10KSB/A 1 natco10ksbmarch2006.txt ANNUAL REPORT ON 10 KSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- FORM 10-KSB Annual Report Under Section 13 of The Securities Exchange Act of 1934 For the fiscal year Commission File ended March 31, 2006 Number: 333-91190 NATCO INTERNATIONAL INC. (Name of Small Business Issuer in its Charter) Delaware 98-0234680 (State of incorporation) (I.R.S. Employer Identification Number) Unit 200, 13018 - 80 Avenue Surrey, British Columbia, Canada, V3W 3B2 (Address of principal executive offices) (Zip code) Telephone Number: 604-507-6657 ----------------------------------- 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 $.001 ----------------------------------- Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The issuer's revenues for the fiscal year ended March 31, 2006 were 730. The aggregate market value of the Common Stock held by non- affiliates based upon the closing sale price of the registrant's Common Stock as of June 30, 2006 was approximately $229,326.80 Shares of $0.001 par value Common Stock outstanding at June 30, 2006: 9,377,364 DOCUMENTS INCORPORATED BY REFERENCE None -------------------- Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] Page 1 PART I ITEM 1. DESCRIPTION OF BUSINESS Organizational Development Natco International Inc. (the "Company" or "Natco"), a Delaware corporation, started as Spectrum Trading Inc., a British Columbia, Canada company on November 21, 1990 to import leather products from India and sell them in Canada. However, the supplier in India did not materialize and the Company remained dormant until 1997 when the current chemical manufacturing business was launched by the Company's current President, Raj-Mohinder Gurm. Spectrum Trading, Inc. domesticated into a Delaware corporation on May 14, 1999 as Spectrum International Inc. and changed its name to Natco International Inc. on June 3, 2004. Natco International Inc (formerly Spectrum International, Inc.) commenced its existence as a Delaware Corporation on May 14, 1999 as a result of above mentioned "Domestication". This procedure was intended to utilize provisions of the Delaware Corporate Code, Sec. 388, whereby a non-U.S. company may, by filing a Certificate of Domestication and Certificate of Incorporation under that section, utilize provisions thereof which provide that upon filing the Certificates, a corporation becomes subject to Delaware law, except that its existence shall be deemed to have commenced when it was originally formed in the foreign jurisdiction, rather than upon filing in Delaware as is the case in a typical new corporation. Said Section also provides that the obligations and liabilities prior thereto are not affected by the Domestication. The predecessor company was incorporated in British Columbia. No opinion is expressed as to what legal effect that procedure has on the Company, except that the financial statements assume the financial continuation, and we refer to both the current company and its predecessor as the "Company". Most of our current shareholders were shareholders of the original British Columbia Company and "migrated" to the Delaware company as a consequence of the Domestication In June, 2000, Management of the Company determined that a reverse acquisition by an Ontario, Canada Company would be desirable. The structure of the transaction was that all of the shareholders of the Delaware company would exchange their shares of the company for shares of the Ontario Company, Bisson Bio-Technologies, Ltd. ("Bisson") pro rata, with each other, but also including the prior shareholders of Bisson. This resulted in the Company becoming a wholly owned subsidiary of Bisson, with its business activities continuing in Spectrum. Page 2 Bisson had no business activities, and the purpose of the transaction was to seek a listing on one of the stock exchanges in Canada which was never effected. Consequently, in January, 2001, an agreement was entered into between Bisson, its subsidiary Spectrum, and certain shareholders of Bisson (those who had been former Spectrum shareholders) to "reverse" the transaction, and transfer the Spectrum shares held by Bisson back to the former shareholders of Spectrum. The agreement provided that the former Spectrum shareholders would submit their shares of Bisson back to Bisson in exchange for the 6,050,661 shares of Spectrum which had been originally exchanged. Shareholders were to be put back in their original position, except that there had been a few transactions, which Management believes, was of minor impact on the relative shareholder positions. As a consequence of these transactions, the original shareholders of the Delaware Spectrum are, with a few exceptions, the current shareholders of the Registrant. Business of the Company. Natco manufactures two distinct product lines that have separate customer bases and manufacturing processes: a jewelry cleaner line and a tire sealant line. The Company is in the process of phasing out the jewelry cleaner line. This phase out should be completed by the end of August 2006. At this time the Company is still trying to sell its tire sealant products. The company has also started the process of starting a beauty business in India. Tire Seal Plus Product Line: The Company manufactures the Tire Seal Plus product line which includes an industrial grade tire sealant, a high-speed tire sealant and a bicycle tire sealant. The Company began development of the Tire Seal Plus product line in 1997 and began sales and distribution in 1999. The basis of the Company's Tire Seal Plus product line consists of a mixture of twaron fibers, rust inhibitors, rubber lubricants and thickening agents which is designed to be applied to pneumatic tires (i.e., tires inflated with compressed air). The Tire Seal Plus products are designed to seal punctures up to a quarter of an inch in size in tubeless tires and one eighth of an inch in tube-type tires and maintain the recommended air pressure in pneumatic tires. When a puncture occurs in a pneumatic tire, air pressure and centrifugal force are intended to combine to force the tire sealant into the puncture where the sealant's fibers and fillers are designed to bind to form a permanent seal over the puncture. As the tire continues to rotate, the tire sealant is designed to repeatedly bind to form a permanent plug in the puncture of the tire. As the design provides for a virtual instantaneous sealing process, very little air pressure should be lost from the tire. Moreover, the entire surface of the inner tire should be evenly coated with the tire sealant to preclude further loss of air pressure or punctures. All the Tire Seal Plus products are designed to be non-flammable, non-toxic and water-soluble. In addition, the product line is designed not to harm tires, tubes, tire rims, clothing or human skin. The Tire Seal Plus products should not congeal or harden within the tire, or affect the balance of the tires. Moreover, the tire sealants are believed to assist in heat dissipation caused by road friction, which should enable the tire to maintain a cooler temperature and ultimately result in less wear-and-tear of the tire. Page 3 Currently our tire sealants are sold to one original equipment manufacturer (Yamaha) for its All Terrain Vehicles(ATV) and dirt Motorcycles, two distributors of automotive products, and some tire dealers. All three of these groups are buying approximately equal amounts. We also had a distributor in Europe in 2000 and 2001 who was selling most of our tire sealant products; however, in 2001 we lost this distributor due to some business problems suffered by this distributor that were unrelated to our company or products. This slowed down our market development of our Tire Seal Plus line because we were planning to use some profits from sales to Europe to further develop our market here in North America. The Tire Seal Plus products are produced in a facility located in Surrey, British Columbia, Canada. The Company obtains the raw materials from local Suppliers with the exception of special fibers, which are imported from a supplier in the United States. There are multiple suppliers of all raw materials available to us. The Company's main suppliers at this time are Univar, Akzo Nobel, and Richards Packaging. We are not dependent on any one particular supplier. If the supplies are not available from one supplier we can easily go to another supplier. We have at least two and usually more, suppliers for each item. We do not have any contract with any of our suppliers. The Company's monthly production capacity is 8 container loads of Tire Seal Plus which contains 6,400, 20-litre pails (approximately 120,000 Liters of any combination of three tire sealants). The Company's production lines can operate eight hours a day, five days a week. All of the Company's products are currently delivered by Canpar Courier Ltd. for delivery in Canada, and United Parcel Service of America for United States deliveries. All tire sealant orders are phoned into our office by the customers and we ship it directly to them. We have no distributors on contract at this time. Two distributors that we had a contract with are no longer active. Mass direct mail-out is our preferred method of sales. We also talk to our existing customers by telephone on a regular basis to get orders. All orders are shipped on Net 30 day terms with an understanding that we will not send any new products if an account is more than 60 days old and that account will be sent to collections if it is more than 90 day old. We have not signed any specific contracts with any customers. Environmental regulations and other laws There are no environmental laws or environmental regulations that effect the Manufacture of any of our products. Competition. Numerous manufacturers of tire sealants located throughout North America compete directly with the Company. Many of these companies are larger than we are in terms of sales, assets and resources. Patents, Trademarks. The company has no patents or trademarks at this time. Page 4 ITEM 2. DESCRIPTION OF PROPERTY On September 1, 1998, the Company entered into a commercial lease for its premises located at 200, 13018 80th Avenue, Surrey, British Columbia, Canada V3W 3B2. The Company leased the 6,600 square foot space from West-Bend Construction Ltd. for three years and two months at an annual rate of $25,300 CDN the first year, $26,400 