U.S. 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 quarterly period ended October 31, 2004.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to _________
Commission File number 0-26843
Nortia Capital Partners, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
33-0967353
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(IRS Employer Identification No.)
400 Hampton View Court, Alpharetta, Georgia 30004
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(Address of principal executive offices)
(770) 777-6795
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(Issuer's telephone number)
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(Former name, former address, and former fiscal year, if changed since
last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of December 14, 2004,
there were approximately 10,555,000 shares of common stock, $0.001 par value,
issued and outstanding.
Transitional Small Business Disclosure Format (check one);
Yes __ No _X__
Nortia Capital Partners, Inc.
Form 10-QSB Index
October 31, 2004
Page
Part I: Financial Information.............................................3
Item 1. Financial Statements............................................3
Balance Sheet at October 31, 2004 (Unaudited)........................4
Statement of Operations for the Three and Six Months Ended
October 31, 2004 and 2003 (Unaudited)................................5
Statement of Cash Flows for the Six Months Ended October
31, 2004 and 2003 (Unaudited)).......................................6
Notes to Financial Statements (Unaudited)..........................7-19
Item 2. Management's Discussion and Analysis or Plan of Operation ......20
Item 3. Controls and Procedures.........................................30
Part II: Other Information................................................31
Item 1. Legal Proceedings...............................................31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.....31
Item 3. Defaults upon Senior Securities.................................31
Item 4. Submission of Matters to a Vote of Security Holders.............32
Item 5. Other Information...............................................32
Item 6. Exhibits......................................................32-33
Signatures................................................................33
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
3
Nortia Capital Partners, Inc.
(A Development Stage Company)
Balance Sheet
At October 31, 2004
(Unaudited)
ASSETS
------
Current Assets
Cash $ 27,232
Other receivable 3,250
Employee receivable 8,128
-------------
Total Current Assets 38,610
=============
Other Assets
Investment in affiliate - non-current:
Available-for-sale securities
Equities at fair market value 105,000
-------------
Total Investment in affiliate - non-current 105,000
-------------
Total Other Assets 105,000
-------------
Total Assets 143,610
=============
LIABILITIES
-----------
Current Liabilities
Accounts payable 11,500
Due to related party 3,613
Accrued expenses 46,271
Debentures 454,000
-------------
Total Current Liabilities 515,384
=============
STOCKHOLDERS' DEFICIENCY
------------------------
Preferred stock, Series B, $0.001 par value,
5,000,000 shares authorized, none issued and outstanding $ -
Common stock, $0.001 par value, 50,000,000 shares authorized
8,675,000 shares issued and outstanding 8,675
Additional paid in capital 178,881
Accumulated deficit (12,398)
Deficit accumulated during development stage (503,226)
Accumulated other comprehensive loss (43,706)
-------------
Total Stockholders' Deficiency (371,774)
=============
Total Liabilities and Stockholders' Equity $ 143,610
=============
See accompanying notes to financial statements.
4
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Operations
(Unaudited)
Period from
May 1, 2003
(Inception of
Three Months Ended Six Months Ended Development
October 31, October 31, Stage) to
2004 2003 2004 2003 October 31, 2004
---------------------- ----------------------- ----------------
Revenues $ 93,699 $ 26,301 $ 153,699 $ 26,301 $ 300,000
Operating Expenses
General and administrative 19,035 36,915 54,924 38,993 130,057
Rent 15,557 - 15,557 - 15,557
Consulting 9,765 - 15,915 - 15,915
Compensation 45,700 - 46,700 - 233,499
Debenture penalty 2,175 - 2,175 - 2,175
Directors fees 900 - 1,050 - 13,050
Professional 83,140 - 85,640 10,000 105,640
---------------------- ----------------------- ----------------
Total Operating Expenses 176,272 36,915 219,961 48,993 513,893
---------------------- ----------------------- ----------------
Income (Loss) from Operations (82,573) (10,614) (66,262) (22,692) (213,893)
Other Income (Expense)
Interest expense (8,752) (882) (15,054) (1,065) (26,501)
Loss on sale of available for sale securities - - (64,738) - (64,738)
Impairment of investments (3,250) - (3,250) - (3,250)
Other than temporary loss on available for sale securities (96,699) - (195,000) - (195,000)
Other income 4,500 - 4,500 - 4,500
Interest income 1 - 42 - 53
---------------------- ----------------------- ----------------
Total Other Income (Expense) (104,200) (882) (273,500) (1,065) (284,936)
---------------------- ----------------------- ----------------
Net loss Before Income Taxes $ (186,773) $ (11,496) $ (339,762) $ (23,757) $ (498,829)
====================== ======================= ================
Income tax expense - - - - (4,397)
---------------------- ----------------------- ----------------
Net loss $ (186,773) $ (11,496) $ (339,762) $ (23,757) $ (503,226)
====================== ======================= ================
Comprehensive Loss
Unrealized losses on available for sale securities - - (182,758) - (43,706)
---------------------- ----------------------- ----------------
Total Comprehensive Loss $ (186,773) $ (11,496) $ (522,520) $ (23,757) $ (546,932)
====================== ======================= ================
Net Loss Per Share - Basic and Diluted $ (0.03) $ (0.01) $ (0.06) $ (0.01) $ (0.14)
====================== ======================= ================
Weighted Average Shares 6,356,522 2,275,000 5,702,060 2,275,000 3,537,112
====================== ======================= ================
See accompanying notes to financial statements
5
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
Period from
May 1, 2003
Six Months Ended (Inception of
October 31, Development Stage)
2004 2003 to October 31, 2004
---------------------- -------------------
Cash Flows From Operating Activities:
Net loss $ (339,762) $ (23,757) $ (503,226)
Adjustments to reconcile net loss to net cash used in operations:
Debenture issued for legal services - - 5,000
Debenture issued for consulting services 7,000 - 7,000
Impairment of investment 3,500 - 3,500
Loss on sale of available for sale securities 64,738 - 64,738
Other than temporary loss on available for sale securities 195,000 - 195,000
Transfer of available for sale securities for consulting services 2,100 - 2,100
Common stock issued for compensation 2,950 - 162,950
Common stock issued for directors fees 1,050 - 13,050
Common stock issued for consulting services 4,065 - 4,065
Common stock issued for legal services 100 - 100
Common stock based revenue (153,699) (26,301) (300,000)
Changes in operating assets and liabilities:
Decrease in prepaid expenses - 540 540
Increase in other receivable (6,500) - (6,500)
Increase in employee receivable (8,128) - (8,128)
Increase in accounts payable 6,500 11,000 11,500
Increase in due to related party 2,500 1,113 3,613
Increase (decrease) in accrued expenses 25,899 (4,460) 40,723
---------------------- -------------------
Net Cash Used In Operating Activities (192,937) (41,866) (304,225)
---------------------- -------------------
Cash Flows From Investing Activities:
Purchase of available for sale securities - - (49,948)
Proceeds from sale of available for sale securities 14,405 - 14,405
---------------------- -------------------
Net Cash Provided By Investing Activities 14,405 - (35,543)
---------------------- -------------------
Cash Flows From Financing Activities:
Proceeds from issuance of debentures 197,000 42,500 367,000
---------------------- -------------------
Net Cash Provided By Financing Activities 197,000 42,500 367,000
---------------------- -------------------
Net Increase in Cash 18,468 634 27,232
---------------------- -------------------
Cash at Beginning of Period 8,764 - -
---------------------- -------------------
Cash at End of Period $ 27,232 $ 634 $ 27,232
====================== ===================
Cash interest paid $ - $ - $ -
====================== ===================
Supplemental Disclosure of Non-Cash Transactions:
- -------------------------------------------------
Debenture issued for available-for-sale securities $ - $ - $ 75,000
Exchange of accounts receivable for available-for-sale securities - - 60,000
Unrealized losses on available-for-sale securities (182,758) - (43,706)
See accompanying notes to financial statements
6
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
Note 1 Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America of America and the rules
and regulations of the United States of America Securities and
Exchange Commission for interim consolidated financial
information. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive
presentation of consolidated financial position and results of
operations.
