UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 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.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 65-0913582
- ----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
400 Hampton View Court, Alpharetta, Georgia 30004
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 777-6795
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ----------------------------------------------------------------------------
(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 [X] No [ ]
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-
Nortia Capital Partners, Inc.
Form 10-Q Index
July 31, 2005
Page
----
Part I-Financial Information
Item 1. Financial Statements 3
Balance Sheet at July 31, 2005 (Unaudited) 4
Statement of Operations for the Three Months Ended
July 31, 2005 and 2004 and for the period from
May 1, 2003 (inception of development stage) to
July 31, 2005 (Unaudited) 5
Statement of Cash Flows for the Three Months Ended
July 31, 2005 and 2004 and for the period from
May 1, 2003 (inception of development stage) to
July 31, 2005 (Unaudited) 6
Schedule of Changes in Net Assets for the Three
Months ended July 31, 2005 (Unaudited) 8
Schedule of Investments at July 31, 2005 (Unaudited) 9
Notes to Financial Statements (Unaudited) 10
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 31
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 49
Item 4. Controls and Procedures 50
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 51
Signatures 52
-2-
PART I
FINANCIAL INFORMATION
Item 1-Financial Statements
-3-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
At July 31, 2005
Balance Sheet
(Unaudited)
ASSETS
------
Current Assets
Cash $ 260,962
------------
Total Current Assets 260,962
============
Total Assets 260,962
============
LIABILITIES
-----------
Current Liabilities
Accounts payable 27,814
Accrued expenses 73,961
------------
Total Current Liabilities 101,775
============
Net Assets $ 159,187
============
STOCKHOLDERS' EQUITY
--------------------
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 22,297,254 shares issued
and outstanding 22,297
Common stock issuable, 3,836,264 shares 3,836
Additional paid in capital 5,349,005
Accumulated deficit (12,398)
Deficit accumulated during development stage (5,147,753)
------------
215,287
Less: Deferred consulting (56,100)
------------
Total Stockholders' Equity 159,187
============
Total Liabilities and Stockholders' Equity $ 260,962
============
Net Asset Value Per Share $ (0.01)
============
See accompanying notes to financial statements.
-4-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Statement of Operations
(Unaudited)
Post Election Pre Election Period from
As a Business as a Business May 1, 2003
Development Development (Inception of
Company Company Development
Three Months Three Months Stage)
Ended Ended to
Jul. 31, Jul. 31, Jul. 31,
2005 2004 2005
------------- ------------- -------------
Revenues $ - $ 60,000 $ 300,000
Operating Expenses
General and administrative 111,595 35,888 383,507
Provision for accounts receivable - 74,301 -
Rent 12,077 - 51,077
Consulting 36,857 6,150 678,699
Compensation 129,760 1,000 689,549
Debenture penalty - - 11,400
Directors fees - 150 237,150
Interest expense - 6,302 53,144
Impairment of investments - - 48,581
Professional 87,498 500 295,117
------------- ------------- -------------
Total Operating Expenses 377,787 124,291 2,449,849
------------- ------------- -------------
Loss from Operations (377,787) (64,291) (2,149,849)
Other Income (Expense)
Loss on sale of available for
sale securities - (64,738) (64,738)
Loss on conversion of debt - - (2,738,559)
Other than temporary loss on
for sale securities - (24,000) (195,000)
Other income - - 4,568
Interest income 211 40 222
------------- ------------- -------------
Total Other Income (Expense) 211 (88,698) (2,993,506)
------------- ------------- -------------
Net Loss Before Income Taxes $ (377,576) $ (152,989) $ (5,143,356)
============= ============= =============
Income tax expense - - (4,397)
------------- ------------- -------------
Net Loss $ (377,576) $ (160,205) $ (5,147,753)
============= ============= =============
Comprehensive Loss
Unrealized losses on available
for sale securities - (182,758) -
------------- ------------- -------------
Total Comprehensive Loss $ - $ (182,758) $ -
============= ============= =============
Net Loss Per Share
- Basic and Diluted $ (0.01) $ (0.02) $ (0.41)
============= ============= =============
Weighted Average Shares 25,802,127 10,117,888 12,420,504
============= ============= =============
See accompanying notes to financial statements
-5-
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 Period from
As a Business as a Business May 1, 2003
Development Development (Inception of
Company Company Development
Three Months Three Months Stage)
Ended Ended to
