Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended June 30, 2011
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period from ____________ to ____________
Commission File Number: 000-54358
NETCO INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0270330
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2295 Corporate Blvd NW, Suite 131, Boca Raton, FL 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 561-705-4863
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
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 during the
preceding 12 months (or for such period that the registrant was required to
submit and post such files). Yes [ ] No [X]
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 [ ] 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 12(b)-2 of the Exchange Act). Yes [ ] No [X]
There were 23,171,451 shares of common stock, with a par value of $.0001 per
share outstanding as of August 12, 2011.
NETCO INVESTMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2011 and
December 31, 2010 3
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2011, June 30, 2010 and for the
Period from December 18, 1988 (inception) to June 30, 2011 4
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the period from January 1, 2009 to June 30, 2011 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2011, June 30, 2010 and for the Period
from December 18, 1988 (inception) to June 30, 2011 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results / Plan of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Removed and Reserved 22
Item 5. Other Information 22
Item 6. Exhibits 22
SIGNATURES 23
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETCO INVESTMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
June 30, 2011 December 31, 2010
------------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 925 $ 50
Loan receivable - related parties 194,835 --
Other receivable 58,964 --
------------ ------------
TOTAL CURRENT ASSETS 254,724 50
Property and equipment, net 1,300 --
Investments 2,349,665 1,250,000
Goodwill 4,839,298 --
Intangible assets, net 4,888,855 --
Other assets 124,793 --
------------ ------------
TOTAL ASSETS $ 12,458,635 $ 1,250,050
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 296,606 $ 256,140
Loan payable - related parties 372,272 --
Notes payable - shareholders 450,000 700,000
Advances from shareholders 35,400 --
Accrued expenses and other liabilities 48,390 --
------------ ------------
TOTAL CURRENT LIABILITIES 1,202,668 956,140
Non-current loan payable 127,573 --
------------ ------------
TOTAL LIABILITIES 1,330,241 956,140
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock Series D: $.0001 par value, 1,000,000 shares
authorized, 250,000 and 0 shares issued and outstanding as
of June 30, 2011 and December 31, 2010, respectively 25 --
Common Stock: $.0001 par value, 500,000,000 shares
authorized, 23,171,451 and 19,029,873 shares issued and
outstanding as of June 30, 2011 and December 31, 2010, respectively 2,292 1,903
Additional paid-in capital 13,930,360 1,114,902
Accumulated deficit (2,804,283) (822,895)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 11,128,394 293,910
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,458,635 $ 1,250,050
============ ============
See accompanying notes to financial statements
3
NETCO INVESTMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended December 18, 1988
June 30, June 30, (inception) to
--------------------------- ---------------------------- June 30,
2011 2010 2011 2010 2011
------------ ------------ ------------ ------------ ------------
REVENUES $ 6,156 $ -- $ 6,850 $ -- $ 35,139
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Consulting fees 402,800 19,888 559,068 36,000 968,323
Professional fees -- 42,000 -- 42,500 244,100
General and Administrative 1,427,985 30,517 1,428,172 50,250 1,626,001
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,830,785 92,405 1,987,240 128,750 2,838,424
LOSS FROM OPERATIONS (1,824,629) (92,405) (1,980,390) (128,750) (2,803,285)
------------ ------------ ------------ ------------ ------------
OTHER EXPENSE
Interest expense -- -- (998) -- (998)
------------ ------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE
INCOME BEFORE INCOME TAXES (1,824,629) (92,405) (1,981,388) (128,750) (2,804,283)
------------ ------------ ------------ ------------ ------------
Income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET LOSS $ (1,824,629) $ (92,405) $ (1,981,388) $ (128,750) $ (2,804,283)
============ ============ ============ ============ ============
LOSS PER SHARE OF COMMON STOCK
BASIC AND DILUTED: $ (0.08) $ (0.00) $ (0.09) $ (0.01) $ (0.12)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC AND DILUTED 23,171,451 19,029,873 23,171,451 19,029,873 23,171,451
============ ============ ============ ============ ============
See accompanying notes to financial statements
4
NETCO INVESTMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
FOR THE PERIOD FROM JANUARY 1, 2009 THROUGH JUNE 30, 2011
(Unaudited)
Preferred Stock
Series D Common Stock
----------------- ----------------- Additional Total
Par Par Paid-In Accumulated Equity
Shares Value Shares Value Capital Deficit (Deficit)
------ ----- ------ ----- ------- ------- ---------
Balance January 1, 2009 400,000 $ 40 29,673 $ 3 $ 87,854 $ (26,014) $ 61,883
Net Loss For The Year Ended
December 31, 2009 -- -- -- -- -- (538,687) (538,687)
------- ------- ---------- ------- ----------- ----------- -----------
Balance December 31, 2009 400,000 40 29,673 3 87,854 (564,701) (476,804)
Common Stock Issued For Conversion
of 400,000 Series D Preferred
Shares at $0.22 400,000) (40) 4,000,000 400 878,548 -- 878,908
Common Stock Issued For Accrued
Compensation at $0.01 -- -- 15,000,000 1,500 148,500 -- 150,000
Net Loss For The Year Ended
December 31, 2010 -- -- -- -- -- (258,194) (258,194)
------- ------- ---------- ------- ----------- ----------- -----------
Balance December 31, 2010 -- -- 19,029,673 1,903 1,114,902 (822,895) 293,910
Common Stock Issued For Services
at $0.05 -- -- 2,400,000 240 119,760 -- 120,000
Common Stock Issued For Services
at $1.30 -- -- 202,800 20 202,780 -- 202,800
Common Stock Issued For Services
at $2.00 -- -- 200,000 10 199,990 -- 200,000
Common Stock Issued For Compensation
at $1.20 -- -- 1,088,978 109 1,306,664 -- 1,306,773
Common Stock Issued From Sale at $0.05 -- -- 100,000 10 4,990 -- 5,000
Common Stock Issued From Sale at $0.01 -- -- 150,000 -- 1,500 -- 1,500
Record Acquisition Valuation -- -- -- -- 9,637,336 -- 9,637,336
Record Investment Valuation -- -- -- -- 1,092,463 -- 1,092,463
Series D Preferred Stock Issued For
Conversion of Note Payable at $1.00 250,000 25 -- -- 249,975 -- 250,000
Net Loss For Six Months Ended
June 30, 2011 -- -- -- -- -- (1,981,388) (1,981,388)
------- ------- ---------- ------- ----------- ----------- -----------
Balance June 30, 2011 250,000 $ 25 23,171,451 $ 2,292 $13,930,360 $(2,804,283) $11,128,394
======= ======= ========== ======= =========== =========== ===========
