UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2005
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File number: 0-26843
Nortia Capital Partners, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 65-0913582
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
400 Hampton View Court, Alpharetta, Georgia 30004
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(Address of principal executive offices) (Zip Code)
(770) 777-6795
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 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 [ ] No [X]
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [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]
As of November 21, 2005, there were approximately 24,351,639 shares
of common stock, $0.001 par value, issued and outstanding.
-1-
Explanatory Note
On March 16, 2005, Nortia Capital Partners, Inc. filed a
Quarterly Report on Form 10-QSB for the quarter ended January 31, 2005
with the Securities and Exchange Commission. However, the staff of
the Securities and Exchange Commission has indicated to Nortia Capital
Partners, Inc. that, because it had elected to be regulated as a
business development company under the Investment Company Act of 1940
during the quarter for which such Report was filed, it must file its
quarterly report for such quarter on Form 10-Q and not Form 10-QSB.
Consequently, Nortia Capital Partners, Inc. has amended in full its
Quarterly Report on Form 10-QSB and hereby files this Quarterly Report
on Form 10-Q for the quarter ended January 31, 2005 to comply with the
staff's request. As a result, stockholders, potential investors and
other readers should consult Nortia Capital Partners, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended January 31, 2005, rather
than the previously filed Quarterly Report on Form 10-QSB for such
quarter. In addition, this Quarterly Report on Form 10-Q reflects
certain of the staff's comments in respect of the disclosure
previously provided by Nortia Capital Partners, Inc. in its Quarterly
Report on Form 10-QSB for the quarter ended January 31, 2005.
-2-
Nortia Capital Partners, Inc.
Form 10-Q Index
January 31, 2005
Page
----
Part I-Financial Information
Item 1. Financial Statements 4
Balance Sheet at January 31, 2005 (Unaudited) 5
Statement of Operations for the One Month ended
January 31, 2005 and the Two and Eight Months
ended December 31, 2004 and the Three and Nine
Months Ended January 31, 2004 (Unaudited) 6
Statement of Cash Flows for the One month ended
January 31, 2005, Eight Months ended December
31, 2004 and the Nine Months Ended
January 31, 2004 (Unaudited) 7
Schedule of Changes in Net Assets for the One
Month ended January 31, 2005 (Unaudited) 8
Schedule of Investments at January 31, 2005 (Unaudited) 9
Notes to Financial Statements (Unaudited) 10
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 29
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 49
Item 4. Controls and Procedures 49
Part II-Other Information
Item 1. Legal Proceedings 50
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 50
Item 3. Defaults upon Senior Securities 51
Item 4. Submission of Matters to a Vote of Security Holders 51
Item 5. Other Information 51
Item 6. Exhibits 52
Signatures 52
-3-
PART I
FINANCIAL INFORMATION
Item 1-Financial Statements
-4-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
At January 31, 2005
Balance Sheet
(Unaudited)
ASSETS
------
Current Assets
Cash $ 91,481
Other receivable 1,625
Due from related party 26,932
-----------
Total Current Assets 120,038
===========
Total Assets 120,038
===========
LIABILITIES
-----------
Current Liabilities
Accounts payable 68,330
Accrued expenses 104,701
Promissory notes 161,000
Debentures 504,000
-----------
Total Current Liabilities 838,031
===========
Net Assets $ (717,993)
===========
STOCKHOLDERS' DEFICIENCY
------------------------
Preferred stock, Series A, $0.001 par value,
5,000,000 shares authorized 300,000 issued
and outstanding $ 300
Common stock, $0.001 par value, 50,000,000
shares authorized 21,757,254 shares issued
and outstanding 21,757
Additional paid in capital 792,719
Accumulated deficit (12,398)
Deficit accumulated during development stage (1,225,788)
-----------
(423,410)
Less: Deferred consulting (294,583)
-----------
Total Stockholders' Deficiency (717,993)
===========
Total Liabilities and Stockholders' Deficiency $ 120,038
===========
Net Asset Value Per Share $ (0.03)
===========
See accompanying notes to financial statements.
-5-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
At January 31, 2005
Statement of Operations
(Unaudited)
Post Election Pre Election Post Election Pre Election
as a Business as a Business as a Business as a Business
Development Development Development Development Period from
Company Company Company Company May 1, 2003
------------- ----------------------------- ------------- -------------------------- (Inception of
One Two Three One Eight Nine Development
Month Ended Months Ended Months Ended Month Ended Months Ended Months Ended Stage) to
Jan. 31, Dec. 31, Jan. 31, Jan. 31, Dec. 31, Jan. 31, Jan. 31,
2005 2004 2004 2005 2004 2004 2005
------------- ------------- ------------- ------------- ------------ ------------ -------------
Revenues $ - $ - $ 60,000 $ - $ 153,699 $ 86,301 $ 300,000
Operating Expenses:
General and
administrative 35,996 39,299 23,817 35,996 94,223 62,810 205,352
Rent 3,884 7,516 - 3,884 23,072 - 26,956
Consulting 7,490 66,427 - 7,490 82,342 - 89,832
Compensation 30,385 198,765 - 30,385 245,465 - 462,649
Debenture penalty 9,225 - - 9,225 2,175 - 11,400
Directors fees - 224,100 - - 225,150 - 237,150
Interest expense 12,615 - 4,271 12,615 15,054 5,336 39,116
Impairment of
Investments 45,331 - - 45,331 3,250 - 48,581
Professional 15,283 26,253 10,000 15,283 109,892 20,000 145,176
------------- ------------- ------------- ------------- ------------ ------------ -------------
Total Operating
Expenses 160,209 562,360 38,088 160,209 800,623 88,147 1,266,213
------------- ------------- ------------- ------------- ------------ ------------ -------------
Income (Loss) from
Operations (160,209) (562,360) 21,912 (160,209) (646,924) (1,846) (966,213)
Other Income (Expense):
Loss on sale of
available for sale
securities - - - - (64,738) - (64,738)
Other than temporary
loss on for sale
securities - - - - (195,000) - (195,000)
Other income 4 36 - 4 4,536 - 4,540
Interest income - (35) - - 8 - 19
------------- ------------- ------------- ------------- ------------ ------------ -------------
Total Other Income
(Expense) 4 1 - 4 (255,194) - (255,179)
------------- ------------- ------------- ------------- ------------ ------------ -------------
Net Income (Loss)
Before Income Taxes $ (160,205) $ (562,359) $ 21,912 $ (160,205) $ (902,119) $ (1,846) $ (1,221,392)
============= ============= ============= ============= ============ ============ =============
Income tax expense - - - - - - (4,397)
Net loss $ (160,205) $ (562,359) $ 21,912 $ (160,205) $ (902,119) $ (1,846) $ (1,225,789)
============= ============= ============= ============= ============ ============ =============
Net Loss Per Share
- Basic and Diluted $ (0.01) $ (0.03) $ 0.01 $ (0.01) $ (0.07) $ - $ (0.14)
============= ============= ============= ============= ============ ============ =============
Weighted Average Shares 21,757,254 19,842,584 4,550,000 21,757,254 13,522,418 4,550,000 9,005,434
============= ============= ============= ============= ============= ============ =============
See accompanying notes to financial statements.
-6-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
Post Election Pre Election
as a Business as a Business
Development Development
Company Company Period from
------------- ------------------------------ May 1, 2003
One Month Eight Months Nine Months (Inception of
Ended Ended Ended Development Stage)
Jan. 31, Dec. 31, Jan. 31, to Jan. 31,
2005 2004 2004 2005
------------- ------------- ------------- ------------------
Cash Flows From Operating Activities:
Net income (loss) $ (160,205) $ (902,119) $ 723,155 $ (1,225,788)
Adjustments to reconcile net income
(loss) to net cash used in operations:
Debenture issued for legal services - - 5,000 5,000
Impairment of investments 45,331 3,250 - 48,581
Debenture issued for consulting
services - 7,000 - 7,000
Loss on sale of available for sale
securities - 64,738 - 64,738
Unrealized gain - available for sale
securities - - (725,000) -
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 - 196,000 - 356,000
Common stock issued for directors fees - 225,150 - 237,150
Common stock issued for consulting
services 15,000 4,065 - 19,065
Common stock issued for legal services - 10,000 - 10,000
Amortization of deferred consulting - 58,917 - 58,917
Common stock based revenue - (153,699) (86,301) (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 - (26,932) - (26,932)
Increase in accounts payable (6,500) 6,501 6,000 5,001
Increase (decrease) in due to
related party - (1,113) 1,113 -
Increase in accrued expenses 14,491 69,837 1,042 99,153
------------- ------------- ------------- ------------------
Net Cash Used In Operating Activities (91,883) (247,805) (74,451) (450,976)
------------- ------------- ------------- ------------------
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 (Used In) Investing
Activities - 14,405 - (35,543)
------------- ------------- ------------- ------------------
Cash Flows From Financing Activities:
Proceeds from issuance of promissory
notes 86,000 75,000 - 161,000
Proceeds from issuance of debentures 50,000 197,000 147,000 417,000
------------- ------------- ------------- ------------------
Net Cash Provided By Financing Activities 136,000 272,000 147,000 578,000
------------- ------------- ------------- ------------------
Net Increase in Cash 44,117 38,600 72,549 91,481
------------- ------------- ------------- ------------------
Cash at Beginning of Period 47,364 8,764 - -
------------- ------------- ------------- ------------------
Cash at End of Period $ 91,481 $ 47,364 $ 72,549 $ 91,481
============= ============= ============= ==================
Cash interest paid $ - $ - $ - $ -
Supplemental Disclosure of Non-Cash
Transactions:
Debenture issued for available-for
-sale securities $ - $ - $ 75,000 $ 75,000
Exchange of accounts receivable for
available-for-sale securities - - 60,000 60,000
Unrealized losses on available
-for-sale securities - - 725,000 -
Recapitalization of accounts payable 63,330 - - 63,330
See accompanying notes to financial statements.
-7-
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Changes in Net Assets
(Unaudited)
One
Month Ended
January 31, 2005
----------------
Decrease in net assets from operations:
Net operating losses $ (160,205)
----------------
Net decrease in net assets from operations (160,205)
----------------
Total decrease in net assets (160,205)
Net Assets:
Beginning of Period (557,788)
----------------
End of period $ (717,993)
================
See accompanying notes to financial statements.
-8-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Schedule of Investments
At January 31, 2005
(Unaudited)
Percentage of
Title of Class Held on At January 31, 2005
Portfolio Securities Held a Fully Diluted -------------------------
Company Industry By The Company (2) Basis Cost Fair Value
================================================================================================================
Investments - (1)
================================================================================================================
Avix Technologies, Inc. Telecom Common Stock 11% $ 43,706 $ -
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Universal Capital Management, Inc. Investments Common Stock 1% 1,625 -
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Total Investments - Minority Owned
Other Non-Controlled Affiliates 45,331 -
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BF Acquisition Group III, Inc. Shell Common Stock 3% 1,625 -
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BF Acquisition Group V, Inc. Shell Common Stock 1% 1,625 -
- ----------------------------------------------------------------------------------------------------------------
Total Investments - Unaffiliated
Issuers 3,250
================================================================================================================
- -
- ----------------------------------------------------------------------------------------------------------------
Total Investments $ 48,581 $ -
================================================================================================================
Total Investments 48,581 -
Unearned Income - -
-------------------------
Total Investments, net of Unearned Income $ 48,581 $ -
=========================
(1) Minority owned investments are generally defined under the Investment
Company Act of 1940 as companies in which we own less than 50% of the
voting securities of the company. If we own between 25% and 50% of
the issuer, it is presented as minority-owned controlled companies,
if between 5% and 25%, it is presented as minority-owned other
affiliates.
(2) All common stock is in inactive companies, non-income producing and
restricted at the relevant period end.
See accompanying notes to financial statements.
