NETWORK 1 FINANCIAL GROUP, INC. - FORM 10-K/A

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EX-31.1 - EXHIBIT 31.1 - NETWORK 1 FINANCIAL GROUP, INC.	v237761_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - NETWORK 1 FINANCIAL GROUP, INC.	v237761_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - NETWORK 1 FINANCIAL GROUP, INC.	v237761_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - NETWORK 1 FINANCIAL GROUP, INC.	v237761_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Amendment No. 1

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Year Ended June 30, 2011

o	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: 001-14753

NETWORK 1 FINANCIAL GROUP, INC.

(Exact Name of Registrant as specified in its charter)

Delaware		11-3423157
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2 Bridge Avenue, 4thFloor

Red Bank, NJ 07701

(Address of principal executive offices)

(732) 758-9001

(Issuer’s telephone number)

Securities registered under section 12(b) of the Exchange Act: None.

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

Common stock, Par value $0.001

Common Stock Purchase Warrants

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES o NO þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES ¨ NO þ

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act)

YES o NO þ

As of June 30, 2011 approximately 55,560,057 shares of its common stock issued and 47,635,057 shares of common stock were outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant, as of June, 30, 2011, the last business day of the fiscal year, was approximately $371,171 based on the last sale price of $0.025 for the registrant’s common stock as quoted on the Over-the-Counter Bulletin Board on that date. Shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily conclusive.

The registrant had 56,560,057 shares of its common stock 0.001 par value issued, and 48,635,057 outstanding as of October 10, 2011.

EXPLANATORY NOTE

On October 13, 2011, the undersigned registrant filed its Annual Report on Form 10-K for the fiscal year ended June 30, 2011 (“Original Annual Filing”). Subsequent thereto, it came to the registrant attention that certain items required pursuant to Item 401 of Regulation S-K had been omitted from Item 10 of the Original Annual Filing. The Registrant hereby amends the Original Annual Filing to include the required items.

This amendment does not reflect any subsequent information or events occurring after the original filing date or modify or update in any way disclosures made (except for those noted above) in the Form 10-K, as filed with the Securities and Exchange Commission. Accordingly, this Form 10-K/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Annual Filing, including any amendments to such filing.

TABLE OF CONTENTS

		Page
PART I		2
Item 1.	Business	2
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	3
Item 2.	Properties	3
Item 3.	Legal Proceedings	3
Item 4.	(Removed and Reserved)	3

PART II		4
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	4
Item 6.	Selected Financial Data	5
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	8
Item 8.	Financial Statements and Supplementary Data	9
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	10
Item 9A.	Controls and Procedures	10
Item 9B.	Other Information	11

PART III		12
Item 10.	Directors, Executive Officers and Corporate Governance	12
Item 11.	Executive Compensation	14
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	16
Item 13.	Certain Relationships and Related Transactions, and Director Independence	17
Item 14.	Principal Accountant Fees and Services	18
Item 15.	Exhibits	19

SIGNATURES		21

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995 and Network 1 Financial Group, Inc. intends that such forward-looking statements be subject to the safe harbors created thereby. The forward-looking statements relate to future events or the future financial performance of Network 1 Financial Group, Inc. (formerly known as International Smart Sourcing, Inc.), a Delaware corporation, including, but not limited to, statements contained in: Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned that such statements, which may be identified by words including ‘‘anticipates,’’ ‘‘believes,’’ ‘‘intends,’’ ‘‘estimates,’’ ‘‘expects,’’ and similar expressions, are only predictions or estimations and are subject to known and unknown risks and uncertainties. In evaluating such statements, readers should consider the various factors identified in this Annual Report on Form 10-K which could cause actual events, performance or results to differ materially from those indicated by such statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by Network 1 Financial Group, Inc. or any other person that its objectives or plans will be achieved. Network 1 Financial Group, Inc. does not undertake and specifically declines any obligation to update any forward-looking statements or to publicly announce the results of any revisions to any statements to reflect new information or future events or developments, unless required by law or regulation.

PART I

Item 1. Business.

Corporate Overview

In March 1998, we were incorporated in Delaware under the name “International Plastic Technologies, Inc.” as a holding company for the purpose of acquiring the common stock of Electronic Hardware Corp. (“EHC”) and Compact Disc Packaging Corp., (“CDP”), an inactive corporation. On December 7, 1998, we changed our name to “International Smart Sourcing, Inc.” On May 7, 1999, we formed a company called Smart Sourcing Inc. (“SSI,” and together with EHC and CDP, the “Subsidiaries”), a Delaware corporation. EHC manufactured, distributed and warehoused knobs, dials and pointers. SSI specialized in assisting companies in reducing their cost of manufacturing by outsourcing manufacturing in China.

On June 26, 2000, we changed our name to “CHINAB2BSOURCING.COM, INC.” We specialized in the outsourcing of manufacturing and the manufacturing of injection molded plastic components, products and assemblies. We performed the manufacturing and outsourcing functions for our customers, through our United States facilities and through our outsourcing contacts and offices in the People’s Republic of China. On August 17, 2001, we changed our name back to “International Smart Sourcing, Inc.”

On September 28, 2006, we sold the Subsidiaries. Effective September 28, 2006, we began reporting as a development-stage company.

On June 9, 2009, we closed certain transactions contemplated in a certain Stock Purchase Agreement dated as of March 26, 2009 (the “Agreement”) which we entered into with Network 1 Financial Securities, Inc., a privately held Texas corporation (“NETW”), and certain former shareholders of NETW. At the closing, we acquired 1,250,528 shares, or approximately 97.55%, of common stock of NETW outstanding on such date (the “Reverse Merger”). In accordance with the terms of the Agreement, we issued 21,460,622 shares of our common stock to the former shareholders of NETW, in exchange for the acquisition, by our Company, of approximately 97.55% of the outstanding common shares of NETW.

As of the closing date, the former shareholders of NETW hold approximately 66% of the issued and outstanding common shares of our Company. The issuance of the 21,460,622 common shares to the former shareholders of NETW was deemed to be a reverse acquisition for accounting purposes, by ISSI of NETW, as NETW will control the post-merged company. Accordingly, NETW, the accounting acquirer entity, is regarded as the predecessor entity as of June 9, 2009.

Upon the completion of the Reverse Merger, we became the ultimate parent company of NETW and we changed our name from “International Smart Sourcing, Inc.” to “Network 1 Financial Group, Inc.” (“NETW Group” or the “Company”).

The address of our principal executive offices is 2 Bridge Avenue, 4th Floor, Red Bank, New Jersey 07701. Our telephone number is (732) 758-9001. Our facsimile number is (732) 758-6671.

Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “NTFL.”

Current Business of our Company

As of June 9, 2009, the closing date of the Reverse Merger, through our wholly owned subsidiary, NETW, we commenced the business of providing broker-dealer services. NETW is registered as a broker-dealer with the SEC, 40 states and Puerto Rico. NETW is an introducing broker-dealer that clears all transactions with and for customers on a fully disclosed basis with its clearing broker, Legent Clearing LLC a FINRA member Firm. NETW is a member of the Financial Industry Regulatory Authority (“FINRA”), the Securities Investor Protection Corporation (“SIPC”) and NASDAQ.

Our customer base is made up primarily of individual investors. We generate income from transactional business, mutual fund sales, business consulting fees, finder’s fees, annuity sales, register representative investment advisor fees, fees for providing investment banking services, placement agent fees for capital raises, bond transactions, and underwriting fees and concessions.

We compete with other broker-dealers by offering services to small and microcap public companies which we believe are significantly underserved by the investment community. These companies may have little or no analysts following their growth and may be shut out of the capital markets due to their size and current market cap. Many of our competitors are larger and have substantially more capital resources than us, and could potentially enter our market space.

Employees

We currently have 21 full-time employees and 2 part-time employees. None of our employees are represented by a union. We believe that our relationship with all of our employees is good.

Item 1A. Risk Factors.

Not applicable.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

We currently lease office space that is approximately 3800 square feet at 2 Bridge Avenue, 4th Floor, Red Bank, New Jersey 07701. In August 2009, the term of the lease was extended from June 30, 2010 to June 30, 2012 and the annual rent was reduced to $108,000 per year.

Item 3. Legal Proceedings.

There are no pending, nor to our knowledge threatened, legal proceedings against us.

Item 4. (REMOVED AND RESERVED).

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on NASDAQ’s Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “NTFL.”

The following table sets forth the high and low bid prices for the common stock as reported on the OTCBB for the last two fiscal years. The high and low bid prices reflect inter-dealer prices, without mark-up, markdown or commission, and may not necessarily represent actual transactions.

	Common Stock Sale Prices
2011	High		Low
First Quarter		0.09		.029
Second Quarter		0.10		.021
Third Quarter		0.04		0.039
Fourth Quarter		0.025		.025

	Common Stock Sale Prices
2010	High		Low
First Quarter		0.14		.042
Second Quarter		.08		.082
Third Quarter		.06		.015
Fourth Quarter		.05		.02

On August 2, 2011 (the most recent date that our common stock has traded), the last sale price of the common stock as reported on the OTCBB was $0.0162 per share.

Holders

On October 10, 2011 there were 126 shareholders of record of our common stock.

Dividend Policy on Common Stock

We have not given any cash dividends to our common stockholders in the last two fiscal years. In addition, we intend to retain future earnings for use in our business for the foreseeable future. The payment of cash dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon our earnings, capital requirements, financial condition and other relevant factors.