CDN the second year and $26,400 CDN the third year and subject to typical common area charges and pro rata tax charges. Natco renewed this lease for another three years on September 1st, 2001 at an annual rate of $26,400 CDN per year. This lease expired on August 31, 2004. Natco did not renew this lease but instead another company, Ultimate Beauty Supply (UBS) leased this premises and Natco rents its space from UBS on a month to month bases for CDN $1,500.00 per month. No specific agreement has been signed with UBS. The first level of the premises is 4,400 square feet(Natco occupies 2,200 square feet) and consists of a room in which all raw materials are stored and the products are produced and the finished products are stored on pallets. The second level of the premises is 2,200 square feet and consists of seven offices, reception, area and a boardroom. Natco occupies 1,000 Square feet of this area. The lease on this premises expires in September 2007. The company should have no problems conducting its business at this location at least until this lease expires. We estimate that the company could reach $3 million or more in sales before we have to move to a larger location. There are no regulations or city by-laws or zoning issues of which we are aware that would hamper our business. In April 1998, Pemberton Leasing Services leased the Company a H5-4 Membrane Sealing Machine, a R-310 Semi-Automatic Labeler a TEC B-572 Thermal Transfer Printer and a Labelview program for 48 months at a rental rate of $904.02 CDN (total rental payment is $43,392.96 CDN). This lease expired on March 1, 2002. The company now owns all above-mentioned equipment. In addition the company owns a Lid Tightener, Heat Induction sealing machine, Mercury Exposure unit, Bottle filler, Temp Label applicator, Viscometer, Centrifuge, pH meter, and various mixing tanks and mixers. All this equipment forms an integral part of our production systems and it is in very good condition at this time. We should be able to use much of this equipment for at least another eight to ten years. ITEM 3. LEGAL PROCEEDINGS The company was a defendant in a legal action for payment of services. On October 5, 2005, the legal action was settled. The company is required to pay CN$50,000 to plaintiff. Out of total amount owing, CDN$28,000 has been recorded as liability in the prior years and the remaining CDN$22,000 has been accrued in the year ended March 31, 2006. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Registrant's shareholders during the registrant's 2006 fiscal year. Page 5 Part II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The company's SB-2 was declared effective on May 9, 2005 and the quotation on the Over-the-Counter Bulletin Board ("OTCBB") started on July 29, 2005 under the symbol NCII. As of June 30, 2006 there are 9,377,364 shares of common stock outstanding. There are no preferred shares outstanding. Management believes all of said stock would be eligible for sale under Rule 144. Management assumes that said shares would be subject to the volume limitations of Rule 144, manner of sale, notice and other requirements for shares held more than one year but less than two years, based on the date of acquisition being the Bisson acquisition reversal, but has not sought an SEC no action letter on this issue. If an earlier period should apply, many of these shares would be tradable under Rule 144(k), which does not impose volume and manner of sales requirements on non-affiliates. As of March 31, 2006, the Company had 785,000 share purchase options outstanding. Various other options are authorized for Mr. Gurm. Management proposes to set aside 2,000,000 or more other shares for employee/consultant options. Terms have not been finalized. There have been no cash dividends declared on the Company's common stock since the Company's inception. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Background and Overview The following summary should be read in conjunction with the financial statements and accompanying notes to them included elsewhere in this report. We have been in existence as a company (including our predecessor British Columbia Corporation) since 1990. However, we began to concentrate on our current business activities in 1997; prior to that time we had few shareholders and were primarily dormant. We have yet to make a profit on current operations. As of March 31, 2006, we had incurred a deficit of $(1,530,951) and $(1,329,453) as of March 31, 2005, which has continued to increase. This deficit includes losses incurred by our predecessor over the several years of our development. Most of our losses have been recent and incurred in the development of our current product lines. As an example, our deficit as of October 31, 1998, was approximately $(130,000). We have had sales in both the jewelry cleaner and tire sealants product lines since 1998, but sales have not contributed a significant amount to offset expenses. In the twelve months ended March 31, 2006 compared to the year ended March 31, 2005, we had net loss of $(201,498) and $(167,822) respectively. That loss was primarily financed by increased related party loans ($99,638)and wages payable to a director and officer of the company ($139,103), and shares subscriptions received ($8,063). Page 6 Payables have continued to increase, and are of concern to us. This concern has been exacerbated by the loss of our funding due to delays in registration of our SB-2, which went effective May 9, 2005. However, we require approximately $750,000 in the next 12 months to bring the company to profitability. In any event, as revenues are not expected to cover overhead, we expect losses to continue for this fiscal year and we will need to either raise working capital to cover those loses by equity or debt offerings, or shareholder loans as we do not anticipate increases in trade payables being a sufficient source for funding operations for this period. The management feels that it can now raise the required funds because the Company has started trading on the OTCBB. We have devoted most of our capital to product development and associated working capital and administrative items. We have only had the capital to devote $16,858 to advertising and promotion in the period April 1, 2002 to March 31, 2006; research and development expenditures during the same period were $62,943. Legal and accounting expenses at approximately $145,974 during period from April 1, 2002 to March 31, 2006 have been a heavy burden on us because of the various transactions associated with our efforts to become a listed company in United states. While Management believed these were appropriate when made, as a means to increase our ability to raise capital to support planned expansion, these expenses have also limited our ability to engage in marketing and promotion and engage in other expenditures which may have made us more productive and profitable, or increased our revenues. Legal and accounting fees are expected to be major expense items in the current period since March 31, 2005 as well , due to the accounting and legal costs associated with public company compliance. Management plans to exchange company shares for the debt it has incurred to related parties in the last few years. This will allow us to use any future funding for the expansion of the Company's business. We have also started to change the focus of the business as well. We have discontinued the production of the jewelery cleaner line and are looking to start marketing beauty products in India and Canada. The company will manufacture some of its own products but will get the bulk of the products manufactured by existing manufacturers on a private label basis. We have done some work in India to start the procedure of getting the business license needed to start business there. We have also started doing market research in India. Results of Operations Year ended March 31, 2006 compared to year ended March 31, 2005 Sales went down 92.34% from $9,524 in 2005 to $730 in 2006. This can be explained because in the last 12 months, there has been a change of business plan from jewelery cleaners and other products to beauty products. The Jewelery cleaner line has been discontinued due to lack of sales. There is some inventory of the cleaners left and it will be liquidated at discounted prices.Sales from previous lines have gone down to almost nil and sales from new lines have not yet started. The net loss for the year ended March 31, 2006 have gone up due to decrease in sales from $9,524 in 2005 to $730 in 2006, as well as increase in legal and accounting from $26,218 in 2005 to $50,566 in 2006 due to accrual of $23,453 (CAD$27,000) resulting from settlement of dispute over fees with former auditors of the company. Page 7 Amounts due to related parties increased by 23.81% from $857,780 in 2005 to $1,062,039 in 2006. This increase is result of shareholders and people related to them putting money into the Company to cover the operating costs. Included in due to related parties are wages payable, which increased from $283,003 to 422,106. This is an increase of 49.15% for the year ending March 31, 2006 as compared to the previous year ending March 31, 2005. This is mainly due to President/CEO's salary being accrued for the whole year and none of the previous salary being paid. A foreign exchange rate change for the years in question also increased this number. Advertising & promotion expenses increased to $3,219 in the year ended March 31, 2006 compared to $55 in the year ended March 31, 2005. In the year ended March 31, 2006, the company started a website and most of the advertising expense is for that site. Liquidity and Capital Resources Natco has financed its operations through equity investment from investors, shareholder loans, and credit facilities from Canadian chartered banks and increases in payables and share subscriptions. More recently most of the financing has been by way of debt financing from related parties. In the period from March 31, 2005 to March 31, 2006 current assets decreased by $21,976 and property, plant and equipment dropped $2,487. In the same period, bank debt decreased by $250, and payables increased by $5,287. However, amounts due to related parties increased by $204,259 in the same period. The deficit during that period increased from $(1,329,453) to $(1,530,951). In the 12 months ended March 31, 2006, Natco