-9-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
Note 1. Basis of Presentation
- ------------------------------
The accompanying unaudited financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America and the rules and
regulations of the United States of America Securities and Exchange
Commission for interim financial information. Accordingly, they do
not include all the information and footnotes necessary for a
comprehensive presentation of 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.
The accompanying financial statements are prepared in accordance
with the guidance in the AICPA's Audit and Accounting Guide, "Audits
of Investment Companies" since the Company elected to be regulated as
a Business Development Company effective January 4, 2005 (see Note 2).
In accordance with Article 6 of Regulation S-X under the
Securities Act of 1933 and Securities Exchange Act of 1934, the
Company does not consolidate portfolio company investments, including
those in which it has a controlling interest.
Note 2. Nature of Operations and Summary of Significant Accounting
Policies
- -------------------------------------------------------------------
Nature of Operations
Nortia Capital Partners, Inc. ("Nortia", "we", "us", "our", or
the "Company") is a publicly held Atlanta, Georgia based firm that
during the period covered by this report is in the development stage
since it has not generated significant revenue from 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 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
-10-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
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 us for our non-
compliance during this period (See Note 8 - Commitments and
Contingencies).
Effective August 2, 2004, we changed our name to Nortia Capital
Partners, Inc.
On October 15, 2004, we entered into a definitive share Exchange
Agreement with Global Life Sciences, Inc. ("Global"), a publicly
traded Nevada corporation, which then changed its name to "Nortia
Capital Partners, Inc." On December 2, 2004, the Exchange Agreement
was consummated and, pursuant to its terms, we became a wholly owned
subsidiary of the Nevada corporation in a transaction accounted for as
a recapitalization of the Company (See Note 6 - Recapitalization). On
December 3, 2004, we were merged into the Nevada corporation with the
Nevada corporation surviving. As a result of the recapitalization, we
are no longer a Florida corporation and are now organized under the
laws of the State of Nevada.
Conversion to Business Development Company
On January 4, 2005, the Company filed a Form N-54A with the SEC
to become a Business Development Company ("BDC") pursuant to Section
54 of the Investment Company Act of 1940 (the "1940 Act"). As a
result of its new status, the Company plans to provide capital and
advisory services for management buyouts, recapitalizations, and the
growth and capital needs of emerging growth companies.
As a BDC, the Company will be structured in a manner more
consistent with its current business strategy. As a result, the
Company is positioned to develop and expand its business interests.
The Company does not intend to limit its potential investments to just
one line of business or industry. The Company's investment objective
is to generate both capital appreciation and current income from its
investments.
BDC regulation was created in 1980 by Congress to encourage the
flow of public equity capital to small businesses in the United
States. BDCs, like all mutual funds and closed-end funds, are
regulated under the 1940 Act. BDC's report to stockholders like
traditional operating companies and file regular quarterly and annual
reports with the SEC. BDCs are required to make available significant
managerial assistance to their portfolio companies.
The results of operations for 2005 are divided into two periods.
The eight-month period, representing the period from May 1, 2004
through December 31, 2004, reflects the Company's results prior to
operating as a BDC. The one-month period from January 1, 2005 through
January 31, 2005, reflects the Company's results as a BDC. The
results of operations from January 1, 2005 to January 4, 2005, the BDC
election date, were not material. Accounting principles used in the
preparation of the financial statements beginning January 1, 2005 are
different from those of prior periods and, therefore, the financial
position and results of operations of this period is not directly
comparable. The Company utilizes the cumulative effect method to
reflect the effects of conversion to a BDC. There was no cumulative
effect adjustment from the conversion to a BDC in January 2005.
-11-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
On February 17, 2005, the Company announced that its Board of
Directors had approved a two-for-one stock split of its common shares.
The record date for the split was February 28, 2005 and the pay date
was March 3, 2005. In accordance with SFAS 128, the Company has
retroactively presented the effect of the stock split for all periods
presented in the accompanying Financial Statements for all share and
per share data.
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.
-12-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
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. If the Company issues convertible
instruments, 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.
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 January 31,
2005.
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.
Upon election as a BDC in January 2005, the Company is no longer
allowed under the 1940 Act to grant stock based compensation to non-
employees for goods or services. At January 31, 2005, the Company had
no stock options or warrants outstanding.
-13-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
Investments
Investments in securities of unaffiliated issuers represent
holdings of less than 5% of the issuer's voting common stock.
Investments in and advances to affiliates are presented as (i)
majority-owned, if holdings, directly or indirectly, represent over
50% of the issuer's voting common stock, (ii) minority owned other
controlled affiliates if the holdings, directly or indirectly,
represent over 25% and up to 50% of the issuer's voting common stock
and (iii) minority owned other non-controlled affiliates if the
holdings, directly or indirectly, represent 5% to 25% of the issuer's
voting common stock. Investments - other than securities represent
all investments other than in securities of the issuer.
Investments in securities or investments - other than securities
of privately held entities are initially recorded at their original
cost as of the date the Company obtained an enforceable right to
demand the securities or other investment purchased and incurred an
enforceable obligation to pay the investment price.
For financial statement purposes, investments are recorded at
their fair value. Currently, readily determinable fair values do not
exist for our investments and the fair value of these investments is
determined in good faith by the Company's Board of Directors pursuant
to a valuation policy and consistent valuation process. Due to the
inherent uncertainty of these valuations, the estimates may differ
significantly from the values that would have been used had a ready
market for the investments existed and the differences may be
material. Our valuation methodology includes the examination of,
among other things, the underlying portfolio company performance,
financial condition and market changing events that impact valuation.
Realized gains (losses) from the sale of investments and
unrealized gains (losses) from the valuation of investments are
reflected in operations during the period incurred.
Revenue Recognition
The Company recognizes revenues in accordance with the guidance
in the SEC's 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 reasonably 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.
Revenues from the current and future activities as a business
development company which may include investment income such as
interest income and dividends, and realized or unrealized gains and
losses on investments will be recognized in accordance with the
AICPA's Audit and Accounting Guide, "Audits of Investment Companies."
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
-14-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
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.
As we are now a BDC, we currently intend to elect to be a
regulated investment company, or RIC, under Subchapter M of the
Internal Revenue Code of 1986, or the "Code", for tax purposes.
Provided we qualify as an RIC, our income generally will not be
taxable to us to the extent such income is distributed to our
stockholders. In order to make an effective election, we must meet
certain income and other requirements. If we were to elect and meet
such requirements, we would lose the tax benefit of our net operating
loss carry-forwards for our RIC taxable years, except as offsets to
certain recognized built-in gains.
Income (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.
As previously discussed, the Company announced that its Board of
Directors had approved a two-for-one stock split of its common shares.
The record date for the split is February 28, 2005 and the pay date is
March 3, 2005. In accordance with SFAS 128, the Company has
retroactively presented the effect of the stock split for all periods
presented in the accompanying Financial Statements for all share and
per share data.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) as
currently reported by the Company adjusted for other comprehensive
gains (losses). Other comprehensive gains (losses) for the Company
consists of unrealized gains (losses) related to the Company's equity
securities accounted for as available-for-sale with changes in fair
value recorded through stockholders' equity.
Note 3. Going Concern
- ----------------------
As reflected in the accompanying financial statements, the
Company has a net loss of $160,205 and net cash used in operations of
$91,883 for the one month ended January 31, 2005 as a BDC, a net loss
of $902,119 and net cash used in operations of $247,805 for the eight
months ended December 31, 2004 prior to election as a BDC.
Additionally, the Company has a working capital deficiency of
$717,993, a stockholders' deficiency of $717,993, an accumulated
deficit of $12,398 and a deficit accumulated during the development
stage of $1,225,788 at January 31, 2005. Additionally, at January 31,
2005, the Company is in payment default on certain of its outstanding
Debentures (See Note 11 - Subsequent Events).
-15-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its business
plan as a BDC, 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 as a BDC through direct
investments in private companies, start-up companies, and through the
opportunities provided by turnaround companies. Additionally, we will
provide fee based business expertise through in-house consultants and
contract consultants.
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 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 nine months
ended January 31, 2005, we have received another $247,000 of proceeds
from the issuance of Debentures. We obtained $161,000 of proceeds
from the issuance of Promissory Notes for the three months ended
January 31, 2005. 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.
Note 4. Investments
- --------------------
In November 2003, we issued $75,000 of debentures in exchange for
100,000 shares of common stock in Global Life Sciences, Inc. a publicly
held company. 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.
-16-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
In April 2004, we purchased 5,000 shares of 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,
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 the
above securities, we have reversed the previously discussed $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. In
November 2004, we agreed to receive 100,000 shares of common stock
from one of these companies instead of the cash due of $1,625. In
December 2004, we agreed to receive 100,000 shares of common stock
from one of these companies instead of the cash due of $1,625. All 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 $4,850 in the accompanying Statement of Operations for the nine
months ended January 31, 2005. The remaining $1,625 for the final
company is recorded as other receivable in the Balance Sheet as of
January 31, 2005.
In September 2003, we entered into a consulting contract with
Global Life Sciences, Inc. ("Global"), a publicly traded company (See
Note 5 - Indebtedness). We provided consulting services to Global
under this contract in exchange for $240,000 to be paid to us in the
form of 1,200,000 restricted shares. In addition, we received an
additional 300,000 shares of its common stock, valued at $0.20 per
share, based on the original agreement date. The term of the
consulting agreement was for twelve (12) months and the common stock
was payable on a quarterly basis. In January 2004, we received
300,000 shares and in July 2004, we received the remaining 1,200,000
shares as compensation for services. For the twelve months ended
April 30, 2004, we recorded $146,301 of the consulting fees as revenue
and recorded $153,699 of consulting fees as revenue during the six
months ended October 31, 2004 and had earned a total of $300,000 or
100% of the consulting fees from the inception of the contract as of
October 31, 2004. We 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
-17-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
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
evaluated the underlying securities that had an original cost of $0.20
and 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 also evaluated Global, which is a
development stage company, and has a stockholders' deficiency and an
accumulated deficit. As a result of our analysis, the fair market
value at October 31, 2004 was $105,000 and we believed that the
impairment is other than temporary and 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 classified the securities as an Investment in Affiliate at October
31, 2004.
On October 15, 2004, the Company entered into a definitive share
exchange agreement with Global. On December 2, 2004, the exchange
agreement was consummated and pursuant to the terms of the exchange
agreement, the Company became a wholly owned subsidiary of Global in a
transaction accounted for as a recapitalization of the Company (See
Note 6 - Recapitalization). As a result of the transaction, the Board
has retired the shares and the Investment held by the Company in
Global has been eliminated.
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 11 of the federal
bankruptcy code. There is a minimal 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 Company has recorded an impairment loss for the entire $43,706,
which is classified as impairment of investments in the accompanying
Financial Statements as of January 31, 2005.
Note 5. Indebtedness
- ---------------------
From May 2003 through January of 2005, we received $417,000 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 exchanging 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 00-27. We have determined that the debentures are not a
convertible instrument in that the potential conversion feature
outlined in the debentures is not binding.
-18-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
In November 2003, we issued $75,000 of debentures in exchange for
100,000 shares of common stock in Global (see Note 4 - 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 January 31, 2005, we had $504,000 of debentures outstanding.
As of January 31, 2005, $228,000 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 accrued $11,400 as a debenture penalty
in the accompanying Financial Statements as of January 31, 2005. The
Company is in discussions with the debenture holders concerning the
default.
From November 2004 through January of 2005, we have received
$161,000 of cash proceeds from the issuance of promissory notes to
several parties. The promissory note terms are interest at ten
percent per annum, payable in 90 days from the date of the promissory
notes.
See Note 11 - Subsequent Events for information related to
material recent events.
