NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
REFERENCE TO THE COMPANY
References to “we”, “us”, “our”,
“Swordfish” or the “Company” in these notes to the consolidated financial statements refer to Swordfish
Financial, Inc., a Minnesota corporation, and its subsidiaries.
NATURE OF OPERATIONS
Swordfish Financial, Inc., (a Texas corporation),
acquired 80% of the outstanding common stock of Nature Vision, Inc. pursuant to a stock acquisition/merger agreement on August
14, 2009. Based on a review of these factors, the August 2009 stock acquisition agreement with Swordfish Financial,
Inc., the merger was accounted for as a reverse acquisition (i.e. Nature Vision, Inc. was considered as the acquired company and
Swordfish Financial, Inc., was considered as the acquiring company). As a result, Nature Vision, Inc.’s assets
and liabilities as of August 14, 2009, the date of the Merger closing, have been incorporated into Swordfish’s balance sheet
based on the fair values of the net assets acquired. Further, the Company’s operating results (post-Merger) include Swordfish
Financial, Inc., operating results prior to the date of closing and the results of the combined entity following the closing of
the Merger. Swordfish Financial, Inc. Also as a result of the merger the Company changed its name from Nature Vision to Swordfish
Financial, Inc.
Until approximately June 2009, the Company operated as an
outdoor recreation products company which designed and marketed primarily outdoor recreation products for the sport fishing and
sport hunting markets throughout the United States and Canada. Effective approximately in September 2009, the Company changed its
operations to concentrating on diversified financial asset recovery for high net worth individuals and companies with orphaned
or dormant assets held in financial institutions around the world.
Effective in approximately December
2013, the Company changed its business focus to the pursuit of the acquisition of Internet media companies which provide services
to home entertainment and cable business.
The Company believes that the Internet’s
direct connection to homes has provided the opportunity to build out an infrastructure that is uniquely suited to deliver high
quality, high definition (HD), standard definition (SD) and creatively produced TV and Radio networks with programming at a dramatically
reduced price to the network creators, TV and movie producers and of course subscribers. We believe that these programs could benefit
the growing community who have recognized the sincere demand for quality, entertaining, and family friendly and clean moral lifestyle.
Management believes that acquisitions
in this “space” could compete with the major cable systems by providing alternative programming that the cable community
does not provide and does not desire to provide, especially when combined with the top networks that the cable community does provide. Such
acquisitions could function as an addition to the present cable system in homes or as a standalone subscription service.
BASIS OF PRESENTATION
The accompanying condensed balance sheet
at March 31, 2014 and the condensed statements of operations and cash flows for the three months ended March 31, 2014 and 2013
are unaudited. The unaudited interim condensed balance sheet and condensed statements of operations and cash flows have been prepared
in accordance with accounting principles generally accepted in the United States of America for interim financial information.
Accordingly they do not include all of the footnotes required by generally accepted accounting principles for the year-end financial
statements. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary
to present fairly the Company's financial position, results of operations and its cash flows for the three months ended March 31,
2014 and 2013 have been included.
The results of the Company’s operations for the
quarter ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2014. The condensed consolidated financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2013 included in the Annual Report on Form 10-K of the Company filed with the
Securities and Exchange Commission.
Business Operations
Effective December 2012, the Company
changed its business focus to the pursuit of the acquisition of Internet media companies which provide services to home entertainment
and cable business.
The Company believes that the Internet’s
direct connection to homes has provided the opportunity to build out an infrastructure that is uniquely suited to deliver high
quality, high definition (HD), standard definition (SD) and creatively produced TV and Radio networks with programming at a dramatically
reduced price to the network creators, TV and movie producers and of course subscribers. We believe that these programs could benefit
the growing community who have recognized the sincere demand for quality, entertaining, and family friendly and clean moral lifestyle.
Management believes that acquisitions
in this “space” could compete with the major cable systems by providing alternative programming that the cable community
does not provide and does not desire to provide, especially when combined with the top networks that the cable community does provide. Such
acquisitions could function as an addition to the present cable system in homes or as a standalone subscription service.
Acquisition - iPoint Television
On January 15, 2014, the Company completed
the acquisition of 90% of the issued and outstanding membership interests 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 present
the Company has no authorized and unissued shares available to be issued, however in order to close the transaction, Mr. Ortiz
has agreed to close the transaction pending the Company increasing authorized shares of common stock. As a result of the transaction
the Company owns 90% of issued and outstanding membership interests in iPoint Television LLC and therefor 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.