Jul. 31, Jul. 31, Jul. 31,
2005 2004 2005
------------- ------------- -------------
Cash Flows From Operating Activities:
Net loss $ (377,576) $ (152,990) $ (5,147,753)
Adjustments to reconcile net loss to
net cash used in operations:
Debenture issued for legal services - - 5,000
Bad debt expense - - 1,625
Impairment of investments - - 48,581
Debenture issued for consulting services - - 7,000
Loss on sale of available for sale
securities - 64,738 64,738
Other than temporary loss on available
for sale securities - 24,000 195,000
Compensation related to conversion
of debt - - 2,000
Loss on conversion of debt - - 2,738,559
Transfer of available for sale
securities for consulting services - 2,100 2,100
Provision for accounts receivable - 74,301 -
Common stock issued for compensation - 1,000 356,000
Common stock issued for directors fees - 150 237,150
Common stock issued for consulting
services - 4,050 128,565
Common stock issued for legal services - - 10,000
Amortization of deferred consulting 30,600 - 529,300
Common stock based revenue - (60,000) (300,000)
Changes in operating assets and
liabilities:
Decrease in prepaid expenses - - 540
Increase in other receivable - - (6,500)
Decrease (increase) in accounts payable (59,357) 14,000 (35,516)
Decrease in due to related party - (500) -
Increase in accrued expenses 19,799 7,301 132,975
------------- ------------- -------------
Net Cash Used In Operating Activities (386,534) (21,849) (1,030,637)
------------- ------------- -------------
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)
------------- ------------- -------------
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 - Continued
(Unaudited)
Post Election Pre Election Period from
As a Business as a Business May 1, 2003
Development Development (Inception of
Company Company Development
Three Months Three Months Stage)
Ended Ended to
Jul. 31, Jul. 31, Jul. 31,
2005 2004 2005
------------- ------------- -------------
Cash Flows From Financing Activities:
Proceeds from issuance of promissory
notes - - 188,000
Proceeds from sale of common stock 635,793 - 722,143
Proceeds from issuance of debentures - - 417,000
------------- ------------- -------------
Net Cash Provided By Financing Activities 635,793 - 1,327,143
Net Increase (decrease) in Cash 249,259 (7,444) 260,962
------------- ------------- -------------
Cash at Beginning of Period 11,703 8,764 -
------------- ------------- -------------
Cash at End of Period $ 260,962 $ 1,320 $ 260,962
============= ============= =============
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for:
Interest $ - $ - $ -
Taxes $ - $ - $ -
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
- --------------------------
Debenture issued for available-for-sale
securities $ - $ - $ 75,000
Unrealized losses on available-for-sale
securities - (182,758) -
Recapitalization of accounts payable - - 63,330
See accompanying notes to financial statements
-7-
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Changes in Net Assets
Three
Month Ended
July 31, 2005
-------------
Decrease in net assets from operations:
Net operating losses $ (377,576)
-------------
Net decrease in net assets from operations (377,576)
Common Stock transactions 635,793
Amortization of deferred consulting 30,600
-------------
Total increase in Net Assets 288,817
Net Assets:
Beginning of Period (129,629)
-------------
End of period $ 159,187
=============
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 July 31, 2005
(Unaudited)
Percentage of
Title of Class Held on At July 31, 2005
Portfolio Securities Held a Fully Diluted -------------------------
Company Industry By The Company Basis Cost Fair Value
================================================================================================================
Investments - (1)
================================================================================================================
Avix Technologies, Inc. Telecom Common Stock 11% $ 43,706 $ -
- ----------------------------------------------------------------------------------------------------------------
Universal Capital Management, Inc. Investments Common Stock 10% 1,625 -
- ----------------------------------------------------------------------------------------------------------------
Total Investments - Minority Owned
Other Non-Controlled Affiliates 45,331 -
- ----------------------------------------------------------------------------------------------------------------
BF Acquisition Group III, Inc. Shell Common Stock 3% 1,625 -
- ----------------------------------------------------------------------------------------------------------------
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 or non-income producing companies
and restricted at the 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
July 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,
2005 included in the Company's Form 10-K.
