UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


____________________





FORM 10-Q


____________________


(Mark One)


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





For the quarterly period ended March 31, 2011





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: 0-52556


____________________





Card Activation Technologies Inc.


(Exact name of registrant as specified in its charter)





Delaware
20-5769015(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)53 West Jackson Blvd., Suite 1618

Chicago, Illinois
60604-3749(Address of principal executive offices)
(Zip Code)(312) 972-1662(Registrant's telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required 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:


Yes  x  No  o





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 (§ 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).  Yes  oNo  o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b–2 of the Exchange Act.





Large accelerated filer  o

Accelerated filer  oNon–Accelerated filer  o  (Do not check if a smaller reporting company)

Smaller reporting company  x





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





As of May 4, 2011, the issuer had 177,698,807 shares of common stock, $0.001 par value per share, outstanding.













TABLE OF CONTENTS




PART I - FINANCIAL INFORMATION

1ITEM. 1.
FINANCIAL STATEMENTS

1CARD ACTIVATION TECHNOLOGIES INC.UNAUDITED CONDENSED BALANCE SHEETS

1CARD ACTIVATION TECHNOLOGIES INC.UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

2CARD ACTIVATION TECHNOLOGIES INC.UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

3ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

7ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

11ITEM 4.
CONTROLS AND PROCEDURES

11PART II - OTHER INFORMATION

11ITEM 1.
LEGAL PROCEEDINGS

11ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

12ITEM 6.
EXHIBITS

12


Table of Contents





PART I - FINANCIAL INFORMATION




ITEM. 1.  FINANCIAL STATEMENTS




CARD ACTIVATION TECHNOLOGIES INC.





UNAUDITED CONDENSED BALANCE SHEETS





March 31,


September 30,2011


2010CURRENT ASSETSCash

$
97,947


$
-Advances to affiliate


-



695,777Other


106,775Total current assets


204,722



695,777TOTAL ASSETS

$
204,722


$
695,777LIABILITIES AND STOCKHOLDERS' EQUITY:CURRENT LIABILITIES:Accounts payable


1,506,675



828,808Accrued expenses


12,824



14,272Disputed liabilities


20,000



20,000Total current liabilities


1,539,499



863,080TOTAL LIABILITIES


1,539,499



863,080STOCKHOLDERS' EQUITY:Preferred stock, $.001 par value, 1,000,000 shares authorized; none issued and outstanding as of March 31, 2011 and 2010, respectively


-



-Common stock, $.0001 par value, 300,000,000 shares authorized; 176,730,616 and 174,782,045 shares issued and outstanding as of  March  31, 2011 and September 30, 2010, respectively


17,674



17,478Additional paid-in capital


947,638



1,509,953Common stock, subscribed, 476,191 shares


25,000



35,250Accumulated deficit


(2,325,089
)


(1,729,984
)Total stockholders' equity


(1,334,777
)


(167,303
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
204,722


$
695,777





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





1
 Table of Contents




CARD ACTIVATION TECHNOLOGIES INC.





UNAUDITED CONDENSED STATEMENTS OF OPERATIONS





Three Months Ended


Six Months EndedMarch 31,


March 31,2011


2010


2011


2010REVENUELitigation revenue

$
100,000


$
-


$
264,000


$
250,000Total


100,000



-



264,000



250,000COSTS AND EXPENSESCost of Revenue


35,000



-



92,400



87,500General and administrative


368,011



224,176



792,922



322,180Sales and marketing expenses


-



-



-



-Total operating expenses


403,011



224,176



885,322



409,680OPERATING INCOME (LOSS)


(303,011
)


(224,176
)


(621,322
)


(159,680
)OTHER (INCOME) AND EXPENSESInterest income


(13,375
)


(21,770
)


(26,907
)


(43,118
)Interest expense


345



345



690



698Total other (income) expense


(13,030
)


(21,425
)


(26,217
)


(42,420
)INCOME (LOSS) BEFORE INCOME TAXES


(289,981
)


(202,751
)


(595,105
)


(117,260
)INCOME TAX (BENEFIT) PROVISION


-



-



-



-NET INCOME (LOSS)

$
(289,981
)

$
(202,751
)

$
(595,105
)

$
(117,260
)Weighted Average Common Share Outstanding:Basic and diluted:


176,730,616



174,782,045



176,097,209



174,048,418Net Income (Loss) Per ShareBasic and diluted:

$
(0.00
)

$
( 0.00
)

$
(0.00
)

$
(0.00
)





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


2
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CARD ACTIVATION TECHNOLOGIES INC.





UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS





Six Months Ended March 31,2011


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
(595,105
)

$
(117,260
)Adjustments to reconcile net income to net cash provided by (used in) operating activities:Discount on common stock issued under subscription agreements


34,358



-Reserve for bad debts


(38,130
)


-Changes in assets and liabilities:Other assets


(106,775
)


237,500Accounts payables


677,867



9,765Accrued expenses and disputed liabilities


(1,448
)


83,824Net cash provided by (used in) operating activities


(29,233
)


213,829CASH FLOWS FROM FINANCING ACTIVITIES:Advances to affiliates


(39,370
)


(216,040
)Proceeds from the sale of common stock


64,050



-Cash received from subscription of common stock


25,000



-Advances from affiliates


77,500



5,470Net cash provided by (used in) financing activities


127,180



(210,570
)INCREASE IN CASH


97,947



3,259CASH, BEGINNING OF YEAR


-



6,909CASH, END OF YEAR

$
97,947


$
10,168Supplemental Cash Flow Information:Issuance of subscribed stock

$
35,250


$
-Common stock received as loan repayment

$
695,777


$
-





The accompanying notes are an integral part of these financial statements


3
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CARD ACTIVATION TECHNOLOGIES INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


(Unaudited)





Note 1. Background





Card Activation Technologies Inc. ("we," "us," "our" or the "Company") was incorporated in the state of Delaware on August 29, 2006. The Company was formed to own and commercially develop our patented point-of-sale technology for the activation and processing of transactions related to debit-styled cards, which include gift cards, phone cards and other stored value cards.  Currently, our business strategy consists exclusively of attempting to enter into license agreements with third parties to license our rights under our patent and in pursuing patent litigation in an effort to protect our intellectual property and obtain recourse against alleged infringement of our patent.





In order to develop our business plan, we will require funds for working capital. The Company is currently being funded by the sale of its common stock and revenue from litigation settlements.  The Company anticipates increasing its sources of funds in the future by entering into license agreements with third parties to license the use of its patent.  However, no such agreements have been entered into at this time, and the Company cannot predict when, if ever, it will enter into such agreements.





We were formerly a wholly owned subsidiary of MedCom USA Incorporated ("MedCom").  In connection with our formation, MedCom transferred a patent relating to its card technology business to us in exchange for 146,770,504 shares of our common stock.  On October 31, 2006, MedCom's board of directors declared a stock dividend to its shareholders of record at the end of business on December 15, 2006 of one share of our common stock for every one share of common stock of MedCom owned by its shareholders.  On March 1, 2007, MedCom distributed 86,770,504 shares of our common stock to its shareholders pursuant to the stock dividend and retained the balance of 60,000,000 shares of our common stock.  MedCom remains our largest shareholder.





Note 2. Basis of Presentation





The accompanying condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") which contemplate continuation of the Company as a going concern.   During the three months ended March 31, 2011, the Company recognized a net loss of $289,981.  The Company has incurred an accumulated net loss from the period August 29, 2006 (inception) through March 31, 2011 of $2,325,089.  Further, the Company has inadequate working capital to maintain or develop its operations and is dependent upon funds from private investors and the support of certain stockholders.





These factors raise substantial doubt about the ability of the Company to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.  In this regard, our management is proposing to raise any necessary additional funds through a financial institution or through the sale of equity, debt, or a combination of equity and debt, if the Company does not receive additional funding through litigation settlements. There is no assurance that the Company will be successful in raising additional capital.


