Redfin Network (RFNN) 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2009
or
o	TRANSITION 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

Secured Financial Network, Inc.

(Exact name of registrant as specified in its charter)

Nevada	86-0955239
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1180 SW 36th Avenue Suite 204 Pompano Beach, Florida	33069
(Address of principal executive offices)	(Zip Code)

(954) 376-5611

(Registrant’s telephone number, including area code)

N/A

(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).

o  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 filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o  Yes x  No

The number of outstanding shares of the Registrant’s common stock, $0.001 par value, as of June 30, 2009 was 51,775,020.

1

PART I:	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements:	3
	Consolidated Balance Sheets – June 30, 2009 (Unaudited) and December 31, 2008	3
	Consolidated Statements of Operations  (Unaudited) Three Months and Six Months Ended June 30, 2009 and 2008	4
	Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2009 and 2008	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	18
Item 4T.	Controls and Procedures.	19
PART II:	OTHER INFORMATION	19
Item 1.	Legal Proceedings.	19
Item 1A.	Risk Factors.	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19
Item 3.	Defaults upon Senior Securities.	20
Item 4.	Submission of Matters to a Vote of Security Holders.	20
Item 5.	Other Information.	20
Item 6.	Exhibits	20

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 in its entirety, including but not limited to our financial statements and the notes thereto. 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 “Secured Financial", "we"", "our", the "Company" and similar terms refer to Secured Financial Network, Inc , a Nevada corporation and its wholly-owned subsidiary Virtual Payment Solutions, Inc., a Florida corporation.  In addition, when used herein and unless specifically set forth to the contrary, “2009” refers to the year ending December 31, 2009 and “2008” refers to the year ended December 31, 2008.  The information which appears on our website at www.virtualpaymentsolutions.com is not part of this report.

2

PART I - - FINANCIAL INFORMATION

Item 1. Financial Statements

SECURED FINANCIAL NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
	June 30,			December 31,
	2009			2008
	(Unaudited)
CURRENT ASSETS
Cash	$	-		$	3,706
Employee Advances		500			623
Accounts Receivable		77,543			51,074
Inventory		129,692			29,579
Inventory Deposits		49,790			-
Total Current Assets		257,525			84,983
FURNITURE AND EQUIPMENT (NET)		12,174			12,241
OTHER ASSETS
Refundable Deposits		6,670			5,170
Deferred Financing Fees		65,730			139,724
Total Other Assets		72,400			144,894
TOTAL ASSETS	$	342,099		$	242,117
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable	$	212,281		$	176,288
Accrued Expenses		1,204,912			1,029,026
Derivative and Liquidating Liabilities		462,185			558,748
Line of Credit		820,584			577,584
Notes Payable		158,238			-
Notes Payable - In Default		1,475,000			1,475,000
Secured Convertible Notes		312,232			297,500
Total Current Liabilities		4,645,432			4,114,146
STOCKHOLDERS' DEFICIT
Common Stock authorized is 100,000,000
shares at $0.001 par value.  Issued and
outstanding on June 30, 2009, 51,775,020
and December 31, 2008, 49,624,379 shares.		51,775			49,624
Additional Paid in Capital		4,023,495			3,855,341
Accumulated Deficit		(8,378,603	)		(7,776,993	)
Total Stockholders' Deficit		(4,303,333	)		(3,872,028	)
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT	$	342,099		$	242,117
The accompanying notes are an integral part of these statements

3

SECURED FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
REVENUES
Revenues		214,959			45,658			357,665			48,704
Cost of Goods Sold		182,223			33,631			307,708			33,631
Gross Profit		32,736			12,026			49,957			15,073
EXPENSES
Administrative Expenses		175,166			139,831			328,830			384,081
Professional and Consulting		79,785			24,461			136,944			77,388
Depreciation and Amortization		1,578			535			3,156			1,070
Interest Expense		176,415			120,124			355,025			205,854
Total Expenses		432,944			284,951			823,955			668,393
Net Loss before other income (expense)		(400,208	)		(272,925	)		(773,998	)		(653,320	)
Other Income:		75,826			-			75,826			-
Derivative and Liquidating Income (Expense)		(19,567	)		9,424			96,563			47,933
Net loss before Provision
for Income Taxes		(343,949	)		(263,501	)		(601,609	)		(605,387	)
Provision for Income Taxes		-			-			-			-
NET LOSS	$	(343,949	)	$	(263,501	)	$	(601,609	)	$	(605,387	)
Basic and Diluted
Net Loss per Common Share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Weighted Average Number of Shares
Common Shares Outstanding -
basic and diluted		51,275,020			42,275,247			50,699,700			41,025,247
The accompanying notes are an integral part of these statements

4

SECURED FINANCIAL NETWORK, INC.
STATEMENTS OF CASH FLOWS
	Six Months Ended
	June 30,			June 30,
	2009			2008
	(Unaudited)			(Unaudited)
Cash Flows From Operating Activities:
Net Loss	$	(601,609	)	$	(605,387	)
Adjustments to Net Loss:
Common Stock for Services		-			-
Derivative and Liquidating Expenses		-			-
Amortization of Debt Discount and Finance Fees		-			-
Depreciation and Amortization		3,156			1,070
Increase in Allowance for Uncollectibles
Adjustments to Reconcile Net Loss to
Net Cash (Used) by Operating Activities:
Changes in Assets and Liabilities:
Prepaid Expense		-			5,000
Employee Loans		41,639			8,050
Accounts Receivable		(26,469	)		(22,482	)
Inventory		(100,113	)		(35,267	)
Inventory Deposits		(49,790	)		-
Accrued Interest		152,353			149,619
Accrued Expenses		22,998			(14,352	)
Derivative & Liq. Liabilities		(96,563	)		(455,940	)
Accounts Payable		36,528			16,304
Net Cash (Used) by Operating Activities		(617,871	)		(953,385	)
Cash Flows From Investing Activities:
Deferred Finacing Fees		73,994			-
Furniture and Equipment		(1,100	)		(4,725	)
Security Deposit		(3,489	)		20,000
Purchase of Equipment
Net Cash (Used) by Investing Activities		69,405			15,275
Cash Flows From Financing Activities:
Capital Stock		2,151			4,700
Additional Paid in Capital		118,154			889,169
Convertible Notes		14,732			(300,000	)
Notes Payable		116,723			-
Commercial Holding AG, LLC Credit Line		243,000			329,200
Proceeds from the sale of Common Stock		50,000			-
Net Cash Provided by Financing Activities		544,760			923,069
Net Change in Cash		(3,706	)		(15,041	)
Cash and Cash Equivalents - Beginning		3,706			15,041
Cash and Cash Equivalents - Ending	$	0		$	0
Supplemental Cash Flow Disclosures:
Taxes	$	-		$	-
Interest	$	-		$	-
Non-Cash Financing Transactions:
Shares Issued for Services	$	-		$	49,661
Conversion of Indebtedness for Equity	$	38,974		$	340,335
Equity Issued For Interest	$	80,180		$	19,661
The accompanying notes are an integral part of these statements

