U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Amendment No. 1 to Form 10-Q)

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

 

For the quarterly period ended March 31, 2015

 

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.)

           

590 Madison Avenue II, Suite 1800, New York, New York 10022

(Address of principal executive offices)

(480) 287-6675

(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  [  ]  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 [   ]  No [  ]

 

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 [ ]  Accelerated Filer [ ]     Non-Accelerated Filer [ ]    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).

[   ]  Yes [X]  No

 

The number of shares of issuer’s common stock, par value $0.0001 per share, outstanding as of June 30, 2015 was approximately 4,487,438,286.   

SWORDFISH FINANCIAL, INC.

UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS INDEX

Page

PART I

FINANCIAL INFORMATION

Item 1:

Financial Statements

Unaudited Consolidated Balance Sheets – March 31, 2015 (Unaudited) and December 31, 2014

3

Unaudited Consolidated Statements of Operations – Three Months Ended March 31, 2015 and

2014

4

Unaudited Consolidated Statements of Cash Flows – Three Months Ended March 31, 2015

and 2014 (Unaudited)

5

Notes to Unaudited Consolidated Financial Statements

6

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3:

Quantitative and Qualitative Disclosures About Market Risks

14

Item 4:

Controls and Procedures

15

PART II - OTHER INFORMATION

Item 1:

Legal Proceedings

16

Item 1A:

 Risk Factors

16

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

16

Item 3:

Defaults Upon Senior Securities

16

Item 4:

Mine Safety Disclosures

16

Item 5:

Other Information

16

Item 6:

Exhibits

16

Signatures

17

2

SWORDFISH FINANCIAL, INC.

New York, New York

SWORDFISH FINANCIAL, INC.

New York, New York

 

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

The accompanying notes are an integral part of these financial statements.

3

 

 

SWORDFISH FINANCIAL, INC.

New York, New York

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.

 

4

SWORDFISH FINANCIAL, INC.

    New York, New York

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

The accompanying notes are an integral part of these financial statements.

 

 

5

 

SWORDFISH FINANCIAL, INC.

New York, New York

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE A – Basis of Presentation

 

The condensed consolidated financial statements of Swordfish Financial, Inc. (the “Company”) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the annual audited financial statements and the notes thereto included in the Company’s Form 10-K, and other reports filed with the SEC.

 

The accompanying unaudited interim financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented.  The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Certain information that is not required for interim financial reporting purposes has been omitted.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Swordfish Financial, Inc., and its wholly owned subsidiaries; Nature Vision, Inc. and SoOum (the “Company”).  All significant inter-company balances have been eliminated in consolidation.

 

NOTE B – Summary of Significant Accounting Policies

                All significant accounting policies can be viewed on the Company’s annual report filed with the Securities and Exchange Commission.

NOTE C – Recently Issued Accounting Standards

The Company has implemented all new accounting pronouncements that are in effect and that may impacts its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

 

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SWORDFISH FINANCIAL, INC.

New York, New York

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE D – Acquisition – iPoint Television

On January 15, 2014, the Company completed the acquisition of 90% of the issued and outstanding membership interest of iPoint.  Pursuant to the Securities and Exchange Agreement the Company issued Clark Ortiz, the Company’s CEO and Chairman, 25,000,000 shares of Swordfish’s Series A Preferred Stock, which has voting rights equal to 100 shares of the Company’s common stock and is convertible into the Company’s common stock at the rate of 10 shares of common stock for each share of Series A Preferred Stock.  In addition to issuance of the Series A Preferred Stock, the Company agreed as part of the purchase price to issue 50,000,000 shares of its common stock to Mr. Ortiz.  At the date of the transaction, the Company didn’t have any authorized and unissued shares available to issue to Mr. Ortiz, however in order to close the transaction, Mr. Ortiz agreed to close the transaction pending the Company increasing the authorized shares of common stock, which the Company did on March 25, 2014.  As a result of the transaction, the Company owns 90% of issued and outstanding membership interests in iPoint Television LLC and is therefore a majority owned subsidiary of the Company and the Company will be able to report the results of iPoint on a consolidated basis in the Company’s financial statements.  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. As an acquisition of common control we are recording the assets acquired at their cost which is $0. The Company incurred $2,500 of acquisition expense which was expensed. iPoint did not have any results from operations from the date of acquisition through March 31, 2015.

