**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**____________________**

**FORM 10-Q**

**____________________**

**[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended June 30, 2011**

**[  ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT**

**For the transition period from ____________ to____________**

**Commission File No. 000-53984**

**NETWORK DEALER SERVICES HOLDING CORP.**

(Exact name of Registrant as specified in its charter) 
| Utah

77-0616375

(State or Other Jurisdiction of 

(I.R.S. Employer Identification No.) 

incorporation or organization) 

  

1725 East 1450 South, Suite 340

Clearfield, Utah 84015

 (Address of Principal Executive Offices) 

(801) 927-4000

(Registrant’s telephone number, including area code) 

N/A 

(Former name, former address and former fiscal year, 

if changed since last report) 

Indicate by check mark whether the Registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Yes [X] No [  ] 

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

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

Large accelerated filer [  ]      Accelerated filer [  ]       Non-accelerated filer [  ]      Smaller reporting company [X]

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

Yes [  ] No [X] 

1

**APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**

**PROCEEDINGS DURING THE PRECEDING FIVE YEARS**

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. 

Not applicable. 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:  August 15, 2011 – 47,460,901 shares of common stock.
2

**PART I**

**Item 1. Financial Statements.**

June 30, 2011

**C O N T E N T S**

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statements of Operations

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

3

**Network Dealer Services Holding Corp.**

**Condensed Consolidated Balance Sheets**

**June 30, 2011 and December 31, 2010**

 

 

**June 30, 2011**

 

**December 31, 2010**

 

 

**(Unaudited)**

 

**(Audited)**

**Assets**

 

 

 

 

     Current Assets:

 

 

 

 

        Cash

$

31,026

  $

5,937

        Accounts receivable, net

 

9,172

 

39,576

        Accounts receivable – related party

 

42,811

 

-

        Inventory

 

5,294

 

5,294

        Prepaid asset

 

543

 

186

 

 

 

 

 

     Total current assets

 

88,846

 

50,993

 

 

 

 

 

     Property and equipment, net

 

24,151

 

31,776

 

 

 

 

 

   Total assets

$

112,997

  $

82,769

 

 

 

 

 

**Liabilities and Shareholders' Equity (Deficit)**

 

 

 

 

 

 

 

 

 

     Current liabilities:

 

 

 

 

        Accounts payable

$

151,605

  $

80,877

        Accounts payable - related party

 

70,353

 

38,855

        Other current liabilities

 

61,955

 

74,399

        Unearned revenue - related party

 

-

 

23,299

        Notes payable related party

 

416,906

 

351,748

        Current Portion Capital Leases

 

25,380

 

25,276

 

 

 

 

 

     Total current liabilities

 

726,199

 

594,454

 

 

 

 

 

     Long term liabilities:

 

 

 

 

        Capital Leases

 

2,541

 

14,754

 

 

 

 

 

     Total long term liabilities

 

2,541

 

14,754

 

 

 

 

 

   Total liabilities

 

728,740

 

609,208

 

 

 

 

 

   Shareholders'  Equity (Deficit):

 

 

 

 

 

 

 

 

 

     Preferred Stock, $0.001 par value, 5,000,000 shares authorized, none issued 

      and outstanding

 

-

 

-

 

 

 

 

 

     Common stock, $0.001 par value; 100,000,000 shares authorized, 46,460,901

        and 46,485,901 shares issued and outstanding

 

47,461

 

46,486

     Additional paid in capital

 

2,000,511

 

1,767,893

     Accumulated deficit

 

(2,663,715)

 

(2,340,818) 

   Total Stockholders'  equity (deficit)

 

(615,743)

 

(526,439) 

 

 

 

 

 

   Total liabilities and Stockholders'  equity (deficit)

$

112,997

  $

82,769

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

4

**Network Dealer Services Holding Corp.**

**Condensed Consolidated Statements of Operations**

**For the Three and Six Months Ended June 30, 2011 and 2010**

**(Unaudited)**

 

 

**For the Three Months Ended June 30,**

 

**For the Six Months Ended June 30,**

 

 

**2011**

 

**2010**

 

**2011**

 

**2010**

   Revenue

$

58,838

$

95,705

$

141,746

$

147,105

   Revenue - related party

 

181,874

 

169,050

 

429,309

 

255,895

     Total Revenues

 

240,712

 

264,755

 