4
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The accompanying condensed financial statements included herein have been prepared by us, without audit, in accordance with the accounting policies described in our audited financial statements and notes thereto for the fiscal year ended September 30, 2010, as presented in our annual report on Form 10-K/A, and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading.  In the opinion of our management, the accompanying condensed financial statements include all adjustments (consisting only of those of a normal recurring nature), which are necessary for a fair presentation of the results for the interim periods presented.  Interim results are not necessarily indicative of results to be expected for any future interim period or for the entire fiscal year.





These condensed financial statements should be read in conjunction with the notes to the 2010 audited financial statements presented in our annual report on Form 10-K/A for the year ended September 30, 2010, filed with the SEC.  Our reports are available electronically by visiting the SEC website at http://www.sec.gov.





Recent Accounting Guidance





On September 30, 2009, the Company adopted updates issued by the Financial Accounting Standards Board ("FASB") to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification ("ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Financial Statements.





In June 2009, the FASB issued guidance now codified as ASC Topic 105, "Generally Accepted Accounting Principles" ("ASC 105"), which establishes the FASB Accounting Standards Codification as the source of GAAP to be applied to nongovernmental agencies. ASC 105 explicitly recognizes rules and interpretive releases of the SEC under authority of federal securities laws as authoritative GAAP for SEC registrants. ASC 105 became effective for interim or annual periods ending after September 15, 2009. ASC 105 does not have a material impact on the Company's financial statements presented hereby.


5
 Table of Contents





In May 2009, the FASB issued guidance now codified as ASC Topic 855, "Subsequent Events" ("ASC 855"). The pronouncement modifies the definition of what qualifies as a subsequent event—those events or transactions that occur following the balance sheet date, but before the financial statements are issued, or are available to be issued—and requires a company to disclose the date through which it has evaluated subsequent events and the basis for determining that date. The Company adopted the provisions of ASC 855 on September 30, 2009, in accordance with the effective date.





On June 30, 2009, the Company adopted updates issued by the FASB to fair value disclosures of financial instruments.  These changes require a publicly traded company to include disclosures about the fair value of its financial instruments.  Such disclosures include the fair value of all financial instruments, for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position; the related carrying amount of these financial instruments; and the method(s) and significant assumptions used to estimate the fair value.  Other than the required disclosures, the adoption of these changes had no impact on the Financial Statements.





Note 3. Related Party Transactions





As of March 31, 2011, the Company was managed by its sole officer and director, Robert Kite.  Mr. Kite serves as sole director and Chairman of the Company's Board of Directors and acts as the Company's principal executive and principal financial officer.  Mr. Kite also serves as chairman of the board of directors, president and chief executive officer of MedCom, a related party, and owns shares of common stock of both MedCom and the Company.  MedCom is also a significant shareholder of the Company.





On September 30, 2010, the Company entered into an agreement with MedCom to repay the amount due from advances made in the amount of $1,478,526.  The Company agreed to accept shares of its common stock valued at the closing price on the date received.  On October 1, 2010, the Company received 8,697,210 shares of its common stock valued at $0.08 per share or $695,777.





The Company advances funds to MedCom at a 7% interest rate per annum.  As of March 31, 2011 and September 30, 2010 the Company had a receivable from affiliate advances of zero and $695,777, respectively.





Note 4. Disputed Liabilities





The Company allegedly is party to a note payable with a principle amount of $20,000 at a 7% interest rate with no due date.  The Company is disputing this obligation as management believes that the party entering into the note on behalf of the Company did not have the authority to do so.





Note 5.  Equity





The Company periodically issues shares of its common stock to investors in connection with private placement transactions.  Absent an arm’s length transaction with an independent third-party, the value of any such issued shares is based on the trading value of the stock at the date of issuance.  The Company expenses the difference between the sales price and the fair value of all such issuances in the period incurred.  During the three and six months ended March 31, 2011, the Company issued zero and 1,948,571 common shares for a cash value of zero and $99,300, respectively.  During the three and six months ended March 31, 2011, the Company recognized an expense related to the trading value of the stock issued in excess of amounts received in the amount of zero and $34,357.


