U.S.
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 December 31, 2008.





 ̈  Transition
Report Pursuant to Section 13 or 15(d)


of
the Securities Exchange Act





For the
transition period from N/A to N/A


__________________





Commission
File No. 0-52556


____________________


Card
Activation Technologies, Inc.


(Name of
small business issuer as specified in its charter)





Delaware
              
              20-5769015State
      of Incorporation
              
              IRS
      Employer Identification No.





53 West
Jackson Blvd., Suite 1618


Chicago,
Illinois 60604-3749





(Address
of principal executive offices)


(312)
972-1662


(Issuer’s
telephone number)


Securities
registered under Section 12(b) of the Exchange Act:


None


Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, $0.001 par value per share


(Title
of Class)





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   ̈





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non–accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b–2 of the Exchange Act. (Check
one):





Large
accelerated filer   ̈                   Accelerated
filer   ̈                    Non–Accelerated
filer   ̈ Small Business
Issuer  x





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





Transitional
Small Business Disclosure Format (check one): Yes  ̈ No x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Class
            
            Outstanding at  February 10, 2009Common
      stock, $0.001 par value
            
            174,542,045








CARD
ACTIVATION TECHNOLOGIES, INC.


INDEX
TO FORM 10-Q FILING


FOR
THE THREE MONTHS ENDED December 31, 2008





TABLE
OF CONTENTS








Page NumbersPART
      I - FINANCIAL INFORMATIONItem 1.
                            
                            Financial
      Statements (unaudited)Balance
      Sheets
                            
                            3Statements
      of Operation
                            
                            4Statement
      of Cash Flows
                            
                            5Notes
      to  Financial Statements
                            
                            6Item 2.
                            
                            Management
      Discussion & Analysis of Financial Condition & Results
      of  Operations
                            
                            16Item 3
                            
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            
                            21Item 4.
                            
                            Controls
      and Procedures
                            
                            21PART
      II - OTHER INFORMATIONItem 1.
                            
                            Legal
      Proceedings
                            
                            22Item 1A
                            
                            Risk
      Factors
                            
                            23Item 2.
                            
                            Unregistered
      Sales of Equity Securities and Use of Proceeds
                            
                            27Item 3.
                            
                            Defaults
      Upon Senior Securities
                            
                            28Item 4.
                            
                            Submission
      of Matters to a Vote of Security Holders
                            
                            28Item 5
                            
                            Other
      information
                            
                            28Item 6.
                            
                            Exhibits
                            
                            28CERTIFICATIONSExhibit
      31 – Management CertificationExhibit
      32 – Sarbanes-Oxley Act


2





PART
I – FINANCIAL INFORMATION


CARD
ACTIVATION TECHNOLOGIES INC.
 
 BALANCE
SHEET
 (Unaudited)
 
 
 December 31,
                    
                    
                    September 30,2008
                    
                    
                    2008CURRENT
      ASSETSCash
                    
                    $
                    192,955
                    
                    
                    $
                    -Prepaid
      expenses and other current assets
                    
                    
                    -
                    
                    
                    
                    -Notes
      receivable - affiliate
                    
                    
                    695,587
                    
                    
                    
                    507,149Total
      current assets
                    
                    
                    888,542
                    
                    
                    
                    507,149TOTAL
      ASSETS
                    
                    $
                    888,542
                    
                    
                    $
                    507,149LIABILITIES
      AND STOCKHOLDERS' EQUITY:CURRENT
      LIABILITIES:Bank
      overdraft
                    
                    $
                    -
                    
                    
                    $
                    1,963Accounts
      payable
                    
                    
                    37,053
                    
                    
                    
                    20,859Accrued
      expenses
                    
                    
                    7,076
                    
                    
                    
                    28,960Total
      current liabilities
                    
                    
                    44,129
                    
                    
                    
                    51,782Notes
      payable - affiliates
                    
                    
                    -
                    
                    
                    
                    -TOTAL
      LIABILITIES
                    
                    
                    44,129
                    
                    
                    
                    51,782STOCKHOLDERS'
      EQUITY:Preferred
      stock, $.001 par value, 1,000,000 shares authorized; zero shares issued
      and outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $.0001 par value, 175,000,000 shares authorized; 174,542,045 and
      169,968,289 shares issued and outstanding as of December 31, 2008 and
      September 30, 2008
                    
                    
                    17,455
                    
                    
                    
                    16,998Additional
      paid-in capital
                    
                    
                    1,468,976
                    
                    
                    
                    1,055,845Accumulated
      deficit
                    
                    
                    (642,017
                    )
                    
                    
                    (617,476
                    )Total
      stockholders' equity
                    
                    
                    844,413
                    
                    
                    
                    455,367TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                    
                    $
                    888,542
                    
                    
                    $
                    507,149
 
 The
accompanying notes are an integral part of these financial
statements.
  3
 
 CARD
ACTIVATION TECHNOLOGIES INC.
 
 STATEMENT
OF OPERATIONS
 (Unaudited)
 
 
 Three Months EndedDecember 31,2008
                    
                    
                    2007REVENUELitigation
      revenue
                    
                    $
                    375,000
                    
                    
                    $
                    -Total
                    
                    
                    375,000
                    
                    
                    
                    -OPERATING
      EXPENSES:General
      and administrative
                    
                    
                    399,729
                    
                    
                    
                    138,007Sales
      and marketing expenses
                    
                    
                    8,808
                    
                    
                    
                    20,837Total
      operating expenses
                    
                    
                    408,537
                    
                    
                    
                    158,844OPERATING
      LOSS
                    
                    
                    (33,537
                    )
                    
                    
                    (158,844
                    )OTHER
      (INCOME) AND EXPENSESInterest
      income
                    
                    
                    (8,995
                    )
                    
                    
                    -LOSS
      BEFORE INCOME TAXES
                    
                    
                    (24,541
                    )
                    
                    
                    (158,844
                    )INCOME
      TAX (BENEFIT) PROVISION
                    
                    
                    -
                    
                    
                    
                    -NET
      LOSS
                    
                    $
                    (24,541
                    )
                    
                    $
                    (158,844
                    )Weighted
      Average Common Share Outstanding:Basic
      and diluted:
                    
                    
                    172,255,167
                    
                    
                    
                    164,375,456Net
      Loss Per ShareBasic
      and diluted:
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )
 
 The
accompanying notes are an integral part of these financial
statements.
  4
 
 CARD
ACTIVATION TECHNOLOGIES INC.
 
 STATEMENT
OF CASH FLOWS
 (Unaudited)
 
 
 Three Months EndedDecember 31,2008
                        
                        
                        2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss)
                        
                        $
                        (24,541
                        )
                        
                        $
                        (158,844
                        )Adjustments
      to reconcile net income to net cash (used in) operating
      activities:Common
      stocks issued for services
                        
                        
                        17,087
                        
                        
                        
                        86,714Changes
      in assets and liabilities:Prepaid
      expenses
                        
                        
                        -
                        
                        
                        
                        (30,000
                        )Accounts
      payables
                        
                        
                        14,231Accrued
      expenses
                        
                        
                        (21,884
                        )Net
      cash used in operating activities
                        
                        
                        (15,107
                        )
                        
                        
                        (102,130
                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Bank
      overdraft
                        
                        
                        -
                        
                        
                        
                        3,431Proceeds
      from the sale of common stock
                        
                        
                        102,500
                        
                        
                        
                        -Loans
      to affiliates
                        
                        
                        (188,438
                        )
                        
                        
                        -Common
      stocks issued in conjunction with related party note
      receivable
                        
                        
                        294,000
                        
                        
                        
                        -Loans
      from affiliates
                        
                        
                        -
                        
                        
                        
                        85,000Net
      cash provided by financing activities
                        
                        
                        208,062
                        
                        
                        
                        88,431INCREASE
      IN CASH
                        
                        
                        192,955
                        
                        
                        
                        (13,699
                        )CASH,
      BEGINNING OF YEAR
                        
                        
                        -
                        
                        
                        
                        13,699CASH,
      END OF YEAR
                        
                        
                        192,955
                        
                        
                        
                        -
 
 The
accompanying notes are an integral part of these financial
statements
  5




CARD
ACTIVATION TECHNOLOGIES, INC.


