UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

———————
FORM 10-Q
———————

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the quarterly period ended: September 30, 2011March 31, 2012
 
Or
 
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the transition period from: _____________ to ______________

Commission File Number: 000-28457
 
RedFin Network, Inc.
(Exact name of registrant as specified in its charter)

Nevada86-0955239
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
  
1500 West Cypress Creek Road
Suite 411
Ft. Lauderdale, Florida
33309
(Address of principal executive offices)(Zip Code)
 
(954) 769-1335
(Registrant’s telephone number, including area code)
 
Secured Financial Network, Inc.Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 filing requirements for the past 90 days.
 
 x Yes o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (subsection 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 x Yes o 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.
 
Large accelerated fileroAccelerated filero
Non-accelerated fileroSmaller reporting companyx
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).o Yesx No
 
The number of outstanding shares of the issuer’s common stock, $0.001 par value, as of November 4, 2011May 8, 2012 was 80,537,313.85,821,032.
 
 


 
1
 

 
 PART I: FINANCIAL INFORMATIONPage
   
 Item 1. Financial Statements:3
   
  Consolidated Balance Sheets – September 30, 2011March 31, 2012 (Unaudited) and December 31, 201020113
   
  Consolidated Statements of Operations  (Unaudited) Three and Nine Months  Ended September 30,March  31, 2012 and 2011 and 20104
   
  Consolidated Statements of Cash Flows (Unaudited) NineThree Months Ended September 30,March 31, 2012 and 2011 and 20105
   
  Notes to Consolidated Financial Statements6
   
 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.1314
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 1617
   
 Item 4. Controls and Procedures.17
   
 PART II: OTHER INFORMATION18
   
 Item 1. Legal Proceedings.1718
   
 Item 1A. Risk Factors.1718
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.1718
   
 Item 3. Defaults upon Senior Securities.1819
   
 Item 4.(Removed and Reserved)
 Mine Safety Disclosures
1819
   
 Item 5. Other Information.1819
   
 Item 6. Exhibits1820
 
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements.  These factors include, but are not limited to, our ability to implement our business plan and generate revenues, our ability to raise sufficient capital to fund our operations and pay our obligations as they become due, economic, political and market conditions and fluctuations, government and industry regulation, U.S. and global competition, and other factors.  Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this quarterly report and our annual report on Form 10-K for the year ended December 31, 2010,2011, including the risks described in Item 1A. - Risk Factors, in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
 
Unless specifically set forth to the contrary, when used in this report the terms “RedFin", "we"", "our", the "Company" and similar terms refer to RedFin Network, Inc, a Nevada corporation formerly known as Secured Financial Network, Inc. and its wholly-owned subsidiary Blue Bamboo USA, Inc. a Florida corporation.our subsidiary. In addition, when used herein and unless specifically set forth to the contrary, “2011”“2012” refers to the year ending December 31, 20112012 and “2010”“2011” refers to the year ended December 31, 2010.2011.  The information which appears on our websiteswebsite at www.securedfinancialnetwork.com and www.redfinnet.com is not part of this report.

 
2
 
 
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
REDFIN NETWORK, INC.REDFIN NETWORK, INC. REDFIN NETWORK, INC. 
CONSOLIDATED BALANCE SHEETSCONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEETS 
           
ASSETSASSETS ASSETS 
           
 September, 30 December 31,  March 31,  December 31, 
      2012  2011 
 2011 2010  (Unaudited)    
 (Unaudited)   
CURRENT ASSETS
           
Cash
 
$
29,604
 
$
-
 
Accounts receivable, Net
 
124,640
 
88,419
  $113,870  $128,316 
Employee Advances
 
7,268
 
13,479
   9,772   16,322 
Note Receivable  50,000   - 
Inventory
 
140,901
 
90,469
   113,245   114,735 
Product Deposits
 
30,343
 
15,281
 
Prepaid Expenses
  
4,783
  
4,783
   4,483   4,483 
             
Total Current Assets
  
337,539
  
212,431
   291,370   263,856 
             
FURNITURE AND EQUIPMENT (NET)
  
20,194
  
13,806
   16,134   18,164 
             
OTHER ASSETS
             
Refundable Deposits
 
21,747
 
8,884
   49,368   49,330 
Intangible, Net
  
34,627
  
63,899
   12,398   12,775 
             
Total Other Assets
  
56,374
  
72,782
   61,766   62,105 
             
TOTAL ASSETS
 
$
414,107
 
$
299,019
  $369,270  $344,125 
             
             
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES AND STOCKHOLDERS' DEFICIT
 LIABILITIES AND STOCKHOLDERS' DEFICIT 
             
CURRENT LIABILITIES
             
Cash Overdraft
 
$
-
 
$
8,992
  $25,807  $62,416 
Accounts Payable
 
314,910
 
477,769
   323,442   327,309 
Notes Payable
 
219,500
 
99,291
 
Notes Payable - Related Parties
 
28,291
 
-
 
Deposits Payable
 
30,066
 
21,902
   26,169   27,869 
Accrued Expenses
 
39,635
 
44,476
   51,511   51,630 
Notes Payable  350,400   144,491 
Lines of Credit  1,381,000   1,381,000 
Convertible Notes  170,500   155,500 
Derivative and Liquidating Liabilities
  
205,821
  
114,474
   388,397   349,863 
             
Total Current Liabilities
 
838,222
 
766,903
   2,717,226   2,500,079 
             
LONG TERM LIABILITIES
             
Lines of Credit
 
1,385,000
 
1,145,000
 
Notes Payable
  
58,000
  
90,000
   40,000   52,000 
             
Total Long Term Liabilities
 
1,443,000
 
1,235,000
   40,000   52,000 
             
STOCKHOLDERS' DEFICIT
             
Preferred Stock, $.001 par value, 20,000,000 shares authorized,
     
none issued, and outstanding
     
Common stock, $.001 par value, 250,000,000 shares authorized,
     
80,537,313 and 66,265,552 issued and outstanding, respectively
 
80,538
 
66,266
 
Preferred Stock authorized is 20,000,000Preferred Stock authorized is 20,000,000     
shares at $0.001 par value. None issued andshares at $0.001 par value. None issued and     
outstanding.        
Common Stock authorized is 250,000,000Common Stock authorized is 250,000,000     
shares at $0.001 par value. Issued andshares at $0.001 par value. Issued and     
outstanding on March 31, 2012 is 84,415,574outstanding on March 31, 2012 is 84,415,574     
and December 31, 2011 is 82,512,796 shares.  84,416   82,513 
Additional Paid in Capital
 
5,607,116
 
5,093,341
   5,780,843   5,689,600 
Accumulated Deficit
  
(7,554,767
)
  
(6,862,490
)
  (8,253,215)  (7,980,067)
             
Total Stockholders' Deficit
  
(1,867,114
)
  
(1,702,884
)
  (2,387,956)  (2,207,953)
             
TOTAL LIABILITIES AND
             
STOCKHOLDERS' DEFICIT
 
$
414,107
 
$
299,019
  $369,270  $344,125 
             
             
The accompanying notes are an integral part of these statements
The accompanying notes are an integral part of these statements
   The accompanying notes are an integral part of these statements 
 
 
3
 
 
REDFIN NETWORK, INC.REDFIN NETWORK, INC. REDFIN NETWORK, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED STATEMENTS OF OPERATIONS 
            
 Three Months Ended  Nine Months Ended 
(UNAUDITED)(UNAUDITED) 
 September 30,  September 30,  September 30,  September 30,       
 2011  2010  2011  2010  Three Months Ended March 31, 
 (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)  2012  2011 
                  
REVENUES                  
Sales $779,908  $418,769  $2,367,236  $1,153,238  $760,695  $626,669 
                
Cost of Goods Sold  493,314   278,521   1,453,740   770,224   506,453   401,474 
                        
Total Gross Income  286,594   140,248   913,496   383,014   254,242   225,195 
                        
EXPENSES                        
Administrative Expenses  464,993   243,432   1,197,472   677,057   358,509   322,386 
Professional and Consulting  55,281   20,013   143,021   78,384   70,272   5,100 
Depreciation and Amortization  10,176   10,565   30,528   31,696   4,357   10,176 
                        
Total Expenses  530,450   274,010   1,371,021   787,137   433,138   337,662 
                        
Net Loss before other income (expense)  (243,856)  (133,762)  (457,525)  (404,123)
Net Loss from operations before        
other income (expense)  (178,896)  (112,468)
                        
Other Income (Expense):  131   536,222   147   877,325 
Interest Income (Expense)  (58,639)  (88,468)  (143,553)  (360,164)
Deriv. and Liquid. Income (Expense)  (20,311)  32,435   (91,347)  62,233 
Interest Expense  (55,719)  (40,216)
Derivative and Liquidating Expenses  (38,534)  (130,641)
                        
                
Net Income (Loss) before Provision                
Net loss before Provision        
for Income Taxes  (322,676)  346,427   (692,278)  175,271   (273,149)  (283,325)
                        
Provision for Income Taxes  -   -   -   -   -   - 
                        
NET INCOME (LOSS) $(322,676) $346,427  $(692,278) $175,271 
NET LOSS $(273,149) $(283,325)
                        
Net Income (Loss) per Common Share                
Basic $(0.00) $0.01  $(0.01) $0.00 
Diluted $(0.00) $0.01  $(0.01) $0.00 
Basic and Diluted        
Net Loss per Common Share $(0.00) $(0.00)
                        
