10QSB 1 formqsbjune2007.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the period ended June 30, 2007 ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _____________ to ______________. Commission file number 33391190 NATCO INTERNATIONAL INC. (Exact name of small business issuer as specified in its charter) Delaware 48-1099142 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) #204, 13569 - 76 Avenue Surrey, BC, Canada, V3W 2W3 (address of principal executive offices) (604) 592-0047 (Issuer's telephone number) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the previous 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 ( ) Yes ( ) No (X) State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, $0.001 par value - 15,047,614 shares outstanding as of June 30, 2007 Transitional Small Business Disclosure format (check one): Yes ( ) No (X) Page 1 NATCO INTERNATIONAL INC. FORM 10-QSB Quarter Ended June 30, 2007 Table of Content PART I - FINANCIAL INFORMATION ITEM I. Financial Statements 3 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 ITEM 3. Controls and Procedures 22 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 23 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 24 ITEM 3. Defaults Upon Senior Securities 24 ITEM 4. Submission of Matters to a vote of Security Holders 24 ITEM 5. Other Information 24 ITEM 6. Exhibits 24 Signatures 25 Page 2 Part 1 - FINANCIAL INFORMATION ITEM 1. NATCO INTERNATIONAL INC. (formerly Spectrum International Inc.) INTERIM FINANCIAL STATEMENTS June 30, 2007 (Expressed in US Dollars) Unaudited Page 3 Statement 1 Natco International Inc. (formerly Spectrum International Inc.) Interim Balance Sheets As at June 30,2007 Expressed in U.S. Dollars June 30 March 31 Assets 2007 2006 - --------------------------------------------------------------------------- Current Accounts receivable $ - $ - Inventory (Note 3) - - Prepaid expenses 7,617 15,646 Assets held in discontinued operations 2,997 2,765 -------------------------- 18,411 Long Term Loan to PVT 955,000 - Interest Receivable on PVT Loan 13,086 - Product rights (Note 5) 1 1 -------------------------------- $ 978,701 $ 18,412 ============================================================================ Liabilities - ---------------------------------------------------------------------------- Current Bank indebtedness (Note 6) $ 18,766 19,132 Accounts payable 78,988 80,460 Loan Payable (Note 7) 735,000 - Accrued liabilities 25,482 12,214 Due to related parties (Note 8) 1,081,052 753,273 -------------------------------- 1,939,288 865,079 Bank indebtedness (Note 6) Due to Related Parties (Note 8) - -------------------------------- 1,939,288 865,079 -------------------------------- Continued Operations (Note 1) 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: 15,047,614 (2006 - 9,377,364) common shares - Statement 3 (Note 8) $ 15,047 15,047 Additional paid-in capital - Statement 3 1,037,784 1,072,687 Share subscriptions (Note 9c) 70,853 70,853 Other comprehensive loss - Statement 3 (298,637) (239,731) Deficit - Statement 3 (1,770,587) (1,765,523) -------------------------------- (960,587) (846,667) -------------------------------- $ 978,701 $ 18,412 On behalf of the Board Raj Gurm, Director John H. Rennie, Director ============================================================================ See accompanying notes Page 4 Statement 2 Natco International Inc (formerly Spectrum International Inc.) Interim Statements of Operations For the Three Months Ended June 30 Expressed in U.S. Dollars June 30 June 30 2007 2006 - ---------------------------------------------------------------------------- > Sales $ - $ - Cost of sales - - -------------- -------------- Gross profit - - -------------- -------------- Expenses Advertising & Promotion 4,683 - Bank charges 149 1,326 Travel - 6,644 Depreciation - 768 Legal and accounting 25,060 277 Office and other 133 624 Rent 3,824 3,758 Salaries and benefits 17,044 66,679 Telephone and utilities 1,888 808 ---------------------------------- 52,781 80,917 ---------------------------------- Loss Before Other Items (52,781) (80,917) ---------------------------------- Other Items Interest on PVT Loan 12,693 - Other income - 188 Cancellation of Options 49,500 - Interest expense (14,476) (11,661) ---------------------------------- (5,064) (92,390) Loss from continuing operations NetIncome(loss) from discontinued operations - 1,051 ---------------------------------- Net loss for the Period $ (5,064) $ (91,339) =============== ============== =========================================================================== Basic and Diluted Weighted Average Number of Shares Outstanding 15,047,614 9,377,364 ============== ============== Basic and diluted loss per share from continuing operations $ (0.01) $ (0.01) =============== ============= Basic and diluted loss per share $ (0.01) $ (0.01) =============== ============= ============================================================================ Comprehensive Loss Net loss for the period $ ( 5,064) $ (91,339) Foreign currency translation adjustment (58,906) (50,706) ---------------------------------- Total comprehensive loss or the period $ ( 63,970) $ (142,045) =============== ============= ============================================================================ See accompanying notes Page 5 Statement 3 Natco International Inc (formerly Spectrum International Inc.) Interim Statements of Stockholders' Deficiency 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) Share subscription (Note 8c) - - - 50,000 - 50,000 Issuance of shares at CDN$0.06/share(Note 8b) 100,000 100 4,047 (4,147) - - - Issuance of shares at CDN$0.10/share(Note 8b) 100,000 100 7,963 (8,063) - - - Issuance of shares at$0.10 per share(Note 8b) 5,470,250 5,470 541,555 - - - 547,025 Issuance of Stock Options - - 49,950 - - - 49,950 Change in foreign currency translation adjustment - - - - (34,078) - (34,078) Net Loss - - - - - (234,572) (234,572) - ----------------------------------------------------------------------------------------------------------------- ----------- Balance (deficiency) - March 31, 2007 15,047,614 $15,047 $1,072,687 $70,853 $(239,731) $(1,765,523) $(846,667) Change in foreign currency translation adjustment - - - - (58,906) - (58,906) Cancellation of Stock Options - - (49,950) - - - (49,950) Net Loss - - - - - (5,064) (5,064) ------------------------------------------------------------------------------------------------------------------- ------------ Balance (deficiency) - June 30, 2007 9,377,364 $15,047 $1,022,737 $70,853 $(298,637) $(1,770,587) $ (960,587) =================================================================================================================== =========

