note Payable – former Chief Executive Officer – payable August 17, 2010 – at 15% interest.
  $ 290,000     $ 330,000  
                 
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     $ 481,421  


Accrued interest payable on the term notes payable was $228,555 and $201,251 at June 30, 2012 and December 31, 2011, 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.



 
8

 

NOTE 5 – JUDGMENTS PAYABLE

Judgments Payable consisted of the following at June 30, 2012 and December 31, 2011:

   
June 30,
 2012
   
December 31,
 2011
 
             
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%.
   
561,758
     
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.  In February 2012, the receiver sold the debt to
A third party that then converted the debt to 76,836,110 shares of common stock.
   
0
     
106,498
 
                 
                                                               Total Judgments Payable
 
$
1,004,183
   
$
1,102,037
 


NOTE 6 – CONVERTIBLE PROMISSORY NOTES

Convertible Promissory Notes consisted of the following notes and discounts at June 30, 2012 and December 31, 2011:
 
   
June 30,
   
December 31,
 
   
2012
   
2011
 
             
September 9, 2011 convertible promissory note
  $ 0     $ 53,000  
November 22, 2011 convertible promissory note
    0       32,500  
December 9, 2011 convertible promissory note
    0       38,000  
January 19, 2012 convertible promissory note
    32,500       0  
February 22, 2012 convertible promissory note
    32,500       0  
Less discounts on the convertible promissory notes
    (32,478 )     (51,600 )
 Convertible Promissory Notes, Net of Discounts
  $ 32,522     $ 71,900  

                                                                                                         
The Company has entered into various 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.  This note plus $2,120 in accrued interest was converted to 49,320,236 shares of common stock in March of 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.  The note was fully converted  in May 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.


 
9

 

The third note dated December 9, 2011, is the result of the Company converting a $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.  The note was fully converted  in June 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.

The fourth note dated January 18, 2012 is payable on or before October 19, 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.

The fifth note dated March 12, 2012 is payable on or before December 14, 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.

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.


NOTE 7 – ACCRUED EXPENSES

Accrued expenses consisted of the following at June 30, 2012 and December 31, 2011:

   
June 30,
 2012
   
December 31,
 2011
 
                 
Accrued consulting fees
 
$
809,951
   
$
809,951
 
                 
Accrued commissions
   
71,033
     
71,033
 
                 
Accrued interest expense
   
797,941
     
676,269
 
                 
Accrued royalties
   
11,589
     
11,589
 
                 
Accrued miscellaneous expenses
   
144,303
     
144,303
 
                 
                                Total Accrued Expenses
 
$
1,834,817
   
$
1,713,145
 


 
10

 


NOTE 8 – STOCKHOLDERS’ EQUITY

Common Stock

The Company is authorized to issue 1,000,000,000 shares of common stock with a par value of $0.0001per share.  At June 30, 2012, there were 666,083,032 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 June 30, 2012, the Company issued 26,891,377 shares of its restricted common stock in private placements for a total of $36,000.

During the three months ended June 30, 2012, the Company issued 20,987,013 shares of common stock for the conversion notes payable and accrued interest totaling $33,800.
 
The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4 (2) thereof.

Preferred Stock

The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $0.0001per share.  At June 30, 2012, there were 20,000,000 shares of common stock issued and outstanding.   The Board of Directors will be authorized to fix the designations, rights, preferences, powers and limitations of each series of the Preferred Stock.

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

Warrants

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

NOTE 9 -  INCOME TAXES
 
The provision for income taxes for continuing operations consists of the following components for the six months ended June 30:
 
   
2012
   
2011
 
             
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 six months ended June 30 to the Company’s effective rate is as follows:
   
2012
   
2011
 
             
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
%



 
11

 

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

   
6/30/2012
   
12/31/2011
 
Deferred Tax Assets
           
Net operating loss carryforwards
 
$
1,152,000
   
$
1,296,000
 
Deferred compensation
   
0
     
0
 
Other allowances
   
0
     
0
 
Total
   
1,152,000
     
1,296,000
 
Less valuation allowances
   
(1,152,000
)
   
1,296,000
)
Deferred Tax Asset
 
$
                0
   
$
               0
 
                 
Deferred Tax Liabilities
               
Depreciation & amortization
 
$
                0
   
$
               0
 
                 
Net long-term deferred tax asset
 
$
                0
   
$
               0
 
 
The change in the valuation allowance was $52,000 for the six months ended June 30, 2012.  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 $1,152,000 at June 30, 2012. 
 