Weighted Average Number of Shares                        
Common Shares Outstanding -                        
Basic  76,710,928   63,068,332   73,401,433   59,769,613 
Diluted  76,710,928   63,438,105   73,401,433   60,169,386 
basic and diluted  83,464,185   66,423,052 
        
                        
                        
                        
The accompanying notes are an integral part of these statementsThe accompanying notes are an integral part of these statements         The accompanying notes are an integral part of these statements 
 
 
 
4
 
 
REDFIN NETWORK, INC.REDFIN NETWORK, INC.REDFIN NETWORK, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS
      
STATEMENTS OF CASH FLOWSSTATEMENTS OF CASH FLOWS 
(UNAUDITED)(UNAUDITED) 
 Nine Months Ended September 30,  Three Months Ended March 31, 
 2011  2010  2012  2011 
Cash Flows From Operating Activities: (unaudited)          
            
Net Loss $(692,278) $175,271  $(273,149) $(283,325)
                
Adjustments to Net Loss:                
                
Derivative and Liquidating Expenses  91,347   (374,078)  38,534   130,641 
Depreciation  1,257   8,484   2,030   419 
Amortization  29,271   23,212   7,381   9,757 
Equity Issued for Services and Interest  111,500   57,500   -   15,530 
Gain on Sale of License  -   (211,316)
Gain of Debt Forgiveness  -   (353,726)
                
Adjustments to Reconcile Net Loss to        
Net Cash (Used) by Operating Activities:     
Adjustments to Reconcile Net Loss to Net Cash        
Provided by (Used) by Operating Activities:        
                
Changes in Assets and Liabilities:                
Prepaid Expense  -   14,206 
Inventory  (50,432)  313,837   1,491   (4,013)
Employee Advances  6,550   9,398 
Customer Deposits  8,164   (3,000)  (1,700)  25,234 
Product Deposits  (15,062)  -   (38)  (41,400)
Employee Advances  6,211   (5,834)
Accrued Interest  (119)  29,067 
Accrued Expenses  39,857   354,305   -   (8,603)
Accounts Receivable  (36,221)  (9,499)  14,446   3,943 
Accounts Payable  (162,859)  (97,676)  (3,867)  (184,585)
                
Net Cash (Used) by Operating Activities  (669,246)  (108,314)  (208,441)  (297,936)
                
Cash Flows From Investing Activities:                
                
Notes Receivable  (50,000)  - 
Refundable Deposits  (12,863)      -   15,002 
Purchase of Equipment  (7,645)  (11,340)  (1,950)  (7,645)
                
Net Cash (Used) by Investing Activities  (20,508)  (11,340)
Net Cash Provided by (Used) by Investing Activities  (51,950)  7,357 
                
Cash Flows From Financing Activities:                
Notes Payable Proceeds  225,500   30,000 
Notes Payable and Line of Credit Repayments  (92,000)  (245,000)
        
Notes Payable  325,500   76,500 
Repayment of Notes Payable  (28,000)  (12,000)
Cash Overdraft  (8,992)  -   (36,609)  (8,992)
Line of Credit Advances  298,000   357,500 
Notes Payable - Related Parties Repaid  (40,000)  - 
Note Payable - Related Parties  65,000   - 
Proceeds from the sale of Common Stock  271,850   - 
Line of Credit  -   210,000 
Loans Payable - Officers  -   65,000 
Repayment of Loans Payable officers  (500)  (30,000)
                
Net Cash Provided by Financing Activities  719,358   142,500   260,391   300,508 
                
Net Change in Cash  29,604   22,845   -   9,929 
                
Cash and Cash Equivalents - Beginning  -   4,009   -   - 
                
Cash and Cash Equivalents - Ending $29,604  $26,854  $-  $9,929 
                
Supplemental Cash Flow Disclosures:                
Taxes $-  $-  $-  $- 
Interest $-  $-  $37,782  $4,120 
                
Non-Cash Financing Transactions:                
Conversion of Indebtedness for Equity $144,697  $580,384  $32,500  $- 
Equity Issued For Interest        
                
                
The accompanying notes are an integral part of these statementsThe accompanying notes are an integral part of these statements The accompanying notes are an integral part of these statements     

 
 
5
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2012 AND 2011
(unaudited)
 
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
 
The accompanying unaudited financial statements of RedFin Network, Inc. and our subsidiary (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The preparation of financial statements in conformity with generally accepted accounting principles 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 from those estimates. Operating results for the three and nine months ended September 30, 2011March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.2012. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.2011.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company has incurred losses since inception and has negative cash flows from operations. For the ninethree month periods ended September,March, 2012 and March, 2011, and September, 2010, the Company had a net losslosses of $692,278$273,149 and net income of $175,271$283,325 respectively and has a stockholders’ deficit of $1,867,114$2,387,956 as of September 30, 2011. The net income in the nine months ending September 30, 2010 was primarily attributable to non-recurring “other income.”March 31, 2012. As of September 30, 2011March 31, 2012 the Company had $29,604$0 in cash. As stated by our auditors in our most recently filed Annual Report on Form 10-K for the year ended December 31, 2010,2011, these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The future of the Company is dependent upon its ability to obtain additional equity and/or debt financing and upon future successful development and marketing of the Company’s products and services. Management is pursuing various sources of equity and debt financing but cannot assure that the Company will be able to secure such financing or obtain financing on terms beneficial to the Company. Failure to secure such financing may result in the Company’s inability to continue as a going concern.

These consolidated financial statements do not include any adjustments relating to the recoverability and classifications of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Consolidation

The accompanying consolidated financial statements of the Company RedFin Network, Inc. (RFNN), a Nevada corporation formerly known as Secured Financial Network, Inc., include the accounts of the Company named Secured Financial Network, Inc, until April 24, 2011, and its wholly owned subsidiaries,subsidiary, RedFin Network, Inc., Inc, a Florida corporation formerly (formerly known as Virtual Payment Solutions, Inc. ("RFN") and Blue Bamboo USA, Inc., Inc, a Florida corporation (“BB USA”Corporation ("RFN"). The Company created RFN in September of 2007.  In April 2011 RFN was merged into the company with the Company as the survivor.  The Company purchased BB USA in November of 2009. All significant inter-company accounts and transactions are eliminated in consolidation.

Accounts Receivable and Revenue Recognition

Accounts Receivable
The Company estimates an allowance for doubtful accounts, sales returns and allowances based on historical trends and other criteria.  At March 31, 2012 there was a $7,000 allowances on trade receivables from product sales.  The same allowance was used in December 31, 2011.

The Company recognizes revenues associated with the sale of its products upon shipment. Occasionally the Company receives a deposit on an order prior to shipment. These order deposits are booked as deposits payable until such time as the product actually ships and then it is booked as revenue.

The Company bills for its revenue relating to its data plan and payment gateway services on a monthly basis.


6
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Inventory

Inventory, which is finished goods, is stated at the lower of cost (first-in, first-out method) or market. A provision for excess or obsolete inventory is recorded at the time the determination is made.

Stock-Based Employee Compensation 

The Company has adopted the Financial Accounting Standards Board (“FASB”) guidelines that require companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.
 
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing modelOptions-Pricing Model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The impact of applying these FASB guidelines approximated $75,000$0 and $30,000$11,500 in compensation expense during the three months ended September 30,March 31, 2012 and 2011 and 2010 respectively.  The impact for the nine months ended September 30, 2011 and 2010 approximated $111,500 and $57,500 respectively.
  

6
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
(unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Business and Credit Concentration

The Company purchases the majority of its products for resale from two suppliers. As of September 30, 2011,March 31, 2012, the Company’s outstanding balance due these suppliers was $186,717.$169,543. The loss of one or both these suppliers could have a material adverse effect upon its business for a short-term period of time.
 
Net Loss Per Share

The Company has adopted the FASB guidance regarding standards for the computation, presentation and disclosure of earnings per share. The warrants excluded from the earnings per share calculations total 5,500,000,6,500,000, as the inclusion of such warrants would be anti-dilutive. In addition the Company has convertible debt which may be converted into shares.

Accounting Estimates

Management uses estimates and assumptions in preparing the Company’s consolidated financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. The reserves on the Company’s related party receivables could change in the near future. There are currently related party receivables consisting solely of cash advances made for travel and business related expenses.

Fair Value of Financial Instruments

The Company has adopted the FASB guidelines regarding the estimate of the fair value of all financial instruments included on its balance sheet as of September 30, 2011.March 31, 2012. The Company considers the carrying value of accounts receivable, accounts payable and accrued expenses in the consolidated financial statements to approximate their face value. The Company has not made an evaluation of the fair value of the recorded notes payable, derivative and liquidating liabilities on the secured convertible notes, largely as a result of the undercapitalization of the Company.

Derivative Financial Instruments

Our derivative financial instruments consist of embedded and free-standing derivatives related primarily to the convertibles notes. The embedded derivatives include the conversion features, and liquidated damages clauses in the registration rights agreement. In addition, under the accounting provisions, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock," the Company is required to classify certain other non-employee stock options and warrants (free-standing derivatives) as liabilities. The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. The recorded value of all derivatives at September 30, 2011March 31, 2012 and December 31, 20102011 totaled $205,821$388,397 and $114,474,$349,863, respectively. Any change in fair value of these instruments will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income. At September 30, 2011March 31, 2012 and December 31, 20102011 derivatives were valued primarily using the Black-Scholes Option Pricing Model.