Note 6. Recapitalization
- -------------------------
On December 2, 2004 (the "Transaction Date"), Nortia Capital
Partners Inc. Florida ("Nortia Florida") consummated a definitive
share exchange agreement ("Agreement") with Global Life Sciences,
Inc., ("Global") whereby Nortia Florida became a wholly-owned
subsidiary of Global. Subsequently in December 2004, Nortia Florida
was merged into Global with Global as the survivor. Global assumed
the SEC reporting responsibilities of Nortia Florida and changed its
name to Nortia Capital Partners, Inc., a Nevada corporation. Pursuant
to the terms of the Agreement, the shareholders of the Company
received an aggregate of 17,350,000 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 were 20,777,254 shares of common stock
outstanding, approximately 84% of which are held by the Company's
current shareholders. Accordingly, since the Company's shareholders
obtained voting and management control, this transaction is treated as
a recapitalization of the Company. The Company also assumed net
liabilities of Global, which was a legal obligation in the amount of
$63,330, which has been recorded as Accounts Payable in the
accompanying Financial Statements.
As a result of the recapitalization, the Company is deemed
to have issued 3,427,254 shares of common stock to the original
shareholders of Global (See Note 7 - Stockholders' Deficiency.
The net effect of the transaction is a credit to common stock of
$3,427, credit to preferred stock of $300 and a debit to additional
paid in capital for $172,057, which in total consists of the $63,330
assumed liability discussed previously and $105,000 for
-19-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
the cancellation of common stock held by the Company in Global. The
Financial Statements after the closing of the Agreement include the
Balance Sheet of both companies at historical cost and the historical
operations of the Company and the operations of Global from the
Transaction Date.
Previously in September 2004, a prior asset purchase and sale
agreement between Global and another unrelated entity was rescinded
making Global an inactive public shell. All liabilities and
obligations of Global except the $63,330 of accounts payable discussed
above were assigned to a prior officer of Global, pursuant to a mutual
rescission agreement.
Note 7. 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 21,757,254 were issued and
outstanding at January 31, 2005. The holders of the common stock do
not have any preemptive right to subscribe for, or purchase, any
shares of any class of stock.
We are authorized to issue up to 5,000,000 shares of our
preferred stock, $0.001 par value per share, of which 300,000,
designated as Series A, were authorized, issued and outstanding at
January 31, 2005. Such shares have been converted into an aggregate
of 600,000 post-split Common Shares and, as of October 6, 2005, the
authorization for Series A Preferred Stock has been withdrawn. 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.
Common Stock
- ------------
In March 2004, we granted 4,300,000 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 $0.04 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, the 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
480,000 shares of the Common Stock of the Company. Two hundred forty
thousand shares were granted and vested upon the execution of the
agreement and the remaining shares will be earned at the rate of
10,000 shares monthly and issued on a quarterly basis. As of July 31,
2004, 270,000 shares were vested and were issued by the Company. From
-20-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2005
(Unaudited)
August 1, 2004 through January 31, 2005, an additional 60,000 shares
were granted and vested, thus making the total shares granted and
vested 330,000 at January 31, 2005.
Of the 270,000 shares that were issued as of July 31, 2004 as
discussed above, at the time of the issuance, 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 and determined that
the valuation was $0.015 per share, thus the 270,000 shares issued as
of July 31, 2004 were valued on 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.
Of the additional 60,000 shares issued between August 1, 2004 and
January 31, 2005 as discussed above, 30,000 shares were issued during
the three months ended October 31, 2004 and valued at a nominal value
of $0.0005 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 other 30,000 shares vested during the three
months ended January 31, 2005 were valued based upon the measurement
date of December 31, 2004 at a value of $0.505 per share and the
Company has recorded $30,000 of consulting expense in the accompanying
Statement of Operations for the three months ended January 31, 2004.
The remaining 150,000 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 2,300,000 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 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 $0.0005 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 3,900,000 shares to our executive
officers as compensation, comprised of 1,500,000 to our Chief
Executive Officer, 1,200,000 to our President and 1,200,000 to our
Chief Financial Officer. 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 $0.05 per share, the valuation utilized for preferred shares
issued for director services on the same date - (see Issuances of
Preferred Stock below). As a result, the Company has expended
immediately $195,000 of compensation.
In October 2004, we granted 1,000,000 shares to our Board of
Directors as fees for their services, comprised of 200,000 share
issuances to five individuals. There was no active trading market for
-21-
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 $0.05 per share, the valuation utilized for preferred shares
issued for director services on the same date - (see Issuances of
Preferred Stock below). As a result, the Company has expensed
immediately $50,000 of director fees.
In October 2004, we granted 800,000 shares to our Advisory Board
members as fees for their services, comprised of 200,000 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 $0.05 per share, the valuation utilized for preferred shares
issued for director services on the same date - (see Issuances of
Preferred Stock below). As a result, the Company has expensed
immediately $40,000 of director fees.
In November 2004, we granted 250,000 shares of our common stock
to a group for consulting services. The shares were valued at $0.505
per share, the closing stock price on the grant date of November 1,
2004, and we recorded $126,250 of deferred consulting, as the term of
the consulting agreement was one (1) year. As of January 31, 2005, we
have recorded $21,042 of amortization expense related to the deferred
consulting resulting in an unamortized deferred consulting balance of
$105,208.
In November 2004, we granted 450,000 shares of our common stock
to a group for consulting services. The shares were valued at $0.505
per share, the closing stock price on the grant date of November 1,
2004, and we recorded $227,025 of deferred consulting, as the term of
the consulting agreement was one (1) year. As of January 31, 2005, we
have recorded $37,875 of amortization expense related to the deferred
consulting resulting in an unamortized deferred consulting balance of
$189,150.
In December 2004, we granted 250,000 shares of our common stock
to a new member of our Board of Directors as a fee for their service.
The shares were valued at $0.54 per share, the closing price on the
grant date of December 6, 2004, and we expensed immediately $135,000
of director fees.
As a result of the recapitalization discussed previously, the
Company recorded 3,427,254 shares of common stock. Certain of these
3,427,254 shares are being returned to the Company for cancellation
but as of the date of these Financial Statements, none of the shares
had been returned to the Company (See Note 6 - Recapitalization).
Preferred Stock
- ---------------
In relation to the recapitalization discussed previously, each
newly appointed officer of the Company received 100,000 shares of
convertible Preferred A stock upon their appointment, which occurred
approximately 10 days prior to the December 2, 2004 effective date.
Each share of this preferred stock is convertible into two (2) shares
of 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 (Mandatory Conversion
Date). Each Preferred A Share has voting rights equivalent to ten
(10) times the number of shares of common stock into which each such
-22-
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 a result of the recapitalization, the Company issued 300,000
shares of Series A Preferred Stock. Such shares have been converted
into an aggregate of 600,000 post-split Common Shares and, as of
October 6, 2005, the authorization for Series A Preferred Stock has
been withdrawn.
Note 8. 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,
which may be taken by the SEC against the Company for its non-
compliance during this period.
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 9 - 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 space 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.
We currently intend to elect to be treated as an RIC, under
Subchapter M of the Internal Revenue Code of 1986 as soon as
practicable. Once elected, to maintain status as an RIC and
obtain the federal income tax benefits of such status, we must
distribute at least 90% of our ordinary income and realized net
short-term capital gains in excess of realized net long-term capital
losses, if any, out of the assets legally available for distribution.
In order to avoid certain excise taxes imposed on RICs, we
currently intend to distribute during each calendar year an
amount at least equal to the sum of (1) 98% of our ordinary
income for the calendar year, (2) 98% of our capital gains in
excess of capital losses for the one-year period ending on
October 31st and (3) any ordinary income and net capital gains
for preceding years that were not distributed during such years.
In addition, although we currently intend to distribute realized
net capital gains (i.e., net long-term capital gains in excess
of short-term capital losses), if any, at least annually, out of
the assets legally available for such distributions, we may in
the future decide to retain such capital gains for investment.
-23-
We may not be able to achieve operating results that will allow
us to make distributions at a specific level or to increase the amount
of these distributions from time to time. In addition, we may be
limited in our ability to make distributions due to the asset coverage
test for borrowings applicable to us as a business development company
under the Investment Company Act of 1940. Accordingly, our ability to
elect RIC treatment may be delayed indefinitely.
In January 2005, we filed an election to become subject to
Sections 55 through 65 of the Investment Company Act of 1940, such
that we could commence conducting our business activities as a BDC.
In June 2005, we determined to commence an offering of shares of our
common stock as a BDC in accordance with the exemption from the
registration requirements of the Securities Act of 1933 as provided by
Regulation E. In connection with that prospective offer, we filed a
Form 1-E with the SEC, which was reviewed by the SEC in the ordinary
course and a comment letter was issued. As a result, we currently
understand that we may be out of compliance with certain of the rules
and regulations governing the business and affairs, financial status,
and financial reporting items required of BDCs. We are making every
effort to comply as soon as is practicable with the relevant sections
of the 1940 Act and are working with our counsel to accomplish that
compliance. We have not yet sold or issued any shares under our
proposed offering and, until the completion of this process; we have
voluntarily suspended the proposed offering. While we are seeking to
comply with the 1940 Act, we cannot provide any specific time frame
for full compliance. We cannot predict with certainty what, if any,
regulatory or financial consequences may result from the foregoing.
The above matter may result in certain contingent liabilities to
the Company as a result of potential actions by the SEC or others
against the Company. Management as of the date of this Report could
not estimate such contingent liabilities.
The Company granted and issued common stock for consulting
services after its election as a BDC on January 4, 2005, which may
have violated certain sections of the 1940 Act. Management is taking
action to remedy such potential violations including termination of
certain consulting agreements and the attempt to reacquire and cancel
such shares issued pursuant to the agreement. As the result of such
action, the Company may incur liabilities to the consultants which
management could not estimate as of the date of this report.
The outcome of the above matters could have a significant impact
on our ability to continue as a going concern.
Note 9. 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, we
repaid $2,000 of these advances resulting in a balance due of $1,113
at April 30, 2004. During the three months ended July 31, 2004, we
repaid $500 of these advances and during the three months ended
-24-
January 31, 2004, we repaid the remaining $613. At January 31, 2005,
the balance outstanding is zero.
In June and August 2004, we received advances totaling $3,000
from a company controlled by the wife of our Chief Executive Officer
and was classified in Due to Related Party. During the three months
ended January 31, 2005, the $3,000 was repaid and at January 31, 2005,
the balance is zero.
At January 31, 2005, we have a $26,932 receivable classified as
due from related party in the accompanying Financial Statements. This
amount represents employee payroll taxes paid by the Company but not
withheld from two employees, the Chief Executive Officer and the
President. Subsequently, these amounts were resolved and the due from
related party is zero at April 30, 2005.
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 8 - Commitments and Contingencies).
Note 10. Financial Information
- -------------------------------
Following is a schedule of financial highlights for the one month
ended January 31, 2005, during which period the Company operated as a
BDC:
One
Month Ended
January 31, 2005
----------------
Per Share Data:
- --------------
Net Asset Value at Beginning of Period (1) $ (0.02)
Net Loss (1) (0.01)
----------------
Net Decrease in Stockholders Deficiency (0.01)
----------------
Net Asset Value at End of Period $ (0.03)
================
Per Share Market Value at End of Period $ 0.85
Total Return (2) 70%
Common Stock Outstanding and Issuable at End of Period 21,757,254
Ratio/Supplemental Data:
- -----------------------
Net Assets at End of Period $ (717,993)
Ratio of Operating Expenses to Net Assets 22%
Ratio of Net Operating Loss to Net Assets 22%
- ---------------------------------------------------------------------------
(1) Based on Total Shares Outstanding
-25-
(2) Total return equals the increase of the ending market value over
the December 31, 2004 price of $0.50 per share, divided by the
beginning price.
Note 11. Subsequent Events
- ---------------------------
In January 2005, the Company entered into an investor relations
consulting agreement and as consideration for the services to be
provided, granted 120,000 shares of common stock, payable in monthly
10,000 share issuances. The first installment will be paid in
February 2005, the term of the agreement is one year and the Company
will record consulting expense based upon the market value of the
common stock on each monthly 10,000 share issuance date.
