Attached files
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EX-21 - NETWORK 1 FINANCIAL GROUP, INC. | v162428_ex21.htm |
EX-3.4 - NETWORK 1 FINANCIAL GROUP, INC. | v162428_ex3-4.htm |
EX-32.2 - NETWORK 1 FINANCIAL GROUP, INC. | v162428_ex32-2.htm |
EX-31.1 - NETWORK 1 FINANCIAL GROUP, INC. | v162428_ex31-1.htm |
EX-31.2 - NETWORK 1 FINANCIAL GROUP, INC. | v162428_ex31-2.htm |
EX-32.1 - NETWORK 1 FINANCIAL GROUP, INC. | v162428_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the Year Ended June 30, 2009
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _______ to _______
Commission
file number: 001-14753
NETWORK
1 FINANCIAL GROUP, INC.
(Exact
Name of Registrant as specified in its charter)
Delaware
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11-3423157
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(State or other jurisdiction
of
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(I.R.S.
Employer
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incorporation or
organization)
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Identification
No.)
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2 Bridge
Avenue, 4thFloor
Red Bank,
NJ 07701
(Address
of principal executive offices)
(732)
758-9001
(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, Par value $0.001
Common
Stock Purchase Warrants
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. YES o NO þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES o NO þ
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 þ
NO o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES o
NO o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer (Do not check if a smaller reporting
company)
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Smaller
reporting companyþ
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Indicate
by check mark whether the Registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act) YES o
NO þ
As of
December 31, 2008, approximately 10,974,435 shares of common stock were
outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant, as of December 31, 2008, the last business day
of the second fiscal quarter, was approximately $1,080,496 based on the
last sale price of $0.18 for the registrant’s common stock as quoted on the
Over-the-Counter Bulletin Board on that date. Shares of common stock held by
each director, each officer and each person who owns 10% or more of the
outstanding common stock have been excluded from this calculation in that such
persons may be deemed to be affiliates. The determination of affiliate status is
not necessarily conclusive.
The
registrant had 32,435,057 shares of its common stock outstanding as of October
6, 2009.
TABLE
OF CONTENTS
Page
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PART
I
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2
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Item 1.
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Business
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2
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Item 1A.
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Risk
Factors
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3
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Item 1B.
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Unresolved
Staff Comments
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3
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Item 2.
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Properties
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3
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Item 3.
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Legal
Proceedings
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3
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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3
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PART
II
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4
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Item 5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of
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Equity
Securities
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4
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Item 6.
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Selected
Financial Data
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5
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Item 7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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5
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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8
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Item 8.
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Financial
Statements and Supplementary Data
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9
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Item 9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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10
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Item 9A.
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Controls
and Procedures
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10
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Item 9B.
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Other
Information
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11
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PART
III
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12
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Item 10.
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Directors,
Executive Officers and Corporate Governance
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12
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Item 11.
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Executive
Compensation
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14
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Shareholder
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Matters
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16
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Item 13.
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Certain
Relationships and Related Transactions, and Director
Independence
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17
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Item 14.
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Principal
Accountant Fees and Services
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18
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Item 15.
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Exhibits
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19
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SIGNATURES
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21
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FORWARD-LOOKING
STATEMENTS
This Annual Report on Form 10-K
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private
Securities Litigation Reform Act of 1995 and Network 1 Financial Group, Inc.
intends that such forward-looking statements be subject to the safe harbors
created thereby. The forward-looking statements relate to future events or the
future financial performance of Network 1 Financial Group, Inc. (formerly known as International Smart Sourcing, Inc.),
a Delaware corporation,
including, but not limited to, statements contained in: Item 1. “Business” and
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.” Readers are cautioned that such statements, which may be
identified by words including ‘‘anticipates,’’ ‘‘believes,’’ ‘‘intends,’’
‘‘estimates,’’ ‘‘expects,’’ and similar expressions, are only predictions or
estimations and are subject to known and unknown risks and uncertainties. In
evaluating such statements, readers should consider the various factors
identified in this Annual Report on Form 10-K which could cause actual events,
performance or results to differ materially from those indicated by such
statements. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by Network 1 Financial Group, Inc. or
any other person that its objectives or plans will be achieved. Network 1
Financial Group, Inc. does not undertake and specifically declines any
obligation to update any forward-looking statements or to publicly announce the
results of any revisions to any statements to reflect new information or future
events or developments, unless required by law or
regulation.
1
PART
I
Item
1. Business.
Corporate
Overview
In March
1998, we were incorporated in Delaware under the name “International Plastic
Technologies, Inc.” as a holding company for the purpose of acquiring the common
stock of Electronic Hardware Corp. (“EHC”) and Compact Disc Packaging Corp.,
(“CDP”), an inactive corporation. On December 7, 1998, we changed our name to
“International Smart Sourcing, Inc.” On May 7, 1999, we formed a
company called Smart Sourcing Inc. (“SSI,” and together with EHC and CDP, the
“Subsidiaries”), a Delaware corporation. EHC manufactured,
distributed and warehoused knobs, dials and pointers. SSI specialized in
assisting companies in reducing their cost of manufacturing by outsourcing
manufacturing in China.
On June 26, 2000, we changed our name
to “CHINAB2BSOURCING.COM, INC.” We specialized in the outsourcing of
manufacturing and the manufacturing of injection molded plastic components,
products and assemblies. We performed the manufacturing and outsourcing
functions for our customers, through our United States facilities and through
our outsourcing contacts and offices in the People’s Republic of
China. On August 17, 2001, we changed our name back to “International
Smart Sourcing, Inc.”
On
September 28, 2006, we sold the Subsidiaries. Effective September 28,
2006, we began reporting as a development-stage company.
On June
9, 2009, we closed certain transactions contemplated in a certain Stock Purchase
Agreement dated as of March 26, 2009 (the “Agreement”) which we entered into
with Network 1 Financial Securities, Inc., a privately held Texas corporation
(“NETW”), and certain former shareholders of NETW. At the closing, we acquired
1,250,528 shares, or approximately 97.55%, of common stock of NETW outstanding
on such date (the “Reverse Merger”). In accordance with the terms of the
Agreement, we issued 21,460,622 shares of our common stock to the former
shareholders of NETW, in exchange for the acquisition, by our Company, of
approximately 97.55% of the outstanding common shares of NETW.
As of the
closing date, the former shareholders of NETW hold approximately 66% of the
issued and outstanding common shares of our Company. The issuance of the
21,460,622 common shares to the former shareholders of NETW was deemed to be a
reverse acquisition for accounting purposes, by ISSI of NETW, as NETW will
control the post-merged company. Accordingly, NETW, the accounting acquirer
entity, is regarded as the predecessor entity as of June 9, 2009.
Upon the
completion of the Reverse Merger, we became the ultimate parent company of NETW
and we changed our name from “International Smart Sourcing, Inc.” to “Network 1
Financial Group, Inc.” (“NETW Group” or the “Company”).
The
address of our principal executive offices is 2 Bridge Avenue, 4th Floor,
Red Bank, New Jersey 07701. Our telephone number is (732) 758-9001. Our
facsimile number is (732) 758-6671.
Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“NTFL.”
Current
Business of our Company
As of
June 9, 2009, the closing date of the Reverse Merger, through our wholly owned
subsidiary, NETW, we commenced the business of providing broker-dealer services.
NETW is registered as a broker-dealer with the SEC, 40 states and Puerto Rico.
NETW is an introducing broker-dealer that clears all transactions with and for
customers on a fully disclosed basis with its clearing broker, Southwest
Securities, a NYSE member firm. NETW is a member of the Financial Industry
Regulatory Authority (“FINRA”), the Securities Investor Protection Corporation
(“SIPC”) and NASDAQ.
Our
customer base is made up primarily of individual investors. We generate income
from transactional business, mutual fund sales, business consulting fees,
finder’s fees, annuity sales, register representative investment advisor fees,
fees for providing investment banking services, placement agent fees for capital
raises, bond transactions, and underwriting fees and concessions.
We
compete with other broker-dealers by offering services to small and microcap
public companies which we believe are significantly underserved by the
investment community. These companies may have little or no analysts following
their growth and may be shut out of the capital markets due to their size and
current market cap. Many of our competitors are larger and have substantially
more capital resources than us, and could potentially enter our market
space.
2
Employees
We
currently have 19 full-time employees and 2 part-time employees. None of our
employees are represented by a union. We believe that our relationship with all
of our employees is good.
Item
1A. Risk Factors.
Not
applicable.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
We
currently lease office space that is approximately 3800 square feet at 2 Bridge
Avenue, 4th Floor,
Red Bank, New Jersey 07701. In August 2009, the term of the lease was extended
from June 30, 2010 to June 30, 2012 and the annual rent was reduced to $108,000
per year.
Item
3. Legal Proceedings.
There are
no pending, nor to our knowledge threatened, legal proceedings against
us.
Item
4. Submission of Matters to a Vote of Security Holders.
No
matters were submitted to a vote of security holders during the quarter ended
June 30, 2009.
3
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Our
common stock is traded on NASDAQ’s Over-the-Counter Bulletin Board (“OTCBB”)
under the symbol “NTFL.”
The
following table sets forth the high and low bid prices for the common stock as
reported on the OTCBB for the last two fiscal years. The high and low bid prices
reflect inter-dealer prices, without mark-up, markdown or commission, and may
not necessarily represent actual transactions.
Common Stock Sale Prices
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2009
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High
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Low
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First
Quarter
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0.18 | 0.09 | ||||||
Second
Quarter
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0.09 | 0.05 | ||||||
Common Stock Sale Prices
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2008
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High
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Low
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First
Quarter
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0.40 | 0.23 | ||||||
Second
Quarter
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0.35 | 0.16 | ||||||
Third
Quarter
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0.32 | 0.12 | ||||||
Fourth Quarter
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0.33 | 0.11 | ||||||
Common Stock Sale Prices
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2007
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High
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Low
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Third
Quarter
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0.37 | 0.23 | ||||||
Fourth Quarter
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0.45 | 0.30 |
On
September 21, 2009 (the most recent date that our common stock has traded), the
last sale price of the common stock as reported on the OTCBB was $0.14 per
share.
Holders
On
October 6, 2009, there were 122 shareholders of record of our common
stock.
Dividend
Policy on Common Stock
We have
not given any cash dividends to our common stockholders in the last two fiscal
years. In addition, we intend to retain future earnings for use in our business
for the foreseeable future. The payment of cash dividends, if any, in the future
is within the discretion of the Board of Directors and will depend upon our
earnings, capital requirements, financial condition and other relevant
factors.
Securities
Authorized for Issuance Under Equity Compensation Plans
We do not
have any equity compensation plans in place. However, the Company sponsors a
401(k) profit-sharing plan that covers substantially all of its employees. The
plan provides for a discretionary annual contribution, and is allocated in
proportion to compensation. In addition, each participant may elect to
contribute to the Plan by way of a salary deduction. An employee becomes fully
vested in our contribution after 6 years and is fully vested in his own
contributions immediately.
Performance
Graph
Not
applicable.
Repurchase
of Securities
We did
not repurchase any of our common stock during the year ended June 30,
2009.
4
Recent
Sales of Unregistered Securities
In
connection with the closing of the Reverse Merger on June 9, 2009, we issued
21,460,622 shares of our common stock to the former shareholders of NETW. We
issued such shares in reliance upon the exemption from registration pursuant to
Rule 506 of Regulation D promulgated under the Securities Act of 1933, as
amended (the “1933 Act”). The facts relied upon to make the exemption were,
among other things, the representations made by the parties to the Agreement,
there was no general solicitation and the limited number of
participants.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
You
should read the following discussion of our financial condition and results of
operations together with the audited financial statements and the notes to the
audited financial statements attached thereto and the other financial
information included elsewhere in this Annual Report. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ significantly from those projected in the forward-looking
statements as a result of many factors.
Basis
of Presentation of Financial Information
On June
9, 2009, we completed the Reverse Merger with NETW and the former shareholders
of NETW. As a result of the Reverse Merger, we abandoned our previous business
and commenced the business of being an introducing broker-dealer. Because we are
the successor business to NETW and because the operations and assets of NETW
represent our entire business and operations from the closing date of the
Reverse Merger, our management’s discussion and analysis and audited financial
statements are based on the consolidated financial results of post-merged NETW
Group for the relevant periods. NETW Group will continue to report on a
quarterly and year-end basis, with a fiscal year end of June 30.
Overview
Our
wholly owned, operating subsidiary, NETW, is an introducing broker-dealer that
clears all transactions with and for customers on a fully disclosed basis with a
clearing broker. NETW is a member of the Financial Industry Regulatory Authority
(“FINRA”).
Management
believes that the trend for smaller companies that are public is to grow through
consolidation or seek investors to help fuel their growth in their market space.
Our management has experience in assisting smaller companies in meeting their
capital needs. The inherent risk of this market space is that smaller companies
could fail to compete with larger competitors and risk the failure of their
business. Since these businesses are not proven in respect of size and
penetration of their product, we may be unable to attract sufficient capital for
our investment banking clients resulting in a decrease of fees generated.
However, management believes that we can attract registered personnel to our
firm because the market we are serving and the opportunities we provide will
provide the ability to increase our sales force.
It is our
goal to provide investment banking support for small and microcap companies who
have had an extremely difficult time finding professional investment banking
assistance in growing their business. We will provide such services as capital
raising, bank financing, merger and acquisition assistance and traditional
financial consulting.
We also
believe that the turmoil surrounding the financial community will allow the firm
to attract talented people in investment banking and sales that would be
difficult to attract in other times. We believe these professionals should help
build the firm’s service and capital-raising abilities.
The
current economic environment has adversely impacted our financial condition as
it has for many financial institutions. Although the revenue has not declined
significantly, the product mix has impacted the firm’s profitability. During
these times the day-to-day transactional business of the firm has declined as
investors have been reluctant to enter the capital markets. The firm’s net worth
has decreased and our liquidity has been impacted. We have taken steps to reduce
expenses and realign our activities into investment
banking. Management believes that the Reverse Merger provided us with
the opportunity to aggressively grow NETW and expand its services at a time when
most financial institutions are retrenching.