7
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The accounting guidance establishes a fair value hierarchy based on whether the market participant assumptions used in determining fair value are obtained from independent sources (observable inputs) or reflect the Company's own assumptions of market participant valuation (unobservable inputs). A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value:

•           Level 1—Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

•           Level 2—Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or
 
•           Level 3—Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.
7
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
(unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Derivative Financial Instruments - continued

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate the Company's or the counterparty's non-performance risk is considered in determining the fair values of liabilities and assets, respectively.

The fair value of our financial instruments at September 30, 2011March 31, 2012 and December 31, 20102011 follows:
 
  Fair Value Measurements at Reporting Date Using 
Description 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
  
Significant Unobservable Inputs
(Level 3)
 
          
Derivative securities – September  30, 2011
 
$
-
  
$
-
  
$
205,821
 
             
 Derivative securities – December 31, 2010 
 
$
-
  
$
-
  
$
114,474
 
  Fair Value Measurements at Reporting Date Using 
Description 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
  
Significant Unobservable Inputs
(Level 3)
 
          
Derivative securities – March 31, 2012
 
$
-
  
$
-
  
$
388,397
 
             
 Derivative securities – December 31, 2011 
 
$
-
  
$
-
  
$
349,863
 

Recent Accounting Pronouncements

All new accounting pronouncements issued but not yet effective have been deemed not relevant, and as a result the adoption of these other new accounting pronouncement is not expected to have any impact once adopted.
 
Reclassifications

Certain reclassifications to the numbers have been made to the prior periods for presentation purposes.

NOTE 2 - ACCRUED LIABILITIES

The accrued liabilities consisted of the following:
 
 September 30, December 31,  March 31, December 31, 
 2011 2010  2012 2011 
Interest $35,472 $23,386  $51,511 $51,630 
Payroll $3,750 $19,000 
Payroll Taxes $413 $2,090 
Total $39,635 $44,476  $51,511 $51,630 

NOTE 3 – DEPOSITS AND NOTES PAYABLE

The following table contains a summary of all outstanding Deposits and Notes Payable:
  March 31, 
  2012 
Deposits Payable $26,169 
Notes Payable - Current $350,400 
Convertible Note Payable $170,500 
Lines of Credit $1,381,000 
Total $1,928,069 
 

 
8
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2012 AND 2011
(unaudited)
 
NOTE 3 -– DEPOSITS AND NOTES PAYABLE- continued
Deposits Payable

Investor The total amount of Deposits Payable as of March 31, 2012 was $26,169 and consisted of.

·$3,000 in Gateway Service Deposits
·$23,169 in Customer Order Deposits
Notes Payable

AsThe total amount of September 30, 2011, the Company’s notes payable relating to its previous container financing business total $102,000. These notes payable are subject to monthly paymentsNotes Payable as of $4,000 through JanuaryMarch 31, 2012 was $390,400 (inclusive of 2015.
Convertible Notes Payablelong-term debt) and consisted of,

·$2,791 in non-interest bearing Notes Payable to Officers

·$309,609 in Promissory Notes as follows:
$15,000 Schultz Note
On May 17,January 28, 2011, the Company entered into a Convertible Promissory Note (Note #5)$15,000 promissory note with Asher Enterprises, Inc. with a principal amountKathy Schultz, the wife of $30,000. Terms of the note are interest at 8% per annum and theour CEO, The note matures in February 2012. If the note remains unpaid after 9 months from the issue date, the holder has the option to convert the principalJanuary 2013 and accruedcarries an interest into sharesrate of our Company stock at a conversion price equal to 61% of the “trading price” as described in the Note. The proceeds from this loan were used for both the purchase of inventory as well as Company operations.15% per annum.

On September 15, 2011 the Company entered into a Convertible Promissory$25,000 Rappa Note (Note #6) with Asher Enterprises, Inc. with a principal amount of $63,000. Terms of the note are interest at 8% per annum and the note matures in June 2012. If the note remains unpaid after 9 months from the issue date, the holder has the option to convert the principal and accrued interest into shares of our Company stock at a conversion price equal to 60% of the “trading price” as described in the Note. The proceeds from this loan were used for both the purchase of inventory as well as Company operations.

Notes Payable

On March 22, 2011, the Company entered into a $25,000 Promissory Notepromissory note with Mr. Edward Rappa.Rappa, The note matures in 1 yearMarch 2013 and hascarries an interest rate of 12% per annum.
$10,000 PES, Inc. Note
On January 26, 2011, the Company entered into a $50,000 promissory note with Process Engineering Services, Inc. a company owned by our CFO. The note matures in January 2013 and carries an interest rate of 15% per annum.
$12,000 Rappa Note
On January 4, 2012, David Rappa, our vice-president of sales and marketing, loaned the Company $12,000. This loan is non-interest bearing and payable on demand.
$194,409 Feb 2012 Notes
On February 28, 2012 the company issued promissory notes to be paid monthly.three investors totaling $194,409 principal amount (net of debt discount) of short term notes. These notes carry an interest rate of 12% through August 2012 and then 15% to maturity. They mature in February 2013.

$53,200 Noriega Note
On July 1, 2011 the Company entered into a $57,500 Promissory Note with an investor. The note matures in 1 year. The proceeds of the note were used to buy ICG product inventory and the interest rate on the note is dependent on the sale of that inventory.

·$78,000 in Investor Notes
During 2005 the Company issued seventeen (17) short-term notes (average 90-days) with a specific rate of return to acquire funds to invest in high yield activities (e.g. Container financing/investment).

These notes payable are subject to monthly payments of $4,000 through September of 2014. As a result, $40,000 of these liabilities is recorded as long-term liabilities.

There was a net gain of $129,787 recorded in 2010 on these notes subject to being repaid.

Convertible Notes Payable

The total amount of Convertible Notes Payable Officersas of March 31, 2012 was $170,500 and consisted of:

On January 26,September 15, 2011 the Company entered into a $50,000$63,000 Convertible Promissory Note (Note #6) with Process Engineering Services,Asher Enterprises, Inc., with a company owned by our CFO, Michael Fasci.principal amount remaining on March 31, 2012 of $30,500. Terms of the note are repayment of 150% of the principal amount after 270 days. The note matures in 1 year and has an interest rate of 15% to be paid quarterly. As additional consideration for entering into the note, 1 share of restricted common stock was issued for each dollar loaned. As of September 30, 2011 the outstanding principal balance is $10,000 and includes $0 of accrued interest. On December 6, 2010, Process Engineering Services, Inc. also advanced the Company $3,291. This amount is non-interest bearingdue and payable upon demand.on June 15, 2012. The holder has the option to convert the principal and accrued interest into shares of our Company stock at a conversion price equal to 60% of the “trading price” as described in the Note. These proceeds from this loan were used for both the purchase of inventory as well as Company operations.

On January 28,October 31, 2011 the Company entered into a $15,000Convertible Promissory Note (Note #7) with Kathy Schultz,Asher Enterprises, Inc. with a principal amount of $42,500. Terms of the wifenote are repayment of 150% of the principal amount after 270 days. The note is due and payable on August 2, 2012. The holder has the option to convert the principal and accrued interest into shares of our CEO, Jeffrey Schultz.Company stock at a conversion price equal to 60% of the “trading price” as described in the Note. These proceeds from this loan were used for both the purchase of inventory as well as Company operations.

9
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(unaudited)
NOTE 3 – DEPOSITS AND NOTES PAYABLE - continued
On December 6, 2011 the Company entered into a Convertible Promissory Note (Note #8) with Asher Enterprises, Inc. with a principal amount of $50,000. Terms of the note are repayment of 150% of the principal amount after 270 days. The note maturesis due and payable on September 8, 2012. The holder has the option to convert the principal and accrued interest into shares of our Company stock at a conversion price equal to 60% of the “trading price” as described in 1 year and has an interest ratethe Note. These proceeds from this loan were used for both the purchase of 15% to be paid quarterly. As additional consideration for enteringinventory as well as fund Company operations.

On January 17, 2012 the Company entered into a Convertible Promissory Note (Note #9) with Asher Enterprises, Inc. with a principal amount of $47,500. Terms of the note 1 shareare repayment of restricted common150% of the principal amount after 270 days. The note is due and payable on October 13, 2012. The holder has the option to convert the principal and accrued interest into shares of our Company stock was issuedat a conversion price equal to 60% of the “trading price” as described in the Note. These proceeds from this loan were used for each dollar loaned. Asboth the purchase of September 30, 2011 the outstanding principal balance is $15,000 and includes $0 of accrued interest.inventory as well as fund Company operations.