NOTES
TO FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007





NOTE 1 –
BACKGROUND





Card
Activation Technologies, Inc. (“Card” or the “Company”) was incorporated in the
state of Delaware on August 29, 2006. The company has begun the process of
operating this business and is in the process of pursuing patent infringement
litigation.  The Company was incorporated for the sole purpose of
financing and litigation patent infringements related to the unauthorized use of
electronic activation of phone, gift and infinity cards. Card is incorporated in
Delaware with the focus on the licensing of the proprietary patented technology
of electronic activation of phone, gift and affinity cards.  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. This process can be utilized for prepaid phone cards,
gift cards, and affinity cards.





NOTE 2 -
GOING CONCERN





The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplate continuation of the Company as a going concern.   During
the three months ended December 31, 2008 the Company recognized a net loss of
$24,541.  Additionally, the Company incurred an accumulated net loss
through December 31, 2008 of $642,017.  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, Management is proposing to raise any
necessary additional funds through loans and additional sales of its common
stock. There is no assurance that the Company will be successful in raising
additional capital.





ITEM 3 –
INTERIM FINANCIAL STATEMENTS





The
accompanying reviewed interim financial statements have been prepared in
accordance with the instructions to Form 10-Q. Therefore, they do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. Except as disclosed
herein, there has been no material change in the information disclosed in the
notes to the financial statements included in the Company's annual report on
Form 10-K for the year ended September 30, 2008. In the opinion of management,
all adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature.





NOTE 4 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





The
Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of
America.  Significant accounting policies are as follows:




6




Use of
Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.  These estimates and assumptions also affect
the reported amounts of revenues, costs and expenses during the reporting
period.  Management evaluates these estimates and assumptions on a
regular basis.  Actual results could differ from those
estimates.





Revenue
Recognition





Revenue
recognized the use of our patent technology by receiving royalties or licensing
fees from the deployment of our technology. Revenue is recorded when sales are
generated from third parties that have deployed our technology and generated
sales from that technology.  Revenue is recognized from litigation and
royalty payments from those companies that have violated our patented technology
and entered into licensing agreements.  Revenue is recognized from the
settlement of litigation and subsequent payment of royalties for the use of our
patented technologies if any.  The Company recognizes revenue when a
litigated matter is settled and a stipulated order has been entered into the
court for the infringement of our patent.   We will recognize
royalty revenue based on royalty reports received from settling parities that
deploy our technology.  In accordance with contract terms, we will
charge a royalty fee to patented users and each contract will be negotiated at
the settlement of our law suits.  Although if parties chose to pay the
entire life of the royalty we will deferred revenues amortized over the life of
our patent.  We will recognize revenues as licensing revenue when our
revenue recognition criteria have been met. Presently we do not have any
licensing agreements executed that generate royalty payments.




Upon
execution of our licensing agreement we will from time to time we exercise our
right to conduct royalty audits pursuant to our contracts with customers. As a
result of such audits we will recognize royalty revenue that relates to prior
periods. Differences between amounts initially recognized and amounts
subsequently audited or reported as an adjustment to those amounts are
recognized in the period the adjustment is determined.





The
Company recognizes product revenue in accordance with Staff Accounting Bulletin
(SAB) No. 104, “Revenue Recognition in Financial Statement” which established
that revenue can be recognized when persuasive evidence of an arrangement
exists, the product has been shipped, all significant contractual obligations
have been satisfied and collection is reasonably assured.





Reclassification





Certain
prior period amounts have been reclassified to conform to current year
presentations.





Cash and Cash
Equivalents





The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.  At December 31, 2008,
cash and cash equivalents include cash on hand and cash in the
bank.





Property and
Equipment





Property
and equipment is recorded at cost and depreciated over the estimated useful
lives of the assets using principally the straight-line method. When items are
retired or otherwise disposed of, income is charged or credited for the
difference between net book value and proceeds realized
thereon.  Ordinary maintenance and repairs are charged to expense as
incurred, and replacements and betterments are capitalized.





The range
of estimated useful lives used to calculated depreciation for principal items of
property and equipment are as follow:





Asset Category
              
              Depreciation/
                Amortization PeriodFurniture
      and Fixture
              
              3
      YearsOffice
      equipment
              
              3
      YearsLeasehold
      improvements
              
              5
      Years




7


Intangible
Assets





The
Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 142,
Goodwill and Other Intangible Assets, effective July 1, 2002. As a result, the
Company discontinued amortization of goodwill, and instead annually evaluates
the carrying value of goodwill for impairment, in accordance with the provisions
of SFAS No. 142. The Company holds one asset the cost basis of the development
of the patent infringement litigation.





Impairment of Long-Lived
Assets





In
accordance with SFAS No. 144, long-lived assets, such as property, plant, and
equipment, and purchased intangibles, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Goodwill and other intangible assets are tested for
impairment annually. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset.  There were no events or changes in
circumstances that necessitated a review of impairment of long lived
assets.





Income
Taxes





Deferred
income taxes are provided based on the provisions of SFAS No. 109, "Accounting
for Income Taxes" ("SFAS 109"), to reflect the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income.  Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be
realized.





Earnings Per
Share




Basic
earnings per share is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the reporting period. Diluted earnings per share reflects the potential dilution
that could occur if stock options and other commitments to issue common stock
were exercised or equity awards vest resulting in the issuance of common stock
that could share in the earnings of the Company.  As of December 31,
2008, there were no potential dilutive instruments that could result in share
dilution.





Fair Value of Financial
Instruments




The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties other than in a
forced sale or liquidation.





The
carrying amounts of the Company’s financial instruments, including cash,
accounts payable and accrued liabilities, income tax payable and related party
payable approximate fair value due to their most maturities.




8


Stock-Based
Compensation





Statements
of Financial Accounting Standards (“SFAS No.”) No. 123, Accounting for Stock-Based
Compensation, (“SFAS No. 123”) established accounting and disclosure
requirements using a fair-value based method of accounting for stock-based
employee compensation. In accordance with SFAS No. 123, the Company has elected
to continue accounting for stock based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees."





The
Company accounts for stock awards issued to nonemployees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No.
96-18 Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services.  Under SFAS No. 123
and EITF 96-18, stock awards to nonemployees are accounted for at their fair
value as determined under Black-Scholes option pricing model.





In
December 2004, the FASB issued a revision of SFAS No. 123 ("SFAS No. 123(R)")
that requires compensation costs related to share-based payment transactions to
be recognized in the statement of operations. With limited exceptions, the
amount of compensation cost will be measured based on the grant-date fair value
of the equity or liability instruments issued. In addition, liability awards
will be re-measured each reporting period. Compensation cost will be recognized
over the period that an employee provides service in exchange for the award.
SFAS No. 123(R) replaces SFAS No. 123 and is effective as of the beginning of
January 1, 2006. Based on the number of shares and awards outstanding as of
December 31, 2005 (and without giving effect to any awards which may be granted
in 2006), we do not expect our adoption of SFAS No. 123(R) in January 2006 to
have a material impact on the financial statements.





