10-Q: REDFIN NETWORK, INC.

10-Q: REDFIN NETWORK, INC.

(EDGAR Online via COMTEX) — 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 a 0;d 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, 2010 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 inf ormation 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.

We are a valued added provider of payment transaction processing platforms and equipment marketed to and utilized by traditional “brick and mortar”, and Internet e-commerce merchants and those using mobile or wireless devices to conduct business. our company websites are securedfinancialnetwork.com and redfinnet.com.

We market our products and services through the branded name RedFin Network. these products and services today include:

Blue Bamboo H-25 Wireless all-in-one transaction terminal Blue Bamboo P-25 printer and printer card reader device Blue Bamboo Blue Box table pay restaurant solution Redfin PCI Compliant and Visa certified Payment Gateway RedFin Sidebar QuickBooks interface

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 5,000 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.
16;he Payment Gateway is now listed under the Redfin Network name on the Visa’s approved Payment Gateway list as of March 2011 after we completed our purchase of the gateway from Blue Bamboo in October of 2010.

The Payment Card Industry / Data Security Standard (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 by the Visa/MasterCard Association. Merchants and payment card service providers must validate their compliance periodically. we are required to perform an annual audit. &# 116;he next audit is due to be completed by October 31, 2011

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 fi&# 114;st 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and

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 we became a preferred vendor of Chase Paymentech for deployment of Blue Bamboo products operating on the Redfin Network, through Chase’s 300 agent internal networks in Dallas and Phoenix and banking agents nationwide.

Through 2010 we delivered over 2,000 Blue Bamboo P-25 printer/card readers to Arvato Services, a provider of logistic services to Intuit, for their Go-Payment mobile transaction platform. in addition, during 2009 we became 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. the Company continues to receive orders from both companies and expects orders to grow in 2011.

The Payment Gateway has incorporated a shopping cart emulator, which allows Internet merchants currently using other competitive payment gateways 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.

We have developed Windows-based software for our Blue Bamboo P-25 printer and card-reader for use with PC’s allowing for processing of credit/debit card, check, ACH, Check21 transactions. we have also developed the RedFin Sidebar allowing merchants to directly interface the RedFin Payment Gateway with QuickBooks.

Under a hosting agreement with ZZ Servers, we built out a gateway hosting facility allowing for 99.9% up time for transaction processing with internal and geographic redundancy in case of power outage or natural disaster.

The Company will continue its objective to keep a low cost efficient overhead by outsourcing warehousing, 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 June 30, 2010 Compared to the Three Months Ended June 30, 2009 and the Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009

We generate revenues from the sale of the Blue Bamboo wireless terminals, our recurring monthly data plans and sales of our RedFin Gateway transaction platform. our revenue increased approximately 103% and approximately 116%, respectively, in the three months and six months ended June 30, 2011 compared to the same periods in 2010. the increase in sales was across all of our product lines and broke down as follows:

3 Months Ended June 30,6 Months Ended June 30,2011 compared to 20102011 compared to 2010Hardware:+97%+ 120%Gateway Services:+66%+76%Accessories:+27%+40%Software****

** new product. No comparable sales in the periods ending June 30, 2011.

Our cost of goods sold includes the payment processing terminals we sell as well as the recurring expenses to maintain the 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 our payment gateway. our cost of goods sold as a percentage of revenues was approximately 58% for the three months ended June 30, 2011 as compared to approximately 69% for the comparable period in 2010, and approximately 61% for the six months ended June 30, 2011 as compared to approximately 67% for the comparable period in 2010. the decrease 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 people and assets to create those sales.