Lines of Credit

The total amount due under our Lines of Credit as of March 31, 2012 is $1,381,000 and consisted of:

Commercial Holding:
During April 2008, the Company entered into a $500,000 line of credit with Commercial Holding, AG and amended in December 2008 to increase such line of credit to $700,000. Terms of the line of credit include interest payable at the rate of 10% per annum and repayment of principal by December 31, 2009, as amended. As part of the agreement dated April 29, 2008, Commercial Holding, AG agreed to assume $172,700 worth of notes previously owed by the Company to another creditor. This amount represents all of the borrowings by the Company from this other creditor in 2008. As additional consideration to Commercial Holding AG for entering into the line of credit, the Company agreed to immediately issue to Commercial Holding AG 2,000,000 shares of Rule 144 restricted Company common stock and a warrant to purchase 1,000,000 shares of common stock, exercisable for 5 years at $.25 per share. Such equity issuances have been valued at $59,284 and expensed as interest in 2008, as the original maturity date of the original line of credit was December 2008. As consideration for the December 2008 amendment to the line of credit another 2,000,000 shares of common stock and a warrant to purchase 1,000,000 shares of common stock, exercisable for 5 years at $.25 per share were issued. Interest expense of $8,263 was recorded and attributed to the December 2008 equity issuances in 2008, with another $139,724 recorded as deferred financing costs to be amortized through December 2009. As of June 29, 2010 the Company had used the entire $700,000 credit line and had a principal balance due on the credit line of $1,275,583.56$1,275,584 and interest owing on the credit line of $159,785.42.$159,785. On June 30, 2010, the Company agreed to exchange $425,583.56$425,584 of principal balance due on the credit line for 4,479,827 shares of restricted common stock equating to a price of $.095 per share. This exchange of debt for equity reduced the principal amount owing and payable on the Commercial Holding, AG line of credit to $850,000. This line of credit is now due and payable on December 31, 2012. As of September 30, 2011March 31, 2012 the outstanding balance due on this credit line was $1,142,000 in principal and $21,279 in accrued interest.$1,138,000.

H.E.B.:
During June 2010, the Company entered into line of credit with HEB, LLC with an initial credit limit of $400,000. Interest on outstanding balances will accrue at the rate of 14% per annum. This line of credit is due and payable on December 31, 2012. As of September 30, 2011March 31, 2012 the outstanding principal balance due on this credit line was $243,000$243,000.

NOTE 4 – NOTES RECEIVABLE

On February 29, 2012, the Company entered into a promissory note with Ellamate, Inc. of Courtland, NY by lending Ellamate, Inc. the sum of $50,000. Terms of the note are 12% interest and $13,146 in accrued interest.the note matures on August 28, 2012. In addition to the 12% interest, Ellamate has also agreed to remit 3% of their “residual” income as additional consideration.

9
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
(unaudited)
NOTE 45 - DERIVATIVE AND LIQUIDATING LIABILITIES

Asher Enterprises Convertible Notes
On May 17, 2011, the Company issued a $30,000 convertible note (Asher Note #5), convertible into shares of common stock at 61% of the then market price of the common stock.

The fair value of the total derivative liabilities of $65,491 relating to the Asher Enterprises, Inc. note as of September 30, 2011 is attributed to the Convertible Note conversion factor of 61% of market. The estimated derivative liabilities recorded were computed utilizing the Black Scholes model, with the following assumptions for the three Convertible Note agreements executed as follows:

  Convertible Note into Shares 
Market Price of Stock
 
$
0.067
 
Exercise Price
 
$
0.041
 
Term
 
One Year
 
Volatility
  
182
%
Risk Free Rate
  
.96
%
Number of Shares Assumed Issuable
  
1,350,624
 

On September 15, 2011, the Company issued a $63,000 convertible note (Asher Note(Note #6), convertible into shares of common stock at 60% of the then market price of the common stock. As of March 31, 2012 there remains $30,500 of principal amount outstanding.

The fair value of the total derivative liabilities of $140,329$69,479 relating to the Asher Enterprises, Inc. note as of September 30, 2011March 31, 2012 is attributed to the Convertible Note conversion factor of 60% of market. The estimated derivative liabilities recorded were computed utilizing the Black Scholes model, with the following assumptions for the three Convertible Note agreements executed as follows:

 Convertible Note into Shares  Convertible Note into Shares 
Market Price of Stock
 
$
0.067
  
$
0.06
 
Exercise Price
 
$
0.040
  
$
0.035
 
Term
 
One Year
  
One Year
 
Volatility
 
182
%
 
191
%
Risk Free Rate
 
.96
%
 
1.04
%
Number of Shares Assumed Issuable
  
2,883,582
   
1,612,644
 
10
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(unaudited)

NOTE 5 - DERIVATIVE AND LIQUIDATING LIABILITIES - continued
On November 4, 2011, the Company issued a $42,500 convertible note (Note #7), convertible into shares of common stock at 60% of the then market price of the common stock.

The fair value of the total derivative liabilities of $96,814 relating to the Asher Enterprises, Inc. note as of March 31, 2012 is attributed to the Convertible Note conversion factor of 60% of market. The estimated derivative liabilities recorded were computed utilizing the Black Scholes model, with the following assumptions for the three Convertible Note agreements executed as follows:

  Convertible Note into Shares 
Market Price of Stock
 
$
0.06
 
Exercise Price
 
$
0.035
 
Term
 
One Year
 
Volatility
  
191
%
Risk Free Rate
  
1.04
%
Number of Shares Assumed Issuable
  
2,247,126
 

On December 6, 2011, the Company issued a $50,000 convertible note (Note #8), convertible into shares of common stock at 60% of the then market price of the common stock.

The fair value of the total derivative liabilities of $113,900 relating to the Asher Enterprises, Inc. note as of March 31, 2012 is attributed to the Convertible Note conversion factor of 60% of market. The estimated derivative liabilities recorded were computed utilizing the Black Scholes model, with the following assumptions for the three Convertible Note agreements executed as follows:

  Convertible Note into Shares 
Market Price of Stock
 
$
0.06
 
Exercise Price
 
$
0.035
 
Term
 
One Year
 
Volatility
  
191
%
Risk Free Rate
  
1.04
%
Number of Shares Assumed Issuable
  
2,643,678
 

On January 17, 2012 the Company issued a $47,500 convertible note (Note #9), convertible into shares of common stock at 60% of the then market price of the common stock.

The fair value of the total derivative liabilities of $108,204 relating to the Asher Enterprises, Inc. note as of March 31, 2012 is attributed to the Convertible Note conversion factor of 60% of market. The estimated derivative liabilities recorded were computed utilizing the Black Scholes model, with the following assumptions for the three Convertible Note agreements executed as follows:

  Convertible Note into Shares 
Market Price of Stock
 
$
0.06
 
Exercise Price
 
$
0.035
 
Term
 
One Year
 
Volatility
  
191
%
Risk Free Rate
  
1.04
%
Number of Shares Assumed Issuable
  
2,511,494
 


 

 
1011
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2012 AND 2011
(unaudited)
 
NOTE 56 - EQUITY TRANSACTIONS

Common Stock

During the nine months ending September 30, 2011 the following equity transactions occurred:
On January 3, 2011, the Company issued to David Rappa, an employee of the Company, 250,000 shares of its restricted common stock. These shares were valued at $11,500 and were paid as additional compensation in accordance with his employment contract.

On January 26, 2011, the Company issued to Process Engineering Services, Inc., a company owned by our CFO, 50,000 shares of its restricted common stock. These shares were valued at $3,100 and were paid as additional consideration for entering into a $50,000 promissory note.

On January 28, 2011, the Company issued to Kathy Schultz, the wife of our CEO, 15,000 shares of its restricted common stock. These shares were valued at $930 and were paid as additional consideration for entering into a $15,000 promissory note.

On February 23, 201117, 2012, the Company entered into a Convertible Promissory Note (Note #9) with Asher Enterprises, Inc. with a principal amount of $50,000. Terms of$47,500. The note matures in 9 months and carries an 8% interest rate per annum, compounded annually. If the note are repayment of 150% ofremains unpaid after 9 months from the principal amount after 270 days. The note is due and payable on November 28, 2011. TheIssue date, the holder has the option to convert the principal and accrued interest into shares of our Company stock at a conversion price equal to 58%60% of the “trading price” as described in the Note. These proceeds from this loan were used for both the purchase of inventory as well as Company operations.

DuringOn February 28, 2012, the second quarterCompany entered into a Secured Promissory Note with Next View Capital, LP with a principal amount of 2011,$200,000. The note matures in one year and carries an interest rate of 12% for the companyfirst 6 months and 15% for the last six months. As additional consideration for entering into the note the Company issued 800,000 shares if its restricted securities valued at $48,000 ($.06 per share) and issued 800,000 5-year warrants exercisable at $.10 per share. These notes have a liquidated damages clause and the warrants have a “ratchet-down” provision which creates additional derivative liabilities.  The proceeds of this note are to be used specifically for the purchase of inventory. This note was personally guaranteed by Mr. Jeff Schultz, the Company’s Chairman and CEO. The Company recorded a debt discount of $48,516 attributed to the shares and warrants issued.

On February 28, 2012, the Company entered into two Secured Promissory Notes with private investors each with a principal amount of $25,000 ($50,000 total). The notes mature in one year and carry an interest rate of 12% for the first 6 months and 15% for the last six months. As additional consideration for entering into the notes the Company issued 200,000 shares if its restricted securities valued at $12,000 ($.06 per share) and issued 200,000 5-year warrants exercisable at $.10 per share. These notes have a liquidated damages clause and the warrants have a “ratchet-down” provision which creates additional derivative liabilities.  The proceeds of these notes are to be used specifically for the purchase of inventory. These notes were personally guaranteed by Mr. Jeff Schultz, the Company’s Chairman and CEO. The $50,000 total funds from these notes are to be kept in a separate “loan account” and are not to be used until the $200,000 note entered into on 2/28/2012 is fully paid. The Company recorded a debt discount of $12,129 attributed to the shares and warrants issued.