5
During
the year ended June 30, 2009, NETW increased its investment banking and
investment advisory consulting fees. In the same period, we had a
decrease in commission income and trading profits. The increase in
investment banking fees was attributable to institutional investments in a
number of funds and the increase in advisory consulting fees was due to a
greater number of companies seeking our services. The decrease in
commissions earned in NETW’s daily transaction business was due primarily to a
reduction in activity from NETW’s retail clients. The decrease in
trading profits was due to increased market volatility. Overall, NETW
experienced an increase in losses in the year ended June 30, 2009 compared to
the same period in the prior year.
After
removing the non-controlling interest income from its subsidiaries, NETW had a
(loss) from operations of approximately $397,837 for the year ended June 30,
2009, which represents an increase of $7,034 from our net loss in the same
period in the prior year (which was approximately $390,803), due to increased
operating expenses from the Reverse Merger. NETW’s management continues to seek
income stabilization from consulting and investment banking fees as well as by
reducing its exposure to market positions. Management believes that in
order to expand its marketing and recruitment of experienced registered representatives it will
need to seek additional sources of funding.
Pursuant
to Financial Accounting Standards Board Interpretation No. 46R, “Consolidation
of Variable Interest Entities,” NETW has determined that the following entities
are variable interest entities (“VIEs”): Network 1 Financial Advisors, Inc.,
Network 1 Financial Assurance, Inc, National Financial Services Group, Inc. and
Shark Rivers Investors, LLC. Post-merger, as a result of agreements executed
with the VIE’s, the Company determined that it was no longer the sole source of
financial support and the primary beneficiary for the variable interest entities
(Network 1 Financial Advisors, Inc., Network 1 Financial Assurance, Inc,
National Financial Services Group, Inc. and Shark Rivers Investors,
LLC). Accordingly, we deconsolidated the variable interest entities
effective June 9, 2009 from our financial position and results of
operations. No gain or loss was recorded upon deconsolidation as the
estimated fair values of variable interest entities’ net assets equaled their
carrying values. For more information regarding VIEs, see “Certain
Relationships and Related Transactions, and Director Independence” on page 17.
The accompanying audited condensed consolidated financial statements for 2009
and 2008 consolidate NETW’s VIEs.
On March
12, 2009, NETW was notified by its bank that its outstanding credit line was in
default. NETW was required to make certain minimum repayments of its line of
credit of approximately $37,200, which amount was not remitted. Management
negotiated the following repayment schedule with the bank: $15,000
due in July 2009; $10,000 payment due in August 2009; $10,000 payment in
September 2009, and the balance of $2,200 in October 2009. NETW has
made all payments through September, totaling $35,000. Once the
default is cured, NETW intends to begin discussing a new credit facility with
its bank.
Results
of Operations
For
the Fiscal Years Ended June 30, 2009 and 2008
For the
years ended June 30, 2009 and 2008, NETW generated $3,305,967 and $2,763,340 of
consolidated revenue, respectively. The increased revenue of $542,627 in 2009
represents a 19.6% increase in revenue over 2008, which is the result of an
increase in investment banking fees earned from private placements and
institutional investments in funds.
NETW’s
consolidated operating expenses were $3,764,792 and $3,100,847 for the years
ended June 30, 2009 and 2008, an increase of $663,945, or 21% from the prior
period, and represent 114% and 112% of revenue, respectively. The increase in
NETW’s expenses is primarily due to an increase in commissions related to
increased investment banking fees and professional fees related to the Reverse
Merger.
Loss from
operations was ($458,825) and ($337,507) for the years ended June 30, 2009 and
2008, and represents 14.9% and 12.2% of revenue, respectively.
Interest
expense was
$93,068 and $138,225 for the years ended June 30, 2009 and 2008,
respectively, a decrease of $45,157 or 33%. The decrease was due to a reduction
of interest rates and a reduction in debt financing.
NETW’s
consolidated loss before non-controlling interest in subsidiaries was ($393,537)
and ($384,003) for the years ended June 30, 2009 and 2008, respectively. The
income attributable to non-controlling interest in subsidiaries was $19,305 and
$46,496 for 2009 and 2008, respectively.
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary source of liquidity is cash generated from operations and from
short-term financing arrangements. We had $91,882 in cash and $550,942 in
certificates of deposit as of June 30, 2009 and $39,734 in cash as of June 30,
2008. We believe that we will have available resources to meet our liquidity
requirements, including debt service, for the next twelve months. If our cash
flow from operations is insufficient to fund our debt service and other
obligations, we may be required to increase our borrowings, reduce or delay
capital expenditures, and seek additional capital or refinance our indebtedness.
There can be no assurance, however, that we will continue to generate cash flows
at or above current levels or that we will be able to maintain our ability to
borrow under revolving credit facilities.
6
We
generated a deficit in cash flow from operations of $309,173 for the year ended
June 30, 2009. Cash flows provided by financing activities for the
year ended June 30, 2009 were $361,321 comprised of $100,000 from the issuance
of common stock, cash assumed from the merger totaling $199,749 and the
remainder from cash proceeds from affiliates, less any note and mortgage
payments.
In the
upcoming year, we plan to finance operations with working capital and external
financing. We believe that we will need additional funds in the near term to
finance operations and meet revenue, profitability, growth, diversification and
other strategic goals for the foreseeable future. We expect to be able to
procure financing upon reasonable terms in order to finance operations. However,
if we are unable to do so, or if we do not meet anticipated future revenue
goals, management is committed to taking actions necessary to ensure the
conservation of adequate cash to continue to finance its
operations.
Off
Balance Sheet Arrangements
We do not
have any off-balance sheet arrangements that we are required to disclose
pursuant to these regulations. In the ordinary course of business, we
enter into operating lease commitments, purchase commitments and other
contractual obligations. These transactions are recognized in our
financial statements in accordance with generally accepted accounting principles
in the United States.
Inflation
We
believe that inflation has not had a material effect on our operations to
date.
Significant
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the U.S. While these significant
accounting policies are described in more detail in Note 2 to our financial
statements, our management believes the following accounting policies to be
critical to the judgments and estimates used in preparation of the financial
statements:
Use of Estimates: The
preparation of these consolidated 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 the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Principles of Consolidation and
Basis of Presentation: In January 2003, and revised in December 2003, the
Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46 (“FIN
46”), “Consolidation of Variable Interest Entities.” Prior to the issuance of
this interpretation, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. FIN 46 requires a variable interest entity, as defined, to be
consolidated by a company, if that company is subject to a majority of the risk
of loss from the variable interest entity’s activities, entitled to receive a
majority of the entity’s residual returns, the purpose of the entity is for the
benefit of the reporting entity, or if the entity is substantially financed by
the reporting entity. For these purposes, variable interests held by related
parties should be consolidated with the reporting entity.
The
accompanying consolidated financial statements for 2009 (through the date of the
reverse merger) and 2008 include the following variable interest entities in
accordance with the provisions of FIN 46 and FSP FIN 46(R)-5: Network 1
Financial Advisors, Inc., Network 1 Financial Assurance, Inc, National Financial
Services Group, Inc. and Shark Rivers Investors, LLC.
|
·
|
Network
1 Financial Advisors, Inc. provides advisory services and the in-house
management of client accounts.
|
|
·
|
Network
1 Financial Assurance, Inc. acts as an agent providing life and health
insurance products for certain clients on behalf of the
Company.
|
|
·
|
National
Financial Services Group, Inc. enters into leases and to function as the
guarantor for any leases or investments on behalf of the
Company.
|
7
|
·
|
Shark
Rivers Investors, LLC is a real estate investment company that owns and
operates two building facilities in New
Jersey.
|
Revenue Recognition: Customer
security transactions and the related commission income and expense are recorded
as of the trade date. Investment banking revenues include gains, losses, and
fees, net of syndicate expenses, arising from securities offerings in which NETW
acts as an underwriter or agent. Investment banking revenues also include fees
earned from providing financial advisory services. Investment banking management
fees are recorded on the offering date, sales concessions on the settlement
date, and underwriting fees at the time the underwriting is completed and the
income is reasonably determinable. Customers who are financing their transaction
on margin are charged interest. NETW’s margin requirements are in accordance
with the terms and conditions mandated by its clearing firm. The interest is
billed on the average daily balance of the margin account. Net dealer inventory
gains result from securities transactions entered into for the account and risk
of NETW. Net dealer inventory gains are recorded on a trade date basis.
Investment advisory fees are account management fees for high net worth clients
based on the amount of the assets under management. These fees are billed
quarterly and recognized at such time that the service is performed and
collection is probable.
NETW
generally acts as an agent in executing customer orders to buy or sell listed
and over-the-counter securities in which it does not make a market, and charges
commissions based on the services it provides to its customers. In executing
customer orders to buy or sell a security in which it makes a market, NETW may
sell to, or purchase from, customers at a price that is substantially equal to
the current inter-dealer market price plus or minus a mark-up or mark-down. NETW
may also act as agent and execute a customer's purchase or sale order with
another broker-dealer market-maker at the best inter-dealer market price
available and charge a commission. Mark-ups, mark-downs and commissions are
generally priced competitively based on the services it provides to its
customers. In each instance the commission charges, mark-ups or mark-downs, are
in compliance with guidelines established by the FINRA.
Marketable
securities are carried at fair value, with changes in value included in the
statement of income in the period of change. Fair value is generally determined
by quoted market prices. Non-marketable securities are valued at fair value as
determined by management.
Fair Value of Financial
Instruments. Statement of Financial Accounting Standards No.
107, “Disclosures about Fair Value of Financial Instruments” requires that the
Company disclose estimated fair values of financial instruments. The carrying
amounts reported in the statement of financial position for current assets and
current liabilities qualifying as financial instruments approximate fair value
because of their short maturities.
In July
1, 2008, we adopted the provisions of SFAS No. 157, “Fair Value Measurements”
(“FAS 157”), which defines fair value for accounting purposes, establishes a
framework for measuring fair value and expands disclosure requirements regarding
fair value measurements. Our adoption of FAS 157 did not have a material impact
on our consolidated financial statements. Fair value is defined as an exit
price, which is the price that would be received upon sale of an asset or paid
upon transfer of a liability in an orderly transaction between market
participants at the measurement date. The degree of judgment utilized in
measuring the fair value of assets and liabilities generally correlates to the
level of pricing observability. Financial assets and liabilities with readily
available, actively quoted prices or for which fair value can be measured from
actively quoted prices in active markets generally have more pricing
observability and require less judgment in measuring fair value. Conversely,
financial assets and liabilities that are rarely traded or not quoted have less
price observability and are generally measured at fair value using valuation
models that require more judgment. These valuation techniques involve some level
of management estimation and judgment, the degree of which is dependent on the
price transparency of the asset, liability or market and the nature of the asset
or liability. We have categorized our financial assets and liabilities measured
at fair value into a three-level hierarchy in accordance with FAS
157.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
Not
applicable.
8
Item
8. Financial Statements and Supplementary Data
Index
to Financial Statements
|
Page | |||
Independent
Auditors’ Reports
|
F–1 | |||
Consolidated
Statements of Financial Condition
|
F–3 | |||
Consolidated
Statements of Operations
|
F–4 | |||
Consolidated
Statements of Stockholders’ Equity
|
F–5 | |||
Consolidated
Statements of Cash Flows
|
F–6 | |||
Notes
to Consolidated Financial Statements
|
F–7 |
9
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of
Network
1 Financial Group, Inc. and Subsidiaries
We have
audited the accompanying consolidated statement of financial condition of
Network 1 Financial Group, Inc and Subsidiaries (the “Company”) as of June 30,
2009 and the related consolidated statements of operations, changes in
stockholders’ equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Network 1 Financial Group,
Inc, and Subsidiaries as of June 30, 2009, and the results of its operations and
its cash flows for the year then ended in conformity with United States
generally accepted accounting principles.
/s/ RBSM LLP
|
New York,
New York
October
13, 2009
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Network
1 Financial Securities, Inc. and Subsidiaries
We have
audited the accompanying consolidated statement of financial
condition of Network 1 Financial Securities, Inc. and Subsidiaries (the
“Company”) as of June 30 2008 and the related consolidated statements of
operations, changes in stockholders’ equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Network 1 Financial
Securities, Inc, and Subsidiaries as of June 30 2008, and the results of its
operations and cash flows for the year then ended in conformity with United
States generally accepted accounting principles.