5

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements of Secured Financial Network, Inc. (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 expected for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. 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, 2008.

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 six month periods ended June 30, 2009 and June 30, 2008, the Company has incurred net losses of $601,609 and $605,387 respectively, a substantial portion of the debt is in default and has a stockholders’ deficit of $4,303,303 as of June 30, 2009. As stated by our auditors in our most recently filed Form 10-K Annual Report, 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 and the impairment of the recorded long-lived assets.

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, include the accounts of the Company and its wholly owned subsidiary, Virtual Payment Solutions, Inc, a Florida Corporation ("VPS"). The Company created VPS in September of 2007.  All significant inter-company accounts and transactions are eliminated in consolidation.

Stock-Based Employee Compensation

The Company adopted SFAS No. 123R, “Share Based Payments.” SFAS No. 123R requires 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 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 SFAS No. 123R approximated $0 in compensation expense during the six months ended June 30, 2009.  Such amount is included in general and administrative expenses on the statement of operations.

6

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Business and Credit Concentration

The Company purchases its products for resale from two suppliers. As of June 30, 2009, the Company’s outstanding balance to these two suppliers was $107,111. The loss of one or both of these suppliers could have a material adverse effect upon its business for a short-term period of time.

Net Loss Per Share

The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share” (“EPS”) that established standards for the computation, presentation and disclosure of earnings per share, replacing the presentation of Primary EPS with a presentation of Basic EPS. The warrants and stock options excluded from the EPS calculations total 12,205,000, as the incluson of such warrants and options would be antidilutive. In additon the Company has convertible debt which may be converted into shares and warrants  and once the number of warrants are determined, we will determine if the inclusion of such warrants would be anti-dilutive, if so, such warrants would be excluded from the computation of earnings per share. 

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.

Fair Value of Financial Instruments

Pursuant to SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of June 30, 2009. 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.

Recent Accounting Pronouncements

In May 2009, Statement of Financial Accounting Standards No. 165 – Subsequent Events was issued. The objective of this Statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In accordance with this Statement, an entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. Management has adopted this new standard with the filing of the second quarter interim financial statements. The adoption of this new standard is not expected to have a material impact on the financial statements of the Company.

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.

NOTE 2 - ACCRUED LIABILITIES

At June 30, 2009, the accrued liabilities consisted of the following:

	June 30,		December 31,
	2009		2008
Accrued Other	$	1,800	$	689
Interest	$	1,015,239	$	$862,885
Payroll	$	138,003	$	103,000
Payroll Taxes	$	15,180	$	62,452
Total	$	1,170,222	$	1,029,026

7

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 3 - - NOTES PAYABLE

Investor Notes Payable in Default

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). As of June 30, 2009, the Company’s short-term notes payable relating to its previous container financing business total $1,410,000. The Company has also accrued $943,617 interest on these notes. All seventeen Notes are in default and are accruing interest at the rate of 18% per annum.

Notes Payable Officers

Mr. Jeffrey Schultz, president of the Company, and Mr. David Rappa, president of VPS, have each advanced funds to the Company. As of June 30, 2009 Mr. Schultz has advanced $34,871 to the Company and Mr. Rappa has advanced $6,644. These loans carry no interest and are payable upon demand. During the three months ending June 30, 2009, the Company repaid Mr. Schulz and Mr. Rappa the sums of $3,977 and $1,306 respectively.

Secured Convertible Notes Payable

During September and October 2006, (“Funding” ) we issued in a private offering $597,500 aggregate principal amount of secured convertible notes (“Convertible Notes”) with $400,000 due September 26, 2007, $100,000 due October 30, 2007, and $97,500 due October 31, 2007.

The Convertible Notes, bear interest at 10% per annum, are convertible as follows: at any time, 90 days after funding is complete, but prior to repayment of all amounts due as provided under the Convertible Notes, all or any portion of the principal amount of the note shall be convertible at the option of the lender into fully paid and non-assessable shares of the Company���s common stock. The number of common shares of the Company that a Convertible Note holder (“Lender”) shall be entitled to receive upon conversion shall be equal to the number attained by dividing the principal, including accrued interest, pursuant to the Convertible Note by the conversion price. The conversion price is the lesser of $.10 per share, or one of the following times 60%:

a)	the closing bid price for common stock on the trading day one day prior to a Lender’s notice of conversion, or
b)	the average closing bid price for common stock on the five trading days immediately prior to a Lender’s notice of conversion, or if registration statement is not effective on the 180 day anniversary of the Funding (“c” & “d” not otherwise applying),
c)	the closing bid price for common stock on the 180 day anniversary of the Funding, or
d)	the average closing bid price for common stock on the five trading days immediately prior to the 180 anniversary date of the Funding.

The Lender shall not be entitled to convert, if such conversion would result in beneficial ownership by the Lender and its affiliates of more than 9.99% of the outstanding shares of common stock of the Company on such exercise or conversion date, including:

(i) the number of shares of common stock beneficially owned by the Lender and its affiliates, and

(ii) the number of shares of common stock issuable upon the exercise of the warrant and/or options and/or conversion.