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
July 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).
Prior to November, 2005, we had not filed with the SEC in a
timely manner our required annual report with the SEC for the on
Form 10-K for the year ended April 30, 2005. In November, 2005, this report
was 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 the three months ended July 31,
2005 reflect the Company's results subsequent to our election to
be treated as a BDC. The results of operations for the three
months ended July 31, 2004 reflect our results prior to operating
as a BDC. Accounting principles used in the preparation of the
financial statements for 2005 are different from 2004 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
-11-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
effects of conversion to a BDC. There was no cumulative effect
adjustment from the conversion to a BDC in January 2005.
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.
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 consists 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 offering 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 offering 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.
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 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. As it has been 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 regarding
the Company's intent to offer up to 600,000 shares of its 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.
-12-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
In July 2005, the Company announced the execution of a definitive
Share Exchange Agreement by and among Holley Communications, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company
("Investment Sub"), Holley Communications Canada, Inc., a Canadian
Corporation ("Holley Canada"), and us. 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. 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 Investment Sub. Holley Communications is a
provider of wireless communication technology application and
integrated solutions in China. Specifically, it is engaged in two
segments of the mobile communications business: a handset segment and
a system integration segment. Its handset segment focuses on research
and development, operation, distribution and retail and provides
customers with handset solutions, reference design, module and
handset. Its system segment focuses on voice quality enhancement
system application, integration, sales and engineering services.
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 offering, 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 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 attempting
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 Company may need to make further changes to its capital
structure in connection with becoming compliant with the 1940 Act
asset coverage requirements.
The above matters 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 Quarterly Report. The
outcome of the above matters could have a significant impact on our
-13-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
ability to continue as a going concern.
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 valuation
of portfolio investments, 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 and related valuation allowance.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments
with a maturity date of three months or less when purchased.
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 July 31,
2005.
Stock-Based Compensation
Prior to its election as a BDC, 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,
-14-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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 generally is
no longer allowed under the 1940 Act to grant stock based compensation
for services, except in approved circumstances.
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 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.
-15-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
Revenue Recognition
Prior to its election as a BDC the Company recognizes
revenues in accordance with the guidance in the Securities and
Exchange Commission Staff Accounting Bulletin 104. Revenue is
recognized when persuasive evidence of an arrangement exists,
as services are provided over the term of a service contract,
and when collection of the fixed or determinable selling price is
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."
Concentrations of Risk
- ----------------------
Our financial instruments that are potentially exposed to credit risk
consist primarily of cash. At certain times during the year our demand
deposits held in banks exceeded the federally insured limit of $100,000.
During fiscal year 2005 and 2004 all pre-BDC revenues were derived
from one customer.
Income Taxes
Income taxes are accounted for under the asset and liability
method of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes ("SFAS 109")." Under SFAS 109, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
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.
At July 31, 2005 there were warrants to purchase 657,064 shares
of common stock outstanding which may dilute future earnings per share.
-16-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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 $377,576 and net cash used in operations of
$386,534 for the three months ended July 31, 2005 as a BDC.
Additionally, the Company has an accumulated deficit of $12,398 and a
deficit accumulated during the development stage of $5,147,753 at July
31, 2005.
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 into 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 $635,793 of proceeds from the sale of common stock
for the three months ended July 31, 2005. We have used these funds to
cover our current obligations. We are planning on obtaining
additional cash proceeds in the next twelve months from the issuance
of securities to be determined.
-17-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
As a result of the above items, we believe that we will have
sufficient operating cash to meet are required expenditures for the
next twelve months.
Note 4. Investments
- --------------------
In November 2003, we issued $75,000 of debentures in exchange
for 100,000 shares of freely trading 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.
In April 2004, we purchased 5,000 shares of freely trading common
stock for $6,243 in the same publicly held company as discussed above.
In accordance with FAS 115, we recorded the 5,000 shares of common
stock as "available-for-sale" securities, a current asset and the
resulting $2,243 unrealized loss at April 30, 2004 was classified as a
separate component of stockholders' equity - accumulated other
comprehensive income.
In May 2004, we transferred 7,500 of these shares to a third
party for payment of public relations services for another publicly
held company, the company mentioned previously that we have an
investment in and a consulting agreement with. The fair market value
of the stock on the transfer date was $0.28 per share or $2,100 and
the Company recorded this amount as consulting expense and recorded a
$3,525 loss on the disposal of the securities.