It is management's opinion, however, that all material
adjustments (consisting of normal recurring adjustments and
certain non-recurring adjustments) have been made which are
necessary for a fair financial statement presentation. The
results for the interim period are not necessarily indicative of
the results to be expected for the year.
For further information, refer to the audited financial
statements and footnotes of the Company for the year ending April
30, 2004 included in the Company's Form 10-KSB.
Note 2 Nature of Operations and Summary of Significant Accounting Policies
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Nature of Operations
Nortia Capital Partners, Inc. (f/k/a BF Acquisition Group I,
Inc.) ("Nortia", "the Company", "we", "us") is a publicly held
company that during the period covered by this report is in the
development stage since it has not generated significant revenue
and not implemented its business plan.
We were organized as BF Acquisition Group I, Inc. under the laws
of the State of Florida on April 15, 1999, as a "shell" company
with plans to seek business partners or acquisition candidates.
Due to capital constraints, however, we were unable to continue
with our business plan. In March 2001, we ultimately ceased our
business activities and became dormant through May 2003, whereby
we incurred only minimal administrative expenses.
During June 2003, we engaged present management, began to raise
additional capital, and initiated activities to re-establish our
business. During our fiscal quarterly period ending July 31,
2003, we re-entered the development stage. During the
development stage, we have raised additional capital and
commenced preparations to implement our business plan.
Prior to October 8, 2004, we had not filed in a timely manner our
required reports with the Securities and Exchange Commission
("SEC") for the quarterly periods ended July 31, 2003, October
31, 2003, January 31, 2004, July 31, 2004 and the annual report
on form 10-KSB for the
period ended April 30, 2004. On October 8, 2004, all of these
reports were filed. No provision has been recorded in the
accompanying financial statements for the cost of actions, if
any, that may be taken by the SEC against the Company for its non-
compliance during this period (See Note 8 - Commitments and
Contingencies).
Effective August 2, 2004, the Company changed its name to Nortia
Capital Partners, Inc (See Note 10 - Subsequent Events).
7
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
On October 15, 2004, the Company entered into a definitive share
exchange agreement with Global Life Sciences, Inc., a publicly
traded company. Pursuant to the terms of the Exchange Agreement,
The Company will become a wholly owned subsidiary of Global in a
transaction accounted for as a recapitalization of the Company.
The closing of the Transaction occurred in December 2004. See
Note 9 - Subsequent Events.
Significant Accounting Policies
Accounting Estimates
When preparing financial statements in conformity with U.S. GAAP, our
management must make estimates based on future events which affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities as of the date of the financial
statements, and revenues and expenses during the reporting period.
Actual results could differ from these estimates. Significant
estimates in the accompanying financial statements include the
evaluation of a beneficial conversion feature for debentures,
valuation of the fair value of financial instruments, valuation of
common stock for services and the recognition of deferred tax assets
and liabilities.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with
a maturity date of three months or less when purchased.
Accounts Receivable
Accounts receivable result from the sale of the Company's services
and is reported at anticipated realizable value. The Company
estimates its allowance for doubtful accounts based on a specific
identification basis and additional allowances as needed based upon
historical collections experience. Accounts receivable is considered
past due if payment has not been received from the customer within
thirty days and management reviews the customer accounts on a routine
basis to determine if an account should be charged off.
Beneficial Conversion Feature in Debentures
In accordance with EITF Issue 98-5, as amended by EITF 00-27, we
must evaluate the potential effect of any beneficial conversion
terms related to convertible instruments such as convertible debt
or convertible preferred stock. The Company has issued several
debentures and a beneficial conversion may exist if the holder,
upon conversion, may receive instruments that exceed the value of
the convertible instrument. Valuation of the benefit is
determined based upon various factors including the valuation of
equity instruments, such as warrants, that may have been issued
with the convertible instruments, conversion terms, value of the
instruments to which the convertible instrument is convertible,
etc. Accordingly, the ultimate value of the beneficial feature
is considered an estimate due to the partially subjective nature
of valuation techniques.
8
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
Fair Value of Financial Instruments
We define the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value of
accounts payable and accrued liabilities approximates fair value
because of the short maturity of those instruments. The estimated
fair value of our other obligations is estimated based on the
current rates offered to us for similar maturities. Based on
prevailing interest rates and the short-term maturity of all of
our indebtedness, management believes that the fair value of our
obligations approximates book value at October 31, 2004.
Stock-Based Compensation
The Company accounts for stock options issued to employees in
accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, compensation
cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise
price. Such compensation amounts are amortized over the
respective vesting periods of the option grant. The Company
adopted the disclosure provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation," and SFAS No. 148 "Accounting for Stock
Based Compensation - Transition and Disclosure," which permits
entities to provide pro forma net income (loss) and pro forma
earnings (loss) per share disclosures for employee stock option
grants as if the fair-valued based method defined in SFAS No. 123
had been applied.
The Company accounts for stock options or warrants issued to non-
employees for goods or services in accordance with the fair value
method of SFAS 123. Under this method, the Company records an
expense equal to the fair value of the options or warrants
issued. The fair value is computed using an options pricing
model. At October 31, 2004, the Company had no stock options or
warrants outstanding.
Revenue Recognition
The Company recognizes revenues in accordance with the guidance
in the Securities and Exchange Commission Staff Accounting
Bulletin 104. Revenue is recognized when persuasive evidence of
an arrangement exists, as services are provided over the term of
a service contract, and when collection of the fixed or
determinable selling price is reasonable assured. The Company
follows EITF 00-8 "Accounting by a Grantee for an Equity
Instrument to be Received in Conjunction with Providing Goods or
Services" when determining the measurement date to value
securities received for services.
Income Taxes
Income taxes are accounted for under the asset and liability
method of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes ("SFAS 109")." Under SFAS 109,
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. 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. Under SFAS
109, 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.
9
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
Loss per Common Share
Basic earnings per share are computed only on the weighted
average number of common shares outstanding during the respective
periods. There were no additional common stock equivalents or
other items to adjust the numerator or denominator in the EPS
computations.
Comprehensive Loss
Comprehensive loss includes net loss as currently reported by the
Company adjusted for other comprehensive losses. Other
comprehensive losses for the Company consists of unrealized
losses related to the Company's equity securities accounted for
as available-for-sale with changes in fair value recorded through
stockholders' equity
Concentration
All revenue for the six months ended October 31, 2004 and
investments in affiliates at October 31, 2004 are derived from
one customer, who is a related party due to common officers and
directors with the Company. See Note 4 - Investments.
3. GOING CONCERN
As reflected in the accompanying financial statements, the
Company has a net loss of $339,762 and net cash used in
operations of $192,937 for the six months ended October 31, 2004,
a working capital deficiency of $476,774, a stockholders'
deficiency of $371,774 and a deficit accumulated during the
development stage of $503,226 at October 31, 2004. Additionally,
at October 31, 2004, the Company is in default of $43,500 of
Debentures (See Note 9 - Subsequent Events).
The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its
business plan, raise capital, and generate revenues. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
We plan on generating future revenues through direct investments
into private companies, start-up companies, and through the
opportunities provided by turnaround companies. We also intend to
invest in the commercial real estate market. Additionally, we
will provide fee based business expertise through in-house
consultants and contract consultants. To date, our planned
principal operations have not yet commenced, and management is
devoting most of its efforts to general business planning,
raising capital, and developing business opportunities.
The time required for us to become profitable from operations is
highly uncertain, and we cannot assure you that we will achieve
or sustain operating profitability or generate sufficient cash
flow to meet our planned capital expenditures, working capital
and debt service requirements. If required, our ability to obtain
additional financing from other sources also depends on many
factors beyond
10
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
our control, including the state of the capital markets and the
prospects for our business. The necessary additional financing
may not be available to us or may be available only on terms that
would result in further dilution to the current owners of our
common stock.