See accompanying notes to financial statements
5
NETCO INVESTMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
December 18, 1988
Six Months Ended Six Months Ended (inception) to
June 30, 2011 June 30, 2010 June 30, 2011
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,981,388) $ (128,750) $ (2,804,283)
Adjustments to reconcile net income to net cash
used by operating activities:
Common stock issued for compensation and services 1,829,573 -- 1,831,073
Preferred stock issued for conversion of note payable 250,000 -- 250,400
Contribution for acquisition by related parties 9,637,336 -- 9,637,336
Contribution for investment by related parties 1,092,463 -- 1,092,463
Amortization 104,018 -- 104,018
Changes in operating assets and liabilities: -- --
Accounts receivable 1,570 -- 1,570
Increase in loans receivable - related parties (194,835) -- (194,835)
Increase in other receivables (58,964) -- (58,964)
Increase in accounts payable 40,466 85,604 296,606
Increase in accrued expenses and other liabilities 46,820 37,500 46,820
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 10,767,059 (5,646) 10,202,204
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (1,300) -- (1,300)
Acquisition of intangible assets (4,992,873) -- (4,992,873)
Acquisition of goodwill (4,839,298) -- (4,839,298)
Acquisition of investments (1,099,665) -- (2,349,665)
Increase in other assets - deferred charges (124,793) -- (124,793)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (11,057,929) -- (12,307,929)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock 6,500 -- 1,121,405
Advances from shareholders 35,400 5,800 35,400
Conversion of note payable (250,000) -- 450,000
Loan payable - related parties 372,272 -- 372,272
Non-current loan payable 127,573 -- 127,573
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 291,745 5,800 2,106,650
------------ ------------ ------------
Net change in cash and cash equivalent 875 154 925
Cash and cash equivalent at beginning of period 50 204 --
------------ ------------ ------------
Cash and cash equivalent at end of period $ 925 $ 50 $ 925
============ ============ ============
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of accrued salaries to notes payable $ -- $ -- $ --
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ -- $ -- $ --
============ ============ ============
Cash paid for income taxes $ -- $ -- $ --
============ ============ ============
See accompanying notes to financial statements
6
NETCO INVESTMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2011 and 2010
(Unaudited)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
Netco Investments, Inc. (the "Company" or "Netco") without independent audit. In
the opinion of the Company's management, all adjustments and reclassifications
of a normal and recurring nature necessary to present fairly the financial
position, results of operations and cash flows for the periods presented have
been made. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") have been condensed or omitted. The results of
operations for interim periods are not necessarily an indication of the results
for the full year.
Netco Investments, Inc. (the "Company or "Netco"), a development stage company,
was originally incorporated in Texas on March 21st, 1997 under the name Great
American Leasing Inc.. On November 1, 2005, the Company changed its name to
Netco Investments, Inc. The Company is focused on merchant banking activities in
both domestic and international markets.
The Company was considered a development stage enterprise as defined in
Financial Accounting Standards Board ("FASB") Statement No. 7, "Accounting and
Reporting for Development Stage Companies", until the current quarter ending
June 30, 2011. The Company has reported revenue in the current quarter, but
there is no assurance the Company will achieve a profitable level of operations.
The Company has one wholly-owned subsidiary, Wallstreet411 Private Equity Group,
Inc. ("Wallstreet 411"), which was acquired on May 3, 2011. Wallstreet 411 was
incorporated with the intention of determining the feasibility of becoming a
multifaceted marketing company focused on generating sales leads and interest
within the financial services industry for both individual licensed financial
professionals and financial entities and for the marketing of the Evaluvest
research and trading program. This original business model has been expanded in
an attempt to achieve higher potential revenue and accelerated growth.
In January 2008, Wallstreet 411 acquired Evaluvest Insurance Services, Inc.
(hereinafter "EIS") as a wholly owned subsidiary. EIS offers a variety of
insurance products such as life, long-term care, disability insurance, and
annuities. In June 2008, Wallstreet 411 incorporated Evaluvest Branch Ops., Inc.
(hereinafter "EBO"), as a wholly owned subsidiary of Wallstreet 411. This entity
was created to bring under one roof, an all inclusive financial center. In
October 2007, Wallstreet 411 acquired Evaluvest LLC, whose primary product the
"Evaluvest P-4 Stock Analyzer System" is a proprietary state of art, stock
research tool that provides individual investors with the ability to become
better investors and enables them to compete against investment professionals
and institutions.
The preparation of financial statements in conformity with 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 as well as reported amounts of revenues and
expenses during the reporting period. The Company's most significant estimates
relate to revenue recognition, valuation of intangible assets acquired,
contingent consideration issued in business acquisitions, and the recoverability
of deferred costs. Actual results could differ from these estimates and those
differences could be material.
7
2. STOCKHOLDERS' EQUITY COMMON STOCK
The Company is authorized to issue up to 500,000,000 shares of $.0001 par value
common stock. As of June 30, 2011 and December 31, 2010, there were 23,171,451
and 19,029,873 common stock shares issued and outstanding.
As of December 31, 2009, the outstanding shares of common stock were 29,673. In
addition, there were 400,000 Series D Preferred shares outstanding at December
31, 2009. During the year ended December 31, 2010, 19,000,000 common stock
shares were issued and during the six months ended June 30, 2011 4,141,778
common stock shares were issued, as set forth in the following table:
Total shares outstanding as of Dec. 31, 2009 29,673
Shares issued in conversion of 400,000 Preferred D
shares during 2010 4,000,000
Shares issued in satisfaction of services rendered during 2010 15,000,000
Total shares issued and outstanding at December 31, 2010 19,029,673
Total shares issued during six months ended June 30, 2011 4,141,778
Total shares issued and outstanding at June 30, 2011 23,171,451
SERIES D PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of $.0001 par value
Series D preferred stock. As of June 30, 2011 and December 31, 2010, there were
250,000 and 0 Series D preferred stock shares issued and outstanding.