See accompanying notes. Page 6 Statement 4 Natco International Inc. (formerly Spectrum International Inc.) Interim Statements of Cash Flows For the Three Months Ended June 30,2007 Expressed in U.S. Dollars

Cash Flows Provided By (Used In) 2007 2006 - --------------------------------------------------------------------------------------------------------- Operating Activities Net loss from continuing operations $ (5,064) $ (91,339) Adjustments to determine cash flows: Depreciation - 768 Interest due to related parties 14,233 10,131 Wages accrued to director 17,044 16,729 Cancelled Stock based compensation (49,500) 49,950 Change in non-cash working capital: Accounts receivable (13,086) - Inventory - (2,155) Prepaid expenses 8,029 (13,596) Accounts payable (1,472) 9,624 Accrued liabilities 13,268 (3,460) ----------------------------------- Net cash used in continued operations (16,988) (23,348) Net cash provided by (used in) discontinued operations (232) 6,885 ----------------------------------- (17,230) (30,233) ----------------------------------- Investing activities Loan to PVT (955,000) - ---------------------------------- (955,000) - ---------------------------------- Financing Activities Bank indebtedness (366) 230 Due to related parties 296,502 34,152 Loan Payable 735,000 - Share subscriptions - 50,000 ----------------------------------- 1,031,136 84,382 ----------------------------------- Foreign exchange (58,096) (54,149) Cash position - Beginning of Year - - ----------------------------------- Cash position - End of Year $ - $ - ========================================================================================================== Supplementary cash flows information: Related to operating activities Interest paid $ 243 $ 1,529 Income Tax Paid $ - $ - See accompanying notes

Page 7 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 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, jewellery cleaner and a tire sealant. During the last fiscal year, the Company discontinued its production of both lines. The company has signed a binding letter of agreement with Photo violation Technologies Corp.(PVT), which will lead PVT to take over the Company in a Reverse merger. 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 through the proposed reverse merger with Photo Violation Technologies Corp. If the going concern assumption were not appropriate for these financial statements, then adjustments would be necessary in 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 8 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 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 9 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 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 10 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 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, 2007 and 2006. 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 11 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 Expressed in US Dollars =============================================================================== 2. Summary of Significant Accounting Policies - Continued t) Product Warranty The company's policy was to replace tire sealant and jewellery cleaner products if faulty. Products will be replaced within a reasonable time from the date of sale. The company stopped manufacturing all products January 2007, therefore, there are no warranty issues anymore. 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 12 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 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 13 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 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 14 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 Expressed in US Dollars =============================================================================== 3. Inventory All inventory has been written off as of March 31, 2007 - ----------------------------------------------------------------------- 4. Property, Plant and Equipment Details are as follows: All plant equipment has been written off as of March 31, 2007 ======================================================================= 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 15 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 Expressed in US Dollars =============================================================================== 6. Bank Indebtedness Details are as follows June 30 March 31 2007 2007 -------------------------- Checks written in excess of funds on deposit $ - $ - 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%. 18,766 19,132 ----------------------------- 18,766 19,132 Less: Current Portion (18,766) (19,132) ----------------------------- Long-term portion $ - $ - ----------------------------- =============================================================================== Page 16 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 Expressed in US Dollars =============================================================================== 7. Loan from Unrelated Parties The company loaned $955,000 to Photo Violation Technologies Corp in the first of this fiscal year to Photo Violation Technologies Corp, Company's RTO Partner This money was covered by a $250,000 loan from a director of the company (See Note 8 below) and a $735,000 loan form unrelated parties. These loans are unsecured, are due on demand, and bear interest rate of bank prime plus 1%. 