We cannot assure you that we will generate sufficient cash flow
from operations or obtain additional financing to meet scheduled
debt payments and financial covenants. If we fail to make any
required payment under the agreements and related documents
governing our indebtedness or fail to comply with the financial
and operating covenants contained in them, we would be in
default. The financial statements do not include any adjustments
to reflect the possible effects on recoverability and
classification of assets or the amounts and classification of
liabilities which may result from the inability of the Company to
continue as a going concern.
We obtained $170,000 of proceeds from the issuance of Debentures
for the twelve months ended April 30, 2004 and for the six months
ended October 31, 2004, we have received another $197,000 of
proceeds from the issuance of Debentures (See Note 9 - Subsequent
Events). We have used these funds to cover our current
obligations. Additionally, we determined that it was necessary
to raise additional capital to carry out the Company's business
plan and the Company anticipates the issuance of up to $1,000,000
of the Company's common stock. We are planning on obtaining
additional cash proceeds in the next twelve months from the
issuance of securities to be determined.
As a result of the above items, we believe that we will have
sufficient operating cash to meet are required expenditures for
the next twelve months.
4. INVESTMENTS
In November 2003, we issued $75,000 of debentures in exchange for
100,000 shares of freely trading common stock in the same
publicly held company discussed below. In accordance with FAS
115 "Accounting for Certain Investments in Debt and Equity
Securities", we recorded the 100,000 shares of common stock as
"available-for-sale" securities, a current asset and the
resulting $5,000 unrealized gain at April 30, 2004 was classified
as a separate component of stockholders' equity - accumulated
other comprehensive income.
In April 2004, we purchased 5,000 shares of freely trading common
stock for $6,243 in the same publicly held company as discussed
above. In accordance with FAS 115, we recorded the 5,000 shares
of common stock as "available-for-sale" securities, a current
asset and the resulting $2,243 unrealized loss at April 30, 2004
was classified as a separate component of stockholders' equity -
accumulated other comprehensive income.
In May 2004, we transferred 7,500 of these shares to a third
party for payment of public relations services for another
publicly held company, the company mentioned previously that we
have an investment in and a consulting agreement with. The fair
market value of the stock on the transfer date was $0.28 per
share or $2,100 and the Company recorded this amount as
consulting expense and recorded a $3,525 loss on the disposal of
the securities.
In June and July of 2004, we sold the remaining 97,500 shares and
received $14,405 of proceeds and recognized a $64,738 loss on the
sale of the securities. As a result of the transfer and sale of
11
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
the above securities, we have reversed the above mentioned $5,000
unrealized gain and $2,243 unrealized loss that were recorded at
April 30, 2004.
In April and May 2004, we paid $6,500 of professional services
for four companies and recorded a $1,625 receivable from each
company. In July 2004, we agreed to receive 75,000 shares of
common stock from one of these companies instead of the cash due
of $1,625. In September 2004, we agreed to receive 100,000
shares of common stock from one of these companies instead of the
cash due of $1,625. Both of these companies have a limited
operating history and have a stockholders' deficiency.
Consequently, there is no practical way to value the common stock
and we have recorded an impairment loss for the entire $3,250 in
the accompanying Statement of Operations for the nine months
ended October 31, 2004. The remaining $3,250 for the other two
companies is recorded as other receivable in the Balance Sheet as
of October 31, 2004 - (See Note 9 - Subsequent Events).
12
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
The following is a summary of the investments in available-for-
sale securities classified as a non-current asset at October 31,
2004:
Available-for-Sale Cost Gross Gross Estimated Fair
Securities ---- Unrealized Unrealized Value
---------- Gains Losses -----
----- ------
Equity securities $300,000 $0 $195,000 $105,000
======== == ======== ========
In September 2003, we entered into a consulting contract with
Global Life Sciences, Inc. ("Global"), a publicly traded company
(See Note 5 - Debentures). We are providing consulting services
to this company under this contract in exchange for $240,000 to
be paid to us in the form of one million two hundred thousand
(1,200,000) restricted shares. In addition, we received an
additional three hundred thousand (300,000) free trading shares
of their common stock, valued at $0.20 per share, based on the
original agreement date. The term of the consulting agreement is
for twelve (12) months and the common stock is payable on a
quarterly basis. In January 2004, we received three hundred
thousand (300,000) shares and in July 2004, we received the
remaining one million two hundred thousand (1,200,000) as
compensation for services and have accounted for $153,699 of
consulting fees earned during the six months ended October 31,
2004 and have earned $300,000 or 100% of the consulting fees from
the inception of the contract. We have recorded the fees as
revenue, pro-rata over the contract term in accordance with EITF
00-8 "Accounting by a Grantee for an Equity Instrument to be
Received in conjunction with Providing Goods or Services" based
on the $0.20 fair value on the contract date. In accordance with
FAS 115, we recorded the restricted shares as "available-for-
sale" securities, a non-current asset and the resulting
unrealized gain of $180,000 at April 30, 2004 was classified as a
separate component of stockholders' equity - accumulated other
comprehensive income.
In accordance with EITF 03-01 "The Meaning of Other Than
Temporary Impairment and its Application to Certain Investments",
we have evaluated the underlying securities that the original
cost of $0.20 had a fair market value of $2.15 in January 2004,
but the fair market value had been reduced to $0.07 per share as
of October 31, 2004, or less than the $.20 cost. We have also
evaluated Global which is a development stage company, has a
stockholders' deficiency and an accumulated deficit. As a result
of our analysis, the fair market value at October 31, 2004 is
$105,000 and we believe that the impairment is other than
temporary and have reversed the $180,000 previously recorded
unrealized gain discussed above and recorded a $195,000 other
than temporary impairment loss at October 31, 2004.
Additionally, in July 2004, our Chief Executive Officer and
President were elected officers and directors of Global. As a
result, we have classified the securities as an Investment in
Affiliate at October 31, 2004. See Note 9 - Subsequent Events.
In April 2004, we acquired 2,587,983 shares for a purchase price
of $43,706 representing approximately 11% of a publicly held
company that emerged from bankruptcy under Chapter Eleven (11) of
the federal bankruptcy code. There is no active trading market
for the shares and the company is in the process of developing
its primary product to offer to the market but has not achieved
this progress as of the date of the accompanying financial
statements. Accordingly, the
13
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
Company has recorded an unrealized loss for the entire $43,706
which is classified as a separate component of stockholders'
equity - accumulated other comprehensive loss.
14
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
The following represents information about securities held with
loss positions as of October 31, 2004:
Securities in loss Aggregate Aggregate Fair
positions less Unrealized Value
than 12 months: Losses -----
--------------- ------
Equity securities $43,705 $0
======= ==
5. DEBENTURES
From May 2003 through October of 2004, we received $367,000 of
cash proceeds from the issuance of debentures to several parties.
The debenture terms are interest at ten percent (10%) per annum,
payable in twelve (12) months from the date of the debenture and
include a five percent (5%) penalty for any event of default.
Additionally, the debenture holders may be granted the option of
converting the debenture into common stock of the Company at an
exchange rate of twenty-five cents ($0.25) per share.
We have evaluated the debenture to determine if a beneficial
conversion feature exists in accordance with EITF 98-5, as
amended by EITF 0027. We have determined that the debentures are
not a convertible instrument in that the potential conversion
feature outlined in the debentures is not binding.
In November 2003, we issued $75,000 of debentures in exchange for
100,000 shares of freely trading common stock in Global (see Note
5 - Investments).
In January 2004, we issued a $5,000 debenture to a third party
for legal services and accounted for the issuance as legal
expense.
In September 2004, we issued a $7,000 debenture to a third party
for consulting services and accounted for the issuance as
consulting expense. The amount represents a five percent (5%)
fee for debenture proceeds obtained by the Company in accordance
with the consulting agreement.