In
October 10, 2006 FASB Staff Position issued Financial Statement Position (“FSP”)
FAS No. 123(R)-5 “Amended of FASB Staff Position FAS 123(R)-1 “Classification
and Measurement of Freestanding Financial Instruments Originally issued in
Exchange of Employee Services under FASB Statement No. 123(R)”.  The
FAS provides that instruments that were originally issued as employee
compensation and then modified, and that modifications made to the terms of the
instrument solely to reflect an equity restructuring that occurs when the
holders are no longer employees, then no change in the recognition or the
measurement (due to a change in classification) of those instruments will result
if both of the following conditions are met: (a). There is no increase in fair
value of the award (or the ratio of intrinsic value to the exercise price of the
award is preserved, that is, the holder is made whole), or the antidilution
provision is not added to the terms of the award in contemplation of an equity
restructuring; and (b). All holders of the same class of equity instruments (for
example, stock options) are treated in the same manner. The provisions in this
FSP shall be applied in the first reporting period beginning after the date the
FSP is posted to the FASB website. The Company does not expect the adoption of
FSP FAS No. 123(R)-5 to have a material impact on its results of operations and
financial condition.





Concentration of Credit
Risk





The
Company maintains its operating cash balances in banks in Scottsdale,
Arizona.  The Federal Depository Insurance Corporation (FDIC) insures
accounts at each institution up to $250,000.




Recent Accounting
Pronouncements




Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities





In
June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue
No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities.” The FSP addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share under the two-class method. The FSP
affects entities that accrue dividends on share-based payment awards during the
awards’ service period when the dividends do not need to be returned if the
employees forfeit the award. This FSP is effective for fiscal years beginning
after December 15, 2008. The Company is currently assessing the impact of
FSP EITF 03-6-1 on its financial position and results of
operations.


9


Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)





In
May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion
No. 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP
clarifies the accounting for convertible debt instruments that may be settled in
cash (including partial cash settlement) upon conversion.  The FSP
requires issuers to account separately for the liability and equity components
of certain convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized.  The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
statement of operations.  The FSP requires retrospective application
to the terms of instruments as they existed for all periods
presented.  The FSP is effective as of January 1, 2009 and early
adoption is not permitted.  The Company is currently evaluating the
potential impact of FSP APB 14-1 upon its financial statements.




The
Hierarchy of Generally Accepted Accounting Principles




In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (FAS No.162).  SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements.  SFAS No. 162 is
effective 60 days following the SEC's approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles".  The
implementation of this standard will not have a material impact on the Company's
financial position and results of operations.




Determination
of the Useful Life of Intangible Assets




In April
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position on Financial Accounting Standard (“FSP FAS”) No. 142-3, “Determination
of the Useful Life of Intangible Assets”, which amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of intangible assets under SFAS No. 142 “Goodwill and Other
Intangible Assets”.  The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and
the period of the expected cash flows used to measure the fair value of the
asset under SFAS No. 141 (revised 2007) “Business Combinations” and other U.S.
generally accepted accounting principles.    The Company is
currently evaluating the potential impact of FSP FAS No. 142-3 on its financial
statements.




Disclosure
about Derivative Instruments and Hedging Activities




In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative
Instruments and Hedging Activities, an amendment of SFAS No.
133”, and (SFAS 161). This statement requires that objectives for using
derivative instruments be disclosed in terms of underlying risk and accounting
designation. The Company is required to adopt SFAS No. 161 on January 1, 2009.
The Company is currently evaluating the potential impact of SFAS No. 161 on the
Company’s financial statements.


10




Delay
in Effective Date




In
February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB
Statement No. 157”. This FSP delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not material to the
Company’s financial condition or results of operations.




Business
Combinations




In
December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (SFAS
141(R)).  This Statement replaces the original SFAS No.
141.  This Statement retains the fundamental requirements in SFAS
No. 141 that the acquisition method of accounting (which SFAS No. 141
called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. The objective of SFAS No. 141(R) is to
improve the relevance, and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its
effects. To accomplish that, SFAS No. 141(R) establishes principles and
requirements for how the acquirer:




a.
            Recognizes
      and measures in its financial statements the identifiable assets acquired,
      the liabilities assumed, and any noncontrolling interest in the
      acquiree.




b.
            Recognizes
      and measures the goodwill acquired in the business combination or a gain
      from a bargain purchase.




c.
            Determines
      what information to disclose to enable users of the financial statements
      to evaluate the nature and financial effects of the business
      combination.




This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and may not be applied before
that date. The Company does not expect the effect that its adoption of SFAS No.
141(R) will have on its results of operations and financial
condition.




Fair
Value Option for Financial Assets and Financial Liabilities




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of SFAS No.
115” (SFAS No. 159), which becomes effective for the Company on February 1,
2008, permits companies to choose to measure many financial instruments and
certain other items at fair value and report unrealized gains and losses in
earnings. Such accounting is optional and is generally to be applied instrument
by instrument. The Company does not anticipate that the election, of this
fair-value option will have a material effect on its financial condition,
results of operations, cash flows or disclosures.




Fair
Value Measurements




In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
No. 157). SFAS No. 157 provides guidance for using fair value to measure assets
and liabilities. SFAS No. 157 addresses the requests from investors for expanded
disclosure about the extent to which companies’ measure assets and liabilities
at fair value, the information used to measure fair value and the effect of fair
value measurements on earnings. SFAS No. 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value, and does
not expand the use of fair value in any new circumstances. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and will be adopted by the Company in the first quarter of
fiscal year 2008. The Company is unable at this time to determine the effect
that its adoption of SFAS No. 157 will have on its results of operations and
financial condition.


11




Accounting
Changes and Error Corrections




In May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
(SFAS No. 154), which replaces Accounting Principles Board (APB) Opinion No. 20,
"Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements - An Amendment of APB Opinion No. 28”. SFAS No. 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections, and it establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The Company adopted SFAS No. 154 in the first
quarter of fiscal year 2007 and does not expect it to have a material impact on
its results of operations and financial condition.





NOTE 5 –
SHARE CAPITAL




On August
29, 2006, the Company authorized 175,000,000 shares of common stock, at $.0001
par value. As of December 31, 2008 there were 174,242,045 common stock shares
issued and outstanding. The Company authorized 1,000,000 of preferred shares at
a par value of .001 and no shares were issued to its shareholders as of December
31, 2008.




On
October 1, 2008 the Company issued 96,000 shares of common stock to a related
party American Nortel Communications Inc. The issuances were valued at $.088 per
share which was the closing price of the day of issue and the company recognized
compensation expenses to William P. Williams of $8,438.





On
December 4, 2008 the Company issued 96,000 shares of common stock to a related
party American Nortel Communications Inc. The issuances were valued at $.089 per
share which was the closing price of the day of issue and the company recognized
compensation expenses to William P. Williams of $8,630.





On
October 21, 2008, the Company issued 3,000,000 shares of common stock in benefit
of its related party, MedCom USA related to the acquisition of MedPay LLC which
MedCom USA entered into in October 2008.  The value of the shares was
$.088 per share which was the closing price of the day of issue. The Company
recorded an affiliate advance receivable from MedCom USA, a related party, in
the amount of $294,000.




During
the quarter ended December 31, 2008, the Company entered into subscription
agreements for 1,381,756 shares of common stock to third parties. The shares
were valued at their closing price for a total amount of $102,500.





NOTE 6 -
COMMITMENTS AND CONTIGENCIES





The
Company has entered into various consulting agreements with outside
consultants.  However, certain of these agreements included additional
compensation on the basis of performance.  The consulting agreements
are the key shareholders that are instrumental to the success of the company and
its development of it product.





The
Company also has a contingency agreement with Orem and Roth the law firm that
represents the Company in the patent litigation where as Oren and Roth is paid
one-third of the settlement of the pending and future patent litigations
successes.





The
Company is a Plaintiff in a pending law suit against prior management William P.
Williams, Eva S. Williams; Wilcom, Inc., a Texas Corporation; WPW Aircraft LLC
an Arizona Limited Liability Corporation; and American Nortel Communications,
Inc., a Nevada Corporation in Case No. 2:09-cv-00298 filed in the United States
District Court in the District of Arizona.  The Company has alleged
(9) nine causes of action and we are uncertain the legal costs associated with
this suit or its outcome.