used $68,664 of cash in its continued operating activities, primarily for general and administrative expenses such as salaries, research and development, legal and accounting and rent. Cash provided by financing activities was $107,451, which mostly consisted of $99,638 in cash advanced by related parties, and cash of $8,063 received from share subscriptions. (For more details regarding related party advances please see the Certain Transactions Section of this document and Note 7 of the Financial Statements). A significant portion of our accounts payable of $85,874 as of March 31, 2006 (2005 - $78,684) consisted of professional fees, including $29,000 (2005 - $29,000) to our former lawyers and $42,841 (2005 - $20,000) to former auditors. Liability to the former lawyers will not be paid until Natco is funded. The liability to the former auditors is due by July 31, 2006 and the company has made arrangements to meet this due date. The remaining amount is owed to our suppliers. The company owes $1,062,039 (2005 - $857,780) to related parties. The breakdown is listed in Note 7 of the financial statements. The deficit during the year ended March 31, 2006 increased from $(1,329,453) to $(1,530,951). We have $29,532 (2005 - $23,191) of accrued liabilities which consists of 2006 audit fees and unpaid payroll deductions. Page 8 The Company has been sustaining a loss from continuing operations of $145,845 (2005 - $148,158). In order to satisfy current liabilities of $1,246,043 as of March 31, 2006 plus an estimate of $150,000 of 2006 operating expenses, we will likely require $500,000 cash and the remainder of the debt can be settled with shares. We have estimated that if we can bring in $750,000 in additional capital either long term debt, equity or some combination, which are yet to be secured, then we can pay off the current obligations we believe we need to pay, and have enough working capital for the fiscal year ending March 31, 2007. We believe this sum, less the payments we have indicated, would provide us with sufficient working capital for marketing and other expenses and that, if our assumption that the additional marketing and change in business will be sufficient to raise sales is correct, we will have the sales to cover our overhead. We may need more capital to satisfy inventory, receivables, and other current, non-cash assets for current cash requirements. It may take us three to six months to raise the required money. Therefore, Mr. Gurm, the president of the Company, has agreed to put enough money into the Company to sustain it until the company can find new funding, or August 31, 2006, which ever comes first. He has not signed any agreement with the Company to provide this money, so there is no guarantee that the money will be available. However, in the last six years Mr. Gurm has provided the funding for the company on an as needed basis from time to time. Our estimated fixed costs at this time are approximately $7,000 per month ($1,500 in building Lease, $1,000 Utilities, $3,500 loan interest and principle payments, and remaining $1,000 for miscellaneous expenses). We receive about $700 per month from the current levels of sales. That means, Mr. Gurm will need to contribute approximately $6,300 per month to the Company to keep it operational. Mr. Gurm has been putting in enough money to sustain the company and will continue to put money in on as needed bases. We will also look for new sources of funding such as the $20,000 cdn line of credit secured by the company in Feb. 2005. However, this will just keep the Company going for the time being. If the Company is to grow and prosper, the Company must raise the above mentioned $750,000. This money will allow us to payback account payables and some debt, reducing monthly payment and interest expenses, hence increasing the Company's cash position to invest in growth. It will also allow us to spend some money on marketing of our products to increase the sales levels. If we are unable to finance the Company by debt or equity financing, or a combination of the two, we will have to look for other sources of funding to meet our requirements. That source has not been identified as yet but most likely will be debt financing using the management's trading shares as collateral. However, there is no guarantee that we will be successful in raising any additional capital. In light of our funding issues, we have postponed all plans to buy any new equipment for the plant or office for at least next 12 months or until the company has secured $750,000 in funding. The company will not be selling any of its assets in that that time period. Page 9 Our financial statements have been prepared on the going concern basis under which an entity is assumed to be able to realize its assets and satisfy its liabilities in the ordinary course of business. Operations to date have been primarily financed by equity transactions as well as increases in payables and related party loans. Our future operations are dependent upon the identification and successful completion of additional long-term or permanent equity financing, the continued support of creditors and shareholders, and, ultimately, the achievement of profitable operations. There can be no assurance that we will be successful. If we are not, we will be required to reduce operations or liquidate assets. We will continue to evaluate our projected expenditures relative to our available cash and to seek additional means of financing in order to satisfy working capital and other cash requirements. Our auditors' report on the March 31, 2006 financial statements includes an explanatory paragraph that states that as we have suffered recurring losses from operations, substantial doubt exists about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern. Page 10 ITEM 7. FINANCIAL STATEMENTS NATCO INTERNATIONAL INC. (formerly Spectrum International Inc.) FINANCIAL STATEMENTS MARCH 31, 2006 and 2005 (Expressed in US Dollars) Page 11 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ======================================================================= To the Directors and Stockholders of Natco International Inc.: We have audited the accompanying balance sheets of Natco International Inc. (formerly Spectrum International Inc.)(the "Company") as at March 31, 2006 and 2005 and the related statements of operations, stockholders' deficiency and cash flows for each of the years then ended. These 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 audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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, these financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years then ended March 31, 2006 and 2005, in conformity with United States generally accepted accounting principles. The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has experienced significant losses over the past several years, has negative operating cash flows, and has a working capital deficiency. Management's plans in regard to these matters are discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. STALEY, OKADA & PARTNERS CHARTERED ACCOUNTANTS Vancouver, B.C. May 24, 2006 Page 12 Statement 1 Natco International Inc. (formerly Spectrum International Inc.) Balance Sheets As at March 31 Expressed in U.S. Dollars Assets 2006 2005 ---------------------------------------------------------------------------- > Current Accounts receivable $ - $ 402 Inventory (Note 3) 8,643 10,136 Prepaid expenses 629 962 Assets held in discontinued operations 3,199 20,460 -------------------------------- 12,471 31,960 Property, Plant and Equipment (Note 4) 8,579 11,066 Product rights (Note 5) 1 1 -------------------------------- $ 21,051 $ 43,027 ============================================================================ Liabilities ---------------------------------------------------------------------------- Current Bank indebtedness (Note 6) $ 62,985 $ 54,829 Accounts payable 85,874 78,684 Accrued liabilities 29,532 23,191 Due to related parties (Note 7) 1,062,039 38,944 Liabilities held in discontinued Operations (Note 12) 5,613 7,516 -------------------------------- 1,246,043 203,164 Bank indebtedness (Note 6) - 8,406 Due to Related Parties (Note 7) - 818,836 -------------------------------- 1,246,043 1,030,406 -------------------------------- Continued Operations (Note 1) Discontinued Operations (Note 12) Subsequent Events (Note 13) Stockholders' Deficiency ---------------------------------------------------------------------------- Capital Stock Authorized: 50,000,000 common shares, with a par value of $0.001 5,000,000 preferred shares, with a par value of $0.001 Issued: 9,377,364 (2005 - 9,377,364) common shares - Statement 3 (Note 8) 9,377 9,377 Additional paid-in capital - Statement 3 469,172 469,172 Share subscriptions (Note 8c) 33,063 25,000 Other comprehensive loss - Statement 3 (205,653) (161,475) Deficit - Statement 3 (1,530,951) (1,329,453) -------------------------------- (1,224,992) (987,379) -------------------------------- $ 21,051 $ 43,027 On behalf of the Board Raj Gurm, Director John H. Rennie, Director ============================================================================ See accompanying notes Page 13 Statement 2 Natco International Inc (formerly Spectrum International Inc.) Statements of Operations For the Years Ended March 31 Expressed in U.S. Dollars 2006 2005 ---------------------------------------------------------------------------- > Sales $ 730 $ 9,524 Cost of sales 447 5,165 -------------- -------------- Gross profit (2006 - 38.7%; 2005 - 45.8%) 283 4,359 -------------- -------------- Expenses Advertising and promotion 3,219 55 Bank charges 1,830 1,749 Consulting fees 2,514 2,358 Depreciation 2,489 3,258 Legal and accounting 50,566 26,218 Office and other 3,969 14,116 Rent 14,098 19,242 Research and development 1,817 19,960 Salaries and benefits 62,774 61,496 Telephone and utilities 2,852 4,065 ---------------------------------- 146,128 152,517 ---------------------------------- Loss Before Other Items (145,845) (148,158) ---------------------------------- Other Items Other income 1,006 6,699 Interest expense (48,366) (35,223) ---------------------------------- (47,360) (28,524) ---------------------------------- Loss from Continuing Operations (193,205) (176,682) ---------------------------------- Net income (loss) from discontinued operation (Note 12) (8,293) 8,860 ---------------------------------- Net Loss for the Year $ (201,498) $ (167,822) ============================================================================ Basic and Diluted Weighted Average Number of Shares Outstanding 9,377,364 9,377,364 ============== ============== Basic and Diluted Loss per Share from Continued Operations $ (0.02) $ (0.02) ============== ============== Basic and Diluted Income (Loss) Per Share from Discontinued Operations $ (0.00) $ 0.00 ============== ============== Basic and Diluted Loss Per Share $ (0.02) $ (0.02) ============================================================================= See accompanying notes Page 14 Statement 3 Natco International Inc (formerly Spectrum International Inc.) Statements of Stockholders' Deficiency For the Year Ended March 31, 2006 Expressed in U.S. Dollars