In February 2005, the Company entered into a consulting agreement
and as consideration for the services provided, a fee of $150,000 was
granted to the Consultant. Upon the mutual agreement of both parties,
the fee will be paid in cash or up to 100,000 shares of common stock,
based upon a $1.50 market value on the date of the agreement. The
term of the agreement is one year and the Company will record $150,000
of deferred consulting and amortize the balance over the one-year
term.
As of March 3, 2005, $250,000 of the Debentures discussed
previously is in default, as the term was for one year. The debenture
provisions include a penalty of five percent (5%) for any default that
occurs and this amount would be $12,500. The Company is in
discussions with the debenture holders concerning the default.
In April 2005, the Company initiated a Private Placement Offering
for the issuance of up to 1,000,000 units at an offering price of
$1.10 per share. Each unit consist of one share of the Company's
$0.001 par value common stock and one two-year warrant to purchase the
Company's common stock at an exercise price of $2.00 per share.
Through July 31, 2005, the Company had received $722,445 of net
proceeds from the issuance of the units, representing 657,064 shares
of common stock and 657,064 two-year warrants to purchase common stock
at $2.00 per share. Of these amounts, during the three months ended
July 31, 2005, the Company received $635,793 of net proceeds from the
issuance of the units, representing 578,564 shares of common stock and
578,564 two-year warrants to purchase common stock at $2.00 per share.
The shares have not been issued and have been recorded as issuable in
the accompanying Financial Statements as of July 31, 2005.
From August 1, 2005 through August 31, 2005, the Company received
an additional $185,423 of net proceeds from the private placement of
units that it initiated in April 2005, representing approximately
168,636 shares of common stock and 168,636 two-year warrants to
purchase common stock at $2.00 per share. The shares and warrants are
to be issued upon closing of the private offering. As a result, at
August 31, 2005 the Company has received $907,867 of net proceeds from
the private placement and has 825,700 of shares issuable and 825,700
of two-year warrants to purchase common stock at $2.00 per share.
In May 2005, Harrysen Mittler resigned as Chief Financial Officer
and a director. In connection with his resignation, and effective May
31, 2005, Robert Hunziker was appointed Chief Financial Officer and a
director.
-26-
In June 2005, the Company filed Form S-8 with the SEC for the
registration of 250,000 shares of the Company's $0.001 par value
common stock at an issuance price of $1.00 per share. In July 2005,
125,000 of these shares were issued to William Bosso as compensation
for services as Chief Executive Officer of the Company and 125,000
shares were issued to Matthew Henninger for services as President of
the Company. In August 2005, it was determined that these shares may
not have been validly granted, because, under certain circumstances, a
BDC may not issue stock for services, such issuances have been
voluntarily rescinded.
In June 2005, the Company filed Form 1-E with the SEC of the
Company's intent to offer up to 600,000 shares of its $0.001 par value
common stock at $0.25 per share to holders of the Company's promissory
notes in exchange therefor. As of the date of this filing, no shares
have been issued under the 1-E in exchange for the promissory notes.
In July 2005, the Company announced the execution of a definitive
Share Exchange Agreement by and between the Company, Holley
Communications, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company ("Investment Sub"), and Holley
Communications Canada, Inc., a Canadian Corporation ("Holley Canada").
Pursuant to the Share Exchange Agreement and subject to certain
closing conditions, Investment Sub will issue 28,500,000 shares of its
common stock, equivalent to 95% of its then-issued and outstanding
common stock, to Holley Canada. In exchange, Holley Canada will
transfer and assign all of Holley Canada's equity interest in Holley
Communications Investment, Inc., a British Virgin Islands company, to
Investment Sub. The current expectation is that following completion
of transactions contemplated in the Share Exchange Agreement, the
Company will register and distribute as a special dividend to the
stockholders of the Company, substantially all the Company's shares in
Investment Sub.
In January 2005, we filed an election to become subject to
Sections 55 through 65 of the Investment Company Act of 1940, such
that we could commence conducting our business activities as a BDC.
In June 2005, we determined to commence an offering of shares of our
common stock as a BDC in accordance with the exemption from the
registration requirements of the Securities Act of 1933 as provided by
Regulation E. In connection with that prospective offer, we filed a
Form 1-E with the SEC, which was reviewed in the ordinary course and a
comment letter was issued. As a result, we currently understand that
we may be out of compliance with certain of the rules and regulations
governing the business and affairs, financial status, and financial
reporting items required of BDCs. We are making every effort to
comply as soon as is practicable with the relevant sections of the
1940 Act and are working with our counsel to accomplish that
compliance. We have not yet sold or issued any shares under our
proposed offering and, until the completion of this process; we have
voluntarily suspended the proposed offering. While we are seeking to
comply with the 1940 Act, we cannot provide any specific time frame
for full compliance. We cannot predict with certainty what, if any,
regulatory or financial consequences may result from the foregoing.
The above matter may result in certain contingent liabilities to
the Company as a result of potential actions by the SEC or others
against the Company. Management as of the date of this Report could
not estimate such contingent liabilities.
-27-
The Company granted and issued common stock for consulting
services both before and after its election as a BDC on January 4,
2005, which may have violated certain sections of the 1940 Act.
Management is taking action to remedy such potential violations
including termination of certain consulting agreements and the attempt
to reacquire and cancel such shares issued pursuant to the agreement.
As the result of such action, the Company may incur liabilities to the
consultants which management could not estimate as of the date of this
report.
The outcome of the above matters could have a significant impact
on our ability to continue as a going concern.
-28-
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations.
Overview
The following discussion 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-Q.
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-Q, as well as the discussion hereunder.
Effective August 2, 2004, Nortia Capital Partners, Inc. (f/k/a
BF Acquisition Group I, Inc.) ("Nortia", the "Company", "we", "us", and
"our") changed its name from BF Acquisition Group I, Inc. to Nortia
Capital Partners, Inc.
Our Company was initially organized as a "shell" company, with
plans to seek business partners or acquisition candidates; however,
due to capital constraints, 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 brought in
present management, raised additional capital, and initiated
activities to re-establish our business.
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, we filed all
required reports. 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.
During our fiscal quarterly period ending July 31, 2003, we re-
entered the development stage. At that time, present management raised
capital and commenced preparations to file an election to be treated
as a "Business Development Company" ("BDC") with the Securities and
Exchange Commission whereby we will be regulated pursuant to the
requirements of the Investment Company Act of 1940.
On January 4, 2005, we filed a Form N-54A with the Securities
and Exchange Commission to become a BDC pursuant to Section 54 of the
Investment Company Act of 1940. As a result of its new status, we
will now operate as an investment company and plan to provide capital
and advisory services for management buyouts, recapitalizations, and
the growth and capital needs of emerging growth companies. As a BDC,
we expect to derive our revenues through direct investments in private
companies, start-up companies,
-29-
and through the opportunities provided by turnaround companies.
Additionally, we will provide fee based business expertise through in-
house consultants and contract consultants.
As a BDC, we will be structured in a manner more consistent with
our current business strategy. As a result, we believe we are
positioned to raise capital in a more efficient manner and to develop
and expand our business interests. Our investment objective is to
generate both capital appreciation and current income from our
investments.
BDC regulation was created in 1980 by Congress to encourage the
flow of public equity capital to small businesses in the United
States. BDCs, like all mutual funds and closed-end funds, are
regulated by the Investment Company Act of 1940. BDCs report to
stockholders like traditional operating companies and file regular
quarterly and annual reports with the Securities and Exchange
Commission. BDC's are required to make available significant
managerial assistance to their portfolio companies.
The results of operations for 2005 are divided into two periods.
The eight-month period, representing the period May 1, 2004 through
December 31, 2004, reflects the Company's results prior to operating
as a BDC. The one-month period from January 1, 2005 through January
31, 2005, reflects our results as a BDC. Accounting principles used
in the preparation of the financial statements beginning January 1,
2005 are different from those of prior periods and, therefore, the
financial position and results of operations of this period is not
directly comparable. The primary differences in accounting principles
related to the carrying value of investments and accounting for income
taxes. See Notes to the financial statements included elsewhere in
this Form 10-Q.
As reflected in the accompanying financial statements, the
Company has a net loss of $160,205 and net cash used in operations of
$91,883 for the one month ended January 31, 2005 as a BDC, a net loss
of $902,119 and net cash used in operations of $247,805 for the eight
months ended December 31, 2004 prior to election as a BDC.
Additionally, the Company has a working capital deficiency of
$717,993, a stockholders' deficiency of $717,993, an accumulated
deficit of $12,398, and a deficit accumulated during the development
stage of $1,225,788 at January 31, 2005. Additionally, at January 31,
2005, the Company was in payment default under certain debentures that
it had issued.
The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its business
plan as a BDC, 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 as a BDC through direct
investments in private companies, start-up companies, and through the
opportunities provided by turnaround companies. Additionally, we will
provide fee based business expertise through in-house consultants and
contract consultants.
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 our
control, including the state of the capital markets and the prospects
for our business. The necessary additional financing may not be
-30-
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 nine months
ended January 31, 2005, we have received another $247,000 of proceeds
from the issuance of Debentures. We obtained $161,000 of proceeds
from the issuance of Promissory Notes for the three months ended
January 31, 2005. 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.
Overview of the Company
We are a business development company engaged in making
investments in operating companies that desire to go public or engage
in a liquidity event but that otherwise lack the institutional
infrastructure, capital resources, or management expertise necessary
to accomplish such liquidity events. For many companies, going public
or engaging in a liquidity event is a challenging process. We have
developed investment and due diligence processes that we believe will
allow us to identify companies that possess the qualities and
characteristics necessary to undertake such liquidity events
successfully.
Since our inception, we have suffered losses from operations,
have been dependent on existing stockholders and new investors to
provide the cash resources to sustain our operations and are a
development stage company with minimal revenues.
Our long-term viability as a going concern is dependent on
certain key factors, as follows:
* The ability to continue to obtain sources of outside financing to
support near term operations and to allow us to continue to make
investments.
* The ability to increase profitability and sustain a cash flow
level that will ensure support for continuing operations.
Recent Developments
On February 17, 2005, the Company announced that its Board of
Directors had approved a two-for-one stock split of its common shares.
The record date for the split is February 28, 2005 and the pay date is
March 3, 2005. In accordance with SFAS 128, the Company has
-31-
retroactively presented the effect of the stock split for all periods
presented in the accompanying Financial Statements for all share and
per share data.
At January 31, 2005, we had $504,000 of ten percent (10%)
debentures outstanding. Utilizing an effective date of April 15,
2005, the entire $504,000 was converted into the Company's $0.001 par
value common stock at a conversion rate of $0.25 per share.
Additionally, a bonus equal to twenty percent (20%) of the debenture
principal conversion shares was granted in lieu of accrued interest
and penalties. As of January 31, 2005, $228,000 of the Debentures
were in default as the term was for one (1) year and the debenture
provisions included a penalty of five percent (5%) for any default
that occurs. As a result of the debenture conversion, we have
recorded 2,427,200 shares of our common stock as issuable at April 30,
2005 and recorded a loss on conversion of debt in the amount of
$2,104,285 in the accompanying Statement of Operations. The loss on
conversion of debt was calculated utilizing a $1.10 per share fair
market value for our common stock, obtained from a recent private
placement offering.
From November 2004 through February of 2005, we received $188,000
of proceeds from the issuance of promissory notes to several parties.
The promissory note terms are interest at ten percent per annum,
payable in 90 days from the date of the promissory notes. Utilizing
an effective date of April 15, 2005, the entire $188,000 was converted
into the Company's $0.001 par value common stock at a conversion rate
of $0.25 per share. No conversion of accrued interest was offered in
the conversion documents. As a result of the promissory note
conversion, we have recorded 752,000 shares of our common stock as
issuable at April 30, 2005 and recorded a loss on conversion of debt
in the amount of $634,273 in the accompanying Statement of Operations.