In June and July of 2004, we sold the remaining 97,500 shares and
received $14,405 of proceeds and recognized a $64,738 loss on the sale
of the securities. As a result of the transfer and sale of 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. The
remaining $1,625 for the final company is not collectible. 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 $4,875 in the accompanying Statement of Operations for the year
ended April 30, 2005. Previously, the remaining $1,625 for the fourth
and final company was recorded as other receivable. However, we have
determined that the receivable is not collectible and have recorded
$1,625 of bad debt expense in the accompanying Statement of Operations
for the year ended April 30, 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 free trading shares of their common stock, valued
-18-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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
unrealized gain of $180,000 at April 30, 2004 was classified in 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 was at that
time a development stage company, had 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 Eleven (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.
-19-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
The following represents information about securities held with
loss positions as of July 31, 2005 (there were no securities held with
loss positions as of July 31, 2004):
Securities in loss
positions less than Aggregate Aggregate Fair
12 months: Unrealized Losses Value
- ------------------- ----------------- --------------
Equity securities $ 48,581 $ -
========= =========
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, at
the option of the Company, 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.
In November 2003, we issued $75,000 of debentures in exchange for
100,000 shares of freely trading 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 ten percent (10%)
debentures outstanding. Utilizing an effective date of April 15,
2005, the entire $504,000 was exchanged for the Company's $0.001 par
value common stock at an exchange rate of $0.25 per share. An additional
number of shares equal to 20% of the debenture principal exchange
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 for any default that occurs. As a result of
the debenture exchange, we recorded 2,419,200 shares of our common
stock as issuable at April 30, 2005 and recorded a loss on exchange of
debt in the amount of $2,104,285 in the accompanying Statement of
Operations. The loss on exchange of debt was calculated utilizing a
$1.10 per share fair market value for our common stock, obtained from
a recent private placement offering. (See Note 7 - Stockholders
Equity (Deficiency).)
-20-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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 (10%) per annum,
payable ninety (90) days from the date of the promissory
notes. Utilizing an effective date of April 15, 2005, the entire
$188,000 was exchanged for the Company's $0.001 par value common stock
at an exchange rate of $0.25 per share. No exchange of accrued
interest was offered in the exchange documents. As a result of the
promissory note exchange, we recorded 752,000 shares of our common
stock as issuable at April 30, 2005 and recorded a loss on exchange of
debt in the amount of $634,273 in the accompanying Statement of
Operations. The loss on exchange of debt was calculated utilizing a
$1.10 per share fair market value for our common stock, obtained from
a recent private placement offering. (See Note 7 - Stockholders
Equity (Deficiency).)
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 20,777,344 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' Equity
(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
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.
At April 30, 2005, there were 5,104,406 common shares previously
issued by the Company's transfer agent that were returnable to the
Company under the mutual rescission agreement. These shares have been
restricted as to transfer by the transfer agent and are not included
-21-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
in outstanding shares at July 31, 2005. As of July 31, 2005,
3,300,021 of these shares have been returned and cancelled by the
transfer agent.
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 22,297,254 were issued and
outstanding at July 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. Additionally, we have 3,836,264 shares that are
issuable at July 31, 2005. Including issuable shares, we have
26,133,518 shares outstanding and issuable as of July 31, 2005.
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
July 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. (See "Preferred
Stock," below.)
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 twelve (12) months and consultant will receive a total of 480,000
shares of the Common Stock of the Company. Two hundred forty thousand
(240,000) shares were granted and vested upon the execution of the
agreement and the remaining shares will be earned at the rate of
20,000 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
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
-22-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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 Statement of Operations for the three months ended
January 31, 2005. These 30,000 were issuable as of January 31, 2005
and were issued by the Transfer Agent in March 2005. In February, the
remaining 150,000 shares were issued and valued at $0.73 per share,
the fair market value on the grant date of February 11, 2005 and the
Company has recorded $109,500 of consulting expense in the
accompanying Statement of Operations. These 150,000 shares were not
issued as of July 31, 2005 and have been recorded as Common Stock
Issuable.
