Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to __________
Commission file number 000-52317
NETFONE, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 98-0438201
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4801 Woodway Drive, Suite 300 East, Houston, TX 77056
(Address of principal executive offices) (zip code)
(713) 968-7569
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if Smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of February 10, 2011, there were
12,658,000 shares of common stock, par value $0.001, outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 13
Item 4T. Controls and Procedures........................................ 13
PART II - OTHER INFORMATION
Item 1A. Risk Factors................................................... 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 17
Item 3. Defaults Upon Senior Securities................................ 17
Item 4. (Removed And Reserved)......................................... 17
Item 5. Other Information.............................................. 17
Item 6. Exhibits....................................................... 17
SIGNATURES................................................................... 18
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NETFONE, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31, September 30,
2010 2010
---------- ----------
(Unaudited) (Audited)
ASSETS
CURRENT
Prepaid expenses $ 6,289 $ --
---------- ----------
Total Assets $ 6,289 $ --
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT
Accounts payable and accrued liabilities $ 10,757 $ 13,876
Due to related parties 195,287 172,627
---------- ----------
206,044 186,503
---------- ----------
STOCKHOLDERS' DEFICIT
Common stock
Authorized:
100,000,000 common shares; par value $0.001
20,000,000 preferred shares; par value $0.001
Issued and outstanding:
12,658,000 common shares (September 30, 2010: 12,658,000) 12,658 12,658
Additional paid-in capital 278,542 278,542
Deficit accumulated during the development stage (490,955) (477,703)
---------- ----------
(199,755) (186,503)
---------- ----------
Total Liabilities and Stockholders' Deficit $ 6,289 $ --
========== ==========
Commitment (Note 2)
The accompanying notes are an integral part of these financial statements.
3
NETFONE, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 8, 2004
----------------------------------- (Inception) to
December 31, December 31, December 31,
2010 2009 2010
------------ ------------ ------------
REVENUE $ -- $ -- $ 12,000
------------ ------------ ------------
EXPENSES
Accounting and auditing fees 6,552 4,250 109,553
Depreciation -- -- 52
Bank fees and interest -- -- 586
Consulting fees -- -- 14,623
Equipment write off -- -- 1,358
Filing fees and incorporation costs 2,885 1,545 18,671
Legal fees 3,239 -- 64,170
Foreign exchange gain -- -- (748)
Office and general expenses 576 944 7,283
------------ ------------ ------------
13,252 6,739 215,548
------------ ------------ ------------
NET LOSS FROM CONTINUED OPERATIONS 13,252 6,739 203,548
------------ ------------ ------------
DISCONTINUED OPERATIONS
Loss from operations -- -- (333,472)
Gain on sale of subsidiary -- -- 46,065
------------ ------------ ------------
-- -- (287,407)
------------ ------------ ------------
NET LOSS $ 13,252 $ 6,739 $ 490,955
============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.00) $ (0.00)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTED 12,658,000 12,658,000
============ ============
The accompanying notes are an integral part of these financial statements.
4
NETFONE, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended June 8, 2004
--------------------------------- (Inception) to
December 31, December 31, December 31,
2010 2009 2010
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $ (13,252) $ (6,739) $ (203,548)
Add items not affecting cash
Equipment write-off -- -- 1,358
Amortization -- -- 52
Receivable write-off -- -- 307
Changes in operating assets and liabilities
Accounts receivable -- -- (307)
Prepaid expenses (6,289) -- (6,289)
Accounts payable and accrued liabilities (3,119) (782) 10,757
---------- ---------- ----------
Net cash used in continuing operations (22,660) (7,521) (197,670)
Net cash used in discontinued operations -- -- (312,407)
---------- ---------- ----------
Net cash used in operating activities (22,660) (7,521) (510,077)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Due to related party 22,660 7,521 195,287
Proceeds from sale of Netfone Services Inc. -- -- 25,000
Proceeds of common stock issuances -- -- 291,200
---------- ---------- ----------
Net cash provided by financing activities 22,660 7,521 511,487
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment additions -- -- (1,410)
---------- ---------- ----------
Net cash used in investing activities -- -- (1,410)
---------- ---------- ----------
NET CHANGE IN CASH -- -- --
CASH, BEGINNING -- -- --
---------- ---------- ----------
CASH, ENDING $ -- $ -- $ --
========== ========== ==========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ -- $ --
========== ========== ==========
Cash paid for taxes $ -- $ -- $ --
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
5
NETFONE, INC.