At October 31, 2004, we had $454,000 of debentures outstanding
(see Note 10 - Subsequent Events). As of October 31, 2004,
$43,500 of the Debentures discussed previously is in default as
the term was for one (1) year. The debenture provisions include a
penalty of five percent (5%) for any default that occurs and we
have recorded $2,175 as a debenture penalty in the accompanying
Financial Statements as of October 31, 2004. The Company is in
discussions with the debenture holders concerning the default.
See Note 9 - Subsequent Events.
6. STOCKHOLDERS' DEFICIENCY
Capital Structure
We are authorized to issue up to 50,000,000 shares of our common
stock, $0.001 par value per share, of which 8,675,000 were issued
and outstanding at October 31, 2004. The holders of the common
stock do not have any preemptive right to subscribe for, or
purchase, any shares of any class of stock.
15
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
We are authorized to issue up to 5,000,000 shares of our
preferred stock, $0.001 par value per share, of which none were
issued and outstanding at October 31, 2004. Our preferred stock
is commonly referred as a "blank check preferred stock" as the
Board of Directors is authorized to establish the number of
shares to be included in each class or series and the
preferences, limitations and relative rights of each class or
series, which may include a conversion feature into common stock.
In March 2004, we granted 2,150,000 shares of our common stock
for compensation and board fees to two individuals. There is no
active trading market for the Company's common stock and we
analyzed several methodologies to determine the value per share
for the stock issuance. As a result of our research, we
determined that the appropriate methodology was to utilize the
net asset value of the Company immediately preceding the issuance
of the shares and determined that the valuation was $0.08 per
share, valued at on the grant date and expensed immediately as
$160,000 of compensation expense and $12,000 of directors fees as
there was no formal employment agreement or stated term. At July
31, 2004, the shares were not issued and were recorded as Common
Stock Issuable in the accompanying Balance Sheet. In September
2004, he shares were issued and have been reclassed from Common
Stock Issuable to Common Stock in the accompanying Balance Sheet.
In May 2004, we entered into a consulting agreement with a third
party whereby the consultant will provide corporate business
development and consulting services for us. The term of the
agreement is twenty-four (24) months and consultant will receive
a total of two hundred forty thousand (240,000) shares of the
Common Stock of the Company. One hundred twenty thousand
(120,000) shares were granted and vested upon the execution of
the agreement and the remaining shares will be earned at the rate
of 5,000 shares monthly and issued on a quarterly basis. For
the three months ended July 31, 2004, an additional fifteen
thousand (15,000) were granted and vested, thus making the total
shares vested one hundred fifty thousand (135,000) at July 31,
2004. For the three months ended October 31, 2004, an
additional fifteen thousand (15,000) were granted and vested,
thus making the total shares vested one hundred fifty thousand
(150,000) at October 31, 2004. As mentioned above, there is no
active trading market for the Company's common stock and we
analyzed several methodologies to determine the value per share
for the stock issuance. As a result of our research, we
determined that the appropriate methodology was to utilize the
net asset value of the Company immediately preceding the issuance
of the shares and determined that the valuation was $0.03 per
share, thus the one hundred thirty five thousand shares issued as
of July 31, 2004 were valued at the issuance date at $4,050. Due
to the immaterial amount of the valuation, the Company elected to
expense the entire $4,050 in the accompanying statement of
operations rather than recognize the amount evenly over the
agreement term. The additional fifteen thousand (15,000) shares
issued during the three months ended October 31, 2004 were valued
at a nominal value of $0.001 per share because the net asset
value of the Company immediately preceding the issuance of the
shares was negative and could not be used. The remaining shares
will be valued at each quarterly issuance measurement date and
such value recognized as expense over the quarterly measurement
period.
In June 2004, we granted 1,150,000 shares of our common stock for
compensation and board fees to our new President. There is no
active trading market for the Company's common stock and we
analyzed several methodologies to determine the value per share
for the stock issuance. As a result of our research, we
determined that the appropriate methodology was to utilize the
net asset
16
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
value of the Company immediately preceding the issuance of the
shares. However, based upon this analysis, the net asset value
was a negative number and could not be utilized. The Company
determined that a nominal value should be utilized and the
valuation is $0.001 per share, valued at on the grant date and
expensed immediately as $1,000 of compensation expense and $150
of directors fees as there was no formal employment agreement or
stated term.
In October 2004, we granted 1,950,000 shares to our executive
officers as compensation, comprised of 750,000 to our Chief
Executive Officer, 600,000 to our President and 600,000 to our
Chief Financial Officer. There is no active trading market for
the Company's common stock and we analyzed several methodologies
to determine the value per share for the stock issuance. As a
result of our research, we determined that the appropriate
methodology was to utilize the net asset value of the Company
immediately preceding the issuance of the shares. However, based
upon this analysis, the net asset value was a negative number and
could not be utilized. The Company determined that a nominal
value should be utilized and the valuation is $0.001 per share,
valued at on the grant date and expensed immediately as $1,950 of
compensation.
In October 2004, we granted 500,000 shares to our Board of
Directors as fees for their services, comprised of 100,000 share
issuances to five individuals. There is no active trading market
for the Company's common stock and we analyzed several
methodologies to determine the value per share for the stock
issuance. As a result of our research, we determined that the
appropriate methodology was to utilize the net asset value of the
Company immediately preceding the issuance of the shares.
However, based upon this analysis, the net asset value was a
negative number and could not be utilized. The Company
determined that a nominal value should be utilized and the
valuation is $0.001 per share, valued at on the grant date and
expensed immediately as $500 of director fees.
In October 2004, we granted 400,000 shares to our Advisory Board
members as fees for their services, comprised of 100,000 share
issuances to four individuals. There is no active trading market
for the Company's common stock and we analyzed several
methodologies to determine the value per share for the stock
issuance. As a result of our research, we determined that the
appropriate methodology was to utilize the net asset value of the
Company immediately preceding the issuance of the shares.
However, based upon this analysis, the net asset value was a
negative number and could not be utilized. The Company
determined that a nominal value should be utilized and the
valuation is $0.001 per share, valued at on the grant date and
expensed immediately as $400 of director fees.
7. COMMITMENTS AND CONTINGENCIES
From time to time we may become subject to proceedings, lawsuits
and other claims in the ordinary course of business including
proceedings related to environmental and other matters. Such
matters are subject to many uncertainties, and outcomes are not
predictable with assurance.
As described in Note 2, we did not file certain reports with the
SEC as required of SEC registrants. No provision has been made in
the accompanying financial statements for the cost of actions, if
any, that may be taken by the SEC against the Company for its non-
compliance during this period.
17
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
We currently do not have a lease and we are not paying rent for
our office space. It is being provided to the Company by an
officer/director free of charge (See Note 8 - Related Party
Transactions). Usage of this office space and the related value
is de minimis. Therefore, no expense has been recorded in the
accompanying Financial Statements. We expect we will have to
lease more substantial office in the near future and that the
cost of the space may be material to our operations.
The Company has not filed required payroll tax reports with
applicable state and federal authorities as required.
Accordingly, the Company may be subject to penalties and fines
and no adjustment has been made in the accompanying Financial
Statements for this uncertainty. However, the Company is
currently completing these reports and anticipates that they will
be finalized in the near future.
8. RELATED PARTY TRANSACTIONS
At April 30, 2003, we had an accounts payable in the amount of
$3,113 to a shareholder/director who directly paid certain
expenses of the Company and these were non-interest bearing and
do not have any repayment terms. During the twelve months ended
April 30, 2004, resulting in a balance due of $1,113 at April 30,
2004 and during the three months ended July 31, 2004, we repaid
$500 of these advances. At October 31, 2004, the balance
outstanding is $613 and is included in Due to Related Party on
the accompanying Balance Sheet at October 31, 2004.
In June and August 2004, we received advances totaling $3,000
from a company controlled by the wife of our Chief Executive
Officer and has been classified in Due to Related Party on the
accompanying Balance Sheet at October 31, 2004.
We currently do not have a lease and we are not paying rent on
our space. It is being provided to the Company by an
officer/director free of charge (See Note 7 - Commitments and
Contingencies).