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, historical taxable income including available net operating loss carryforwards to offset taxable income, and projected future taxable income in making this assessment.

The Company has federal and state net operating losses of approximately $1,152,000 available at June 30, 2012 which, if not used, will begin to expire in 2024. Future changes in the ownership of the Company may place limitations on the use of these net operating losses.

NOTE 10 – RELATED PARTY TRANSACTIONS

Current Officer and Director Promissory Note to Company

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

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

Former Officer and Director Loans to Company

In October 2008, the Company borrowed $700,000 from Jeffrey P. Zernov, its former Chief Executive Officer (Mr. Zernov resigned on August 17, 2009), in order to meet its short-term cash flow requirements. This promissory note was unsecured and had an interest rate of 15%. The entire principal and accrued interest was payable on January 1, 2009, of which the Company paid $250,000 in January 2009 and $160,0000 has been purchased  and converted to common stock by a third party (the maturity date was extended to August 17, 2010 by agreement).  The balance owing at June 30, 2012 is $290,000.  The Company accrued $21,750 of interest on this loan during the six months ended June 30, 2012. 

In July 2008, the Company amended the terms and replaced the original $1,000,000 demand note issued to Richard P. Kiphart, a member of its Board of Directors (Mr. Kiphart resigned on August 17, 2009), in October 2007.  The amended $1,000,000 demand note is held by the same former member of the Company’s Board of Directors.  The demand promissory note is unsecured and bears an interest rate of 15% (the maturity date was extended to August 17, 2010 by agreement).  Interest is payable on the first day of each month, commencing on August 1, 2008.  The Company accrued $75,616of interest on this loan during the six months ended June 30, 2012.   The entire principal and interest is payable upon demand anytime after August 17, 2010. 
 
 
 
12

 

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 accrued $15,000of interest on this loan during the six months ended June 30, 2012.

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 accrued $3,750 of interest on this loan during the six months ended June 30, 2012.


 NOTE 11 - COMMITMENTS AND CONTINGENCIES

Other Commitments

The Company had a research and development consulting agreement with an outside entity that existed from the period prior to the reverse merger acquisition agreement.  The agreement has two components requiring it to pay monthly installments of $14,583 for research and development services and $8,333 for product support services.  At June 30, 2012 the full amount of the agreement has been accrued.  The Company recognized $68,748 of expense relating to this agreement for the six months ended June 30, 2011, which is included in administrative expense.

The Company has a research and development consulting agreement with an outside entity that exists from the period prior to the reverse merger acquisition agreement.  The agreement has two components requiring it to pay monthly installments of $5,000 for research and development services and $4,166 for product support services.  At June 30, 2012 the full amount of the agreement has been accrued.  The Company recognized $27,498 of expense relating to this agreement for the six months ended June 30, 2011, which is included in 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 - SUPPLEMENTAL CASH FLOWS
   
2012
   
2011
 
Supplemental Cash Flow Disclosures
           
Cash paid for interest
 
$
0
   
$
0
 
Cash paid for income taxes
   
0
     
0
 




 
13

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

Forward Looking Statements

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

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with our audited consolidated financial statements and notes thereto appearing elsewhere in this report, which have been prepared assuming that we will continue as a going concern, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 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

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

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

Despite cost reduction initiatives, the Company will be unable to pay its obligations in the normal course of business or service its debt in a timely manner throughout 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, 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.


 
14

 

Results of Operations

Plan of Operations

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

Operating Expenses

Total operating expenses were $52,706 for the three months ended June 30, 2012 compared to $208,639 for the three months ended June 30, 2011.  The decrease of $155,933 for the three months ended June 30, 2012 is attributable primarily to $96,246 decrease in consulting expenses and $50,000 expense recorded for stock based compensation.

Total operating expenses were $545,987 for the six months ended June 30, 2012 compared to $609,560 for the six months ended June 30, 2011.   The decrease of $63,573 for the six months ended June 30, 2012 is attributable primarily to $167,792 decrease in consulting expenses, decrease of $21,060 in shareholder meeting expenses, $73,000 increase in legal fees, $8,704 increase in telephone expenses, and $44,792 increase in recovery project expenses.

Other Income and Expenses

Interest expense for the three and six months ended June 30, 2012 and 2011 are composed of accrued interest expense on the Company’s outstanding notes payable and judgments.  Interest income for the three and six months ended June 30, 2012 and 2011 represented accrued interest on the note receivable – related party.