On March 22, 2012, the Company issued to Asher Enterprises, Inc. 1,935,182416,667 shares of the Company’s common stock upon the conversion of $50,000$15,000 principal amount and $2,000 accrued interest on a $50,000$63,000 convertible note (Note #6) that the Company had with Asher Enterprises, Inc. dated October 13, 2010September 15, 2011 at prices between $.0264 and $.0285a price of $.036 per share.
On April 18, 2011 we filed Articles of Amendment to our Articles of Incorporation which increased the number of our authorized shares of common stock from 100,000,000 shares to 250,000,000 shares and created a class of blank check preferred stock consisting of 20,000,000 shares.
On April 27, 2011, the Company issued to Commercial Holding, AG 666,666 shares of its restricted common stock. These shares were valued at $36,667 and were paid in lieu of accrued interest on its outstanding line of credit.

On June 15, 2011, the company did a private placement directly with an investor for the sum of $5,250.  The Company issued 175,000 shares in exchange for the funds provided.

On June 16, 2011, the company did a private placement directly with an investor for the sum of $5,100.  The Company issued 170,000 shares in exchange for the funds provided.

On June 20, 2011, the Company issued to Undiscovered Equities 500,000 shares of its restricted common stock. These shares were valued at the sum of $25,000 and were issued as payment for investor relations services.
On June 22, 2011, the company did a private placement directly with an investor for the sum of $100,000.  The Company issued 2,857,143 shares in exchange for the funds provided.

On July 11, 2011 we issued 500,000 shares of our common stock to Michael Fasci, an officer of our company, relating to his employment contract. These shares were valued at the sum of $25,000 and were valued at $.05.

On July 11, 2011 we issued 500,000 shares of our common stock to Jeffrey Schultz, an officer of our company, relating to his employment contract. These shares were valued at the sum of $25,000 and were valued at $.05.  The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.
On July 15, 2011, the Company issued to Undiscovered Equities 500,000 shares of its restricted common stock.  These shares were valued at the sum of $25,000 and were used as payment for investor relations services.
During the third quarter of 2011,March 28, 2012, the Company issued to Asher Enterprises, Inc. 1,764,675486,111 shares of the Company’s common stock upon the conversion of $50,000$17,500 principal amount and $2,000 accrued interest on a $50,000$63,000 convertible note (Note #6) that the Company had with Asher Enterprises, Inc. dated February 23,September 15, 2011 at prices between $.0291 and $.0298a price of $.036 per share.

On September 30, 2011, the Company did a private placement directly with nine investors for the sum of $161,500.  The Company issued 4,388,096 shares in exchange for the funds provided at prices between $.03 and $.04 per share. The recipients are accredited investors and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.




11
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
(unaudited)
NOTE 5 - EQUITY TRANSACTIONS - continued
A summary of the activity of warrants issued as of September 30, 2011March 31, 2012 as follows:

     Weighted Average      Weighted Average 
 Warrants Exercise Price  Warrants Exercise Price 
 Outstanding Exercisable Outstanding Exercisable  Outstanding Exercisable Outstanding Exercisable 
Balance – December 31, 2010 5,500,000 5,500,000 $.13 $.13 
Balance – December 31, 2011 5,500,000 5,500,000 $.13 $.13 
Granted - - - -  1,000,000 1,000,000 .10 .10 
Exercised - - - -  - - - - 
Canceled      -          -  -  -       -          -  -  - 
Balance – September 30, 2011  5,500,000  5,500,000 $.13 $.13 
Balance – March 31, 2012  6,500,000  6,500,000 $.13 $.13 
 
The following table summarizes information about stock warrants outstanding and exercisable at September 30, 2011:March 31, 2012:

   
Number
Outstanding
  
Weighted-
Average
Remaining
Life in
Years
  
Weighted
Average
Exercise
Price
  
Number
Exercisable
 
Range of exercise prices:             
$.05 to $.09   1,000,000   2.08  $.06   1,000,000 
$.10 to $.49   5,500,000   2.53  $.14   5,500,000 
 
   
Number
Outstanding
  
Weighted-
Average
Remaining
Life in
Years
  
Weighted
Average
Exercise
Price
  
Number
Exercisable
 
Range of exercise prices:             
$.05 to $.09   1,000,000   2.84  $.06   1,000,000 
$.10 to $.49   4,500,000   2.51  $.15   4,500,000 
12
 
REDFIN NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(unaudited)
NOTE 67 - SUBSEQUENT EVENTS
 
We have evaluated for disclosure purposes subsequent events.

Notices of Conversion

On October 31, 2011April 2, 2012, the Company issued to Asher Enterprises, Inc. 611,111 shares of its free trading common stock in response to a conversion notice. The conversion notice was recognized as per the terms of the $63,000 convertible note (Note #6) that the Company entered into a Convertible Promissory Note (Note #7) with Asher Enterprises, Inc. with ain October 2010. The shares issued reduced the principal amount due under the note by $22,000. These shares were issued at a price of $42,500. Terms$.036 per share.

On April 10, 2012, the Company issued to Asher Enterprises, Inc. 402,190 shares of its free trading common stock in response to a conversion notice. The conversion notice was recognized as per the terms of the $63,000 convertible note are interest at 8% per annum and(Note #6) that the Company entered into with Asher Enterprises, Inc. in October 2010. The shares issued reduced the principal amount due under the note maturesby $8,500 and included the payment of $2,520 in August 2012. Any time afteraccrued interest. These shares were issued at a price of $.0274 per share.

On May 7, 2012, the issue date,Company issued to Asher Enterprises, Inc. 392,157 shares of its free trading common stock in response to a conversion notice. The conversion notice was recognized as per the holder hasterms of the option to convert$42,500 convertible note (Note #7) that the Company entered into with Asher Enterprises, Inc. in October 31, 2011. The shares issued reduced the principal and accrued interest intoamount due under the note by $22,000. These shares of our Company stockwere issued at a conversion price equal to 60% of the “trading price” as described in the Note. The proceeds from this loan were used for both the purchase of inventory as well as Company operations.$.0306 per share.


 
1213
 


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this quarterly report on Form 10-Q constitute “forward-looking statements.” Forward-looking statements are statements that are not historical, including statements regarding management’s intentions, beliefs, expectations, representations, plans or predictions of the future and are typically identified by words such as “believe,” “expect,” “anticipate” “intend,” “estimate,” “may,” “will,” “should,” and “could.”  These forward-looking statements involve numerous risks and uncertainties that could cause our actual results to be materially different from those set forth in the forward-looking statements including, without limitation, our ability to implement our business plan and generate revenues, our ability to raise sufficient capital to fund our operations and pay our obligations as they become due, economic, political and market conditions and fluctuations, government and industry regulation, U.S. and global competition and the other additional risks and uncertainties that are set forth in the Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 20102011 as filed with the Securities and Exchange Commission. The risk factors described in our Form 10-K are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we deem immaterial also may materially adversely affect our business, financial condition and/or operating results.   We assume no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law. The following discussion should also be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.

Overview

We are a valued added provider of payment transaction processing solutions marketed to and utilized by traditional “brick and mortar”, and Internet e-commerce merchants, with a focus on businesses requiring mobile or wireless payment solutions and hardware to conduct business.  Our Company website is www.RedFinnet.com.

RFN markets its products and services through the branded name RedFin Network.  These products and services today include:

Blue Bambooâ H-50 Wireless all-in-one transaction terminal
Blue Bambooâ P-25 printer and printer card reader device
Blue Bambooâ Blue Box table pay restaurant solution
RedFin PCI Compliant and Visa certified Payment Gateway
RedFin PocketPOS for Blackberryâ, iPhoneiphoneâ, and Androidâ
RedFin Sidebar QuickBooks interface
RedFin Desktop Terminal
HIOPOSâ Point-Of-Sale retail and hospitality system

All of the transaction hardware is integrated with the RedFin Payment Gateway, which connects merchants utilizing IP based terminals and wireless devices using Bluetooth, Ethernet, and GPRS to acquiring processors and banks for approval or denial of credit card, debit card, and ACH charges.

The RedFin Payment Gateway, servicing over 7,00011,000 merchants today, is a customized credit/debit card-processing platform serving as the connection between the customers at point-of-sale to the financial networks for the acceptance of card payment by merchants.  Third party providers in compliance with financial institutions process most card transactions worldwide.  The Payment Gateway processes all credit card types, which include Visa, MasterCard, American Express, Discover, JCB, and EBT through transaction terminals, virtual terminals, and wireless mobile devices.  The Blue Bamboo Payment Gateway received its PCI/DSS Compliance in October 2008. The Payment Gateway is now listed under the RedFin Network name on the Visa’s approved Payment Gateway list as of March 2011 after RedFin completed its purchase of the gateway from Blue Bamboo in October of 2010.  In July of 2011 Hypercomâ issued a “Support Discontinuance Notice” relative to their SmartPaymentsâ Savannah products (formerly knowknown as TPI SmartPayments) software under which RedFin’s Payment Gateway and many other payment industry gateways operated.  As a result of this notice RedFin decided to move its payment gateway platform to T-Gate, LLC through a managed solution agreement.  RedFin engaged Trustwaveâ, a Visa approved PCI Compliance auditing group, to re-certify the RedFin Payment Gateway.  This audit is completed and RedFin is again listed on Visa approved service providers list (usa.visa.com/(usa.visa.com/.../cisp-list-of-pcidss-compliant-service-providers.pdf).