GOING CONCERN
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of
liabilities in the normal course of business. We incurred net losses of $ 241,355 in 2014 and $154,019 in 2013 respectively,
for the three months ended March 31, 2014 and 2013 and had an accumulated deficit of $11,623,730as of March 31, 2014. We
have managed our liquidity during the fourth quarter of 2013 and first quarter of 2013 through cost reduction initiatives and the
proceeds from the sale of common stock and issuances of convertible notes. The Company is in default on notes payable
and outstanding judgments totaling $1,250,000
and $1,030,999 respectively, and expects
to repay the notes payable, judgments and accrued interest plus all of its other liabilities from the proceeds derived from the
operations of acquired companies, sell of stock, or a combination of both. These factors raise substantial doubt about the Company’s
abilities to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
LOSS PER COMMON SHARE
Net loss per common share was based on the weighted average
number of common shares outstanding during the periods when computing the basic net loss per share. When dilutive, stock options
and warrants are included as equivalents using the treasury stock market method when computing the diluted net loss per share. There
were 2,500,000,00 and zero dilutive common stock equivalents, options and warrants, for the three months ended March 31, 2014 and
March 31, 2013, respectively. Diluted net loss per share for the quarter ended March 31, 2014 and 2013 excluded the potentially
dilutive effect of the 200,000,000 share of common stock upon the conversion of the Company’s preferred stock.
ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
significantly from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
Management does not believe that any other recently issued,
but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s
financial statements.
Reclassification
Certain prior period immaterial amounts have been reclassified
to conform with the current period presentation.
NOTE 2 – TERM NOTES PAYABLE
Term notes payable consisted of the following at March 31,
2014 and December 31, 2013:
|
|
March 31,
2014
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December 31,
2013
|
|
|
|
|
|
|
|
|
Unsecured Note Payable – former
Chief Executive Officer – payable August 17, 2010 – at
15% interest.
|
|
$
|
290,000
|
|
|
$
|
290,000
|
|
|
|
|
|
|
|
|
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|
Unsecured Note Payable –
Castaic - annual installments of $17,171, including interest at
8%, from January 2009 through
January 2011
|
|
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30,620
|
|
|
|
30,620
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|
|
|
|
|
|
|
|
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|
Unsecured Note Payable –
Castaic - monthly installments of $1,175, including interest at
8%, from February 2008
through January 2011
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20,246
|
|
|
|
20,246
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|
|
|
|
|
|
|
|
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Unsecured Note Payable –
Innovative Outdoors – monthly installments of $4,632,
including interest at 7%
from August 2008 through July 2011
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|
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100,555
|
|
|
|
100,555
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|
|
|
|
|
|
|
|
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Totals Term Notes Payable
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|
$
|
441,421
|
|
|
$
|
441,421
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|
The Company is in default on all of the notes payable.
NOTE 3 – CONVERTIBLE PROMISSORY
NOTES
As of March 31, 2014, The Company has outstanding
eight (8) Security Purchase Agreements with accredited investors for the sale of convertible promissory notes bearing
interest at 8.0% per annum. Pursuant to the convertible promissory notes the investor may convert the amount paid towards the
Securities Purchase Agreements into common stock of the Company at a conversion price equal to 50% of the average of the 3
lowest volume weighted average trading prices during the 10 day period ending on the latest complete trading day prior to the
conversion date. Trading price means the closing bi d price on the OTC Market Over-the-Counter Bulletin Board Pink
Sheets.
The conversion rights embedded in the 8% Notes are
accounted for as a derivative financial instruments because of the down round feature of the conversion price. The beneficial
conversion feature was valued at the date of issuance using the Black-Scholes-Merton options pricing model with the following
assumptions: risk free interest rates ranging from .11%, contractual expected life of nine (9) months, expected volatility of
236%, calculated using the historical closing price of the Company’s common stock, and dividend yield of zero,
resulting in fair market value.