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 expensed
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
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
-23-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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. Subsequently, the
agreement was terminated and we have recorded the entire $126,250 of
deferred consulting as consulting expense in the accompanying
Statement of Operations.
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. Subsequently, the
agreement was terminated and we have recorded the entire $227,025 of
deferred consulting as consulting expense in the accompanying
Statement of Operations. The 450,000 shares had been recorded common
stock issuable at January 31, 2005 were subsequently issued by the
Transfer Agent in March 2005.
In December 2004, we granted 250,000 vested 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 as a deemed issuance
to the original shareholders of Global. (See Note 6 -
Recapitalization.)
In January 2005, we granted 240,000 shares of our common stock to
an individual for consulting services. The shares were valued at
$0.51 per share, the closing stock price on the grant date of January
19, 2005, and we recorded $122,400 of deferred consulting, as the term
of the consulting agreement was one (1) year. As of July 31, 2005, we
have recorded $66,300 of amortization expense related to the deferred
consulting resulting in an unamortized deferred consulting balance of
$56,100. The shares have not been issued as of July 31, 2005 and have
been recorded as Common Stock Issuable in the accompanying Financial
Statements.
In February 2005, we granted 150,000 shares of our common stock
to a group for consulting services. The shares were valued at $0.73
per share, the closing stock price on the grant date of February 11,
2005, and we recorded $109,500 of deferred consulting, as the term of
the consulting agreement was one (1) year. The consulting agreement
specified that up to 450,000 shares would be issued for services
-24-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
provided, based upon the fair market value of $0.73 per share on
February 11, 2005. Subsequently, the Company and the Consultant
agreed to terminate the contract and no additional shares will be
issued to the Consultant. As a result of the agreement termination,
the entire $109,500 of deferred consulting has been recorded as
amortization expense in the accompanying Financial Statements.
Additionally, the 150,000 shares had not been issued as of July 31,
2005 and have been recorded as Common Stock Issuable in the
accompanying Financial Statements.
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 $722,143 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. (See Note
11 - Subsequent Events).
The Company had 30,000 common shares held as treasury stock at
April 30, 2005, which had an original cost basis of zero. These
shares were retired in May 2005.
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 as compensation for services to
our Chief Executive Officer and 125,000 shares were issued for
services to our President. 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.
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
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
-25-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
October 6, 2005, the authorization for Series A Preferred Stock has
been withdrawn.
Warrants
- --------
As discussed previously, 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
$722,770 of 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 warrants become exercisable at
the closing date of the private placement offering which has not
occurred as of the date of this report. (See Note 11 - Subsequent
Events).
The following table summarizes activity related to warrants:
Number of Shares Weighted Average
---------------- Exercise Price
----------------
Balance at April 30, 2005 78,500 $ 2.00
Granted 578,564 2.00
Exercised 0 0
Forfeited 0 0
------- --------
Balance at July 31,2005 657,064 $ 2.00
======= ========
All warrants to purchase our common stock were issued with
exercise prices equal to or greater than fair market value on the date
of issuance.
The terms of warrants to purchase our common stock are summarized
below:
- ----------------------------Warrants Outstanding------------------------Warrants Exercisable-----
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices Jul. 31, 2005 Life Price Jul. 31, 2005 Price
- -------------------------------------------------------------------------------------------------
$2.00 657,064 2.00 years 2.00 0 $2.00
===== ======= ========== ==== === =====
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.
-26-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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 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.
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 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
-27-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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 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.
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
January 31, 2004, we repaid the remaining $613. At July 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 July 31, 2005,
the balance is zero.
At January 31, 2005, we had a $26,932 receivable classified as
due from related party recorded in the Financial Statements. This
amount represented 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).
-28-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
Note 10. Financial Information
- -------------------------------
Following is a schedule of financial highlights for the three months
ended July 31, 2005, during which period the Company operated as a
BDC:
Three
Months Ended
July 31, 2005
-------------
Per Share Data:
- --------------
Net Asset Value at Beginning of Period (1) $ (0.01)
Net Loss (2) (0.01)
Common Stock Transactions (2) 0.03
Amortization of Deferred Consulting (2) 0.00
-------------
Net increase in Stockholders Deficiency 0.02
-------------
Net Asset Value at End of Period $ 0.01
=============
Per Share Market Value at End of Period $ 1.98
Total Return (2) (3) 37%
Common Stock Outstanding at End of Period 26,133,518
Ratio/Supplemental Data:
- -----------------------
Net Assets at End of Period $ 159,187
Ratio of Operating Expenses to Net Assets 237%
Ratio of Net Operating Loss to Net Assets 237%
- -----------------------------------------------------------------------
(1) Based on Total Shares Outstanding and Issuable at beginning
of period.