During 2010, 400,000 shares of Series D preferred stock shares were converted
into 4,000,000 shares of common stock shares, leaving no Series D preferred
stock shares issued at December 31, 2010. During the three months ended June 30,
2011, $250,000 of convertible notes were converted into 250,000 shares of Series
D preferred stock shares, the issued and outstanding amount of Series D
preferred stock shares issued and outstanding at June 30, 2011.
NET LOSS PER COMMON SHARE
Net loss per share is calculated in accordance with FASB ASC Topic 260 (formally
SFAS No. 128, "EARNINGS PER SHARE."). The weighted-average number of common
shares outstanding during each period is used to compute basic loss per share.
Diluted loss per share is computed using the weighted average number of shares
and dilutive potential common shares outstanding. Basic net loss per common
share is based on the weighted average number of shares of common stock
outstanding during the years ended December 31, 2010 and 2009.
3. NOTES PAYABLE TO SHAREHOLDERS AND OFFICERS
Notes payable to shareholders and officers represents amounts advances by the
Company's president and CEO and his associates. The notes are unsecure, due on
demand, and have no stated interest rate. The Company anticipated that the notes
will be repaid from proceeds received from Private Placement Offering
(hereinafter "Offering"), and have, therefore, been classified as current
liabilities.
8
4. NOTES PAYABLE
On January 31, 2002, the Company entered into a securities sale agreement with a
group of investors providing for the issuance of 12% secured convertible
debentures in the aggregate principal amount of $500,000 due January 31, 2003 at
a conversion price calculated at the time of conversion for the aggregate
consideration of $500,000 and warrants to purchase 10,000 shares of common
stock, exercisable at the lesser of $5.70 or the average of the lowest three
trading prices during the 20-day period prior to exercise ,expiring January 31,
2005. On January 31, 2002, the Company received $250,000 and issued warrants to
purchase 5,000 shares of common stock valued at $97,500 to be expensed as loans
fees over the length of the note. All assets of the Company secure the
debentures. Interest is payable on dates at the option of the holder. The
debentures are convertible into shares of common stock at the lesser of $7.50
per share or 50% of the market price of the Company's common stock for the
avenge of the lowest three trading prices during the 20-day period prior to
conversion. The Company recorded $250,000 as interest expense for the beneficial
conversion feature related to the debentures issued on January 31, 2002. During
the year ended December 31, 2002, the Company also received $150,000 from the
issuance of additional January 31, 2002 debentures. As of December 31, 2010 none
of these debentures have been converted. The Company recorded $150,000 as
interest expense for the beneficial conversion feature related to these
debentures for the year ended December 31, 2002. The amounts due in January 2003
were riot repaid and the Company is currently working out a payment plan with
the group of investors to repay the convertible debentures. In order to provide
additional working capital and financing for the Company's expansion, the
Company entered into convertible debenture agreements with four accredited
investors ("the Purchasers") on May 31, 2002 whereby the Purchasers acquired an
aggregate of $50,000 of the Company's 15%Convertible Debentures, due May 31,
2003. As of December 31, 2010, none of these debentures have been converted. The
Company issued warrants to purchase 980 common shares valued at $33,296, to be
expensed as loan fees over the length of the notes.
On June 15, 2011, $250,000 worth of the convertible debentures were converted
into 250,000 Series D Preferred Shares of the Company.
As of June 30, 2011 there is a total of $450,000 in convertible notes recorded
on the Company's books. Any warrants related to the above transactions have
expired.
5. LIQUIDITY
As shown on the accompanying consolidated balance sheet as of June 30, 2011 and
December 31, 2010, the Company's current liabilities exceeded its current assets
by $947,944 and $956,140 respectively. Management of the Company developed a
plan to reduce its liabilities and has executed the plan by acquiring companies
and investing in companies that have transformed Netco into a strategic entity
to fund operations and generate additional revenue.
6. ACQUISITION
WALL STREET 411 PRIVATE EQUITY GROUP, INC.
On May 3, 2011 Netco acquired all of the outstanding capital stock of Wall
Street 411 Private Equity Group, Inc. ("Wallstreet 411") in exchange for
8,193,476 shares of common stock of Netco common stock. Wallstreet 411 Private
Equity Group, Inc owns the Evaluvest P4 stock analysis system which enables
investors to compete with the investment professionals on Wall Street by giving
them access to the Four Factors affecting stock price movement. These Four
Factors are Sector and Industries, Stock Momentum, Technical Trends, and Market
Conditions. These Four Factors combine to form the Power behind the P4. The P
stands for Power and the 4 represents the Four Factors. The Evaluvest P4
incorporates proprietary algorithms designed and tested by investment
professionals for the last 15 years in up, down, and sideways markets. With
these algorithms the Evaluvest P4 system is able to identify the stocks in the
sectors with the greatest Alpha power (potential for excess return). The
Evaluvest P4 system will greatly reduce your probability for failure by
narrowing down a universe of 6,900 stocks to a few portfolios of 25 stocks or
less. The stocks in these "Power" portfolios possess the best quantitive and
technical ranks in the market and the greatest Alpha Power.
9
The exchange of shares with shareholders of Wallstreet 411 Private Equity Group,
representing all of the shareholders of that company, and the acquisition was
valued at $9,832,171 (8,193,476 x $1.20 per share). The transaction did not
create additional dilution for Netco, since the shares transferred to the
shareholders of Wallstreet 411 were transferred from shareholders of Netco,
while Netco acquired Wallstreet 411 as a wholly-owned subsidiary.