Securities Authorized for Issuance Under Equity Compensation Plans

We do not have any equity compensation plans in place. However, the Company sponsors a 401(k) profit-sharing plan that covers substantially all of its employees. The plan provides for a discretionary annual contribution, and is allocated in proportion to compensation. In addition, each participant may elect to contribute to the Plan by way of a salary deduction. An employee becomes fully vested in our contribution after 6 years and is fully vested in his own contributions immediately.

Performance Graph

Not applicable.

Repurchase of Securities

We did not repurchase any of our common stock during the year ended June 30, 2011

Recent Sales of Unregistered Securities

On March 4, 2011, the Company sold 9,000,000 shares of its common stock to an Windex Capital LLC an unaffiliated investor for proceeds of $360,000 before expenses associated with the placement.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes to the audited financial statements attached thereto and the other financial information included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those projected in the forward-looking statements as a result of many factors.

Basis of Presentation of Financial Information

On June 9, 2009, we completed the Reverse Merger with NETW and the former shareholders of NETW. As a result of the Reverse Merger, we abandoned our previous business and commenced the business of being an introducing broker-dealer. Because we are the successor business to NETW and because the operations and assets of NETW represent our entire business and operations from the closing date of the Reverse Merger, our management’s discussion and analysis and audited financial statements are based on the consolidated financial results of post-merged NETW Group for the relevant periods. NETW Group will continue to report on a quarterly and year-end basis, with a fiscal year end of June 30.

Overview

Our wholly owned, operating subsidiary, NETW, is an introducing broker-dealer that clears all transactions with and for customers on a fully disclosed basis with a clearing broker. NETW is a member of the Financial Industry Regulatory Authority (“FINRA”).

Management believes that the trend for smaller companies that are public is to grow through consolidation or seek investors to help fuel their growth in their market space. Our management has experience in assisting smaller companies in meeting their capital needs. The inherent risk of this market space is that smaller companies could fail to compete with larger competitors and risk the failure of their business. Since these businesses are not proven in respect of size and penetration of their product, we may be unable to attract sufficient capital for our investment banking clients resulting in a decrease of fees generated. However, management believes that we can attract registered personnel to our firm because the market we are serving and the opportunities we provide will provide the ability to increase our sales force.

It is our goal to provide investment banking support for small and microcap companies who have had an extremely difficult time finding professional investment banking assistance in growing their business. We will provide such services as capital raising, bank financing, merger and acquisition assistance and traditional financial consulting.

We also believe that the turmoil surrounding the financial community will allow the firm to attract talented people in investment banking and sales that would be difficult to attract in other times. We believe these professionals should help build the firm’s service and capital-raising abilities.

The current economic environment has adversely impacted our financial condition as it has for many financial institutions. Although the revenue has not declined significantly, the product mix has impacted the firm’s profitability. During these times the day-to-day transactional business of the firm has declined as investors have been reluctant to enter the capital markets. The firm’s net worth has decreased and our liquidity has been impacted. We have taken steps to reduce expenses and realign our activities into investment banking. Management believes that the Reverse Merger will provide us with the opportunity to aggressively grow NETW and expand its services at a time when most financial institutions are retrenching.

During the year ended June 30, 2011, NETW investment banking fees decreased, its investment advisory consulting fees decreased. In the same period, we had an increase in commission income and trading profits. The decrease in investment banking fees was attributable to fewer private placements and the dencrease in advisory consulting fees was due to a fewer number of companies seeking our services. The increase in commissions earned in NETW’s daily transaction business was due primarily to adding more retail registered represenatives which resulted in an increase in activity from NETW’s retail clients. The increase in trading profits was due to increased market volatility. Overall, NETW experienced an increase in losses in the year ended June 30, 2011 compared to the same period in the prior year.

NETW had a net loss of approximately $812,447 for the year ended June 30, 2011, which represents an increase of $204,211 from our net loss in the same period in the prior year (which was approximately $608,236), due to increased operating expenses. NETW’s management continues to seek income stabilization from consulting and investment banking fees as well as by reducing its exposure to market positions. Management believes that in order to expand its marketing and recruitment of experienced registered representatives it will need to seek additional sources of funding.

Results of Operations

For the Fiscal Years Ended June 30, 2011 and 2010

For the years ended June 30, 2011 and 2010, NETW generated $2,051,656 and $2,929,721 of consolidated revenue, respectively. The decreased revenue of $878,065 in 2011 represents a 29.97% decrease in revenue over 2010, which is the result of an decrease in investment banking fees earned from private placements and institutional investments in funds.

NETW’s consolidated operating expenses were $2,887,934 and $3,537,022 for the years ended June 30, 2011 and 2010, a decrease of $649,088, or 18.35% from the prior period, and represent 140.76% and 120.72% of revenue, respectively. The derecease is due primarily to the reduction of commissions and fees paid due to lower volume of investment banking fees and completed private placements. Offsetting the decrease was an increase in costs of personnel hired and office expense for the fiscal year ending June 30, 2011 .

Loss from operations was $836,278 and $607,301 for the years ended June 30, 2011 and 2010, and represents 40.76% and 20.72% of revenue, respectively.

Interest expense was $5,254 and $19,021 for the years ended June 30, 2011 and 2010, respectively, a decrease of $13,767 or 72%. The decrease was due to a reduction of interest rates and a reduction in debt balances.

NETW’s consolidated loss was $ 812,447 and $ 608,236 for the years ended June 30, 2011and 2010, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity is cash generated from operations and from short-term financing arrangements. We had $58,856 in cash as of June 30, 2011 and $ 2,635 in cash as of June 30, 2010. We believe that we will need capital investment in order to meet our liquidity requirements, including debt service, for the next twelve months the Company is actively exploring funding options, including, but not exclusive to, the sale of securities. Our cash flow from operations is currently insufficient to fund our debt service and other obligations. As a result, we have decreased our borrowings, reduced or delayed capital expenditures, and are seeking additional capital. There can be no assurance, however, that we will return generating cash flows sufficient to meet our obligations.

We generated a deficit in cash flow from operations of $ 271,020 for the year ended June 30, 2011. Cash used in investing activities was $7,749 and cash provided by financing activities was $58,856 for the year ended June 30, 2011.

In the upcoming year, we plan to finance operations with working capital and external financing. We believe that we will need additional funds in the near term to finance operations and meet revenue, profitability, growth, diversification and other strategic goals for the foreseeable future. We expect to be able to procure financing upon reasonable terms in order to finance operations. However, if we are unable to do so, or if we do not meet anticipated future revenue goals, management is committed to taking actions necessary to ensure the conservation of adequate cash to continue to finance its operations.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

Inflation

We believe that inflation has not had a material effect on our operations to date.

Significant Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. While these significant accounting policies are described in more detail in Note 2 to our financial statements, our management believes the following accounting policies to be critical to the judgments and estimates used in preparation of the financial statements:

Use of Estimates: The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation and Basis of Presentation: FASB ASC 810-10 Consolidations – Variable Interest Entities requires a variable interest entity, as defined, to be consolidated by a company, if that company is subject to a majority of the risk of loss from the variable interest entity’s activities, entitled to receive a majority of the entity’s residual returns, the purpose of the entity is for the benefit of the reporting entity, or if the entity is substantially financed by the reporting entity. For these purposes, variable interests held by related parties should be consolidated with the reporting entity.

Revenue Recognition: Customer security transactions and the related commission income and expense are recorded as of the trade date. Investment banking revenues include gains, losses, and fees, net of syndicate expenses, arising from securities offerings in which NETW acts as an underwriter or agent. Investment banking revenues also include fees earned from providing financial advisory services. Investment banking management fees are recorded on the offering date, sales concessions on the settlement date, and underwriting fees at the time the underwriting is completed and the income is reasonably determinable. Customers who are financing their transaction on margin are charged interest. NETW’s margin requirements are in accordance with the terms and conditions mandated by its clearing firm. The interest is billed on the average daily balance of the margin account. Net dealer inventory gains result from securities transactions entered into for the account and risk of NETW. Net dealer inventory gains are recorded on a trade date basis. Investment advisory fees are account management fees for high net worth clients based on the amount of the assets under management. These fees are billed quarterly and recognized at such time that the service is performed and collection is probable.

NETW generally acts as an agent in executing customer orders to buy or sell listed and over-the-counter securities in which it does not make a market, and charges commissions based on the services it provides to its customers. In executing customer orders to buy or sell a security in which it makes a market, NETW may sell to, or purchase from, customers at a price that is substantially equal to the current inter-dealer market price plus or minus a mark-up or mark-down. NETW may also act as agent and execute a customer's purchase or sale order with another broker-dealer market-maker at the best inter-dealer market price available and charge a commission. Mark-ups, mark-downs and commissions are generally priced competitively based on the services it provides to its customers. In each instance the commission charges, mark-ups or mark-downs, are in compliance with guidelines established by the FINRA.

Marketable securities are carried at fair value, with changes in value included in the statement of income in the period of change. Fair value is generally determined by quoted market prices. Non-marketable securities are valued at fair value as determined by management.

Fair Value of Financial Instruments. FASB requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statement of financial position for current assets and current liabilities qualifying as financial instruments approximate fair value because of their short maturities.

In April 2009, the FASB issued provisions that require that companies also disclose the fair value of financial instruments during interim reporting periods similar to those that are currently provided annually. These pronouncements are effective for interim reporting periods ending after June 15, 2009.