8. 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: June 30, March 31 2007 2007 ------------------------- 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% (2007 - 0.5%). $ 14,224 $ 13,125 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% (2006 - 8.33% to 11%). It is expected that these loans will be repaid within the next 12 months. 529,565 260,605 Wages and bonus payable to a director and officer of the company. This liability is unsecured, due on demand and non-interest bearing (2006 - nil%). 531,214 473,961 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. 6,049 5,582 ------------------------- $ 1,081,052 $ 753,273 Less: Current portion (1,081,052) (753,273) ------------------------- Long-term portion $ - - ------------------------- b) Interest expense on amounts due to directors and an officer was $14,233 (2006 - $10,131). c) Salaries and benefits include $17,044(2006 - $66,679) paid to a director and officer of the Company. d) As at March 31, 2007, a director and officer of the Company held approximately 51% of the issued and outstanding shares of the Company. e) Sales include Nil (2006- nil) to a company with a director in common. f) The Company's director and officer owns approximately 58.1% of the Company's outstanding shares. =============================================================================== 9. 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 17 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 Expressed in US Dollars =============================================================================== 9. 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. v) During fiscal 2007, the Company issued 5,670,250 common shares for Debit and subscriptions from previous years. Of these shares, 250,000 were issued to a director of the company, another 45,450 was issued to a company owned by a director of the Company and 2,504,920 were issued to a director, CEO 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. During the current period, the company received $50,000 as a subscription for 500,000 shares at $0.10 per share. d) Stock Options All issued options were cancelled on June 20, 2007. No new options will be issued until the reverse merger with Photo Violation Technologies Corp is completed. =============================================================================== Page 18 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 Expressed in US Dollars =============================================================================== 10. 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: June 30 March 31 Future income tax assets: 2007 2007 ------------------------------------- Non-capital tax loss $ 332,000 $ 312,000 Valuation allowance (332,000) (312,000) ------------------------------------- $ - $ - ------------------------------------- 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. 11. Commitments As of September 1, 2007 the company has leased offices at #204, 13569 - 76th Avenue, Surrey, BC, Canada. Total space is 750 square feet for total rent of $900.00 per month. This lease will expire on August 31, 2012. =============================================================================== Page 19 Natco International Inc. (formerly Spectrum International Inc.) Notes to Interim Financial Statements June 30, 2007 Expressed in US Dollars =============================================================================== 12. Reverse Merger Agreement On March 19, 2007 Company signed a binding Letter of agreement with Photo Violation Technologies Corp, a Canadian company that manufactures Parking Meters. 13. Subsequent Events On July 15, 2007 Natco and Photo violation Technologies extended the letter of Agreement from July 16, 2007 to October 31, 2007 14. Appointment of Investor Relation Firm The company appointed Capital Group Communications as the Investor Relations firm. The Company will pay them with restricted stock In the amount of 1.5 Million Common Shares the Company. Page 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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 Chemical Manufacturing business activities in 1997; prior to that time we had few shareholders and were primarily dormant. We never made a profit on Chemical Manufacturing operations. As of March 31, 2007, we had incurred a deficit of $(1,765,523) and $(1,530,951) as of March 31, 2006, which has continued to increase. Our deficit as of June 30, 2007 was $(1,770,587). 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 chemical product lines. As an example, our deficit as of October 31, 1998 was approximately $(130,000). We had sales in both the jewelry cleaner and tire sealants product lines since 1998 to 2005, but sales did not contributed a significant amount to offset expenses. In the three months ended June 30, 2007 compared to the three months ended June 30, 2007, we had net loss of $(63,970) and $(142,045) respectively. Consequently, we discontinued all manufacturing activities and are in the process of doing a reverse merger with photo Violation Technologies Corp of Vancouver, British Columbia, Canada On December 5, 2006, the company announced a Letter of Intent has been signed with Photo Violation Technologies Corp. ("PVT") of Vancouver, Canada that will lead to the shareholders of PVT holding 85% of the outstanding shares of NATCO at the conclusion of the transaction. The shareholders of NATCO will retain a 15% interest in the re-organized company. On March 19, the company announced the signing of a binding Letter of Agreement with PVT. On July 15, 2007 the Letter of Agreement was extended to October 31, 2007. A definitive agreement is expected to be signed by he end of August 2007 Page 21 PVT is a private company with subsidiaries in Europe and Asia that has developed a patented, technologically