The Company's allocation for the net liabilities acquired was as follows:
May 3, 2011
-----------
(unaudited)
Cash $ 3,022
Loan receivable - related party 58,663
Property, plant and equipment, net 1,300
Investment in Evaluvest BO 1,046
Deferred costs 121,793
---------
Total assets 185,824
---------
Accounts payable, accrued expenses and
other liabilities 82,242
Loans payable - related parties 298,417
---------
Total liabilities assumed 380,659
---------
Net liabilities acquired $(194,835)
=========
The Company recorded intangible assets as a result of the acquisition, which
included $4,015,000 relating to contractual and non-contractual customer
relationships. The customer relationships acquired are being amortized in
proportion to the projected revenue streams of the related relationships over
eight years. The Company acquired intangible assets of $977,873 related to
developed software technology which are being amortized using the straight line
method over an eight year period. The estimated fair value of the Wallstreet 411
acquisition by the Company was $9,832,171. The Company recorded the $9,637,336
difference between the $9,832,171 fair value of the acquisition and the $194,835
liabilities assumed as additional paid in capital.
Wall Street 411's results of operations are included in the consolidated
financial statements for the period beginning May 3, 2011.
PRO FORMA RESULTS. Our consolidated financial statements include the operating
results of Wall Street 411 as of the date of acquisition. For the three and six
months ended June 30, 2011 and 2010, the unaudited pro forma financial
information below assumes that our material business acquisition of Wall Street
411 occurred on January 1, 2010.
(unaudited) (unaudited)
Three Months ended Six Months ended
June 30, June 30,
------------------------ -------------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Pro forma financial information including the
acquisition of Wall Street 411 Private Equity
Group, Inc.
Revenue $ 7,143 $ 7,075 $ 7,692 $ 10,828
Operating loss 1,826,184 96,715 1,982,048 145,708
---------- ---------- ---------- ----------
Net loss $1,835,779 $ 111,442 $1,987,088 $ 178,381
========== ========== ========== ==========
10
7. INVESTMENT
MERRIMAC CORPORATE SECURITIES, INC.
On May 3, 2011, Netco acquired 24.5% of the issued and outstanding capital stock
of Merrimac Corporate Securities Inc., a registered broker-dealer, in exchange
for 910,386 shares of Netco's common stock valued at $1,092,463 (910,386 X $1.20
per share).
Investments are stated at the lower of costs or valuation determined on the
basis of fair market value at June 30, 2011 and December 31, 2010. These
investments comprise shares purchased in related companies.
8. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2010 and 2009 the Company recognized a total
of $50,000 each year for services provided by the President and Director of the
Company. These amounts are recorded as an increase to additional paid-in
capital.
During the year ended December 31, 2010 and 2009 the Company recorded $64,000
each year for accrued management fees due to Directors of the Company for
services rendered.
During the year ended December 31, 2010 the Company agreed to issue 15,000,000
shares to a related party in exchange for services over a three year period. The
shares were valued using the closing price of the Company's common stock on the
closest date of sale of $0.10 per share.
On May 3, 2011, Netco's subsidiary, Private Equity Group, Inc., entered into
agreement with Steven Pizzuti. Under the terms of that agreement, Mr. Pizzuti
will serve as president of the subsidiary. The agreement is for a two-year term.
Netco issued to Mr. Pizzuti as a sign-on bonus 1,088,978 shares of its common
stock valued at $1,306,733. (1,088,978 x $1.20) Mr. Pizzuti agreed to certain
restrictive covenants as part of the agreement.
Wallstreet 411's Chairman and CEO, Stephen D. Pizzuti is also a principal with
Merrimac Corporate Securities, Inc., a licensed securities brokerage firm in
which his family has an ownership interest.
Merrimac is the preeminent client of Evaluvest Branch Operations and maintains a
number of revenue sharing agreements with Evaluvest Insurance Services.
Wallstreet in turn provides marketing and research to Merrimac.
Overall, these relationships are complimentary, non-competitive, and mutually
beneficial.
An action of considerable significance which was underway during this audit was
the proposed acquisition of Wallstreet 411 (independent of its subsidiaries) by
Netco Investments Inc. This arrangement would provide Netco with an experienced
securities management team and licensing rights for the Evaluvest P-4 System,
and would provide growth capital and shareholder liquidity for Wallstreet 411.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting Standards Codification ("ASC") 820, FAIR VALUE MEASUREMENTS AND
DISCLOSURES, defines fair value as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. ASC 820 also establishes a
fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
11
The levels of the fair value hierarchy established by ASC 820 are:
Level 1: inputs are quoted prices, unadjusted, in active markets for identical
assets or liabilities that the reporting entity has the ability to access at the
measurement date.
Level 2: inputs are other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly. A Level 2
input must be observable for substantially the full term of the asset or
liability.
Level 3: inputs are unobservable and reflect the reporting entity's own
assumptions about the assumptions that market participants would use in pricing
the asset or liability.
The Company considers the recorded value of certain of its financial assets and
liabilities, which consist primarily of cash, accounts receivable and accounts
payable, to approximate the fair value of the respective assets and liabilities
at June 30, 2011 and December 31, 2010 based upon the short-term nature of the
assets and liabilities. The Company values goodwill, intangible assets, and
contingent consideration using significant inputs which are not observable in
the market which are defined as Level 3 inputs pursuant to fair value
measurement accounting.
At June 30, 2011 and December 31, 2010 the Company had less than $1,000
deposited in any money market account.
10. STOCK-BASED COMPENSATION
The Company recognizes compensation expense for all equity-based compensation
awards issued to employees, directors and non-employees that are expected to
vest. Compensation cost is based on the fair value of awards as of the grant
date. The Company recognized $120,000 and $150,000 of pre-tax stock-based
compensation expense for the three months ended June 30, 2011 and 2010,
respectively, under the fair value method and recognized $1,829,573 and $150,000
of pre-tax stock-based compensation expense for the six months ended June 30,
2011 and 2010, respectively.
11. LONG-TERM DEBT
At June 30, 2011 the Company long-term debt in the amount of $127,573 consisting
of long term loans payable acquired through our acquisition of Wallstreet 411 in
may of 2011.