On July 1, 2008, the Company adopted the provisions of Accounting Standard Codification (“ASC”) Topic 820, which defines fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. The Company’s adoption of ASC 820 did not have a material impact on its condensed consolidated financial statements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation methods that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company has categorized its financial assets and liabilities measured at fair value into a three level hierarchy in accordance with ASC 820.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

		Page
Report of Independent Registered Public Accounting Firm		F–1

Consolidated Statements of Financial Condition		F–2

Consolidated Statements of Operations		F–3

Consolidated Statements of Stockholders’ Equity		F–4

Consolidated Statements of Cash Flows		F–5

Notes to Consolidated Financial Statements		F–6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

Network 1 Financial Group, Inc. and Subsidiaries

We have audited the accompanying consolidated statement of financial condition of Network 1 Financial Group, Inc and Subsidiaries (the “Company”) as of June 30, 2011 and 2010 and the related consolidated statements of operations, changes in equity and cash flows for each of the two years in the period ended June 30, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Network 1 Financial Group, Inc, and Subsidiaries as of June 30, 2011 and 2010, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2011 in conformity with United States generally accepted accounting principles.

/s/ RBSM LLP

New York, New York
October 13, 2011

F-1

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

JUNE 30, 2011 and 2010

	2011			2010
ASSETS
Cash	$	58,856		$	2,635
Notes Receivable - Related party		59,002			90,212
Deposit with clearing organization		345,137			685,612
Due from Affiliates		45,482			40,351
Advances to Registered Representatives: net of reserve
for uncollectible accounts of $90,000		70,231			76,286
Securities held for resale, at market		83,415			152,025
Commission receivable from clearing firm		78,021			-
Property and Equipment, net.		17,935			3,878
Other Assets		27,000			28,433
TOTAL ASSETS:	$	785,079		$	1,079,432

LIABILITIES AND EQUITY

LIABILITIES
Line of Credit	$	30,000		$	55,000
Notes Payable		4,088			12,966
Commissions Payable		78,943			51,128
Capital Leases payable		18,588			7,626
Warrant Liability		-			23,831
Accounts Payable, accrued expenses and other liabilities		173,923			223,484
Bank Overdraft		-			21,413

TOTAL LIABILITIES		305,542			395,448

Commitments and Contingencies

EQUITY

Common Stock, $.001 par value;
100,000,000 shares authorized; 55,560,057 and 40,360,057
issued and 47,635,057 and 32,435,057 outstanding, respectively		55,560			40,360

Additional Paid In Capital		2,022,888			1,430,088

Treasury Stock at cost; 7,925,000 shares		(5,129	)		(5,129	)

Accumulated defecit		(1,808,782	)		(996,335	)

TOTAL STOCKHOLDERS’ EQUITY		264,537			468,984

Non-controlling interest		215,000			215,000
TOTAL EQUITY		479,537			683,984

TOTAL LIABILITIES AND EQUITY	$	785,079		$	1,079,432

(the accompanying notes are an integral part of these consolidated financial statements)

F-2

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended June 30, 2011 and 2010

	2011			2010
Revenues:
Commissions	$	943,410		$	920,368
Net dealer inventory gains		326,153			28,619
Investment banking		293,799			1,244,780
Interest and Dividends		25,521			37,761
Transfer fees and clearing services		11,460			27,242
Investment advisory		411,775			649,459
Other		39,538			21,492
Total Revenues		2,051,656			2,929,721

Operating Expenses:
Commissions		872,309			1,643,558
Compensation and Related Expenses		1,012,836			694,869
Clearing Fees		158,975			260,680
Communications and data processing		116,841			116,450
Interest		5,254			19,021
Occupancy and related expenses		110,483			133,621
Office Expenses		339,979			298,930
Professional Fees		265,673			360,974
Depreciation		5,584			8,919
Total Operating Expenses		2,887,934			3,537,022

Loss from Operations		(836,278	)		(607,301	)

Other Income
Loss (Gain) on change in derivative liability		(23,831	)		935
Total Other Income		(23,831	)		935

Net loss		(812,447	)		(608,236	)

Income attributable to non-controlling interest		-			-

Net loss attributable to common shareholders	$	(812,447	)	$	(608,236	)

Loss per common share (basic and diluted)	$	(0.018	)	$	(0.015	)

Weighted average common shares outstanding		46,416,495			40,360,057

(the accompanying notes are an integral part of these consolidated financial statements)

F-3

NETWORK 1 FINANCIAL GROUP, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

For the years ended June 30, 2011 and 2010

					Additional		Treasury			Accumulated			Non-Controlling
	Common Stock				paid-in-capital		Stock			Defecit			interest		Total
	Shares		Amount

Balance - June 30, 2009		40,360,057	$	40,360	$	1,397,181	$	(5,129	)	$	(388,099	)	$	215,000	$	1,259,313

Capital Contributions					$	32,907									$	32,907

Net loss										$	(608,236	)			$	(608,236	)

Balance - June 30, 2010		40,360,057	$	40,360	$	1,430,088	$	(5,129	)	$	(996,335	)	$	215,000	$	683,984

Sale of common stock		9,000,000		9,000		351,000										360,000

Stock issued for services		6,200,000		6,200		241,800										248,000

Net loss											(812,447	)				(812,447	)

Balance -June 30, 2011		55,560,057	$	55,560	$	2,022,888	$	(5,129	)	$	(1,808,782	)	$	215,000	$	479,537

(the accompanying notes are an integral part of these consolidated financial statements)

F-4

NETWORK 1 FINANCIAL SECURITIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Years Ended June 30, 2011 and 2010

	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(812,447	)	$	(608,236	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		5,584			8,920
(Gain) Loss on change in derivative liability		(23,831	)		935
Stock based compensation		248,000			-

Changes in operating assets and liabilities
Due from/to affliates		(5,131	)		-
Due from clearing organization		340,475			65,707
Securities held for resale, at market		68,610			(34,934	)
Advances to/from registered representatives		6,055			(10,702	)
Other assets		1,433			(1,833	)
Commissions payable		27,815			9,825
Securities sold, but not yet purchased, at market		-			(1,215	)
Due to/from clearing organization		(78,021	)		(17,477	)
Accounts Payable, accrued expenses & other Liabilities		(49,562	)		(26,011	)
TOTAL ADJUSTMENTS		541,427			(6,785	)

NET CASH (USED IN) OPERATING ACTIVITIES		(271,020	)		(615,021	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment		(7,749	)		-
NET CASH (USED IN) INVESTING ACTIVITIES		(7,749	)		-

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of line of credit		(25,000	)		(38,000	)
Proceeds from bank overdraft		(21,413	)		21,413
Cash from certificate of deposit		-			550,942
Proceeds from sale of common stock		360,000			-
Advances repaid from affiliated companies		31,211			16,318
Repayment of Notes Payable		(8,878	)		(19,503	)
Repayment of capital lease		(930	)		(5,397	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		334,990			525,773

NET INCREASE (DECREASE) IN CASH		56,221			(89,248	)

CASH - Beginning of Year		2,635			91,882

CASH - End of Year	$	58,856		$	2,635

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during year
Interest	$	1,537		$	19,020
Income Taxes	$	2,726		$	725

SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Equipment acquired under capital lease	$	11,892		$	-

(the accompanying notes are an integral part of these consolidated financial statements)

F-5

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

NOTE 1 – Basis of Presentation (Reverse Merger and Corporate Structure)

Network 1 Financial Securities, Inc. (the "Company" or "NETW") was organized as a Texas corporation on March 15, 1983 and is registered as a broker-dealer with the Securities and Exchange Commission (SEC), the State of Texas and various other states. The Company is an introducing broker-dealer that clears all transactions with and for customers on a fully disclosed basis with a clearing broker.

On June 9, 2009, the Company completed a merger transaction with, International Smart Sourcing, Inc. (“ISSI”) an inactive publicly registered shell corporation with no significant assets or operations. ISSI was incorporated in February 1998 in Delaware. As a result of the Reverse Merger, NETW became a wholly owned subsidiary of ISSI .

Upon completion of the reverse merger transaction, ISSI changed its name to Network 1 Financial Group, Inc.

All references to Common Stock, share and per share amounts have been retroactively restated to reflect the exchange ratio of 17.16 shares of ISSI’s Common Stock for 1 share of all of the classes of the acquirer's Common Stock outstanding immediately prior to the merger as if the exchange had taken place as of the beginning of the earliest period presented.

The accompanying consolidated financial statements present the historical financial condition, results of operations and cash flows of the Company prior to the merger with ISSI.

The accompanying consolidated financial statements present on a consolidated basis the accounts of Network 1 Financial Group, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Upon the closing date of the Reverse Merger, through its wholly owned subsidiary, NETW, the Company commenced the business of providing broker-dealer services. NETW is registered as a broker-dealer with the SEC, 40 states and Puerto Rico. NETW is an introducing broker-dealer that clears all transactions with and for customers on a fully disclosed basis with its clearing broker, Legent Clearing LLC, a FINRA member firm. NETW is a member of the Financial Industry Regulatory Authority (“FINRA”), the Securities Investor Protection Corporation (“SIPC”) and NASDAQ.

The Company’s customer base is made up primarily of individual investors. The Company generates income from transactional business, mutual fund sales, business consulting fees, finder’s fees, annuity sales, register representative investment advisor fees, fees for providing investment banking services, placement agent fees for capital raises, bond transactions, and underwriting fees and concessions.

The Company competes with other broker-dealers by offering services to small and microcap public companies which we believe are significantly underserved by the investment community. These companies may have little or no analysts following their growth and may be shut out of the capital markets due to their size and current market cap. Many of our competitors are larger and have substantially more capital resources than us, and could potentially enter our market space.