(A Development Stage Company)
NOTE TO THE FINANCIAL STATEMENTS
December 31, 2010
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with United States generally accepted accounting principles for
interim financial information and with the rules and regulations of the
Securities and Exchange Commission ("SEC"). They do not include all information
and footnotes required by United States generally accepted accounting principles
for complete financial statements. However, except as disclosed herein, there
has been no material changes in the information disclosed in the notes to the
financial statements for the year ended September 30, 2010 included in the
Company's Annual Report on Form 10-K filed with the SEC. The unaudited interim
financial statements should be read in conjunction with those financial
statements included in the Form 10-K. In the opinion of Management, all
adjustments considered necessary for a fair presentation, consisting solely of
normal recurring adjustments, have been made. Operating results for the three
months ended December 31, 2010 are not necessarily indicative of the results
that may be expected for the year ending September 30, 2011.
NOTE 2 SHARE EXCHANGE AGREEMENT
On December 23, 2010, the Company entered into a share exchange agreement (the
"Agreement") whereby it will, no later than March 31, 2011, acquire 100% of the
issued and outstanding share capital of ITP Impianti e Technologie di Processo
S.p.A. ("ITP"), a corporation existing under the laws of Italy and engaged in
the exploration and development of oil and gas properties. As consideration, the
Company will issue such number of shares of the Company that will result in the
current shareholders of the Company holding 6% of the issued and outstanding
common shares of the Company and the current shareholders of ITP holding 94% of
the issued and outstanding common shares of the Company. Pursuant to the terms
of the Agreement, the Company will complete a reverse stock split of its issued
and outstanding common shares at a ratio of 1 new share for 2.4 old shares. The
number of authorized shares of Common Stock will increase from 100,000,000
common shares to 1,000,000,000 common shares. The Company will cancel 3,166,670
common shares (on a post reverse stock split basis) currently issued and
outstanding and held by the President of the Company. Based on the number of
common shares outstanding as of February 14, 2011, the Company will issue
approximately 34,000,000 common shares as consideration.
In connection with the Agreement, the Company will also issue unregistered
common share purchase warrants (the "Warrants") to a company as compensation for
indemnifying ITP as to certain representations made relating to the Company. The
Warrants will expire on the fourth anniversary of the consummation of the
Agreement. The number of common shares issuable under the Warrants will be the
aggregate of:
a) 1.5% of the outstanding common shares at the closing of the Agreement
at an exercise price equal to $75,000,000 divided by the number of
shares outstanding at the closing of the Agreement, currently
estimated to be 541,613 common shares (on a post reverse stock split
basis) at an exercise price of $2.08; and
b) 1.5% of the outstanding common shares at the closing of the Agreement
at an exercise price equal to $100,000,000 divided by the number of
shares outstanding at the closing of the Agreement, currently
estimated to be 541,613 common shares (on a post reverse stock split
basis) at an exercise price of $2.77.
The closing of this transaction is subject to certain conditions;
including, the Company obtaining all necessary regulatory approvals
and consents, and the Company changing its corporate domicile into,
and continue its corporate existence pursuant to, the laws of the
State of Delaware.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may", "will",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and may involve
known and unknown risks, uncertainties and other factors, including the risks in
the section entitled "Risk Factors", that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our financial statements are stated in United States dollars and are prepared in
accordance with generally accepted accounting principles in the United States of
America.
In this annual report, unless otherwise specified, all dollar amounts are
expressed in United States dollars.
As used in this annual report, the terms "we", "us", "our", and "NetFone" means
Netfone, Inc. and our wholly owned subsidiary, Netfone Services, Inc., unless
otherwise indicated.