Common Common Additional Other Shares Shares Paid-in Shares Comprehensive (Number) (Amount) Capital Subscribed Income (Loss) Deficit Total ---------------------------------------------------------------------------------------------------------------------------- Balance (deficiency) - March 31, 2002 8,393,928 $8,394 $417,516 $33,549 $19,886 $(822,300) $(342,955) Issuance of shares at CDN$0.07/share(Note 8b) 430,714 431 18,207 (18,638) - - - Issuance of shares at CDN$0.15/share(Note 8b) 160,000 160 14,751 (14,911) - - - Issuance of shares at CDN$0.07/share(Note 8b) 85,714 85 3,732 - - - 3,817 Issuance of shares at CDN$0.08/share Plus warrant(Note 8b) 307,008 307 14,966 - - - 15,273 Share Subscription(Note 8c) - - - 20,000 - - 20,000 Change in foreign Currency Translation Adjustment - - - - (33,224) - (33,224) Net Loss - - - - - (186,247) (186,247) ------------------------------------------------------------------------------------------- Balance (deficiency) - March 31, 2003 9,377,364 9,377 469,172 20,000 (13,338) (1,008,547) (523,336) Change in foreign currency translation adjustment - - - - (73,045) - (73,045) Net Loss - - - - - (153,084) (153,084) ------------------------------------------------------------------------------------------- Balance (deficiency) - March 31, 2004 9,377,364 9,377 469,172 20,000 (86,383) (1,161,631) (749,465) Share subscription (Note 8c) - - - 5,000 - - 5,000 Change in foreign currency translation adjustment - - - - (75,092) (75,092) Net Loss - - - - - (167,822) (167,822) ------------------------------------------------------------------------------------------- Balance (deficiency) - March 31, 2005 9,377,364 9,377 469,172 25,000 (161,475) (1,329,453) (987,379) Share subscription (Note 8c) - - - 8,063 - - 8,063 Change in foreign currency translation adjustment - - - - (44,178) - (44,178) Net Loss - - - - - (201,498) (201,498) ------------------------------------------------------------------------------------------- Balance (deficiency) - March 31, 2006 9,377,364 $9,377 $469,172 $33,063 $(205,653) $(1,530,951) $(1,224,992) ========================================================================================================================

See accompanying notes. Page 15 Statement 4 Natco International Inc. (formerly Spectrum International Inc.) Statements of Cash Flows For the Years Ended March 31 Expressed in U.S. Dollars

Cash Flows Provided By (Used In) 2006 2005 --------------------------------------------------------------------------------------------------------- Operating Activities Net loss from continuing operations $ (193,205) $ (176,682) Adjustments to determine cash flows: Depreciation 2,489 3,259 Bad debts 1,672 - Wages accrued to director 64,591 56,853 Interest on due to related parties 40,030 27,821 Change in non-cash working capital: Accounts receivable 402 12,809 Inventory 1,493 14,817 Prepaid expenses 333 (394) Accounts payable 7,190 (12,860) Accrued liabilities 6,341 313 ----------------------------------- Net cash used in continued operations (68,664) (74,064) Net cash provided by (used in) discontinued operations 5,391 (4,084) ----------------------------------- (63,273) (78,148) ----------------------------------- Financing Activities Bank indebtedness (250) (7,827) Due to related parties 99,638 156,067 Share subscriptions 8,063 5,000 ----------------------------------- 107,451 153,240 ----------------------------------- Foreign exchange (44,178) (75,092) Cash position - Beginning of Year - - ----------------------------------- Cash position - End of Year $ - $ - ========================================================================================================== Supplementary cash flows information: Related to operating activities Interest paid $ 8,336 $ 7,401 Income Tax Paid $ - $ - See accompanying notes

Page 16 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 1. Nature of Operations and Going Concern The Company was incorporated as Spectrum Trading Inc. under the laws of the Province of British Columbia, Canada, on November 21, 1990. On May 14, 1999, the Company was discontinued in British Columbia and was reincorporated as Spectrum International Inc. in the State of Delaware, U.S.A. Effective September 3, 2004, the Company changed its name from Spectrum International Inc. to Natco International Inc. The company had two products, a jewelery cleaner and a tire sealant. During the current fiscal year, the Company discontinued its production of jewelery cleaner. These financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has incurred significant operating losses over the past three years and has a substantial stockholders' deficiency and a working capital deficiency. The company's continued existence is dependent upon its ability to raise additional capital and to achieve profitable operations. It is management's intention to pursue market acceptance for its products and identify equity funding sources until such time as there is sufficient operating cash flow to fund operating requirements. If the going concern assumption were not appropriate for these financial statements, then adjustments would be necessary in the carrying values of assets and liabilities, the reported revenues and expenses and the balance sheet classifications used. ============================================================================= 2. Summary of Significant Accounting Policies a) Fiscal Period The Company's fiscal year ends on March 31. b) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, term deposits and short term highly liquid investments with a term to maturity of less than one year from inception which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of changes in value. c) Use of Estimates In conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the year. Actual results could vary materially from those reported. Page 17 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 2. Summary of Significant Accounting Policies - Continued d) Foreign Currency Transactions The Company's functional currency is the Canadian dollar and the reporting currency is the U.S. dollar. Assets and liabilities are translated from the functional to the reporting currency at the exchange rate in effect at the balance sheet date and equity at the historical exchange rates. Revenue and expenses are translated at rates in effect at the time of the transactions. Resulting translation gains and losses are accumulated in a separate component of stockholders' equity - other comprehensive income (loss). Realized foreign currency transaction gains and losses are credited or charged directly to operations. e) Inventory Inventory is stated at the lower of cost and net realizable value. Cost includes all costs of purchase, cost of conversion and other costs incurred in bringing the inventory to its present location and conditions, and is calculated using the first-in first-out method. Net realizable value is determined by reference to sales proceeds of items sold in the ordinary course of business after the balance sheet date or by management estimates based on prevailing market conditions. f) Property, Plant and Equipment Property, plant and equipment is recorded at cost. Depreciation is provided annually on the diminishing balance method to write-off the assets over their estimated useful lives as follows: * Computer and office equipment - 30% * Manufacturing equipment - 20% g) Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be recovered. h) Fair value of Financial Instruments The company's financial instruments consist of accounts receivable, bank indebtedness, accounts payable and amounts due to related parties. Unless otherwise noted, it is management's opinion that this Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values unless otherwise noted. Page 18 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 2. Summary of Significant Accounting Policies - Continued i) Stock-Based Compensation Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment", which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123(R), stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period of the equity grant). Before January 1, 2006, the Company accounted for stock-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and complied with the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation". The Company adopted SFAS 123(R) using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, financial statements for the periods prior to January 1, 2006 have not been restated to reflect the fair value method of expensing share-based compensation. Adoption of SFAS No. 123(R) does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by SFAS 123 (as originally issued) and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services". j) Revenue Recognition Revenues are recognized when all of the following criteria have been met: persuasive evidence for an arrangement exists; delivery has occurred; the fee is fixed or determinable; and collection is reasonably assured k) Advertising Policy The Company expenses the cost of advertising when incurred. l) Research and Development Research and development is expensed as incurred. m) Shipping and Handling The company includes the cost of shipping and handling as a component of cost of sales in accordance with Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." Page 19 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 2. Summary of Significant Accounting Policies - Continued n) Long-Lived Assets The company monitors the recoverability of long-lived assets, including property, plant and equipment and product