F-6

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011AND 2010

NOTE 2 - Summary of Significant Accounting Policies

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-7

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

Revenue Recognition

Customer security transactions and the related commission income and expense are recorded as of the trade date. Investment banking revenues include gains, losses, and fees, net of syndicate expenses, arising from securities offerings in which the Company acts as an underwriter or agent. Investment banking revenues also include fees earned from providing financial advisory services. Investment banking management fees are recorded on the offering date, sales concessions on the settlement date, and underwriting fees at the time the underwriting is completed and the income is reasonably determinable. Customers who are financing their transaction on margin are charged interest. The Company’s margin requirements are in accordance with the terms and conditions mandated by its clearing firm. The interest is billed on the average daily balance of the margin account.

Net dealer inventory gains result from securities transactions entered into for the account and risk of the Company. Net dealer inventory gains are recorded on a trade date basis. Investment advisory fees are account management fees for high net worth clients based on the amount of the assets under management. These fees are billed quarterly and recognized at such time that the service is performed and collection is probable.

The Company generally acts as an agent in executing customer orders to buy or sell listed and over-the-counter securities in which it does not make a market, and charges commissions based on the services the Company provides to its customers. In executing customer orders to buy or sell a security in which the Company makes a market, the Company may sell to, or purchase from, customers at a price that is substantially equal to the current inter-dealer market price plus or minus a mark-up or mark-down. The Company may also act as agent and execute a customer's purchase or sale order with another broker-dealer market-maker at the best inter-dealer market price available and charge a commission. Mark-ups, mark-downs and commissions are generally priced competitively based on the services it provides to its customers. In each instance the commission charges, mark-ups or mark-downs, are in compliance with guidelines established by the FINRA.

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets, which range from five to twenty years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful lives of the assets or the terms of the leases. Maintenance and repairs are charged to expense as incurred; costs of major additions and betterments that extend the useful life of the asset are capitalized. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized.

F-8

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

Fair Value of Financial Instruments

FASB requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statement of financial position for current assets and current liabilities qualifying as financial instruments approximate fair value because of their short maturities.

Impairment of Long-Lived Assets

The Company assesses the recoverability of its long lived assets, including property and equipment when there are indications that the assets might be impaired. When evaluating assets for potential impairment, the Company first compares the carrying amount of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows used in this analysis are less than the carrying amount of the asset, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset to the asset’s estimated future cash flows (discounted and with interest charges). If the carrying amount exceeds the asset’s estimated futures cash flows (discounted and with interest charges), the loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets. Based on its assessments, the Company did not incur any impairment charges for the years ended June 30, 2011 and 2010.

F-9

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

Concentrations of Credit Risk

The Company is engaged in trading and providing a broad range of securities brokerage and investment services to a diverse group of retail and institutional clientele, as well as corporate finance and investment banking services to corporations and businesses. Counterparties to the Company’s business activities include broker-dealers and clearing organizations, banks and other financial institutions. The Company uses clearing brokers to process transactions and maintain customer accounts on a fee basis for the Company. The Company uses one clearing broker for substantially all of its business. The Company permits the clearing firms to extend credit to its clientele secured by cash and securities in the client’s account. The Company’s exposure to credit risk associated with the non-performance by its customers and counterparties in fulfilling their contractual obligations can be directly impacted by volatile or illiquid trading markets, which may impair the ability of customers and counterparties to satisfy their obligations to the Company. The Company has agreed to indemnify the clearing brokers for losses they incur while extending credit to the Company’s clients. It is the Company’s policy to review, as necessary, the credit standing of its customers and each counterparty. Amounts due from customers that are considered uncollectible by the clearing broker are charged back to the Company by the clearing broker when such amounts become determinable.

Upon notification of a charge back, such amounts, in total or in part, are then either (i) collected from the customers, (ii) charged to the broker initiating the transaction and included in other receivables in the accompanying consolidated balance sheet, and/or (iii) charged as an expense in the accompanying consolidated statements of operations, based on the particular facts and circumstances.

The maximum potential amount for future payments that the Company could be required to pay under this indemnification cannot be estimated. However, the Company believes that it is unlikely it will have to make any material payments under these arrangements and has not recorded any contingent liability in the financial statements for this indemnification.

The Company maintains cash with major financial institutions. The Federal Deposit Insurance Corporation (“FDIC”) insures up to $250,000 at each institution. At times such amounts may exceed the FDIC limits. At June 30, 2011 and 2010, the uninsured cash bank balance was approximately $0 and $0, respectively. The Company believes it is not exposed to any significant credit risks for cash.

Advances to Registered Representatives

The Company extends unsecured credit in the normal course of business to its registered representatives. The determination of the amount of uncollectible accounts is based on the amount of credit extended and the length of time each receivable has been outstanding, as it relates to each individual registered representative. The allowance for uncollectible amounts reflects the amount of loss that can be reasonably estimated by management and is included as part of operating expenses in the accompanying consolidated statements of operations. As of June 30, 2011 and 2010, the Company has reserved approximately $90,000, respectively for any potential non-collection.

F-10

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs, which are included in selling, general and administrative expenses, were deemed to be nominal during each of the reporting periods.

Non-controlling Interest

As a result of adopting FASB ASC 810-10 Consolidations – Variable Interest Entities, on July 1, 2009, we present non-controlling interests (previously shown as minority interest) as a component of equity on our Consolidated Statement of Financial Condition and Consolidated Statement of Equity. The adoption of this guidance did not have any other material impact on our financial position, results of operations or cash flow.

Income Taxes

In accordance with ASC 740, “Income Taxes,” The Company accounts for income taxes under the liability method. Deferred income tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. The Company periodically assess whether it is more likely than not that they will generate sufficient taxable income to realize the deferred tax assets. The Company records a valuation allowance, as necessary, to reduce the deferred tax assets to the amount of future tax benefit that The Company estimates is more likely than not to be realized. The Company believes that their estimates are reasonable; however, the final outcome of tax matters may be different from than the estimates reflected in their consolidated financial statements.

The Company’s income tax provisions are based on assumptions and calculations which will be subject to examination by various tax authorities. The Company records tax benefits for positions that they believe are probable of being sustained under such examinations. Regularly, the Company assesses the potential outcome of such examinations to determine the adequacy of their income tax accruals. The Company adjusts their income tax provision during the period in which they determine that the actual results of the examinations may differ from their estimates. Changes in tax laws and rates are reflected in their income tax provision in the period in which they occur.

ASC 740 “Income Taxes” which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. Effective January 1, 2007, the Company adopted the provisions of ASC 740 as required. As a result of implementing ASC 740, there has been no adjustment to the Company’s financial statements and the adoption of ASC 740 did not have a material effect on the Company’s financial statements for the years ending June 30, 2011 and 2010.

Net Loss per Common Share

The Company computes earnings per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and the exercise of the Company's stock options and warrants.

For the years ended June 30, 2011 and 2010, common stock equivalents are not considered in the calculation of the weighted average number of common shares outstanding because they would be anti-dilutive, thereby decreasing the net loss per common share.

Reclassifications

Certain reclassifications have been made in prior year's financial statements to conform to classifications used in the current year.

F-11

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

NOTE 3 - Recent Accounting Pronouncements

Management does not believe there are any issued, but not yet effective, accounting standards if currently adopted which would have a material effect on the accompanying consolidated financial statements.

NOTE 4 – Securities held for resale, at market

The following table shows the market values of the Company's investment securities owned as of June 30, 2011and 2010, respectively:

	2011		2010

Securities	$	83,415	$	152,025

F-12

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

NOTE 5 – Deposit with Clearing Organization

The following represents amounts on deposit with Southwest Securities, Inc. (“Southwest”) and Legent Clearing LLC (“Legent”), the Company’s clearing broker inventory account:

	June 30, 2011							June 30, 2010
	Southwest		Legent		Total			Southwest		Legent		Total
Cash	$	14,495	$	260,885	$	275,380	$	392,033	$	50,000	$	442,033
Marketable securities, net of fair value adjustments		0		69,757		69,757		243,579		-		243,579
	$	14,495	$	330,642	$	345,137	$	635,612	$	50,000	$	685,612

The marketable securities are primarily comprised of corporate stocks. Marketable securities on deposit with Legent Securities are reflected at fair value. As of June 30, 2011, the Company is required to maintain a clearing deposit of $100,000 with Legent.

On April 21, 2010, the Company entered into a fully executed Clearing Agreement with Legent, effective as of April 15, 2010 (the “Legent Clearing Agreement”). Pursuant to the Legent Clearing Agreement, Legent will provide certain services to the Company with respect to customer accounts (the “Accounts”) introduced by the Company to Legent. Among other things, the Services shall include the following: (i) executing, clearing and settling securities transactions on behalf of the Company; (ii) preparing and delivering confirmations and Account statements; (iii) extending credit to Accounts; (iv) performing various cashiering functions; (v) safeguarding Account funds and securities; and (vi) maintaining books and records with respect to the Accounts.

The Company along with Southwest and Legent entered into an agreement to begin the transfer from Southwest to Legent of all customer accounts introduced by the Company on August 13, 2010. Subsequent to this transfer the Company used Legent to clear its brokerage business.

As of June 2011, the Company also has a deposit of $14,495 in cash at Southwest due to an account still held at the former clearing company.

F-13

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

NOTE 6 - Related Party Transactions

As of June 30, 2011 and 2010, due from affiliated companies consisted of the following:

	June 30,
	2011		2010

Legends property development (a)	$	0	$	1,330

Network 1 Financial Advisors Inc.(b)	$	67,095	$	91,362

Network 1 Financial Assurance, Inc. (a)	$	200	$	400

National Financial Services Group (a)	$	37,189	$	39,884

(a)

Represents amounts due from an affiliated company whose officers and shareholders are officers and shareholders’ of the Company.