The Convertible Notes and related agreements provide, among other things, for the following as to each Convertible Note:

The Company may elect to make principal and interest payments in freely tradable shares in lieu of cash. The Company’s right to make such payment in shares in lieu of cash can only be made if the volume weighted average price of the Company’s common stock has been trading at a price of $0.25 or above per share for 10 consecutive days prior to the date of the payment date and the average daily trading volume is at least 15 times the number of shares to be so issued as payment.

8

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 3 - NOTES PAYABLE - continued

At any time 90 days after funding is complete, but subject to customary equity conditions, the Company may at any time, upon 30 days written notice, prepay all of the outstanding Convertible Notes on a pro-rata basis at 110% of the outstanding principal balance only after the Convertible Note has amortized one year.

As security for the repayment of all liabilities arising under the Convertible Note, the Company granted to Lender a security interest in and a lien on 5,975,000 shares of common stock, issued with a restricted legend, hereafter referred to as the “Collateral”. The Lender has the right to sell or hypothecate such Collateral, to the extent permitted under applicable securities laws. However, the Lender shall not sell more than 10% of the average daily volume in any week. Such Collateral in 2008 was released to the Lender for either converting a portion of such Convertible Note to equity and/or the payment of accrued interest. As of March 31, 2009 there is no Collateral.

If the Company raises money at a lower price than the Lender has purchased the shares, upon conversion of such Convertible Note, then the Company will re-price the Lender’s shares and warrants to that price. The Lender has the right of first refusal of any financing for eighteen (18) months after the Funding. The Lender will be notified prior to any other financing and have an option to respond with competitive financing terms upon notification. The Company will not raise any capital below 10 cents per share.

Notwithstanding anything herein to the contrary, the Company will be allowed to raise additional capital to complete its $1.5 million contemplated fund-raising.

The Company shall file a Registration Statement with the U.S. Securities and Exchange Commission (“the Commission”) in order to register the common shares issuable upon conversion of the Convertible Note within sixty (60) calendar days after the Funding Date (the “Filing Date”), and use its best efforts to cause, such registration statement, to be declared effective not later than one hundred and twenty (120) calendar days after the Funding Date (the “Effective Date”). The Company will register not less than a number of shares of common stock in the aforedescribed registration statement that is equal to 175% of the common shares issuable upon conversion of all of the Collateral, and 100% of the warrant shares issuable upon exercise of the warrants (collectively the “Registrable Securities”). The Registrable Securities shall be reserved and set aside exclusively for the benefit of the Lender, and not issued, employed or reserved for anyone other than the Lender. The Registration Statement will immediately be amended or additional registration statements will be immediately filed by the Company as necessary to register additional shares of common stock to allow the public resale of all common stock included in and issuable by virtue of the Registrable Securities. Except with the written consent of the Lender, or as described on Schedule 11.1, no securities of the Company other than the Registrable Securities will be included in the Registration Statement. It shall be deemed a Non-Registration Event if, at any time after the date the Registration Statement is declared effective by the Commission, the Company has registered for unrestricted resale on behalf of the Lenders fewer than 125% of the amount of common shares issuable upon full conversion of all sums due hereunder and 100% of the warrant shares issuable upon exercise of the warrants.

The Company and the Lender agree that the Lender upon conversion of the Convertible Notes to common shares will suffer damages if the Registration Statement is not filed by the Filing Date and not declared effective by the Commission by the Effective Date, and it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (A) the Registration Statement is not filed on or before the Filing Date, (B) is not declared effective on or before the Effective Date, (C) due to the action or inaction of the Company, the Registration Statement is not declared effective within 3 business days after receipt by the Company or its attorneys of a written or oral communication from the Commission that the Registration Statement will not be reviewed or that the Commission has no further comments, (D) if the registration statement is not filed within 60 days after written request of the Lender, or is not declared effective within 120 days after such written request, or (E) any registration statement is filed and declared effective but shall thereafter cease to be effective without being succeeded within 15 business days by an effective replacement or amended registration statement or for a period of time which shall exceed 30 days in the aggregate per year (defined as a period of 365 days commencing on the Actual Effective Date (each such event referred to in clauses (A) through (E) herein as a “Non-Registration Event”), then the Company shall deliver to the Lender of Registrable Securities, as liquidated damages (“Liquidated Damages”), an amount equal to 5% for each 30 days or part thereof of the face amount hereof. Liquidated Damages payable in connection with a Non-Registration Event described in clause (B) above shall accrue from the 180th calendar day after the Closing Date. The Company must pay the Liquidated Damages in cash, except that the Lender may elect that such Liquidated Damages to be paid with shares of common stock with such shares valued at sixty percent (60%) of the Conversion Price in effect on each thirtieth day or sooner date upon which Liquidated Damages have accrued. The Liquidated Damages must be paid within 10 days after the end of each thirty (30) day period or shorter part thereof for which Liquidated Damages are payable. In the event a Registration Statement is filed by the Filing Date but is withdrawn prior to being declared effective by the Commission, then such Registration Statement will be deemed to have not been filed. All oral or written comments received from the Commission relating to the Registration Statement must be adequately responded to within 30 days in connection with the initial filing of the Registration Statement and within 10 business days in connection with amendments to the Registration Statement after receipt of such comments from the Commission. Failure to timely respond to Commission comments is a Non-Registration Event for which Liquidated Damages shall accrue and be payable by the Maker to the Lenders of Registrable Securities at the same rate set forth above. Notwithstanding the foregoing, the Company shall not be liable to the Lender under Section 11.4 for any events or delays occurring as a consequence of the acts or omissions of the Lender contrary to the obligations undertaken by Lender in this Agreement.

9

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 3 - NOTES PAYABLE - continued

Liquidated Damages will neither accrue nor be payable pursuant to Section 11.4 nor will a Non-Registration Event be deemed to have occurred for times during which Registrable Securities are transferable by the Lender of Registrable Securities pursuant to Rule 144(k) under the Securities Act of 1933, as amended.