 

NOTE E – Going Concern 

The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has reported recurring losses from operations.  As a result, there is an accumulated deficit of $18,625,833 at March 31, 2015.

The Company’s continued existence is dependent upon its ability to raise capital or increase sales.  The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

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SWORDFISH FINANCIAL, INC.

New York, New York

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE F – Term Notes Payable

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

NOTE G – Convertible Promissory Notes Payable

 As of March 31, 2015, the Company has outstanding four (4) security purchase agreements with accredited investors for the sale of convertible promissory notes bearing interest at 8.0% - 12%, 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% - 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 conversion rights embedded in the 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 .07% to .15%, contractual expected life of nine (9) to twelve (12) months, expected volatility of 185% to 236%, calculated using the historical closing price of the company’s common stock, and dividend yield of zero, resulting in fair market value.

 

 

8

 

SWORDFISH FINANCIAL, INC.

New York, New York

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE G – Convertible Promissory Notes Payable (continued)

   The Company had convertible debentures outstanding as follows:

March 31, 2015		Outstanding Balance of Convertible Debenture	Unamortized Discount	Net of Principal and Unamortized Discount
Convertible Debentures
January 10, 2014 - Debenture		$      7,150	––	$        7,150
February 28, 2014 – Debenture		13,910	––	13,910
April 2, 2014 – Debenture		17,815	––	17,815
June 18, 2014 – Settlement Agreement		58,420	––	58,420
Total Convertible Debentures		$   97,295	––	$   97,295

December 31, 2014		Outstanding Balance of Convertible Debenture	Unamortized Discount	Net of Principal and Unamortized Discount
Convertible Debentures
January 10, 2014 - Debenture		$      7,150	––	$        7,150
February 28, 2014 – Debenture		13,910	(2,063)	11,847
April 2, 2014 – Debenture		20,000	(6,000)	14,000
June 18, 2014 – Settlement Agreement		58,420	(16,228)	42,192
Total Convertible Debentures		$   99,480	(24,291)	$     75,189

 

 

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SWORDFISH FINANCIAL, INC.

New York, New York

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE H – Accrued Expenses

   Accrued Expenses consisted of the following at March 31, 2015 and December 31, 2014:

NOTE I – Stockholders’ Equity

   Preferred Stock

The Company is authorized to issue up to 50,000,000 shares of preferred stock, $0.0001 par value (“Preferred Stock”), which is convertible to common at 10 to 1.  The Board of Directors authorized to fix the designations, rights, preferences, powers and limitations of each series of Preferred Stock.  The Company’s prior CEO, Clark Ortiz currently holds 25,000,000 shares of the Company’s preferred stock.

On September 26, 2014 the Board of Directors authorized an amendment to the articles of incorporation to authorize 10,000,000 shares each preferred stock class B and class C.  These shares have a $.0001 par value, have voting rights of 1,000 to 1 and are convertible to common at 1,000 to 1 and 10,000 to 1 respectively.

Common Stock 

On March 25, 2014 the Company amended their authorized Common Stock to 5,000,000,000 shares from 1,000,000,000 shares.

On March 21, 2014 the Company resolved to adopt the 2014 Incentive Stock Option and Restricted Stock Plan.  The purpose of this Plan is to provide a means by which eligible recipients may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following: (i) Incentive Stock Options, (ii) Nonqualified Stock Options, (iii) rights to acquire restricted stock, and (iv) stock appreciation rights.  Eligible Award recipients are the employees, directors and consultants of the Company and its Affiliates. The Company also seeks to retain the services of the group of persons eligible to receive Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.  450,000,000 shares of common stock are registered to this plan at an offering price of $0.001.  The Plan shall expire on March 20, 2024. 