12. INCOME TAXES
We did not provide any current or deferred U.S. federal income tax provision or
benefit for any of the periods presented because we have experienced operating
losses since inception. Pursuant to FASB ASC Topic 740, when it is more likely
than not that a tax asset cannot be realized through future income the Company
must allow for this future tax benefit. We provided a full valuation allowance
on the net deferred tax asset, consisting of net operating loss carryforwards,
because management has determined that it is more likely than not that we will
not earn income sufficient to realize the deferred tax assets during the
carryforward period.
The Company has not taken a tax position that, if challenged, would have a
material effect on the financial statements for the year ended December 31, 2010
or 2009, applicable under FIN 48. As a result of the adoption of FIN 48, we did
not recognize any adjustment to the liability for uncertain tax position and
therefore did not record any adjustment to the beginning balance of accumulated
deficit on the balance sheet.
13. SUBSEQUENT EVENT
Management is not aware of any transactions or matters that would require
disclosure as of the date of this filing.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY FORWARD - LOOKING STATEMENT
The following discussion should be read in conjunction with our financial
statements and related notes.
Certain matters discussed herein may contain forward-looking statements that are
subject to risks and uncertainties. Such risks and uncertainties include, but
are not limited to, the following:
* the volatile and competitive nature of our industry,
* the uncertainties surrounding the rapidly evolving markets in which we
compete,
* the uncertainties surrounding technological change of the industry,
* our dependence on its intellectual property rights,
* the success of marketing efforts by third parties,
* the changing demands of customers and
* the arrangements with present and future customers and third parties.
Should one or more of these risks or uncertainties materialize or should any of
the underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated.
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF NETCO INVESTMENTS, INC., FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 2011 AND 2010 (UNAUDITED) SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS, AND THE NOTES TO THOSE FINANCIAL STATEMENTS THAT ARE
INCLUDED IN ITEM 1 ELSEWHERE IN THIS FILING. REFERENCES TO "WE," "OUR," OR "US"
IN THIS SECTION REFERS TO THE COMPANY AND ITS SUBSIDIARIES. OUR DISCUSSION
INCLUDES FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE
RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. ACTUAL RESULTS AND THE TIMING OF EVENTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF
FACTORS, INCLUDING THOSE SET FORTH UNDER THE RISK FACTORS, FORWARD-LOOKING
STATEMENTS AND BUSINESS SECTIONS IN THIS PROSPECTUS. WE USE WORDS SUCH AS
"ANTICIPATE," "ESTIMATE," "PLAN," "PROJECT," "CONTINUING," "ONGOING," "EXPECT,"
"BELIEVE," "INTEND," "MAY," "WILL," "SHOULD," "COULD," AND SIMILAR EXPRESSIONS
TO IDENTIFY FORWARD-LOOKING STATEMENTS.
OVERVIEW
Netco Investments, Inc. (the "Company or "Netco"), a development stage company,
was originally incorporated in Texas on December 18, 1988 under the name Great
Leasing Inc. On November 1, 2005, the Company changed its name to Netco
Investments, Inc. The Company is focused on merchant banking activities in both
domestic and international markets.
The Company provides merchant banking type services to small, private and
microcap public companies seeking debt and equity capital and/or to be part of a
diversified, resource sharing, business combination . The Company also engages
in advising distressed private and public companies in special turnaround
situations. Specifically, the Company identifies small private and public
13
companies (the "Clients") and assists them with managerial, accounting and
financial advice, and helps the Clients refinance and / or raise adequate
capital by introducing them to potential investors and lenders.
The Company has one wholly-owned subsidiary, Wallstreet411 Private Equity Group,
Inc. ("Wallstreet 411"), which was acquired on May 3, 2011. Wallstreet 411 was
incorporated with the intention of determining the feasibility of becoming a
multifaceted marketing company focused on generating sales leads and interest
within the financial services industry for both individual licensed financial
professionals and financial entities and for the marketing of the Evaluvest
research and trading program. This original business model has been expanded in
an attempt to achieve higher potential revenue and accelerated growth.
In January 2008, Wallstreet 411 acquired Evaluvest Insurance Services, Inc.
(hereinafter "EIS") as a wholly owned subsidiary. EIS offers a variety of
insurance products such as life, long-term care, disability insurance, and
annuities. In June 2008, Wallstreet 411 incorporated Evaluvest Branch Ops., Inc.
(hereinafter "EBO"), as a wholly owned subsidiary of Wallstreet 411. This entity
was created to bring under one roof, an all inclusive financial center. In
October 2007, Wallstreet 411 acquired Evaluvest LLC, whose primary product the
"Evaluvest P-4 Stock Analyzer System" is a proprietary state of art, stock
research tool that provides individual investors with the ability to become
better investors and enables them to compete against investment professionals
and institutions.
RISKS, UNCERTAINTIES AND TRENDS RELATING TO THE COMPANY AND INDUSTRY
REVENUES AND PROFITS ARE NOT ASSURED
We have had a very limited history of operations. Since inception we have relied
on loans to fund our operations, and we have incurred significant operating
losses. Negative cash flow from operations is expected in the foreseeable future
due to limited revenues. There can be no assurance that we will ever achieve any
significant revenues or profitable operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of our financial condition and results
of operations are based on our condensed financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us 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 net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 3 to
our financial statements, we believe that the following accounting policies are
the most critical to aid the reader in fully understanding and evaluating this
discussion and analysis:
PRINCIPALS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany transactions and balances have
been eliminated.
14
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at two banks. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation up to $250,000. As of
December 31, 2010 and 2009, there were no uninsured balances.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term, highly liquid investments with
maturities of less than three months when acquired.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost net of accumulated depreciation.
Expenditures for maintenance and repairs are charged against operations, if any.
Renewals and betterments that materially extend the life of the assets are
capitalized. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in income for the period.
The Company capitalized purchases of property and equipment with an original
cost greater than $500.
Depreciation is computed for financial statement purposes on a straight-line
basis over estimated useful lives of the related assets.
LONG-LIVED ASSETS
The Company adopted ASC 360-10-20 (previous known as Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company
periodically evaluates the carrying value of long-lived assets to be held. ASC
360-10-20 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. In that event, a loss is recognized based on the amount by
which the carrying amount exceeds the fair market value of the long-lived
assets.