In addition to any other rights available to Lender, if the Company fails to deliver to Lender unlegended shares as required pursuant to the Agreement, within seven (7) business days after the unlegended shares delivery date and the Lender purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by Lender of the shares of common stock which the Lender was entitled to receive from the Company (a “Buy-In”), then the Company shall pay in cash to the Lender (in addition to any remedies available to or elected by the Lender) the amount by which (A) the Lender’s total purchase price (including brokerage commissions, if any) for the shares of common stock so purchased exceeds (B) the aggregate purchase price of the shares of common stock delivered to the Company for reissuance as unlegended shares together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if Lender purchases shares of common stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase price of shares of common stock delivered to the Company for reissuance as unlegended shares, the Company shall be required to pay the Lender $1,000, plus interest. The Lender shall provide the Company written notice indicating the amounts payable to the Lender in respect of the Buy-In.

The Company shall pay to Lender, at Closing, a fixed non-accountable allowance to cover due diligence expenses of $1,500, plus 1.25% of the total amount invested pursuant to each Closing. At the election of the Lender, or its designees, any or all of the foregoing compensation and expense allowances can be taken in kind, pursuant to the same terms and conditions as that of an investment herein, for a like amount. Of the amounts advanced by the Lender to the Company, 10% will be paid directly to Brass Bulls, Corp. on the Company’s behalf, as a finder’s fee. This will be the Company’s expense and thus reduce the amount otherwise payable to the Company. The Company has recorded $62,875 of fees attributed to this financing, as deferred financing fees and will be expensed ratably over the term of the Convertible Notes. There was $3,495 of amortization recorded for the year ended December 31, 2006, attributed to these deferred financing fees. The balance was expensed in 2007.

The Lender or its designee, shall also be entitled to a commission of 5% of any and all amounts received, directly or indirectly, by the Company and/or its principals as a consequence of a merger, license or any other similar arrangement or remuneration as a consequence of the efforts of the Lender or its designee or agent.

In connection with the issuance of the Convertible Notes, the Company issued 5-year warrants to purchase an amount of Company stock up to a limit of 30% of the principal amount of the note. The exercise price of the warrants is equal to 300% of the conversion price of the Convertible Note.

The Company recognized a debt discount of $ 540,039 at the date of issuance of the Convertible Notes. The debt discount of $540,039 is comprised of $69,605 for the detachable warrants and $470,434 for the beneficial conversion features of the Convertible Notes. The beneficial conversion features were recorded in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments and EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”. The debt discount is recognized over the term of the Convertible Notes of one year. There was $65,065 of amortization recorded for the year ended December 31, 2006, attributed to this debt discount. The balance was expensed in 2007.

In February 2009 the Company negotiated an amendment to the terms of the original notes. The significant terms of the amendment were as follows:

● Principal amount is to be $352,232

● Maturity date is December 31, 2009,

● Note carries 7% per annum interest rate

● The warrant provision of the original notes is null and void.

● The lender immediately converted $40,000 of principal into 1,025,641 shares of our common stock thereby reducing the principal to $312,232

10

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 3 - NOTES PAYABLE – continued

● Conversion rights at 70% of the market value of our stock are frozen until July 1, 2009, and

● If we should default under the terms of the amendment, the original note terms then apply

On May 1, 2009, the Company entered into a Promissory Note with T Squared Investments, LLC with a principal amount of $100,000. Terms of the Note are 120 days and the Note carries a 15% interest rate per annum, compounded monthly. Our obligations under this note are collateralized by both our assets and the assets of HEB LLC, a principal stockholder which is also a lender to our company. As additional consideration we issued the lender five year common stock purchase warrants to purchase an aggregate of 2,000,000 shares of our common stock at exercise prices ranging from $0.05 to $$0.15 per share.  Other than the exercise price of the warrants, all other terms of the warrants are identical among the series.  These warrants contain a cashless exercise feature and the exercise price is subject to proportional adjustment in the event of stock splits, stock dividends recapitalizations and similar corporate events.  The holder is not entitled to exercise the warrant if the effect of such exercise would be that the number of shares of common stock beneficially owned by the holder after giving effect to such exercise would be result in beneficial ownership by the holder and its affiliates of more than 4.99% of our then outstanding shares of common stock on such date.  This provision may only be waived or amended by the consent of the holders of a majority of our outstanding common stock who are not our affiliates. These proceeds from this loan were used for both the purchase of inventory as well as Company operations. The warrants were valued at $ 66,555.

Notes Receivable

On August 31, 2007 the Company sold its interest in the “All In Mall” to Goldmill Productions, LLC (“Goldmill”) for the sum of $75,000. Payments were to be made in 24 monthly payments of $3,125 beginning no later than December 1, 2007. Goldmill is currently in default on said payments to the Company. As a result of the note being in default the Company has recorded a full reserve of $75,000. The Company has not received any of the scheduled payments as of June 30, 2009.

Line of Credit

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 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 30, 2009 the Company has used the entire $700,000 credit line and had a principal balance due on the credit line of $820,584. The lender has agreed to over advance and is in the process of formalizing the revised terms of the credit line.

NOTE 4 - - DERIVATIVE AND LIQUIDATING LIABILITIES

During the year ended 2007, the Company recognized derivative liabilities in the amount of $776,816 pursuant to EITF 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock and $169,375 of liquidating damages liabilities pursuant to Financial Accounting Standards Board Staff Position - FSP No. EITF 00-19-2, Accounting for Registration Payment Arrangements, all attributed to the terms of the Convertible Notes. A derivative liability was required to be recorded fundamentally due to the nature of the conversion terms, provide that the Company could potentially be in the position of delivering more shares than the Company has authorized to issue for the satisfaction of the conversion of the Convertible Notes and the exercise of the related warrants. Due to the nature of calculating the amount of warrants to issue and the exercise price, the Company is in the position of issuing another 10% more shares over the shares issued for the conversion of the Convertible Notes.