The loss on conversion of debt was calculated utilizing a $1.10 per
share fair market value for our common stock, obtained from a recent
private placement offering.
In April 2005, the Company initiated a private offering for the
issuance of up to 1,000,000 units at an offering price of $1.10 per
share. Each unit consist of one share of the Company's $0.001 par
value common stock and one two-year warrant to purchase the Company's
common stock at an exercise price of $2.00 per share. Through July
31, 2005, the Company had received $722,445 of net proceeds from the
issuance of the units, representing 657,064 shares of common stock and
657,064 two-year warrants to purchase common stock at $2.00 per share.
Of these amounts, during the three months ended July 31, 2005, the
Company received $635,793 of net proceeds from the issuance of the
units, representing 578,564 shares of common stock and 578,564 two-
year warrants to purchase common stock at $2.00 per share. The shares
have not been issued and have been recorded as issuable in the
Company's Financial Statements as of July 31, 2005.
From August 1, 2005 through August 31, 2005, the Company received
an additional $185,423 of net proceeds from the private placement of
units that it initiated in April 2005, representing approximately
168,636 shares of common stock and 168,636 two-year warrants to
purchase common stock at $2.00 per share. The shares and warrants are
to be issued upon closing of the private offering. As a result, at
August 31, 2005 the Company has received $907,867 of net proceeds from
the private placement and has 825,700 of shares issuable and 825,700
of two-year warrants to purchase common stock at $2.00 per share.
In May 2005, Harrysen Mittler resigned as Chief Financial Officer
and a director. In connection with his resignation, and effective May
31, 2005, Robert Hunziker was appointed Chief Financial Officer and a
director.
-32-
In June 2005, the Company filed a Registration Statement on Form
S-8 with the SEC for the registration of 250,000 shares of the
Company's $0.001 par value common stock at an issuance price of $1.00
per share. In July 2005, 125,000 of these shares were issued to
William Bosso as compensation for services as Chief Executive Officer
of the Company and 125,000 shares were issued to Matthew Henninger for
services as President of the Company. In August 2005, it was
determined that these shares may not have been validly granted,
because, under certain circumstances, a BDC may not issue stock for
services, such issuances have been voluntarily rescinded.
In June 2005, the Company filed a Notice on Form 1-E with the SEC
of the Company's intent to offer up to 600,000 shares of its $0.001
par value common stock at $0.25 per share to holders of the Company's
promissory notes in exchange therefor. As of the date of this filing,
no shares have been issued under the 1-E in exchange for the
promissory notes.
In July 2005, the Company announced the execution of a definitive
Share Exchange Agreement by and between the Company, Holley
Communications, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company ("Acquisition Sub"), and Holley
Communications Canada, Inc., a Canadian Corporation ("Holley Canada").
Pursuant to the Share Exchange Agreement and subject to certain
closing conditions, Acquisition Sub will issue 28,500,000 shares of
its common stock, equivalent to 95% of its then-issued and outstanding
common stock, to Holley Canada. In exchange, Holley Canada will
transfer and assign all of Holley Canada's equity interest in Holley
Communications Investment, Inc., a British Virgin Islands company, to
Acquisition Sub. In accordance with the Company's status as a BDC,
the current expectation is that following completion of transactions
contemplated in the Share Exchange Agreement, the Company will
register and distribute as a special dividend to the stockholders of
the Company, substantially all the Company's shares in Acquisition
Sub.
In January 2005, we filed an election to become subject to
Sections 55 through 65 of the Investment Company Act of 1940, such
that we could commence conducting our business activities as a BDC.
In June 2005, we determined to commence an offering of shares of our
common stock as a BDC in accordance with the exemption from the
registration requirements of the Securities Act of 1933 as provided by
Regulation E. In connection with that prospective offer, we filed a
Form 1-E with the SEC, which was reviewed in the ordinary course and a
comment letter was issued. As a result, we currently understand that
we may be out of compliance with certain of the rules and regulations
governing the business and affairs, financial status, and financial
reporting items required of BDCs. We are making every effort to
comply as soon as is practicable with the relevant sections of the
1940 Act and are working with our counsel and with the SEC staff to
accomplish that compliance. We have not yet sold or issued any shares
under our proposed offering and, until the completion of this process;
we have voluntarily suspended the proposed offering. While we are
seeking to comply with the 1940 Act, we cannot provide any specific
time frame for full compliance. We cannot predict with certainty
what, if any, regulatory consequences may result from the foregoing.
The above matter may result in certain contingent liabilities to
the Company as a result of potential actions by the SEC or others
against the Company. Such contingent liabilities could not be
estimated by management as of the date of this report.
The Company granted and issued common stock for consulting
services both before and after its election as a BDC on January 4,
2005, which may have violated certain sections of the 1940 Act.
Management is taking action to remedy such potential violations
-33-
including termination of certain consulting agreements and the attempt
to reacquire and cancel such shares issued pursuant to the agreement.
As the result of such action, the Company may incur liabilities to the
consultants which management could not estimate as of the date of this
report.
The outcome of the above matters could have a significant impact
on our ability to continue as a going concern.
Going Concern
As reflected in the accompanying financial statements, the
Company has a net loss of $160,205 and net cash used in operations of
$91,883 for the one month ended January 31, 2005 as a BDC, a net loss
of $902,119 and net cash used in operations of $247,805 for the eight
months ended December 31, 2004 prior to election as a BDC.
Additionally, the Company has a working capital deficiency of
$717,993, a stockholders' deficiency of $717,993, an accumulated
deficit of $12,398 and a deficit accumulated during the development
stage of $1,225,788 at January 31, 2005. Additionally, at January 31,
2005, the Company was in payment default under certain of its
Debentures. These items respectively, 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.
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 SEC 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 of a beneficial conversion feature for debentures, valuation
of the fair value of financial instruments, valuation of common stock
for services, the valuation of our investments and the valuation
allowance for deferred tax assets. 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 2 "Summary of
Significant Accounting Policies" in the notes to our financial
statements contained in our quarterly report on Form 10-Q for the
period ended January 31, 2005. 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.
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
-34-
value of the beneficial feature is considered an estimate due to the
partially subjective nature of valuation techniques.
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 receivable,
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 April 30, 2005.
Valuation of Common Stock Issued For Services
The Company issued common stock to several parties during the
year ended April 30, 2004. For all of these issuances, valuation was
determined based upon the stock closing price on the date of grant.
Valuation of Investments
As a BDC, for financial statement purposes, investments are recorded
at their fair value. Currently, readily determinable fair values do not
exist for our investments and the fair value of these investments is
determined in good faith by the Company's Board of Directors pursuant
to a valuation policy and consistent valuation process. Due to the
inherent uncertainty of these valuations, the estimates may differ
significantly from the values that would have been used had a ready
market for the investments existed and the differences may be material.
Our valuation methodology includes the examination of, among other things,
the underlying portfolio company performance, financial condition and
market changing events that impact valuation.
Realized gains (losses) from the sale of investments and
unrealized gains (losses) from the valuation of investments are
reflected in operations during the period incurred
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.
-35-
Results of Operations
Financial Analysis of the Three Months Ended January 31, 2005 and 2004
- ----------------------------------------------------------------------
Post Election Pre Election Pre Election
as a Business as a Business as a Business
Development Development Development
Company Company Company
------------- ------------- ------------- -------------
One Two Total Three Three
Month Ended Months Ended Months Ended Months Ended
Jan. 31, Dec. 31, Jan. 31 Jan. 31,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Revenues $ - $ - $ - $ 60,000
Operating Expenses:
General and administrative 35,996 39,299 75,295 23,817
Rent 3,884 7,516 11,400 -
Consulting 7,490 66,427 73,917 -
Compensation 30,385 198,765 229,150 -
Debenture penalty 9,225 - 9,225 -
Interest expense 12,615 - 12,615 4,271
Directors fees - 224,100 224,100 -
Impairment of investments 45,331 - 45,331 -
Professional 15,283 26,253 41,537 10,000
Loss on sale of available-
for-sale securities - - - -
Total Operating Expenses 160,210 562,360 709,955 38,088
Income (Loss) from Operations (160,210) (562,360) (709,955) 21,912
Other Income (Expense):
Other than temporary loss on
for sale securities - - - -
Other income 4 36 40 -
Interest income - (35) (35) -
------------- ------------- ------------- -------------
Total Other Expense 4 1 5 -
------------- ------------- ------------- -------------
Net (Loss) Before
Income Taxes $ (160,205) $ (562,359) $ (722,564) $ 21,912
============= ============= ============= =============
Income tax expense - - - -
------------- ------------- ------------- -------------
Net loss $ (160,205) $ (562,359) $ (722,564) $ 21,912
============= ============= ============= =============
-36-
Note: To help the reader better understand our 2005 results, all
- -----------------------------------------------------------------
references below to 2005 represent the three months ended January 31,
- ---------------------------------------------------------------------
2005, which is a combination of the one month ended January 31, 2005
- --------------------------------------------------------------------
(operations as a BDC) and the two months ended December 31, 2004
- ----------------------------------------------------------------
(operations prior to becoming a BDC), and is shown as a total for the
- ---------------------------------------------------------------------
three months ended January 31, 2005 above. All references to 2004
- ------------------------------------------------------------------
represent the three months ended January 31, 2004 as operations prior
- ---------------------------------------------------------------------
to becoming a BDC.
- -----------------
Three Months Ended January 31, 2005
- -----------------------------------
Revenues:
- --------
Revenues decreased $60,000, or 100% to zero for the three months
ended January 31, 2005 from $60,000 for the three months ended January
31, 2004. The decrease in revenue was due to a consulting contract
with a publicly held company where we were providing consulting
services and the contract was completed in 2004.
Operating Expenses:
- ------------------
Operating expenses increased $630,807, or 1,865% to $664,624 for
the three months ended January 31, 2005 from $33,817 for the three
months ended January 31, 2004. The increase was primarily the result
of the Company gearing up in 2005 to implement its business strategy
as compared to 2004, a $229,150 increase in compensation, a $224,100
increase in director's fees and a $73,917 increase in consulting. The
increase in compensation, director's fees and consulting was primarily
from the issuance of common stock for services.
Other Income (Expense):
- ----------------------
Other expense increased $53,669, or 1,257% to $57,940 of expense
for the three months ended January 31, 2005 from $4,271 of expense for
the three months ended January 31, 2004. The increase is primarily
from a $45,331 increase in impairment of investments and an $8,344
increase in interest expense on debentures and promissory notes.