The long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. It is reasonably possible that these assets could
become impaired as a result of technology or other industry changes.
Determination of recoverability of assets to be held and used is by comparing
the carrying amount of an asset to future net undiscounted cash flows to be
generated by the assets.
15
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts in the balance sheet for cash and cash equivalents, and
notes payable to shareholders and officers approximate the respective fair
values due to the short maturities of those instruments and rates available for
similar debt.
DEFERRED CHARGES
Wallstreet 411 has capitalized certain costs associated with opening and
organization of the first office under the name of EBO. This cost will be
written to expense, once the facility is operational and ready to conduct
business.
INCOME TAXES
Income taxes are provided for using the liability method of accounting in
accordance with FASB ASC 740 "INCOME TAXES" and clarified by FIN 48, "ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES--AN INTERPRETATION OF FASB STATEMENT NO. 109." A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.
SHARE BASED EXPENSES
The Company follows FASB ASC 718 "STOCK COMPENSATION." This statement is a
revision to SFAS 123 and supersedes Accounting Principles Board (APB) Opinion
No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and amends FASB Statement
No. 95, "STATEMENT OF CASH FLOWS." This statement requires a public entity to
expense the cost of employee services received in exchange for an award of
equity instruments. This statement also provides guidance on valuing and
expensing these awards, as well as disclosure requirements of these equity
arrangements. The Company adopted SFAS No. 123R upon creation of the company and
expenses share based costs in the period incurred.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS (CONTINUED)
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. There was no impairment
loss during the years ended December 31, 2009 and 2008.
REVENUE RECOGNITION
The Company's financial statements are prepared under the accrual method of
accounting. Revenues will be recognized in the period the services are performed
and costs are recorded in the period incurred. Revenue is recognized when (1)
the evidence of the agreement exists, (2) services have been rendered, (3) the
price is fixed or determinable, and (4) collectability is reasonably assured.
The Company has not generated revenues since its inception.
16
ADVERTISING COSTS
Advertising and promotion costs are expensed as incurred. The Company did not
incur any of such cost during the six months ended June 30, 2011 or the year
ended December 31, 2010.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred, if any.
GOING CONCERN
The Company's financial statements are prepared in accordance with generally
accepted accounting principles applicable to a going concern. This contemplates
the realization of assets and the liquidation of liabilities in the normal
course of business. Currently, the Company does not have significant operations
or a source of revenue sufficient to cover its operation costs and allow it to
continue as a going concern. Additionally, the Company has incurred a net loss
of $2,804,283 since inception. The Company will be dependent upon the raising of
additional capital while it is executing it's plan with the just completed
acquisition of Wallstreet 411 and the investment in Merrimac Corporate
Securities, Inc. in order to fully execute its business plan. There can be no
assurance that the Company will be successful in order to continue as a going
concern. The officers and directors have committed to advancing certain
operating costs of the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On January 1, 2011 the Company adopted Accounting Standards Update ("ASU")
2009-13, Revenue Recognition (Topic 605), Multiple-Deliverable Arrangements. ASU
2009-13 amends the guidance that in the absence of vendor-specific objective and
third-party evidence for deliverables in multiple-deliverable arrangements,
companies will be required to develop a best estimate of the selling price to
separate deliverables and allocate arrangements consideration using the relative
selling price method. ASU 2009-13 expands the disclosure requirements for
multiple-deliverable revenue arrangements. The adoption of ASU 2009-13 has not
had a material impact on the financial statements.
On January 1, 2011 the Company adopted ASU 2009-14, Software (Topic 985),
Certain Revenue Arrangements that Include Software Elements. ASU 2009-14 amends
the guidance to exclude from the scope of software revenue accounting
requirements tangible products if the product contains both software and
non-software components that function together to deliver a product's essential
functionality and factors to consider in determining whether a product is within
the scope of the guidance. The adoption of ASU 2009-14 has not had a material
impact on the financial statements.
In April 2009, the FASB issued an update to ASC 820, "Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly",
which provides guidance on determining fair value when there is no active market
or where the price inputs being used represent distressed sales. This update to
ASC 820 was effective for interim and annual periods ending after June 15, 2009
and was adopted by the Company in the second quarter of 2009. The adoption did
not have a material impact on the Company's financial statements.
In May 2009, the FASB issued ASC 855, "Subsequent Events". ASC 855 establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. ASC 855, which includes a new required disclosure of the
date through which an entity has evaluated subsequent events, was effective for
interim or annual periods ending after June 15, 2009. The Company adopted this
standard as of June 30, 2009; however, the adoption of ASC 855 had no impact to
the Company's financial statements.
17
In June 2009, the FASB issued ASU 2009-17, Consolidation (ASC 810) "Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities,"
which eliminates the quantitative approach previously required for determining
the primary beneficiary of a variable interest entity and requires ongoing
qualitative reassessments of whether an enterprise is the primary beneficiary of
a variable interest entity. This new standard also requires additional
disclosures about an enterprise's involvement in variable interest entities. The
Company adopted this pronouncement on January 1, 2010 but there was no
significant impact on its financial statements.
In June 2009, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 168, THE FASB ACCOUNTING
STANDARDS CODIFICATIONTM AND THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES - A REPLACEMENT OF FASB STATEMENT NO. 162. With the issuance of SFAS
168, the FASB Accounting Standards Codification ("the Codification" or "ASC")
becomes the single source of authoritative U.S. accounting and reporting
standards applicable for all nongovernmental entities, with the exception of
guidance issued by the SEC. This change is effective for financial statements
issued for interim or annual periods ending after September 15, 2009. The
Codification does not modify existing GAAP nor any guidance issued by the SEC.
Nonauthoritative accounting literature is excluded from the Codification. To
improve usability, the Codification does include certain SEC guidance. GAAP
accounting standards used to populate the Codification are superseded, with the
exception of certain standards yet to be codified as of September 30, 2009,
including SFAS 166 and 167 described subsequently.