571,055

 

403,000

 

 

 

 

 

 

 

 

 

   Cost of good sold

 

203,838

 

236,491

 

470,048

 

367,922

 

 

 

 

 

 

 

 

 

   Gross Profit

 

36,874

 

28,264

 

101,007

 

35,078

 

 

 

 

 

 

 

 

 

   Operating expenses

 

 

 

 

 

 

 

 

     Professional fees

 

15,896

 

17,480

 

73,983

 

18,141

     General and administrative

 

159,544

 

120,469

 

318,523

 

194,451

          Total operating expenses

 

175,440

 

137,949

 

392,506

 

212,592

 

 

 

 

 

 

 

 

 

   Loss from operations

 

(138,566)

 

(109,685)

 

(291,499)

 

(177,514)

 

 

 

 

 

 

 

 

 

   Other Income (Expense)

 

 

 

 

 

 

 

 

     Other income

 

-

 

3,026

 

50

 

3,051

     Interest expense

 

(16,115)

 

(2,636)

 

(31,448)

 

(5,705)

         Total other expenses

 

(16,115)

 

390

 

(31,398)

 

(2,654)

 

 

 

 

 

 

 

 

 

   Income (loss) before taxes

 

(154,681)

 

(109,295)

 

(322,897)

 

(180,168)

     Provision for income taxes

 

-

 

-

 

-

 

-

   Net loss

$

(154,681)

$

(109,295)

$

(322,897)

$

(180,168)

 

 

 

 

 

 

 

 

 

   Other Comprehensive Income

 

 

 

 

 

 

 

 

     Unrealized gains (losses) on available for sale

      securities

 

-

 

391

 

-

 

399

   Total Comprehensive Income (Loss)

 

(154,681)

 

(108,904)

 

(322,897)

 

(179,769)

   Net loss per share - Basic and diluted

$

(0.01)

$

(0.01)

$

(0.01)

$

(0.01)

   Weighted average shares outstanding - Basic

      and diluted

 

 

47,355,406

 

 

46,019,233

 

 

46,945,293

 

 

46,019,223

See accompanying notes to condensed consolidated financial statements.

5

**Network Dealer Services Holding Corp.**

**Condensed Consolidated Statements of Cash Flows**

**For the Six Months Ended June 30, 2011 and 2010**

**(Unaudited)**

 

 

**For the Six Months Ended June 30,**

 

 

**2011**

 

**2010**

Cash flows from operating activities:

 

 

 

 

     Net loss

$

(322,897) 

$

(180,168) 

     Adjustments to reconcile net loss to net cash from operating activities:

 

 

 

 

        Depreciation expense

 

9,044

 

23,980

        Imputed interest on related party loan

 

26,920

 

-

        Shares issued for services

 

4,923

 

-

        Changes in operating assets and liabilities:

 

 

 

 

          (Increase) decrease in accounts receivable

 

30,404

 

3,882

          (Increase) decrease in accounts receivable related party

 

(42,811)

 

(38,019)

          (Increase) decrease in inventory

 

-

 

(3,953)

          (Increase) decrease in prepaid assets

 

(357)

 

743

          Increase (decrease) in accounts payable

 

70,728

 

4,836

          Increase (decrease) in accounts payable - related party

 

31,498

 

49,532

          Increase (decrease) in accrued liabilities

 

(10,694)

 

42,173

          Increase (decrease) in unearned revenue

 

(23,299)

 

-

 

 

 

 

 

   Net cash from operating activities

 

(226,541)

 

(96,994)

 

 

 

 

 

   Cash flows from investing activities:

 

 

 

 

     Purchase of property and equipment

 

(1,419)

 

(4,395)

 

 

 

 

 

   Net cash from investing activities

 

(1,419)

 

(4,395)

 

 

 

 

 

   Cash flows from financing activities:

 

 

 

 

     Shares issued for cash

 

200,000

 

-

     Payments on notes payable and capital leases

 

(12,109)

 

(29,363)

     Proceeds from notes payable-related party

 

-

 

167,000

     Proceeds from shareholder loan

 

65,158

 

-

 

 

 

 

 

   Net cash from financing activities

 

253,049

 

137,637

 

 

 

 

 

   Net change in cash

 

25,089

 

36,248

 

 

 

 

 

   Cash, beginning of period

 

5,937

 

8,398

 

 

 

 

 

   Cash, end of period

$

31,026

$

44,646

   Supplemental disclosure of cash flow information:

 

 

 

 

     Income taxes

$

-

$

-

     Interest

$

4,528

$

  5,705

   Supplemental disclosure of non-cash items:

 

 

 

 

     Stock issued to settle accrued liabilities

$

1,750

$

-

     Related party accounts receivable exchanged for related party debt

$

-

$

99,911

 

See accompanying notes to condensed consolidated financial statements.