innovative parking meter system - the PhotoViolationMeter(TM). This user friendly high tech meter will generate significantly more revenue than current parking meters through greatly improved compliance and zero double usage of time. The PhotoViolationMeter has already advanced to field trials and is being tested at the University of British Columbia Endowment Lands, Niagra Falls, New York, and at the Port of San Francisco. Based on data provided by PVT, Sean Lanigan B.Eng. (Civil), MBA, LL.B of Wishing Tree Inc. has established a fair market value for the PVT patent of $133 million USD. This value of the United Sates Patent does not include additional patents that have been issued and are still pending. Results of Operations Three month period ended June 30, 2007 The company is in the process of completing the RTO agreement. It is expected that the agreement will be done in August 2007 and the RTO will be completed in the next 4 months. Consequently we had no sales in the twelve months ended March 31, 2007. Therefore, it is not meaningful to compare our results of operations to our prior year since our prior year's operations have been discontinued. In the current period company brought in $985,000 in debit financing of which $955,000 was lent to our RTO partner Photo Violation Technologies (PVT) as per our Letter of Agreement dated March 16, 2007 and extended on July 15, 2007. The company also cancelled all issued and outstanding Options owned by Its four directors. The Agreement with PVT stipulated that all Options be either cancelled or exercised. All directors chose to cancel their Options. 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. Most of the financing has been debt financing from related parties. During the three months ended June 30, 2007: Natco used $16,988(2006 -$23,348) of cash to pay for its operating activities, primarily for general and administrative expenses such as SEC compliance, legal, accounting, and rent. Cash provided by debit financing activities was $1,031,136(2005 - $84,382), from unrelated Parties $735,000 loan, from related parties $296,502. The company loaned $955,000 to PVT as per our Letter of Agreement. The company owes $1,081,052 to related parties, the breakdown of which is listed in the financial statements, Note 8. Page 22 The Company has been sustaining a loss on operations of about $200,000 per year in the past two fiscal years. We plan to satisfy our current liabilities of $1,939,288 as of June 30, 2007 by converting most of our debt to equity and paying the balance of approximately $300,0000 with additional financing. PVT will pay off all the money being lent to them after the RTO is completed. We estimate that if we can raise $600,000 in additional capital either through long term debt, equity or some combination, which is yet to be obtained then we can pay the current obligations we believe we need to pay, and have enough working capital until the RTO is completed. We believe this sum, less the payments we have indicated, would provide us with sufficient working capital to meet our obligation to complete the RTO Post RTO entity will need additional capital. Our estimated fixed costs at this time are approximately $5400 per month, which includes $900 for lease payments, $500 for utilities, $3,000 for loan interest and principle payments, and $1,000 for miscellaneous expenses. We will have to raise approximately $5400 per month until additional funding is in place. If we are unable to finance the company by debt or equity financing, or 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. Our financial statements have been prepared on the going concern basis under which an entity is considered 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 long-term debt and 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 31,2007 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 consolidated 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. ITEM 3. 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. Page 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In May 2007 the company took a local brokerage house to court on behalf of itself and its shareholders. This action was taken because the company and some shareholders had a reason to believe that this particular Brokerage house was lending the shares to another broker Dealer for the purpose of shorting. When the shareholders demanded that their shares be converted to share certificates, the brokerage house did not produce the certificates in a reasonable time period. The company went to Supreme Court of British Columbia to force them to a) deliver the share certificates to shareholders, b) to stop lending out our shares, c) to stop shorting of the company's shares. The company managed to accomplish all three because judge agreed with the company and an order was issued to deliver the shares to shareholders immediately. We have not dropped this case as of June 30, 2007, but no further action against this Brokerage house is contemplated at this time. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company issued no unregistered securities in the three Months ended on June 30, 2007. However there are subscriptions of approximately $70,000 on the company books that will have to be issued in the next quarter. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS 31.1 Certificate of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certificate of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certificate of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certificate of controller Pursuant to Section 906 of the Sarbanes-Oxley act of 2002. Page24 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: August 20, 2007 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 Registrant and in the capacities and on the dates indicated. /s/Raj-Mohinder S. Gurm ------------------------------------------------------------- Director, Chief Executive Officer and Chief Financial Officer August 20, 2007