rights, based on estimates using factors such as current market value, future asset utilization, business climate and future undiscounted cash flows expected to result from the use of the related assets. The company policy is to record any impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable equal to the excess of the asset's carrying value over its fair value. o) Loss Per Share The company computes net loss per common share using SFAS No. 128 "Earnings Per Share." Basic loss per common share is computed based on the weighted average number of shares outstanding for the period. Diluted loss per share is computed by dividing net loss by the weighted average shares outstanding assuming all dilutive potential common shares were issued. There were no dilutive potential common shares at March 31, 2006 and 2005. Because the company has incurred net losses and has no potentially dilutive common shares, basic and diluted loss per share are the same. Additionally, for the purposes of calculating diluted loss per share, there were no adjustments to net loss. p) Obligations Under Capital Leases Leases are classified as either capital or operating. Leases that transfer substantially all of the benefits and risks of ownership of property to the company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded with its related long-term financing. Payments under operating leases are expensed as incurred. q) Segmented Reporting SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", changed the way public companies report information about segments of their business in their quarterly reports issued to stockholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. The company's sales are generated in one geographical area, Canada. The company operated in two product segments: jewellery cleaners and accessories, and tire sealants. During the current fiscal year, the company discontinued its jewellery cleaners business. r) Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income", establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. s) Derivative Financial Instruments The company was not a party to any derivative financial instruments during any of the reported fiscal periods. Page 20 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 2. Summary of Significant Accounting Policies - Continued t) Product Warranty The company's policy is to replace tire sealant and jewellery cleaner products if faulty. Products will be replaced within a reasonable time from the date of sale. u) Variable Interest Entities In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. However, in December 2003, the FASB published a revision to FIN 46 to clarify some of the provisions of FIN 46, and to exempt certain entities from its requirements. Under the new guidance, there are new effective dates for companies that have interests in structures that are commonly referred to as special-purpose entities. The rules are effective in financial statements for periods ending after March 15, 2004. The adoption did not have any impact on the company's financial statements. v) Recent Accounting Pronouncements i) SFAS No. 151 In November 2004, the FASB also issued SFAS No.151, "Inventory Costs, an amendment of ARB No.43, Chapter 4". This standard is effective for the fiscal years beginning after June 15, 2005, therefore the Company will adopt it on April 1, 2006. This standard clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted material should be expensed as incurred and not included in overhead. In addition, this standard requires that the allocation of fixed production overhead costs to inventory be based on the normal capacity of the production facilities. The adoption of this standard is not expected to have a material effect on the Company's results of operations or financial position. ii) SFAS No. 153 In December 2004, the FASB issued SFAS 153 - Exchanges of Non-Monetary Assets - An amendment of APB 29. This statement amends APB 29, which is based on the principle that exchanges of non-monetary assets should be measured at the fair value of the assets exchanged with certain exceptions. SFAS 153 eliminates the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning on or after June 15, 2005. Page 21 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 2. Summary of Significant Accounting Policies - Continued v) Recent Accounting Pronouncements - Continued iii) SFAS No. 154 In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections," which replaces APB Opinion No. 20, "Accounting Changes," and supersedes FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements - an amendment of APB Opinion No. 28." SFAS 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, SFAS 154 requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, SFAS 154 requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable. SFAS 154 shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the provisions of SFAS 154 will have a significant impact on its results of operations. iv) SFAS No. 155 In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140." This statement permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. It establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. In addition, SFAS 155 clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133. It also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS 155 amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of this standard is not expected to have a significant effect on the Company's results of operations or financial position. Page 22 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 2. Summary of Significant Accounting Policies - Continued v) Recent Accounting Pronouncements - Continued v) SFAS No. 156 In March 2006, the FASB issued SFAS 156, "Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140". This statement amends FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", with respect to the accounting for separately recognized servicing assets and servicing liabilities. This statement: (1) requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: (a) a transfer of the servicer's financial assets that meets the requirements for sale accounting, (b) a transfer of the servicer's financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities in accordance with FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", (c) an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates; (2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; (3) permits an entity to choose either of the following subsequent measurement methods for each class of separately recognized servicing assets and servicing liabilities: (a) Amortization method-Amortize servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and assess servicing assets or servicing liabilities for impairment or increased obligation based on fair value at each reporting date, or (b) Fair value measurement method-Measure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur; (4) at its initial adoption, permits a one-time reclassification of available-for- sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for- sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity's exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and (5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. An entity should adopt this statement as of the beginning of its first fiscal year that begins after September 15, 2006. Earlier adoption is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements, including interim financial statements, for any period of that fiscal year. The effective date of this Statement is the date an entity adopts the requirements of this statement. Page 23 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2006 Expressed in US Dollars =============================================================================== 3. Inventory Details are as follows: 2006 2005 -------------------------------- Raw materials $ 7,866 $ 8,020 Finished Goods 777 2,116 -------------------------------- $ 8,643 $ 10,136 ----------------------------------------------------------------------- 4. Property, Plant and Equipment Details are as follows: 2006 2005 Accumulated Net Book Net Book Cost Depreciation Value Value ----------------------------------------------------------------------- Computer & Office Equipment $ 12,534 $ 12,313 $ 221 $ 1,365 Manufacturing Equipment 50,108 41,750 8,358 9,701 ----------------------------------------------------------------------- $ 62,642 $ 54,063 $ 8,579 $ 11,066 ----------------------------------------------------------------------- ======================================================================= 5. Product Rights The company has the exclusive and continuing rights to the product formulations and distribution of a tire sealant product. These rights were acquired from a related party and have been recorded at $1, representing the carrying value to the related party. =============================================================================== Page 24 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 6. Bank Indebtedness Details are as follows: 2006 2005 -------------------------- Checks written in excess of funds on deposit $ 1,562 $ - HSBC demand revolving loan for a maximum amount of CDN$20,00 ($17,136), secured by a General Security Agreement on all assets of the company (first charge) and by personal guarantees made by a director and officer of the company, interest at bank prime plus 2%. 17,136 11,175 TD Canada Trust, loan secured by a General Security Agreement on all assets of the company and by personal guarantees made by two shareholders including a director and officer of the company, interest at bank prime plus 2% (2005 - 2%). The loan is due on demand; however, the bank allowed the company to repay the loan by making fixed monthly payments of CDN$416. 1,630 6,032 Royal Bank, loan secured by a General Security Agreement on all assets of the company and by a personal guarantee of a director and officer, interest at bank prime plus 2% (2005 - 2%). The loan is due on demand; however, the bank allowed the company to repay the loan by making fixed monthly payments of CDN$673. 7,565 12,771 Wells Fargo Bank, loan unsecured with interest at bank prime plus 7.25%. The bank allows the company to make monthly interest payments only; however the loan is due on demand, therefore the entire loan is classified as a current liability. 