11

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 4 - DERIVATIVE AND LIQUIDATING LIABILITIES- continued

The Liquidating Damages liability relates to the recognition of an expense for the anticipated failure by the Company to comply with certain registration rights held by the holders of the Convertible Notes and obtain an effective registration of the required shares issuable upon conversion of the Convertible Notes and the exercise of related the warrants, described earlier. We have recorded the maximum anticipated penalties to be incurred for the failure to register the required common shares potentially issuable for the conversion of the Convertible Notes and the exercise of the warrants, through September 26, 2007, the maturity date of the first installment of such Convertible Notes. The penalty calculated was based on 5% of the outstanding Convertible Notes, commencing on 180 days from the date of such Convertible Note agreements executed, through September 26, 2007. An expense has been recorded for the increase in the derivative liability during the year in the amount of $83,313 as a cost of maintaining such debt arrangements, as the terms of such debt arrangements are overly burdensome. There are no maximum penalty terms for the failure to obtain an effective Registration.

During 2008, $300,000 of the related convertible debt and accrued interest was retired via the issuance of 4,500,000 shares of common stock. As a result of the satisfaction of such convertible debt the attributed portion of such derivative liability of $503,873 was recorded as a contribution to paid in capital.

The fair value of the total derivative liabilities recorded of $462,185 as of June 30, 2009 is comprised of two components, one component of the liability estimated of $377,852 attributed to the Convertible Notes conversion factor of 70% of market, but not more than $0.10 and another component of the liability of liquidated damages estimated to be $84,333.

In February, 2009, the Company amended the terms of the convertible debt to eliminate the warrants and have a six month grace period with regards to the convertibility of such debt which expires in July 2009.

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	$	0.09
Exercise Price	$	0.063
Term	Half Year
Volatility		375	%
Risk Free Rate		2.54	%
Number of Shares Assumed Issuable		4,956,063

NOTE 5 - - EQUITY TRANSACTIONS

Common Stock

During the six months ending June 30, 2009 the following equity transactions occurred:

On February 27, 2009 the Company issued 1,025,641 shares of its common stock to The Nutmeg Group, LLC in exchange for $40,000 in principal due on its convertible note.

On March 25, 2009 the Company issued 125,000 shares of its common stock to Stuart Miller and Richard Goulding as additional consideration for entering into a $50,000 loan with the Company. Terms of the loan were $50,000 principal amount, 90-day term, and 18 percent interest per annum. This stock was valued at $13,750.

On June 30, 2009, the Company sold 1,000,000 shares of its restricted common stock for the sum of $50,000 via a Private Placement Memorandum. These funds were used for both the purchase of inventory as well as Company operations.

On May 1, 2009, the Company entered into a Promissory Note with T Squared Investments, LLC with a principal amount of $100,000. Terms of the Note are 120 days and the Note carries a 15% interest rate per annum, compounded monthly. Our obligations under this note are collateralized by both our assets and the assets of HEB LLC, a principal stockholder which is also a lender to our company. As additional consideration we issued the lender five year common stock purchase warrants to purchase an aggregate of 2,000,000 shares of our common stock at exercise prices ranging from $0.05 to $$0.15 per share.  Other than the exercise price of the warrants, all other terms of the warrants are identical among the series.  These warrants contain a cashless exercise feature and the exercise price is subject to proportional adjustment in the event of stock splits, stock dividends recapitalizations and similar corporate events.  The holder is not entitled to exercise the warrant if the effect of such exercise would be that the number of shares of common stock beneficially owned by the holder after giving effect to such exercise would be result in beneficial ownership by the holder and its affiliates of more than 4.99% of our then outstanding shares of common stock on such date.  This provision may only be waived or amended by the consent of the holders of a majority of our outstanding common stock who are not our affiliates. These proceeds from this loan were used for both the purchase of inventory as well as Company operations.

12

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 5 - EQUITY TRANSACTIONS- continued

A summary of Company options issued as of June 30, 2009 is as follows:

					Weighted Average
	Stock Options				Exercise Price
	Outstanding		Exercisable		Outstanding		Exercisable
Balance – December 31, 2008		2,000,000		2,000,000		.10		.10
Granted		-		-		-		-
Exercised		-		-		-		-
Right Canceled	-		-		-		-
Balance – June 30, 2009		2,000,000		2,000,000	$	.10		.10

The following table summarizes information about stock options outstanding and exercisable at March 31, 2009:

	Number Outstanding		Weighted- Average Remaining Life in Years		Weighted Average Exercise Price		Number Exercisable
Range of exercise prices:
$.10		2,000,000		4.42	$	.10		2,000,000

These options issued in 2008 were fully vested and expensed in 2008.

A summary of the activity of warrants issued as of June 30, 2009 as follows:

					Weighted Average
	Warrants				Exercise Price
	Outstanding		Exercisable		Outstanding		Exercisable
Balance – December 31, 2008		8,205,000		8,205,000	$	.24	$	.24
Granted		2,000,000		2,000,000		-		-
Exercised		-		-		-		-
Canceled		-		-		-		-
Balance – June 30, 2009		10,205,000		10,205,000	$	.21	$	.21

13

SECURED FINANCIAL NETWORK, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009

(unaudited)

NOTE 5 - EQUITY TRANSACTIONS- continued

The following table summarizes information about stock warrants outstanding and exercisable at June 30, 2009:

	Number Outstanding		Weighted- Average Remaining Life in Years		Weighted Average Exercise Price		Number Exercisable
Range of exercise prices:
$.05 to $.09		1,285,000		2.77	$	.06		1,285,000
$.10 to $.49		6,460,000		1.63		.12		6,460,000
$.50		2,460,000		.66		.50		2,460,000

At June 30, 2009, there remains $65,730 of unamortized expense yet to be recorded related to all warrants outstanding.

NOTE 6 - - RELATED PARTY TRANSACTIONS

Mr. Jeffrey Schultz, president of the Company, and Mr. David Rappa, president of VPS, have each advanced funds to the Company. As of June 30, 2009 Mr. Schultz has advanced $34,871 to the Company and Mr. Rappa has advanced $6,644. These loans carry no interest and are payable upon demand. During the three months ending June 30, 2009, the Company repaid Mr. Schulz and Mr. Rappa the sums of $3,977 and $1,306 respectively.

