United states


Securities and Exchange Commission


Washington, D.C. 20549


____________________


FORM 10-Q


____________________


(Mark One)


T  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934





For the quarterly period ended June 30, 2010





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  T     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 (§ 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   ̈     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. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b–2 of the Exchange Act.





Large accelerated filer   ̈
Accelerated filer   ̈Non–Accelerated filer   ̈(Do not check if a smaller reporting company)
Smaller reporting company  T





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





As of  August 16, 2010, the issuer had 174,782,045 shares of common stock, $0.001 par value per share, outstanding.













TABLE OF CONTENTS








Page NumberPART I - FINANCIAL INFORMATION
1Item 1.
Condensed Financial Statements (unaudited)
1Condensed Balance Sheets as of June 30, 2010 (unaudited) and September 30, 2009
1Condensed Statements of Operations (unaudited)
2Condensed Statements of Cash Flows (unaudited)
3Notes to Condensed Financial Statements (unaudited)
4Item 2.
Management 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
12Item 1.
Legal Proceedings
12Item 6.
Exhibits
12


Table of Contents





PART I– FINANCIAL INFORMATION


ITEM1.FINANCIAL STATEMENTS





CARD ACTIVATION TECHNOLOGIES, INC.





CONDENSED BALANCE SHEETS





(Unaudited)June 30,


September 30,2010


2009CURRENT ASSETSCash

$
3,426


$
6,909Investments


25,000



25,000Settlement receivable


—



237,500Advances to affiliate


1,447,926



1,072,050Total current assets


1,476,352



1,341,459TOTAL ASSETS

$
1,476,352


$
1,341,459LIABILITIES AND STOCKHOLDERS' EQUITY:CURRENT LIABILITIES:Accounts payable


458,116



51,522Accrued expenses


38,625



222,857Disputed liabilities


20,000



20,000Total current liabilities


516,741



294,379TOTAL LIABILITIES


516,741



294,379STOCKHOLDERS' EQUITY:Preferred stock, $.001 par value, 1,000,000 shares authorized; none issued and outstanding as of March 31, 2010 and September 30, 2009, respectively


—



—Common stock, $.0001 par value, 300,000,000 shares authorized; 174,782,045 and 174,782,045 shares issued and outstanding as of June 30, 2010 and September 30, 2009, respectively


17,478



17,478Additional paid-in capital


1,509,953



1,509,953Accumulated deficit


(567,820
)


(480,351
)Total stockholders' equity


959,611



1,047,080TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
1,476,352


$
1,341,459





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


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CARD ACTIVATION TECHNOLOGIES, INC.





CONDENSED STATEMENTS OF OPERATIONS





Three Months Ended


Nine Months EndedJune 30,


June 30,2010


2009


2010


2009(Unaudited)REVENUELitigation revenue

$
437,500


$
108,000


$
687,500


$
655,500Total


437,500



108,000



687,500



655,500COSTS AND EXPENSESCost of Revenue


83,125



37,800



170,625



176,925General and administrative


348,283



32,269



670,463



553,498Sales and marketing expenses


—



—



—



7,706Total operating expenses


431,408



70,069



841,088



738,129OPERATING INCOME (LOSS)


6,092



37,931



(153,588
)


(82,629
)OTHER (INCOME) AND EXPENSESInterest income


(24,044
)


(13,757
)


(67,162
)


(36,211
)Interest expense


345



—



1,043



—Total other (income) expense


(23,699
)


(13,757
)


(66,119
)


(36,211
)INCOME (LOSS) BEFORE INCOME TAXES


29,791



51,689



(87,469
)


(46,418
)INCOME TAX (BENEFIT) PROVISION


—



—



—



—NET INCOME (LOSS)

$
29,791


$
51,689


$
(87,469
)

$
(46,418
)Weighted Average Common Share Outstanding:Basic and diluted:


174,782,045



174,742,045



174,782,045



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.


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CARD ACTIVATION TECHNOLOGIES, INC.