Our investment in affiliate consists of 1,500,000 common shares
valued at $105,000 at October 31, 2004. On October 15, 2004, we
entered into an agreement to be acquired by that affiliate in a
transaction to be accounted for as a recapitalization of the
Company. Accordingly, the investment in affiliate will be
accounted for as treasury stock and eliminated in consolidation.
9. SUBSEQUENT EVENTS
On October 15, 2004, the Company entered into a definitive share
exchange agreement with Global. Pursuant to the terms of the
Exchange Agreement, the Company will become a wholly owned
subsidiary of Global and the shareholders of the Company shall
receive an aggregate of 8,675,000 newly issued shares of Global
common stock, which represents a one-for-one share exchange of
the Company's stock for Global stock (the "Transaction"). Giving
effect to the Transaction, there will be 10,455,000 shares of
common stock outstanding, 82.97% of which will be held by the
Company's current shareholders. The closing of the Transaction
occurred in December 2004 and will be accounted for as a
recapitalization of the Company.
On October 14, 2004, our Chief Executive Officer and President
resigned as officers and directors of Global. When the
Transaction described below closes, the Company's current board
of directors, will be named to the Global board of directors.
The current sole board member of Global has
18
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
October 31, 2004
(Unaudited)
agreed to continue to serve on the Global board of directors. The
directors intend to appoint our Chief Executive officer,
President and Chief Financial Officer as officers of Global.
Each newly appointed Global officer will receive 100,000 shares
of Global convertible Preferred A stock. Each share of this
preferred stock is convertible into one (1) share of Global
common stock at the option of its holder at any time, except that
such shares shall convert automatically on the date that is two
years from the preferred stock's date of issuance. Each Preferred
A Share has voting rights equivalent to ten (10) times the number
of shares of common stock into which each such Preferred A Share
shall convert, and are entitled to a dividend on a pari passu
basis with the holders of Common Shares and other classes of
preferred shares of the Company. Each Preferred A Share has a
liquidation preference equal to $.10.
As discussed in Note 5 - Investments, the Company owns 1,500,000
shares of Global and this has been recorded as an Investment in
Affiliate - Available for Sale Securities at October 31, 2004.
As a result of the Transaction discussed above, the Company will
become a wholly owned subsidiary of Global and the Investment
held by the Company will be eliminated in consolidation.
As of November 30, 2004, $160,500 of the Debentures discussed
previously is in default as the term was for one (1) year. The
debenture provisions include a penalty of five percent (5%) for
any default that occurs and this would be $8,025. The Company is
in discussions with the debenture holders concerning the default.
In November 2004, we agreed to receive 100,000 shares of common
stock from a company in exchange for a receivable we held from
them - (See Note 5 - Investments). This company has a limited
operating history and a stockholders' deficiency. Consequently,
there is no practical way to value the common stock and we will
record an impairment loss for the entire $1,625.
19
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The following discussion "Management's Discussion and
Analysis or Plan of Operation" contains forward-looking
statements. The words "anticipate," "believe," "expect," "plan,"
"intend," "estimate," "project," "will," "could," "may" and
similar expressions are intended to identify forward-looking
statements. Such statements reflect our current views with
respect to future events and financial performance and involve
risks and uncertainties. Should one or more risks or
uncertainties occur, or should underlying assumptions prove
incorrect, actual results may vary materially and adversely from
those anticipated, believed, expected, planned, intended,
estimated, projected or otherwise indicated. We caution you not
to place undue reliance on these forward-looking statements,
which we have made as of the date of this Quarterly Report on
Form 10-QSB.
The following is qualified by reference to, and should be
read in conjunction with our financial statements ("Financial
Statements"), and the notes thereto, included elsewhere in this
Form 10-QSB, as well as the discussion hereunder "Management's
Discussion and Analysis or Plan of Operation".
Pursuant to the Share Exchange Agreement (the "Exchange
Agreement") entered into on October 15, 2004, among Nortia
Capital Partners, Inc., a Florida corporation (the "predecessor
registrant"), Nortia Capital Partners, Inc., a Nevada corporation
(the "successor registrant"), and each predecessor registrant
shareholder, on December 2, 2004, the successor registrant
completed the transactions contemplated by the Exchange Agreement
and acquired 8,675,000 shares of the predecessor registrant,
which represented 100% of the issued and outstanding shares of
capital stock of the predecessor registrant. Shareholders of the
predecessor registrant received an aggregate of 8,675,000 newly
issued shares of the successor registrant common stock, through a
one-for-one share exchange of the predecessor registrant's common
stock for the successor registrant's common stock (the "Exchange
Transaction"). Giving effect to the Exchange Transaction, the
predecessor registrant became a wholly owned subsidiary of the
successor registrant.
Pursuant to Rule 12g-3, promulgated under the Securities
Exchange Act of 1934, the successor registrant is the successor
issuer to the predecessor registrant. Predecessor registrant's
common stock was registered under Section 12(g) of the Securities
Exchange Act at the effective time of the Exchange Transaction.
Accordingly, the successor registrant's common stock is deemed to
be registered, by operation of law, under Section 12(g) of the
Securities Exchange Act as of the closing of the Exchange
Transaction. In addition to the successor registrant being the
successor issuer to the predecessor registrant, the successor
registrant has also assumed and adopted the predecessor
registrant's entire business plan, and will continue to operate
pursuant to that plan.
Pursuant to the Agreement and Plan of Merger (the "Merger
Agreement") entered into on December 3, 2004, between the
predecessor registrant and the successor registrant, on December
6, 2004, the predecessor registrant (the wholly owned subsidiary
of successor registrant) merged with and into the successor
20
registrant and disappeared by virtue of a parent-subsidiary
statutory merger, with the successor registrant being the
survivor (the "Merger Transaction").
The Exchange Transaction and Merger Transaction constituted
a recapitalization transaction for accounting purposes. Also, the
successor registrant has assumed and adopted the predecessor
registrant's entire business plan, and will continue to operate
pursuant to the predecessor registrant's business plan as if it
historically has been it own. Additionally, as a result of the
Merger Transaction, the successor registrant acquired all of the
predecessor registrant's rights, privileges, immunities, and
franchises, and the successor registrant is responsible and
liable for all of the predecessor registrant's liabilities and
obligations. Unless the context deems otherwise, all references
to the "Company", "we", "us", or "our" refers to the successor
registrant as the successor issuer to the predecessor registrant.
We did not file in a timely manner our required reports with
the Securities and Exchange Commission ("SEC") for the quarterly
periods ended July 31, 2003, October 31, 2003, January 31, 2004,
July 31, 2004 and the annual report on form 10-KSB for the period
ended April 30, 2004. No provision has been recorded in the
accompanying financial statements for the cost of actions, if
any, that may be taken by the SEC against the Company for our non-
compliance during this period.
During our fiscal quarterly period ending July 31, 2003, our
management raised capital and commenced preparations to register
the company as a "Business Development Company" ("BDC") with the
Securities and Exchange Commission whereby we would be regulated
pursuant to the requirements of the Investment Company Act of
1940. On December 6, 2004, the successor registrant assumed and
adopted the predecessor registrant's entire business plan, as if
it historically has been it own, and will continue to operate
pursuant to that business plan.
As of the date hereof, we have not yet registered as a BDC.
As a BDC, we expect to derive our revenues through direct
investments into private companies, start-up companies, and
through the opportunities provided by turn around companies. We
also intend to invest in the commercial and residential real
estate market. Additionally, we will provide fee based business
expertise through in-house consultants and contract consultants.
To date, our planned principal BDC operations have not yet
commenced, and management is devoting most of its efforts to
general business planning, raising capital, and developing
business opportunities.
We have incurred a loss from operations, and presently, we
do not have sufficient revenues to cover our incurred expenses.
Our management recognizes that we must generate additional
resources to enable us to pay our obligations as they come due,
and that we must ultimately implement our BDC business plan and
achieve profitable operations. We cannot assure you that we will
be successful in any of these activities. Should any of these
events not occur, our financial condition will be materially
adversely affected.