(b)

Represents amounts due in the form of a promissory note from an affiliated company whose officers and shareholders are officers and shareholders’ of the Company.

NOTE 7 - Property and Equipment

Property and equipment, net, consists of the following:

	June 30,
	2011		2010
Computer equipment	$	135,003	$	115,363
Furniture and fixtures		31,251		31,251

Total		166,254		146,614
Less: accumulated depreciation		(148,319)		(142,736)

Property and Equipment - Net	$	17,935	$	3,878

Depreciation expense for the years ended June 30, 2011 and 2010 was approximately $5,584 and $8,920, respectively.

NOTE 8 - Capital Lease Obligation

The Company has equipment under a capital leases expiring in August 2012 and September 2015. The assets and liabilities under the capital lease are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are included in property and equipment and is amortized over the estimated life of the assets. The interest rate under the lease is 6.60% and 6.89% and is imputed based on the lessor’s implicit rate of return. The Capital lease is payable in monthly installments of $532 and $210, including interest through August 2012 and September 2015.

Amortization of assets held under the capital lease is included in depreciation expense.

F-14

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

At June 30, 2011, annual minimum future lease payments under the capital lease are as follows:

June 30,	Amount

2012	$	9,437
2013		2,517
2014		2,517
2015		2,517
2016		1,600

Total minimum lease payments	$	18,588

NOTE 9 - Line of Credit

The Company’s bank line of credit is payable on demand. The maximum amount the Company could borrow is $100,000, indebtedness under the line of credit provides for interest at the bank’s prime rate, plus 1.0%. As of June 30, 2011 and 2010, the amount outstanding under this credit facility was $30,000 and $55,000, respectively. Indebtedness under the credit agreement is collateralized by substantially all of the assets of the Company and an officers’ personal guarantee.

NOTE 10 - Notes Payable

Notes payable include settlement agreements entered into with the FINRA in May and September 2010, for monetary sanctions imposed against the Company, respectively (See Note 17). As of June 30, 2011, notes payable consists of as follows:

	June 30,
	2011		2010
Note payable to FINRA in monthly installments of $500 per month including interest at a rate of 6.25% through January 2012.		3,264		-

Note payable to FINRA in monthly installments of $2,500 per month including interest at a rate of 11.25% through August 2010.		-		5,966
Note payable to FINRA in monthly installments of $500. per month including interest at a rate of 6.25% through August 2011		824		7,000
Total notes payable	$	4,088	$	12,966

F-15

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

NOTE 11 - Income Taxes

As of June 30, 2011, the Company had net operating loss carry forwards available to offset future taxable income of approximately $ 2.2 million. As a result of the Reverse Merger, the amount of prior years’ net operating loss carry forwards available to be utilized was significantly reduced due to the change in control provisions of Section 382 of the Internal Revenue Code. These net operating losses which, if not utilized, expire in 2031. At June 30, 2011 the Company has a deferred tax asset, which consists primarily of temporary differences relating to net operating losses. Deferred income taxes reflect the net tax effects of operating loss and tax credit carryforwards and temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized.

A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates the length of carryback and carryforward periods, and expectations of future profits, etc.

The Company believes that uncertainty exists with respect to future realization of the deferred tax assets and has established a valuation allowance for the full amount as of June 30, 2011.

NOTE 12 - Benefit Contribution Plan

The Company sponsors a 401(k) profit sharing plan that covers substantially all of its employees. The plan provides for a discretionary annual contribution, and is allocated in proportion to compensation. In addition, each participant may elect to contribute to the Plan by way of a salary deduction. An employee becomes fully vested in the Company’s contribution after 6 years. A participant is fully vested in their own contributions. For the years ended June 30, 2011 and 2010, the Company made no discretionary contributions to the Plan.

NOTE 13 - Net Capital Requirements

NETW, a subsidiary of the Company, is a registered broker-dealer and is subject to the SEC’s Uniform Net Capital Rule 15c3-1. This requires that NETW maintain minimum net capital of $100,000 and also requires that the ratio of aggregate indebtedness, as defined, to net capital, shall not exceed 15 to 1.

As of June 30, 2011 and 2010, NETW’s net capital exceeded the requirement by approximately $65,211 and $94,237 respectively.

Advances, dividend payments and other equity withdrawals are restricted by the regulations of the SEC, and other regulatory agencies are subject to certain notification and other provisions of the net capital rules of the SEC. NETW qualifies under the exemptive provisions of Rule 15c3-3 as NETW does not carry security accounts for customers or perform custodial functions related to customer securities.

F-16

NETWORK I FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011AND 2010

NOTE 14 - Non-Controlling Interest in Subsidiaries

Network 1 Financial Securities, Inc. (“NETW”) exchanged substantially all it’s Common Stock in accordance with the reverse merger. However, NETW’s Series A preferred stock remained outstanding. As of June 30, 2011nd 2010, NETW had 1,000,000 shares authorized, of 8% Series A preferred stock $1.00 par value, and 215,000 shares are outstanding.

The Series A preferred stock is redeemable at the option of the Company’s Board of Directors at 125% of the issuance price plus any dividends earned but unpaid and after one year outstanding. The Series A preferred stock is non-voting and non-cumulative. Of the 215,000 shares issued, 130,000 shares are owned by National Financial Services Group, Inc., an affiliated Company, whose officers and shareholders’ are officers and shareholders of the Company. The preferred stock shareholders are entitled to a bonus dividend at the discretion of the board of directors based on the profitability of the firms market making investment activities minus certain deductions. No bonus dividends were declared for the years ended June 30, 2011 and 2010.

NOTE 15 –Warrants and Derivative Liability

The following is additional information with respect to the Company’s warrants as of June 30, 2011:

WARRANTS OUTSTANDING AND EXERCISABLE
	Number of		Weighted
	Outstanding		Average	Weighted
	Shares		Remaining	Average
Exercise	Underlying		Contractual	Exercise
Price	Warrants		Life	Price
$0.16		7,657,733	0.32	$	0.16
		7,657,733	0.32	$	0.16

Effective April 8, 2010, the Board of Directors of the Company amended the Warrant Agreement to extend the expiration date of the Warrants by eighteen months, from April 23, 2010 until October 23, 2011.

Effective March 4, 2011, the exercise price of these warrants was adjusted from $0.20 to $0.16 due to the exercise price adjustment provisions in the warrant agreements. This adjustment was due to the issuance of common stock for services and sale of the common stock for a stock price lower than the exercise price attributable to the warrants.

In June 2008, the FASB issued new accounting guidance which requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions. Instruments not indexed to their own stock fail to meet the scope exception of ASC 815 “Derivative and Hedging” and should be classified as a liability and marked-to-market. The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings. The Company’s warrants issued in connection with the IPO do not have fixed settlement provisions because their exercise prices, may be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect warrant holders from potential dilution associated with future financings. In accordance with the guidance, the warrants have been recharacterized as a derivative liability.

F-17

NETWORK I FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

The derivative liability was valued using the Black-Scholes option valuation model and the following assumptions:

	June 30, 2011			June 30, 2010
Warrants:
Risk-free interest rate		0.17	%		0.27	%
Expected volatility		42.68	%		85.77	%
Expected life (in years)		0.32			1.31
Expected dividend yield		0	%		0	%

Fair value:
Warrants	$	-		$	23,831

The risk-free interest rate was based in rates established by the Federal Reserve. The Company’s expected volatility was based upon the historical volatility for its common stock. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

NOTE 16- Stockholders’ Equity

Common Stock

In accordance with the reverse merger, all references to Common Stock, share and per share amounts have been retroactively restated to reflect the exchange ratio of 17.16 shares of ISSI’s Common Stock for 1 share of all of the classes of the acquirer's Common Stock outstanding immediately prior to the merger as if the exchange had taken place as of the beginning of the earliest period presented.

On December 8, 2004, we filed a Certificate of Amendment to our Certificate of Incorporation increasing the total number of authorized shares to 101,000,000, consisting of 100,000,000 shares of common stock and 1,000,000 shares of preferred stock.

On March 4, 2011, the Company sold 9,000,000 shares of its common stock to an Windex Capital LLC an unaffiliated investor for proceeds of $360,000 before expenses associated with the placement. And authorized the issuance of 900,000 common stock shares to be distributed to the placement agent registered representative of Network 1 Financial Securities Inc.

On January 4, 2011, the Company authorized the issuance of 6,200,000 shares of its common stock as compensation to one of it’s officers valued at $248,000.

On March 17, 2011 the Board authorized the issuance of 100,000 shares to Vicent LaBarbara a Board member for agreeing to join the Board.

Preferred Stock

The Board of Directors of the Company is authorized, without further action of the shareholders of the Company, to issue up to 1,000,000 shares of Preferred Stock in one or more classes or series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, and the number of shares constituting any series or the designation of such series. As of June 30, 2011 and 2010, there were no shares of preferred stock issued and outstanding.

F-18

NETWORK I FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

NOTE 17 - Commitments and Contingencies

Litigation

The Company may be involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. The Company currently is not involved in any legal proceedings which are not in the ordinary course of business.

Enforcement Actions

In April 2010, the Company entered into a settlement agreement with the NASD for monetary sanctions imposed on the Company. The monetary sanctions amounted in the aggregate to $10,000. The term of the settlement agreement allowed the Company to follow an installment arrangement. Principal terms of the arrangement required a down payment of 25%. The remaining balance is to be paid over a term of 16 months. Interest is to be paid at a rate of approximately 6.25% per annum (See Note 10).