OUR CURRENT BUSINESS
We were incorporated in the State of Nevada on June 8, 2004. From inception of
our business on June 8, 2004 to March 7, 2007, we were engaged in the
development of communication technology and services for internet protocol (IP),
telephony and video applications. This business plan has been abandoned due to
declining margins and increased competition in the field. During the year ended
September 30, 2007, management determined that the Voice over IP market was
becoming increasingly competitive with diminishing margins. In addition, we
could not acquire additional financing in order for our subsidiary to market its
products, pay support staff or maintain equipment, nor did we have the resources
to acquire insurance especially related to liability arising from 911 emergency
calls for our company directly or for our directors. In light of this
determination, we sold all of the assets of our wholly owned subsidiary, NetFone
Services Inc., with the exception of the software assets purchased on January 4,
2007, which were retained by our company.
We are currently seeking other business opportunities.
PLAN OF OPERATION
The following discussion should be read in conjunction with the information
contained in our financial statements and the notes which form an integral part
of the financial statements which are attached hereto.
The financial statements mentioned above have been prepared in conformity with
accounting principles generally accepted in the United States of America and are
stated in United States dollars.
SHARE PURCHASE AGREEMENT WITH ORANGE CAPITAL CORP. AND ITP OIL & GAS
INTERNATIONAL S.A.
On December 23, 2010, we entered into a into a Share Exchange Agreement (the
"SHARE EXCHANGE AGREEMENT") with Orange Capital Corp., a corporation existing
under the laws of British Columbia ("ORANGE") and ITP Oil & Gas International
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S.A., a corporation existing under the laws of Luxembourg ("ITP-LUX"). Upon the
satisfaction or waiver of the conditions set forth in the Share Exchange
Agreement, we agreed to acquire all of the issued and outstanding shares of ITP
Impianti e Tecnologie di Processo S.p.A., a corporation existing under the laws
of Italy ("ITP") in exchange for our issuing and delivering to ITP-Lux such
number of shares which results in current holders of our company having 6% of
the outstanding shares of our company and ITP Lux having 94% (the "SHARE
EXCHANGE"). Upon consummation of the Share Exchange, our board of directors will
all be appointed by ITP-Lux. The closing of the Share Exchange is anticipated to
occur on or about March 31, 2011 or an earlier date agreed to by all parties to
the Share Exchange Agreement.
The issuance of an expected 34,000,000 shares of our common stock, after taking
into account a reverse split as described below, to ITP-Lux so that they will
own 94% of our common stock upon closing will result in substantial dilution to
current shareholders of our company.
Pursuant to the terms of the Share Exchange Agreement, concurrently with or
prior to the consummation of the Share Exchange, among other matters, we are
required and have agreed to:
* Effectuate a reverse stock split of our issued and outstanding common
stock, par value $0.001 per share (the "COMMON STOCK"), at a ratio of
1 for 2.4, to become effective prior to the closing of the Share
Exchange. The number of authorized shares of Common Stock has been
agreed to be increased from 100,000,000 shares of Common Stock to
1,000,000,000 shares. As a result of the reverse stock split, every
2.4 shares of our Common Stock issued and outstanding immediately
prior to the effective time for the stock split would be combined and
reclassified into one share of Common Stock. We would not issue
fractional shares of Common Stock. Fractional shares resulting from
the reverse stock split will be rounded up to the next whole share;
* Cancel 3,166,670 (on a post reverse stock split basis) restricted
Common Shares issued by our company to Charles El-Moussa, our current
president. Mr. El-Moussa has agreed to the cancellation as a condition
of the ITP transaction;
* In consideration of Orange indemnifying ITP-Lux as to certain
representations, issue to Orange certain unregistered warrants to
purchase shares of our Common Stock expiring on the fourth anniversary
of the consummation of the Share Exchange (the "WARRANTS"). The number
of shares of Common Stock issuable under the Warrants shall represent
the aggregate of:
* One and a half percent (1.5%) of our total share capital at the
closing of the Share Exchange at an exercise price which equals
seventy five million U.S. dollars ($75,000,000) divided by our
total share capital at the closing of the Share Exchange;
currently estimated to represent 541,613 warrants (on an after
stock split basis) with an exercise price of $2.08; and
* One and a half percent (1.5%) of our total share capital at the
closing of the Share Exchange at an exercise price which equals
one hundred million U.S. dollars ($100,000,000) divided by our
total share capital at the closing of the Share Exchange;
currently estimated to represent the 541,613 warrants (on an
after stock split basis) with an exercise price of $2.77.