14

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

The following discussion is a discussion and analysis of our financial condition and results of operations for the three months and six months ended June 30, 2009 and significant factors that could affect our prospective financial condition and results of operations.  Historical results may not be indicative of future performance.

Overview

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. We operate through our wholly owned subsidiary Virtual Payment Solutions, Inc. (VPS)  Our Company websites are www.securedfinancialnetwork.com and www.virtualpaymentsolutions.com .

VPS markets its 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 swipe device

Blue Bamboo Blue Box table pay restaurant solution

Blue Bamboo PCI Compliant and Visa certified Payment Gateway

RedFin Sidebar Quickbooks interface

All of the transaction products are integrated with the 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 and debit card charges.

The RedFin Payment Gateway is a customized credit/debit card processing platform serving as the connection between the customer at point-of-sale to the financial networks for the acceptance of card payment by merchants.  Most card transactions worldwide are processed by third party providers in compliance with financial institutions.  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 Payment Gateway received its PCI/DSS Compliance in October 2008 and is listed on the Visa’s approved Payment Gateway list as of March 2009.

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 periodically.

The Blue Bamboo Products and Payment Gateway is marketed through 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 from  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, PaymentTech, 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.

The Payment Gateway can also be 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 Sure Gate, Blackstone Merchant Services, Diversified Check Solutions, and Versatile Pay.

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.

VPS has developed a Windows based software for its Blue Bamboo P-25 printer and card-swiper 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 warehousing and terminal products handling  non-exclusively  to Paragon Services, Inc. located in Georgia ( www.paragonservices.net ) and  JR’s POS Depot located in South Florida ( www.jrsposdepot.com )  all trusted names in the payment products distribution marketplace.  In addition, all Level 1 and 2 customer service related questions have also been outsourced to CardWare International with a 24/7 response to customer trouble tickets within 15 minutes.

15

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. - continued

Overview - continued

On May 13, 2009 the Company announced that VPS has developed and will launch shortly its Windows based program for its P-25M Card Swiper/Printer and its RedFin “Sidebar” application for point-of-sale transactions (POS).  The application will enable mobile merchants and brick and mortar businesses a tool to instantly swipe, transact, and print receipts for credit and debit card transactions using the P-25M with virtually any office computer through a simple online download.  The Company  launched these products in May 2009.

Results of Operation for the Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008

The Company generates revenues from the sale of the Blue Bamboo wireless terminals, its recurring monthly data plans and sales of its RedFin Gateway transaction platform.  The Company’s  revenue increased $169,301, or approximately 371%, in the quarter ended June 30, 2009 compared to the same period in 2008. The increase in sales was attributable to the sales of the Company’s Blue Bamboo wireless terminals, the associated product accessories, and the sales of the data plans required to operate the terminals.

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 the monthly licensing fees associated with maintaining and operating our payment gateway. Our cost of goods sold as a percentage of revenues was approximately 85% for the three months ended June 30, 2009 as compared to 74% for the comparable period in 2008.  The increase in our cost of goods sold in the 2009 period as compared to the 2008 period reflects the Company’s use of its Payment Gateway to generate revenues in 2009 compared to no Gateway revenue in the 2008 period. The Company pays a recurring minimum $10,695 monthly fee to its Payment Gateway provider Blue Bamboo. As our sales increase the amount of this monthly fee will be amortize over a greater revenue number which should result in a reduction in cost of sales as a percentage of revenues in the balance of 2009, although we are unable at this time to predict the percentage.

Total operating expenses for the three months ended June 30, 2009 increased approximately $98,384, or approximately 35%, from the comparable period in 2008, and primarily included increases in:

● administrative expenses, which includes rent, salaries and general overhead costs increased approximately $35,335 in the second quarter of 2009 as compared to the second quarter of 2008 as a result of the Companys increased sales effort. We anticipate that administrative expenses will remain at the same levels for the final six moths of the year as they did for the first six months and that they should not significantly increase during the balance of 2009.

● professional and consulting fees, which includes sales and marketing consultants as well as investor relations services increased approximately $55,324 or approximately 227%, in the second quarter of 2009 from the comparable period in 2008 as a result of the increased need for professional help in expanding the Companys business and meeting the needs of the  investment community.. We anticipate that professional and consulting fees during the balance of 2009 will not significantly increase.

● Interest expense increased approximately $56,291, or approximately 46%, in the second quarter of 2009 from the comparable period in 2008 as a result of increased borrowing expenses and the expenses associated with the T Squared warrant issuance..

We reported other income of $75,826 which represents the elimination of payroll taxes and accumulated penalties and interest associated with such taxes. Negotiations with the IRS had these taxes and penalties transferred to another liable party.

Derivative and liquidating liabilities during the three months ending June 30, 2009, increased by $19,567. The changes in derivative and liquidating liabilities and liquidating income each quarter are a result of the price changes in our stock each quarter and the impact this stock price change has on our convertible debt.

Net loss for the three months ended June 30, 2009 was $(343,949) compared to a net loss of $(263,501) for the comparable period in 2008. The increase in loss was primarily attributable to an increase in our total expenses as the sales of the company continue to grow.

Although the Company expects to generate increased revenues in the balance of 2009, due to sales of its wireless terminals and gateway transaction revenue, the Company expects to continue to incur losses at least through the third quarter of 2009, and there can be no assurance that the Company will achieve or maintain profitability, generate revenue or sustain future growth. 

Results of Operation for the Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008

The Company’s revenue in the six months ending June 30, 2009 increased $308,961, or approximately 634%, compared to in the same period in 2008. The significant increase in sales was attributable to the sales of the Company’s Blue Bamboo wireless terminals, the associated product accessories, and the sales of the data plans required to operate the terminals.