-37-
Financial Analysis of the Nine Months Ended January 31, 2005 and 2004
- ---------------------------------------------------------------------
Post Election Pre Election Pre Election
as a Business as a Business as a Business
Development Development Development
Company Company Company
------------- ------------- -------------
One Eight Total Nine Nine
Month Ended Months Ended Months Ended Months Ended
Jan. 31, Dec. 31, Jan. 31 Jan. 31,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Revenues $ - $ 153,699 $ 153,699 $ 86,301
Operating Expenses:
General and administrative 35,996 94,223 130,219 62,810
Rent 3,884 23,072 26,956 -
Consulting 7,490 82,342 89,832 -
Compensation 30,385 245,465 275,850 -
Debenture penalty 9,225 2,175 11,400 -
Interest expense 12,615 15,054 27,669 5,336
Directors fees - 225,150 225,150 -
Impairment of investments 45,331 3,250 48,581 -
Professional 15,284 109,892 125,176 20,000
------------- ------------- ------------- -------------
Total Operating Expenses 160,210 800,623 960,833 88,147
------------- ------------- ------------- -------------
Income (Loss) from Operations (160,210) (646,924) (807,134) (1,846)
Other Income (Expense)
Loss on sale of available
for sale securities - (64,738) - -
Other than temporary loss
on for sale securities - (195,000) (195,000) -
Other income 4 4,536 4,540 -
Interest income - 8 8 -
------------- ------------- ------------- -------------
Total Other Expense 4 (255,194) (255,190) -
------------- ------------- ------------- -------------
Net Loss Before
Income Taxes $ (160,205) $ (902,119) $ (1,062,324) $ (1,846)
============= ============= ============= =============
Income tax expense - - - -
------------- ------------- ------------- -------------
Net loss $ (160,205) $ (902,119) $ (1,062,324) $ (1,846)
============= ============= ============= =============
-38-
Note: To help the reader better understand our 2005 results, all
- -----------------------------------------------------------------
references below to 2005 represent the nine months ended January 31,
- --------------------------------------------------------------------
2005, which is a combination of the one month ended January 31, 2005
- --------------------------------------------------------------------
(operations as a BDC) and the eight months ended December 31, 2004
- -------------------------------------------------------------------
(operations prior to becoming a BDC), and is shown as a total for the
- ---------------------------------------------------------------------
nine months ended January 31, 2005 above. All references to 2004
- -----------------------------------------------------------------
represent the nine months ended January 31, 2004 as operations prior
- --------------------------------------------------------------------
to becoming a BDC.
- -----------------
Nine Months Ended January 31, 2005
- ----------------------------------
Revenues:
- --------
Revenues increased $67,398, or 78% to $153,699 for the nine
months ended January 31, 2005 from $86,301 for the nine months ended
January 31, 2004. The increase in revenue was due to a consulting
contract with a publicly held company where we were providing
consulting services and the difference represents earned revenue from
the contract for the entire nine month period versus only four months
in 2004.
Operating Expenses:
- ------------------
Operating expenses increased $801,773, or 968% to $884,584 for
the nine months ended January 31, 2005 from $82,810 for the nine
months ended January 31, 2004. The increase was primarily the result
of the Company gearing up in 2005 to implement its business strategy
as compared to 2004, a $275,850 increase in compensation, a $225,150
increase in director's fees and an $89,832 increase in consulting. The
increase in compensation, director's fees and consulting was primarily
from the issuance of common stock for services.
Other Expense:
- -------------
Other expense increased $326,102, or 6,111% to $331,439 for the
nine months ended January 31, 2005 from $5,337 for the nine months
ended January 31, 2004. The increase is primarily from a $64,738 loss
on the sale of available for sale securities, a $195,000 other than
temporary loss on investments and a $48,581 impairment of investments,
offset by a $22,333 increase in interest expense on debentures and
promissory notes.
Liquidity and Capital Resources
Cash was $91,481 at January 31, 2005 as compared to $8,764 at
April 30, 2004, and working capital deficit was $717,993 at January
31, 2005 as compared to a working capital deficit of $183,720 at April
30, 2004. The increase in the working capital deficit at January 31,
2005 was primarily the result of a $254,000 increase in Debentures, a
$161,000 increase in promissory notes, an $84,329 increase in accrued
expenses and a $63,331 increase in accounts payable.
Operating Activities: Net cash used in operating activities was
- --------------------
$339,688 for the nine months ended January 31, 2005 compared to
$74,451 for the nine months ended January 31, 2004. The increase in
cash used in operations resulted primarily due to the fact of a
$1,053,979 increase in the operating loss and a $67,397 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,
$48,581 impairment of investments, $195,000 other than temporary loss
on available-for-sale investments, $196,000 for common stock issued
-39-
for compensation, $225,150 for common stock issued for directors fees,
and $58,917 of amortization on deferred consulting.
Investing Activities: Cash flows provided by investing activities
- --------------------
were $14,405 for the nine months ended January 31, 2005 as compared to
zero at January 31, 2004. The increase was due to proceeds received
from the sale of available for sale securities.
Financing Activities: Cash flows from financing activities were
- --------------------
$408,000 for the nine months ended January 31, 2005 as compared to
$147,000 of cash flows provided by financing activities during the
nine months ended January 31, 2004. The increase was due to
additional cash proceeds received by the Company from the issuance of
debentures and promissory notes in 2005 as compared to 2004.
Borrowings
Our debt outstanding at January 31, 2005 consisted of the following:
Debentures:
- ----------
$504,000 Debentures, dated May 2003 through January 2005,
bearing interest at 10% per annum and due in 12 months $ 504,000
==========
From May 2003 through January 2005, we received $417,000 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 common stock in Global.
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 January 31, 2005, we had $504,000 of debentures outstanding.
As of January 31, 2005, $228,000 of the Debentures discussed
previously were in payment default as the term was for one year. The
debenture provisions include a penalty of five percent for any default
that occurs and we have accrued $11,400 as a debenture penalty in the
accompanying Financial Statements as of January 31, 2005. As of March
3, 2005, $250,000 of the Debentures were in default and the 5% penalty
-40-
amount would be $12,500. The Company is in discussions with the
debenture holders concerning the default.
From November 2004 through January of 2005, we have received
$161,000 of cash proceeds from the issuance of promissory notes to
several parties. The promissory note terms are interest at ten
percent per annum, payable in 90 days from the date of the promissory
notes.
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, or that 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 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 for the nine months
ended January 31, 2005, we have received another $247,000 of proceeds
from the issuance of Debentures. We obtained $161,000 of proceeds
from the issuance of Promissory Notes for the three months ended
January 31, 2005. 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.
-41-
Contractual Obligations and Commercial Commitments
The following table highlights, as of January 31, 2005, our
contractual obligations and commitments by type and period:
Payments Due by Period
----------------------
Less than After
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
- ----------------------- ----- --------- --------- --------- -------
Promissory Notes $ 161,000 $ 161,000 $ - $ - $ -
Debentures 504,000 504,000 - - -
--------- --------- --------- --------- --------
Total Debt $ 665,000 $ 665,000 $ - $ - $ -
========= ========= ========= ========= ========
As of January 31, 2005, $228,000 of the Debentures discussed
previously were in payment default as the term was for one year. The
debenture provisions include a penalty of five percent for any default
that occurs and we have accrued $11,400 as a debenture penalty in the
accompanying Financial Statements as of January 31, 2005. As of March
3, 2005, $250,000 of the Debentures were in payment default and the
five percent penalty amount would be $12,500. 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.
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.
-42-
Risk Factors
An investment in our common stock is highly speculative, involves
a high degree of risk, and should be considered only by those persons
who are able to bear the economic risk of their investment for an
indefinite period. In addition to other information in this Quarterly
Report on Form 10-Q, the following specific risks, not listed in any
particular order of priority, should be considered carefully in
evaluating the Company, its business, and its common stock.
We are highly dependent upon management, none of whom has
---------------------------------------------------------
significant experience in managing a BDC. The Company's future
- ----------------------------------------
success depends on the continued contribution of key management, some
of whom would be difficult to replace. The Company's growth and
profitability depend on its ability to attract and retain skilled
employees and on the ability of its officers and key personnel to
manage the assets successfully and to provide management assistance to
the Company's investee companies. If the services of these
individuals would be unavailable to the Company for any reason, the
Company would be required to obtain other executive personnel to
manage and operate the Company and to provide management assistance to
the Company's investee companies. In such event, there can be no
assurance that the Company would be able to employ qualified persons
on terms favorable to the Company. Further, although certain of our
directors or executive officers have experience in corporate finance
and mergers and acquisitions transactions, none of them has any
significant operational BDC experience.
This is a highly speculative investment. Ownership of our common
---------------------------------------
stock is extremely speculative and involves a high degree of economic
risk, which may result in a complete loss of investment. Only persons
who have no need for liquidity and who are able to withstand a loss of
all or substantially all of their investment should purchase our
common stock.
Risk involved in new, developing businesses in which the Company
----------------------------------------------------------------
will invest. The Company's initial investment portfolio is expected
- -----------
to consist primarily of high-risk investments in new and developing
companies. Successful achievement of the investment objectives of the
Company is dependent upon the growth in value of the securities of
these unseasoned companies. Whether this appreciation in value will
occur depends upon numerous factors outside the control of the
Company. The Company anticipates that it may take significant
investment positions in companies that are listed or to be listed on
US Equity Markets, and the OTC Bulletin Board. Moreover, the
Company's task of identifying and helping to build successful new and
emerging enterprises is difficult. In light of the Company's lack of
operating history as a BDC, the likelihood of the future success of
the Company must be evaluated in light of the problems, expenses,
difficulties, risks, and complications frequently encountered in
connection with similarly situated companies. There can be no
assurance that the Company will be successful in identifying and
developing these ventures.
Current management controls our outstanding Common Stock. Our
--------------------------------------------------------
officers and directors own in excess of approximately 48% of the
issued and outstanding Common Stock. It can be expected that the
officers and directors, by virtue of their percentage share ownership,
will be able to continue to control the Company's Board of Directors
and its policies.
You may be diluted if we issue additional Common Stock. From
------------------------------------------------------
time to time, the Company may issue additional equity securities.
There can be no assurance that the pricing of any such additional
securities will not be lower than the price at which you purchased
your securities in the open market.
-43-
If we qualify for and elect to be treated as an RIC, we will lose
-----------------------------------------------------------------
substantially all of the benefits of our net operating loss carry-
- ------------------------------------------------------------------
forwards. We currently intend to qualify for and elect to be treated
- --------
as an RIC under Subchapter M of the Code. To qualify, we must meet
certain source of income, distribution, and asset diversification
requirements. In any year in which we so qualify, we generally will
not be subject to federal income tax on income and capital gains
distributed (or deemed distributed to our stockholders. Upon such
election and qualification, however, we will lose the tax benefit of
our net operating loss carry-forwards (except for use against
recognition of built-in gains, as described below). Such loss of
NOL's could have an adverse effect on our financial condition.
If we qualify for and elect to be treated as an RIC, but do not
---------------------------------------------------------------
distribute substantially all of our capital gain net income or
- --------------------------------------------------------------
ordinary income, we will be subject to additional taxes. In addition,
- -------------------------------------------------------
if we did not distribute in a timely manner (or treat as deemed
distributed) 98% of our capital gain net income for each one-year
period ending on October 31, or distribute 98% of our ordinary income
for each calendar year (as well as any income not distributed in prior
years), we will be subject to the 4% nondeductible federal excise tax
on certain undistributed income of RICs. Even if we qualify as an
RIC, we generally will be subject to a corporate-level income tax on
the income we do not distribute. In addition, we will be subject to
corporate-level tax on the amount of any net built-in gains in our
assets (determined as of the first day of our first taxable year as a
RIC) we recognize within ten years of the effective date of our RIC
election (offset by any available net operating loss carry-forwards).
We may have difficulty satisfying the RIC income requirements.
-------------------------------------------------------------
Among the RIC requirements is the requirement that an RIC derive at
least 90% of its gross income from dividends, interest, gains from the
sale of securities and other specified types of income. In order to
comply with this requirement, we will need to ensure each year that we
do not receive an excessive amount of income that falls outside of
these permissible categories (e.g., fee or service income). That
restriction may adversely affect our business plan or limit our
ability to undertake certain transactions or business arrangements.
Management has discretionary use of Company assets. We are not
--------------------------------------------------
currently engaged in any substantive business activities other than
activities that relate to our first project (the July 2005 agreement
to acquire a minority equity interest in Holley Communications
Investment, Inc.). We continue to look for and investigate other
business opportunities that are consistent with our business plan.
Accordingly, management has broad discretion with respect to the
investments. Although management intends to apply any proceeds it may
receive through the future issuance of stock or debt to a suitable
acquired business, it will have broad discretion in allocating these
funds. There can be no assurance that the management's use or
allocation of such proceeds will allow it to achieve its business
objectives.