In September 2010, the Company entered into a settlement agreement with the NASD for monetary sanctions imposed on the Company. The monetary sanctions amounted in the aggregate to $10,000. The term of the settlement agreement allowed the Company to follow an installment arrangement. Principal terms of the arrangement required a down payment of 25%. The remaining balance is to be paid over a term of 16 months. Interest is to be paid at a rate of approximately 6.25% per annum (See Note 10).

Regulatory Approvals Required

As a registered broker-dealer, we are subject to the SEC’s ongoing Uniform Net Capital Rule 15c3-1. This requires that we maintain minimum net capital of $100,000 and also requires that the ratio of aggregate indebtedness, as defined, to net capital, shall not exceed 15 to 1.

Lease Commitments

The Company leases its corporate office facility under an operating lease expiring in June 2012. Additional rent is payable for increases in real estate taxes and operating expenses over base period amounts. Under the terms of the lease, the Company has the option to cancel the lease provided a minimum of four months written notice is given to the landlord.

F-19

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

FOR THE YEARS ENDED JUNE 30, 2011 AND 2010

Minimum future annual rental payments are approximately as follows:

Year Ending	Amount

2012	$	108,000
Total	$	108,000

The total amount of rent payable under the leases is recognized on a straight line basis over the term of the leases. Rent expense for the years ended June 30, 2011 and 2010 was approximately $108,000 and $121,200, respectively.

NOTE 18 – Fair Value Measurements

ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., 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 that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

The table below summarizes the fair values of our financial assets that are measured on a recurring basis at fair value as of June 30, 2011:

	Level 1		Level 2		Level 3		Total
Deposit with clearing organization	$	69,757		-		-	$	69,757
Securities held for resale		83,415		-		-		83,415
Total Assets	$	153,172		-		-	$	153,172

Derivative liabilities	$	-		-		0	$	0
Total Liabilities	$	-		-		0	$	0

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 Financial Liabilities (derivative liabilities) for the year ended June 30, 2011.

Balance at beginning of year	$	23,831
Change in fair value of derivative liabilities		(23,831	)
Balance at end of year	$	0

NOTE 19 - Subsequent Event

On September 1, 2011, NETW entered into an AWC with FINRA, concerning NETW’s reporting short sales and capacity incorrectly. The fine was for an aggregate of $12,500. NETW made one $3,125 payment to FINRA and will pay the balance at a rate of $500 per month until May, 2013.

F-20

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in accounting principles or disagreements with our auditors regarding applications of any accounting principles during the year ended June 30, 2011

Item 9A. Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(f) under the Exchange Act) (the “Disclosure Controls”) as of the end of the period covered by this Annual Report. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our Principal Executive Officer (“PEO”) and Principal Accounting Officer (the “PAO,” and together with the PEO, the “Certifying Officers”).

Attached as exhibits to this Annual Report are certifications of the Certifying Officers, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Disclosure Controls and Procedures

The term “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e)) refers to the controls and other procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its Certifying Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

We have designed our disclosure controls and procedures to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified the SEC’s rules and forms. We also have designed our disclosure controls and procedures to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosures. Based on management’s evaluation, we have determined that our disclosure controls and procedures were not effective as a result of the material weakness described below.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only Management’s report in this Annual Report.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for the preparation of the Company’s financial statements and related information. Management uses its best judgment to ensure that the financial statements present fairly, in all material aspects, the Company’s financial position and results in conformity with Generally Accepted Accounting Principles (“GAAP”).

Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, Certifying Officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Under the supervision of management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission published in 1992.

As a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of June 30, 2011 due to the identification of a material weakness. A material weakness is a control deficiency or combination of control deficiencies such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

To address the material weakness described below, we performed additional analysis and performed other procedures to ensure our financial statements were prepared in accordance with GAAP. Accordingly, management believes that the financial statements included in this Annual Report on Form 10-K, fairly present, in all material aspects, our financial condition, results of operations and cash flows for the periods presented in accordance with GAAP.

The weakness, identified by management, related to the lack of necessary accounting resources to ensure consistently complete and accurate reporting of financial reporting. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

We believe that for the reasons described above, after we hire additional qualified in-house personnel, we will be able to improve our disclosure controls and procedures, remedy the material weaknesses identified above and provide reasonable assurance that assets are safeguarded from loss or unauthorized use, that transactions are recorded in accordance with GAAP under management’s directions, and that financial records are reliable to prepare financial statements. However, because of inherent limitations in all control systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected.

Changes in Internal Controls over Financial Reporting

Other than the identification of the material weakness described above, there have not been any other changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2011 that have materially affected or are reasonably likely to affect our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The following individuals serve as the directors, executive officers and key employees of the Company. All directors of the Company and our operating subsidiary hold office until his successor shall have been duly elected and qualified, subject to his earlier death, resignation or removal. The executive officers of the Company and our operating subsidiary are appointed by our board of directors and hold office until their death, resignation or removal from office.

Name	Age	Position
Richard W. Hunt	58	Vice-President and Chairman of the Board
Vincent Labarbara(2)	49	Director
William R. Hunt, Jr.	57	Acting Chief Financial Officer, Secretary and Director
Damon Testaverde	63	President , CEO and Director

(1)

Member of the Audit Committee.

(2)

Member of the Compensation Committee.

(3)

Member of the Nominating and Corporate Governance Committee.

Richard W. Hunt was appointed Chief Executive Officer, Vice-President and Chairman of the Board of Directors of the Company following the consummation of the Reverse Merger on June 9, 2009 and served as CEO until January 4, 2011 . Since March 1988, Mr. Hunt has served as Chief Executive Officer, Secretary and Chairman of the Board of Directors of NETW. Mr. Hunt is currently a FINRA Registered Representative. Since May 1998, Mr. Hunt has served as a director of Network 1 Financial Assurance, Inc., which acts as an agent providing life and health insurance products for certain clients on behalf of the Company, and since September 2000, he has served as director of Network 1 Financial Advisors, Inc., which provides advisory services and the in-house management of the Company’s client accounts. Mr. Hunt also served as President of Network 1 Financial Advisors, Inc. between September 2000 and November 2008. Mr. Hunt received his BA in Liberal Arts, with emphasis in Business and Human Resources, from Trenton State College, now known as The College of New Jersey.

Without admitting or denying wrongdoing Mr. Hunt signed a consent agreement with FINRA in July 2007 resulting in the following: for a period of 45 days during August and September 2007, Mr. Hunt was suspended from association with any FINRA (f/k/a NASD) member in a principal capacity (Supervisor) but not as a registered representative and was fined $25,000, upon consenting to such sanctions and the entry of findings in connection with charges that Mr. Hunt violated certain NASD Conduct rules for failure to supervise.

Vincent LaBarbara, was appointed director in March 2011. He has more thatn 20 years of experience in general management, acquistions, and financial investments. Mr Labarbara currently serves as a Managing Director at Network 1 Financial Securities, Inc since October 2010. Prior to his current position, Mr. LaBarbara served as President and Chief executive officer of Skyebanc, Inc. a registered broker dealer specializing in private equity transactions from March 2005 to October 2010.

Without admitting or denying wrongdoing, Vincent LaBarbara signed a consent agreement with FINRA in May 2010 in order to resolve a supervisory issue involving a branch manager of a broker/dealer that was not then, and is not now affiliated with either Network 1 Financial Group, Inc or its subsidiary, Network 1 Financial Securities, Inc.

William Hunt Jr. was appointed Acting Chief Financial Officer in March 2011 and was appointed Secretary of the Company on January 4, 2011. He was appointed President and a member of the Board of Directors of the Company following the consummation of the Reverse Merger on June 9, 2009 and served in that capacity until January 4, 2011. Since March 1988, Mr. Hunt has served as the President, Chief Operating Officer and a director of NETW. In 1993, he was also appointed Chief Financial Officer of NETW. From September 2000 to November 2008, he served as Vice President of Network 1 Financial Advisors, Inc, and in November 2008 he was appointed President. Since May 1998, he has served as Vice President and Chief Financial Officer of Network 1 Financial Assurance, Inc. Mr. Hunt is currently a FINRA Registered Representative, and has an insurance and real estate license in New Jersey. He received his BS in Business Administration from Trenton State College, now known as The College of New Jersey.

Without admitting or denying wrongdoing, William R Hunt, Jr. signed a consent and requalification agreement with FINRA in June 2004 while Mr. Hunt was acting as Network 1 Financial Securities’ chief financial officer. This agreement arose out of an accounting dispute regarding the method of calculating Network 1 Financial Securities’ net capital.

Damon D. Testaverde was appointed President and CEO on January 4, 2011. He was appointed Secretary and a member of the Board of Directors of the Company following the consummation of the Reverse Merger on June 9, 2009 and served in that capacity until January 4, 2011. Since July 1994, Mr. Testaverde has been the managing director of NETW. From May 1991 until June 1995, Mr. Testaverde served as President and Chief Executive officer of TekInsight. From 1989 to March 1991, Mr. Testaverde served as the principal stockholder of R.H. Damon & Company, Inc. a full service securities broker-dealer. From 1980 to 1986, he served in the capacity of President of S.D. Cohn & Co., Inc., a full service securities broker-dealer. He is currently a FINRA Registered Representative. He received his B.A. in Accounting from Pace University.

Between September 2007 and January 2008, Mr. Testaverde was suspended from association with any FINRA (f/k/a NASD) member in any capacity, and was fined $50,000, upon neither admitting nor denying such sanctions and the entry of findings, relating to charges that he solicited one of NETW’s customers, who was a controlling shareholder of a company to sell shares in amounts that exceeded the limits that a controlling shareholder could sell in public transactions, in violation of certain NASD Conduct Rules and Section 5 of the Securities Act of 1933, as amended.