35,092 33,257 ----------------------------- 62,985 63,235 Less: Current Portion (62,985) (54,829) ----------------------------- Long-term portion $ - $ 8,406 ----------------------------- =============================================================================== Page 25 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 7. Related Party Transactions Other than as disclosed elsewhere in these financial statements, the following amounts have been recorded as transactions with related parties: a) Amounts due to related parties are as follows: 2006 2005 ------------------------- Loans payable to relatives of a director and officer of the company. The loans are unsecured, are due on demand, and bear interest at bank prime plus 0.5% (2005 - 0.5%). $ 168,744 $ 284,454 Loans payable to a director and officer of the company. The loans are unsecured, do not have fixed terms of repayment, and bear interest at 8.33% to 11% (2005 - 8.33% to 11%). It is expected that these loans will be repaid within the next 12 months. 433,510 256,404 Wages and bonus payable to a director and officer of the company. This liability is unsecured, due on demand and non-interest bearing (2005 - nil%). 422,106 283,003 Loan payable to a relative of a director and officer of the company. The loan is unsecured, due on demand, bears an interest at 7% per annum and requires monthly payments of interest only. 37,679 33,919 ------------------------- $ 1,062,039 $ 857,780 Less: Current portion (1,062,039) (38,944) ------------------------- Long-term portion $ - $ 818,836 ------------------------- b) Interest expense on amounts due to directors and an officer was $40,030 (2005 - $23,326). c) Salaries and benefits include $62,774(2005 - $58,859) paid to a director and officer of the Company. d) As at March 31, 2006, a director and officer of the Company held approximately 59% of the issued and outstanding shares of the Company. e) Sales include Nil (2005-$2,633) to a company with a director in common. f) The Company's director and officer owns approximately 59.4% of the Company's outstanding shares. =============================================================================== 8. Capital Stock a) Authorized Stock The company has authorized 50,000,000 common shares with a par value of $0.001 per share. Each common share shall entitle the holder to one vote, in person or proxy on any matter on which action of the stockholder of the corporation is sought. The company has authorized 5,000,000 shares of preferred stock with a par value of $0.001 per share. The holders of preferred stock have no rights except as determined by the Board of Directors of the company and/or provided by Delaware General Corporate Law. Page 26 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 8. Capital Stock - Continued b) Share Issuances i) During fiscal 2002, the Company agreed to issue 430,714 common shares to settle debt in the amount of $18,638 to a director and officer of the Company and two directors. These shares were issued in fiscal 2003. ii) During fiscal 2002, the Company agreed to issue 160,000 common shares to settle debt in the amount of $14,911 to non-related parties. These shares were issued in fiscal 2003. iii) During fiscal 2003, the Company issued 85,714 common shares for proceeds of $3,817 to a Company owned by a director of the company. iv) During fiscal 2003, the Company issued 307,008 common shares for proceeds of $15,273. Of these shares, 281,424 were issued to a company owned by a director of the Company. c) Share Subscriptions During fiscal 2003, the Company received $20,000 as subscriptions for 200,000 shares at $0.10 per share. During fiscal 2005, the Company received $5,000 as subscriptions for 100,000 shares at $0.05 per share. During fiscal 2006, the company received CDN$10,000 as subscriptions for 100,000 shares at CDN$0.10 per share. d) Warrants During fiscal 2003, the Company issued 307,008 units, consisting of 307,008 shares and 307,008 share purchase warrants. These warrants were convertible to shares at a price of $0.25 per share. These warrants expired on September 6, 2004. e) Stock Options Stock option activity pursuant to the employees stock option plan is summarized as follows: Weighted Number of Exercise Average Expiry Options Price Exercise Date Price ------------------------------------------------- April 2002 Outstanding at March 31, 2002 134,000 CDN $0.15 CDN $0.15 April 2004 Expired (67,000) CDN $0.15 CDN $0.15 April 2002 Cancelled to be re-priced (67,000) CDN $0.15 CDN $0.15 April 2004 Granted (re-priced) 67,000 $0.10 $0.10 May 8, 2007 Granted 517,000 $0.10 $0.10 May 8, 2007 ------------------------------------------------- Outstanding at March 31, 2003 584,000 $0.10 $0.10 May 8, 2007 Granted 67,000 $0.10 $0.10 Apr 30, 2008 ------------------------------------------------- May 8, 2007 Outstanding at March 31, 2004 651,000 $0.10 $0.10 Apr 30, 2008 Granted 67,000 $0.10 $0.10 Apr 30, 2009 ------------------------------------------------- May 8, 2007 Outstanding at March 31, 2005 718,000 $0.10 $0.10 - Apr 30, 2009 Granted 67,000 $0.10 $0.10 Apr 30, 2010 ------------------------------------------------- May 8, 2007 Outstanding at March 31, 2006 785,000 $0.10 $0.10 - Apr 30,2010 ------------------------------------------------- Page 27 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 8. Capital Stock - Continued e) Stock Options - Continued The Company has also committed to issue to the Chief Executive Officer 67,000 share purchase options every April. These options will be exercisable at $0.10 per share and will expire five years after the date of grant. Further bonus options are available to the Chief Executive Officer. These bonus options entitle the Chief Executive Officer to purchase shares at 20% below the market price up to a value determined by 5% of the amount of annual profits from sales in excess of $2,500,000 up to $3,999,999 and 8% of the amount of annual profits from sales in excess of $4,000,000. To date, sales have not exceeded $2,500,000 and thus no bonus options have been issued. Until December 31, 2005, the Company accounted for its stock option plan in accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees. Effective January 1, 2006, the Company is accounting for stock based compensation using SFAS 123(R) Share Based Payment. Had compensation cost for the stock option plan been determined for the entire fiscal year based on the fair value at the grant date consistent with the method of SFAS No. 123, Accounting for Stock-Based Compensation, the total pro forma value of stock options expense granted to directors and officers for the year ended March 31, 2006 would be $3,431 (2005 - $4,180). This value is estimated at the date of the grant using the Black-Scholes option- pricing model with the following weighted average assumptions: 2006 2005 ----------------------------- Risk-free interest rate 2.5% 3.7% Expected dividend yield - - Expected stock price volatility 73% 73% Expected option life in years 5 5 The resulting pro forma loss per share for the year is as follows: 2006 2005 ----------------------------- Loss as reported $ (201,498) $ (167,822) Stock compensation expense (3,431) (4,180) ----------------------------- Pro forma loss $ (204,929) $ (172,002) ----------------------------- Loss per common share $ (0.02) $ (0.02) Pro forma loss per common share $ (0.02) $ (0.02) Option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable single measure of the fair value of the company's stock options. =============================================================================== Page 28 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 9. Income Taxes The Company has accumulated net operating losses for federal income tax purposes of approximately $917,000, which may be carried forward and used to reduce taxable income of future years. These losses expire as follows: 2020 $ 180,000 2021 117,000 2022 135,000 2023 141,000 2024 97,000 2025 109,000 2026 138,000 ------- $ 917,000 ------- Details of future income tax assets are as follows: March 31, March 31, Future income tax assets: 2006 2005 -------------------------------------- Non-capital tax loss $ 312,000 $ 265,000 Valuation allowance (312,000) (265,000) -------------------------------------- $ - $ - -------------------------------------- The potential future tax benefits of these losses have not been recognized in these financial statements due to uncertainty of their realization. When the future utilization of some portion of the carry forwards is determined not to be "more likely than not," a valuation allowance is provided to reduce the recorded tax benefits from such assets. 10. Commitments The Company is committed to lease office and warehouse space at CDN $1,402 per month until September 2007. Included in accounts payable is a CDN$50,000 ($42,841) liability due to the former auditors of the Company. The company is required and has committed to paying off this liability by July 31, 2006. =============================================================================== Page 29 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 11. Segmented Information The Company has two product lines which are jewelery cleaners and accessories, and tire sealant. The sales and cost of sales allocated to each product line are disclosed below: 2006 2005 ----------------------------- Jewellery cleaner and accessories Sales $ 6,954 $ 27,497 Cost of sales 2,469 18,637 ----------------------------- Gross Profit 4,485 8,860 ----------------------------- Tire Sealant Sales 730 9,524 Cost of sales 447 5,165 ----------------------------- Gross profit 283 4,359 ----------------------------- Total gross profit 4,768 13,219 Expense, net of other income (206,266) (181,041) ----------------------------- Net loss $ (201,498) $ (167,822) ----------------------------- Accounts receivable and inventory are allocated to the product lines as illustrated in the following schedule. All other assets are common to both product lines: 2006 2005 ------------------------------ Accounts Receivable Jewellery cleaner and accessories $ 3,199 $ 2,675 Tire Sealant - 402 ------------------------------ $ 3,199 $ 3,077 ------------------------------ Inventory Jewellery cleaner and accessories $ - $ 17,785 Tire Sealant 8,643 10,136 ------------------------------ $ 11,842 $ 27,921 =============================================================================== Page 30 Natco International Inc. (formerly Spectrum International Inc.) Notes to Financial Statements March 31, 2006 and 2005 Expressed in US Dollars =============================================================================== 12. Discontinued Operations The Company discontinued operations of its jewelery cleaners and accessories line due to lack of demand for the product. There were no property, plant and equipment remaining to produce this line of operations. As at March 2006 and 2005, accounts receivable relating to the jewelery cleaners line were $3,210 and $2,675 respectively. As of March 31, 2006 and 2005, inventory relating to the discontinued line of business were $Nil and $17,785 and accounts payable were $5,613 and $7,516, respectively. Net loss from discontinued operations is as follows: 2006 2005 --------------------------------- Sales $ 6,954 $ 27,497 Cost of Sales 2,469 18,637 --------------------------------- Gross Profits 4,485 8,860 Write down of inventory (12,778) - --------------------------------- Net loss from Discontinued Operations $ (8,293) $ 8,860 --------------------------------- 13. Subsequent Events Subsequent to the year end, the company commenced negotiations with certain creditors to convert debt due to them for shares at a rate of $0.10 of debt per one common share in the company. Subsequent to the year end, each of the four directors received 700,000 share purchase options. These options are exercisable at $0.10 per share and will expire five years after the grant date, on May 19, 2011. 