6
 Table of Contents





During the three months ended March 31, 2011 the Company entered into subscription agreements whereby it sold 476,191 shares of common stock to third parties for a value of $25,000.  The shares were not issued as of March 31, 2011.





Note 6.  Commitments and Contingencies





The Company enters into contingency agreements with law firms that represent the Company in certain of its patent litigations.  Under these agreements, the Company typically pays a law firm 35% of the settlement amounts received by the Company and amounts based on future patent litigation successes.  Other cases are handled on an hourly fee basis.





On February 26, 2010, the Company and MedCom entered into a Settlement Agreement (the "Agreement") and Mutual Release with William Williams (a former executive of the Company and MedCom), Eva Williams, Wilcom Inc., W.P.W. Aircraft, LLC, Williams Family Trust, and American Nortel Communications, Inc. (collectively, the "Williams Group").  The Agreement settled and provided a mutual release of each member of the Williams Group, on the one hand, and the Company and MedCom, on the other hand, from any and all claims that any member of the Williams Group and the Company or MedCom has against the other relating to certain litigation that was filed or corporate governance claims that may arise from the Company or MedCom.  As a condition to the Agreement, the Williams Group will return an aggregate of 24,150,264 shares of common stock of the company and 20,415,651 shares of MedCom common stock.





ITEM 2.  MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





With the exception of historical facts, the matters discussed in this quarterly report on Form 10-Q are forward-looking statements.  Forward-looking statements may relate to, among other things, future actions, future performance generally, business development activities, future capital expenditures, strategies, the outcome of contingencies such as legal proceedings, future financial results, financing sources and availability and the effects of regulation and competition.  When we use the words "believe," "intend," "expect," "may," "will," "should," "anticipate," "could," "estimate," "plan," "predict," "project," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements.  When we describe strategy that involves risks or uncertainties, we are making forward-looking statements.





These forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated.  These factors include, but are not limited to, our ability to protect our patented technology, our failure to satisfy our working capital needs from operations and the availability of and costs associated with potential sources of financing.


7
 Table of Contents





We warn you that forward-looking statements are only predictions.  Actual events or results may differ as a result of risks that we face.  Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update them.





The following discussion contains management's discussion and analysis of financial condition and results of operations.  Management's discussion and analysis should be read in conjunction with "Item 1.  Financial Statements" of this quarterly report on Form 10-Q and Management's Discussion and Analysis of Financial Condition and Results of Operations presented in our annual report on Form 10-K/A for the fiscal year ended September 30, 2010.





Overview





We own and commercially develop our patented method of processing debit purchase transactions, which include gift cards, phone cards and other stored value cards.  Currently, our business strategy consists exclusively of attempting to enter into license agreements with third parties to license our rights under our patent and in pursuing patent litigation in an effort to protect our intellectual property and obtain recourse against alleged infringement of our patent.





Results of Operations





Three Months Ended March 31, 2011, Compared to Three Months Ended March 31, 2010





Revenues increased to $100,000 for the three months ended March 31, 2011, compared to zero for the three months ended March 31, 2010.  The increase in revenues was due to one settlement for the three months ended March 31, 2011 compared to none for the three months ended March 31, 2010.





Operating expenses consist of cost of revenue, general and administrative expenses and sales and marketing costs.





Cost of revenue consists of contingency fees paid to legal counsel equal to 35% of settlement revenue.  Certain of our settlements are not subject to contingency fees.  Cost of revenue increased $35,000 to $35,000 for the three months ended March 31, 2011 from zero for the three months ended March 31, 2010 as a result of one settlement for the three months ended March 31, 2011 compared to none for the comparable period in 2010.





General and administrative expenses consist of salaries and benefits, legal, professional and consulting fees, corporate costs, facilities costs, insurance, travel and entertainment.  General and administrative costs increased 64.2% to $368,011 for the three months ended March 31, 2011 from $224,176 for the three months ended March 31, 2010.  This increase was primarily due to additional legal fees.