12





NOTE 7 –
RELATED PARTY




Card
Activation is managed by its key officers and directors Michael De La Garza and
Robert Kite, as of December 31, 2008.  The officers of the Company Michael
De La Garza and Robert Kite also serve as officers of MedCom USA, Inc. a related
party. Additionally the officers of the Company are shareholders of both MedCom
USA Inc. and the Company. Further MedCom USA, Inc. is a significant shareholder
of the Company.




On
October 1, 2008, the Company issued 96,000 shares of common stock to a related
party American Nortel Communications Inc. The issuances were valued at $.088 per
share which was the closing price of the day of issue and the Company recognized
compensation expenses to William P. Williams of $8,438.





On
December 4, 2008 the Company issued 96,000 shares of common stock to a related
party American Nortel Communications Inc. The issuances were valued at $.089 per
share which was the closing price of the day of issue and the Company recognized
compensation expenses to William P. Williams of $8,630.





On
October 21, 2008, the Company issued 3,000,000 shares of common stock in benefit
of its related party, MedCom USA related to the acquisition of MedPay LLC which
MedCom USA entered into in October 2008.  The value of the shares was
$.088 per share which was the closing price of the day of issue. The Company
recorded an affiliate advance receivable from MedCom USA, a related party, in
the amount of $294,000.




On July
1, 2008, the Company entered into a revolving line of credit with MedCom USA,
Inc. whereby the company could borrow up to $750,000 from MedCom USA, Inc. The
terms of the agreement provide a 7% interest per annum. As of December 31, 2008
no amounts were due under the revolving line of credit.




The
Company also advances funds to MedCom USA Inc., a related party. During the year
ended December 31, 2008, the Company entered into subscription agreements
whereby it sold its shares of common stock to third parties. The shares were
valued at their closing pricing on the date of the agreements. The funds from
the sale of some of shares of common stock sold by the Company during the year
ended December 31, 2008 were deposited into MedCom USA, Inc. a related party.
The Company has accounted and recorded an affiliate receivable due from MedCom
USA, Inc. to the Company as a result of the deposit of the funds related to the
issuances of the company’s shares of common stock to third parties. As of
December 31, 2008, the Company had a receivable from affiliate advances in the
amount of $695,587 in which the company recognizes a 7% interest rate on that
advance..





NOTE 8 -
NET LOSS PER SHARE





Restricted
shares and warrants are not included in the computation of the weighted average
number of shares outstanding during the periods. There are no restricted shares
or warrants issued in the Capital of Card Activation. The net loss per common
share is calculated by dividing the loss by the weighted average number of
shares outstanding during the periods.





NOTE 9 –
SPIN OFF





The
Company was incorporated in August 2006 in order to own and commercially develop
the assigned patent which covers 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 MedCom has assigned
its patent number 6,032,859 to the Company upon its formation. The MedCom
point-of-sale technology was created by MedCom as part of its card building
technology endeavors in the 1990’s. The patent covers 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. New View
Technologies, which was acquired by MedCom, developed the patent and all patents
were assigned by New View Technologies to MedCom.


13





The
patent was transferred to the Company by MedCom USA, Incorporated on the
formation of the Company and in exchange for 146,770,504 shares of Common
Stock.  On October 31, 2006, the MedCom 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 Common Stock of the Company for every one share of
common stock of MedCom owned by its shareholders, such stock being distributed
on March 1, 2007. This was a dividend of 86,770,504 shares of our Common
Stock.  MedCom retained the balance of 60,000,000 shares of Common
Stock.





Separation
Agreement:





The
separation agreement was executed on October 31, 2006 where as MedCom desired to
separate its several businesses comprised of its healthcare and financial
transaction solutions business and its proprietary patented payment transaction
technology which had been operating in their respective businesses for
substantially more than five years, into independent companies.  Such
separation allowed the separate companies focus on their separate business
models and markets, allow management to focus on their respective businesses and
enhance access to financing by allowing banks and the financial community to
focus separately on the respective businesses.  MedCom spun off the
patent technology into the Company.  MedCom completed the spin off of the
Company on December 15, 2006 and reserved 12,000,000 common shares to be
distributed to employees and or consultants of the company and will be
registered and restricted common shares.





The
Company has no outstanding obligations outstanding as of December 31, 2008 as
part of this agreement.





The
Separation agreement allowed for ancillary agreements such as tax sharing
agreement and administrative services agreement.





Administration
Agreement:





On
October 31, 2006 the Company executed an administration agreement by and between
 MedCom and the Company each of them agrees, from and after the Spin-off
date and for a transition period of up to one year following the Spin-off date,
to provide the other on an "as needed" basis with the following
services:





(1)  Tax
consultation and assistance with tax return preparation and
audits.  Any  taxes  due  shall  be  paid
in accordance with that
Tax  Sharing  Agreement  of  even  date  herewith
between the parties;





(2)  Assistance
with the preparation of (i) periodic filings under the Securities Exchange Act
of 1934 or with the National Association of Securities Dealers, Inc., (ii)
reports to stockholders, and (iii) other external financial
reports;





(3)  Design
and implementation of internal audit procedures;





(4)  Coordination
of independent audits by nonaffiliated auditors;





(5)  Consultation
on cash management, financing and other treasury matters;





(6)  Insurance
and risk management services involving administration, placement of insurance,
and broker selection for past and future insurance and risk management programs;
and





(7)  Such
other services as may be mutually agreed upon between the
parties.


14





(b)     Each  party
shall use its respective best efforts in providing the above services and,
except for gross negligence or willful misconduct, shall not be responsible for
the accuracy, completeness or timeliness
of any advice or service or any return, report, filing or other document which
it provides, prepares or assists in preparing.





Notwithstanding
the foregoing, neither party shall be obligated to provide the above services if
that party determines in its reasonable judgment that providing such services
would unreasonably interfere with the conduct of its own business activities.
The parties shall cooperate in planning the scope and timing of services to be
provided by each of them under this agreement so as to lessen or eliminate any
such interference.





REIMBURSEMENT.  The  parties
agree to reimburse each other for services rendered in accordance with an hourly
fee schedule to be agreed upon from time to time by the parties.  The
hourly fee schedule may provide different rates for different categories of
personnel. In addition, each party agrees to reimburse
the other for all out-of-pocket expenses incurred by the providing party in
connection with performing such services.  The parties shall, on a periodic
basis to be agreed upon, but not less frequently than quarterly, submit to and
exchange with each other their respective statements of fees and expenses for
payment, accompanied by such supporting detail as the recipient of the statement
may reasonably request.  Only the amount owed to one party for any period
in excess of the amount owed by that party for the same period need be
paid.  Payment shall be due 30 days after date of the
statement.





The
Company has outstanding obligations with MedCom USA Inc. and has recorded those
amounts in the Advances from Affiliate as of December 31, 2008.





TAX
SHARING AGREEMENT





The
Company executed October 31, 2006, by and between MedCom USA, Incorporated and
Card Activation Technologies Inc., which as of the date of this agreement was a
wholly owned subsidiary of MedCom. Therefore,
in consideration of the mutual covenants and subject to the terms and conditions
contained in this agreement, the parties agree as follows:





LIABILITIES
ATTRIBUTABLE TO PRE-SPIN-OFF PERIODS.





(a)     RETURNS.  MedCom,
on a basis with CAT has timely filed (or has obtained or will obtain valid
extensions of time for filing and will file) all federal and state income tax
returns which are required to be filed for periods up to and including the
Spin-off Date.