In June 2009, the FASB issued ASC 105, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles". ASC
105 establishes the FASB Accounting Standards Codification ("Codification"), as
the single source of authoritative accounting and reporting standards in the
United States for all non-government entities, with the exception of the
Securities and Exchange Commission and its staff. It does not include any new
guidance or interpretations of US GAAP, but merely eliminates the existing
hierarchy and codifies the previously issued standards and pronouncements into
specific topic areas. The Codification was adopted on July 1, 2009 for the
Company's financial statements for the year ended December 31, 2009.
On June 12, 2009 the FASB issued two statements that amended the guidance for
off-balance-sheet accounting of financial instruments: SFAS No. 166, "ACCOUNTING
FOR TRANSFERS OF FINANCIAL ASSETS," and SFAS No. 167, "AMENDMENTS TO FASB
INTERPRETATION NO. 46(R)." SFAS No. 166 revises SFAS No. 140, "ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES,"
and will require entities to provide more information about sales of securitized
financial assets and similar transactions, particularly if the seller retains
some risk to the assets, the FASB said. The statement eliminates the concept of
a qualifying special-purpose entity, changes the requirements for the
derecognition of financial assets, and calls upon sellers of the assets to make
additional disclosures about them.
The Company refers to FASB ASC 605-25 "MULTIPLE ELEMENT ARRANGEMENTS" in
recognizing revenue from agreements with multiple deliverables. This statement
provides principles for allocation of consideration among its multiple-elements,
allowing more flexibility in identifying and accounting for separate
deliverables under an arrangement. The EITF introduces an estimated selling
price method for valuing the elements of a bundled arrangement if
vendor-specific objective evidence or third-party evidence of selling price is
not available, and significantly expands related disclosure requirements. This
standard is effective on a prospective basis for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010.
Alternatively, adoption may be on a retrospective basis, and early application
is permitted. The Company does not expect the adoption of this statement to have
a material effect on its consolidated financial statements or disclosures.
18
In August 2009, the FASB issued Accounting Standards Update No. 2009-05,
"Measuring Liabilities at Fair Value," ("ASU 2009-05"). ASU 2009-05 provides
guidance on measuring the fair value of liabilities and is effective for the
first interim or annual reporting period beginning after its issuance. The
Company's adoption of ASU 2009-05 did not have an effect on its disclosure of
the fair value of its liabilities.
SFAS No. 167 amends FASB Interpretation (FIN) No. 46(R), "CONSOLIDATION OF
VARIABLE INTEREST ENTITIES," by altering how a company determines when an entity
that is insufficiently capitalized or not controlled through voting should be
consolidated, the FASB said. A company has to determine whether it should
provide consolidated reporting of an entity based upon the entity's purpose and
design and the parent company's ability to direct the entity's actions. SFAS
Nos. 166 and 167 will be effective at the start of the first fiscal year
beginning after November 15, 2009, which will mean January 2010 for companies
that are on calendar years.
In January 2010, the FASB issued ASU 2010-06, "Fair Value Measurements and
Disclosures (ASC 820): Improving Disclosures about Fair Value Measurements."
This update will require (1) an entity to disclose separately the amounts of
significant transfers in and out of Levels 1 and 2 fair value measurements and
to describe the reasons for the transfers; and (2) information about purchases,
sales, issuances and settlements to be presented separately (i.e. present the
activity on a gross basis rather than net) in the reconciliation for fair value
measurements using significant unobservable inputs (Level 3 inputs). This
guidance clarifies existing disclosure requirements for the level of
disaggregation used for classes of assets and liabilities measured at fair value
and require disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements
using Level 2 and Level 3 inputs. The new disclosures and clarifications of
existing disclosure are effective for fiscal years beginning after December 15,
2009, except for the disclosure requirements for related to the purchases,
sales, issuances and settlements in the roll forward activity of Level 3 fair
value measurements. Those disclosure requirements are effective for fiscal years
ending after December 31, 2010. The Company is still assessing the impact on
this guidance and does not believe the adoption of this guidance will have a
material impact to its financial statements. Management does not believe that
other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants or the SEC have a material impact on the Company's present or future
financial statements.
In February 2010, the FASB issued guidance to remove the requirement for an
entity that files financial statements with the SEC to disclose a date through
which subsequent events have been evaluated. The adoption of this guidance
during our current fiscal quarter did not have any impact on our financial
statements.
COMPARISON OF THE THREE MONTH PERIODS ENDED JUNE 30, 2011 AND 2010
OPERATING EXPENSES. Our operating expenses consist of professional fees paid to
attorneys and auditors, fees paid to consultants and general and administrative
expenses. Operating expenses for the three month period ended June 30, 2011
amounted to $1,830,785 which consisted of compensation of approximately
$1,300,000 to the president of our subsidiary Wallstreet 411, approximately
$500,000 for outside consultants to assist with structuring our Company and our
subsidiary in setting up our platforms and infrastructure and approximately
$29,000 for general, office and administrative expenses. Operating expenses for
the three month period ended June 30, 2010 amounted to $92,405 which consisted
of $50,000 in compensation expenses, approximately $30,000 in outside consulting
expenses and $12,000 in general, office and administrative expenses.
COMPARISON OF THE SIX MONTH PERIOD ENDED JUNE 30, 2011 AND THE SIX MONTH PERIOD
ENDED JUNE 30, 2010.
OPERATING EXPENSES. Our operating expenses consist of professional fees paid to
attorneys and auditors, fees paid to consultants and general and administrative
expenses. Operating expenses for the six month period ended June 30, 2011
amounted to $1,987,240 785 which consisted of compensation of approximately
$1,300,000 to the president of our subsidiary Wallstreet 411, approximately
$625,000 for outside consultants to assist with structuring our Company and our
subsidiary in setting up our platforms and infrastructure, $5,000 in accounting
fees, $5,000 in legal expenses and approximately $50,000 for general, office and
administrative expenses. Operating expenses for the six month period ended June
30, 2010 amounted to $128,750 which consisted of $50,000 in compensation
expenses, approximately $55,000 in outside consulting expenses and $18,000 in
general, office and administrative expenses.
19
CASH FLOWS - FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 AND FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2010.