We expect that each of our investments initially will be
--------------------------------------------------------
illiquid. We expect that we will generally acquire our investments
- --------
directly from the issuer in privately negotiated transactions. We
expect that the majority of the investments in our portfolio will
typically have no established trading market pending the filing of a
registration statement for certain of the securities of such
investment. We expect that we will exit much of each of our
investments when the portfolio company has a liquidity event, such as
a public offering of the portfolio company. The illiquidity of our
investments may adversely affect our ability, and the ability of our
stockholders, to dispose of equity securities of our portfolio
companies at times when it may be otherwise advantageous for us or our
stockholders to liquidate such securities. In addition, if we, or our
stockholders, were forced to liquidate some or all of the investments
-44-
immediately, the proceeds of such liquidations could be significantly
less than otherwise.
Economic recessions or downturns could impair our
-------------------------------------------------
portfolio companies and harm our operating results. Many of the
- --------------------------------------------------
companies in which we make investments may be susceptible to
economic slowdowns or recessions. An economic slowdown may affect the
ability of a company to engage in a meaningful liquidity event, such
as a public offering. The value of our portfolio is likely to
decrease during these periods. These conditions could lead to
financial losses in our portfolio and a decrease in our revenues, net
income, and assets.
We may not borrow money unless we maintain asset coverage for
-------------------------------------------------------------
indebtedness of at least 200%, which may affect returns to
- ----------------------------------------------------------
stockholders. We must maintain asset coverage for total borrowings of
- ------------
at least 200%. Our ability to achieve our investment objective may
depend in part on our continued ability to maintain a leveraged
capital structure by borrowing funds from various sources on favorable
terms. There can be no assurance that we will not borrow funds in an
amount, which, when compared to the aggregate value of our assets,
will permit us to maintain such leverage. The Company may not be in
compliance with the 1940 Act asset coverage requirements for a BDC.
If we do not maintain such minimum 200% asset coverage ratio and our
asset coverage declines to less than 200%, we may be required to sell
a portion of our investments when it is disadvantageous to do so.
We operate in a competitive market for investment opportunities.
---------------------------------------------------------------
We compete for investments with a large number of private equity funds
and mezzanine funds, other business development companies, investment
banks, other equity and non-equity based investment funds, and other
sources of financing, including specialty finance companies and
traditional financial services companies such as commercial banks.
Some of our competitors may have greater resources than we do.
Increased competition would make it more difficult for us to purchase
or originate investments at attractive prices. As a result of this
competition, sometimes we may be precluded from making otherwise
attractive investments.
Changes in the law or regulations that govern us could have a
-------------------------------------------------------------
material impact on us or our operations. We are regulated by the SEC
- ---------------------------------------
and other federal and state regulatory agencies. In addition, changes
in the laws or regulations that govern business development companies
and regulated investment companies may significantly affect our
business. Any change in the law or regulations that govern our
business could have a material impact on us or our operations. Laws
and regulations may be changed from time to time, and the
interpretations of the relevant laws and regulations also are subject
to change, which may have a material effect on our operations.
Our ability to invest in private companies may be limited in
------------------------------------------------------------
certain circumstances. If we are to maintain our status as a business
- ---------------------
development company, we must not acquire any assets other than
"qualifying assets" unless, at the time of and after giving effect to
such acquisition, at least 70% of our total assets are qualifying
assets. If we acquire debt or equity securities from an issuer that
has outstanding marginable securities at the time we make an
investment, these acquired assets cannot be treated as qualifying
assets. This result is dictated by the definition of "eligible
portfolio company" under the 1940 Act, which in part looks to whether
a company has outstanding marginable securities.
Amendments promulgated in 1998 by the Federal Reserve expanded
the definition of a marginable security under the Federal Reserve's
margin rules to include any non-equity security. Thus, any debt
securities issued by any entity are marginable securities under the
Federal Reserve's current margin rules. As a result, the staff of the
-45-
SEC has raised the question as to whether a private company that has
outstanding debt securities would qualify as an "eligible portfolio
company" under the 1940 Act.
Until the question raised by the staff of the SEC pertaining to
the Federal Reserve's 1998 change to its margin rules has been
addressed by legislative, administrative or judicial action, we intend
to treat as qualifying assets only those debt and equity securities
that are issued by a private company that has no marginable securities
outstanding at the time we purchase such securities or those that
otherwise qualify as an "eligible portfolio company" under the
1940 Act.
The SEC issued in November 2004 proposed rules to correct
the unintended consequence of the Federal Reserve's 1998 margin
rule amendments of apparently limiting the investment opportunities
of business development companies. In general, the SEC's proposed
rules would define an eligible portfolio company as any company that
does not have securities listed on a national securities exchange or
association. We do not believe that these proposed rules, to the
extent such proposed rules are subsequently approved by the SEC,
will have a material adverse effect on our operations.
Results may fluctuate and may not be indicative of future
---------------------------------------------------------
performance. Our operating results may fluctuate and, therefore, you
- ------------
should not rely on current or historical period results to be
indicative of our performance in future reporting periods. Factors
that could cause operating results to fluctuate include, but are not
limited to, variations in the investment origination volume and fee
income earned, variation in timing of prepayments, variations in and
the timing of the recognition of net realized gains or losses and
changes in unrealized appreciation or depreciation, the degree to
which we encounter competition in our markets, and general economic
conditions.
Our common stock price may be volatile. The trading price of
---------------------------------------
our common stock may fluctuate substantially. The price of the common
stock may be higher or lower than the price you pay for your shares,
depending on many factors, some of which are beyond our control and
may not be directly related to our operating performance. These
factors include, but are not limited to, the following:
* price and volume fluctuations in the overall stock market from time
to time;
* significant volatility in the market price and trading volume of
securities of business development companies or other financial
services companies;
* volatility resulting from trading in derivative securities related
to our common stock including puts, calls, long-term equity
anticipation securities, or LEAPs, or short trading positions;
* changes in regulatory policies or tax guidelines with respect to
business development companies or regulated investment companies;
* actual or anticipated changes in our earnings or fluctuations in our
operating results or changes in the expectations of securities
analysts;
* general economic conditions and trends;
* loss of a major funding source; or
-46-
* departures of key personnel.
We have a limited operating history as a BDC which may affect
-------------------------------------------------------------
our ability to manage our business and may impair your ability
- --------------------------------------------------------------
to assess our prospects. We were incorporated in April 1999 but only
- ------------------------
commenced business and investment operations as a BDC in mid-January
2005. We are subject to all of the business risks and uncertainties
associated with any new business enterprise, including the risk that
we will not achieve our investment objective and that the value of
our common stock or other securities could decline substantially.
We have limited operating history as a BDC. As a result, we have
few operating results under these regulatory frameworks that can
demonstrate either their effect on the business or our ability to
manage the business within these frameworks. If we fail to maintain
our status as a BDC, our operating flexibility would be significantly
reduced.
If our investments do not meet our performance expectations, you
----------------------------------------------------------------
may not receive distributions. We intend to make distributions to our
- -----------------------------
stockholders following our election to be treated as a RIC under the
Code. We may not be able to achieve operating results that will allow
us to make distributions at a specific level or to increase the amount
of these distributions from time to time. In addition, due to the
asset coverage test applicable to us as a BDC, we may be limited in
our ability to make distributions. In addition, restrictions and
provisions in any future credit facilities may limit our ability to
make distributions. If we do not distribute a certain percentage of
our income annually, we will suffer adverse tax consequences,
including failure to obtain, or possible loss of, the federal income
tax benefits allowable to RICs. We cannot assure you that you will
receive distributions at a particular level or at all.
Because we intend to distribute substantially all of our income
---------------------------------------------------------------
to our stockholders upon our election to be treated as a RIC, we will
- ---------------------------------------------------------------------
continue to need additional capital to finance our growth. If
- --------------------------------------------------------------
additional funds are unavailable or not available on favorable terms,
- ---------------------------------------------------------------------
our ability to grow will be impaired. In order to satisfy the
- ------------------------------------
requirements applicable to a RIC, to avoid payment of excise taxes,
and to minimize or avoid payment of income taxes, we intend to
distribute to our stockholders substantially all of our ordinary
income and realized net capital gains except for certain net long-term
capital gains recognized after we become a RIC, which we intend to
retain, pay applicable income taxes with respect thereto, and elect to
treat as deemed distributions to our stockholders. As a BDC, we
generally are required to meet a coverage ratio of total assets to
total senior securities, which includes all of our borrowings and any
preferred stock that we may issue in the future, of at least 200%.
This requirement limits the amount that we may borrow. Because we
will continue to need capital to grow our investment portfolio, this
limitation may prevent us from incurring debt and require us to raise
additional equity at a time when it may be disadvantageous to do so.
While we expect to be able to borrow and to issue additional debt and
equity securities, we cannot assure you that debt and equity financing
will be available to us on favorable terms, or at all, and debt
financings may be restricted by the terms of any of our outstanding
borrowings. In addition, as a BDC, we generally are not permitted to
issue equity securities priced below net asset value without
stockholder approval. If additional funds are not available to us, we
could be forced to curtail or cease new lending and investment
activities, and our net asset value could decline.
If we fail to qualify as a RIC, then we will be subject
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to corporate-level income tax, which would adversely affect
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our results of operations and financial condition. If we fail to
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qualify for the federal income tax benefits allowable to RICs for any
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reason and remain or become subject to a corporate-level income tax,
the resulting taxes could substantially reduce our net assets, the
amount of income available for distribution to our stockholders, and
the actual amount of our distributions. Such a failure would have a
material adverse effect on us, the net asset value of our common
stock, and the total return, if any, obtainable from your investment
in our common stock.
Our business model depends to a significant extent upon strong
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referral relationships with venture capital, private equity fund
- ----------------------------------------------------------------
sponsors and other investment banking and financial institutions, and
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our inability to develop or maintain these relationships, or the
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failure of these relationships to generate investment opportunities,
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could adversely affect our business. We expect that members of our
- -----------------------------------
management team will maintain their relationships with venture
capital, private equity firms, and investment banking and financial
institutions, and we will rely to a significant extent upon these
relationships to provide us with our deal flow. If we fail to
maintain our existing relationships or to develop new relationships
with other firms or sources of investment opportunities, then we will
not be able to grow our investment portfolio. In addition, persons
with whom members of our management team have relationships are not
obligated to provide us with investment opportunities, and, therefore,
there is no assurance that such relationships will lead to the
origination of equity or debt investments.
Regulations governing our operations as a BDC affect our ability
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to and the manner in which we raise additional capital, which may
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expose us to risks. Our business will require a substantial amount of
- ------------------
capital. We may acquire additional capital from the issuance of
senior securities, including borrowings or other indebtedness, or the
issuance of additional shares of our common stock. However, we may
not be able to raise additional capital in the future on favorable
terms or at all. We may issue debt securities, other evidences of
indebtedness, or preferred stock, and we may borrow money from banks
or other financial institutions (collectively "senior securities") up
to the maximum amount permitted by the 1940 Act. The 1940 Act permits
us to issue senior securities in amounts such that our asset coverage,
as defined in the 1940 Act, equals at least 200% after each issuance
of senior securities. Our ability to pay dividends or issue
additional senior securities would be restricted if our asset coverage
ratio were not at least 200%. If the value of our assets declines, we
may be unable to satisfy this test. If that happens, we may be
required to liquidate a portion of our investments and repay a portion
of our indebtedness at a time when such sales may be disadvantageous.
As a result of issuing senior securities, we would also be exposed to
typical risks associated with leverage, including an increased risk of
loss. If we issue preferred stock, the stock would rank "senior" to
common stock in our capital structure, preferred stockholders would
have separate voting rights and might have rights, preferences, or
privileges more favorable than those of our common stockholders, and
the issuance of preferred stock could have the effect of delaying,
deferring, or preventing a transaction or a change of control that
might involve a premium price for holders of our common stock or
otherwise be in your best interest.