Item 2. Management’s Discussion and Analysis of Financial Condition

Total operating expenses for the three and six months ended June 30, 2011 increased approximately 31% and 18% in each period from the comparable periods in 2010, and included the following:

? Administrative expenses, which includes rent, salaries and general overhead costs increased approximately 61% and approximately 68%, respectively, for the three and six months ended June 30, 2011 from the comparable periods in 2010 as a result of increased staffing and administrative expenses due to increased sales. we anticipate that administrative expenses will remain steady in the final six months of this year,

? Depreciation and amortization expenses decreased slightly in the second quarter of 2011 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 98% and approximately 53%, respectively, in the three and six months ended June 30, 2010 from the comparable periods in 2010 as a result of requiring additional help relating to the increase in sales. we anticipate that professional and consulting fees should continue to decrease during the balance of 2011, and

? Interest expense decreased approximately 58% in the second quarter of 2011 and approximately 69% for the six months ended June 30, 2011 from the comparable periods in 2010. both 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.

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 operatio ns.

Net loss for the three months ended June 30, 2011 was $86,277 compared to a net gain of $102,331 for the comparable period in 2010, and our net loss for the six months ended June 30, 2011 increased approximately 116% from the comparable period in 2010. the increase in the net loss was attributable to increased derivative and liquidating liability expenses during the 2011 period as well as other income of 343,428 received in 2010 that was not recurring in 2011.

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 June 30, 2011 we had a cash of $0 and working capital deficit of $486,098 as compared to cash on hand of $0 and a working capital deficit of $568,953 at December 31, 2010.

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 June 30, 2011 the principal amount owed under this line was $243,000 and accrued interest owing of $24,241. Outstanding balances on this line of credit will accrue at 14% per annum. this credit line becomes due on December 31, 2012.

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  6;he 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 Decem ber 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 an&# 100; had a principal balance due on the credit line of $1,275,583.56 and interest owing on the credit line of $159,785.42. On June 30, 2010, the Company agreed to exchange $425,583.56 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 June 30, 2011 the outstanding balance due on this credit line was $1,132,000 in principal and $1,307 in accrued interest.

We had total assets of $432,911 at June 30, 2011 as compared to $299,019 at December 31, 2010. this overall increase in total assets is primarily due to increases in our inventory and accounts receivable. we had total liabilities of $2,265,849 at June 30, 2011 as compared to $2,001,903 at December 31, 2010 which reflects decreases in all categories of liabilities including amounts due under accounts payable, notes payable, accrued expenses, derivative and liquidating liabilities, our lines of credit, and our secured convertible notes.

At June 30, 2011 our current assets increased approximately $161,601 from December 31, 2010 and included increases in both accounts receivable of $53,910, and inventory of $66,064. 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 June 30, 2011 we had employee advances of $16,235 which have been advanced for travel and operational expenses. we expect this balance to fall significantly upon t
04;e submission of timely filed expense reports.

At June 30, 2011 our current liabilities increased approximately $77,946 from December 31, 2010, and consisted primarily of increases in amounts due under our notes payable $73,709, derivative and liquidating liabilities $71,035, and officers notes payable $38,291, as well as decreases in accounts payable $86,754.

Item 2. Management’s Discussion and Analysis of Financial Condition

At June 30, 2011, we had $1,632,291 of notes payable which includes:

? $48,000 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;

? $66,000 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;

? $80,000 principal amount of 8% convertible notes to Asher Enterprises, Inc. at June, 2011 there is unpaid interest due and accruing in the amount of $1,241;

? $25,000 principal amount of a 12% promissory note with an investor;

? $35,000 principal amount of 15% notes due officers of the Company or their affiliates; and

? $3,291 principal amount of non-interest bearing notes due to officers of the Company.

We do not have any commitments for capital expenditures. 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 able to establish 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 line matures on December 31, 2012. as of June 30, 2011 th
01; amount owed H.E.B. LLC under this credit line is $243,000.

The amount owed Commercial Holding, AG at June 30, 2011 under our credit line is $1,132,000. this credit line matures on December 31, 2012. in the event we should fail to pay the interest or principal when due under the Commercial Holding, AG line of credit which would 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 a mounts, 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. 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 two Asher Enterprises, Inc. $50,000 and $30,000 ($80,000 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 $2,265,849 at June 30, 2011. we will need to raise capital to satisfy our debt obligations. If we are unable t&# 111; 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.

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  6;o include a statement in its audit report relating to our audited consolidated financial statements for the years ended December 31, 2010 and 2009 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 f
11;r 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.

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