/s/
MARCUM LLP
(formerly
Marcum & Kliegman LLP)
New
York, New York
February
4, 2009
F-2
NETWORK 1
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
June 30,
2009 and 2008
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Cash
|
$ | 91,882 | $ | 39,734 | ||||
Certificates
of Deposit
|
550,942 | - | ||||||
Notes
Receivable Network 1 Financial ADVISORS Inc.
|
100,000 | - | ||||||
Deposit
with clearing organization
|
751,319 | 753,915 | ||||||
Advances
to Officers
|
- | 418,012 | ||||||
Due
from Affiliates
|
46,881 | 13,766 | ||||||
Advances
to Registered Representatives: net of reserve
|
||||||||
for
uncollectible accounts of $ 90,100 and $90,000
respectively.
|
65,584 | 48,581 | ||||||
Securities
at market
|
84,184 | 57,507 | ||||||
Property
and Equipment, net.
|
12,797 | 1,077,068 | ||||||
Other
Assets
|
26,600 | 60,252 | ||||||
TOTAL
ASSETS:
|
$ | 1,730,189 | $ | 2,468,835 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
LIABILITIES
|
||||||||
Line
of Credit
|
$ | 93,000 | $ | 93,000 | ||||
Mortgages
Payable
|
- | 797,397 | ||||||
Notes
Payable
|
32,469 | 67,448 | ||||||
Due
to affiliates
|
- | 1,200 | ||||||
Due
to clearing organization
|
17,477 | - | ||||||
Advances
from officers
|
- | 141,357 | ||||||
Commissions
Payable
|
41,303 | 57,520 | ||||||
Securities
Sold, but not yet purchased, at market (SSS)
|
1,215 | 5,892 | ||||||
Capital
Leases payable
|
13,023 | 19,485 | ||||||
Warrant
Liability
|
22,896 | |||||||
Accounts
Payable, accrued expenses and other liabilities
|
249,493 | 226,363 | ||||||
TOTAL
LIABILITIES
|
470,876 | 1,409,662 | ||||||
Commitments
and Contingencies
|
||||||||
Non-controlling
interest
|
215,000 | 398,504 | ||||||
STOCKHOLDERS
EQUITY
|
||||||||
Series
A Preferred stock (Network 1 Financial Securities, Inc.)
|
||||||||
$1.00
par value, 8% coupon: 1,000,000 shares
authorized;
|
||||||||
215,000
shares issued and $85,000 outstanding
|
- | 85,000 | ||||||
Preferred
stock, 1,000,000 shared authorized, no shares issued
|
- | - | ||||||
Common
Stock, $.001 par value;
|
||||||||
100,000,000 shares
authorized; 40,360,057 and 29,943,084
|
||||||||
issued
and 32,435,075 and 22,018,084 outstanding, respectively
|
40,360 | 29,943 | ||||||
Additional
Paid In Capital
|
1,397,181 | 541,117 | ||||||
Treasury
Stock at cost; 7,925,000 shares
|
(5,129 | ) | (5,129 | ) | ||||
Accumulated
(Defecit) Earnings
|
(388,099 | ) | 9,738 | |||||
TOTAL
STOCKHOLDERS EQUITY
|
1,044,313 | 660,669 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 1,730,189 | $ | 2,468,835 |
(the
accompanying notes are an integral part of these consolidated financial
statements)
F-3
NETWORK 1
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For the
years ended June 30, 2009 and 2008
2009
|
2008
|
|||||||
Revenues:
|
||||||||
Commissions
|
$ | 1,116,208 | $ | 1,866,900 | ||||
Net
dealer inventory gains
|
76,733 | 328,598 | ||||||
Investment
banking
|
1,593,112 | 29,400 | ||||||
Interest
and Dividends
|
57,262 | 91,737 | ||||||
Transfer
fees and clearing services
|
33,469 | 48,800 | ||||||
Investment
advisory
|
293,823 | 252,173 | ||||||
Other
|
135,360 | 145,732 | ||||||
Total
Revenue
|
3,305,967 | 2,763,340 | ||||||
Operating
Expenses:
|
||||||||
Commissions
|
1,899,214 | 1,175,259 | ||||||
Compensation
and Related Expenses
|
562,218 | 795,176 | ||||||
Clearing
Fees
|
201,844 | 240,779 | ||||||
Communications
and data processing
|
151,723 | 222,920 | ||||||
Interest
|
93,068 | 138,225 | ||||||
Occupancy
and related expenses
|
271,109 | 183,960 | ||||||
Office
Expenses
|
394,630 | 261,888 | ||||||
Professional
Fees
|
178,932 | 53,547 | ||||||
Depreciation
|
12,054 | 29,093 | ||||||
Total
Operating Expenses
|
3,764,792 | 3,100,847 | ||||||
Loss
from Operations
|
(458,825 | ) | (337,507 | ) | ||||
Other
Income
|
||||||||
Gain
on change in derivative liability
|
84,593 | - | ||||||
Total
Other Income
|
84,593 | - | ||||||
Net
loss
|
(374,232 | ) | (337,507 | ) | ||||
Preferred
Stock Dividends
|
4,300 | 6,800 | ||||||
Income
attributable to non-controlling interest
|
19,305 | 46,496 | ||||||
Net
loss attributable to common shareholders
|
$ | (397,837 | ) | $ | (390,803 | ) | ||
Loss
per common share (basic and diluted)
|
$ | (0.017 | ) | $ | (0.018 | ) | ||
Weighted
average common shares outstanding
|
23,393,529 | 22,018,084 |
(the
accompanying notes are an integral part of these consolidated financial
statements)
F-4
NETWORK 1
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the
years ended June 30, 2009 AND 2008
Treasury
|
Retained
|
|||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
APIC
|
Stock
|
Defecit
|
Total
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||
Balance
- July 1, 2007
|
85,000 | $ | 85,000 | 29,943,084 | 29,943 | $ | 541,117 | $ | (5,129 | ) | $ | 400,541 | $ | 1,051,472 | ||||||||||||||||||
Preferred
dividends
|
(6,800 | ) | (6,800 | ) | ||||||||||||||||||||||||||||
Net
loss
|
(384,003 | ) | (384,003 | ) | ||||||||||||||||||||||||||||
Balance
- June 30, 2008
|
85,000 | 85,000 | 29,943,084 | 29,943 | 541,117 | (5,129 | ) | 9,738 | 660,669 | |||||||||||||||||||||||
Sales
of common stock
|
858,062 | 858 | 99,142 | 100,000 | ||||||||||||||||||||||||||||
Common
stock issued to ISSI’s shareholders in June 2009
|
9,558,911 | 9,559 | 756,922 | 766,481 | ||||||||||||||||||||||||||||
Reclassification
to non-controlling interest upon reverse merger
|
(85,000 | ) | (85,000 | ) | - | (85,000 | ) | |||||||||||||||||||||||||
Income
attributable to non-controlling interest
|
(19,305 | ) | (19,305 | ) | ||||||||||||||||||||||||||||
Preferred
dividends
|
(4,300 | ) | (4,300 | ) | ||||||||||||||||||||||||||||
Net
loss
|
(374,232 | ) | (374,232 | ) | ||||||||||||||||||||||||||||
Balance
- June 30, 2009
|
- | $ | - | 40,360,057 | $ | 40,360 | $ | 1,397,181 | $ | (5,129 | ) | $ | (388,099 | ) | $ | 1,044,313 |
(the
accompanying notes are an integral part of these consolidated financial
statements)
F-5
NETWORK 1
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the
years ended June 30, 2009 and 2008
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
Loss
|
$ | (374,232 | ) | $ | (384,003 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
12,054 | 29,093 | ||||||
Provision
for doubtful accounts
|
- | 45,625 | ||||||
Gain
on change in derivative liability
|
(84,591 | ) | - | |||||
Net
income (loss) of non-controlling interest in subsidiaries
|
(19,305 | ) | 46,496 | |||||
Allowance
for officer advances
|
106,922 | - | ||||||
Changes
in operating assets and liabilities
|
||||||||
Due
from clearing organization
|
2,596 | (502 | ) | |||||
Securities
held for resale, at market
|
(26,677 | ) | 197,384 | |||||
Advances
to/from registered representatives
|
(17,003 | ) | 21,763 | |||||
Other
assets
|
- | 5,846 | ||||||
Commissions
payable
|
(16,217 | ) | (1,334 | ) | ||||
Securities
sold, but not yet purchased, at market
|
(4,677 | ) | 4,992 | |||||
Due
to clearing organization
|
17,477 | |||||||
Accounts
Payable, accrued expenses & other Liabilities
|
94,480 | (63,102 | ) | |||||
TOTAL
ADJUSTMENTS
|
65,059 | 286,261 | ||||||
NET
CASH (USED IN) OPERATING ACTIVITIES
|
(309,173 | ) | (97,742 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
- | - | ||||||
CASH FLOWS
FROM FINANCING ACTIVITIES
|
||||||||
Cash
acquired in acquisition
|
199,749 | - | ||||||
Cash
gone on de-consolidation
|
(2,695 | ) | - | |||||
Cash
proceeds from issuance of stock
|
100,000 | - | ||||||
Advances
to affiliated companies
|
(20,993 | ) | (13,766 | ) | ||||
Advances
from affiliated companies
|
132,436 | - | ||||||
Advance
to Officers
|
(59,199 | ) | (149,366 | ) | ||||
Advances
repaid from Officers
|
58,134 | 67,700 | ||||||
Advances
From Officers
|
- | 101,597 | ||||||
Cash
Contribution from owner in non-controlling interest
|
21,229 | 20,100 | ||||||
Repayment
of Notes Payable
|
(34,979 | ) | (57,552 | ) | ||||
Repayment
of Mortgage Payable
|
(21,599 | ) | (21,344 | ) | ||||
Preferred
dividends paid
|
(4,300 | ) | (6,800 | ) | ||||
Repayment
of capital lease
|
(6,462 | ) | (6,431 | ) | ||||
NET
CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES
|
361,321 | (65,862 | ) | |||||
NET
INCREASE (DECREASE) IN CASH
|
52,148 | (163,604 | ) | |||||
CASH
- Beginning of Year
|
39,734 | 203,338 | ||||||
CASH
- End of Year
|
$ | 91,882 | $ | 39,734 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||
Cash
paid during year
|
||||||||
Interest
|
$ | 30,950 | $ | 143,135 | ||||
Income
Taxes
|
$ | 2,222 | $ | 5,035 | ||||
SUPPLEMENTAL
DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES FINANCING
ACTIVITIES
|
||||||||
Conversion
of accrued NASD settlement to notes payable
|
$ | - | $ | 125,000 | ||||
Acquisition
of office equipment under a capital lease
|
$ | - | $ | 22,570 | ||||
Shares
issued related to assumption of net assets (excluding
cash)
|
||||||||
acquired
with reverse merger
|
$ | 566,732 | $ | - |
(the
accompanying notes are an integral part of these consolidated financial
statements)
F-6
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
NOTE 1 –
Basis of Presentation
(Reverse Merger and Corporate Structure
Network 1
Financial Securities, Inc. (the "Company" or "NETW") was organized as a Texas
corporation on March 15, 1983 and is registered as a broker-dealer with the
Securities and Exchange Commission (SEC), the State of Texas and various other
states. The Company is an introducing broker-dealer that clears all transactions
with and for customers on a fully disclosed basis with a clearing broker. The
accompanying consolidated statement of operations for 2009 and 2008 consolidate,
the following variable interest entities: Network 1 Financial Advisors, Inc,
Network 1 Financial Assurance, Inc., National Financial Services Group, Inc. and
Shark Rivers Investors, LLC through the companies merger date of June 9,
2009. As of June 30, 2009, none of the assets or liabilities of the
VIE’s are included as part of the Reverse Merger.
On June
9, 2009, the Company completed a merger transaction with, International Smart
Sourcing, Inc. (“ISSI”) an inactive publicly registered shell corporation with
no significant assets or operations. ISSI was incorporated in
February 1998 in Delaware. As a result of the Reverse
Merger, NETW became a wholly owned subsidiary of ISSI, with the exception
of the following consolidated entities which have been deemed to be variable
interest entities (“VIEs”) by NETW: Network 1 Financial Advisors, Inc., Network
1 Financial Assurance, Inc, National Financial Services Group, Inc. and Shark
Rivers Investors, LLC. the Network 1 Financial Securities, Inc Shareholders
acquired control of ISSI.
Upon
completion of the reverse merger transaction, ISSI changed its name to Network 1
Financial Group, Inc.
All
references to Common Stock, share and per share amounts have been retroactively
restated to reflect the exchange ratio of 17.16 shares of ISSI’s Common Stock
for 1 share of all of the classes of the acquirer's Common Stock outstanding
immediately prior to the merger as if the exchange had taken place as of the
beginning of the earliest period presented.
The
accompanying consolidated financial statements present the historical financial
condition, results of operations and cash flows of the Company prior to the
merger with ISSI.
The
accompanying consolidated financial statements present on a consolidated basis
the accounts of Network 1 Financial Group, Inc. and its wholly owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
NOTE 2 -
Summary of Significant
Accounting Policies
Use of
Estimates
The
preparation of the consolidated 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 the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-7
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
Consolidation of Variable
Interest Entities
In
January 2003, and revised in December 2003, the Financial Accounting Standards
Board (“FASB”) issued Interpretation No. 46 (“FIN 46”), “Consolidation of
Variable Interest Entities.” Prior to the issuance of this interpretation, a
company generally included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. FIN 46
requires a variable interest entity, as defined, to be consolidated by a
company, if that company is subject to a majority of the risk of loss from the
variable interest entity’s activities, entitled to receive a majority of the
entity’s residual returns, the purpose of the entity is for the benefit of the
reporting entity, or if the entity is substantially financed by the reporting
entity. For these purposes, variable interests held by related parties should be
consolidated with the reporting entity.
The
accompanying consolidated financial statements for 2009 (through the date of the
reverse merger) and 2008 include the following variable interest entities in
accordance with the provisions of FIN 46 and FSP FIN 46(R)-5: Network 1
Financial Advisors, Inc., Network 1 Financial Assurance, Inc, National Financial
Services Group, Inc. and Shark Rivers Investors., LLC.
Network 1
Financial Advisors, Inc. provides advisory services and the in-house management
of client accounts. Network 1 Financial Assurance, Inc. acts as an
agent providing life and health insurance products for certain clients on behalf
of the Company.
National
Financial Services Group, Inc. enters into leases and to function as the
guarantor for any leases or investments on behalf of the Company.
Shark
Rivers Investors, LLC is a real estate investment company that owns and operates
two building facilities in New Jersey.
The
following is a summary of certain financial data for Network 1 Financial
Advisors, Inc, Network 1 Financial Assurance, Inc. National Financial Services
Group, Inc. and Shark Rivers Investors, LLC as of June 30, 2009 and 2008, and
for the years ended June 30, 2009 and 2008:
2009 (*)
|
2008
|
|||||||
Revenues
|
$ | 345,545 | $ | 307,370 | ||||
Net
income
|
$ | 19,305 | $ | 46,496 | ||||
Total
assets
|
$ | 1,529,085 | $ | 1,416,188 | ||||
Total
liabilities
|
$ | 1,108,021 | $ | 1,017,684 |
*Through
the merger date of June 9, 2009
Revenue
Recognition
Customer
security transactions and the related commission income and expense are recorded
as of the trade date. Investment banking revenues include gains, losses, and
fees, net of syndicate expenses, arising from securities offerings in which the
Company acts as an underwriter or agent. Investment banking revenues also
include fees earned from providing financial advisory services. Investment
banking management fees are recorded on the offering date, sales concessions on
the settlement date, and underwriting fees at the time the underwriting is
completed and the income is reasonably determinable. Customers who are financing
their transaction on margin are charged interest. The Company’s margin
requirements are in accordance with the terms and conditions mandated by its
clearing firm. The interest is billed on the average daily balance of the margin
account.