CONDENSED STATEMENTS OF CASH FLOWS





Nine Months EndedJune 30,2010


2009(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
(87,469
)

$
(46,418
)Adjustments to reconcile net income to net cash provided by (used in) operating activities:Common stock issued for services


—



38,688Changes in assets and liabilities:Other assets


237,500



—Accounts payables


406,594



9,139Accrued expenses and disputed liabilities


(184,232
)


(28,960
)Net cash provided by (used in) operating activities


372,393



(27,551
)CASH FLOWS FROM FINANCING ACTIVITIES:Advances to affiliates


(382,584
)


(307,612
)Advances from affiliates


6,708



296,323Proceeds from the sale of common stock


—



102,500Bank overdraft






(1,963
)Net cash provided by (used in)  financing activities


(375,876
)


89,248INCREASE IN CASH


(3,483
)


61,697CASH, BEGINNING OF YEAR


6,909



—CASH, END OF YEAR

$
3,426


$
61,697Supplemental Cash Flow Information:Issuance of stock for affiliate acquisition

$
—


$
294,000





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 incorporated in order 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.  We also vigorously defend our patent and actively litigate infringements related to the unauthorized use of our technology.  The patent was transferred to us by MedCom USA, Incorporated (“MedCom”) upon our formation in exchange for 146,770,504 shares of our common stock.  The patent covers the technology and process for taking a card with a magnetic strip or other data capture mechanism and activating the card by downloading a determined monetary value onto the card for use at a later date for different types of transactions.





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 nine months ended June 30, 2010, the Company recognized a net loss of $87,469.  However, the Company incurred an accumulated net loss from the period August 29, 2006 (inception) through June 30, 2010 of $567,820.  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 loans and additional sales of our common stock. There is no assurance that the Company will be successful in raising additional capital.





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, 2009, as presented in our annual report on Form 10-K, 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.


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These condensed financial statements should be read in conjunction with the notes to the 2009 audited financial statements presented in our annual report on Form 10-K for the year ended September 30, 2009, 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.





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.


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Note 3.   Investments





On July 31, 2009, the Company purchased 25,000 shares at $1.00 per share of stock in a startup company.





Note 4.   Related Party Transactions





As of June 30, 2010, the Company was managed by its sole officer and director, Robert Kite.  Michael De La Garza previously served as a director of the Company and as the Company’s President and Chief Executive Officer.  On April 27, 2009, holders of more than a majority of the outstanding shares of the Company’s common stock, acting by written consent, effected the removal of Mr. De La Garza from the Company’s Board of Directors.  Following Mr. De La Garza’s removal as a director by stockholders, Mr. Kite, the Company’s sole director, acted to remove Mr. De La Garza from his position as President and Chief Executive Officer.  Mr. Kite now 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 June 4, 2009, the Company entered into a settlement agreement with Mr. De La Garza, MedCom, certain shareholders of MedCom, Robin De La Garza, Mr. De La Garza’s spouse, PayMed USA, LLC, and Absolute Medical Software Systems, LLC (the “Settlement Agreement”).  The Settlement Agreement resolved pending Arizona state court litigation against Mr. De La Garza, in which the Company’s largest shareholder, MedCom, sought, among other things, injunctive and declaratory relief that Mr. De La Garza was not authorized to act on behalf of MedCom as an officer or director.  The Settlement Agreement became final and effective on August 11, 2009.





Under the terms of the Settlement Agreement, Mr. De La Garza affirmed in writing that he holds no position with the Company, whether as an officer, a director or otherwise, and he resigned from any such position to the extent he could be said to hold any such position, which resolved any potential disputes relating to his removal from such offices in April 2009, as discussed above.





The Company advances funds to MedCom at a 7% interest rate per annum.  As of June 30, 2010 and September 30 2009 the Company had a receivable from affiliate advances in the amount of $1,447,926 and $1,072,050, respectively.





Note 5.   Disputed Liabilities





The Company purportedly is party to a note payable with a principal amount $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 and did so for personal reasons and not for the interest of the Company.


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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.





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.





ITEM2.MANAGEMENT'S DISCUSSION 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.





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 for the fiscal year ended September 30, 2009.


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Overview





We 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.





Results of Operations





Three Months Ended June 30, 2010, Compared to Three Months Ended June 30, 2009





Revenues increased to $437,500 for the three months ended June 30, 2010, compared to $108,000 for the three months ended June 30, 2009.  The increase in revenues was due to two settlements of patent litigation for the three months ended June 30, 2010 compared to three settlements of smaller amounts during the three months ended June 30, 2009.  There are currently ten lawsuits pending and over 600 parties have been notified that they are infringing on our patent.