(b)     TAX
LIABILITIES.  Reasonable estimates of federal and state income taxes
of CAT for all pre-Spin-off periods (and taxes deemed to be attributable to
pre-Spin-off periods, pursuant to Section 3) have been or will
be reflected in the pre-Spin-off financial statements of CAT in accordance with
MedCom's tax allocation and settlements policy, subject to adjustments to be
made upon filing the final MedCom federal income tax return in which CAT are
included.





(c)     TAX
CARRYFORWARDS.  The parties agree that none of MedCom's accrued
federal net operating loss, investment tax credit and other federal tax
carryforwards "CARRYFORWARDS"), if any, are attributable to CAT's operations and
no portion of the same will be allocated to CAT.





(d)     SETTLEMENT
OF TAX LIABILITY.  Prior to, or concurrent with, the Spin-off, CAT
will settle with MedCom, its current income tax liability and intercompany tax
note accounts (as determined in Section 1(b), before the return adjustments
noted in such section). Such settlement shall be effected by payments and/or
adjustments to shareholder's equity of CAT, as mutually agreed by the
parties.




15




The
Company has no outstanding obligations outstanding as of December 31, 2008 as
part of this agreement.





NOTE 10 –
SUBSQUENT EVENTS





Prior
Management Williams P. Williams and Michael Malet have resigned from the
Company.  The Company has closed the Scottsdale Arizona office and is
moving their corporate offices to Henderson, Nevada.  The Company is a
Plaintiff in a pending law suit against prior management William P. Williams,
Eva S. Williams; Wilcom, Inc., a Texas Corporation; WPW Aircraft LLC an Arizona
Limited Liability Corporation; and American Nortel Communications, Inc., a
Nevada Corporation in Case No. 2:09-cv-00298 filed in the United States District
Court in the District of Arizona.  The Company has alleged (9) nine
causes of action and we are uncertain the legal costs associated with this suit
or its outcome.  The company further learned that Williams P. Williams
issued 96,000 commons shares of the company to American Nortel Communications,
Inc. and 250,000 common shares of the company to Wilcom, Inc. in January
2009.





*  *  *  *  *  *





ITEM
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





Management’s
Discussion and Analysis contains various “forward looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
regarding future events or the future financial performance of the Company that
involve risks and uncertainties. Certain statements included in this Form 10-Q,
including, without limitation, statements related to anticipated cash flow
sources and uses, and words including but not limited to “anticipates”,
“believes”, “plans”, “expects”, “future” and similar statements or expressions,
identify forward looking statements. Any forward-looking statements herein are
subject to certain risks and uncertainties in the Company’s business, including
but not limited to, reliance on key customers and competition in its markets,
market demand, product performance, technological developments, maintenance of
relationships with key suppliers, difficulties of hiring or retaining key
personnel and any changes in current accounting rules, all of which may be
beyond the control of the Company. The Company adopted at management’s
discretion, the most conservative recognition of revenue based on the most
astringent guidelines of the SEC in terms of recognition of software licenses
and recurring revenue. Management will elect additional changes to revenue
recognition to comply with the most conservative SEC recognition on a forward
going accrual basis as the model is replicated with other similar markets (i.e.
SBDC). The Company’s actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth therein.




Forward-looking
statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by such forward-looking statements. Factors and risks
that could affect our results and achievements and cause them to materially
differ from those contained in the forward-looking statements include those
identified in the section titled “Risk Factors” in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008 as well as other factors that
we are currently unable to identify or quantify, but that may exist in the
future.




In
addition, the foregoing factors may affect generally our business, results of
operations and financial position. Forward-looking statements speak only as of
the date the statement was made. We do not undertake and specifically decline
any obligation to update any forward-looking statements.




16




Overview




Card
Activation Technologies Inc. (“Company” “Card”) is a Delaware corporation
headquartered in Chicago, Illinois that owns a 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. The patent
was transferred to us by MedCom USA, Incorporated (“MedCom”) on the formation of
our company and in exchange for 146,770,504 shares of our Common
Stock.  On October 31, 2006, the MedCom 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 in the Company for every one share of
common stock of MedCom owned by its shareholders, such stock being distributed
on March 1, 2007. This was a dividend of 86,770,504 shares of our Common
Stock.  MedCom retained the balance of 60,000,000 shares of Common
Stock. MedCom is a publicly traded Delaware corporation, headquartered in
Scottsdale, Arizona. (EMED.OB).





We were
incorporated in August 2006 in order to own and commercially develop the
assigned patent which covers 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 MedCom has assigned its patent
number 6,032,859 to us upon its formation. The MedCom point-of-sale technology
was created by MedCom as part of its card building technology endeavors in the
1990’s. The patent covers 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. New View Technologies, which
was acquired by MedCom, developed the patent and all patents were assigned by
New View Technologies to MedCom.





Plan
of Operations





We were
incorporated in Delaware in August of 2006 as Card Activation Technologies,
Inc.





We
believe we have the following principal competitive strengths, which positions
us to further grow and become a dominant player in our industry:





Ø
            We were
      incorporated in Delaware with the focus on the licensing of the
      proprietary patented technology for processing debit and gift card
      transactions.





Ø
            We
      have identified hundreds of retail chains who the company believes are
      presently utilizing our patented technology in the use of debit cards,
      gift cards, phone cards, affinity cards and value
  cards.





Ø
            We
      intend to generate revenues primarily by charging licensing fees to the
      retailers who are utilizing our patented
  technology





Ø
            Under
      an administrative services agreement between the MedCom and us, we have
      agreed to share certain administrative functions and personnel until we
      can establish our own administrative operating systems and hire its own
      personnel.





Our
Growth Strategies





Ø
            We were
      incorporated for the purpose of licensing its technology to the thousands
      of current users and believe that many retailers, supermarkets,
      convenience stores, phone companies and others specialty
      retailers.





Ø
            We were
      looking at expanding its market and looks for an acquisition that
      complements us and generates
revenues.





Ø
            Once
      we begin receiving royalties, we expect the revenues of such royalties
      shall permit us to be
self-funding.


17





Ø
            We
      intend to require, wherever our patents apply, reasonable royalties in
      exchange for licensing our intellectual
  property.





Ø
            By
      providing a licensing model, we expect to be able to convert many, if not
      all, of these providers to licensees for our patented
    system.





Competition





Competition
in the technology industry is intense. The main competition is the entities that
are using fully loaded cards with a predetermined value that are not activated.
Also as technologies advances there is always a risk of new technology and more
competition.  The overall market of the gift and affinity cards is
very large and represents a large method of sales for companies.  The
gift cards are sold at many companies to generate a way of generating a new
revenue model for those companies that are selling our patent
technology.





We are actively
seeking to license its technology to the thousands of current users and believe
that many retailers, gas stations, phone companies and others that utilize those
stored value cards, such as gift and debit, infringe its patent.





Marketing




In
developing our marketing approach, in November, 2006, we secured the services of
the law firm of Orem and Roth LLC to begin the negotiations concerning the
licensing of the proprietary patented technology.  As a result, the
company is aggressively pursuing litigation against these infringers of our
technology.




We intend
to generate revenues primarily by charging licensing fees to the retailers who
are utilizing our patented technology. We have identified hundreds of retail
chains who the company believes are presently utilizing 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





Patent
Technology





In
October 2006, MedCom transferred the patented technology to us. Presently, we
have sent notice of our patented technology to numerous companies and initiated
six lawsuits against companies that have infringed patent and will continue to
pursue the litigation against those companies that have infringed the company’s
patent. Once we are successful in the pursuit of the patent infringers and in
its licensing program, we anticipate receiving the appropriate royalties from
the use of our technology by third parties by allowing licensing arrangements to
our technology and anticipated royalties for the use of our
patent.  We received, through a spin off, the ownership of a patent of
MedCom USA Incorporated.  MedCom has assigned its patent number 6,032,859
to us upon its formation





Description
of the Industry





From the
increased use of phone cards populated with value by retailers to the expansion
of gift cards at major department stores and big box stores, to the creation of
affinity cards by retailers building customer loyalty, and the sale of these
cards in supermarkets, convenience stores, coffee shops and other outlets, the
implementation of card activation for consumers has been expanding greatly
throughout the United States. Many retailers every day are adding this product
availability to its sales efforts.