6

**Network Dealer Services Holding Corp.**

**Notes to Condensed Consolidated Financial Statements**

**June 30, 2011**

**(Unaudited)**

**NOTE 1 BASIS OF PRESENTATION**

The accompanying financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The results of operations for the period ended June 30, 2011, are not necessarily indicative of the operating results for the full year. 

**NOTE 2 LIQUIDITY/GOING CONCERN**

The Company has accumulated losses since inception and has not yet been able to generate profits from operations. Operating capital has been raised through the sale of common stock or through loans from stockholders.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  

Management’s plans are to further develop new and innovative products and services that target the auto industry and raise additional capital. If management is unsuccessful in these efforts, discontinuance of operations is possible. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

**NOTE 3 RELATED PARTY TRANSACTIONS**

Related party transactions consist of sales and receivables to Great Western Holding Co., Inc. (Great Western) or to J and P Holding, LLC (J&P). Great Western and J&P have common ownership with Network Dealer Services.  Network Dealer Services contracts for and provides services to these related parties for advertising, printing, marketing and some internet solutions.  These services constitute sales revenues which are subsequently paid by the related parties.  As of June 30, 2011 the Company was owed $42,811 by related parties.

During the six months ended June 30, 2011, payables to related party shareholders (“Shareholders” or “Shareholder”) increased by $31,498, and the Company repaid $0.  These amounts are commissions due to the Shareholders under contractual agreements for products sold by the Shareholders at their automobile dealerships. As of June 30, 2011, the Company owed $70,353 for such commissions to the Shareholders.

During the six months ended June 30, 2011, Shareholders loaned the Company $40,000.  As of June 30, 2011, the Company owed $40,000 to the Shareholders on a note in that amount.  For the six months ended June 30, 2011, the Company imputed $1,827 of interest on this note.

During the prior year, a related party (JS Investments, a company owned by Shareholders Joshua A. Griffin and R. Shane Griffin), loaned $20,000 to the Company to support operations and executed a note in that amount.  The note is due on demand and has no stated interest.  For the six months ended June 30, 2011, the Company imputed $1,370 of interest on this note.

7

**Network Dealer Services Holding Corp.**

**Notes to Condensed Consolidated Financial Statements**

**June 30, 2011**

**(Unaudited)**

**NOTE 3 RELATED PARTY TRANSACTIONS (Continued)**

Also during the six months ended June 30, 2011, Great Western loaned $25,158 to the Company to support operations for which the Company executed a note.  As of June 30, 2011, the total note balances due on advances by Great Western was $356,906.  The note is due on demand and has no stated interest.  For the six months ended June 30, 2011, the Company imputed $23,723 of interest on this note.

**NOTE 4 COMMON STOCK**

On December 20, 2010 the Company granted 1,400,000 restricted shares of common stock to employees.  One third of the shares vested immediately and the remaining two thirds vest after one year.  The Company recognizes compensation over the requisite service period, one year.  During the six months ended June 30, 2011 the Company recognized stock compensation of $4,923.

During the quarter ended March 31, 2011, the Company issued 175,000 shares of restricted stock, valued at $0.01 per share, to a former employee and a non employee to settle claims.

During the quarter ended June 30, 2011, the Company issued 800,000 shares of common stock to an officer/director of the Company for $200,000 cash. 

  

 

8

**Item 2.**** Management’s Discussions and Analysis of Financial Condition and Results of Operations.**

**Forward-looking Statements**

Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.

Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only as of the date they are made.  We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

**Plan of Operations**

The Company continues to seek sources of funding to begin to roll out its plan to acquire franchised, new automobile dealerships in small-to-medium markets.  We are also engaged in the business of providing aftermarket sales, marketing, servicing and underwriting channels for various extended service contracts and added value insurance products to the new and used automobile segments of the automobile industry.  Using a prudent mix of cash, stock and debt, management believes that significant value exists in the acquisition of under-valued and under-performing franchised, new automobile small-to-mid-market dealerships.  We believe that significant unrealized value is obtainable through the integration of demonstrated Company sales and marketing strategies, dealership management policies and the consolidation of operations. We have selected a segment of the market that is well established, profitable and growing and that has a low barrier to entry for consolidation. The low barrier to entry is largely due to the fact that we have selected markets and dealerships that are generally not targeted for acquisition markets or dealership size by the established competition. Instead, the small-to-medium sized dealer remains a largely fragmented segment of the larger retail sales industry.  In many such markets, the price to purchase a dealer may be depressed due to a relatively few amount of bidders.

Consolidating branded and franchised automobile dealerships has the demonstrated and quantifiable result of providing for greater operational efficiency, management controls, increased sales revenue and higher profit margins, with greater customer retention and satisfaction. Consolidation produces increased capacity through integrating centralized management and systems, while providing a consistent platform for growth through planned and controlled acquisitions. Our dealership acquisition model will allow us to expand the offering of our current products to all newly acquired dealerships.

We believe that consolidating branded and franchised automobile dealerships will have the result of providing for greater operational efficiency, management controls, increased sales revenue and higher profit margins, and when combined with our in-house marketing, printing and retention programs, greater customer retention and satisfaction. Consolidation has the potential to produce increased capacity through integrating centralized management and systems while providing a consistent platform for growth through planned and controlled acquisitions.  We are engaged in researching this market landscape with the intention of identifying three operating and profitable automobile dealerships in our target market to purchase as part of our initial dealership acquisitions.  

Our acquisition target is a franchised automobile dealership in a rural or small-to-medium, non-metropolitan market, with an initial focus on acquiring under-performing, small-business dealerships from a single owner/operator or a small dealer group. As we acquire dealerships, we will use our current offering of aftermarket sales, marketing, printing, servicing and underwriting channels for various extended service contracts and added value insurance and vehicle maintenance products. This integration will add revenues to all our current business lines and allow us to capture profits that are usually paid out to third-party providers.

9

Our current product offerings are marketed and offered by us to consumers through new and used retail automobile dealership Finance and Insurance (“F&I”) representatives employed by the dealerships to sell F&I products at the point of sale or delivery of the automobile, on a fee and/or commission basis, and are sold by us through automobile dealerships we contract with to facilitate their F&I business services.  It is anticipated in the future that our product offerings will be serviced and primarily underwritten by us through wholly-owned or controlled entities; however, F&I representatives will continue to be employees of the respective dealerships with whom we contract.  Currently, all of our products offered for sale through dealership F&I sales representatives are third-party products administered and underwritten through the third-party providers.  Our future product development plans include the creation of our own underwriting and administration companies and the offering of our own products directly to the end user.  We believe the F&I portion of an automobile dealership’s business is, by far, the most profitable sector.  Our business model consolidates a very stable and profitable segment of the automobile purchase process.  Our products are tied specifically to the purchase of new or used vehicles. As a result, we believe that we are able to plan and create stable revenue and very predictable mid and long term costs and expenses to our business platform because there is substantially and readily publicly available industry data and trends analysis specific to the purchasing, selling and maintaining of new and used automobiles.  Such a strategy should allow us to accurately forecast and adjust our business model with full scalability for maximum return on investment and efficient use of our capital, while increasing shareholder value and, most importantly, managing sustained controlled growth with a real benefit to the customer.  

To fully implement our planned future business operations, we estimate that we will need approximately $10,000,000 in additional funding.  These funds would be primarily utilized to purchase existing franchised, new automobile dealerships, which are anticipated to include the purchase of related party automobile dealerships.  As we acquire automobile dealerships, we will introduce and integrate our full array of aftermarket sales, marketing, and printing products and services into the new dealership, providing greater efficiencies at the new dealership and generating new revenues for all divisions of the Company.  We do not currently have any firm commitments from which to raise these funds.  We cannot assure that we will be successful in raising these funds.  We believe that even without the planned funding, our current and planned business operations will continue to grow, but at a much slower pace.  If we are successful in raising our proposed funds, the following is a present estimate of the use of these proceeds, net of cost of raising these funds: 

Working Capital:

 

 

 

 

Working Capital  for initial acquisitions

$2,600,000 

 