F-8
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
Net
dealer inventory gains result from securities transactions entered into for the
account and risk of the Company. Net dealer inventory gains are recorded on a
trade date basis. Investment advisory fees are account management fees for high
net worth clients based on the amount of the assets under management. These fees
are billed quarterly and recognized at such time that the service is performed
and collection is probable.
The
Company generally acts as an agent in executing customer orders to buy or sell
listed and over-the-counter securities in which it does not make a market, and
charges commissions based on the services the Company provides to its customers.
In executing customer orders to buy or sell a security in which the Company
makes a market, the Company may sell to, or purchase from, customers at a price
that is substantially equal to the current inter-dealer market price plus or
minus a mark-up or mark-down. The Company may also act as agent and execute a
customer's purchase or sale order with another broker-dealer market-maker at the
best inter-dealer market price available and charge a commission. Mark-ups,
mark-downs and commissions are generally priced competitively based on the
services it provides to its customers. In each instance the commission charges,
mark-ups or mark-downs, are in compliance with guidelines established by the
FINRA.
Marketable
securities are carried at fair value, with changes in value included in the
statement of income in the period of change. Fair value is generally determined
by quoted market prices. Non-marketable securities are valued at fair value as
determined by management.
Cash and Cash
Equivalents
The
Company considers all highly liquid temporary cash investments with an original
maturity of three months or less when purchased, to be cash
equivalents.
Property and
Equipment
Property
and equipment is recorded at cost. Depreciation is calculated using the
straight-line method based on the estimated useful lives of the related assets,
which range from five to twenty years. Leasehold improvements are amortized
using the straight-line method over the shorter of the estimated useful lives of
the assets or the terms of the leases. Maintenance and repairs are charged to
expense as incurred; costs of major additions and betterments that extend the
useful life of the asset are capitalized. When assets are retired or otherwise
disposed of, the costs and related accumulated depreciation or amortization are
removed from the accounts and any gain or loss on disposal is
recognized.
Fair Value of Financial
Instruments
Statement
of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
Financial Instruments” requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statement of
financial position for current assets and current liabilities qualifying as
financial instruments approximate fair value because of their short
maturities.
In July
1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value
Measurements”, (“FAS 157”) which defines fair value for accounting purposes,
establishes a framework for measuring fair value and expands disclosure
requirements regarding fair value measurements. The Company’s adoption of FAS
157 did not have a material impact on its consolidated financial statements.
Fair value is defined as an exit price, which is the price that would be
received upon sale of an asset or paid upon transfer of a liability in an
orderly transaction between market participants at the measurement date. The
degree of judgment utilized in measuring the fair value of assets and
liabilities generally correlates to the level of pricing observability.
Financial assets and liabilities with readily available, actively quoted prices
or for which fair value can be measured from actively quoted prices in active
markets generally have more pricing observability and require less judgment in
measuring fair value. Conversely, financial assets and liabilities that are
rarely traded or not quoted have less price observability and are generally
measured at fair value using valuation models that require more judgment. These
valuation techniques involve some level of management estimation and judgment,
the degree of which is dependent on the price transparency of the asset,
liability or market and the nature of the asset or liability. The Company has
categorized its financial assets and liabilities measured at fair value into a
three-level hierarchy in accordance with FAS 157.
F-9
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
Impairment of Long-Lived
Assets
The
Company assesses the recoverability of its long lived assets, including property
and equipment when there are indications that the assets might be impaired. When
evaluating assets for potential impairment, the Company first compares the
carrying amount of the asset to the asset’s estimated future cash flows
(undiscounted and without interest charges). If the estimated future cash flows
used in this analysis are less than the carrying amount of the asset, an
impairment loss calculation is prepared. The impairment loss calculation
compares the carrying amount of the asset to the asset’s estimated future cash
flows (discounted and with interest charges). If the carrying amount exceeds the
asset’s estimated futures cash flows (discounted and with interest charges), the
loss is allocated to the long-lived assets of the group on a pro rata basis
using the relative carrying amounts of those assets. Based on its assessments,
the Company did not incur any impairment charges for the years ended June 30,
2008 and 2007.
Concentrations of Credit
Risk
The
Company is engaged in trading and providing a broad range of securities
brokerage and investment services to a diverse group of retail and institutional
clientele, as well as corporate finance and investment banking services to
corporations and businesses. Counterparties to the Company’s business activities
include broker-dealers and clearing organizations, banks and other financial
institutions. The Company uses clearing brokers to process transactions and
maintain customer accounts on a fee basis for the Company. The Company uses one
clearing broker for substantially all of its business. The Company permits the
clearing firms to extend credit to its clientele secured by cash and securities
in the client’s account. The Company’s exposure to credit risk associated with
the non-performance by its customers and counterparties in fulfilling their
contractual obligations can be directly impacted by volatile or illiquid trading
markets, which may impair the ability of customers and counterparties to satisfy
their obligations to the Company. The Company has agreed to indemnify the
clearing brokers for losses they incur while extending credit to the Company’s
clients. It is the Company’s policy to review, as necessary, the credit standing
of its customers and each counterparty. Amounts due from customers that are
considered uncollectible by the clearing broker are charged back to the Company
by the clearing broker when such amounts become determinable.
Upon
notification of a charge back, such amounts, in total or in part, are then
either (i) collected from the customers, (ii) charged to the broker initiating
the transaction and included in other receivables in the accompanying
consolidated balance sheet, and/or (iii) charged as an expense in the
accompanying consolidated statements of operations, based on the particular
facts and circumstances.
The
maximum potential amount for future payments that the Company could be required
to pay under this indemnification cannot be estimated. However, the Company
believes that it is unlikely it will have to make any material payments under
these arrangements and has not recorded any contingent liability in the
financial statements for this indemnification.
The
Company maintains cash with major financial institutions. The Federal Deposit
Insurance Corporation (“FDIC”) insures up to $100,000 at each institution and
after October 3, 2008 up to $250,000 are insured by the FDIC at each
institution. At times such amounts may exceed the FDIC limits. At June 30, 2009
and 2008, the uninsured cash bank balance was approximately $ 0 and $0,
respectively. The Company believes it is not exposed to any significant credit
risks for cash.
F-10
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
Advances to Registered
Representatives
The
Company extends unsecured credit in the normal course of business to its
registered representatives. The determination of the amount of uncollectible
accounts is based on the amount of credit extended and the length of time each
receivable has been outstanding, as it relates to each individual registered
representative. The allowance for uncollectible amounts reflects the amount of
loss that can be reasonably estimated by management and is included as part of
operating expenses in the accompanying consolidated statements of operations. As
of June 30, 2009 and 2008, the Company has reserved approximately $90,000 and
$90,000, respectively for any potential non-collection.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs, which are included in
selling, general and administrative expenses, were deemed to be nominal during
each of the reporting periods.
Income
Taxes
The
Company accounts for income taxes under the provisions of Statement of Financial
Accounting Standards No 109, “Accounting for Income Taxes” (SFAS No. 109). SFAS
No. 109 requires the recognition of deferred tax assets and liabilities for both
the expected impact of differences between the financial statements and tax
basis of assets and liabilities and for the expected future tax benefit to be
derived from tax loss and tax credit carry forwards. SFAS No. 109 additionally
requires the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.
In
June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes” This Interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This Interpretation also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Company adopted the provisions of Fin
48 effective July 1, 2007, the adoption of the provisions of FIN 48 did not have
a material impact on the Company's consolidated financial position and results
of operations. As of June 30, 2009 and 2008, no liability for unrecognized tax
benefits was required to be recorded.
Net Loss per Common
Share
The
Company computes earnings per share under Financial Accounting Standard No. 128,
"Earnings Per Share" (SFAS 128). Net loss per common share is computed by
dividing net loss by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the year. Dilutive common
stock equivalents consist of shares issuable upon conversion of convertible
notes and the exercise of the Company's stock options and warrants (calculated
using the treasury stock method). For the year ended June 30, 2009 and 2008,
common stock equivalents are not considered in the calculation of the weighted
average number of common shares outstanding because they would be anti-dilutive,
thereby decreasing the net loss per common share.
Reclassifications
Certain
reclassifications have been made in prior year's financial statements to conform
to classifications used in the current year
NOTE 3 -
Recent Accounting
Pronouncements
In June
2008, the FASB issued Emerging Issues Task Force No. 07-5 (EITF 07-5), Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own
Stock. EITF 07-5 requires entities to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own
stock by assessing the instrument’s contingent exercise provisions and
settlement provisions. Instruments not indexed to their own stock fail to meet
the scope exception of Statement of Financial Accounting Standards
No. 133, Accounting for
Derivative Instruments and Hedging Activities , paragraph 11(a), and
should be classified as a liability and marked-to-market. The statement is
effective for fiscal years beginning after December 15, 2008 and is to be
applied to outstanding instruments upon adoption with the cumulative effect of
the change in accounting principle recognized as an adjustment to the opening
balance of retained earnings. The Company adopted EITF 07-5 as of January
1, 2009.
F-11
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141R, Business
Combinations , and Statement of Financial Accounting Standards
No. 160, Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No.
51 . These new standards significantly change the
accounting for and reporting of business combination transactions and
noncontrolling interests (previously referred to as minority interests) in
consolidated financial statements. Both standards are effective for fiscal
years beginning on or after December 15, 2008, with early adoption
prohibited. The Company is currently evaluating the provisions of FAS
141(R) and FAS 160.
In May of
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” This statement identifies literature established
by the FASB as the source for accounting principles to be applied by entities
which prepare financial statements presented in conformity with generally
accepted accounting principles (GAAP) in the United States. This statement is
effective 60 days following approval by the SEC of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” This statement
will require no changes in the Company’s financial reporting
practices.
In June
2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162" ("SFAS 168"). SFAS 168 establishes
the FASB Accounting Standards Codification ("ASC") as the source of
authoritative accounting principles recognized by the FASB. Following this
statement, the FASB will issue new standards in the form of Accounting Standards
Updates ("ASUs"). SFAS 168 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009 and therefore is
effective in the second quarter of fiscal 2010. The issuance of SFAS 168 will
not change GAAP and therefore the adoption of SFAS 168 will only affect the
specific references to GAAP literature in the notes to the consolidated
financial statements.
NOTE 4 -
Securities Owned and
Securities Sold, But Not Yet Purchased, At Market
The
following table shows the market values of the Company's investment securities
owned and securities sold, but not yet purchased as of June 30, 2009 and 2008,
respectively:
F-12
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
June 30, 2009
|
June 30, 2008
|
|||||||||||||||
Securities Sold,
|
Securities Sold,
|
|||||||||||||||
Securities
|
but not yet
|
Securities
|
but not yet
|
|||||||||||||
Owned
|
Purchased
|
Owned
|
Purchased
|
|||||||||||||
Corporate
stocks
|
$ | 84,184 | $ | 1,215 | $ | 57,507 | $ | 5,892 |
Securities
sold, but not yet purchased commit the Company to deliver specified securities
at predetermined prices. The transactions may result in market risk since, to
satisfy the obligation, the Company must acquire the securities at market
prices, which may exceed the values reflected in the consolidated statements of
financial condition.
NOTE 5 -
Due from Clearing
Organization
The
following represents amounts on deposit with Southwest Securities, Inc.
(“Southwest”) with the Company’s clearing broker inventory account:
June 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
|
$ | 417,034 | $ | 382,445 | ||||
Marketable
securities
|
334,285 | 371,470 | ||||||
Total
|
$ | 751,319 | $ | 753,915 |
The
marketable securities are primarily comprised of corporate stocks. Marketable
securities on deposit with Southwest Securities are reflected at fair value. The
Company is required to maintain a balance of $750,000 with the clearing
organization of cash and securities.
For the
years ended June 30, 2009 and 2008, the Company used the services of Southwest
to clear its brokerage business. The Company incurred charges of approximately
$201,844 and $240,800 under this arrangement for the years ended June 30, 2009
and 2008, respectively.
NOTE 6 -
Advances to/from
Officer
As of
June 30, 2009 and 2008, the Company has outstanding advances receivable of
approximately $0 and $418,000, respectively, due from two officers/shareholders
of the Company. These balances are non-interest bearing and have no definitive
repayment terms. As of June 30, 2009 the Company has recorded an allowance of
$106, 922 for the collectibility of the full balance receivable from the
officers.
As of
June 30, 2009 and 2008, the Company has outstanding advances payable of
approximately $0 and $141,000, respectively, due to an officer/shareholder of
the Company. These balances are non-interest bearing and have no definitive
repayment terms.
NOTE 7 -
Related Party
Transactions
As of
June 30, 2009, due to (from) affiliated companies consisted of the
following:
F-13
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
June
30,
|
||||||||
2009
|
2008
|
|||||||
Legends
property development (a)
|
$ | 1,330 | $ | 13,766 | ||||
Mainport
LLC (b)
|
$ | - | $ | (1,200 | ) | |||
Network
1 Financial Advisors Inc.(c)
|
$ | 104,867 | $ | - | ||||
Network 1
Financial Assurance, Inc. (b)
|
$ | 803 | $ | - | ||||
National
Financial Services Group (b)
|
$ | 39,881 | $ | - |
(a)Represents
expenses paid on behalf of an affiliated company whose directors’ are officers
and shareholders’ of the Company
(b)Represents
amounts due from an affiliated company whose officers and shareholders are
officers and shareholders’ of the Company.
(c)
Represents amounts due in the form of a promissory note from an affiliated
company whose officers and shareholders are officers and shareholders’ of the
Company.
NOTE 8 -
Property and
Equipment
Property
and equipment, net, consists of the following:
June
30,
|
||||||||
2009
|
2008
|
|||||||
Building
and related capitalized costs
|
$ | - | $ | 575,576 | ||||
Land
|
- | 600,000 | ||||||
Computer
equipment
|
115,363 | 137,237 | ||||||
Furniture
and fixtures
|
31,251 | 31,251 | ||||||
Total
|
146,614 | 1,344,064 | ||||||
Less:
accumulated depreciation
|
(133,817 | ) | (266,996 | ) | ||||
Property and Equipment - Net
|
$ | 12,797 | $ | 1,077,068 |
Depreciation
expense for the years ended June 30, 2009 and 2008 was approximately $12,054 and
$29,100, respectively.