16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. - continued

Results of Operation for the Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008 - continued

The Company’s cost of goods sold expense of $307,708 increased $274,077 in the six months ending June 30, 2009 or approximately 815% compared to $33,631 in the same period in 2008. This increase was due to the significant increase in product sales during the period.

Total operating expenses for the six months ended June 30, 2009 increased approximately $155,562, or approximately 23%, from the comparable period in 2008, and primarily included increases in:

●           administrative expenses, which includes rent, salaries and general overhead costs decreased approximately $55,251 or 14%  in the first six months of 2009 as compared to the first six months of 2008 as a result of the Companys more efficient use of it’s assets.

●           professional and consulting fees, which includes sales and marketing consultants as well as investor relations services increased approximately $59,556 or approximately 76%, in the first six months of 2009 from the comparable period in 2008 as a result of the increased need for professional help in expanding the Companys business and meeting the needs of the  investment community.

●           Interest expense increased approximately $149,171, or approximately 72%, in the first six months of 2009 from the comparable period in 2008 as a result of increased borrowing expenses and the expenses associated with the T Squared warrant issuance.

The Company’s Derivative and Liquidating Liabilites expense of $462,185 on June 30, 2009 decreased $484,006 or approximately 51% compared to June 30, 2008. This reduction is attributable to the increase in our stock price as well as the elimination and renegotiation of a portion of our convertible debt.

Net loss for the six months ended June 30, 2009 was $(601,609) compared to a net loss of $(605,387) for the comparable period in 2008. The decrease in loss was primarily attributable to an increase in the sales of the company as we continue to grow.

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, 2009 we had $0 cash  and working capital deficit of $4,387,907 as compared to cash on hand of $3,706 and a working capital deficit of $4,029,163 at December 31, 2008. With the exception of our limited existing credit line with Commercial Holding AG, we have no current agreements, arrangements, or understanding for such needed capital. As of June 30, 2009 the Company has used the entire $700,000 credit line and had a principal balance due on the credit line of $820,584.

The Company had total assets of $342,099 at June 30, 2009 as compared to $242,117 at December 31, 2008. This overall increase in total assets is due to increases in both our inventory and accounts receivable offset by the amortization of out deferred financing fees.  The Company had total liabilities of $4,645,432 at June 30, 2009 as compared to $3,725,372 at June 30, 2008.

At June 30, 2009 our current assets increased approximately $172,542 from December 31, 2008 and included increases in accounts receivable $26,469, inventory $100,113, and deposits paid to our product supplier of $49,470.  Our customary terms offered our customers are payment prior to shipment. Most of our sales transactions are pre-paid by credit card or ACH. The inventory increase in 2009 reflects increased purchases of terminal products and accessories related to our increased sales.

At June 30, 2009 our current liabilities increased approximately $531,286 from December 31, 2008, and included increases in accounts payable ($35,993), notes payable and secured convertible notes ($172,970), accrued expenses ($175,886), our line of credit ($243,000), and was offset by a decrease in derivative and liquidating liabilities ($96,563).

At June 30, 2009, we had $1,945,470 of notes payable which includes:

● $65,000 principal amount of 10% notes (HEB Notes) which is due between September and December 2009. Interest has accrued under these notes which totals $10,815 at June 30, 2009.

● $1,410,000 principal amount of short-term notes (Container Financing Notes) issued in 2005, averaging 90 days, with a specific rate of return to acquire funds to invest in high yield activities.  At June 30, 2009 there is unpaid interest due and accruing in the amount of $943,617 on these notes, all of which are in default and accruing interest at 18% per annum.

● $312,232 principal amount of 7% note (Nutmeg Note) which is due December 31, 2009.

● $50,000 principal amount of 18% note (Miller/Goulding Note) which is due June 30, 2009. Interest has been paid through June 30, 2009 and principal was repaid July 6, 2009.

● $100,000 principal amount of 10% note (T Squared Note) which is due August 31, 2009. At June 30, 2009 there is unpaid interest due and accruing in the amount of $2,500.

Between September 2006 and October 2006 we sold an aggregate of $597,500 principal amount secured convertible notes which were due between September 2007 and October 2007.  The notes are convertible into shares of our common stock as described in greater detail in Note 4 to the Notes to Consolidated Financial Statements appearing elsewhere in this report which is generally the lesser of 60% of the market value of our stock or $0.10 per share.  We were obligated to file a registration statement with the Securities and Exchange Commission to register the shares of common stock underlying these notes and the warrants we issued the investor in the transaction.  We have not filed this registration statement and are liable for liquidated damages which are $462,185 at June 30, 2009.  At December 31, 2008 we owed $297,500 principal amount of convertible notes.  In February 2009 the Company negotiated an amendment to the terms of the original notes. The significant terms of the amendment were as follows:

● Principal amount is to be $352,232

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. - continued

Liquidity and Capital Resources - continued

● Maturity date is December 31, 2009,

● Note carries 7% per annum interest rate

● The warrant provision of the original notes is null and void

● The lender immediately converted $40,000 of principal into 1,025,641 shares of our common stock thereby reducing the principal to $312,232

● Conversion rights at 70% of the market value of our stock are frozen until July 1, 2009, and

● If we should default under the terms of the amendment, the original note terms then apply

Finally, at June 30, 2009 our balance sheet reflects $820,584 due under a line of credit.  In April 2008 we entered into a Credit and Loan Agreement with Commercial Holding, AG pursuant to which we were extended a $500,000 line of credit which we secured by the stock of our subsidiary, Virtual Payment Solutions, Inc., and all of that company’s assets.   Upon the granting of this line of credit we issued Commercial Holdings, AG 2,000,000 shares of our common stock together with  five-year warrants to purchase an additional 1,000,000 shares of our common stock with an exercise price of $0.25 per share.  In December 2008 the agreement was amended to increase the maximum amount available under the facility to $700,000.  As consideration for this amendment we issued Commercial Holding, AG 2,000,000 shares of our common stock together with  five-year warrants to purchase an additional 1,000,000 shares of our common stock with an exercise price of $0.10 per share  Interest on the outstanding amount is 10% per annum, payable monthly.  We have used the proceeds for general working capital.