 

NDS Loan - Retirement

$400,000 

 

 

Reserve

$100,000 

 

 

 

 

 

 

Total proceeds for working capital:

 

$3,100,000 

 

 

 

 

Capital Expenditures:

 

 

 

Initial Dealer Acquisition (3 dealerships)

$3,100,000 

 

 

Dealer Acquisition Reserve

$3,300,000 

 

 

Office Equipment

$60,000 

 

 

Acquisition fees, costs, setup, IT

$100,000 

 

 

Continued Product Development, Software

$240,000 

 

 

Reserve

$100,000 

 

 

 

 

 

 

Total proceeds for Capital Expenditures:

 

$6,900,000 

 

 

 

 

Total Use of Proceeds:

 

$10,000,000 

 

10

Presently, there are four automobile dealerships that have customary contractual arrangements with us, which are owned by related parties (three such dealerships are owned by the Griffins [Great Western Holding Company, Inc. and its subsidiaries or “Great Western”]; one dealership is owned by Joshua A. Griffin and Paul D. Stevens, both of whom are officers and directors of the Company), and we provide our products and services to approximately 4 other dealerships and two marketing agencies.  Most of the products and services that we currently provide are marketing/media, data mining/management, web-site development/support and the insurance products and services that we now offer.  

We had expected our revenues to be sustained at the levels of the previous quarter or to increase slightly.  Instead, revenues decreased.  The decrease is a result of a further reduction in our labor force and a reduction in our offerings to new customers in order to focus the business on sustaining current customers.  We don’t expect to see a substantial increase in sales until we are able to obtain the funding we are seeking.

We have also identified and are in discussions with an investor to secure the capital commitment that we are seeking to implement our planned future operations, though we have not entered into any firm commitment or other arrangements or understandings.  

**Results of Operations**

**For the three month periods ended June 30, 2011 and 2010**

Total revenue during the quarter ended June 30, 2011, of $240,712, compared to the quarter ended June 30, 2010, of $264,755 decreased only slightly.  However, revenues from unrelated parties decreased from $95,705 for the quarter ended June 30, 2010 to $58,838 for the quarter ended June 30, 2011.  This decrease is a result in the loss of customers as a result of our focus on using our limited resources and reduced labor force to service our larger clients.  Cost of goods sold during the quarter ended June 30, 2011, was $203,838, for a gross profit of $36,874, compared to the cost of goods sold during the quarter ended June 30, 2010, of $236,491, for a gross profit of $28,264.  Gross profit percentage increased from 11% to 15%. The main drivers of the increased gross profit percentage were the increased operational efficiencies and an elimination of certain product offerings that resulted in smaller profit margins.  We would expect this trend of increased profit margin to continue as revenues increase due to the relatively high fixed component of our cost of goods sold.  During the quarter ended June 30, 2011 operating expenses increased as a result of an increase in General and administrative costs of $39,075 over the quarter ended June 30, 2010.   This increase in general and administrative expenses explains the change in loss from operations during the quarter ended June 30, 2011 over the quarter ended June 30, 2010.  General and administrative expenses increased sharply during this period due primarily to the increased employee wages and insurance costs for such employees and an increase in real estate rents.  We had a net loss of $154,681 for the quarter ended June 30, 2011, compared to a net loss of $109,295 for the quarter ended June 30, 2010.

Revenues for the three month periods ended June 30, 2011, and 2010, attributable to related parties, were, respectively, $181,874 or approximately 76% of total revenues; and $169,050 or approximately 64% of total revenues.

**For the six month periods ended June 30, 2011 and 2010**

Total revenue increased substantially during the six month period ending June 30, 2011 over the six month period ending June 30, 2010.  That increase comes from revenues to related parties rather than other revenues and occurred mostly during the quarter ended March 31, 2011.  This increase is attributed to the addition of a new related party dealership client during the quarter ended March 31, 2011 and a substantial increase in sales at the related-party client dealerships.  The increased sales to our clients results in increased revenues to the Company from commissions due upon the sale of certain product and increase advertising budgets for our clients.  The increased revenues resulted in a larger percentage increase in gross profit over the same period.  A substantial increase in gross profit is expected at these revenue levels because of the large fixed portion of our cost of goods sold.