NOTE 9 -
Capital Lease
Obligation
As of
June 30, 2009, the Company has equipment under a capital lease expiring in
August 2012. The asset and liability under the capital lease are recorded at the
lower of the present value of the minimum lease payments or the fair value of
the asset. The asset is included in property and equipment and is amortized over
the estimated life of the asset The interest rate under the lease is 6.60% and
is imputed based on the lessor’s implicit rate of return. The following is a
summary of property held under capital leases:
F-14
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
June
30,
|
||||||||
2009
|
2008
|
|||||||
Machinery
and equipment
|
$ | 22,570 | $ | 22,570 | ||||
Less:
accumulated amortization
|
7,470 | 2,956 | ||||||
Property
held under capital lease, net
|
$ | 15,100 | $ | 19,614 |
Amortization
of assets held under the capital lease is included in depreciation
expense.
Capital
lease payable in monthly installments of $532, including interest through August
2012 secured by office equipment with a cost of $22,570 and accumulated
amortization of $7,470 as of June 30, 2009.
At June
30, 2009, annual minimum future lease payments under the capital lease are as
follows:
June
30,
|
Amount
|
|
2010
|
$ | 6,387 |
2011
|
6,387 | |
2012
|
6,387 | |
2013
|
532 | |
Total
minimum lease payments
|
19,693 | |
Less:
amount representing interest
|
6,670 | |
Present
value of future minimum lease payments
|
$ | 13,023 |
NOTE 10 -
Line of Credit -
Bank
The
Company’s bank line of credit is payable on demand. The maximum amount the
Company could borrow is $100,000, indebtedness under the line of credit provides
for interest at the bank’s prime rate, plus 1.0% (approximately 4.25% at June
30, 2009 and 5% at June 30, 2008). As of June 30, 2009 and 2008, the amount
outstanding under this credit facility was $93,000 and $93,000
respectively. As of the year ended June 30, 2009 the Company
was in default of the terms of the line of credit. Subsequent to the year end,
the Company negotiated a payment plan to pay down the balance to correct the
default (See Note 22)
Indebtedness
under the credit agreement is collateralized by substantially all of the assets
of the Company and an officers’ personal
guarantee.
NOTE 11 -
Mortgage
Payable
(a) As of
June 30, 2008, Shark Rivers Investors, LLC has a loan payable to a financial
institution of approximately $493,800. The term of the loan is 5
years with a 20 year repayment schedule. The loan matures in December 2008 . The
loan has an interest rate of approximately 7%. The loan is collateralized with a
lien on the building and a security interest in all of the furniture and
fixtures and assignment of any leases. The mortgage has been personally
guaranteed by certain officers and shareholders of the Company.
On
December 18, 2008, Shark Rivers Investors, LLC entered into a loan agreement
extending the maturity date of the loan to February 28, 2009. The note will have
a stated interest rate through the extended maturity date of 7% per
annum. Shark River Investors, LLC is currently in discussion with the
financial institution about the default.
(b) As of
June 30, 2008, Shark Rivers Investors, LLC has a loan payable to a third party
of approximately $303,600. The term of the loan is 3 years with a 30 year
repayment schedule. The loan matures in July 2011 and is payable in full. The
loan has a provision for the escalation of interest rates as follows, 8%
beginning August 1, 2008; 8.25% beginning August 1, 2009; 8.5% beginning August
1, 2010. The loan is collateralized with a security interest in the building and
has been personally guaranteed by certain officers who are shareholders of the
Company.
F-15
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
NOTE 12 -
Notes
Payable
Under the
terms of a settlement agreement entered into with the NASD in July 2007, for
monetary sanctions imposed against certain employees who are officers and
shareholders of the Company. As of June 30, 2009, notes payable consists of as
follows:
June
30,
|
||||||||
2009
|
2008
|
|||||||
Note
payable to FINRA in monthly installments of $900 per month including
interest at a rate of 11.25% through August 2009.
|
$ | 280 | $ | 11,195 | ||||
Note
payable to FINRA in monthly installments of $2,500 per month including
interest at a rate of 11.25% through August 2010.
|
32,189 | 56,253 | ||||||
$ | 32,469 | $ | 67,448 |
Maturities
of long-term debt at June 30, 2009 for the next five years and in the aggregate
are follows:
June
30,
|
Amount
|
|||
2010
|
$ | 29,031 | ||
2011
|
3,438 | |||
$ | 32,469 |
NOTE 13 -
Income
Taxes
As of
June 30, 2009, the Company has a net operating loss (“NOL”) of approximately
$510,000. The deferred tax asset related to such NOL has been fully
reserved.
The
Company has adopted the provisions of FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”
(“FIN 48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements in accordance
with SFAS No. 109, “Accounting for Income Taxes,” and prescribes a recognition
threshold and measurement process for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim period, disclosure and transition. There were
no unrecognized tax benefits as of June 30, 2009 and June 30, 2008.
The
Company has identified its federal tax return and its state tax returns in New
Jersey and New York State as “major” tax jurisdictions, as defined. Based on the
Company’s evaluation, it has been concluded that there are no significant
uncertain tax positions requiring recognition in the Company’s financial
statements. The Company’s evaluation was performed for the tax years ended 2003
through 2008, the only periods subject to examination. The Company believes that
its income tax positions and deductions would be sustained on audit and does not
anticipate any adjustments that would result in a material change to its
financial position. Consequently, the Company did not record a cumulative effect
adjustment related to the adoption of FIN 48.
F-16
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
The
Company classifies interest and penalties related to unrecognized tax benefits
in other expenses. The Company did not incur interest or penalties during the
year ended June 30, 2009 and 2008.
Shark
Rivers Investors, LLC is a limited liability corporation (treated for income tax
purposes as a partnership). Income taxes for Federal and State purposes are not
levied at the entity level, but rather on the individual partner or
stockholder.
Network 1
Financial Advisors, Inc, Network 1 Financial Assurance and National Financial
Services Group, Inc. are C-corporations and file their Federal and State annual
tax return separate from the Company.
NOTE 14 -
Benefit Contribution
Plan
The
Company sponsors a 401k profit sharing plan that covers substantially all of its
employees. The plan provides for a discretionary annual contribution, and is
allocated in proportion to compensation. In addition, each participant may elect
to contribute to the Plan by way of a salary deduction. An employee becomes
fully vested in the Company’s contribution after 6 years. A participant is fully
vested in their own contributions. For the years ended June 30, 2009 and 2008,
the Company made no discretionary contributions to the Plan.
NOTE 15 -
Net Capital
Requirements
The
Company is a registered broker-dealer and is subject to the SEC’s Uniform Net
Capital Rule 15c3-1. This requires that the Company maintain minimum net capital
of $100,000 and also requires that the ratio of aggregate indebtedness, as
defined, to net capital, shall not exceed 15 to 1.
As of
June 30, 2009 and 2008, the Company’s net capital exceeded the requirement by
approximately $111,834 and $79,500 respectively.
Advances,
dividend payments and other equity withdrawals are restricted by the regulations
of the SEC, and other regulatory agencies are subject to certain notification
and other provisions of the net capital rules of the SEC. The Company qualifies
under the exemptive provisions of Rule 15c3-3 as the Company does not carry
security accounts for customers or perform custodial functions related to
customer securities.
NOTE 16
- Deconsolidation of Variable
Interest Entity
Upon the
date of the reverse merger and as a result of agreements executed, the Company
determined that it was no longer the sole source of financial support and the
primary beneficiary for the variable interest entities (Network 1 Financial
Advisors, Inc., Network 1 Financial Assurance, Inc, National Financial Services
Group, Inc. and Shark Rivers Investors., LLC). Accordingly, we
deconsolidated the variable interest entities effective June 9, 2009 from our
financial position and results of operations.
The
carrying value of variable interest entities’ net assets approximated fair
value. At June 9, 2009, the date of deconsolidation, the net assets
were as follows:
F-17
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
Assets:
|
||||
Cash
and cash equivalents
|
$ | 2,695 | ||
Advances
from officers
|
302,333 | |||
Property
and equipment, net
|
1,002,418 | |||
Other
assets
|
218,363 | |||
Total
assets
|
$ | 1,525,809 | ||
Liabilities:
|
||||
Accounts
payable and accrued expenses
|
$ | (60,450 | ) | |
Notes
payable
|
(1,047,550 | ) | ||
Total
liabilities
|
(1,108,000 | ) | ||
Net
assets
|
$ | 417,809 |
No gain
or loss was recorded upon deconsolidation as the estimated fair values of
variable interest entities’ net assets equaled their carrying
values.
NOTE 17
- Non-Controlling Interest in
Subsidiaries
Through
the merger date of June 9, 2009, non-Controlling interest represents one hundred
percent (100%) of the equity from the four (4) variable interest entities that
are beneficially-owned by the Company’s stockholders.
Network 1
Financial Securities, Inc. (“NETW”) exchanged substantially all it’s Common
Stock in accordance with the reverse merger. However,
NETW’s Series A preferred stock remained
outstanding. As of June 30, 2009 and 2008, NETW had
1,000,000 shares authorized, of 8% Series A preferred stock $1.00 par value, and
215,000 shares are outstanding.
The
Series A preferred stock is redeemable at the option of the Company’s Board of
Directors at 125% of the issuance price plus any dividends earned but unpaid and
after one year outstanding. The Series A preferred stock is non-voting and
non-cumulative. Of the 215,000 shares issued, 130,000 shares are owned by
National Financial Services Group, Inc., an affiliated Company, whose officers
and shareholders’ are officers and shareholders of the Company. Accordingly, the
value of these shares has been eliminated as of June 30, 2008. The
preferred stock shareholders are entitled to a bonus dividend at the discretion
of the board of directors based on the profitability of the firms market making
investment activities minus certain deductions. No bonus dividends were declared
for the years ended June 30, 2009 and 2008.
NOTE 18
–Warrants and
Derivative Liability
The
following is additional information with respect to the Company’s warrants as of
June 30, 2009
WARRANTS
OUTSTANDING AND EXERCISABLE
|
|||||||||
Number
of
|
Weighted
|
||||||||
Outstanding
|
Average
|
Weighted
|
|||||||
Shares
|
Remaining
|
Average
|
|||||||
Exercise
|
Underlying
|
Contractual
|
Exercise
|
||||||
Price
|
Warrants
|
Life
|
Price
|
||||||
$0.20
|
7,657,733 |
1.17
years
|
$ | 0.20 | |||||
|
7,657,733 |
1.17
years
|
$ | 0.20 |
F-18
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
In June
2008, the FASB finalized EITF 07-05, “Determining Whether an Instrument (or
Embedded Feature) is indexed to an Entity’s Own Stock.” Under EITF 07-05,
instruments which do not have fixed settlement provisions are deemed to be
derivative instruments. The Company’s warrants issued in connection with the
IPO, do not have fixed settlement provisions because their exercise prices, may
be lowered if the Company issues securities at lower prices in the future. The
Company was required to include the reset provisions in order to protect the
warrant holders from potential dilution associated with future financings. In
accordance with EITF 07-05, the warrants have been re-characterized as a
derivative liability. SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (“FAS 133”) requires that the fair value of this liability
be re-measured at the end of every reporting period with the change in value
reported in the statement of operations.
The
derivative liability was valued using the Black-Scholes option valuation model
and the following assumptions:
June
30, 2009
|
June
9, 2009
|
|||||||
Warrants:
|
||||||||
Risk-free
interest rate
|
0.6 | % | 0.6 | % | ||||
Expected
volatility
|
103 | % | 103 | % | ||||
Expected
life (in years)
|
0.93 | 0.93 | ||||||
Expected
dividend yield
|
0 | % | 0 | % | ||||
Fair
value:
|
||||||||
Warrants
|
$ | 22,896 | $ | 107,487 |
The
risk-free interest rate was based in rates established by the Federal Reserve.
The Company’s expected volatility was based upon the historical volatility for
its common stock. The expected life of the warrants was determined by the
expiration date of the warrants. The expected dividend yield was based upon the
fact that the Company has not historically paid dividends, and does not expect
to pay dividends in the future.
NOTE 19 -
Stockholders’
Equity
Common
Stock
On
December 8, 2004, we filed a Certificate of Amendment to our Certificate of
Incorporation increasing the total number of authorized shares to 101,000,000,
consisting of 100,000,000 shares of common stock and 1,000,000 shares of
preferred stock.
On
November 26, 2008 the Company sold 429,031 shares of its class A common
stock to Network 1 Financial Advisors, Inc. for gross proceeds of
$50,000.
On
February 06, 2009 the Company sold 429,031 shares of its class A common
stock to an investor for gross proceeds of $50,000.
In
accordance with the reverse merger, all references to Common Stock, share and
per share amounts have been retroactively restated to reflect the exchange ratio
of 17.16 shares of ISSI’s Common Stock for 1 share of all of the classes of the
acquirer's Common Stock outstanding immediately prior to the merger as if the
exchange had taken place as of the beginning of the earliest period
presented.
Preferred
Stock
The Board
of Directors of the Company is authorized, without further action of the
shareholders of the Company, to issue up to 1,000,000 shares of Preferred Stock
in one or more classes or series and to fix the rights, preferences, privileges
and restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, and the number of shares
constituting any series or the designation of such series. As of June 30, 2009,
there were no shares of preferred stock issued and
outstanding.
F-19
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
NOTE 20 -
Commitments and
Contingencies
Litigation
The
Company may be involved in legal proceedings in the ordinary course of business.
Such matters are subject to many uncertainties, and outcomes are not predictable
with assurance. The Company currently is not involved in any legal proceedings
which are not in the ordinary course of business.
Enforcement
Actions
In
July 2007, the Company entered into a settlement agreement with the NASD for
monetary sanctions imposed against certain employees who are officers and
shareholders of the Company. The monetary sanctions amounted in the aggregate to
$129,900. The term of the settlement agreement allowed the Company to follow an
installment arrangement. Principal terms of the arrangement required a down
payment of 25%. The remaining balance is to be paid over a term ranging from 24
to 36 months. Interest is to be paid at a rate of approximately 11.25% per annum
(See Note 12).