(2) Based on total shares outstanding and Issuable at period end.
(3) Total return equals the increase of the ending market value
over the April 30, 2005 price of $1.45 per share, divided by
the beginning price.
Note 11. Subsequent Events
- ---------------------------
From August 1, 2005 through August 31, 2005, the Company received
an additional $185,122 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.
As discussed previously, 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
-29-
Nortia Capital Partners, Inc.
(f/k/a BF Acquisition Group I, Inc.)
(A Development Stage Company)
Notes to Financial Statements
July 31, 2005
(Unaudited)
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. 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
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.
-30-
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 register our Company 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 Business Development Company ("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,
-31-
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 reflect our operations as a
BDC. The results of operations for 2004 reflect our results prior to
operating as a BDC. Accounting principles used in the preparation of
the financial statements for 2005 are different from those used in
2004 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, we had a
net loss of $377,576 and net cash used in operations was $386,534 for
the three months ended July 31, 2005 as a BDC. Additionally, we have
an accumulated deficit of $12,398 and a deficit accumulated during the
development stage of $5,147,753 at July 31, 2005.
Our ability to continue as a going concern is dependent on the
ability further to implement our business plan as a BDC, raise
capital, and generate revenues. We presently do not have sufficient
revenues to cover our incurred expenses. Our management recognizes
that we must generate additional resources to enable us to pay our
obligations as they come due and that we must ultimately successfully
implement our BDC business plan and achieve profitable operations. We
cannot assure you that we will be successful in any of these
activities. Should any of these events not occur, our financial
condition will be materially adversely affected.
Presently, we expect to meet our current capital requirements for
the next 12 months pursuant to further sales of our Common Stock and
from revenues derived from the commencement of our business operations
as a BDC.
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.
-32-
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
retroactively presented the effect of the stock split for all periods
presented in the accompanying Financial Statements for all share and
per share data.
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 675,064 shares of common stock and
657,064 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 offering that
it commenced in April 2005, representing approximately168,636 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 had received $907,867 of net proceeds from the private
offering and has 825,700 shares issuable and 825,700 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.
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.
-33-
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 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. 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
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.
-34-
Going Concern
As discussed in Note 3 to the financial statements, the Company's
recurring losses from operations, a net loss of $377,576 and net cash
used in operations of $386,534 for the three months ended July 31,
2005, accumulated deficit of $12,398 and a deficit accumulated during
the development stage of $5,147,753 at July 31, 2005, 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 annual report on Form 10-K for the period
ended April 30, 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
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
-35-
rates and the short-term maturity of all of our indebtedness,
management believes that the fair value of our obligations
approximates book value at July 31, 2005.
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.
-36-
Results of Operations
Financial Analysis of the Three Months Ended January 31, 2005 and 2004
- ----------------------------------------------------------------------
Post Election Pre Election Period from
As a Business as a Business May 1, 2003
Development Development (Inception of
Company Company Development
Three Months Three Months Stage)
Ended Ended to
Jul. 31, Jul. 31, Jul. 31,
2005 2004 2005
------------- ------------- -------------
Revenues - $ 60,000 $ 300,000
Operating Expenses:
General and administrative 111,595 35,888 383,507
Provision for accounts receivable - 74,301 -
Rent 12,077 - 51,077
Consulting 36,857 6,150 678,699
Compensation 129,760 1,000 689,549
Debenture penalty - - 11,400
Directors fees - 150 237,150
Interest expense - 6,302 53,144
Impairment of investments - - 48,581
Professional 87,498 500 295,117
------------- ------------- -------------
Total Operating Expenses 377,787 124,291 2,449,849
------------- ------------- -------------
Loss from Operations (377,787) (64,291) (2,149,849)
Other Income (Expense):
Loss on sale of available for sale
securities - (64,738) (64,738)
Loss on conversion of debt - - (2,738,559)
Other than temporary loss on for sale
securities - (24,000) (195,000)
Other income - - 4,568
Interest income 211 40 222
------------- ------------- -------------
Total Other Income (Expense) 211 (88,698) (2,993,506)
------------- ------------- -------------
Net Loss Before Income Taxes $ (377,576) $ (152,989) $ (5,143,356)
============= ============= =============
Income tax expense - - (4,397)
------------- ------------- -------------
Net Loss $ (377,576) $ (160,205) $ (5,147,753)
============= ============= =============
-37-
Note: All references to 2005 represent operations for the three
- ----------------------------------------------------------------
months ended July 31, 2005 as a BDC and all references to 2004
- --------------------------------------------------------------
represent the operations for the three months ended July 31, 2004
- -----------------------------------------------------------------
prior to becoming a BDC.