We do not have any commitments for capital expenditures.   While we were able to raise $100,000 in May 2009 through the issuance of a secured promissory note and an additional $50,000 of new capital during June 2009 through the sale of shares of our common stock in a private placement., our sources of cash are the availability of funds under our line of credit and cash on hand. At June 30, 2009 we had a bank overdraft of $34,067 and there were no funds available under our line of credit. The Company is currently working 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 the Company. As described elsewhere herein, we do not have sufficient funds to pay our outstanding debt obligations which are approximately $4,645,432 and we will need approximately $2,000,000 of additional working capital to fund our ongoing operations. The Company believes it will be sucessful in raising the required funds. In addition, in the event we should fail to pay the interest under the 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 amounts, the lender could seek to foreclose on the assets of our subsidiary which represents substantially all of our operations.  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 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, 2008 and 2007 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

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Item 4T. Controls and Procedures.

Evaluation of 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.  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 is also 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 Principal 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, our Principal Executive Officer and Chief Financial Officer concluded, as of the Evaluation Date, that our disclosure controls and procedures are not 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 as a result of continuing material weaknesses in our internal controls over financial reporting.

Due to the small size and limited financial resources, the Company’s Principal Executive Officer  and Chief Financial Officer are the only individuals involved in the accounting and financial reporting. Furthermore, our PEO performs his duties in Florida while our CFO performs his in Massachusetts. As a result, there is no segregation of duties within the accounting function, leaving all aspects of financial reporting and physical control of cash in the hands of the same individual, our CFO.  Usually, this lack of segregation of duties represents a material weakness; however, to remedy the matter, subject to the availability of sufficient capital the Company plans to hire additional in-house accounting personnel in Florida as we expect sales in the short-term to reach levels where it is warranted. This will allow our CFO to spend more time performing high end accounting duties and make better use of his time. The PEO and CFO (both of whom also comprise the Board of Directors) examine and approve all cash transactions.  However, until such remedial actions are complete, it is likely that we will have continuing material weaknesses in our internal control over financial reporting which will result in continuing material weaknesses in our disclosure controls and procedures.

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. 

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

None. 

Item 1A. Risk Factors.

Not Applicable.

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

On May 1, 2009, the Company entered into a Promissory Note with T Squared Investments, LLC  with a principal amount of $100,000. Terms of the Note are 120 days and the Note carries a 15% interest rate per annum, compounded monthly. Our obligations under this note are collateralized by both our assets and the assets of HEB LLC, a principal stockholder which is also a lender to our company. As additional consideration we issued the lender five year common stock purchase warrants to purchase an aggregate of 2,000,000 shares of our common stock at exercise prices ranging from $0.05 to $$0.15 per share.  Other than the exercise price of the warrants, all other terms of the warrants are identical among the series.  These warrants contain a cashless exercise feature and the exercise price is subject to proportional adjustment in the event of stock splits, stock dividends recapitalizations and similar corporate events.  The holder is not entitled to exercise the warrant if the effect of such exercise would be that the number of shares of common stock beneficially owned by the holder after giving effect to such exercise would be result in beneficial ownership by the holder and its affiliates of more than 4.99% of our then outstanding shares of common stock on such date.  This provision may only be waived or amended by the consent of the holders of a majority of our outstanding common stock who are not our affiliates. These proceeds from this loan were used for both the purchase of inventory as well as Company operations.

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

On June 30, 2009, the Company sold 1,000,000 shares of its restricted common stock for the sum of $50,000 via a Private Placement Memorandum to one accredited investor in a transaction exempt from registration under the Securities Act of 1933 in reliance upon an exemption provided by Regulation D. No commission or finders fee was paid for this investment.

Item 3. Defaults Upon Senior Securities.

None. 

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

Mr. Jeffrey Schultz, president of Secured Financial Network, Inc. and Mr. David Rappa, president of Virtual Payment Solutions Inc. have each advanced funds to the Company. As of June 30, 2009 Mr. Schultz has advanced $34,871 to the Company and Mr. Rappa has advanced $6,644. These loans carry no interest and are payable upon demand. These proceeds were primarily, but not exclusively, used to purchase inventory for the Company. During the three months ending June 30, 2009, the Company repaid Mr. Schulz and Mr. Rappa the sums of $3,977 and $1,306 respectively.

On May 1, 2009 we engaged Flagler Communications Group, Inc. to provide public relations, communication, advisory and consulting services to us under the terms of a six month agreement.  As compensation for its services, Flagler Communications is entitled to a monthly fee of $2,500 and reimbursement for reasonable out of pocket expenses.

In May 2009 we engaged DMS Consulting, LLC to provide financial communication services for us under the terms of a 90 day agreement for a fee of $2,500 per month.   

Item 6. Exhibits.

Exhibit No.	Description
4.1	Promissory Note in the principal amount of $100,000 to T Squared Investments, LLC dated May 1, 2009 *
4.2	Form of Common Stock Purchase Warrant issued to T Squared Investments, LLC *
4.3	Form of option granted to Flagler Communications Group (included in Exhibit 10.15 hereto)
10.14	Form of Consulting Agreement with DMS Consulting, LLC *
10.15	Form of Consulting Agreement with Flagler Communications Group dated May 1, 2009 *
31.1	Certification of Principal Executive Officer as Required by Rule 13a-14(a)/15d-14*
31.2	Certification of Principal Financial Officer as Required by Rule 13a-14(a)/15d-14*
32.1	Certification of Principal Executive Officer as Required by Rule 13a-14(b) and Rule 15d- 14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code*
32.2	Certification of Principal Financial Officer as Required by Rule 13a-14(b) and Rule 15d- 14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code*

* 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 FINANCIAL NETWORK, INC.
Date: August 14, 2009	By:	/s/ Jeffrey L. Schultz
		Jeffrey L. Schultz
		Title: Principal Executive Officer

Date: August 14, 2009	By:	/s/ Michael Fasci
		Michael Fasci
		Title: Chief Financial Officer

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