18


The
Retail industry has adopted the method of activating cards at the time of
purchase in order to reduce theft and cost of holding cards with pre-loaded
values included. The retailer benefits significantly because it receives revenue
from the customer and provides an interest free float on those monies until the
customer actually utilizes the card for purchasing. This creates a tremendous
profit opportunity for the retailer which has resulted in their encouragement of
consumers to acquire gift cards as a gift solution.





The
retailer also benefits because a percentage of the cards are not fully utilized
or used at all thereby providing a 100% profit to the retailer for the amount
not used.





The
retailer benefits thirdly from consumers who may not normally frequent the
store, but do so because they have a gift card and then often increment the sale
above the value of the gift card with additional purchases.





Lastly,
the retailer accrues a benefit by reducing returns of merchandise from
unsatisfied customers who received merchandise as gifts.





RESULTS
OF OPERATIONS





Quarter  Ended
December 31, 2008, Compared to Quarter Ended December 31, 2007





We are a
development stage company and have generated no revenues from the anticipated
royalty income.





Liquidity
and Capital Resources





The
Company's operating requirements has been funded primarily from the sale of our
common stock and we have received $102,500 in the sale of common stock during
the quarter ending December 31, 2008. Although the Company is starting to settle
patent infringement litigation with parties that have violated our
patent.  We have settled two law suits with total of
$375,000.  Additional we retain a line of credit for $750,000 of which
there is no outstanding balance.  From time to time, we advance funds
to MedCom USA.  As of December 31, 2008, we have advanced to
affiliated $ 695,587 in which the company recognizes a 7% interest rate on that
advance.  Currently, our costs are limited to professional fees and
subject to a contingency fee from our patent litigation attorneys. We anticipate
MedCom will continue to provide funds through a revolving line of credit of
which funds will be drawn down on an as needed basis until we begin to realize
sufficient revenues from royalty payments.  Once we begin receiving
royalties, we expect the revenues of such royalties shall permit us to be
self-funding. In addition, we are looking at expanding its market and looks for
an acquisition that complements us and generates revenues, although no such
prospective acquisition candidates have been ascertained.





Liabilities





We
anticipate MedCom will continue to provide funds through a revolving line of
credit which funds will be drawn down on an as needed basis until we begin to
realize sufficient revenues from royalty payments.





We are
attempting to raise additional working capital through the sale of equity, debt
or a combination of equity and debt. We do not presently have any firm
commitments for additional working capital and there are no assurances that such
capital will be available to us when needed or upon terms and conditions which
are acceptable to us. If we are able to secure additional working capital
through the sale of equity securities, the ownership interests of our current
stockholders will be diluted. If we raise additional working capital through the
issuance of debt or additional dividend paying securities our future interest
and dividend expenses will increase. If we are unable to secure additional
working capital as needed, our ability to grow our sales, meet our operating and
financing obligations as they become due and continue our business and
operations could be in jeopardy.


19





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 product services, and the ability to develop new services
based on new or evolving technology and the market's acceptance of those new
services, our ability to timely and effectively manage periodic product
transitions, the services, and our ability to continue to improve our
infrastructure including personnel and systems to keep pace with our anticipated
rapid growth.





Critical
Accounting Policies and Estimates





We
prepare our financial statements in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Our management
periodically evaluates the estimates and judgments made. Management bases its
estimates and judgments on historical experience and on various factors that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates as a result of different assumptions or
conditions.





The
following critical accounting policies affect the more significant judgments and
estimates used in the preparation of the Company’s financial
statements.





Reclassifications




Certain
prior year amounts have been reclassified to conform to the current period
presentation for comparative purposes.





Stock
Based Compensation





In
December 2004, the FASB issued a revision of SFAS No. 123 ("SFAS No. 123(R)")
that requires compensation costs related to share-based payment transactions to
be recognized in the statement of operations. With limited exceptions, the
amount of compensation cost will be measured based on the grant-date fair value
of the equity or liability instruments issued. In addition, liability awards
will be re-measured each reporting period. Compensation cost will be recognized
over the period that an employee provides service in exchange for the award.
SFAS No. 123(R) replaces SFAS No. 123 and is effective as of the beginning of
January 1, 2006. Based on the number of shares and awards outstanding as of
December 31, 2005 (and without giving effect to any awards which may be granted
in 2006), we do not expect our adoption of SFAS No. 123(R) in January 2006 to
have a material impact on the financial statements.





FSP FAS
123(R)-5 was issued on October 10, 2006. The FSP provides that instruments that
were originally issued as employee compensation and then modified, and that
modification is made to the terms of the instrument solely to reflect an equity
restructuring that occurs when the holders are no longer employees, then no
change in the recognition or the measurement (due to a change in classification)
of those instruments will result if both of the following conditions are met:
(a). There is no increase in fair value of the award (or the ratio of intrinsic
value to the exercise price of the award is preserved, that is, the holder is
made whole), or the antidilution provision is not added to the terms of the
award in contemplation of an equity restructuring; and (b). All holders of the
same class of equity instruments (for example, stock options) are treated in the
same manner. The provisions in this FSP shall be applied in the first reporting
period beginning after the date the FSP is posted to the FASB website. The
Company has adopted SP FAS 123(R)-5 but it did not have a material impact on its
results of operations and financial condition.


20




Accounting
Policies and Estimates





The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make certain 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.  Our management periodically
evaluates the estimates and judgments made. Management bases its estimates and
judgments on historical experience and on various factors that are believed to
be reasonable under the circumstances. Actual results may differ from these
estimates as a result of different assumptions or conditions. As such,
in accordance with the use of accounting principles generally accepted in the
United States of America, our actual realized results may differ from
management’s initial estimates as reported.  A summary of significant
accounting policies are detailed in notes to the financial statements which are
an integral component of this filing.





The
Company has declared no common stock dividends since its inception.





Additional
Information





We file
reports and other materials with the Securities and Exchange
Commission.  These documents may be inspected and copied at the
Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.,
20549.  You can obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330.  You can
also get copies of documents that the Company files with the Commission through
the Commission’s Internet site at www.sec.gov.




ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We do not
hold any derivative instruments and do not engage in any hedging
activities.  We are in the patent infringement litigation business
from infringer that violates our patent.





ITEM
      4.
            CONTROLS
      AND PROCEDURES




Our
management team, under the supervision and with the participation of our
principal executive officer and 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 last
day of the fiscal period covered by this report, December 31, 2008. The term
disclosure controls and procedures means our controls and other procedures that
are designed to ensure 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. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our principal executive
and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. The Company
and its independent registered public accounting firm identified certain
significant internal control deficiencies during their audit for the year ended
September 30 2008. We considered these weakness, in the aggregate, to be a
material weakness. The
primary concern was the preparation andallocation
of securities underlying certain stock subscriptions, severance agreements, and
asset purchaseagreements.
The other area of concern was the proper allocation of the securities underlying
theagreements
with the appropriate entity. These same issues have continued through the
quarter ended December31, 2008.
New management intend to rectify these deficiencies. Management, at this time,
believe theseconcerns
will not have a material impact on the financials presented herein and do not
require any restatementof past
financials. If such restatement is required, the Company will publish a Form 8-K
regarding anyrestatement
and file amended financial statements. These same issues have
continued through the quarter ended December 31, 2008. Due to the size of our
Company and the costs associated to remediate these issues, we still consider
these concerns to be relevant. Based on that evaluation, our principal executive
officer and our principal financial officer have concluded that our disclosure
controls and procedures as of December 31, 2008 may not be effective due to
possible material weakness in our internal controls over financial reporting
described below, and other factors related to the Company’s financial reporting
processes. The Company is in the process of evaluating the internal controls and
procedures to ensure that the internal controls and procedures satisfy the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control — Integrated
Framework.