- ------------------------
Three Months Ended July 31, 2005 Compared with July 31, 2004
- ------------------------------------------------------------
Revenues:
- ---------
Revenue decreased $60,000, or 100%, to zero for 2005 from $60,000
for 2004. In September 2003, we entered into a consulting contract
with Global Life Sciences, Inc. ("Global"), a publicly traded company.
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
free trading shares of their common stock, valued at $0.20 per share,
based on the original agreement date. The term of the consulting
agreement 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 three months ended July 31, 2004,
we recorded $60,000 of the consulting fees as revenue. 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.
Operating Expenses:
- -------------------
Operating expenses increased $253,495, or 204%, to $377,787 for
2005 from $124,291 for 2004. The increase was primarily the result of
a $128,760 increase in compensation and an $86,998 increase in
professional. The increase in compensation was primarily from
salaries paid to two officers in 2005 with no corresponding payment in
2004. The increase in professional was primarily from an increase in
accounting and legal as a result of the Company becoming a BDC and the
resulting increased requirements for professional services.
Other Income (Expense):
- -----------------------
Other expense decreased $88,907 or 99% to $211 of income for 2005
from $88,698 in 2004. The decrease in expense was primarily due to
the fact that in 2004, we had a $64,738 loss on available for sale
securities and $24,000 other than temporary loss on available for sale
securities.
Liquidity and Capital Resources
Cash was $260,962 at July 31, 2005 as compared to 11,703 at April
30, 2005. The increase in cash was the result of $635,793 of net
proceeds from the sale of common stock, offset by $386,534 of cash
used in operations. The cash used in operations was primarily the
result of $377,576 of net loss for the three months ended July 31,
2005.
Net assets increased $288,817 from a net liability position of
$129,629 at April 30, 2005 to a net asset position of $159,187 at July
31, 2005.
Operating Activities: Cash used in operating activities was $386,534
- --------------------
for 2005 as compared to $21,849 for 2004. The increase in cash used
resulted primarily from the increase in the net loss.
-38-
Investing Activities: There were no investing activities for either
- --------------------
2005 or 2004.
Financing Activities: Cash flows provided by financing activities was
- --------------------
$635,793 for 2005 compared to zero for 2004. The increase in cash
provided by financing activities was due to $635,793 of cash proceeds
received by the Company from the sale of common stock.
Our principal uses of cash to date have been for operating activities
and we have funded our operations since entering a new development
stage on May 1, 2003 by incurring indebtedness from the issuance of
debentures, promissory notes and the sale of our common stock.
The following summarizes our debt obligations at July 31, 2005:
DEBT
We have no debt at July 31, 2005.
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 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.
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
debenture proceeds obtained by the Company in accordance with the
consulting agreement.
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 July 31,
2005 and recorded a loss on conversion of debt in the amount of
$2,104,285 in the accompanying Statement of Operations s of April 30,
2005. 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.
-39-
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 (10%) per annum,
payable ninety (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 July 31, 2005 and recorded a loss on
conversion of debt in the amount of $634,273 in the Statement of
Operations as of April 30, 2005. 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.
Equity Financing
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. 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 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.
Liquidity
To continue with our business plan, we will require additional
short-term working capital and we have not generated sufficient cash
from our planned BDC operations to fund our operating activities
through the end of fiscal 2005. Presently, our only source of cash is
from external financing in the form of debt or the issuance of our
common stock. We cannot assure you that that we will obtain
-40-
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 implied market value of our common stock, 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. 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 $653,753 of proceeds from the sale of common stock in
2005 and we have utilized these funds to meet our current obligations.