* Change our corporate name from "Netfone Inc." to such name as ITP-Lux
may designate;
* Change our corporate purpose in our Articles of Incorporation to
conform with the business purpose of ITP; and
* Change our corporate domicile into, and continue our corporate
existence pursuant to, the laws of the State of Delaware.
As of the closing of the Share Exchange, the shares of our Common Stock to be
issued under the Share Exchange Agreement to ITP-Lux, the Warrants issuable to
Orange and the shares of Common Stock issuable under the Warrants, will not have
been registered under the Securities Act of 1933, as amended, or any state
8
securities laws and unless so registered at a later time, may not be sold except
in a transaction registered under, or exempt from, the registration provisions
of the Securities Act of 1933, as amended, and applicable state securities laws.
No registration rights have been granted regarding these shares, the Warrants or
the shares underlying the Warrants.
We have agreed that until such time as the Share Exchange Agreement is
consummated or terminated, which shall not be later than March 31, 2011, we,
Orange and ITP-Lux will not, directly or indirectly solicit, initiate, entertain
or accept any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any person or entity relating to any transaction
involving the sale of the business or assets (other than in the ordinary course
of business), or any of the capital stock of ITP or our company, as applicable,
or any merger, consolidation, business combination, or similar transaction other
than as contemplated by the Share Exchange Agreement.
We are currently negotiating with Orange and ITP-Lux to postpone the increase in
authorized shares and relocation to Delaware until after the completion of the
Share Exchange Agreement.
Our financial statements contained herein have been prepared on a going concern
basis, which assumes that we will be able to realize our assets and discharge
our obligations in the normal course of business. We incurred a net loss for the
period from the inception of our business on June 8, 2004 to December 31, 2010
of $490,955.
Assuming the Share Exchange Agreement does not close, our estimated expenses
over the next 12 months are as follows:
Expense Amount
------- ------
Professional fees $ 7,500
General and administrative $22,500
-------
TOTAL $30,000
=======
We must raise cash to implement our business plan. As of December 31, 2010, we
had a working capital deficiency of $199,755. We will require approximately
$45,000 for the next 12 months in order to continue our proposed business
assuming debts are not called by related parties.
RESULTS OF OPERATIONS
From the date of our incorporation on June 8, 2004 to December 31, 2010, we have
been a start up company that has not generated substantial revenues.
THREE MONTH SUMMARY
Three Months Ended
December 31,
2010 2009
-------- --------
Revenue $ -- $ --
Expenses 13,252 6,739
Other Income -- --
-------- --------
Net Loss $ 13,252 $ 6,739
======== ========
9
OPERATING COSTS AND EXPENSES
The major components of our expenses for the quarter are outlined in the table
below:
Three Months Ended
December 31,
2010 2009
-------- --------
Accounting fees $ 6,553 $ 4,250
Legal fees 3,239 --
Office and miscellaneous 576 944
Filing fees 2,884 1,545
-------- --------
TOTAL OPERATING EXPENSES $ 13,252 $ 6,739
======== ========
THREE MONTHS ENDED DECEMBER 31
Legal increased $3,239 from $Nil to $3,239 primarily due to fees incurred in
relation to our proposed transaction.
Accounting fees increased $2,303 from $4,250 to $6,553 primarily due an
under-accrual of our audit estimate in the prior period combined with current
review costs.
Filing fees increased $1,339 from $1,545 to $2,884 primarily due increased
activity incurred by our transfer agent.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
December 31, September 30,
2010 2010
-------- --------
(unaudited) (audited)
Current Assets $ 6,289 $ --
Current Liabilities 206,044 186,503
Working Capital Deficiency $199,755 $186,503
Our working capital deficiency decreased because of our inability to raise
additional capital thus requiring funding through related party loans.
CASH FLOWS
Three Months Ended
December 31,
2010 2009
-------- --------
Net cash provided by (used in) operating activities $(22,660) $ (7,521)
Net cash provided by (used in) investing activities -- --
Net cash provided by (used in) financing activities 22,660 7,521
-------- --------
Cash at end of period $ -- $ --
======== ========
CASH FLOW USED IN OPERATING ACTIVITIES
Our cash used in operating activities for the three months ended December 31,
2010 compared to our cash used in operating activities for the three months
ended December 31, 2009 increased by 201%. This change was due to the increased
activity resulting from the share purchase agreement.