8
 Table of Contents





Six Months Ended March 31, 2011, Compared to Six Months Ended March 31, 2010





Revenues increased to $264,000 for the six months ended March 31, 2011, compared to $250,000 for the six months ended March 31, 2010.  The increase in revenues was due to four settlements during the six months ended March 31, 2011 compared to two during the six months ended March 31, 2010.





Operating expenses consist of cost of revenue, general and administrative expenses and sales and marketing costs.





Cost of revenue consists of contingency fees paid to legal counsel equal to 35% of settlement revenue.  Certain of our settlements are not subject to contingency fees.  Cost of revenue increased $4,900 to $92,400 for the three months ended March 31, 2011 from zero for the six months ended March 31, 2011 as a result of four settlements during the six months ended March 31, 2011 compared to two in 2010.





General and administrative expenses consist of salaries and benefits, legal, professional and consulting fees, corporate costs, facilities costs, insurance, travel and entertainment.  General and administrative costs increased 146.1% to $792,922 for the six months ended March 31, 2011 from $322,180 for the six months ended March 31, 2010.  This increase was primarily due to additional legal fees.





Liquidity and Capital Resources





Our primary sources of liquidity are the sale of our common stock and cash generated from operations.  We sold 1,220,000 shares of stock, issued 728,571 shares for previous subscription agreements and entered into subscription agreements to sell 476,191 shares of our common stock and received four settlements during the six months ended March 31, 2011.  The Company anticipates increasing its sources of funds in the future by entering into license agreements with third parties to license the use of its patent.  However, no such agreements have been entered into at this time, and the Company cannot predict when, if ever, it will enter into such agreements.  Management anticipates that the Company's current funds will be able to sustain the Company through the end of the fiscal year, at which point the Company may be required to seek additional financing through a financial institution or through the sale of equity, debt, or a combination of equity or debt, if the Company has not received additional funding through litigation settlements at that time.  The Company does not have any contractual commitments that would be impacted by a loss of funding at this time.





From time to time the Company advances funds to MedCom.  As of March 31, 2011 there were no outstanding amounts due from related parties.





At March 31, 2011, we had cash of $97,947 compared to $0 at September 30, 2010.  The net change in cash for the periods presented was comprised of the following:





March 31, 2011


March 31, 2010Cash flow provided by (used in) operating activities

$
(29,234
)

$
213,829Cash flow provided by (used in) financing activities


127,180



(210,570
)


9
 Table of Contents





Cash flow from operating activities was primarily due to net loss of $595,105 offset by an increase in accounts payable of approximately $678,000 for the six months ended March 31, 2011.  For the six months ended March 31, 2010, cash flow from operating activities was primarily due to net loss of $117,260 and an increase in other assets, accounts payable and accrued expenses.





Cash flow from financing activities was due to sale of stock and stock subscriptions of $89,000 and a net advance from affiliate of $38,000 for the six months ended March 31, 2011 compared to net advances to affiliates of approximately $210,000 for the six months ended March 31, 2010.





Recently Issued Accounting Guidance





On September 30, 2009, the Company adopted updates issued by the Financial Accounting Standards Board ("FASB") to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification ("ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Financial Statements.





In June 2009, the FASB issued guidance now codified as ASC Topic 105, "Generally Accepted Accounting Principles" ("ASC 105"), which establishes the FASB Accounting Standards Codification as the source of GAAP to be applied to nongovernmental agencies. ASC 105 explicitly recognizes rules and interpretive releases of the SEC under authority of federal securities laws as authoritative GAAP for SEC registrants. ASC 105 became effective for interim or annual periods ending after September 15, 2009. ASC 105 does not have a material impact on the Company's financial statements presented hereby.