Regulatory Approvals
Required
NETW was
required to file with the Financial Industry Regulatory Authority (“FINRA”), an
application pursuant to FINRA Rule 1017 (the “1017 Application”) to obtain
approval for the sale of up to one hundred percent (100%) of NETW. NETW filed
the initial 1017 Application on February 6, 2009, subsequently withdrew the 1017
Application and re-filed the 1017 application on April 2, 2009. FINRA gave
NETW comments on the 1017 Application, which NETW has been responding to. To
date, FINRA has not yet approved the 1017 Application but NETW believes that
such approved will be obtained. ISSI will file an amended Form BD with FINRA,
and any required state(s), indicating the change in ownership of NETW and
listing the current officers and directors.
As a
registered broker-dealer, we are subject to the SEC’s ongoing Uniform Net
Capital Rule 15c3-1. This requires that we maintain minimum net capital of
$100,000 and also requires that the ratio of aggregate indebtedness, as defined,
to net capital, shall not exceed 15 to 1.
Lease
Commitments
The
Company leases its corporate office facility under a operating lease expiring in
June 2010. Additional rent is payable for increases in real estate taxes and
operating expenses over base period amounts. Under the terms of the lease, the
Company has the option to cancel the lease provided a minimum of four months
written notice is given to the landlord.
Minimum
future annual rental payments are approximately as follows:
Common
Area and
|
|||||||||||||
Base
|
Maintenance
|
||||||||||||
Year
Ending
|
Rent
|
Charges
|
Total
|
||||||||||
2010
|
$ | 83,600 | $ | 34,600 | $ | 118,200 | |||||||
Total
|
$ | 83,600 | $ | 34,600 | $ | 118,200 |
The total
amount of rent payable under the leases is recognized on a straight line basis
over the term of the leases. Rent expense for the years ended June 30, 2009 and
2008 was approximately $114,000 and $106,400 respectively.
F-20
NETWORK I
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008
The lease
was renegotiated in August,2009.
NOTE 21 –
Fair Value
Measurements
The
financial assets of the Company measured at fair value on a recurring basis are
cash equivalents, and long-term marketable securities. The Company’s cash
equivalents and long term marketable securities are generally classified within
Level 1 of the fair value hierarchy because they are valued using quoted
market prices, broker or dealer quotations, or alternative pricing sources with
reasonable levels of price transparency. The Company’s long-term investments are
classified within Level 3 of the fair value hierarchy because they are valued
using unobservable inputs, due to the fact that observable inputs are not
available, or situations in which there is little, if any, market activity for
the asset or liability at the measurement date. The Company’s
derivative liabilities are classified within Level 2 of the fair value hierarchy
because they are valued using inputs which are not actively observable, either
directly or indirectly.
|
•
|
Level
1: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or
liabilities;
|
|
|
|
•
|
Level
2: Quoted prices in markets that are not active, or inputs which are
observable, either directly or indirectly, for substantially the full term
of the asset or liability; or
|
|
|
|
•
|
Level
3: Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and are
unobservable.
|
The
following table sets forth the Company’s short- and long-term investments as
of June 30, 2009 which are measured at fair value on a recurring basis
by level within the fair value hierarchy. As required by SFAS No. 157,
these are classified based on the lowest level of input that is significant to
the fair value measurement, (in thousands):
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||
Cash
and cash equivalents
|
$ | 91,882 | $ | 91,882 | |||||||||
Certificate
of deposit
|
550,942 | 550,942 | |||||||||||
Due
from clearing organization
|
751,319 | 751,319 | |||||||||||
Securities
owned, at market values
|
84,184 | 84,184 | |||||||||||
Notes
receivable
|
100,000 | 100,000 | |||||||||||
Derivative
liabilities
|
(22,896 | ) | (22,896 | ) | |||||||||
Line
of Credit and notes payable
|
(125,469 | ) | (125,469 | ) |
NOTE 22 -
Subsequent
Event
In
accordance with SFAS No. 165, the Company has evaluated subsequent events
through the date of this filing (October 13, 2009).
In
August, 2009, the Company entered into a new three year lease on its corporate
headquarters at $9,000 per month (all expenses included) for an annual
commitment of $108,000.
The
Company has arranged a schedule of payments to reduce its bank line of credit to
meet the requirements of the financial institutions request. On
September 15, 2009, the balance remaining on the loan was $68,000.
Network 1 Financial Securities Inc. requested a 30 day extension
for its Rule 1017 filing until October 30, 2009, which was granted by FINRA. No
assurances can be made regarding the final outcome of the Rule 1017
process.
F-21
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There
were no changes in accounting principles or disagreements with our auditors
regarding applications of any accounting principles during the year ended June
30, 2009.
Item
9A. Controls and Procedures
We
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(f)
under the Exchange Act) (the “Disclosure Controls”) as of the end of the period
covered by this Annual Report. The Disclosure Controls evaluation was done under
the supervision and with the participation of management, including our
Principal Executive Officer (“PEO”) and Principal Accounting Officer (the “PAO,”
and together with the PEO, the “Certifying Officers”).
Attached
as exhibits to this Annual Report are certifications of the Certifying Officers,
which are required in accordance with Rule 13a-14 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section
includes the information concerning the controls evaluation referred to in the
certifications and it should be read in conjunction with the certifications for
a more complete understanding of the topics presented.
Disclosure
Controls and Procedures
The term
“disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e))
refers to the controls and other procedures that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
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 an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including its Certifying Officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosures.
We have
designed our disclosure controls and procedures to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is recorded, processed, summarized and reported within time periods
specified the SEC’s rules and forms. We also have designed our disclosure
controls and procedures to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is accumulated and
communicated to our management to allow timely decisions regarding required
disclosures. Based on management’s evaluation, we have determined that our
disclosure controls and procedures were not effective as a result of the
material weakness described below.
This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal controls over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only Management’s Report in this Annual Report.
Management’s
Report on Internal Control Over Financial Reporting
Management
is responsible for the preparation of the Company’s financial statements and
related information. Management uses its best judgment to ensure that the
financial statements present fairly, in all material aspects, the Company’s
financial position and results in conformity with Generally Accepted Accounting
Principles (“GAAP”).
Internal
control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Exchange Act as a process designed by, or under the
supervision of, Certifying Officers and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP.
Under the
supervision of management, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in
“Internal Control – Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission published in 1992.
As a
result of this evaluation, we concluded that our internal control over financial
reporting was not effective as of June 30, 2009 due to the identification of a
material weakness. A material weakness is a control deficiency or combination of
control deficiencies such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.
10
To
address the material weakness described below, we performed additional analysis
and performed other procedures to ensure our financial statements were prepared
in accordance with GAAP. Accordingly, management believes that the financial
statements included in this Annual Report on Form 10-K, fairly present, in all
material aspects, our financial condition, results of operations and cash flows
for the periods presented in accordance with GAAP.
The
weakness, identified by management, related to the lack of necessary
accounting resources to ensure consistently complete and accurate reporting of
financial reporting. To mitigate the current limited resources and limited
employees, we rely heavily on direct management oversight of transactions. As we
grow, we expect to increase our number of employees, which will enable us to
implement adequate segregation of duties within the internal control
framework.
We
believe that for the reasons described above, after we hire additional qualified
in-house personnel, we will be able to improve our disclosure controls and
procedures, remedy the material weaknesses identified above and provide
reasonable assurance that assets are safeguarded from loss or unauthorized use,
that transactions are recorded in accordance with GAAP under management’s
directions, and that financial records are reliable to prepare financial
statements. However, because of inherent limitations in all control systems, no
evaluation can provide absolute assurance that all control issues and instances
of fraud, if any, will be or have been detected.
Changes
in Internal Controls over Financial Reporting
Other
than the identification of the material weakness described above, there have not
been any other changes in our internal control over financial reporting that
occurred during the quarter ended June 30, 2009 that have materially affected or
are reasonably likely to affect our internal control over financial
reporting.
Item
9B. Other Information
Not
applicable.
11
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
The
following individuals serve as the directors, executive officers and key
employees of the Company. All directors of the Company and our
operating subsidiary hold office until his successor shall have been duly
elected and qualified, subject to his earlier death, resignation or removal. The
executive officers of the Company and our operating subsidiary are appointed by
our board of directors and hold office until their death, resignation or removal
from office.
Name
|
Age
|
Position
|
||
Richard
W. Hunt
|
56
|
Chief
Executive Officer, Vice-President and Chairman of the
Board
|
||
Michael
S. Rakusin(1)(2)(3)
|
53
|
Chief
Financial Officer, Treasurer, Vice-President and
Director
|
||
William
R. Hunt, Jr.
|
54
|
President
and Director
|
||
Damon
Testaverde
|
61
|
Secretary
and Director
|
||
Richard
A. Peters(1)(2)(3)
|
71
|
Director
|
(1)
|
Member
of the Audit Committee.
|
(2)
|
Member
of the Compensation
Committee.
|
(3)
|
Member
of the Nominating and Corporate Governance
Committee.
|
Richard W.
Hunt was appointed Chief Executive Officer, Vice-President and Chairman
of the Board of Directors of the Company following the consummation of the
Reverse Merger on June 9, 2009. Since March 1988, Mr. Hunt has served as Chief
Executive Officer, Secretary and Chairman of the Board of Directors of NETW. Mr.
Hunt is currently a FINRA Registered Representative. Since May 1998, Mr. Hunt
has served as a director of Network 1 Financial Assurance, Inc., which acts as
an agent providing life and health insurance products for certain clients on
behalf of the Company, and since September 2000, he has served as director of
Network 1 Financial Advisors, Inc., which provides advisory services and the
in-house management of the Company’s client accounts. Mr. Hunt also served as
President of Network 1 Financial Advisors, Inc. between September 2000 and
November 2008. Mr. Hunt received his BA in Liberal Arts, with emphasis in Human
Resources, from Trenton State College, now known as The College of New
Jersey.
For
a period of 45 days during August and September 2007, Mr. Hunt was suspended
from association with any FINRA (f/k/a NASD) member in a principal capacity and
was fined $25,000, upon consenting to such sanctions and the entry of findings
in connection with charges that Mr. Hunt violated certain NASD Conduct rules for
failure to supervise.
Michael S.
Rakusin has served as our Chief Financial Officer since September 28,
2006. Since 2001, Mr. Rakusin has served as the Managing Director of 54 Pearl
Street Associates, a restaurant management holding company. Mr. Rakusin is also
a certified public accountant and currently maintains an active accounting and
tax practice. He also has extensive experience as a builder of single-family
homes. Mr. Rakusin previously served as Chief Executive Officer of Echo Springs
Water Co., Inc., a distributor of bottled water. Michael Rakusin has been
designated as our Audit Committee Financial Expert.
William Hunt
Jr. was
appointed President and a member of the Board of Directors of the Company
following the consummation of the Reverse Merger on June 9, 2009. Since March
1988, Mr. Hunt has served as the President, Chief Operating Officer and a
director of NETW. In 1993, he was also appointed Chief Financial Officer of
NETW. From September 2000 to November 2008, he served as Vice President of
Network 1 Financial Advisors, Inc, and in November 2008 he was appointed
President. Since May 1998, he has served as Vice President and Chief Financial
Officer of Network 1 Financial Assurance, Inc. Mr. Hunt is currently a FINRA
Registered Representative, and has an insurance and real estate license in New
Jersey. He received his BS in Business Administration from Trenton State
College, now known as The College of New Jersey.
Damon D.
Testaverde was appointed Secretary and a member of the Board of Directors
of the Company following the consummation of the Reverse Merger on June 9, 2009.
Since July 1994, Mr. Testaverde has been the managing director of NETW. From May
1991 until June 1995, Mr. Testaverde served as President and Chief Executive
officer of TekInsight. From 1989 to March 1991, Mr. Testaverde served as the
principal stockholder of R.H. Damon & Company, Inc. a full service
securities broker-dealer. From 1980 to 1986, he served in the capacity of
President of S.D. Cohn & Co., Inc., a full service securities broker-dealer.
He is currently a FINRA Registered Representative. He received his B.A. in
Accounting from Pace University.
12
Between
September 2007 and January 2008, Mr. Testaverde was suspended from association
with any FINRA (f/k/a NASD) member in any capacity, and was fined $50,000, upon
neither admitting nor denying such sanctions and the entry of findings, relating
to charges that he solicited one of NETW’s customers, who was a controlling
shareholder of a company to sell shares in amounts that exceeded the limits that
a controlling shareholder could sell in public transactions, in violation of
certain NASD Conduct Rules and Section 5 of the Securities Act of 1933, as
amended.
Richard A.
Peters has served as a director since June 2003. Mr. Peters also served
as our Secretary from September 28, 2006 until his resignation on June 9,
2009 in connection with the Reverse Merger. Mr. Peters has over forty years
experience in business, development, marketing and management consulting. His
product areas of expertise include data storage, telecommunications, computer
graphics and software. Mr. Peters was the Vice President of World Wide Channel
Marketing at Quantum Corporation in Milpitas, California from April 1998 until
his retirement in February 2001. Mr. Peters lived and worked in Asia, Europe and
South America for twelve years. He led acquisition teams, strategic partnerships
and product introductions. Mr.
Peters received a BA in 1959 from Columbia College; a BS in 1960 and an MS in
1963, both in Electrical Engineering, from the Columbia School of Engineering;
and a Masters in Industrial Management in 1969 from New York Polytechnic
Institute.
Family
Relationships
William
R. Hunt, Jr. and Richard W. Hunt are brothers. There are no other family
relationships between any of our directors or executive officers.
Involvement
in Certain Legal Proceedings
Except as
set forth above with respect to Richard W. Hunt and Damon Testaverde, none of
our directors, executive officers, promoters or control persons has been
involved in any of the following events during the past five years:
1.
|
|
any
bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
|
2.
|
any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offences);
|
|
3.
|
being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
|
4.
|
being
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
|
Meetings
of the Board
Our Board
of Directors met three (3) times in person during the fiscal year ended June 30,
2009. All directors serving at the time attended the meeting.
Board
Committees
Our Board
of Directors has established a compensation committee (the “Compensation
Committee”), an audit committee (the “Audit Committee”), and a nominating and
corporate governance committee (the “Nominating and Corporate Governance
Committee”).