CASH FLOW USED IN INVESTING ACTIVITIES
Our cash used in investing activities for the three months ended December 31,
2010 compared to our cash used in investing activities for the three months
ended December 31, 2009 did not change.
10
CASH FLOW USED IN FINANCING ACTIVITIES
Our cash used in financing activities for the three months ended December 31,
2010 compared to our cash used in financing activities for the six months ended
December 31, 2009 increased by 201%. This change was largely due to our
continuing use of related party loans to fund the company.
GOING CONCERN
Due to our being a development stage company and not having generated
substantial revenues, in their report on our financial statements for the year
ended September 30, 2010, our independent auditors included an explanatory
paragraph regarding concerns about our ability to continue as a going concern.
Our financial statements contain additional note disclosures describing the
circumstances that lead to this disclosure.
We have historically incurred losses, and through December 31, 2010 have
incurred losses of $490,955 since our inception. Because of these historical
losses, we will require additional working capital to develop our business
operations. We intend to raise additional working capital through equity
financing, bank financing and/or advances from related parties or shareholder
loans.
The continuation of our business is dependent upon obtaining further financing
and achieving a break even or profitable level of operations. The issuance of
additional equity securities by us could result in a significant dilution in the
equity interests of our current or future stockholders. Obtaining commercial
loans, assuming those loans would be available, will increase our liabilities
and future cash commitments.
There are no assurances that we will be able to either (1) achieve a level of
revenues adequate to generate sufficient cash flow from operations; or (2)
obtain additional financing through either equity financing and/or bank
financing necessary to support our working capital requirements. To the extent
that funds generated from operations and any equity financing and/or bank
financing are insufficient, we will have to raise additional working capital. No
assurance can be given that additional financing will be available, or if
available, will be on terms acceptable to us. If adequate working capital is not
available we may not increase our operations.
These conditions raise substantial doubt about our ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might be necessary should we be unable to
continue as a going concern.
FUTURE FINANCINGS
There is no assurance we will receive the required financing to complete our
business strategies. Even if we are successful in raising proceeds from an
offering we have no assurance that future financing will be available to us on
acceptable terms. If financing is not available on satisfactory terms, we may be
unable to continue, develop or expand our operations. If we are unable to
accomplish raising adequate funds then any it would be likely that any
investment made into our company would be lost in its entirety.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to stockholders.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements are presented in United States dollars and
are prepared in accordance with accounting principles generally accepted in the
United States ("US GAAP").
11
DEVELOPMENT STAGE COMPANY
The Company is considered to be in the development stage.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company regularly evaluates estimates
and assumptions. The Company bases its estimates and assumptions on current
facts, historical experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and
adversely from the Company's estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected. The most significant estimates with regard to these
financial statements relate to deferred income tax amounts, rates and timing of
the reversal of income tax differences.
LOSS PER SHARE
Basic loss per share is computed by dividing net loss available to common
shareholders by the weighted average number of outstanding common shares during
the period. Diluted loss per share gives effect to all dilutive potential common
shares outstanding during the period. Dilutive loss per share excludes all
potential common shares if their effect is anti-dilutive. Because the Company
does not have any potentially dilutive securities, diluted loss per share is
equal to basic loss per share.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of accounts
payable and due to related parties, are estimated to be equal to their carrying
value. It is management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial instruments.
INCOME TAXES
Deferred income taxes are provided for tax effects of temporary differences
between the tax basis of asset and liabilities and their reported amounts in the
financial statements. The Company uses the liability method to account for
income taxes, which requires deferred taxes to be recorded at the statutory rate
expected to being in effect when the taxes are paid. Valuation allowances are
provided for a deferred tax asset when it is not more likely than not that such
asset will be realized.
Management evaluates tax positions taken or expected to be taken in a tax
return. The evaluation of a tax position includes a determination of whether a
tax position should be recognized in the financial statements, and such a
position should only be recognized if the Company determines that it is more
likely than not that the tax position will be sustained upon examination by the
tax authorities, based upon the technical merits of the position. For those tax
positions that should be recognized, the measurement of a tax position is
determined as being the largest amount of benefit that is greater than fifty
percent likely of being realized upon ultimate settlement.