Net cash provided by operating activities was $10,767,059 for the six month
period ended June 30, 2011 and for the six month period ended June 30, 2010,
$5,656 was used in operating activities. The $10,767,059 for the six month
period ended June 30, 2011 is primarily due to the intangible assets relating to
the acquisition of our subsidiary Wallstreet 411.
Cash flows used in investing activities were $11,057,929 for the six month
period ended June 30, 2011 and $0 for the six month period ended June 30, 2010.
The $11,057,929 for the six month period ended June 30, 2011 is due to the
acquisition of Wallstreet 411 and investment in Merrimac Corporate Securities,
Inc.
Net cash provided by financing activities was $291,745 and $5,800 for the six
month periods ended June 30, 2011 and 2010. The $291,745 for the six month
period ended June 30, 2011 is primarily due to the conversion of a $250,000 note
into Series D preferred stock.
MATERIAL IMPACT OF KNOWN EVENTS ON LIQUIDITY
The disruption in the credit markets has had a significant adverse impact on a
number of financial institutions. As of June 30, 2011, however, our liquidity
and capital investments have not been materially adversely impacted, and we
believe that they will not be materially adversely impacted in the near future.
We will continue to closely monitor our liquidity and the credit markets. We
cannot, however, predict with any certainty the impact to us of any further
disruption in the credit environment.
There are no other known events that are expected to have a material impact on
our short-term or long-term liquidity.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2010 we had cash of $50.00 and a working capital deficit of
($956,090). As of March 31, 2011 we had cash of $57.00 and a working capital
deficit of ($985,683). We are solely dependent on the funds raised through our
equity or debt financing and our net loss was funded through equity financing
and from loans from our directors.
During 2009 and 2010 we obtained our liquidity principally from cash advances
from our Officers and principal shareholders. The Company has executed
promissory notes totaling approximately $700,000 as of December 31, 2010. Each
note (a) bears 3% annual interest (20% upon the occurrence, and during the
continuance, of an event of default), is convertible into our common stock at an
adjustable price per share.
Although we intend to increase our revenue by engaging in more aggressive sales,
marketing and advertising activity designed to increase awareness of our
products, we still need substantial additional capital to finance our business
activities on an ongoing basis, as our revenue is insufficient to fund our
operations.
Even if we do receive additional financing through our Officers and principal
shareholders, we still will require, and following the completion of the
Securities and Exchange Commission's review of this Registration Statement we
intend to seek, substantial additional funds to finance our business activities
on an ongoing basis. However, we do not have any commitments or arrangements
with any person or entity to obtain any equity or debt financing, and there can
be no assurance that the additional financing we require would be available on
reasonable terms, if at all; and if available, any such financing likely would
result in a material and substantial dilution of the equity interests of our
current shareholders. The unavailability of such additional financing could
require us to delay, scale back or terminate our business activities, which
would have a material adverse effect on our viability and prospects. See Item
1A, Risk Factors - We May Be Unable to Continue as a Going Concern; and - The
Substantial Additional Capital We Need May Not Be Obtainable, and Item 7,
Certain Relationships and Related Transactions, and Director Independence -
Transactions with Related Persons - Borrowings.
We also intend to seek to have our common stock listed on the OTC Bulletin Board
(OTCBB) , which we believe would make it easier for us to raise capital from
institutional investors and others. However, there can be no assurance that our
common stock will be approved for listing on the OTCBB. In addition, we do not
have any commitments or arrangements to obtain any additional equity capital,
and there can be no assurance that the additional financing we require would be
20
available on reasonable terms, if at all. The unavailability of additional
financing could require us to delay, scale back or terminate our acquisition
efforts as well as our own business activities, which would have a material
adverse effect on our company and its viability and prospects.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's market risk is principally confined to changes in foreign currency
exchange rates. The Company's exposure to foreign exchange rate fluctuations
arises in part from minimal accounts in which costs incurred in one entity are
charged to other entities in different foreign jurisdictions. As exchange rates
vary, those results when translated may vary from expectations and adversely
impact overall expected profitability.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company maintains
adequate internal disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended) as of the end of the period covered by this
quarterly report on Form 10-Q pursuant to Rule 13a-15(b) under the Exchange Act
that are designed to ensure that information required to be disclosed by it in
its reports filed or submitted pursuant to the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms and that information required to be disclosed by
the Company in its Exchange Act reports is accumulated and communicated to
management, including the Company's Chief Executive Officer ("CEO"), who is its
principal executive officer, and on an interim basis, also acts as the Chief
Financial Officer ("CFO"), the principal financial officer, to allow timely
decisions regarding required disclosure.
The Company's CEO and acting CFO is responsible for establishing and maintaining
adequate internal control over the Company's financial reporting. He has
reviewed and evaluated the effectiveness of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14 as of June 30, 2011 in order
to ensure the reporting of material information required to be included in the
Company's periodic filings with the Commission comply with the Commission's
requirements for certification of this Form 10-Q. Based on that evaluation, the
Company's CEO and acting CFO has concluded that as of June 30, 2011 the
Company's disclosure controls and procedures were effective.
(b) Changes in internal control. There were no changes in the Company's internal
control over financial reporting that occurred during the most recent fiscal
quarter that have materially affected or are reasonably likely to materially
affect the Company's internal control over financial reporting.
LIMITATION OF EFFECTIVENESS OF CONTROLS
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. The design of any control system is based,
in part, upon the benefits of the control system relative to its 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 the Company have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty, and that
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of control. In
addition, over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. In addition, the design of any control system is based in part upon
certain assumptions about the likelihood of future events. Because of inherent
limitation in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected. The Company's controls and procedures are
designed to provide a reasonable level of assurance of achieving their
objectives.
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
None.
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
31.1 Certification of the Chief Executive Officer and acting Principal Financial
and Accounting Officer pursuant to Section 302 of the Sarbanes- Oxley Act
of 2002, filed herewith.
32.1 Certification of the Chief Executive Officer and acting Principal Financial
and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith.
22
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.
Date: August 14, 2011
NETCO INVESTMENTS, INC.
/s/ Gary Freeman
------------------------------------------
Gary Freeman
Chief Executive Officer,
Principal Executive Officer and acting
Principal Financial and Accounting Officer
2