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 $45,325 to $83,125 for the three months ended June 30, 2010 from $37,800 for the three months ended June 30, 2009 as a result of one settlement with contingency fees during the period.





General and administrative expenses consist of salaries and benefits, legal, professional and consulting fees, corporate costs, facilities cost, insurance, travel and entertainment.  General and administrative costs increased 979.3% to $348,283 for the three months ended June 30, 2010 from $32,269 for the three months ended June 30, 2009.  This increase was primarily due to increased legal fees.





Sales and marketing costs were zero for the three months ended June 30, 2010 and 2009 as a result of no marketing efforts.





Nine Months Ended June 30, 2010, Compared to Nine Months Ended June 30, 2009





Revenues increased 4.9% to $687,500 for the nine months ended June 30, 2010 from $655,500 for the nine months ended June 30, 2009.  The increase in revenues was due to larger amounts for four settlements of patent litigation for the nine months ended June 30, 2010 compared to the amounts received for eight settlements during the nine months ended June 30, 2009.  There are currently ten lawsuits pending and over 600 parties have been notified that they are infringing on our patent.


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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 of 35% of settlement revenue.  Certain of our settlements are not subject to contingency fees.  Cost of revenue decreased 3.6% to $170,625 for the nine months ended June 30, 2010, compared to $176,925 for the nine months ended June 30, 2009 as a result of certain settlement revenue not being subject to contingency fees.





General and administrative expenses consist of salaries and benefits, legal, professional and consulting fees, corporate costs, facilities cost, insurance, travel and entertainment.  General and administrative costs increased 21.1% to $670,463 for the nine months ended June 30, 2010, compared to $553,498 for the nine months ended June 30, 2009.  This decrease was primarily due to decreased salaries and benefits, travel, meals and entertainment for executives, offset by increased legal fees.





Sales and marketing costs decreased 100.0% to zero for the nine months ended June 30, 2010, compared to $7,706 for the nine months ended June 30, 2009 as a result of no marketing efforts.





Liquidity and Capital Resources





Our primary sources of liquidity are the sale of our common stock and cash generated from operations.  We had no sales of our common stock and four settlements during the nine months ended June 30, 2010.  We expect our future operations will be funded from settlements and revenues from licensing our technology.  However, we may need additional working capital.  Efforts to seek additional funding could be made through equity, debt or other external financing.  Additional funding may not be available on favorable terms, or at all.  If we are unable to obtain additional funding when needed we may not be able to execute our business plans and our business may suffer.





From time to time the Company advances funds to MedCom.  As of June 30, 2010 we were owed $1,447,926 including interest from related parties.





At June 30, 2010, we had cash of $1,982 compared to $6,909 at September 30, 2009.  The net change in cash for the periods presented was comprised of the following:





June 30,

2010


June 30,

2009Cash flow provided by (used in) operating activities

$
372,393


$
(27,551
)Cash flow provided by (used in) financing activities


(375,876
)


89,248


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Cash flow from operating activities was primarily due to net loss of $87,469 and an increase in accounts payable offset by decreases in other assets and accrued expenses for the nine months ended June 30, 2010.  For the nine months ended June 30, 2009, we incurred a net loss of $46,418, issued stock for services of approximately $39,000 and increased accounts payable and accrued expenses by approximately $21,000.





Cash flow from financing activities was due to net loans to affiliates of approximately $376,000 for the nine months ended June 30, 2010 compared to net loans to affiliates of approximately $8,000 and common stock sales of $102,500 for the nine months ended June 30, 2009.





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 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.


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Other Considerations





There are numerous factors that affect the business and the results of its 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.





ITEM3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable.





ITEM4.  CONTROLSAND 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 (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 June 30, 2010) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II – OTHER INFORMATION





ITEM1. 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.  Card Activation, through its attorneys, has sent letters to over 600 potential infringers of the patent, placing the infringers on notice of the patent and seeking remedies for such infringement. 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.





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.





Further 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 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: August 17, 2010
By:
/s/Robert KiteRobert KiteChairman, President and Chief Executive Officer

(Principle Executive Officer and Principal Financial Officer)






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