Richard W. Hunt and William R. Hunt, Jr. were officers of a private golf and country club that has sought protection under the bankruptcy laws on April, 15, 2011.

Family Relationships

William R. Hunt, Jr. and Richard W. Hunt are brothers. There are no other family relationships between any of our directors or executive officers.

Involvement in Certain Legal Proceedings

Except as set forth above, none of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

1.	any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

2.	any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

3.	being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

4.	being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Meetings of the Board

Our Board of Directors met three (3) times in person during the fiscal year ended June 30, 2011. All directors serving at the time attended the meeting.

Board Committees

Our Board of Directors has established a compensation committee (the “Compensation Committee”), an audit committee (the “Audit Committee”), and a nominating and corporate governance committee (the “Nominating and Corporate Governance Committee”).

The Compensation Committee. The Compensation Committee consists of Vincent LaBarbara. The Compensation Committee determines the salaries and bonuses of our executive officers.

The Audit Committee. Currently no members appointed

Nominating and Corporate Governance Committee. Currently no members appointed

The Nominating Committee expects to identify nominees to serve as our directors primarily by accepting and considering the suggestions and nominee recommendations made by directors, management and stockholders. The Nominating Committee has not established specific minimum qualifications for recommended nominees. However, as a matter of practice, the Nominating Committee does evaluate recommended nominees for directors based on their integrity, judgment, independence, financial and business acumen, relevant experience, and their ability to represent and act on behalf of all stockholders, as well as the needs of the Board of Directors. In general, the Nominating Committee would expect to re-nominate incumbent directors who express an interest in continuing to serve on the Board of Directors.

The Charter of the Nominating and Corporate Governance Committee can be found as Appendix E of the definitive proxy statement filed with the SEC on August 28, 2006.

Code of Business Conduct and Ethics

The Board of Directors has also adopted a Code of Business Conduct and Ethics, which can be found in Appendix F of the Definitive Proxy Statement filed by the Company with the SEC on August 28, 2006. The Code of Business Conduct and Ethics will be provided without charge, upon written request to us at the following address: Network 1 Financial Group, Inc., 2 Bridge Avenue, 4th Floor Red Bank, NJ 07701, Attention: Richard W. Hunt.

Section 16(a) Beneficial Ownership Reporting

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC and NASDAQ. Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge, based solely on a review of such reports provided to us and written representations that no other reports were required during, or with respect to, the year ended June 30, 2011, all Section 16(a) filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners have been satisfied.

Item 11. Executive Compensation.

Executive Compensation

The following table sets forth information concerning the compensation paid and awarded to those individuals serving as our officers following the consummation of the Reverse Merger. It includes compensation paid at the end of the fiscal years ended June 30, 2011 and 2010 to (i) our Chief Executive Officer and former Chief Executive Officer and (ii) the two most highly compensated executive officers (other than our Chief Executive Officer) of us and our subsidiaries whose total compensation exceeded $100,000 for these periods. These individuals may be collectively referred to in this report as our “Named Executive Officers.”

							Non-	Non-
							Equity	qualified
	Fiscal						Incentive	Deferred
Name and Principal	Year				Stock	Option	Plan	Compensation	All Other
Position	Ended	Salary	Bonus		Awards	Awards	Compensation	Earnings	Compensation	Total
		($)	($)		($)	($)	($)	($)	($)	($)

		—	—		—	—	—	—	—	—

Richard W. Hunt	2011	119,600	10,746	(5)	—	—	—	—	—	131,535
Chairman of the Board and	2010	119,600	50,935	(5)		—	—	—	—	170,535
Vice-
President (1)(2)

William R. Hunt	2011	119,600	10,745	(5)	—	—	—	—	—	131,535
Acting CFO, Director, Secretary(2)(3)	2010	119,600	50,935	(5)	0	—	—	—	—	170,535

Damon Testaverde	2011	—	171,540	(5)	248,000	—	—	—	—	419,540
President, CEO and Director (4)	2010		1,008,815	(5)	—	—	—	—	—	1,008,815

(1)	Richard W. Hunt was appointed Chief Executive Officer and Vice-President of the Company on June 9, 2009 in conjunction with the consummation of the Reverse Merger. He resigned as CEO on Januany 4, 2011

(2)

Represents fees paid to Richard W. Hunt and William R. Hunt, Jr. for their services to NETW during the fiscal years ended June 30, 2011 and 2010 NETW does not have employment agreements with any of its employees. The salary for Messrs. William and Richard Hunt consists of a base salary plus commissions, which commissions have been waived by each of Messrs. William and Richard Hunt from time to time. The base salary for Messrs. William and Richard Hunt was determined by looking at comparable salaries for individuals holding similar titles at other brokerage firms of similar size. The commission portion allows them to increase their salary based on actual production, which NETW’s management believes is standard in the industry.

(3)	William R. Hunt, Jr. was appointed President of the Company on June 9, 2009 in conjunction with the consummation of the Reverse Merger. He resigned as President on January 4, 2011 and was appointed Secretary on January 4, 2011. He was appointed as Acting Principal Accounting Officer in March 2011.

(4)

Mr. Testaverde was appointed Secretary of the Company on June 9, 2009 in conjunction with the consummation of the Reverse Merger. He resigned as Secretary on January 4, 2011 and was appointed President and CEO on January 4, 2011 Represents fees paid for Mr. Testaverde’s services to NETW during the fiscal years ended June 30, 2011 and 2010

(5)	Represents, comission payments.

Employment Contracts

We do not have employment agreements with any of our employees.

Compensation of Directors

All of our directors, regardless of whether they are also employees of our Company, receive $500 a month for serving on the Board of Directors as well as reimbursement of reasonable expenses incurred in attending meetings., which has been waived by the members.

DIRECTOR COMPENSATION

No fees were paid to any of our directors for the fiscal year ended June 30, 2011.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The following table sets forth as of October 10, 2011 certain information regarding the beneficial ownership of Common Stock by (i) each person or “group” (as that term is defined in Section 13(d)(3) of the Exchange Act) known by the Company to be the beneficial owner of more than 5% of the common stock, (ii) each of our executive officers, (iii) each director and nominee and (iv) all directors and executive officers as a group. Except as otherwise indicated, we believe, based on information furnished by such persons, that each person listed below has sole voting and investment power over the shares of common stock shown as beneficially owned, subject to community property laws, where applicable. Beneficial ownership is determined under the rules of the SEC and includes any shares which the person has the right to acquire within 60 days after October 10, 2011 through the exercise of any stock option or other right.

Name and address of beneficial owner	Amount and nature of Beneficial ownership			Percent of class of Common Stock(1)
Horace T. Ardinger, Jr.		11,077,351	(2)		20.66	%
9040 Governors Row
Dallas, TX 75356

Windex Capital LLC
Suite 3-15-1603, New World Center		9,000,000			18.50	%
Chongwen District
Beijing 100062, PR China		,

Directors and Officers(3) :

Vincent LaBarbara* Director		300,000			0.62	%

Damon Testaverde President. CEO and Director		9,523,653	(4)		19.26	%

William R. Hunt, Jr. Secretary, COO and Director		9,363,213	(5)		19.11	%

Richard W. Hunt Vice-President and Chairman		9,284,933	(6)		18.98	%

Directors and Officers as a group (4 persons)		27,492,212	(7)		55.51	%

*Less than one percent.

(1)	Based on 48,635,057 shares of common stock outstanding as of October 10, 2011.

(2)

Includes 965,000 warrants with an exercise price of approximately $0.80 to purchase a total of 4,979,400 shares of common stock which expire on October 23, 2011. Also includes 5,668,920 shares of common stock held by H.T. Ardinger & Sons, Inc., a Texas corporation, of which Mr. Ardinger has sole voting and dispositive control. Also includes 429,031 shares which Mr. Ardinger received in conjunction with the Reverse Merger as a result of his ownership of NETW shares. Does not include 317,500 shares owned by Mr. Ardinger’s wife, to which he disclaims beneficial ownership.

(3)	The address of each officer and director is c/o Network 1 Financial Group, Inc., 2 Bridge Avenue, 4th floor, Red Bank, NJ 07701.

(4)

Includes 53,452 warrants with an exercise price of approximately $0.80 to purchase of total of 275,278 shares of common stock which expire October 23, 2011. Such warrants are owned by Network 1 Financial Securities, Inc., over which Mr. Testaverde shares control with Mr. William Hunt and Mr. Richard Hunt. Also includes 12,500 shares of common stock owned by Mr. Testaverde’s wife, Patricia. Also includes 5,000 shares of common stock owned by R. H. Damon, Inc., a corporation over which Mr. Testaverde exercises voting and investment control. Also includes 104,000 warrants with an exercise price of approximately $0.80 to purchase 535,600 shares of common stock which expire on October 23, 2011.

(5)

Includes 53,452 warrants with an exercise price of approximately $0.80 to purchase of total of 275,278 shares of common stock which expire October 23, 2011. Such warrants are owned by Network 1 Financial Securities, Inc., over which Mr. Hunt shares control with Mr. Testaverde and Mr. Richard Hunt. Also includes 429,031 shares of common stock received in conjunction with the Reverse Merger by Network 1 Financial Advisors, Inc., a corporation over which William Hunt shares voting and investment control with Richard Hunt. Also includes 15,200 warrants with an exercise price of approximately $0.80 to purchase a total of 78,280 shares of common stock which expire October 23, 2011.