21


.Our
principal executive officer and our principal financial officer, are responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Management is required to base its assessment of the effectiveness of our
internal control over financial reporting on a suitable, recognized control
framework, such as the framework developed by the Committee of Sponsoring
Organizations (COSO). The COSO framework, published in Internal Control-Integrated
Framework, is known as the COSO Report. Our principal executive officer
and our principal financial officer, have has chosen the COSO framework on which
to base its assessment.





Management’s
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit us to provide only management’s report in our annual reports on Form 10-K
for the annual reporting periods through September 30, 2009.





There
were no changes in our internal control over financial reporting that occurred
during the last quarter of 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.





This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting. Our
principal executive officer and our principal financial officer’s, report was
not subject to attestation by the company’s registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the company to provide only management’s report in this annual
report.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable and not absolute assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of certain events. Because of
these and other inherent limitations of control systems, there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.





Changes
in Internal Control Over Financial Reporting





During
the quarter December 31, 2008, there were no changes in our internal control
over financial reporting 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





As of
September 30, 2006, we had initiated lawsuits against McDonald’s Corporation,
Walgreen Co. and Sears Holding Corporation, Barnes & Noble, Aeropostale,
Inc., TJ Max, and OfficeMax Inc.  In addition more than 500 letters
have been sent to other retailers for infringing its payment transaction patent
but no responses had been filed in those actions by the defendants. As of the
date herein, there are no pending or threatened legal proceedings against the
Company.





22


Card
Activation, through its attorneys, has sent letters to over 500 potential
infringers of the patent, placing the infringers on notice of the patent and
seeking a license agreement under the patent.





Card
Activation has sued six parties and to date Card Activation has settled a
lawsuit with one infringer.  That infringer, McDonald Corporation, has
taken a license under the patent.





The
intellectual property attorneys are pursuing these cases on a contingent fee
basis, whereby they will receive 35% of amounts recovered, if
successful.  The Company settled with TJ Max in November
2008.





The
Company is a Plaintiff in a pending law suit against prior management William P.
Williams, Eva S. Williams; Wilcom, Inc., a Texas Corporation; WPW Aircraft LLC
an Arizona Limited Liability Corporation; and American Nortel Communications,
Inc., a Nevada Corporation in Case No. 2:09-cv-00298 filed in the United States
District Court in the District of Arizona.  The Company has alleged
(9) nine causes of action including but not limited to securities violation of
Section 10 of the Securities Exchange Act of 1934, thereunder Rule 10b-5 and we
are uncertain the legal costs associated with this suit or its
outcome.





ITEM 1A
- Risk Factors





You
should carefully consider the following risk factors before making an investment
decision. If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such cases, the trading price of our common stock could decline and you may lose
all or a part of your investment.





OUR
COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION





Our
shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1
provides that any equity security is considered to be penny stock unless that
security is: registered and traded on a national securities exchange meeting
specified criteria set by the Commission; authorized for quotation on the NASDAQ
Stock Market; issued by a registered investment company; excluded from the
definition on the basis of price (at least $5.00 per share) or the registrant's
net tangible assets; or exempted from the definition by the Commission. Since
our shares are deemed to be "penny stock", trading in the shares will be subject
to additional sales practice requirements on broker/dealers who sell penny stock
to persons other than established customers and accredited
investors.





WE
MAY NOT HAVE ACCESS TO SUFFICIENT CAPITAL TO PURSUE OUR LITIGATION AND THEREFORE
WOULD BE UNABLE TO ACHIEVE OUR PLANNED FUTURE GROWTH:




We intend
to pursue a growth strategy that includes development of the Company business
and technology.  Currently we have limited capital which is
insufficient to pursue our plans for development and growth.  Our
ability to implement our growth plans will depend primarily on our ability to
obtain additional private or public equity or debt financing.  We are
currently seeking additional capital.  Such financing may not be
available at all, or we may be unable to locate and secure additional capital on
terms and conditions that are acceptable to us.  Our failure to obtain
additional capital will have a material adverse effect on our
business.


23


OUR
LACK OF DIVERSIFICATION IN OUR BUSINESS SUBJECTS INVESTORS TO A GREATER RISK OF
LOSSES:




All of
our efforts are focused on the development and growth of that business and its
technology in an unproven area.  Although the medical billing is
substantial, we can make no assurances that the marketplace will accept our
products.




WE
DO NOT INTEND TO PAY DIVIDENDS




We do not
anticipate paying cash dividends on our common stock in the foreseeable future.
We may not have sufficient funds to legally pay dividends. Even if funds are
legally available to pay dividends, we may nevertheless decide in our sole
discretion not to pay dividends. The declaration, payment and amount of any
future dividends will be made at the discretion of the board of directors, and
will depend upon, among other things, the results of our operations, cash flows
and financial condition, operating and capital requirements, and other factors
our board of directors may consider relevant. There is no assurance that we will
pay any dividends in the future, and, if dividends are rapid, there is no
assurance with respect to the amount of any such dividend.




BECAUSE
WE ARE QUOTED ON THE OTCBB INSTEAD OF AN EXCHANGE OR NATIONAL QUOTATION SYSTEM,
OUR INVESTORS MAY HAVE A TOUGHER TIME SELLING THEIR STOCK OR EXPERIENCE NEGATIVE
VOLATILITY ON THE MARKET PRICE OF OUR STOCK.




Our
common stock is traded on the OTCBB. The OTCBB is often highly illiquid, in part
because it does not have a national quotation system by which potential
investors can follow the market price of shares except through information
received and generated by a limited number of broker-dealers that make markets
in particular stocks. There is a greater chance of volatility for securities
that trade on the OTCBB as compared to a national exchange or quotation system.
This volatility may be caused by a variety of factors, including the lack of
readily available price quotations, the absence of consistent administrative
supervision of bid and ask quotations, lower trading volume, and market
conditions. Investors in our common stock may experience high fluctuations in
the market price and volume of the trading market for our securities. These
fluctuations, when they occur, have a negative effect on the market price for
our securities. Accordingly, our stockholders may not be able to realize a fair
price from their shares when they determine to sell them or may have to hold
them for a substantial period of time until the market for our common stock
improves.




FAILURE
TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE
WITH SECTION 404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS.




It may be
time consuming, difficult and costly for us to develop and implement the
additional internal controls, processes and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
auditing and other finance staff in order to develop and implement appropriate
additional internal controls, processes and reporting procedures. If we are
unable to comply with these requirements of the Sarbanes-Oxley Act, we may not
be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires of publicly traded companies.




If we
fail to comply in a timely manner with the requirements of Section 404 of
the Sarbanes-Oxley Act regarding internal control over financial reporting or to
remedy any material weaknesses in our internal controls that we may identify,
such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information and
have a negative effect on the trading price of our common
stock.


24




Pursuant
to Section 404 of the Sarbanes-Oxley Act and current SEC regulations,
beginning with our annual report on Form 10-K for our fiscal period ending
December 31, 2007, we will be required to prepare assessments regarding
internal controls over financial reporting and beginning with our annual report
on Form 10-K for our fiscal period ending December 31, 2008, furnish a
report by our management on our internal control over financial reporting. We
have begun the process of documenting and testing our internal control
procedures in order to satisfy these requirements, which is likely to result in
increased general and administrative expenses and may shift management time and
attention from revenue-generating activities to compliance activities. While our
management is expending significant resources in an effort to complete this
important project, there can be no assurance that we will be able to achieve our
objective on a timely basis. There also can be no assurance that our auditors
will be able to issue an unqualified opinion on management’s assessment of the
effectiveness of our internal control over financial reporting. Failure to
achieve and maintain an effective internal control environment or complete our
Section 404 certifications could have a material adverse effect on our
stock price.