In May 2009, the FASB issued guidance now codified as ASC Topic 855, "Subsequent Events" ("ASC 855"). The pronouncement modifies the definition of what qualifies as a subsequent event—those events or transactions that occur following the balance sheet date, but before the financial statements are issued, or are available to be issued—and requires companies to disclose the date through which the company has evaluated subsequent events and the basis for determining that date. The Company adopted the provisions of ASC 855 on September 30, 2009, in accordance with the effective date.





On June 30, 2009, the Company adopted updates issued by the FASB to fair value disclosures of financial instruments.  These changes require a publicly traded company to include disclosures about the fair value of its financial instruments.  Such disclosures include the fair value of all financial instruments, for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position; the related carrying amount of these financial instruments; and the method(s) and significant assumptions used to estimate the fair value.  Other than the required disclosures, the adoption of these changes had no impact on the Financial Statements.


10
 Table of Contents





Other Considerations





There are numerous factors that affect the business and the results of our operations.  Sources of these factors include general economic and business conditions, federal and state regulation of business activities, the level of demand for our product, and the ability to develop new products based on new or evolving technology and the market's acceptance of those products.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable.





ITEM 4.  CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





Our principal executive officer, who also serves as our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this report.  Based on that evaluation, our principal executive officer has concluded that our disclosure controls and procedures are not effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.  We are in the process of evaluating our disclosure controls and procedures in an effort to develop remedial measures to correct the deficiencies.





Changes in Internal Control Over Financial Reporting





There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter (the quarter ended March 31, 2011) 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





In the ordinary course of business, we are the subject of, or party to, various pending or threatened legal actions, including various counterclaims in connection with our intellectual property enforcement activities.  The Company, through its attorneys, has sent letters to over 600 potential infringers of the patent, placing the infringers on notice of the patent and seeking a license agreement under the patent. While we believe that any liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flows, we can make no assurances that we will not lose all or some of the claims covered by our patent as the result of such actions.


11
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On February 26, 2010, the Company and MedCom entered into a Settlement Agreement (the "Agreement") and Mutual Release with William Williams (a former executive of the Company and MedCom), Eva Williams, Wilcom Inc., W.P.W. Aircraft, LLC, Williams Family Trust, and American Nortel Communications, Inc. (collectively, the "Williams Group").  The Agreement settled and provided a mutual release of each member of the Williams Group, on the one hand, and the Company and MedCom, on the other hand, from any and all claims that any member of the Williams Group and the Company or MedCom has against the other relating to certain litigation that was filed or corporate governance claims that may arise from the Company or MedCom.  As a condition to the Agreement, the Williams Group will return an aggregate of 24,150,264 shares of common stock of the company and 20,415,651 shares of MedCom common stock.





Information regarding the Company's legal proceedings outside the ordinary course of business is disclosed under Notes 3 and 4 to the Company's Condensed Financial Statements (unaudited) of Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.




ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 During the three months ended March 31, 2011, the Company continued its private offering (the "Private Offering") of shares of common stock (the "Common Stock") of the Company.  To date, the Company has sold a total of 2,424,762 shares of Common Stock through the Private Offering for an aggregate price of $124,300.  Total commissions paid to date with respect to the sale of the Common Stock are $10,275.  The Private Offering is being conducted pursuant to an exemption from registration under Regulation D of the Securities Act of 1933, as amended.  The Company believes it falls within this exemption because (i) it has not sold and does not intend to sell Common Stock in the Private Offering to more than 35 purchasers (calculated pursuant to Rule 501(e)); and (ii) each purchaser of the Common Stock pursuant to the Private Offering is either an accredited investor or, if not an accredited investor, the Company reasonably believes that the purchaser, either alone or with his purchaser representative(s), has such knowledge and experience in financial and business matters that the purchaser is capable of evaluating the merits and risks of the prospective investment.





ITEM 6.  EXHIBITS





31.1
Certification of Principal Executive and Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act





32.1
Certification of Principal Executive and Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act


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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.





Card Activation Technologies Inc.Dated: May 10, 2011
By:
/s/ Robert KiteRobert KiteChairman, President and Chief Executive Officer(Principal Executive Officer and Principal Financial Officer)







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