Presently, our Company expects to meet its current capital
requirements for the next twelve months pursuant to a combination
of third party loans made to our Company and from revenues
derived from the commencement of our business operations.
21
OVERVIEW OF COMPANY.
Since its inception, we have suffered recurring losses from
operations and have been dependent on existing stockholders and
new investors to provide the cash resources to sustain our
operations. We have had and could have losses, deficits and
deficiencies in liquidity, which could impair our ability to
continue as a going concern. Our independent auditors have
indicated, in their audit opinion for the year ended April 30,
2004 and April 30, 2003, that certain factors raise substantial
doubt about our ability to continue as a going concern and these
continuing factors are discussed in note 3 to our accompanying
October 31, 2004 interim financial statements.
As reflected in the accompanying financial statements, the
Company has a net loss of $339,762 and net cash used in
operations of $192,937 for the six months ended October 31, 2004,
a working capital deficiency of $476,774, a stockholders'
deficiency of $371,774 and a deficit accumulated during the
development stage of $503,226 at October 31, 2004. Additionally,
at October 31, 2004, the Company is in default of $43,500 of
Debentures and at November 30, 2004, the Company is in default of
$160,500 of Debentures.
The Company is in the development stage and the ability to
continue as a going concern is dependent on the Company's ability
to further implement its business plan, raise capital, and
generate revenues. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern
The time required for us to become profitable is highly
uncertain, and we cannot assure you that we will achieve or
sustain profitability or generate sufficient cash flow from
operations to meet our planned capital expenditures, working
capital and debt service requirements. If required, our ability
to obtain additional financing from other sources also depends on
many factors beyond our control, including the state of the
capital markets and the prospects for our business. The necessary
additional financing may not be available to us or may be
available only on terms that would result in further dilution to
the current owners of our common stock.
The Company's long-term viability as a going concern is dependent
on certain key factors, as follows:
- The Company's ability to continue to obtain sources of
outside financing to support near term operations and to allow
the Company to continue to make investments.
- The Company's ability to increase profitability and sustain
a cash flow level that will ensure support for continuing
operations.
RECENT DEVELOPMENTS
The predecessor registrant owned 1,500,000 shares of the
successor registrant that was recorded as an Investment in
Affiliate - Available for Sale Securities in the accompanying
Balance Sheet at October 31, 2004. As a result of the Merger
Transaction discussed above, the Investment was eliminated in
consolidation.
22
As of November 30, 2004, $160,500 of the Debentures
discussed previously is in default as the term was for one (1)
year. The debenture provisions include a penalty of five percent
(5%) for any default that occurs and this would be $8,025. The
Company is in discussions with the debenture holders concerning
the default.
In April and May 2004, we paid $6,500 of professional
services for four companies and recorded a $1,625 receivable from
each company. In July 2004, we agreed to receive 75,000 shares
of common stock from one of these companies instead of the cash
due of $1,625. In September 2004, we agreed to receive 100,000
shares of common stock from one of these companies instead of the
cash due of $1,625. Both of these companies have a limited
operating history and have a stockholders' deficiency.
Consequently, there is no practical way to value the common stock
and we have recorded an impairment loss for the entire $3,250 in
the accompanying Statement of Operations for the nine months
ended October 31, 2004. The remaining $3,250 for the other two
companies is recorded as other receivable in the Balance Sheet as
of October 31, 2004.
In November 2004, we agreed to receive 100,000 shares of
common stock from a company in exchange for a receivable we held
from them (See discussion above). This company has a limited
operating history and a stockholders' deficiency. Consequently,
there is no practical way to value the common stock and we will
record an impairment loss for the entire $1,625.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The methods, estimates and judgment we use in applying our
most critical accounting policies have a significant impact on
the results we report in our financial statements. The
Securities and Exchange Commission has defined the most critical
accounting policies as the ones that are most important to the
portrayal of our financial condition and results, and require us
to make our most difficult and subjective judgments, often as a
result of the need to make estimates of matters that are
inherently uncertain. Based upon this definition, our most
critical estimates include going concern, the evaluation of the
beneficial conversion feature in debentures and investments in
available-for-sale securities. We also have other key accounting
estimates and policies, but we believe that these other policies
either do not generally require us to make estimates and
judgments that are as difficult or as subjective, or it is less
likely that they would have a material impact on our reported
results of operations for a given period. For additional
information see Note 3 "Summary of Significant Accounting
Policies" in the notes to our unaudited financial statements
contained in our quarterly report on Form 10-QSB for the
quarterly period ended October 31, 2004. Although we believe
that our estimates and assumptions are reasonable, they are based
upon information presently available. Actual results may differ
significantly from these estimates.
GOING CONCERN
The independent auditors' reports to our financial
statements for the year ended April 30, 2004 and April 30, 2003,
include an explanatory paragraph in addition to their audit
opinion stating that our recurring losses from operations, cash
used in operations, $37,500 of our debentures being in default as
of August 31, 2004 and being in the development stage with
23
minimal revenues raise substantial doubt about our ability to
continue as a going concern. Our financial statements do not
include any adjustments to reflect the possible effects on
recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability
to continue as a going concern.
EVALUATION OF BENEFICIAL CONVERSION FEATURE IN DEBENTURES
In accordance with EITF Issue 98-5, as amended by EITF 00-
27, we must evaluate the potential effect of any beneficial
conversion terms related to convertible instruments such as
convertible debt or convertible preferred stock. The Company has
issued several debentures and a beneficial conversion may exist
if the holder, upon conversion, may receive instruments that
exceed the value of the convertible instrument. Valuation of the
benefit is determined based upon various factors including the
valuation of equity instruments, such as warrants, that may have
been issued with the convertible instruments, conversion terms,
value of the instruments to which the convertible instrument is
convertible, etc. Accordingly, the ultimate value of the
beneficial feature is considered an estimate due to the partially
subjective nature of valuation techniques.
VALUATION OF INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
Investments in available-for-sale securities are accounted
for in accordance with FAS 115 "Accounting for Certain
Investments in Debt and Equity Securities". Per FAS 115, the
securities are stated at their fair market value and any
difference between cost and market value is recorded as an
unrealized gain or loss classified as a separate component of
stockholders' equity - accumulated other comprehensive income.
VALUATION OF NON-CASH ISSUANCES OF COMMON STOCK
The Company issued common stock in non-cash transactions
during the six months ended October 31, 2004. At that time,
there was no active trading market for the Company's common stock
and we analyzed several methodologies to determine the value per
share for the stock issuance. As a result of our research, we
determined that the appropriate methodology was to utilize the
net asset value of the Company immediately preceding the issuance
of the shares.
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS AND LIABILITIES
In assessing the recoverability of deferred tax assets and
liabilities, management considers whether it is more likely than
not that some portion or all of the deferred tax assets and
liabilities will be realized.
24
RESULTS OF OPERATIONS
Financial Analysis of the Three and Six Months Ended October 31, 2004 and 2003
- ------------------------------------------------------------------------------
Three Months Ended Six Months Ended
October 31, October 31,
2004 2003 2004 2003
--------- --------- --------- ---------
Revenues $ 93,699 $ 26,301 $ 153,699 $ 26,301
Operating Expenses
General and administrative 19,035 36,915 54,924 38,993
Rent 15,557 - 15,557 -
Consulting 9,765 - 15,915 -
Compensation 45,700 - 46,700 -
Debenture penalty 2,175 - 2,175 -
Directors fees 900 - 1,050 -
Professional 83,140 - 83,640 10,000
--------- --------- --------- ---------
Total Operating Expenses 176,272 36,915 219,961 48,993
--------- --------- --------- ---------
Income (Loss) from Operations (82,573) (10,614) (66,262) (22,692)
Other Income (Expense)
Interest expense (8,752) (882) (15,054) (1,065)
Loss on sale of available for sale securities - - (64,738) -
Impairment of investments (3,250) - (3,250) -
Other than temporary loss on available for
sale securities (96,699) - (195,000) -
Other income 4,500 - 4,500 -
Interest income 1 - 42 -
--------- --------- --------- ---------
Total Other Income (Expense) (104,200) (882) (273,500) (1,065)
--------- --------- --------- ---------
Net loss Before Income Taxes $ (186,773) $ (11,496) $ (339,762) $ (23,757)
========= ========= ========= =========
Income tax expense - - - -
Net loss $ (186,773) $ (11,496) $ (339,762) $ (23,757)
========= ========= ========= =========
Comprehensive Loss
Unrealized losses on available for sale
securities - - (182,758) -
--------- --------- --------- ---------
Total Comprehensive Loss $ (186,773) $ (11,496) $ (522,520) $ (23,757)
========= ========= ========= =========
Three Months Ended October 31, 2004
- -----------------------------------
Revenues:
Revenues increased $67,398, or 256% to $93,699 for the three
months ended October 31, 2004 from $26,301 for the three months
ended October 31, 2003. The increase in revenue for the three
months ended October 31, 2004 was due to a consulting contract
with a publicly held company where we are providing consulting
services and the difference represents earned revenue from the
25
contract for an entire quarter versus only one month in 2003.