To the extent that we are constrained in our ability to issue
debt or other senior securities, we will depend on issuances of common
stock to finance operations. As a BDC, we are generally not able to
issue our common stock at a price below net asset value without first
obtaining required approvals from stockholders and independent
directors. If we raise additional funds by issuing more common stock
or senior securities convertible into, or exchangeable for, our common
stock, then the percentage ownership of our stockholders at that time
would decrease and you might experience dilution.
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Future offerings of debt securities, which would be senior to our
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common stock upon liquidation, or equity securities, which could
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dilute our existing stockholders and be senior to our common stock for
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the purposes of distributions, may have an adverse effect on the value
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of our common stock. In the future, we may attempt to increase our
- -------------------
capital resources by making additional offerings of equity or debt
securities, including medium-term notes, senior or subordinated notes
and classes of preferred stock or common stock. Upon our liquidation,
holders of our debt securities, if any, and shares of preferred stock,
if any, and lenders with respect to other borrowings, if any, will
receive a distribution of our available assets prior to the holders of
our common stock. Additional equity offerings by us may dilute the
holdings of our existing stockholders or reduce the value of our
common stock, or both. Any preferred stock we may issue would have a
preference on distributions that could limit our ability to make
distributions to the holders of our common stock. Because our
decision to issue securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot
predict or estimate the amount, timing or nature of our future
offerings. Thus, our stockholders bear the risk of our future
offerings reducing the market price of our common stock and diluting
their stock holdings in us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Because we currently have no long-term debt and do not expect
that, in the next 12 months, we will incur any (although there can be
no assurance that the funds that we will require to operate our
business during that period will be available to us through sales of
our equity or through short-term borrowings), we do not consider a
principal risk to be interest rate fluctuations. If, in the future,
we incur, or consider incurring, a material amount of long-term debt,
the occurrence of such event could result in interest rate
fluctuations becoming a principal risk. Currently, we consider our
principal market risk to be the fluctuations of the valuations of the
investment portfolio.
Our investments are carried at fair value, as determined by the
Board of Directors. We expect to value publicly traded securities at
the closing price on the valuation date. We expect to value debt
and equity securities that are not publicly traded, or that we are
restricted from trading, at fair value as determined in good faith
by our Board of Directors. In making such determination, we expect
that the Board of Directors will value non-convertible debt
securities at cost plus amortized original issue discount, if
any, unless adverse factors lead to a determination of a lesser
valuation. In valuing convertible debt, equity, or other securities,
we expect that the Board of Directors will determine the fair value
based on the collateral, the issuer's ability to make payments, the
current and forecasted earnings of the issuer, sales to third
parties of similar securities, the comparison to publicly traded
securities, and other pertinent factors. Due to the uncertainty
inherent in the valuation process, such estimates of fair value
may differ significantly from the values that would have been used
had a ready market for the securities existed, and the differences
could be material. Additionally, changes in the market environment
and other events that may occur over the life of the investments may
cause the gains or losses ultimately realized on these investments to
be different than the valuations assigned at other times.
Item 4. Controls and Procedures
As of January 31, 2005 (the end of the period covered by this
report), we, including our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-15(e)
of the 1934 Act). Based on that evaluation, our management, including
the Chief Executive Officer and Chief Financial Officer, concluded
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that our disclosure controls and procedures were effective and
provided reasonable assurance that information required to be
disclosed in our periodic SEC filings is recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules 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. However, in evaluating the disclosure
controls and procedures, 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, and
management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of such possible controls and
procedures.
Internal Control Over Financial Reporting
There have been no significant changes in our internal control
over financial reporting (as defined in Rule13a-15(f) of the
Securities Exchange Act of 1934) that occurred during the
Company's most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially
affect the Company's internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On April 21, 2005, Mirador Consulting, Inc., filed a Complaint
against Nortia Capital Partners, a Florida corporation, in the County
Court in and for Palm Beach County, Florida, styled as Mirador
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Consulting, Inc., a Florida corporation, Plaintiff, vs. Nortia Capital
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Partners, Inc., a Florida corporation, Defendant, Case No.
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502005CC004932XXXXSB DIV RD. Mirador alleged causes of action for
Breach of Contract and Unjust Enrichment/Quantum Meruit and sought
$10,000.00 in damages for payments allegedly due to Mirador pursuant
to a Consulting Agreement between Mirador and us dated December 22,
2004. Pursuant to the terms of that Agreement, Mirador received
shares in our Company.
On December 6, 2004, 16 days prior to the execution of the
Consulting Agreement, the defendant (the Florida corporation) was
merged with and into us and, as a result, ceased to exist.
In June 2005, the court entered a default against the Florida
defendant. A motion to set aside the default against the defendant
was granted on August 30, 2005. A Motion to Dismiss the Complaint
With Prejudice was filed on September 16, 2005, and remains pending.
We believe that both the Florida defendant and we have
meritorious defenses to the Complaint.
On September 1, 2005, we filed a Complaint against Mirador in the
Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida. The case is styled Nortia Capital Partners, Inc., a
Nevada corporation v. Mirador Consulting, Inc., a Florida corporation,
Case No. 50 2005 CA 008373 XXXX MB AN. The case seeks a Declaratory
Judgment from the Court declaring that Mirador is not entitled to
retain any of its shares in our Company, and that those shares should
be cancelled of record.
On November 1, 2005, Mirador filed its Answer and Affirmative
Defenses to the Complaint, as well as a Counterclaim and Third Party
Complaint. The essence of these pleadings is Mirador's allegation
that it performed the required services under the Consulting
Agreement, and that it is, therefore, entitled to retain its shares in
our Company and to receive $10,000.00 due to it under the Consulting
Agreement. Mirador also claims other unspecified damages due to our
Company's refusal to issue Mirador an original stock certificate for
additional shares resulting from our Company's stock split on or about
February 28, 2005. In its Third Party Complaint, Mirador also named
our President, among others, and alleged causes of action for tortuous
interference with contractual rights and conspiracy with the Company
in respect of such shares. Our charter and bylaws provide indemnification
rights to our executive officers and directors.
We believe that all named third-party defendants have meritorious
defenses to Mirador's Counterclaims, for the reasons set forth in our
Complaint.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In June 2004, we granted 2,300,000 shares of our common stock for
compensation and board fees to our President. There was no formal
employment agreement or stated term. The Company relied on Section
4(2), Rule 506 of Regulation D and Rule 701 of the Securities Act
since the transaction did not involve any public offering.
In October 2004, we granted 3,900,000 shares to our executive
officers as compensation, comprised of 1,500,000 to our Chief
Executive Officer, 1,200,000 to our President and 1,200,000 to our
Chief Financial Officer. We have no formal employment agreement or
stated term between the Company and the officers. The Company relied
on Section 4(2), Rule 506 of Regulation D and Rule 701 of the
Securities Act since the transaction did not involve any public
offering.
In October 2004, we granted 1,000,000 shares to our Board of
Directors as fees for their services, comprised of 200,000 share
issuances to five individuals. There was no formal agreement or
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stated term. The Company relied on Section 4(2), Rule 506 of
Regulation D and Rule 701 of the Securities Act since the transaction
did not involve any public offering.
In October 2004, we granted 800,000 shares to our Advisory Board
members as fees for their services, comprised of 200,000 share
issuances to four individuals. There was no formal employment
agreement or stated term. The Company relied on Section 4(2), Rule
506 of Regulation D and Rule 701 of the Securities Act since the
transaction did not involve any public offering.
In November 2004, we granted 700,000 shares to two consultants as
fees for their services, comprised of 250,000 shares to one consultant
and 450,000 shares to another consultant. There term for both
agreements is one year. The Company relied on Section 4(2), Rule 506
of Regulation D and Rule 701 of the Securities Act since the
transaction did not involve any public offering.
In December 2004, we granted 250,000 shares to a new member of
our Board of Directors as a fee for their services. There term for
both agreements is one year. The Company relied on Section 4(2), Rule
506 of Regulation D and Rule 701 of the Securities Act since the
transaction did not involve any public offering.
Item 3. Defaults upon Senior Securities
At January 31, 2005, we had $504,000 of debentures outstanding.
As of January 31, 2005, $228,000 of the Debentures discussed
previously were in payment 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 accrued $11,400 as a debenture
penalty in the accompanying Financial Statements as of January 31,
2005. As of March 3, 2005, $250,000 of the Debentures were in payment
default and the 5% penalty amount would be $12,500. The Company is in
discussions with the debenture holders concerning the default.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
On January 4, 2005, the Company filed Form N-54A with the
Securities and Exchange Commission to become a Business Development
Company pursuant to Section 54 of the Investment Company Act of 1940.
As a result of its new status, the Company will now operate as an
investment holding company and may announce a number of acquisitions
in the coming months, each of which is expected to begin building an
investment portfolio to enhance the Company's stockholder value. It
is the Company's intention to provide capital and advisory services
for management buyouts, recapitalizations, and the growth and capital
needs of emerging growth companies.
As a BDC, the Company will be structured in a manner more
consistent with its current business strategy. As a result, the
Company believes that it is positioned to raise capital in a more
efficient manner and to develop and expand its business interests.
The Company does not intend to limit its potential acquisitions to
just one line of business or industry, as the acquisitions, in total,
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are expected to enhance value to stockholders through capital
appreciation and payments of dividends to the Company by its investee
companies.
BDC regulation was created in 1980 by Congress to encourage the
flow of public equity capital to small businesses in the United
States. BDCs, like all mutual funds and closed-end funds, are
regulated by the Investment Company Act of 1940. BDCs report to
stockholders in a manner similar to traditional operating companies
and file regular quarterly and annual reports with the Securities and
Exchange Commission. BDCs are required to make available significant
managerial assistance to their portfolio companies
In January 2005, the Company entered into a one-year investor
relations consulting agreement with an unrelated third party. As
consideration for the services to be provided, we granted 240,000
shares of common stock to such third party, payable in monthly 20,000
share issuances. The first installment was due to be paid in February
2005. The Company will record consulting expense based upon the
market value of the common stock on each monthly 20,000 share issuance
date.
In February 2005, the Company entered into a one-year consulting
agreement with an unrelated third party. As consideration for the
services to be provided, a fee of $150,000 was to be paid to the
Consultant. Upon the mutual agreement of both parties, the fee could
be paid either in cash or in up to 200,000 shares of common stock,
based upon a $.75 per share market value on the date of the consulting
agreement. The Company will record $150,000 of deferred consulting
and amortize the balance over the one-year term of the consulting
agreement.
On February 17, 2005, the Company announced that its Board of
Directors had approved a two-for-one stock split of its common shares.
The record date for the split is February 28, 2005 and the pay date is
March 3, 2005. In accordance with SFAS 128, the Company has
retroactively presented the effect of the stock split for all periods
presented in the accompanying Financial Statements for all share and
per share data.
As of March 3, 2005, $250,000 of the Debentures discussed
previously were 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. The maximum amount of such penalty would be
$11,400. The Company is in discussions with the debenture holders
concerning the default.
Item 6. Exhibits
Exhibit No. Description of Exhibit
- ----------- ---------------------------------------------------------
31.1 Certification of the Chief Executive Officer of Nortia
Capital Partners, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer of Nortia
Capital Partners, Inc. pursuant to Section 302 of the
Sarbanes-Act of 2002.
32.1 Certification of the Chief Executive Officer of Nortia
Capital Partners, Inc. pursuant to Section 906 of the
Sarbanes-Act of 2002.
32.2 Certification of the Chief Financial Officer of Nortia
Capital Partners, Inc. pursuant to Section 906 of the
Sarbanes-Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NORTIA CAPITAL PARTNERS, INC.
Dated: November 18, 2005 By: /S/ WILLIAM BOSSO
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William Bosso,
Chief Executive Officer
Dated: November 18, 2005 By: /S/ ROBERT HUNZIKER
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Robert Hunziker,
Chief Financial Officer
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