NOTE J – Commitments and Contingencies

Various creditors have brought legal proceedings for collections of their claims against the Company.  Judgments payable at March 31, 2015 and December 31, 2014 are $1,111,448 and $1,102,510 respectively.

 

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SWORDFISH FINANCIAL, INC.

New York, New York

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE K – Related Party Transactions

The Company has borrowed funds from a former board member, two (2) current members of the Board of Directors and two (2) related parties in the amount of $1,101,792 and $1,100,611, at March 31, 2015 and December 31, 2014, respectively. The related party notes total to $5,600 at March 31, 2015 and December 31, 2014.  Two notes from the former Board of Directors total to $1,045,000 at March 31, 2015 and December 31, 2014, respectively, and are unsecured.  The third note in the amount of $50,000 at March 31, 2015 and December 31, 2014, respectively is secured by a second lien on the Company’s assets.  The notes to the former member of the Board of Directors are in default and the Company has included approximately $1,169,926 of accrued interest in accrued expenses at March 31, 2015. Amounts due to current board members total $1,181 and $-0- at March 31, 2015 and December 31, 2014, respectively.

NOTE L – Fair Value 

The Company has categorized its assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP.  All assets and liabilities are recorded at historical cost which approximates fair value, and therefore, no items were valued according to these inputs.

The levels of fair value hierarchy are as follows:

 

-Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;  

 

-Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly.

 

-Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and·

 

-Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category.  All assets and liabilities are at cost which approximates fair value and there are not items that were required to be valued on a non-recurring basis.

The following liabilities were valued at fair value as of March 31, 2015 and December 31, 2014. No other items were valued at fair value on a recurring or non-recurring basis as of March 31, 2015 and December 31, 2014.

 

 

11

 

SWORDFISH FINANCIAL, INC.

New York, New York

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE M – Merger

 

On September 23, 2014 the Company signed a merger agreement with SoOum Corp., a Delaware corporation.  Per the agreement, the outstanding shares of SoOum Corp common stock will be converted into 6,768,955 shares of the Company’s preferred stock.  This transfer of stock will result in an eighty percent (80%) ownership interest of the Company. Upon completion, the Company will be the surviving corporation and SoOum will be a wholly owned subsidiary. At the date of merger, $480,000 goodwill was acquired and posted to the Company.  At December 31, 2014 the goodwill amount of

$480,000 was impaired (See Note N).  

NOTE N – Impairment of Goodwill

 

At December 31, 2014 the Company has evaluated the balance of goodwill and has determined that it has a value of $-0-.  The Company has therefore impaired goodwill in the amount of $480,000 at December 31, 2014.

 

12

 

 

SWORDFISH FINANCIAL, INC.

New York, New York

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE O – Liability for Conversion Feature of Preferred Shares

 

Upon the issuance of the Series B Preferred and the Series C Preferred for the SoOum Corp acquisition, the owners of these securities were entitled to receive in total 80% of the common stock of the Company upon full conversion.  Assuming full conversion at a fixed conversion ratio, based on the common shares outstanding at March 31, 2015 and December 31, 2014, there would be 26,250,000,000 shares common that would be converted, which is 25,737,438,286 and 25,690,960,686 more shares respectively, than the current authorized amount.  Based on the stock price at March 31, 2015 and December 31, 2014, the total value of those shares would be $5,147,488 and $12,845,480 respectively.  In accordance with Generally Accepted Accounting Principles, the Company recorded a liability for that amount on the March 31, 2015 and December 31, 2014 financial statements.