STOCK-BASED COMPENSATION
The Company accounts for stock based compensation arrangements using a fair
value method and records such expense on a straight-line basis over the vesting
period.
To date the Company has not adopted a stock option plan and has not granted any
stock options.
12
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements with future effective dates are either not
applicable or are not expected to be significant to the financial statements of
the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
We maintain "disclosure controls and procedures", as that term is defined in
Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant
to the SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Disclosure controls and
procedures mean controls and procedures designed to ensure that information
required to be disclosed in our company's reports filed under the SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, and that such information is accumulated and communicated to
our management, including our principal executive and principal accounting
officer to allow timely decisions regarding required disclosure.
As required by paragraph (b) of Rules 13a-15 under the SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED, our principal executive and principal financial officer
evaluated our company's disclosure controls and procedures as of the end of the
period covered by this quarterly report on Form 10-Q. Based on this evaluation,
our principal executive and principal financial officer concluded that as of the
end of the period covered by this quarterly report on Form 10-Q, our disclosure
controls and procedures were effective.
LIMITATIONS ON EFFECTIVENESS OF CONTROLS
Our principal executive and principal financial officer does not expect that our
disclosure controls or our internal control over financial reporting will
prevent all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of a simple error or mistake. Additional controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the controls. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting during
the period ended December 31, 2010 that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.
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PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS.
RISKS ASSOCIATED WITH OUR COMPANY
BUSINESS OPPORTUNITIES THAT WE BELIEVE ARE IN THE BEST INTERESTS OF OUR COMPANY
MAY BE SCARCE OR WE MAY BE UNABLE TO OBTAIN THE ONES THAT WE WANT. IF WE ARE
UNABLE TO OBTAIN A BUSINESS OPPORTUNITY THAT WE BELIEVE IS IN THE BEST INTERESTS
OF OUR COMPANY, WE MAY NEVER RECOMMENCE OPERATIONS AND WILL GO OUT OF BUSINESS.
IF WE GO OUT OF BUSINESS, INVESTORS WILL LOSE THEIR ENTIRE INVESTMENT IN OUR
COMPANY.
We are, and will continue to be, an insignificant participant in the number of
companies seeking a suitable business opportunity or business combination. A
large number of established and well-financed entities, including venture
capital firms, are actively seeking suitable business opportunities or business
combinations which may also be desirable target candidates for us. Virtually all
such entities have significantly greater financial resources, technical
expertise and managerial capabilities than we do. We are, consequently, at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. We will also compete with
numerous other small public companies seeking suitable business opportunities or
business combinations. If we are unable to obtain a business opportunity that we
believe is in the best interests of our company, we may never recommence
operations and will go out of business. If we go out of business, investors will
lose their entire investment in our company.
THE WORLDWIDE ECONOMIC UNCERTAINTY MAY REDUCE OUR ABILITY TO OBTAIN THE
FINANCING NECESSARY TO CONTINUE OUR BUSINESS AND MAY REDUCE THE NUMBER OF VIABLE
BUSINESSES THAT WE MAY WISH TO ACQUIRE. IF WE CANNOT RAISE THE FUNDS THAT WE
NEED OR FIND A SUITABLE BUSINESS TO ACQUIRE, WE WILL GO OUT OF BUSINESS AND
INVESTORS WILL LOSE THEIR ENTIRE INVESTMENT IN OUR COMPANY.
Since 2008, there has been an uncertainty in general worldwide economic
conditions due to many factors, including the effects of the subprime lending
and general credit market crises, slower economic activity, decreased consumer
confidence, reduced corporate profits and capital spending, adverse business
conditions, increased unemployment and liquidity concerns. In addition, these
economic effects, including the resulting recession in various countries and
slowing of the global economy, will likely result in fewer business
opportunities as companies face increased financial hardship. Tightening credit
and liquidity issues will also result in increased difficulties for our company
to raise capital for our continued operations. We may not be able to raise money
through the sale of our equity securities or through borrowing funds on terms we
find acceptable. If we cannot raise the funds that we need or find a suitable
product or business to acquire, we will go out of business. If we go out of
business, investors will lose their entire investment in our company.
WE HAVE HAD NEGATIVE CASH FLOWS FROM OPERATIONS AND IF WE ARE NOT ABLE TO OBTAIN
FURTHER FINANCING, OUR BUSINESS OPERATIONS MAY FAIL.