Operating Expenses:
- -------------------
Operating expenses increased $139,357, or 378% to $176,272
for the three months ended October 31, 2004 from $36,915 for the
three months ended October 31, 2003. The increase was primarily
the result of the Company entering the development stage
effective May 1, 2003 as compared to being dormant for the
comparable period during the three months ended October 31, 2003.
Other Expense:
- --------------
Other expense increased $103,318, or 11,714% to $104,200 for
the three months ended October 31, 2004 from $882 for the three
months ended October 31, 2003. The increase is primarily from a
$96,999 other than temporary impairment loss for available for
sale securities and a $8,752 increase in interest expense on
debentures.
Comprehensive Loss:
- -------------------
There was no comprehensive loss for either the three months
ended October 31, 2004 or the three months ended October 31,
2003.
Six Months Ended October 31, 2004
- ---------------------------------
Revenues:
- ---------
Revenues increased $127,397, or 484% to $153,699 for the six
months ended October 31, 2004 from $26,301 for the six months
ended October 31, 2003. The increase in revenue for the six
months ended October 31, 2004 was due to a consulting contract
with a publicly held company where we are providing consulting
services and the difference represents earned revenue from the
contract for the entire six month period versus only one month in
2003.
Operating Expenses:
- -------------------
Operating expenses increased $170,967, or 349% to $219,961
for the six months ended October 31, 2004 from $48,993 for the
six months ended October 31, 2003. The increase was primarily
the result of the Company entering the development stage
effective May 1, 2003 as compared to being dormant for the
comparable period during the six months ended October 31, 2003.
Other Expense:
- --------------
Other expense increased $272,435, or 25,581% to $273,500 for
the six months ended October 31, 2004 from $1,065 for the six
months ended October 31, 2003. The increase is primarily from a
$64,738 loss on the sale of available for sale securities, a
$195,000 other than temporary impairment loss for available for
sale securities and a $13,989 increase in interest expense on
debentures.
26
Comprehensive Loss:
- -------------------
Comprehensive loss increased $182,758, or 100% to $182,758
for the six months ended October 31, 2004 from zero for the six
months ended October 31, 2003. The increase in comprehensive
loss for the six months ended October 31, 2004 was due to the
reversal of previously recorded unrealized gains on available-for-
sale securities. $180,000 of the amount was from the reversal of
previously recorded unrealized gains that the Company has
determined that the fair market value decrease is other than
temporary. The remaining $2,758 is for the reversal of
previously recorded unrealized gains, net of unrealized losses
for available for sale securities that were either sold or
transferred during the six months ended October 31, 2004.
Liquidity and Capital Resources
Cash was $27,232 at October 31, 2004 as compared to $8,764
at April 30, 2004, and working capital deficit was $476,774 at
October 31, 2004 as compared to a working capital deficit of
$183,720 at April 30, 2004. The increase in the working capital
deficit at October 31, 2004 was primarily the result of a
$204,000 increase in Debentures and the transfer and sale of all
available for sale securities that were classified as a current
asset at April 30, 2004.
Operating Activities: Net cash used in operating activities was
$192,937 for the six months ended October 31, 2004 compared to
$41,866 for the six months ended October 31, 2003. The increase
in cash used in operations resulted primarily due to the fact of
a $316,005 increase in the operating loss and a $153,699 increase
in contract based revenue from a consulting contract, offset by a
$64,738 increase from the loss on sale of available for sale
securities and a $195,000 other than temporary impairment loss on
available for sale securities.
Investing Activities: Cash flows provided by investing
activities were $14,405 for the six months ended October 31, 2004
as compared to zero at October 31, 2003. The increase was due to
proceeds received from the sale of available for sale securities.
Financing Activities: Cash flows from financing activities were
$197,000 for the six months ended October 31, 2004 as compared to
$42,500 of cash flows provided by financing activities during the
six months ended October 31, 2003. The increase was due to
additional cash proceeds received by the Company from the
issuance of debentures in 2004 as compared to 2003.
SHORT-TERM DEBT
Our short-term debt at October 31, 2004 consisted of the
following:
Debentures:
- -----------
$454,000 Debentures, dated May 2003 through October 2004,
bearing interest at 10% per annum and due in 12 months $454,000
========
From May 2003 through October of 2004, we received $367,000 of
cash proceeds from the issuance of debentures to several parties.
The debenture terms are interest at ten percent (10%) per annum,
27
payable in twelve (12) months from the date of the debenture and
include a five percent (5%) penalty for any event of default.
Additionally, the debenture holders may be granted the option of
converting the debenture into common stock of the Company at an
exchange rate of twenty-five cents ($0.25) per share.
We have evaluated the debenture to determine if a beneficial
conversion feature exists in accordance with EITF 98-5, as
amended by EITF 0027. We have determined that the debentures are
not a convertible instrument in that the potential conversion
feature outlined in the debentures is not binding.
In November 2003, the predecessor registrant issued $75,000 of
debentures in exchange for 100,000 shares of freely trading
common stock in the successor registrant.
In January 2004, we issued a $5,000 debenture to a third party
for legal services and accounted for the issuance as legal
expense.
In September 2004, we issued a $7,000 debenture to a third party
for consulting services and accounted for the issuance as
consulting expense. The amount represents a five percent (5%)
fee for the total amount of debenture proceeds obtained by the
Company in accordance with the consulting agreement.
At October 31, 2004, we had $454,000 of debentures outstanding.
As of October 31, 2004, $43,500 of the Debentures discussed
previously is in default as the term was for one (1) year. The
debenture provisions include a penalty of five percent (5%) for
any default that occurs and we have recorded $2,175 as a
debenture penalty in the accompanying Financial Statements as of
October 31, 2004. As of November 31, 2004, $160,500 of the
Debentures are in default and the 5% penalty amount would be
$8,025. The Company is in discussions with the debenture holders
concerning the default.
Equity Financing
None
Liquidity
To continue with our business plan, we will require
additional short-term working capital. We cannot assure you that
that we will obtain sufficient proceeds, if any, and borrowings
under any interim financing we are able to secure will be
sufficient to meet our projected cash flow needs.
Our ability to obtain additional financing depends on many
factors beyond our control, including the state of the capital
markets, the market price of our common stock, the prospects for
our business and the approval by our stockholders of an amendment
to our certificate of incorporation increasing the number of
shares of common stock we are authorized to issue. The necessary
additional financing may not be available to us or may be
available only on terms that would result in further dilution to
the current owners of our common stock. Failure to obtain
commitments for financing would have a material adverse effect on
28
our business, results of operations and financial condition. If
the financing we require to sustain our working capital needs is
unavailable or insufficient or we do not receive the necessary
financing, we may be unable to continue as a going concern.
We obtained $170,000 of proceeds from the issuance of
Debentures for the twelve months ended April 30, 2004 and during
the six months ended October 31, 2004, we received another
$197,000 of proceeds from the issuance of Debentures.