In
addition, in connection with our on-going assessment of the effectiveness of our
internal control over financial reporting, we may discover “material weaknesses”
in our internal controls as defined in standards established by the Public
Company Accounting Oversight Board, or the PCAOB. A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. The PCAOB
defines “significant deficiency” as a deficiency that results in more
than a remote likelihood that a misstatement of the financial statements
that is more than inconsequential will not be prevented or
detected.




In the
event that a material weakness is identified, we will employ qualified personnel
and adopt and implement policies and procedures to address any material
weaknesses that we identify. However, the process of designing and implementing
effective internal controls is a continuous effort that requires us to
anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a system of
internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot assure you that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.




Any
failure to complete our assessment of our internal control over financial
reporting, to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding the
effectiveness of our internal control over financial reporting that are required
under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls
could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
common stock.




THE
REPORT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CONTAINS EXPLANATORY
LANGUAGE THAT SUBSTANTIAL DOUBT EXISTS ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN




The
independent auditor’s report on our financial statements contains explanatory
language that substantial doubt exists about our ability to continue as a going
concern. The report states that we depend on the continued contributions of our
executive officers to work effectively as a team, to execute our business
strategy and to manage our business. The loss of key personnel, or their failure
to work effectively, could have a material adverse effect on our business,
financial condition, and results of operations. If we are unable to obtain
sufficient financing in the near term or achieve profitability, then we would,
in all likelihood, experience severe liquidity problems and may have to curtail
our operations. If we curtail our operations, we may be placed into bankruptcy
or undergo liquidation, the result of which will adversely affect the value of
our common shares.


25




OPERATING HISTORY AND LACK OF
PROFITS WHICH COULD LEAD TO WIDE FLUCTUATIONS IN OUR SHARE PRICE. THE PRICE AT
WHICH YOU PURCHASE OUR COMMON SHARES MAY NOT BE INDICATIVE OF THE PRICE THAT
WILL PREVAIL IN THE TRADING MARKET. YOU MAY BE UNABLE TO SELL YOUR COMMON SHARES
AT OR ABOVE YOUR PURCHASE PRICE, WHICH MAY RESULT IN SUBSTANTIAL LOSSES TO
YOU.THE MARKET PRICE FOR OUR COMMON
SHARES IS PARTICULARLY VOLATILE GIVEN OUR STATUS AS A RELATIVELY UNKNOWN COMPANY
WITH A SMALL AND THINLY TRADED PUBLIC FLOAT, LIMITED




The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. First,
as noted above, our common shares are sporadically and thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on
its share price. Secondly, we are a speculative or “risky” investment due to our
limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer. Many of
these factors are beyond our control and may decrease the market price of our
common shares, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will
sustain their current market prices, or as to what effect that the sale of
shares or the availability of common shares for sale at any time will have on
the prevailing market price.




Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
(2) manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask
differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have
been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses. Our management is
aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described
patterns from being established with respect to our securities. The occurrence
of these patterns or practices could increase the volatility of our share
price.




VOLATILITY
IN OUR COMMON SHARE PRICE MAY SUBJECT US TO SECURITIES LITIGATION, THEREBY
DIVERTING OUR RESOURCES THAT MAY HAVE A MATERIAL EFFECT ON OUR PROFITABILITY AND
RESULTS OF OPERATIONS.




As
discussed in the preceding risk factors, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.


26


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




There
were no changes in securities and small business issuer purchase of equity
securities during the three months ended December 31, 2008, except as
follows:




On
October 1, 2008, the Company issued 96,000 shares of common stock to a related
party American Nortel Communications Inc. The issuances were valued at $.088 per
share which was
the closing price of the day of issueand the Company recognized
compensation expenses to William P. Williams of $8,448.  The issuance
of such shares of our common stock were effected in reliance on the exemptions
for sales of securities not involving a public offering, as set forth in Rule
506 promulgated under the Securities Act and in Section 4(2) of the
Securities Act. A legend was placed on the certificates representing each such
security stating that it was restricted and could only be transferred if
subsequent registered under the Securities Act or transferred in a transaction
exempt from registration under the Securities Act.




On
October 21, 2008, the Company issued 3,000,000 shares of common stock in benefit
of its related party, MedCom USA related to the acquisition of MedPay LLC which
MedCom USA entered into in October 2008.  The value of the shares was
$.088 per sharewhich
was the closing price of the day of issue. The Company recorded an
affiliate advance receivable from MedCom USA, a related party, in the amount of
$294,000 The issuance of such shares of our common stock were effected in
reliance on the exemptions for sales of securities not involving a public
offering, as set forth in Rule 506 promulgated under the Securities Act and in
Section 4(2) of the Securities Act. A legend was placed on the certificates
representing each such security stating that it was restricted and could only be
transferred if subsequent registered under the Securities Act or transferred in
a transaction exempt from registration under the Securities Act.





On
December 4, 2008, the Company issued 96,000 shares of common stock to a related
party American Nortel Communications Inc. The issuance were valued at $.089 per
share which was the closing price of the day of issue and the company recognized
compensation expenses to William P. Williams of $8,630 The issuance of such
shares of our common stock were effected in reliance on the exemptions for sales
of securities not involving a public offering, as set forth in Rule 506
promulgated under the Securities Act and in Section 4(2) of the Securities
Act. A legend was placed on the certificates representing each such security
stating that it was restricted and could only be transferred if subsequent
registered under the Securities Act or transferred in a transaction exempt from
registration under the Securities Act.





During
the year ended December 31, 2008, the Company entered into subscription
agreements for 1,381,756 shares of common stock to third parties. The shares
were valued at their closing price for a total amount of
$102,500.  The shares were issued to third parties in a private
placement of the Company’s common stock.  The shares were sold at $.18
per share.  .  The offer and sale of such shares of our
common stock were effected in reliance on the exemptions for sales of securities
not involving a public offering, as set forth in Rule 506 promulgated under the
Securities Act and in Section 4(2) of the Securities Act, based on the
following: (a) the investors confirmed to us that they were “accredited
investors,” as defined in Rule 501 of Regulation D promulgated under the
Securities Act and had such background, education and experience in financial
and business matters as to be able to evaluate the merits and risks of an
investment in the securities; (b) there was no public offering or general
solicitation with respect to the offering; (c) the investors were provided
with certain disclosure materials and all other information requested with
respect to our company; (d) the investors acknowledged that all securities
being purchased were “restricted securities” for purposes of the Securities Act,
and agreed to transfer such securities only in a transaction registered under
the Securities Act or exempt from registration under the Securities Act; and
(e) a legend was placed on the certificates representing each such security
stating that it was restricted and could only be transferred if subsequent
registered under the Securities Act or transferred in a transaction exempt from
registration under the Securities Act.


27


ITEM
3.  DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the period ended December 31,
2008.





ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





There
were no matters submitted to the vote of securities holders during the period
ended December 31, 2008.





ITEM
5.  OTHER INFORMATION




None.




ITEM
      6.
            EXHIBITS




31.1
                Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act31.2
                Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act.32.1
                Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.32.2
                Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.





Registrant
                      Date:
                      February
      17, 2009
                    
                    Card
      Activation Technologies, Inc.
                      By:
      /s/ Michael De La GarzaMichael
      De La GarzaChairman,
      President Chief Executive Officer (Principle
                      Executive
      Officer)





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.





Registrant
                    Date:
                    February
      17, 2009
                  
                  Card
      Activation Technologies, Inc.
                    By:
      /s/ Pamela ThompsonChief
      Financial Officer (Principle
Accountant)


28