The Company also experienced a sharp increase in Operating Expenses during the six month period ended June 30, 2011 over the six month period ended June 30, 2010.  This increase came both in the form of Professional Fees (an increase of $55,842) and of General and Administrative expenses (an increase of $124,072).  The increase in outside Professional Fees is due to the continuing compliance and reporting requirements of the Securities and Exchange Commission, largely related to the annual 10K report.  General and administrative expenses increased during this period due primarily to the increased employee wages and insurance costs for such employees and an increase in real estate rents.

11

Revenues for the six month periods ended June 30, 2011, and 2010, attributable to related parties, were, respectively, approximately 75% of total revenues; and approximately 63% of total revenues.

**Liquidity**

We had cash of $31,026 as of June, 2011.

Our operating losses continued through the second quarter of 2011.  The increased losses are generally the result of decreased revenues from the loss of certain customers and increased wages.  We are seeking new means of obtaining cash and capital for operations through outside investors.  We have identified and are in discussions with an investor to secure the capital commitment that we are seeking to implement our planned future operations, though we have not entered into any firm commitment or other arrangements or understandings. 

During the six months ended June 30, 2011, related parties loaned $65,158 to the Company to support operations.    The Company did not receive any other loans from shareholders or other related parties.  As of June 30, 2011, the total note payable balance to Great Western was $356,906 and an additional $60,000 to other related parties and shareholders.  The notes are due on demand and have no stated interest.  For the six months ended June 30, 2011, the Company imputed $26,920 of interest on these loans.

These loans were used for our working capital. Additional working capital was obtained through the sale of 800,000 shares of Company stock in exchange for $200,000 from Lynn McCoy, an officer and director of the Company.  The funds received from the sale were used for working capital and to pay operational expenses.

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk.**

Not required.

**Item 4.  Controls and Procedures.**

**Evaluation of disclosure controls and procedures**

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. 

Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2011, our disclosure controls and procedures were, subject to the limitations noted above, effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. 

**Changes in internal control over financial reporting**

Our management, with the participation of the chief executive officer and chief financial officer, has concluded there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

12

**PART II - OTHER INFORMATION**

**Item 1. Legal Proceedings.**

None; not applicable. 

**Item 1A.  Risk Factors.**

Not required.

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

On April 13, 2011, our Board of Directors resolved to issue 800,000 shares of our common stock that were “restricted securities” to R. Lynn McCoy, an officer of the Company, in consideration of the sum of $200,000.  The Company received the $200,000 from Mr. McCoy and issued him 800,000 shares of common stock during the quarter ended June 30, 2011.

We issued these securities to persons who were either “accredited investors,” or “sophisticated investors,” as those terms are respectively defined in Rules 501 and 506 of the SEC; and each person had prior access to all material information about us. We believe that the offer and sale of these securities was exempt from the registration requirements of the Securities Act pursuant to Sections 4(2) and 4(6) thereof, and Rule 506 of Regulation D of the Securities Exchange Commission. Section 18 of the Securities Act preempts state registration requirements for sales to these classes of persons, save for compliance with state notice and fee requirements, as may be applicable.

**Item 3. Defaults Upon Senior Securities.**

None; not applicable. 

**Item 4. (Removed and Reserved).**

**Item 5. Other Information.**

None; not applicable.

**Item 6. Exhibits.**

**Exhibit No. **                       **Identification of Exhibit**

31.1 

  

31.2

  

32 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Joshua A. Griffin, President and Director.

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Paul D. Stevens, Chief Financial Officer, Vice President, Treasurer and Director

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided by Joshua A. Griffin, President and Paul D. Stevens, Chief Financial Officer, and Director. 

13

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized 

  

**NETWORK DEALER SERVICES HOLDING CORP.**

*Date:*

*August 15, 2011*

 

*By:*

*/s/Joshua A. Griffin*

 

 

 

 

*Joshua A. Griffin*

 

 

 

 

*President and Director*

 

 

 

 

 

*Date:*

*August 15, 2011*

 

*By:*

*/s/Paul D. Stevens*

 

 

 

 

*Paul D. Stevens*

 

 

 

 

*Chief Financial Officer, Vice President, Treasurer and Director*

 

 

 

 

 

*Date:*

*August 15, 2011*

 

*By:*

*/s/R. Lynn McCoy*

 

 

 

 

*R. Lynn McCoy*

 

 

 

 

*Chief Operating Officer, Secretary and Director*

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