We had cash in the amount of $nil and a working capital deficit of $199,755 as
of December 30, 2010. We anticipate that we will require additional financing
while we are seeking a suitable business opportunity or business combination.
Further, we anticipate that we will not have sufficient capital to fund our
ongoing operations for the next 12 months. We may be required to raise
additional financing for a particular business combination or business
opportunity. We would likely satisfy our cash needs through equity financing.
There can be no assurance that, if required, any such financing will be
available upon terms and conditions acceptable to us, if at all. Our inability
to obtain additional financing in a sufficient amount when needed, and upon
terms and conditions acceptable to us, could have a material adverse effect upon
our company. We will require further funds to finance the development of any
business opportunity that we acquire. There can be no assurance that such funds
will be available or available on terms satisfactory to us. If additional funds
are raised by issuing equity securities, further dilution to existing or future
shareholders is likely to result. If adequate funds are not available on
acceptable terms when needed, we may be required to delay, scale back or
eliminate the development of any business opportunity that we acquire.
14
Inadequate funding could also impair our ability to compete in the marketplace,
which may result in the dissolution of our company.
A DECLINE IN THE PRICE OF OUR COMMON SHARES COULD AFFECT OUR ABILITY TO RAISE
FURTHER WORKING CAPITAL AND ADVERSELY IMPACT OUR OPERATIONS. IF WE CANNOT RAISE
THE FUNDS THAT WE REQUIRE, WE WILL GO OUT OF BUSINESS AND INVESTORS WILL LOSE
THEIR ENTIRE INVESTMENT IN OUR COMPANY.
A prolonged decline in the price of our common shares could result in a
reduction in the liquidity of our common shares and a reduction in our ability
to raise capital. Because our operations have been primarily financed through
the sale of equity securities, a decline in the price of our common shares could
be especially detrimental to our liquidity and our continued operations. Any
reduction in our ability to raise equity capital in the future would force us to
reallocate funds from other planned uses and would have a significant negative
effect on our business plans and operations, including our ability to develop
new products and continue our current operations. If our stock price declines,
we may not be able to raise additional capital or generate funds from operations
sufficient to meet our obligations.
WE HAVE A LIMITED OPERATING HISTORY AND IF WE ARE NOT SUCCESSFUL IN CONTINUING
TO GROW OUR BUSINESS, THEN WE MAY HAVE TO SCALE BACK OR EVEN CEASE OUR ONGOING
BUSINESS OPERATIONS.
We have a limited operating history on which to base an evaluation of our
business and prospects. Our prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies
seeking to acquire or establish a new business opportunity. Some of these risks
and uncertainties relate to our ability to identify, secure and complete an
acquisition of a suitable business opportunity.
We cannot be sure that we will be successful in addressing these risks and
uncertainties and our failure to do so could have a materially adverse effect on
our financial condition. In addition, our operating results are dependent to a
large degree upon factors outside of our control. There are no assurances that
we will be successful in addressing these risks, and failure to do so may
adversely affect our business.
It is unlikely that we will generate any or significant revenues while we seek a
suitable business opportunity. Our short and long-term prospects depend upon our
ability to select and secure a suitable business opportunity. In order for us to
make a profit, we will need to successfully acquire a new business opportunity
in order to generate revenues in an amount sufficient to cover any and all
future costs and expenses in connection with any such business opportunity. Even
if we become profitable, we may not sustain or increase our profits on a
quarterly or annual basis in the future.
We will, in all likelihood, sustain operating expenses without corresponding
revenues, at least until we complete a business combination or acquire a
business opportunity. This may result in our company incurring a net operating
loss which will increase continuously until we complete a business combination
or acquire a business opportunity that can generate revenues that result in a
net profit to us. There is no assurance that we will identify a suitable
business opportunity or complete a business combination.
15
WE HAVE NO AGREEMENT FOR BUSINESS COMBINATION OR OTHER TRANSACTION AND WE HAVE
NO STANDARDS FOR BUSINESS COMBINATIONS. WE MAY NEVER ENTER INTO A BUSINESS
COMBINATION OR MAY ENTER INTO AN UNSUCCESSFUL BUSINESS COMBINATION, EITHER OF
WHICH WOULD LIKELY CAUSE US TO GO OUT OF BUSINESS AND OUR INVESTORS TO LOSE ALL
OF THEIR INVESTMENT IN OUR COMPANY.