Additionally, we determined that it was necessary to raise
additional capital to carry out the Company's business plan and
the Company anticipates the issuance of up to $1,000,000 of the
Company's common stock. We are planning on obtaining additional
cash proceeds in the next twelve months from the issuance of
securities to be determined and from anticipated returns from
being a BDC. We can make no assurances that this will occur.
Upon the successful happening of, and as a result of, the
above items, we believe that we will have sufficient operating
cash to meet are required expenditures for the next twelve
months.
Contractual Obligations and Commercial Commitments
The following table highlights, as of October 31, 2004, our
contractual obligations and commitments by type and period:
Payments Due by Period
----------------------
Contractual Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years
- ----------------------- ----- ---------------- --------- --------- -------------
Short-Term Debt:
- ----------------
Debentures $ 454,000 $ 454,000 $ - $ - $ -
--------- --------- ------ ------ -------
Total Short-Term Debt $ 454,000 $ 454,000 $ - $ - $ -
========= ========= ====== ====== =======
As of October 31, 2004, $43,500 of the Debentures discussed
previously is in default as the term was for one (1) year. The
debenture provisions include a penalty of five percent (5%) for
any default that occurs and we have recorded $2,175 as a
debenture penalty in the accompanying Financial Statements as of
October 31, 2004. As of November 31, 2004, $160,500 of the
Debentures are in default and the 5% penalty amount would be
$8,025. The Company is in discussions with the debenture holders
concerning the default.
Recent Accounting Developments
In January 2003, the FASB issued FASB Interpretation No. 46
(FIN 46), "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51," which as an interpretation defines
when and who consolidates a "variable interest entity," or
"VIE." This new consolidation model applies to entities (i)
where the equity investors (if any) do not have a controlling
financial interest, or (ii) whose equity investment at risk is
insufficient to finance that entity's activities without
receiving additional subordinated financial support from other
parties and requires additional disclosures for all enterprises
involved with the VIE. FIN 46 is effective during 2003 depending
on when the VIE is created. We do not believe that the adoption
of FIN 46 will have a significant impact on our financial
position and results of operations.
29
In May 2003, the FASB issued SFAS No. 149; Amendment of
Statement 133 on Derivative Instruments and Hedging Activities
("SFAS 149") which provides for certain changes in the accounting
treatment of derivative contracts. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003, except
for certain provisions that relate to SFAS No. 133 Implementation
Issues that have been effective for fiscal quarters that began
prior to June 15, 2003, which should continue to be applied in
accordance with their respective effective dates. The guidance
should be applied prospectively. The adoption of SFAS 149 did
not have a material impact on the Company's financial position,
results of operations or liquidity.
In May 2003, the Financial Accounting Standards Board issued
SFAS No. 150 (SFAS 150), "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity."
It establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. This standard is effective for
financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of
FAS 150 did not have a significant impact on our financial
position and results of operations.
2004 OUTLOOK
The ability to invest further will be heavily dependent on
securing additional capital from investors or debt. There is no
assurance that additional equity or debt financing will be
available on terms acceptable to Management.
Item 3. Controls and Procedures.
As of the end of the period covered by this report, an
evaluation was performed under the supervision and with the
participation of the Company's principal executive officers and
financial officers of the effectiveness of the design and
30
operation of the Company's disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this report.
The evaluation revealed to the Company's principal executive
officers and financial officers that the design and operation of
the Company's disclosure controls and procedures were effective
as of the end of the period covered by this report.
There have been no significant changes in the Company's
internal controls and in other factors that could significantly
affect internal controls subsequent to the date of the above-
described evaluation period.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In October 2004, we (predecessor registrant) granted
1,950,000 shares of our common stock to our executive officers as
compensation, comprised of 750,000 shares to our Chief Executive
Officer, 600,000 shares to our President and 600,000 shares to
our Chief Financial Officer. We have no formal employment
agreement or stated term between the Company and the officers.
In October 2004, we (predecessor registrant) granted 500,000
shares of our common stock to our Board of Directors as fees for
their services, comprised of 100,000 share issuances to five
individuals, and 400,000 shares of our common stock to our
Advisory Board members as fees for their services, comprised of
100,000 share issuances to four individuals. We also granted
100,000 shares of our common stock to our legal counsel as fees
for their services.
The Company relied on Section 4(2) and Rule 701 of the
Securities Act for all of the above stock issuances since these
transactions did not involve any public offering.
Item 3. Defaults upon Senior Securities
At October 31, 2004, we had $454,000 of debentures
outstanding. As of October 31, 2004, $43,500 of the Debentures
discussed previously is in default as the term was for one (1)
year. The debenture provisions include a penalty of five percent
(5%) for any default that occurs and we have recorded $2,175 as a
debenture penalty in the accompanying Financial Statements as of
October 31, 2004. As of November 31, 2004, $160,500 of the
Debentures are in default and the 5% penalty amount would be
$8,025. The Company is in discussions with the debenture holders
concerning the default.
31
Item 4. Submission of Matters to a Vote of Security Holders
On October 14, 2004, pursuant to a written unanimous consent
of shareholders in lieu of meeting, all of the predecessor
registrant's shareholders voted to approve the share exchange
transaction between the predecessor registrant and the successor
registrant pursuant to the share exchange agreement entered into
on October 15, 2004 among the predecessor registrant, the
successor registrant, and each predecessor registrant
shareholder.
On December 1, 2004, pursuant to a written unanimous consent
of shareholders in lieu of meeting, the successor registrant, as
the sole shareholder of the predecessor registrant, voted to
approve the agreement and plan of merger entered into on December
3, 2004 between the successor registrant and the predecessor
registrant.
Item 5. Other Information
As a result of the Merger Transaction, our common stock is
currently quoted on the OTC Pink Sheets under the symbol: NCPN.
We intend to seek a market maker to apply for permission to quote
our common stock on the OTC Bulletin Board.
Item 6. Exhibits
Exhibit No. Description of Exhibit Sequential Page No.
- ----------- ---------------------- -------------------
(2)
2.1 Share Exchange Agreement (Incorporated by reference to
Exhibit 2.1 of registrant's Current Report on Form 8-K filed
with the Commission on October 21, 2004).
2.2 Merger Agreement dated December 3, 2004. (Incorporated by
reference to Exhibit 2.2 of registrant's Current Report on Form
8-K filed with the Commission on December 9, 2004).
(3)
3.1 Registrant's Amended and Restated Articles of Incorporation
filed with the Nevada Secretary of State's office on November
29, 2004. (Incorporated by reference to Exhibit 3.1 of
registrant's Current Report on Form 8-K filed with the
Commission on December 9, 2004).
3.2 Registrant's Certificate of Designations of Preferred Stock
filed with the Nevada Secretary of State's office on October 21,
2004. (Incorporated by reference to Exhibit 3.2 of registrant's
Current Report on Form 8-K filed with the Commission on December
9, 2004).
3.3 Registrant's Bylaws. (Incorporated by reference to Exhibit
3.3 of registrant's Current Report on Form 8-K filed with the
Commission on December 9, 2004).
(31)
31.1 Certification of the Chief Executive Officer of Nortia
Capital Partners, Inc. pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
32
31.2 Certification of the Chief Financial Officer of Nortia
Capital Partners, Inc. pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
(32)
32.1 Certification of the Chief Executive Officer of Nortia
Capital Partners, Inc. pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer of Nortia
Capital Partners, Inc. pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTIA CAPITAL PARTNERS, INC.
Registrant
By:/s/William Bosso
--------------------------------------
William Bosso, Chief Executive Officer
Dated: December 14, 2004
By:/s/William Bosso
--------------------------------------
William Bosso, Chief Executive Officer
Dated: December 14, 2004
By:/s/William Bosso
--------------------------------------
Matthew T. Henninger, President
Dated: December 14, 2004
By:/s/Harrysen Mittler
-----------------------------------------
Harrysen Mittler, Chief Financial Officer
Dated: December 14, 2004
33