14. Comparative Figures Certain of the comparative figures have been reclassified to conform to the current year's presentation. Page 31 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Since the Company's incorporation on May 17, 1999, the Company has retained two auditors. The Company's initial auditors were Thorne Little in Surrey, British Columbia, Canada, which were originally retained by Spectrum Trading Inc., a British Columbia corporation. Since the Company was incorporated pursuant to the laws of the State of Delaware, the Company determined it was in the corporation's best interests to retain an auditing firm based in the United States. On October 31, 1999, the Company retained Grant Thornton LLP as its Auditors (Vancouver BC Office). Due to disagreement regarding fees and delays in completion of work Grant Thornton LLP was asked by the company to resign in July 2003. Since then we have not been able to settle the fees issue. Consequently, our former auditors filed a claim against us in court (see legal Matters section for more detail). On March 12, 2004 we retained Staley, Okada and Partners to be our auditors. These auditors were known to the board of directors of the Company. We discussed the need to use the generally accepted accounting principles of United States (USGAAP)with them and their qualifications regarding the USGAAP. No discussion took place as to what type of audit opinion will be rendered and no written or oral advice was provided. These auditors were hired because the Company had built up trust with them from previous dealings and they were qualified to do the required work. ITEM 8A. CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company conducted an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rules 13a-15(b) of the Securities and Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information that is required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the rules of the Securities Exchange Commission. There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 8B. OTHER INFORMATION NOT APPLICABLE. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and principal executive officers of the Company are as follows: Page 32 Executive Officers of the Company: Name: Age: Office(s): Raj-Mohinder S. Gurm 46 President and CFO John H. Rennie 69 Secretary Board of Directors of the Company:

Name: Age: Term Expires Director Since (1) Raj-Mohinder S. Gurm 46 Director Next AGM Nov. 1990 John H. Rennie 69 Director Next AGM Mar. 1999 Gerry Podersky-Cannon 59 Director Next AGM June 2000 Stephen Sleigh 59 Director Next AGM June 2003

------------------------------------------------------------- (1) Directors Terms are staggered over a three year period. Directors may only be removed for cause and by a 75% majority vote of the shareholders. ITEM 10. EXECUTIVE COMPENSATION Any compensation received by officers, directors and management personnel of the Company will be determined from time to time by the Board of Directors of the Company. Officers, directors and management personnel of the Company will be reimbursed for any out-of-pocket expenses incurred on behalf of the Company. Summary Compensation Table. The table set forth below summarizes the annual and long-term compensation for services in all capacities to the Company payable to the Chief Executive Officer of the Company and the other executive officers of the Company whose total annual salary and bonus exceeded $50,000 during the years ending March 31. The Board of Directors of the Company may adopt an incentive stock option plan for its Directors and executive officers which would result in additional compensation.

---------------------------------------------------------------------------------------------------------------------------- SUMMARY COMPENSATION TABLE ---------------------------------------------------------------------------------------------------------------------------- Long Term Compensation ---------------------------------------------------------------------------------------------------------------------------- Annual Compensation Awards Payouts ---------------------------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) (h) (i) ---------------------------------------------------------------------------------------------------------------------------- Name Other Restricted Securities And Annual Stock Underlying LTIP All Other Principle Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation Position Year ($) ($) ($) ($) (#) ($) ($) ---------------------------------------------------------------------------------------------------------------------------- CEO 2006 $62,774(3) 0.00 0.00 0.00 67,000(2) 0.00 0.00 Raj-Mohinder Gurm 2005(6) 58,859(1) 0.00 0.00 0.00 67,000(2) 0.00 0.00 2004(7) 55,344(1) 0.00 0.00 0.00 67,000(2) 0.00 0.00 ----------------------------------------------------------------------------------------------------------------------------

(1) In April 1999 the board approved an employment contract with Mr. Gurm, which allowed for an annual salary of $62,774(72,000CDN), a signing bonus of $10,000 and an option to purchase 134,000 shares of the Company's common stock for $0.10 per share. The employment contract called for an additional option to purchase 67,000 shares of the Company's common stock for Page 33 $0.10 per share to be issued to Mr. Gurm on an annual basis. All options expire five years after the issue date. The salary due Mr. Gurm since April 1999 has been accrued by the Company, except for $63,650 which was forgiven by Mr. Gurm in March of 2001. The salary amount accrued includes vacation pay. The contract is automatically renewed at the same terms every year on April 30, unless cancelled or opened for renegotiating by either Mr. Gurm or the board of directors of the Company. The Company has no other Employment contracts with any other party. (2) These stock purchase options were issued pursuant to Mr. Gurm's employment contract dated April, ?? 1999. These options vest immediately, and can be exercised at $0.10 per share within 5 years from the date of grant. (3) Salary accrued from April 1, 2005 to March 31, 2006 includes vacation pay. (6) Year ended on March 31, 2005 (7) Year ended on March 31, 2004 OPTION TABLE

--------------------------------------------------------------------------------------------------------- Option Grants --------------------------------------------------------------------------------------------------------- Individual Grants --------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) --------------------------------------------------------------------------------------------------------- Number of Securities %of Total Options Exercise Name Underlying Options Granted to Employees Price Expiration Granted (#) ($/Sh) (USD) Date --------------------------------------------------------------------------------------------------------- Raj-Mohinder Gurm 284,000 36.18 $0.10 May 08, 2007 67,000 8.54 $0.10 Apr 30, 2008 67,000 8.54 $0.10 Apr 30, 2009 67,000 8.54 $0.10 Apr 30, 2010 --------------------------------------------------------------------------------------------------------- John H. Rennie 150,000 19.11 $0.10 May 08, 2007 --------------------------------------------------------------------------------------------------------- Canafra Financial 150,000 19.11 $0.10 May 08, 2007 ---------------------------------------------------------------------------------------------------------

The board of directors has approved the issuance of currently outstanding options to purchase 785,000 shares of Company's common stock to directors of Company, exerciable at $0.10 per share within five years from date of grant. Mr. Gurm's Employment contract calls for annual incentive option grants to purchase 67,000 shares of the Company' common stock at an exercise price of $0.10 per share or 20% below the market price if the shares are trading on the OTCBB, In addition the board of directors approved granting Mr Gurm annual bonus option based upon the following formula: Options to purchase shares at 20% below market price (if trading on OTCBB, otherwise at $.10 per share) up to the value determined by 5% of the amount of annual profits from sales between $2,500,000 to $3,999,999 and 8% of the amount of annual profits from sales in excess of $4,000,000. Exercise terms and other option exercise details have not yet been finalized. Previously issued options were re-priced at $.10 US from $0.15 CDN. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information regarding the beneficial Page 34 ownership of the Company's common stock as of the date of this Prospectus by (i) each person or entity known by the Company to be the beneficial owner of more than 5 % of the outstanding shares of common stock, (ii) each of the Company's directors and named executive officers, and (iii) all directors and executive officers of the Company as a group.