NOTE P – Subsequent Events

 

Subsequent to March 31, 2015, the following actions were approved by the majority stockholders:

 

·

Amendment to the Company’s Articles of Incorporation to change the Company’s name to SoOum Corp.

·

Amendment to the Company’s Articles of Incorporation to increase the number of authorized preferred shares from 50 million shares to 200 million shares with a par value of $.0001.

·

Amendment to the Company’s Articles of Incorporation to effect a reverse stock split of common stock at a rate of 1,000 shares to 1.

 

13

 

 

 

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

Three Months Ended March 31, 2015 Compared With Three Months Ended March 31, 2014

Net revenues for the three months ended March 31, 2015 and 2014 was $45,900 and $-0-, respectively.  Cost of goods sold were $33,860 and $-0- for the three months ended March 31, 2015 and 2014, respectively.  Net income for the three months ended March 31, 2015 was $7,507,784 compared to net loss of $288,967 for the three months ended March 31, 2014.

 

Total operating expenses were $171,576 for the three months ended March 31, 2015 compared to $228,941 for the three months ended March 31, 2014.  The primary expenses for the three months ended March 31, 2015 were general and administrative expenses of $83,493 and interest expense of $88,083.  The primary expenses for the three months ended March 31, 2014 were general and administrative expenses of $61,534 and interest expense of $167,407.  

Other income of $7,667,320 for the three months ended March 31, 2015 consisted of potential gain on conversion of preferred stock of $7,697,992 and loss on derivatives of $30,672.    Other expenses of $60,026 for the three months ended March 31, 2014 consisted of $60,026 in loss on derivatives.

 

Liquidity and Capital Resources

Our operations used approximately $1,229 in cash for the three months ended March 31, 2015. Cash required during the three months ended March 31, 2015, came principally from cash proceeds from notes payable affiliates of $1,181.

Our operations used approximately $115,000 in cash for the three months ended March 31, 2014. Cash required during the three months ended March 31, 2014 came principally from cash proceeds from issuance of convertible debt of $115,000.

 

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 income (losses) of $7,507,784 and $(288,967) respectively, for the three months ended March 31, 2015 and 2014 and had an accumulated deficit of $18,625,833 as of March 31, 2015.  We have managed our liquidity during the first quarters of 2015 through the issuance of notes payable to affiliates.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Item 3:  Quantitative and Qualitative Disclosure about Market Risk

 

Not applicable.

 

 

 

14

 

 

 

Item 4:   Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. 

 

Based on our evaluation, our Principal Executive Officer and Principal Financial Officer, after considering the existence of material weaknesses identified, have concluded that our disclosure controls and procedures were not effective.

 

Changes in internal controls

There have been no significant changes in our internal controls or other factors that would significantly affect such controls and procedures subsequent to the date we completed our evaluation. Therefore, no corrective actions were taken.

15

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings .

To the best knowledge of the Company’s officers and directors, the Company is currently not a party to any material pending legal proceeding.

Item 1A. Risk Factors.

Not applicable as a smaller reporting company.

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

None.

Item 3. Defaults Upon Senior Securities .

None.

Item 4. Mine Safety Disclosures .

Not applicable.

Item 5. Other Information .

None.

Item 6. Exhibits

(a)

Exhibits

31.1  Amended Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002

31.2  Amended Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1 Amended Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002

32.2 Amended Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema

101.CAL XBRLTaxonomy Extension Calculation Linkbase

101.DEF XBRL Taxonomy Extension Definition Linkbase

101.LAB XBRL Taxonomy Extension Lable Linkbase

101.PRE XBRL Taxonomy Extension Presentation Linkbase

(b)

Reports of Form 8-K

None.

 

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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:  September 8, 2015

By: /s/ William Westbrook                             

     William Westbrook

 

Its:  Chief Executive Officer and President

Date:  September 8, 2015

By:   /s/ Ronald Vega                                     

       Ronald Vega

 

Its:  Treasurer and Chief Financial Officer

17