The PCI/DSS Standard was developed by the major credit card associations as a guideline to help organizations that process card payments prevent credit card fraud, cracking and various other security vulnerabilities and threats. A company processing, storing, or transmitting payment card data must be PCI compliant or risk losing their ability to process credit card payments and being audited and/or fined. Merchants and payment card service providers must validate their compliance annually.

14

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations. - continued
Overview - continued
The Blue Bamboo Products and RedFin Payment Gateway are marketed through 150 non-exclusive reseller agreements with ISO’S (Independent Sales Organizations) and VAR’s (Value Added Resellers) selling products and merchant services to end customers throughout the U.S.  Revenue is generated through sales of terminal products, by monthly data plans required to operate wireless products, licensing fees for software and per transaction fees charged for each transaction passing through the Payment Gateway to end acquiring processors such as Vital, Global all First Data Networks, Paymentech, Heartland, Valutec and others already integrated with the Payment Gateway.  All Internet merchants, certain brick and mortar merchants using IP based transaction terminals, and mobile wireless transaction devices require a gateway to pass transactions from their customer’s use of a payment form to the acquiring bank/processor.
13
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview - continued

The RedFin Payment Gateway is re-branded for other large associations requiring their own name recognition by the ISO/Merchant customer base.  Currently we private label the Payment Gateway for our customers Snap Pay, Blackstone Merchant Services, Prospay, TX Direct, Ellamate, Charge Card systems, Diversified Check Solutions and Versatile Pay to name a few.

In late 2009 RedFin became a preferred vendor of Chase Paymentech for deployment of Blue Bamboo products operating on the RedFin Network, through Chases 300 agent internal network in Dallas and Phoenix and banking agents nationwide.  

Through 20102011 RedFin delivered over 2000 Blue Bamboo P-25 printer/card readers to Arvato Services, provider of logistic services to Intuit for their Go-Payment mobile transaction platform.  In addition, RFN continues to be the provider of the same printer/card reader for Aircharge, a Pipeline Data Company, providing a mobile platform for processing through all major cell phones.   

In 2011 RedFin has continued to grow its footprint in the mobile and wireless sectors of the transaction payment industry by focusing and expanding it sales effort through its vendor relationship with Fifth Third banks Vantiv processing division, through Aircharges sales relationship with SprintâBiz360 program, and with expansion of hardware sales through other large hardware sales groups such as The Phoenix Group and TASQâ a First Data company.
 

The Payment Gateway has incorporated a shopping cart emulator, which allows Internet merchants currently using other competitive Payment Gateway’s to integrate with the RedFin Network in a quick and efficient manner without disruption of their business.  The shopping cart emulator has integrated the top 120 carts currently used by Internet merchants.
 
RedFin has developed a Windows based software for its Blue Bamboo P-25 printer and card-reader for use with PC’s allowing for processing of credit/debit card, check, ACH, Check21 transactions.  It has also developed the RedFin Sidebar allowing merchants to directly interface the RedFin Payment Gateway with QuickBooks.

The Company will continue its objective to keep a low cost efficient overhead by outsourcing, hosting, customer and technical support, while controlling all product deployment internally.  All Level 1 and 2 customer service related questions have also been outsourced to Card Group with a 24/7 resolution of customer trouble tickets in less than 15 minutes.  Level 3 technical support is provided after hours by Power-It-Up.

Results of Operation for the Three Months Ended September 30, 2011March 31, 2012 Compared to the Three Months Ended September 30, 2010 and the Nine Months Ended September 30,March 31, 2011 Compared to the Nine Months Ended September 30, 2010

We generate the majority of our revenues from the sale of the Blue Bamboo wireless terminals, our recurring monthly data plans and sales ofpayment processing terminal hardware, our RedFin Gateway transaction platform.services, terminal software, and equipment accessories.  Our revenue increased approximately 87% and approximately 106%, respectively,22% in the three months and nine months ended September 30, 2011March 31, 2012 compared to the same periodsperiod in 2010. The increase in sales was across all of our product lines and broke down as follows:2011.
 
  3 Months Ended September 30, 2011 vs. 2010 9 Months Ended September 30, 2011 vs. 2010
Hardware:    +   97%  +   112%
Gateway Services:    +   59%  +     72%
Accessories:   +   78%  +     53%
Our cost of goods sold includes the payment processing terminals we sell as well as the recurring expenses to maintain the Gateway service to the terminals. Our cost of goods also includes our labor expenses to administer the gateway as well as the monthly licensing fees associated with maintaining and operating ourthe payment gateway. Our average cost of goods sold as a percentage of revenues was approximately 64%67% for the three months ended September 30, 2011March 31, 2012 as compared to approximately 67%64% for the comparable period in 2010, and approximately 62% for2011. This increase was due primarily to the nine months ended September 30, 2011 as comparedCompany having to approximately 67% for the comparable periodpay an expediting fee to our suppliers in 2010.  The decreaseorder to quickly acquire smaller inventory orders on a “just-in-time” basis rather than placing large orders in advance to stock inventory in our cost of goods sold as a percentage of revenues in the 2011 periods as compared to the 2010 periods reflects our increased sales of product combined with a more cost efficient use of our peoplewarehouse and assets to create those sales.keep it ready for immediate delivery.


14
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
 
Total operating expenses for the three and nine months ended September 30, 2011March 31, 2012 increased approximately 94% and 75% in each period29% from the comparable periodsperiod in 2010,2011, and included the following:

 ● Administrativeadministrative expenses, which includeincludes rent, salaries and general overhead costs increased approximately 91% and approximately 77%, respectively,12% for the three and nine months ended September 30, 2011March 31, 2012 from the comparable periodsperiod in 20102011 as a result of increased staffing and administrative expenses due to increased sales. We anticipate that administrative expenses will remain steady in the final threenine months of this year and fall in the first half of 2012.2012,
 
 ● Depreciation and amortization expenses remained steadyfell 58% in the thirdfirst quarter of 20112012, and was primarily composed of  the amortization of our purchase of Blue Bamboo USA as well as the depreciation costs associated with the development of certain company software products,

 ● 
professional and consulting fees, which include sales and marketing consultants as well as investor relations services, increased approximately 177% and approximately 83%, respectively,1278% in the three and nine months ended September 30, 2011March 31, 2012 from the comparable periodsperiod in 2010. This increase in2011 as a result of increased marketing and investor relations efforts. We believe 75% of these fees is due to the Company’s efforts in developing market awareness of it’s productswere a one-time expense and services as well as increased efforts in getting the Company’s business in front of more investors to create a more a liquid market in the Company’s stock. Wetherefore we anticipate that professional and consulting fees should continue to decrease during the balance of 2011, and2012.

15

Item 2.● Interest expense decreased approximately 34% in the third quarter
Management’s Discussion and Analysis of 2011Financial Condition and approximately 61% for the nine months ended September 30, 2011 from the comparable periods in 2010. BothResults of these decreases were primarily due to non-recurring deferred financing fees, interest charges, and the amortization of fees relating to borrowings in 2010 that were not incurred in 2011.Operations. - continued
 
Results of Operation for the Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011 - continued
Interest expenses increased approximately 39% in the first quarter of 2012 from the comparable period in 2011. This increase was primarily due to the increased need for borrowed funds to sustain operations

We report non-cash income or expense on derivative and liquidating liabilities each quarter as result of the price changes in our stock each quarter and the impact this stock price change has on our convertible debt. The difference in fair value of the derivative liabilities between the date of their issuance and their measurement date has been recognized as part of other income (expense).  These non-cash items can significantly impact our results of operations.

Net loss for the three months ended September 30, 2011March 31, 2012 was $322,676$(273,149) compared to a net incomeloss of $346,427$(283,325) for the comparable period in 2010, and our net loss for the nine months ended September 30, 2011 was $692,278 compared to net income of $175,271 in the comparable period in 2010. A significant portion of the increase in the net loss was attributable to other income of $536,222 and $877,325 received in the three and nine month periods in 2010 that was not recurring in 2011.

Another item creating additional expense in the current quarter that were not in the previous periods was that on July 15, 2011, the Company’s gateway software provider announced an “end-of-life” to its software. The Company took immediate steps to migrate to a new software provider. In switching to a new software provider, Visa rules require a complete recertification of the new provider’s software. This new sofware provides the increased security and high-level certifications required by the industry to support our client base. While we were able to implement this new software without interruption, the recertification process did present one-time certification fess and expenses as well as an interruption of new client business during the transition to the new software. All expenses relating to this software migration were incurred in the third quarter and no additional expenses are expected to be incurred. Furthermore, as a result of this event, the Company was able to restructure its expenses relating to its gateway and gateway software expenses and expects a reduction in costs in future periods
Liquidity and Capital Resources
 
Liquidity is the ability of a company to generate adequate amounts of cash to meet the company's needs for cash.  At September 30, 2011March 31, 2012 we had a cash on hand of $29,604$0, a bank overdraft of $25,807 and a working capital deficit of $500,683$2,425,856 as compared to cash on hand of $0 and a working capital deficit of $554,472$2,236,223 at December 31, 2010.2011. On June 23, 2010 the Company entered into a credit line agreement with H.E.B. LLC in the amount of $400,000. As of March 31, 2012 the principal amount owed under this line was $243,000. Outstanding balances on this line of credit will accrue at 14% per annum. This credit line also becomes due on December 31, 2012.  