Loss from Operations

The Company recognized a loss from operations of $52,706 for the three months ended June 30, 2012, compared to a loss from operations of $208,629 for the three months ended June 30, 2011.  The decrease in the pretax loss is as a result of the change in general and administrative expenses as discussed above.

The Company recognized a loss from operations of $545,987 for the six months ended June 30, 2012, compared to a loss from operations of $609,560 for the six months ended June 30, 2011.   The decrease in the pretax loss is as a result of the change in administrative expense as discussed above.

Net Loss

The Company recognized a net loss of $115,434 for the three months ended June 30, 2012 compared to a net loss of $235,520 for the three months ended June 30, 2011.  The increase in the net loss is as a result of the change in administrative expenses as discussed above.

The Company recognized a net loss of $906,466 for the six months ended June 30, 2012 compared to a net loss of $722,725 for the six months ended June 30, 2011.  The increase in the net loss is as a result of the change in administrative expenses as discussed above.

Liquidity and Capital Resources

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

 (thousands)
 
2012
   
2011
 
Cash provided by (used for):
           
Operating activities
 
$
(177,404
 
$
(227,543)
 
Investing activities
   
0
     
0
 
Financing activities
   
159,050
     
227,020
 
Increase (decrease) in cash and cash equivalents
 
$
(18,354)
   
$
(523)
 

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 $906,466 and $722,724 respectively, for the six months ended June 30, 2012 and 2011 and had an accumulated deficit of $9,855,006 as of June 30, 2012.  We have managed our liquidity during the first six months of 2012 through advances from shareholders and the sale of common stock.

 
 
15

 

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 realizing one of its recovery projects, raising additional capital or issuing debt instruments.

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

The Company believes that the effect of inflation has not been material during the six months ended June 30, 2012.


Off-Balance Sheet Financing Arrangements

As of June 30, 2012, 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, 2011 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 six months ended June 30, 2012.

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for small reporting company.

Item 4T: Controls and Procedures.

Disclosure Controls and Procedures

          Our  management  is  responsible  for   establishing  and  maintaining adequate  internal  control  over  financial  reporting.  Internal  control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)  promulgated under the Exchange  Act as a process  designed by, or under the supervision of, the company's  principal executive officer and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and  includes those policies and procedures that:
 
  pertain to the  maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
     
  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting  principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
     
  provide reasonable assurance regarding prevention or timely detection of  unauthorized  acquisition,  use or disposition of the company's assets that could have a material effect on the financial statements.

 
          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          In June 2012, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in "Internal Control -- Integrated Framework," issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.  Based upon this assessment, we determined that there are material weaknesses affecting our internal control over financial reporting.

 
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          The  matters  involving  internal  controls  and  procedures  that our management considers to be material weaknesses under COSO and SEC rules are: (1) lack of a functioning  audit committee and lack of independent  directors on our board of  directors,  resulting in potentially ineffective oversight in the establishment and monitoring of required internal controls and procedures;  (2)
inadequate segregation of  duties consistent with control objectives; (3) insufficient written policies and procedures for accounting  and financial reporting with respect to the requirements  and application of US GAAP and SEC disclosure requirements;  and (4) ineffective controls over period end financial disclosure and reporting  processes.  The aforementioned potential material
weaknesses were identified by our Chief Financial Officer in connection with the preparation  of our financial  statements as of June 31, 2012 who communicated the matters to our management and board of directors.

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

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

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

Part II – OTHER INFORMATION

Item 1.  Legal Proceedings.

Various creditors have brought suit for collections 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.  Unregistered Sales of Equity Securities and Use of Proceeds.  

During the three months ended June 30, 2012, the Company issued 26,891,377 shares of its restricted common stock in private placements for a total of $36,000.

During the three months ended June 30, 2012, the Company issued 20,987,013 shares of common stock for the conversion notes payable and accrued interest totaling $33,800.

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

Item 3.  Defaults Upon Senior Securities.    Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.    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:  August 14,  2012
By:
 /s/ Michael Alexander
 
   
Its:  Chief Executive Officer and President
 
       
Date:  August 14,  2012
By:
 /s/ Randy Moseley
 
   
Its:  Chief Financial Officer
 
 
 




 
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PINX:SWRF Quarterly Report 10-Q Filling

PINX:SWRF Stock - Get Quarterly Report SEC Filing of PINX:SWRF stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:SWRF Quarterly Report 10-Q Filing - 6/30/2012
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