---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- Name and Address of Amount and Nature of Title of Class Beneficial Owner Beneficial Owner Percent of Class(1) ---------------------------------------------------------------------------------------------------- $.001 Par Raj-Mohinder S. Gurm Value 13718 91st Avenue Officer & Director 59.4% Common Stock Surrey, BC, Canada 6,032,360 Common(2) V3V 7X1 ---------------------------------------------------------------------------------------------------- $.001 Par Gerry Podersky-Cannon. Value 126-1628 W 1st, Avenue Officer & Director 7.3% Common Stock Vancouver, BC, Canada 738,736 Common(3)(4) V6J 1G1 ---------------------------------------------------------------------------------------------------- $.001 Par John Herman Rennie Value #402 5976 Tisdall Street Officer & Director 3.7% Common Stock Vancouver, BC, Canada 380,000 Common(3) V5Z 3N2 ---------------------------------------------------------------------------------------------------- $.001 Par Harvinder K. Sandhu Value 156 E. 47th Avenue Former Director 5.1% Common Stock Vancouver, BC, Canada 519,000 Common V5W 2A6 ---------------------------------------------------------------------------------------------------- $.001 Par Value All officers and directors Common Stock as a group (3 Persons) 7,151,096(2)(3)(4) 70.4% ----------------------------------------------------------------------------------------------------

(1) Percentages are calculated based on 9,377,364 shares outstanding as of June 30,2006 already subscribed for. Pursuant to Rule 13d-3(d)(1), the percentage of shares owned for each person includes shares deemed to be outstanding upon the exercise of options by such person within 60 days of the reported date, but are not deemed to be outstanding for the purpose of computing the percentage of the class by any other person. (2) Includes 485,000 shares currently issuable upon exercise of options at a price of$.10 per share. (3) Includes 150,000 shares currently issuable upon exercise of options at a price of $.10 per share to each of Messrs. Rennie and Podersky-Cannon. (4) Includes 713,152 shares held of record by Canafra Financial Ltd., a British Columbian corporation owned by Mr. Podersky-Cannon and his spouse, Donna Y. Maroz. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of the Company's common stock which may be acquired upon exercise of stock options which are currently exercisable or which become exercisable within 60 days of the date of the table are deemed beneficially owned by the optionees. Subject to community property laws, where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of the Company's common stock indicated as beneficially owned by them. Page 35 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As at March 31, 2006, the company owed $1,062,039 to related parties. Included in this amount is $669,567 owing to a Raj-Mohinder Gurm, a director and officer of the company, $121,409 owing to John Rennie, a director of the company, $15,285 owing to a company controlled by a director and officer of the company, and $255,778 owing to various relatives of the director and officer of the company. During the current year, $19,090 of interest expense has been accrued as owing to a director and officer of the company, $8,445 to a director of the company, and $12,495 to relatives of a director and officer of the company. As at March 31, 2006, Raj-Mohinder Gurm, a director and officer of the company, owned approximately 59% of the issued and outstanding share of the company, and all directors and officers of the company owned approximately 70% of the company's shares. During the year ended March 31, 2006, the company granted to Raj-Mohinder Gurm, a director and officer of the company, 67,000 stock purchase options exercisable at $0.10 per share on or before April 30, 2010. As at March 31, 2006, directors and officers of the company held 785,000 share purchase options exercisable at $0.10 per share expiring between May 8, 2007 and April 30, 2010. ITEM 13. EXHIBITS Exhibit No. Description 3.1 Restated Certificate of Incorporation. (1) 3.2 Bylaws. (1) 10.1 Distributor agreement between Spectrum International Inc. and Canafra Management & Consulting Services dated Feb. 24,2000 10.2 Lease Agreement among West-Bend Construction LTD, Spectrum Trading Inc. and Raj-Mohinder S. Gurm dated September 1, 1998. (1) 10.3 Lease Extension Agreement between West-Bend Construction LTD and Spectrum Trading Inc. dated September 1, 2001. (1) 10.4 Employment contract between Spectrum International Inc and Raj-Mohinder Gurm dated April 12, 1999. (1) 10.5 Loan Agreement among Ronald Cranfield, Spectrum Trading Inc. and Toronto Dominion Bank dated December 2, 1997. (1) 10.6 Business Banking Loan Agreement between Royal Bank of Canada and Raj-Mohinder S. Grum dated June 1, 1999. (1) 10.7 Indenture between Raj-Mohinder S. Grum and Spectrum Trading Inc. dated April 30, 1999. (2) 23.1 Consent of Auditors 31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certificate of Chief Financial Officer and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1) Incorporated herein by reference to Form SB-2A filed with the U.S. filed with the U.S. Securities and Exchange Commission on May 14, 2003. Page 36 (2) Incorporated herein by reference to Form SB-2 filed with the U.S. filed with the U.S. Securities and Exchange Commission on June 26, 2002. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth fees billed to us by our auditors during the fiscal years ended March 31, 2006 and March 31, 2005 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services by our auditor that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as Audit Fees, (iii) services rendered in connection with tax compliance, tax advice and tax planning, and (iv) all other fees for services rendered. March 31, March 31, 2006 2006 ----------------------------- Audit Fees $ 24,929 $ 36,923 Audit Related Fees - - Tax Fees - 5,850 All Other Fees - - ----------------------------- Totals 24,929 42,773 ============================= Audit Fees. These fees consist of fees billed for professional services rendered for the audit of the Company's financial statements and review of the interim financial statements included in the Company's periodic reports, statutory and regulatory filings or engagements. Audit-Related Fees. These fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under "Audit Fees." There were no Audit-Related services provided in fiscal 2006 or 2005. Tax Fees. These fees consist of fees billed for professional services for tax compliance, tax advice and tax planning in fiscal 2006 or 2005. All Other Fees. These fees consist of fees for products and services other than the services reported above. There were no management consulting services provided in fiscal years 2006 or 2005. Pre-Approval Policies and Procedures. The Company currently does not have a designated Audit Committee, and accordingly, the Company's Board of Directors' policy is to pre-approve all audit and permissible non- audit services provided by the independent auditors. These services may include audit services, audit-related services, and tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Company's Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre- approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis. Page 37 SIGNATURES In accordance with Section 13 of the exchange act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Natco International, Inc. By: /s/ Raj-Mohinder S. Gurm ------------------------------------ Name: Raj-Mohinder S. Gurm Date: July 14, 2006 Title Chief Executive Officer & CFO Pursuant to the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. /s/Raj-Mohinder S. Gurm ------------------------------------------------------------- Director, Chief Executive Officer and Chief Financial Officer July 14, 2006 /s/John H. Rennie ------------------------- Director, Secretary July 14, 2006 /s/Gerry Podersky-Cannon ------------------------- Director July 14, 2006 /s/Stephen Sleigh ------------------------- Director, Controller July 14, 2006 Page 38