We had total assets of $414,107$369,270 at September 30, 2011March 31, 2012 as compared to $299,019$344,125 at December 31, 2010.2011. This overall increase in total assets is primarily due to increases in our cash on hand, inventory and accounts receivable.a $50,000 Note Receivable.  We had total liabilities of $2,281,222$2,757,226 at September 30, 2011March 31, 2012 as compared to $2,001,903$2,552,079 at December 31, 2010. Increased sales have caused a reduction2011 which is primarily due to increases in accounts payable and the increased convertible debt has caused an increase in the associated derivative and liquidating liabilities. The increase in Notes Payable – Related Parties are a result of Company officers providing additional working capital for the Company’s operational needs.notes payable.
 
At September 30, 2011March 31, 2012 our current assets increased approximately 59%11% from December 31, 2010 and included increases2011 primarily as a result of a $50,000 note receivable.  

As described later in cash on hand, accounts receivable, inventory and product deposits.  Product deposits are down payments that the Company provides certain product suppliers upon inventory order placement. Ourthis report, we lent $50,000 to a third party, who is also a customer, under a note which matures in August 2012.Our customary terms offered our customers are payment prior to shipment. Most of our sales transactions are pre-paid by credit card or ACH. We anticipate inventory levels to remain steady through the end of the year.  At September 30, 2011March 31, 2012 we had employee advances of $7,268$9,772 which have been advanced for travel and operational expenses.
We expect this balance to be significantly reduced over the next few quarters as a result of the filing of expense reports.
15
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Liquidity and Capital Resources - continued

At September 30, 2011March 31, 2012 our current liabilities increased approximately 10%$217,147 from December 31, 2010,2011, and consisted primarily of increases in amounts due under our notes payable notes payable - related parties, deposits payablerepresenting borrowings during the first quarter of 2012, the proceeds of which were used to both fund out operations and derivative and liquidating liabilities offset by decreases in cash overdraft, accounts payable and accrued expenses.
to make the third party loan described elsewhere herein. At September 30, 2011,March 31, 2012, we had $1,690,791$390,400 of notes payable (inclusive of long-term debt), $1,381,000 due under credit lines and $170,500 of convertible notes, all of which includes:
●$44,000 principal amount of short-term notes issued in 2005 relating to a previous container financing business. These notes mature in various dates in 2012 and 2015. These notes carry no interest;

●$58,000 principal amount of long-term notes issued in 2005 relating to a previous container financing business. These notes mature in various dates in 2012 and 2015. These notes carry no interest;
●$57,500 principal amount promissory note with an investor. This note is Due June 30,become due during 2012. This note was used to buy inventory and the interest rate is dependent on the sales of said inventory.
●$93,000 principal amount of 8% convertible notes to Asher Enterprises, Inc. At September 30, 2011 there is unpaid interest due and accruing in the amount of $972; Note #5, principal amount $30,000 is due February 20, 2012, and Note #6, principal amount 63,000 is due June 19, 2012.
●$25,000 principal amount of a 12% promissory note with an investor due March 21, 2012;
●$25,000 principal amount of 15% notes due officers of the Company or their affiliates due January 2012; and
●$3,291 principal amount of non-interest bearing notes due to officers of the Company. This note has no due date.
We do not have any commitments for capital expenditures.expenditures and our only external source of working capital are amounts available under the two credit lines. At March 31, 2012, total availability under the lines was $157,000. We do not have sufficient working capital to fund our ongoing operations and satisfy our debt obligations absent a significant increase in our revenues.  While we were ablerevenues and have been carrying a bank overdraft for the last four fiscal quarters. We also do not have sufficient capital to establishsatisfy our debt obligations totaling $1,900,000, exclusive of accounts payable, which become due in 2012. 


16
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations. - continued
Liquidity and Capital Resources - continued
Included in those obligations at March 31, 2012 is $1,138,000 due under a $400,000 credit line with H.E.B., LLC in June 2010 and significantly reduce other outstanding debt through the issuance of equity, our sources of cash are the availability of funds under the H.E.B., LLC line of credit and cash on hand. This credit linewhich matures on December 31, 2012. As of September 30, 2011 the amount owed H.E.B. LLC under this credit line is $243,000.

The amount owed Commercial Holding, AG at September 30, 2011 under our credit line is $1,142,000.  This credit line matures on December 31, 2012. In the event we should failOur failure to pay the interest or principal when due under the Commercial Holding, AG line of credit which wouldwill result in an event of default, or if any other events should occur which would otherwise result in an event of default under the agreement, the amounts due under the credit line would become immediately due and payable.  If we were unable to pay these amounts, the lender could seek to foreclose on the assets of our subsidiary which represents substantially all of our operations.  

Our sources of working capital are limited to our cash on hand and availability under the H.E.B., LLC credit line.  We continue to rely on short terms loans to fund our daily operations and to meet payroll. As sales have increased the demand to borrow additional funds is decreasing. The terms of these loans are generally not favorable to us. We continue to work with a number of potential lenders to provide funding for both operations and product inventory. There is no assurance that we will be able to obtain funds at favorable terms to us, if at all. In addition, under the terms of the twothree Asher Enterprises, Inc. $63,000 and $30,000  ($93,000 total)$170,500 total principal amount notes, we have granted the lender a right of first refusal for future offerings as well as anti-dilution rights which could adversely impact our results of operations in future periods if triggered.  As described elsewhere herein, we do not have sufficient funds to pay our outstanding debt obligations which are approximately $2,281,222$2,731,419 at September 30, 2011.March 31, 2012 exclusive of cash overdraft. We will need to raise capital to satisfy our debt obligations.  If we are unable to raise the necessary capital, we could be forced to curtail some or all of our operations and it is likely that investors would lose their entire investment in our company.

Going Concern

Our financial statements have been prepared on the basis that we will operate as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  We have incurred net losses from operations each year since inception and have relied on the sale of our securities from time to time and loans from third parties to fund our operations.  These recurring operating losses have led our independent registered public accounting firm Sherb & Co, LLP to include a statement in its audit report relating to our audited consolidated financial statements for the years ended December 31, 20102011 and 20092010 expressing substantial doubt about our ability to continue as a going concern.  Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to generate profitable operations in the future.  We plan to continue to provide for our capital requirements through the sale of equity securities, however, we have no firm commitments from any third party to provide this financing and we cannot assure you we will be successful in raising working capital as needed.  There are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due or generate positive operating results.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.
 
Not applicable to a smaller reporting company.

16

 
Item 4.Controls and Procedures.
  
Disclosure Controls and Procedures.  We maintain disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).  In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met.  Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.  The design of any disclosure controls and procedures also is based in part upon 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.

Under the supervision and with the participation of our senior management, consisting of Jeffrey Schultz, our Chief Executive Officer and Michael Fasci, our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, and based on the deficiencies that we have uncovered, our Chief Executive Officer and Chief Financial Officer concluded, as of the Evaluation Date, that our disclosure controls and procedures are not 100% effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. During the period covered by this report we failed to timely file Current Reports on Form 8-K disclosing the issuances of securities and the Company entering into material borrowing obligations. The failure to timely file these reports is a material weakness in our disclosure controls and procedures. We expect to implement enhanced policies and procedures during the fourth quarter of 2011 to ensure that our reports are filed on a timely basis with the Securities and Exchange Commission.
 
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. 



17


PART II – OTHER INFORMATION
 
Item 1.Legal Proceedings.
 
None.

Item 1A.Risk Factors.
 
Not applicable to smaller reporting companies.
 
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
 
On July 15, 2011, the Company issued to Undiscovered Equities 500,000 shares of its restricted common stock.  These shares were valued at the sum of $25,000 and were used as payment for investor relations services.
Between September 2, 2011 and September 19, 2011, the Company issued to Asher Enterprises, Inc. 1,764,675 shares of the Company’s common stock upon the conversion of $50,000 principal amount and $2,000 accrued interest on a $50,000 convertible note (Note #4) that the Company had with Asher Enterprises, Inc. dated February 23, 2011 at prices between $.0291 and $.0298 per share. The recipient was an accredited investor and had access to information concerning our company. The issuances were exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 3(a)(9) of that act.
On September 15, 2011January 17, 2012, the Company entered into a Convertible Promissory Note (Note #6)#9) with Asher Enterprises, Inc. with a principal amount of $63,000. Terms of the note are interest at 8% per annum and the$47,500. The note matures in June 2012.9 months and carries an 8% interest rate per annum, compounded annually. If the note remains unpaid after 9 months from the issueIssue date, the holder has the option to convert the principal and accrued interest into shares of our Company stock at a conversion price equal to 60% of the “trading price” as described in the Note. The conversion price of the note is subject to adjustment if, at any time when any notes in this series are issued and outstanding, we issues or sell, or in accordance with the terms of the note are deemed to have issued or sold, any shares of our common stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the conversion price in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive Issuance”).  Immediately upon the Dilutive Issuance, the conversion price of the note is reduced to the amount of the consideration per share received by us in such Dilutive Issuance. The note is not convertible to the extent that the number of shares of our common stock beneficially owned by the holder and the number of shares of our common stock issuable upon the conversion of the note would result in the beneficial ownership by holder of more than 4.99% of our then outstanding common stock. This provision may be waived upon 61 days notice to us.  TheThese proceeds from this loan were used for both the purchase of inventory as well as Company operations. The lender wasrecipient is an accredited investor and had access to information concerning our company. Thethe issuance of the note was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on exemptionsan exemption provided by Section 4(2) of that act.