(6)

Includes 53,452 warrants with an exercise price of approximately $0.80 to purchase of total of 275,278 shares of common stock which expire October 23, 2011. Such warrants are owned by Network 1 Financial Securities, Inc., over which Mr. Hunt shares control with Mr. Testaverde and Mr. William Hunt. Also includes 429,031 shares of common stock received in conjunction with the Reverse Merger by Network 1 Financial Advisors, Inc., a corporation over which Richard Hunt shares voting and investment control with William Hunt.

(7)

Includes 53,452 warrants owned by Network 1 Financial Securities, Inc. with an exercise price of approximately $0.80 to purchase a total of 275,278 shares of common stock and which expire on October 23, 2011. Also includes 104,000 warrants with an exercise price of approximately $0.80 to purchase 535,600 shares of common stock and which expire October 23, 2011. Also includes 15,200 warrants with an exercise price of approximately $0.80 to purchase a total of 78,280 shares of common stock which expire October 23, 2011.

Changes in Control

There are no arrangements known to us that may, at a subsequent date, result in a change of control of the Company.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The Company has entered into the following separate agreements with affiliated companies that define the relationship with the Company post-Reverse Merger:

The agreement with Network 1 Financial Assurance, Inc. provides for the reimbursement of certain overhead expenses and the sharing of commissions generated by variable annuity sales referred or placed by NETW. This agreement is not exclusive and NETW is in a position to obtain more favorable terms from third parties should they become available.

The agreement with Network 1 Financial Advisors, Inc. provides for the reimbursement of certain overhead expenses and the payment of investment advisory fees to NETW stemming from accounts referred by registered representatives of NETW to Network 1 Financial Advisors, Inc. This agreement is not exclusive and NETW is in a position to obtain more favorable terms from third parties should they become available.

The agreement with Network 1 Financial Advisors, Inc. (“Advisors”), Network 1 Financial Assurance, Inc. (“Assurance”) and NETW is an agreement to abstain from certain voting rights to prohibit the current principals of NETW (as continuing post-Reverse Merger) from voting on certain matters. This will prohibit the current principals of NETW (should they elect to continue as executives post-Reverse Merger) from voting on matters related to fee arrangements for any ongoing activities with Advisors and Assurance.

On November 18, 2008, the Company loaned to and received a promissory note in the amount of $100,000 from Network 1 Financial Advisors Inc. The effective interest rate for the note is 6% per annum. The note matured on November 18, 2009 which was extended to November 18, 2011.

There were no other related party transactions for the fiscal year ended June 30, 2011.

Director Independence

Our determination of independence of directors is made by using the definition of “independent director” contained under Rule 4200(a)(15) of the Rules of the Financial Industry Regulatory Authority. Our Board of Directors has determined that Richard Hunt, Vincent LaBarbara , William R. Hunt, Jr. and Damon Testaverde are not “independent” under this rule by virtue of their positions as corporate and executive officers of our Company.

Item 14. Principal Accountant Fees and Services.

	Fees
Fee Category	2011		2010
Audit Fees	$	48,015	$	42,500
Audit-Related Fees		–		—
Tax Fees		5,000		5,000
All Other Fees		2,700		2,700
Total Fees	$	55,715	$	50,200

Audit Fees

RBSM LLP (“RBSM”) was engaged to audit our financial statements for the fiscal years ended June 30, 2011 and 2010. RBSM billed us an aggregate of approximately $55,715 and $50,200 in fees for professional services during the fiscal year ended June 30, 2011 and 2010, respectively.

Audit Related Fees

We did not incur any audit-related fees for the fiscal years ended June 30, 2011 and 2010.

Tax Fees

We engaged RBSM to prepare our tax returns for fiscal years ending June 30, 2011 and 2010.

All Other Fees

We engaged RBSM for other services, primarily related to AML audit services, for the fiscal years ending June 30, 2011 and 2010.

Item 15. Exhibits and Financial Statement Schedules.

Financial Statement Schedules

Not applicable.

Exhibits

Exhibit
No.		Description of Exhibit
3.1		Certificate of Incorporation of International Plastic Technologies, Inc. dated March 4, 1998 (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 (Registration Statement No. 333-48701, filed with the SEC on March 26, 1998)).

3.2		Amendment to the Certificate of Incorporation of International Plastic Technologies, Inc., dated December 7, 1998, changing the Company’s name to “International Smart Sourcing, Inc.” (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2/A (Registration Statement No. 333-48701, filed with the SEC on January 6, 1999)).

3.3		Amendment to the Certificate of Incorporation of International Smart Sourcing, Inc., dated June 26, 2000, changing the Company’s name to “CHINAB2BSOURCING.COM, INC.” (Incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-QSB filed with the SEC on August 15, 2000).

3.4		Amendment to the Certificate of Incorporation of International Smart Sourcing, Inc., dated June 9, 2009, changing the Company’s name to “Network 1 Financial Group, Inc. (Incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K filed with the SEC on October 13, 2010).

3.5		By-Laws of International Plastic Technologies, Inc. (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 (Registration Statement 333-48701, filed with the SEC on March 26, 1998)).

3.6		Amendment of the By-Laws of International Smart Sourcing, Inc. dated as of October 14, 2004 (Incorporated by reference to Exhibit B to the Definitive Information Statement on Schedule 14C filed with the SEC on November 15, 2004).

4.1		Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form SB-2/A (Registration Statement No. 333-48701, filed with the SEC on June 4, 1998)).

4.2		Form of Warrant Certificate (Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form SB-2/A (Registration Statement No. 333-48701, filed with the SEC on June 4, 1998)).

4.3		Form of Warrant Agreement between the Company and Continental Stock Transfer and Trust Company (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form SB-2/A (Registration Statement No. 333-48701, filed with the SEC on June 4, 1998)).

4.4		Amendment No. 1 to the Warrant Agreement between the Company and Continental Stock and Trust Company effective as of April 12, 2005 (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on April 20, 2005).

4.5		Amendment No. 2 to the Warrant Agreement between the Company and Continental Stock and Trust Company effective as of December 4, 2006 (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on December 5, 2006).

21		List of Subsidiaries (Incorporated by reference to Exhibit 21 to the Current Report on Form 8-K, filed with the SEC on June 15, 2009).

31.1		Rule 13a– 4(a)/15d–14(a) certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Rule 13a–14(a)/15d–14(a) certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	NETWORK 1 FINANCIAL GROUP, INC.

Date: October 21, 2011	/s/ Damon Testeverde
	Damon Testaverde
	President, CEO

In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Damon Testeverde	Chief Executive Officer, President and Director	October 21, 2011
Damon Testeverde	(Principal Executive Officer)

/s/ Vincent LaBarbara	Director
Vincent LaBarbara

/s/ William R. Hunt, Jr.	Secretary and Director
William R. Hunt, Jr.	(Interim Principal Accounting Officer)

/s/ Richard W. Hunt	Vice President and Chairman
Richard W, hunt

EXHIBIT INDEX

Exhibit
No.		Description of Exhibit
3.1		Certificate of Incorporation of International Plastic Technologies, Inc. dated March 4, 1998 (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 (Registration Statement No. 333-48701, filed with the SEC on March 26, 1998)).

3.2		Amendment to the Certificate of Incorporation of International Plastic Technologies, Inc., dated December 7, 1998, changing the Company’s name to “International Smart Sourcing, Inc.” (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2/A (Registration Statement No. 333-48701, filed with the SEC on January 6, 1999)).

3.3		Amendment to the Certificate of Incorporation of International Smart Sourcing, Inc., dated June 26, 2000, changing the Company’s name to “CHINAB2BSOURCING.COM, INC.” (Incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-QSB filed with the SEC on August 15, 2000).

3.4		Amendment to the Certificate of Incorporation of International Smart Sourcing, Inc., dated June 9, 2009, changing the Company’s name to “Network 1 Financial Group, Inc. (Incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K filed with the SEC on October 13, 2010).

3.5		By-Laws of International Plastic Technologies, Inc. (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 (Registration Statement 333-48701, filed with the SEC on March 26, 1998)).
3.6		Amendment of the By-Laws of International Smart Sourcing, Inc. dated as of October 14, 2004 (Incorporated by reference to Exhibit B to the Definitive Information Statement on Schedule 14C filed with the SEC on November 15, 2004).

4.1		Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form SB-2/A (Registration Statement No. 333-48701, filed with the SEC on June 4, 1998)).

4.2		Form of Warrant Certificate (Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form SB-2/A (Registration Statement No. 333-48701, filed with the SEC on June 4, 1998)).

4.3		Form of Warrant Agreement between the Company and Continental Stock Transfer and Trust Company (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form SB-2/A (Registration Statement No. 333-48701, filed with the SEC on June 4, 1998)).

4.4		Amendment No. 1 to the Warrant Agreement between the Company and Continental Stock and Trust Company effective as of April 12, 2005 (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on April 20, 2005).

4.5		Amendment No. 2 to the Warrant Agreement between the Company and Continental Stock and Trust Company effective as of December 4, 2006 (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on December 5, 2006).
21		List of Subsidiaries (Incorporated by reference to Exhibit 21 to the Current Report on Form 8-K, filed with the SEC on June 15, 2009).

31.1		Rule 13a– 4(a)/15d–14(a) certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2		Rule 13a–14(a)/15d–14(a) certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith.

NETWORK 1 FINANCIAL GROUP, INC. - FORM 10-K/A - October 21, 2011

Attached files

NETWORK 1 FINANCIAL GROUP, INC. Reports