The Compensation
Committee. The
Compensation Committee consists of Richard Peters and Michael Rakusin. The
Compensation Committee determines the salaries and bonuses of our executive
officers.
The Audit
Committee. Mr. Peters and Mr. Rakusin serve as members of the Audit
Committee. We have determined that Mr. Rakusin qualifies as an “audit committee
financial expert” under applicable SEC regulations. The Audit Committee has the
responsibilities set forth in the Audit Committee Charter, which was revised and
adopted by our Board of Directors on March 4, 2004 including appointing
auditors, pre-approving all auditing services, reviewing the audited financial
statements and other financial disclosures, and overseeing our accounting and
audit functions. The Audit Committee reports its findings to the Board of
Directors. At the present time, no members of the audit committee are
independent. The Charter of the Audit Committee is attached as Appendix D of the
Company’s definitive proxy statement filed with the SEC on August 28,
2006.
13
Nominating and
Corporate Governance Committee. The members of the Nominating Committee
are Richard Peters and Michael Rakusin. The Nominating Committee has the
responsibilities set forth in the Nominating and Corporate Governance Committee
charter, which was adopted by our Board of Directors on March 4, 2004, including
making recommendations to the Board of Directors of persons qualified to serve
as our directors, chairman and members of committees of the Board of Directors.
The Nominating Committee is also responsible for certain corporate governance
practices, including the development of ethical conduct standards for our
Directors, officers and employees and an annual evaluation to determine whether
the Board of Directors and its committees are functioning
effectively.
The
Nominating Committee expects to identify nominees to serve as our directors
primarily by accepting and considering the suggestions and nominee
recommendations made by directors, management and stockholders. The Nominating
Committee has not established specific minimum qualifications for recommended
nominees. However, as a matter of practice, the Nominating Committee does
evaluate recommended nominees for directors based on their integrity, judgment,
independence, financial and business acumen, relevant experience, and their
ability to represent and act on behalf of all stockholders, as well as the needs
of the Board of Directors. In general, the Nominating Committee would expect to
renominate incumbent directors who express an interest in continuing to serve on
the Board of Directors.
The
Charter of the Nominating and Corporate Governance Committee can be found as
Appendix E of the definitive proxy statement filed with the SEC on August 28,
2006.
Code
of Business Conduct and Ethics
The Board
of Directors has also adopted a Code of Business Conduct and Ethics, which can
be found in Appendix F of the Definitive Proxy Statement filed by the Company
with the SEC on August 28, 2006. The Code of Business Conduct and Ethics will be
provided without charge, upon written request to us at the following address:
Network 1 Financial Group, Inc., 2 Bridge Avenue, 4thFloor Red
Bank, NJ 07701, Attention: Richard W. Hunt.
Section
16(a) Beneficial Ownership Reporting
Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who own more than 10% of a registered class of our equity securities, to
file reports of ownership and changes in ownership with the SEC and NASDAQ.
Officers, directors and greater than 10% stockholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file. To
the best of our knowledge, based solely on a review of such reports provided to
us and written representations that no other reports were required during, or
with respect to, the year ended June 30, 2009, all Section 16(a) filing
requirements applicable to our executive officers, directors and greater than
10% beneficial owners have been satisfied.
Item 11. Executive
Compensation.
Executive
Compensation
The
following table sets forth information concerning the compensation paid and
awarded to those individuals serving as our officers following the consummation
of the Reverse Merger. It includes compensation paid at the end of the fiscal
years ended June 30, 2009 and 2008 to (i) our Chief Executive Officer and former
Chief Executive Officer and (ii) the two most highly compensated executive
officers (other than our Chief Executive Officer) of us and our subsidiaries
whose total compensation exceeded $100,000 for these periods. These individuals
may be collectively referred to in this report as our “Named Executive
Officers.”
Change
in
|
|||||||||||||||||||||||||
Pension
|
|||||||||||||||||||||||||
Value
|
|||||||||||||||||||||||||
Non-
|
and
Non-
|
||||||||||||||||||||||||
Equity
|
qualified
|
||||||||||||||||||||||||
Fiscal
|
Incentive
|
Deferred
|
|||||||||||||||||||||||
Name
and Principal
|
Year
|
Stock
|
Options
|
Plan
|
Compensation
|
All
Other
|
|||||||||||||||||||
Position
|
Ended
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
||||||||||||||||
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
||||||||||||||||||
David
R. E. Hale,
|
2009
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
Former
Chairman,
|
2008
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
President and CEO(1)
|
|||||||||||||||||||||||||
Richard
W. Hunt,
|
2009
|
100,230
|
-
|
33,516
|
-
|
-
|
-
|
-
|
133,746
|
||||||||||||||||
Chief
Executive Officer
|
2008
|
111,466
|
-
|
-
|
-
|
-
|
-
|
-
|
111,466
|
||||||||||||||||
and Vice-President (2)(3)
|
|||||||||||||||||||||||||
William
R. Hunt
|
2009
|
92,560
|
-
|
38,516
|
-
|
-
|
-
|
-
|
131,076
|
||||||||||||||||
President
(3)(4)
|
2008
|
111,036
|
-
|
-
|
-
|
-
|
-
|
-
|
111,036
|
||||||||||||||||
Damon Testaverde,
|
2009
|
319,810
|
-
|
134,190
|
-
|
-
|
-
|
-
|
454,000
|
||||||||||||||||
Secretary(5)
|
2008
|
112,517
|
-
|
31,500
|
-
|
-
|
-
|
-
|
144,017
|
14
(1)
|
Mr.
Hale resigned his positions with the Company in conjunction with the
consummation of the Reverse Merger. Mr. Hale did not receive any
compensation during the years ended June 30, 2009 and 2008 for his
services as an executive officer of the Company. The fees he earned for
his service as a director during 2008 are detailed in the table below,
“Director Compensation.”
|
(2)
|
Richard
W. Hunt was appointed Chief Executive Officer and Vice-President of the
Company in conjunction with the consummation of the Reverse
Merger.
|
(3)
|
Represents
fees paid to Richard W. Hunt and William R. Hunt, Jr. for their services
to NETW during the fiscal years ended June 30, 2009 and
2008. NETW does not have employment agreements with any of its
employees. The salary for Messrs. William and Richard Hunt consists of a
base salary plus commissions, which commissions have been waived by each
of Messrs. William and Richard Hunt beginning as of December 2007. The
base salary for Messrs. William and Richard Hunt was determined by looking
at comparable salaries for individuals holding similar titles at other
brokerage firms of similar size. The commission portion allows them to
increase their salary based on actual production, which NETW’s management
believes is standard in the industry.
|
(4)
|
William
R. Hunt, Jr. was appointed President of the Company in conjunction with
the consummation of the Reverse Merger.
|
(5)
|
Mr.
Testaverde was appointed Secretary of the Company in conjunction with the
consummation of the Reverse Merger. Represents fees paid for Mr.
Testaverde’s services to NETW during the fiscal years ended June 30, 2009
and 2008.
|
Employment
Contracts
We do not
have employment agreements with any of our employees.
Compensation
of Directors
All of
our directors, regardless of whether they are also employees of our Company,
receive $500 a month for serving on the Board of Directors as well as
reimbursement of reasonable expenses incurred in attending
meetings.
DIRECTOR
COMPENSATION
Changes
in
|
||||||||||||||||||||||||||||
Pension
Value
|
||||||||||||||||||||||||||||
Fees
Earned
|
Non-equity
|
and
|
||||||||||||||||||||||||||
Name
|
or
Paid in
|
Option
|
Incentive
|
Nonqualified
|
All
|
|||||||||||||||||||||||
Of
|
Cash
|
Stock
Awards
|
Awards
|
Plan
|
Compensation
|
Other
|
Total
|
|||||||||||||||||||||
Director
|
($)
|
($)
|
($)
|
Compensation
|
Earnings
|
Compensation
|
($)
|
|||||||||||||||||||||
David
Hale(1)
|
15,500 | – | – | – | – | – | 15,500 | |||||||||||||||||||||
Richard
Peters(2)
|
15,500 | – | – | – | – | – | 15,500 | |||||||||||||||||||||
Michael
Rakusin(2)
|
15,500 | – | – | – | – | – | 15,500 | |||||||||||||||||||||
Richard
W. Hunt (3)
|
0 | – | – | – | – | – | 0 | |||||||||||||||||||||
William
R. Hunt, Jr. (3)
|
0 | – | – | – | – | – | 0 | |||||||||||||||||||||
Damon Testaverde (3)
|
0 | – | – | – | – | – | 0 |
(1)
|
Represents
fees Mr. Hale earned for his services as a director of the Company during
the fiscal year ended June 30, 2009. Mr. Hale resigned as a
director in conjunction with the consummation of the Reverse Merger on
June 9, 2009.
|
(2)
|
Represents
fees earned for services as a director of the Company during fiscal
2009.
|
(3)
|
Richard
W. Hunt, William R. Hunt, Jr. and Damon Testaverde were appointed to serve
as directors of the Company in conjunction with consummation of the
Reverse Merger. Accordingly, they were not directors of the Company until
June 9, 2009.
|
15
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
The
following table sets forth as of October 6, 2009 certain information regarding
the beneficial ownership of Common Stock by (i) each person or “group” (as that
term is defined in Section 13(d)(3) of the Exchange Act) known by the Company to
be the beneficial owner of more than 5% of the common stock, (ii) each of our
executive officers, (iii) each director and nominee and (iv) all directors and
executive officers as a group. Except as otherwise indicated, we believe, based
on information furnished by such persons, that each person listed below has sole
voting and investment power over the shares of common stock shown as
beneficially owned, subject to community property laws, where applicable.
Beneficial ownership is determined under the rules of the SEC and includes any
shares which the person has the right to acquire within 60 days after October 6,
2009 through the exercise of any stock option or other right.
Name and address of beneficial owner
|
Amount and nature of
Beneficial ownership
|
Percent of class of
Common Stock(1)
|
||||||
Horace
T. Ardinger, Jr.
9040
Governors Row
Dallas,
TX 75356
|
11,077,351 |
(2)
|
29.61 | % | ||||
Directors
and Officers(3)
:
|
||||||||
Richard
A. Peters
Director
|
100,000 |
(4)
|
* | |||||
Michael
Rakusin
Chief
Financial Officer, Treasurer, Vice-President and Director
|
100,000 |
(5)
|
* | |||||
Damon
Testaverde
Secretary
and Director
|
3,169,653 |
(6)
|
9.53 | % | ||||
William
R. Hunt, Jr.
President
and Director
|
9,363,213 |
(7)
|
28.19 | % | ||||
Richard
W. Hunt
Chief
Executive Officer, Vice-President and Chairman
|
9,284,933 |
(8)
|
28.02 | % | ||||
Directors
and Officers as a group (5 persons)
|
21,038,213 | 61.96 | % |
*Less
than one percent.
|
(1)
|
Based
on 32,435,057 shares of common stock outstanding as of October 6,
2009.
|
|
(2)
|
Includes
965,000 warrants with an exercise price of approximately $1.00 to purchase
a total of 4,979,400 shares of common stock which expire on April 23,
2010. Also includes 5,668,920 shares of common stock held by H.T. Ardinger
& Sons, Inc., a Texas corporation, of which Mr. Ardinger has sole
voting and dispositive control. Also includes 429,031 shares which Mr.
Ardinger received in conjunction with the Reverse Merger as a result of
his ownership of NETW shares. Does not include 317,500 shares owned by Mr.
Ardinger’s wife, to which he disclaims beneficial
ownership.
|
|
(3)
|
The
address of each officer and director is c/o Network 1 Financial Group,
Inc., 2 Bridge Avenue, 4th
floor, Red Bank, NJ 07701.
|
|
(4)
|
Consists
of 100,000 warrants to purchase a total of 100,000 shares of common stock
at $0.20 per share which expire on March 28, 2012.
|
|
(5)
|
Consists
of 100,000 warrants to purchase a total of 100,000 shares of common stock
at $0.20 per share which expire on March 28,
2012.
|
|
(6)
|
Includes
53,452 warrants with an exercise price of approximately $1.00 to purchase
of total of 275,278 shares of common stock which expire April 23, 2010.
Such warrants are owned by Network 1 Financial Securities, Inc., over
which Mr. Testaverde shares control with Mr. William Hunt and Mr. Richard
Hunt. Also includes 12,500 shares of common stock owned by Mr.
Testaverde’s wife, Patricia. Also includes 5,000 shares of common stock
owned by R. H. Damon, Inc., a corporation over which Mr. Testaverde
exercises voting and investment control. Also includes 104,000 warrants
with an exercise price of approximately $1.00 to purchase 535,600 shares
of common stock which expire on April 23,
2010.
|
|
(7)
|
Includes
53,452 warrants with an exercise price of approximately $1.00 to purchase
of total of 275,278 shares of common stock which expire April 23, 2010.
Such warrants are owned by Network 1 Financial Securities, Inc., over
which Mr. Hunt shares control with Mr. Testaverde and Mr. Richard Hunt.
Also includes 429,031 shares of common stock received in conjunction with
the Reverse Merger by Network 1 Financial Advisors, Inc., a corporation
over which William Hunt shares voting and investment control with Richard
Hunt. Also includes 15,200 warrants with an exercise price of
approximately $1.00 to purchase a total of 78,280 shares of common stock
which expire April 23, 2010.
|
16
|
(8)
|
Includes
53,452 warrants with an exercise price of approximately $1.00 to purchase
of total of 275,278 shares of common stock which expire April 23, 2010.
Such warrants are owned by Network 1 Financial Securities, Inc., over
which Mr. Hunt shares control with Mr. Testaverde and Mr. William Hunt.