We have no arrangement, agreement, or understanding with respect to acquiring a
business opportunity or engaging in a business combination with any private
entity. There can be no assurance that we will successfully identify and
evaluate suitable business opportunities or conclude a business combination.
There is no assurance that we will be able to negotiate the acquisition of a
business opportunity or a business combination on terms favorable to us. We have
not established a specific length of operating history or a specified level of
earnings, assets, net worth or other criteria which we will require a target
business opportunity to have achieved, and without which we would not consider a
business combination in any form with such business opportunity. Accordingly, we
may enter into a business combination with a business opportunity having no
significant operating history, losses, limited or no potential for earnings,
limited assets, negative net worth or other negative characteristics. We many
never enter into a business combination or we may enter into an unsuccessful on,
either of which would likely cause us to go out of business and our investors to
lose all of their investment in our company.
RISKS ASSOCIATED WITH OUR COMMON SHARES
TRADING ON THE OTC BULLETIN BOARD MAY BE VOLATILE AND SPORADIC, WHICH COULD
DEPRESS THE MARKET PRICE OF OUR COMMON SHARES AND MAKE IT DIFFICULT FOR OUR
SHAREHOLDERS TO RESELL THEIR SHARES.
Our common shares are quoted on the OTC Bulletin Board service of the Financial
Industry Regulatory Authority (FINRA). Trading in stock quoted on the OTC
Bulletin Board is often thin and characterized by wide fluctuations in trading
prices due to many factors that may have little to do with our operations or
business prospects. This volatility could depress the market price of our common
shares for reasons unrelated to operating performance. Moreover, the OTC
Bulletin Board is not a stock exchange, and trading of securities on the OTC
Bulletin Board is often more sporadic than the trading of securities listed on a
stock exchange like NASDAQ. Accordingly, our shareholders may have difficulty
reselling any of their shares.
OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S
PENNY STOCK REGULATIONS AND FINRA'S SALES PRACTICE REQUIREMENTS, WHICH MAY LIMIT
A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
Our stock is a penny stock. The Securities and Exchange Commission has adopted
Rule 15g-9 which generally defines "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. Our securities are
covered by the penny stock rules; which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and "accredited investors". The term "accredited investor" refers
generally to institutions with assets in excess of $5,000,000 or individuals
with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document in a form prepared
by the SEC which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules; the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in, and limit the marketability of, our common shares.
16
FINRA'S SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO
BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules promulgated by the Securities and
Exchange Commission (see above for a discussion of penny stock rules), FINRA
rules require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common shares, which may limit your ability to buy and sell our stock and have
an adverse effect on the market for our shares.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. (REMOVED AND RESERVED).
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION
2.1 Share Exchange Agreement, dated December 23, 2010 by and among Netfone,
Inc., Orange Capital Corp. and ITP Oil & Gas International S.A.
(incorporated by reference to our current report on Form 8-K filed on
December 30, 2010)
(3) ARTICLES OF INCORPORATION AND BYLAWS
3.1 Articles of Incorporation (incorporated by reference to our
Registration Statement on Form SB-2 filed December 1, 2004)
3.2 By-laws (incorporated by reference to our Registration Statement on
Form SB-2 filed December 1, 2004)
(10) MATERIAL CONTRACTS
10.1 Share Exchange Agreement, dated December 23, 2010 by and among Netfone,
Inc., Orange Capital Corp. and ITP Oil & Gas International S.A.
(incorporated by reference to our current report on Form 8-K filed on
December 30, 2010)
(31) SECTION 302 CERTIFICATIONS
31.1* Section 302 Certification of Charles El-Moussa
(32) SECTION 906 CERTIFICATIONS
32.1* Section 906 Certification of Charles El-Moussa
----------
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NETFONE, INC.
By: /s/ Charles El-Moussa
---------------------------------------------------
Charles El-Moussa
President, Secretary, Treasurer and Director
(Principal Executive Officer, Principal Accounting
Officer and Principal Financial Officer)
Date: February 14, 2011
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