On February 28, 2012, the Company entered into a Secured Promissory Note with Next View Capital, LP with a principal amount of $200,000. The note matures in one year and carries an interest rate of 12% for the first 6 months and 15% for the last six months. As additional consideration for entering into the note the Company issued 800,000 shares if its restricted securities valued at $48,000 ($.06 per share) and issued 800,000 5-year warrants exercisable at $.10 per share. These notes have a liquidated damages clause and the warrants have a “ratchet-down” provision which creates additional derivative liabilities.  The proceeds of this note are to be used specifically for the purchase of inventory. This note was personally guaranteed by Mr. Jeff Schultz, the Company’s Chairman and CEO. The recipient is an accredited investor and the issuance of the note was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Section 4(2) of that act.

On February 28, 2012, the Company entered into two Secured Promissory Notes with private investors each with a principal amount of $25,000 ($50,000 total). The notes mature in one year and carry an interest rate of 12% for the first 6 months and 15% for the last six months. As additional consideration for entering into the notes the Company issued 200,000 shares if its restricted securities valued at $12,000 ($.06 per share) and issued 200,000 5-year warrants exercisable at $.10 per share. These notes have a liquidated damages clause and the warrants have a “ratchet-down” provision which creates additional derivative liabilities.  The proceeds of these notes are to be used specifically for the purchase of inventory. These notes were personally guaranteed by Mr. Jeff Schultz, the Company’s Chairman and CEO. The $50,000 total funds from these notes are to be kept in a separate “loan account” and are not to be used until the $200,000 note entered into on 2/28/2012 is fully paid. The recipient is an accredited investor and the issuance of the note was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Section 4(2) of that act.

On March 22, 2012, the Company issued to Asher Enterprises, Inc. 416,667 shares of the Company’s common stock upon the conversion of $15,000 principal amount on a $63,000 convertible note (Note #6) that the Company had with Asher Enterprises, Inc. dated September 15, 2011 at a price of $.036 per share. The recipient is an accredited investor and the issuance of the note was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Section 3(a)(9) of that act.

On March 28, 2012, the Company issued to Asher Enterprises, Inc. 486,111 shares of the Company’s common stock upon the conversion of $17,500 principal amount on a $63,000 convertible note (Note #6) that the Company had with Asher Enterprises, Inc. dated September 15, 2011 at a price of $.036 per share. The recipient is an accredited investor and the issuance of the note was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Section 3(a)(9) of that act.
On April 2, 2012, the Company issued to Asher Enterprises, Inc. 611,111 shares of its free trading common stock in response to a conversion notice. The conversion notice was recognized as per the terms of the $63,000 convertible note (Note #6) that the Company entered into with Asher Enterprises, Inc. in October 2010. The shares issued reduced the principal amount due under the note by $22,000. These shares were issued at a price of $.036 per share. The recipient is an accredited investor and the issuance of the note was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Section 3(a)(9) of that act.

 
 
 
1718
 

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

On September 30, 2011,April 10, 2012, the Company sold an aggregate of 4,388,096issued to Asher Enterprises, Inc. 402,190 shares of its free trading common stock in response to nine accredited investors at prices ranging from $0.03 to $0.04a conversion notice. The conversion notice was recognized as per share in a private placement exempt from registration under the Securities Actterms of 1933 in reliance on an exemption provided by Section 4(2) and Regulation D ofthe $63,000 convertible note (Note #6) that act.  We received gross process of $161,500. There were no commissions or finders fees paid for these funds. We are using the net proceeds for general working capital.
On October 31, 2011 the Company entered into a Convertible Promissory Note (Note #7) with Asher Enterprises, Inc. with ain October 2010. The shares issued reduced the principal amount of $42,500. Terms ofdue under the note are interest at 8% per annumby $8,500 and included the note maturespayment of $2,520 in August 2012. Any time after the issue date, the holder has the option to convert the principal and accrued interest intointerest. These shares of our Company stockwere issued at a conversion price equal to 60% of the “trading price” as described in the Note. The conversion price of the note$.0274 per share. The recipient is subject to adjustment if, at any time when any notes in this series are issued and outstanding, we issues or sell, or in accordance with the terms of the note are deemed to have issued or sold, any shares of our common stock in a Dilutive Issuance.  Immediately upon the Dilutive Issuance, the conversion price of the note is reduced to the amount of the consideration per share received by us in such Dilutive Issuance. The note is not convertible to the extent that the number of shares of our common stock beneficially owned by the holder and the number of shares of our common stock issuable upon the conversion of the note would result in the beneficial ownership by holder of more than 4.99% of our then outstanding common stock. This provision may be waived upon 61 days notice to us.  The lender was an accredited investor and had access to information concerning our company. Thethe issuance of the note was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on exemptionsan exemption provided by Section 4(2)3(a)(9) of that act.  The proceeds from this loan were used for both the purchase of inventory as well as Company operations.

On May 7, 2012, the Company issued to Asher Enterprises, Inc. 392,157 shares of its free trading common stock in response to a conversion notice. The conversion notice was recognized as per the terms of the $42,500 convertible note (Note #7) that the Company entered into with Asher Enterprises, Inc. in October 31, 2011. The shares issued reduced the principal amount due under the note by $22,000. These shares were issued at a price of $.0306 per share. The recipient is an accredited investor and the issuance of the note was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Section 3(a)(9) of that act.
Item 3.Defaults Upon Senior Securities.

None. 
 
Item 4.(Removed and Reserved)Mine Safety Disclosures
 
Item 5.Other Information.

On July 1, 2011 the Company entered intoFebruary 29, 2012 we lent $50,000 to Ellamate, Inc., a $57,500 Promissory Note with an investor. The note matures in one year from the date of issuance. The proceeds of the note were used to buy ICG product inventory and the interest rate on the notethird party that is dependent on the sale of that inventory, withalso a minimum guarantee of $5,750 per 30 day period.   During the three months ended September 30, 2011 we paid the lender $11,500customer, under the terms of this note.a $50,000 Promissory Note. The note, which bears interest at 12% per annum, is personally guaranteeddue on August 28, 2012. As additional interest to us under the note, the lender will pay us 3% of their “residual” income over the term of the note. Residual income is defined as income derived from the profits generated by our Chief Executive Officer.merchant service fees from the processing of credit and debit cards along with online ACH (automated clearing house transactions). A copy of the note is filed as Exhibit 10.28 to this report. We funded this note through proceeds we received from short-term borrowings during the quarter as described earlier in this report. The Company believes that the additional residual income on this note will yield up to an additional 30% return on is note beyond the 12% base interest.

On October 1, 2009 our subsidiary, RedFin Network, Inc., entered into a two year Employment Agreement with Mr. David Rappa to serve as its President. Under the terms of the agreement as compensation for his services we pay Mr. Rappa an annual base salary of $45,000, commissions ranging on equipment sales ranging from 4% to 8%.  In September 2011February 29, 2012 we entered into an extension agreementAgreement for Consulting Services with Mr. Rappa extendingFurther Lane, Inc. pursuant to which that company will provide us with consulting services related to public relations, business intelligence, mergers and acquisition strategy, communications, and other such related services as shall be reasonably determined mutually by Further Lane, Inc. and the Company’s president. The term of the agreement until December 31, 2011. The Company plansis for one-year and compensation is $25,000 payable upon signing. A copy of the note is filed as Exhibit 10.29 to restructure Mr. Rappa’s employment contract effective January 1, 2012 and required more time to work out the details.this report.


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Item 6.Exhibits.
 
Exhibit No.Description 
10.1Noriega $57,500 Note dated July 1, 2011 *
10.2
10.28
Asher Enterprises, Inc. $63,000 ConvertibleEllamate $50,000 Promissory Note (Note #6) Receivable dated September 15, 2011*2/29/2012 *
  
10.3
10.29
Asher Enterprises, Inc. $42,500 Convertible Note (Note #7) Form of Consulting Agreement with Further Lane Inc, dated October 31, 2011*2/29/2012 *
  
10.4
31.1
Rappa Employment Agreement Extension through December 31, 2011 dated September 27, 2011 *
31.1
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer *
  
31.2
Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer *
  
32.1
Section 1350 certification of Chief Executive Officer *
  
32.2
Section 1350 certification of Chief Financial Officer *
  
101.INSXBRL Instance Document*
  
101.CAL
101.PRE
XBRL Taxonomy Extension CalculationPresentation Linkbase *
  
101.PRE
101.LAE
XBRL Taxonomy Extension PresentationLabel Linkbase *
  
101.LAE
101.DEF
XBRL Taxonomy Extension LabelDefinition Linkbase *
  
101.DEF
101.SCH
XBRL Taxonomy Extension Definition Linkbase *
101.SCH
XBRL Taxonomy Extension Schema *

* Filed herewith

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

   
 SECURED FINANCIALREDFIN NETWORK, INC.
   
Date: November 10, 2011May 15, 2012By:  /s/ Jeffrey L. Schultz
 Jeffrey L. Schultz
 Title: President, CEO, principal executive officer

   
   
Date: November 10, 2011May 15, 2012By:  /s/ Michael Fasci
 Michael Fasci
 Title: Chief Financial Officer, principal financial officer

 
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