Also includes 429,031 shares of common stock received in conjunction with
the Reverse Merger by Network 1 Financial Advisors, Inc., a corporation
over which Richard Hunt shares voting and investment control with William
Hunt.
|
|
(9)
|
Includes
200,000 warrants to purchase a total of 200,000 shares of common stock at
$0.20 per share which expire on March 28, 2012. Also includes 53,452
warrants owned by Network 1 Financial Securities, Inc. with an exercise
price of approximately $1.00 to purchase a total of 275,278 shares of
common stock and which expire on April 23, 2010. Also includes 104,000
warrants with an exercise price of approximately $1.00 to purchase 535,600
shares of common stock and which expire April 23, 2010. Also includes
15,200 warrants with an exercise price of approximately $1.00 to purchase
a total of 78,280 shares of common stock with expire April 23,
2010.
|
Changes
in Control
There are
no arrangements known to us that may, at a subsequent date, result in a change
of control of the Company.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
The
Company has entered into the following separate agreements with each of the
VIE’s that define the relationship with the Company post-Reverse
Merger:
1.
|
The agreement with Network 1
Financial Assurance, Inc. provides for the reimbursement of certain
overhead expenses and the sharing of commissions generated by variable
annuity sales referred or placed by NETW. This agreement is not exclusive
and NETW is in a position to obtain more favorable terms from third
parties should they become
available.
|
2.
|
The agreement with Network 1
Financial Advisors, Inc. provides for the reimbursement of certain
overhead expenses and the payment of investment advisory fees to NETW
stemming from accounts referred by registered representatives of NETW to
Network 1 Financial Advisors, Inc. This agreement is not exclusive and
NETW is in a position to obtain more favorable terms from third parties
should they become available.
|
3.
|
The agreement with National
Financial Services Group, Inc. calls for the transfer of the
operating lease of the office space currently occupied by NETW to Network
1 Financial Group, Inc. once this transaction is
completed.
|
4.
|
The agreement with Shark River
Investors LLC calls for the
cancellation of a month-to-month lease arrangement and the termination of
the agreement once the transaction between ISSI and NETW is completed and
therefore terminating any further relationship with NETW. Richard and
William Hunt and Damon Testaverde (primary shareholders) provide the
explicit guarantees with respect to the mortgage holder. However NETW is
expected to make the necessary funds available to Shark Rivers to prevent
the owner’s guarantee of Shark Rivers debt from being called on. As such
NETW is effectively guaranteeing all or a portion of the owner’s of Shark
Rivers investment and therefore, the implicit variable interest exists.
Based on these circumstances NETW is considered the primary beneficiary of
this VIE and therefore the operations of Shark Rivers are required to be
consolidated by NETW prior to the
merger.
|
5.
|
The agreement with Network 1
Financial Advisors, Inc. (“Advisors”), Network 1 Financial Assurance, Inc.
(“Assurance”) and NETW is an agreement to abstain from certain
voting rights to prohibit the current principals of NETW (as continuing
post-Reverse Merger) from voting on certain matters. This will prohibit
the current principals of NETW (should they elect to continue as
executives post-Reverse Merger) from voting on matters related to fee
arrangements for any ongoing activities with Advisors and
Assurance.
|
The VIE’s
have remained in the ownership of the current shareholders of those entities, as
follows:
Network 1
Financial Assurance, Inc.
Richard
Hunt
William
Hunt
Miguel
Zarraga
Richard
Eckhoff
17
Network 1 Financial
Advisors, Inc.
William
Hunt
Richard
Hunt
National Financial Services
Group, Inc.
Richard
Hunt
William
Hunt
Shark River Investors,
LLC
Damon
Testaverde
Richard
Hunt
William
Hunt
On
November 18, 2008, the Company loaned to and received a promissory note in the
amount of $100,000 from Network 1 Financial Advisors Inc. The effective interest
rate for the note is 6% per annum. The note matures on November 18,
2009.
There
were no other related party transactions for the fiscal year ended June 30,
2009.
Director
Independence
Our determination of
independence of directors is made by using the definition of “independent
director” contained under Rule 4200(a)(15) of the Rules of the Financial
Industry Regulatory Authority. Our Board of Directors has determined that
Richard Hunt, Michael Rakusin, William R. Hunt, Jr. and Damon Testaverde are not
“independent” under this rule by virtue of their positions as corporate and
executive officers of our Company. Richard
A. Peters may be deemed to be “independent” following his resignation as our
Secretary on June 9, 2009.
Item
14. Principal Accountant Fees and Services.
Fees
|
||||||||
Fee Category
|
2009
|
2008
|
||||||
Audit
Fees
|
$ | 86,550 | $ | 79,000 | ||||
Audit-Related
Fees
|
– | – | ||||||
Tax
Fees
|
5,000
|
2,350 | ||||||
All
Other Fees
|
– | 2,500 | ||||||
Total
Fees
|
$ | 91,550 | $ | 83,850 |
Audit
Fees
RBSM LLP
(“RBSM”) was engaged to audit our financial statements for the fiscal year ended
June 30, 2009. Accordingly, the above accountant fees include
services rendered by Marcum LLP (“Marcum”) and RBSM. RBSM and Marcum
billed us an aggregate of approximately $86,550 in fees for professional
services rendered in connection with the audit of our financial statements for
the fiscal year ended June 30, 2009 and services rendered in
connection with our Reverse Merger. Marcum billed us approximately $60,000
for the re-audit of our financial statements for the fiscal year ended June 30,
2008 and 2007 and Wagner Morey & Nee, LLC (“WMN”) billed Network 1
Financial Securities, Inc. $19,000 for audit fees in connection with the audit
of the company prior to the Reverse Merger.
Audit
Related Fees
We did
not incur any audit-related fees for the fiscal years ended June 30, 2009 and
2008.
Tax
Fees
We
engaged RBSM to prepare our tax returns for fiscal year ending June 30, 2009 and
engaged WMN to prepare our tax returns for fiscal year ending June 30, 2008. The
firm did not engage Marcum for tax services during the fiscal years ended June
30, 2008.
All
Other Fees
For the
fiscal year ended June 30, 2008, we paid $2,500 to WMN for an assessment study
of our anti-money laundering (“AML”) procedures.
18
Item
15. Exhibits and Financial Statement Schedules.
Financial Statements
|
||
Independent
Auditors’ Reports
|
F–1
|
|
Consolidated
Statements of Financial Condition
|
F–3
|
|
Consolidated
Statements of Operations
|
F–4
|
|
Consolidated
Statements of Stockholders’ Equity
|
F–5
|
|
Consolidated
Statements of Cash Flows
|
F–6
|
|
Notes
to Consolidated Financial Statements
|
F–7
|
Financial
Statement Schedules
Not
applicable.
Exhibits
Exhibit
|
||
No.
|
Description
of Exhibit
|
|
3.1
|
Certificate
of Incorporation of International Plastic Technologies, Inc. dated March
4, 1998 (Incorporated by reference to Exhibit 3.1 to the Company’s
Registration Statement on Form SB-2 (Registration Statement No. 333-48701,
filed with the SEC on March 26, 1998)).
|
|
3.2
|
Amendment
to the Certificate of Incorporation of International Plastic Technologies,
Inc., dated December 7, 1998, changing the Company’s name to
“International Smart Sourcing, Inc.” (Incorporated by reference to Exhibit
3.1 to the Company’s Registration Statement on Form SB-2/A (Registration
Statement No. 333-48701, filed with the SEC on January 6,
1999)).
|
|
3.3
|
Amendment
to the Certificate of Incorporation of International Smart Sourcing, Inc.,
dated June 26, 2000, changing the Company’s name to “CHINAB2BSOURCING.COM,
INC.” (Incorporated by reference to Exhibit 3.3 to the Quarterly Report on
Form 10-QSB filed with the SEC on August 15, 2000).
|
|
3.4
|
Amendment
to the Certificate of Incorporation of International Smart Sourcing, Inc.,
dated June 9, 2009, changing the Company’s name to “Network 1 Financial
Group, Inc.*
|
|
|
||
3.5
|
By-Laws
of International Plastic Technologies, Inc. (Incorporated by reference to
Exhibit 3.2 to the Company’s Registration Statement on Form SB-2
(Registration Statement 333-48701, filed with the SEC on March 26,
1998)).
|
|
3.6
|
Amendment
of the By-Laws of International Smart Sourcing, Inc. dated as of October
14, 2004 (Incorporated by reference to Exhibit B to the Definitive
Information Statement on Schedule 14C filed with the SEC on November 15,
2004).
|
|
4.1
|
Form
of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to
the Company’s Registration Statement on Form SB-2/A (Registration
Statement No. 333-48701, filed with the SEC on June 4,
1998)).
|
19
4.2
|
Form
of Warrant Certificate (Incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form SB-2/A (Registration Statement
No. 333-48701, filed with the SEC on June 4, 1998)).
|
|
4.3
|
Form
of Warrant Agreement between the Company and Continental Stock Transfer
and Trust Company (Incorporated by reference to Exhibit 4.3 to the
Company’s Registration Statement on Form SB-2/A (Registration Statement
No. 333-48701, filed with the SEC on June 4, 1998)).
|
|
4.4
|
Amendment
No. 1 to the Warrant Agreement between the Company and Continental Stock
and Trust Company effective as of April 12, 2005 (Incorporated by
reference to Exhibit 99.1 to the Current Report on Form 8-K filed with the
SEC on April 20, 2005).
|
|
4.5
|
Amendment
No. 2 to the Warrant Agreement between the Company and Continental Stock
and Trust Company effective as of December 4, 2006 (Incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the
SEC on December 5, 2006).
|
|
21
|
List
of Subsidiaries (Incorporated by reference to Exhibit 21 to the Current
Report on Form 8-K, filed with the SEC on June 15,
2009).*
|
|
31.1
|
Rule
13a– 4(a)/15d–14(a) certification, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*
|
|
31.2
|
Rule
13a–14(a)/15d–14(a) certification, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
* Filed
herewith.
20
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
NETWORK 1 FINANCIAL GROUP,
INC.
|
|
Date:
October 13, 2009
|
/s/ Richard W. Hunt
|
Richard
W. Hunt
|
|
Chief
Executive Officer, Vice President and Chairman
(Principal
Executive
Officer)
|
In
accordance with the Securities Exchange Act of 1934, as amended, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
/s/ Richard W. Hunt
|
Chief
Executive Officer, Vice President and Chairman
|
October
13, 2009
|
||
Richard
W. Hunt
|
(Principal
Executive Officer)
|
|||
/s/ Michael Rakusin
|
Chief
Financial Officer, Director
|
October
13, 2009
|
||
Michael
Rakusin
|
(Principal
Financial Officer)
|
|||
/s/ William R. Hunt, Jr.
|
President
and Director
|
October
13, 2009
|
||
William
R. Hunt, Jr.
|
||||
/s/ Damon Testaverde
|
Secretary
and Director
|
October
13, 2009
|
||
Damon
Testaverde
|
||||
/s/ Richard Peters
|
Director
|
October
13, 2009
|
||
Richard
Peters
|
21
EXHIBIT
INDEX
Exhibit
|
||
No.
|
Description
of Exhibit
|
|
3.1
|
Certificate
of Incorporation of International Plastic Technologies, Inc. dated March
4, 1998 (Incorporated by reference to Exhibit 3.1 to the Company’s
Registration Statement on Form SB-2 (Registration Statement No. 333-48701,
filed with the SEC on March 26, 1998)).
|
|
3.2
|
Amendment
to the Certificate of Incorporation of International Plastic Technologies,
Inc., dated December 7, 1998, changing the Company’s name to
“International Smart Sourcing, Inc.” (Incorporated by reference to Exhibit
3.1 to the Company’s Registration Statement on Form SB-2/A (Registration
Statement No. 333-48701, filed with the SEC on January 6,
1999)).
|
|
3.3
|
Amendment
to the Certificate of Incorporation of International Smart Sourcing, Inc.,
dated June 26, 2000, changing the Company’s name to “CHINAB2BSOURCING.COM,
INC.” (Incorporated by reference to Exhibit 3.3 to the Quarterly Report on
Form 10-QSB filed with the SEC on August 15, 2000).
|
|
3.4
|
Amendment
to the Certificate of Incorporation of International Smart Sourcing, Inc.,
dated June 9, 2009, changing the Company’s name to “Network 1 Financial
Group, Inc.*
|
|
3.5
|
By-Laws
of International Plastic Technologies, Inc. (Incorporated by reference to
Exhibit 3.2 to the Company’s Registration Statement on Form SB-2
(Registration Statement 333-48701, filed with the SEC on March 26,
1998)).
|
|
3.6
|
Amendment
of the By-Laws of International Smart Sourcing, Inc. dated as of October
14, 2004 (Incorporated by reference to Exhibit B to the Definitive
Information Statement on Schedule 14C filed with the SEC on November 15,
2004).
|
|
4.1
|
Form
of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to
the Company’s Registration Statement on Form SB-2/A (Registration
Statement No. 333-48701, filed with the SEC on June 4,
1998)).
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|
|
||
4.2
|
Form
of Warrant Certificate (Incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form SB-2/A (Registration Statement
No. 333-48701, filed with the SEC on June 4, 1998)).
|
|
4.3
|
Form
of Warrant Agreement between the Company and Continental Stock Transfer
and Trust Company (Incorporated by reference to Exhibit 4.3 to the
Company’s Registration Statement on Form SB-2/A (Registration Statement
No. 333-48701, filed with the SEC on June 4, 1998)).
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|
4.4
|
Amendment
No. 1 to the Warrant Agreement between the Company and Continental Stock
and Trust Company effective as of April 12, 2005 (Incorporated by
reference to Exhibit 99.1 to the Current Report on Form 8-K filed with the
SEC on April 20, 2005).
|
|
4.5
|
Amendment
No. 2 to the Warrant Agreement between the Company and Continental Stock
and Trust Company effective as of December 4, 2006 (Incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the
SEC on December 5, 2006).
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|
21
|
List
of Subsidiaries (Incorporated by reference to Exhibit 21 to the Current
Report on Form 8-K, filed with the SEC on June 15,
2009).*
|
|
31.1
|
Rule
13a– 4(a)/15d–14(a) certification, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*
|
|
31.2
|
Rule
13a–14(a)/15d–14(a) certification, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
* Filed
herewith.