As of March 31, 2014
August 6, 2013 convertible promissory note $22,500
Less: Unamortized discounts
(2,500)
Balance at year end $20,000
September 9, 2013 convertible promissory note $27,500
Less: Unamortized discounts
(6,110)
Balance at year end $21,390
October 8, 2013 convertible promissory note $26,500
Less: Unamortized discounts
(8,834)
Balance at year end $17,666
October 8, 2013 convertible promissory note $15,700
Less: Unamortized discounts
(6,243)
Balance at year end $9,457
November 11, 2013 convertible promissory note $4,000
Less: Unamortized discounts
(1,778)
Balance at year end $2,222
December 3, 2013 convertible promissory note $32,500
Less: Unamortized discounts
(24,556)
Balance at year end $7,944
January 29, 2014 convertible promissory note $40,000
Less: Unamortized discounts
(33,216)
Balance at year end $6,784
January 29, 2014 convertible promissory note $16,500
Less: Unamortized discounts
(13,702)
Balance at year end $2,798
February 29, 2014 convertible promissory
note $16,500
Less: Unamortized discounts
(12,833)
Balance at year end $3,667
February 29, 2014 convertible promissory note $40,000
Less: Unamortized discounts
(31,111)
Balance at year end $8,889
Total Net Convertible Note Balance as of March 31, 2014
$100,816
NOTE 4 – ACCRUED EXPENSES
Accrued expenses consisted of the following at March 31,
2014 and December 31, 2013:
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March 31,
2014
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|
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December 31,
2013
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|
|
|
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|
|
|
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Accrued consulting fees
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$
|
835,379
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|
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$
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834,345
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|
|
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|
|
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|
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Accrued commissions
|
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71,033
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|
|
|
71,033
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|
|
|
|
|
|
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Accrued interest expense
|
|
|
1,179,447
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|
|
|
1,200,473
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|
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|
|
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Accrued royalties
|
|
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11,589
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|
|
|
11,589
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|
|
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Accrued miscellaneous expenses
|
|
|
144,303
|
|
|
|
144,303
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|
|
|
|
|
|
|
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Total Accrued Expenses
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|
$
|
2,241,751
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|
|
$
|
2,261,743
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|
NOTE 5 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue of up to 50,000,000 shares
of preferred stock, $0.0001 par value ("Preferred Stock"). The Board of Directors authorized to fix the designations,
rights, preferences, powers and limitations of each series of the Preferred Stock. The Company’s CEO Clark Ortiz currently
holds 25,000,000 shares of the company’s preferred stock.
NOTE 6 – FAIR VALUE MEASUREMENTS
The Company follows the provisions of ASC Topic 820, “Fair
Value Measurements and Disclosures”. This Topic defines fair value, establishes a measurement framework and expands
disclosures about fair value measurements.
The Company measures financial assets in three levels, based
on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These
levels are:
Level 1 – Valuations for assets and liabilities
traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back
at net asset value (“NAV”) on a daily basis. Valuations are obtained from readily available pricing sources
for market transactions involving identical assets, liabilities or funds
Level 2 – Valuations for assets and liabilities
traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets
that are not active
Level 3 – Valuations for assets and liabilities
that are derived from other valuation methodologies, such as options pricing models, discounted cash flow models and similar techniques,
and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions
and projections in determining the fair value assigned to such assets or liabilities.
The availability of observable inputs can vary from instrument
to instrument and in certain cases the inputs used to measure fair value may fall into different levels of the fair value hierarchy.
In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant
to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair
value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement
of an instrument requires judgment and consideration of factors specific to the instrument.
Recurring Fair Value Measurement Valuation Techniques
The fair value for certain financial instruments is derived
using pricing models and other valuation techniques that involve significant management judgment. The price transparency
of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s
financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available will
generally have a higher degree of price transparency than financial instruments that are thinly traded or not quoted. In
accordance with ASC Topic 820, the criteria used to determine whether the market for a financial instrument is active or inactive
is based on the particular asset or liability. As a result, the valuation of these financial instruments included significant
management judgment in determining the relevance and reliability of market information available.
Derivative Financial Instruments
The Company’s derivative financial instruments consist
of conversion options embedded in 8% convertible notes. These instruments are valued with pricing models commonly used
by the financial services industry using inputs generally observable in the financial services industry. These models
require significant judgment on the part of management, including the inputs utilized in its pricing models. The Company’s
derivative financial instruments are categorized in Level 3 of the fair value hierarchy. The Company estimates the fair
value of derivatives utilizing the Black-Scholes-Merton option pricing model and the following assumptions:
Level 3 Assets and Liabilities
Level 3 liabilities include instruments whose value is determined
using pricing models and for which the determination of fair values requires significant management judgment or estimation. As
of March 31, 2014 instruments measured at fair value on a recurring basis categorized as Level 3 represented approximately 1.25%
of the Company’s total liabilities.
Fair values of liabilities measured on a recurring basis
at as follows:
Liabilities
|
Fair value
|
Level 1
|
Level 2
|
Level 3
|
Derivative financial instruments – March 31, 2014
|
$ 332,383
|
|
|
$332,383
|
NOTE 7 – NOTES PAYABLE - Affiliate
Former Member of Board of Directors
The Company has borrowed $1,250,000 for a former member of
the Board of Directors. The two of the notes totaling $1,200,000 are unsecured. The third note totaling $50,000
is secured by a second is lien on the Company’s assets. The notes are default and the Company has included approximately
$ 867,498 of accrued interest in accrued expenses.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Various creditors have brought suit for collections of their
claims against the Company. These liabilities are recorded above in 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 9 - SUPPLEMENTAL CASH FLOWS
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2014
|
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2013
|
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Supplemental Cash Flow Disclosures
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|
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Cash paid for interest
|
|
$
|
80,000
|
|
|
$
|
0
|
|
Cash paid for income taxes
|
|
|
0
|
|
|
|
0
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