We are planning on obtaining additional cash proceeds in the next
twelve months from the issuance of common stock.
As a result of the above items, we believe that we will have
sufficient operating cash to meet our required expenditures for the
next twelve months. However, see 2005 Outlook below for further
discussion related to our ability to have sufficient cash flow to meet
our planned expenditures.
Contractual Obligations and Commercial Commitments
The following table highlights, as of July 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
- ----------------------- ----- --------- --------- --------- -------
Short-term Debt:
Debentures $ - $ - $ - $ - $ -
-------- --------- --------- --------- ---------
Total Short-term Debt $ - $ - $ - $ - $ -
======== ========= ========= ========= =========
Off-Balance Sheet Arrangements
We have no Off-Balance Sheet arrangements at either July 31, 2005
or 2004.
Recent Accounting Developments
The Financial Accounting Standards Board ("FASB") has recently
issued several new accounting pronouncements, which may apply, to the
Company.
In December 2004, the FASB issued SFAS No. 153, entitled
Exchanges of Non-monetary Assets - An Amendment of APB Opinion No.29.
SFAS No. 153 amends Opinion 29 to eliminate the exception for non-
monetary exchanges of non-monetary assets that do not have commercial
substance. A non-monetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly
as a result of the exchange. The adoption of SFAS 153 did not impact
the financial statements.
In December 2004, the FASB issued SFAS No. 123 (Revised),
entitled Share-Based Payment. This revised Statement eliminates the
alternative to use APB Opinion No. 25's intrinsic value method of
-41-
accounting that was provided in SFAS No. 123 as originally issued.
Under Opinion 25, issuing stock options to employees generally
resulted in recognition of no compensation cost. This Statement
requires entities to recognize the cost of employee services received
in exchange for awards of equity instruments based on the grant-date
fair value of those awards. For public companies that file as a small
business issuer, this Statement is effective as of the beginning of
the first interim or annual reporting period that begins after
December 15, 2005. The adoption of SFAS 123 (Revised) will have an
impact the financial statements if the Company issues stock options to
the employees in the future.
2005 Outlook
The ability to implement our business plan successfully will be
heavily dependent on securing additional capital from the issuance of
our common stock or through debt. There is no assurance that
additional equity or debt financing will be available on terms
acceptable to our management.
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
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.
-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.
We suffered a significant operating loss in our 2005 fiscal year
----------------------------------------------------------------
and during the first quarter of our 2006 fiscal year. During the year
- ----------------------------------------------------
ended April 30, 2005, our net loss for the Four month period ending
April 30, 2005 in which we operated as a BDC was $3,704,595, including a
loss of $2,738,559 for the exchange of debt securities to shares of our
common stock. During the first quarter of our current fiscal year, our
net
loss was $377,576. There can be no assurance that we have sufficient
economic resources or that such resources will be available to us on
terms and at times that are necessary or acceptable, if at all. There
is no assurance that future revenues of the Company will ever be
significant or that the Company's operations will ever be profitable.
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.
-43-
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.
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.
-44-
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. 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, to dispose of equity securities of our portfolio
companies at times when it may be otherwise advantageous for us
to liquidate such securities. In addition, if we, were forced to
liquidate some or all of the investments 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 might 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. Although we have no borrowings as of April 30, 2005, 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
-45-
"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
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 in November 2004 issued 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 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;
-46-
* 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
* 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
-47-
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 for and elect to be treated as a RIC, then we
-------------------------------------------------------------------
will be subject to corporate-level income tax, which would adversely affect
- ---------------------------------------------------------------------------
our results of operations and financial condition. If we fail to
- -------------------------------------------------
qualify for the federal income tax benefits allowable to RICs for any
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
--------------------------------------------------------------
referral relationships with venture capital, private equity fund
- ----------------------------------------------------------------
sponsors and other investment banking and financial institutions, and
- ---------------------------------------------------------------------
our inability to develop or maintain these relationships, or the
- ----------------------------------------------------------------
failure of these relationships to generate investment opportunities,
- --------------------------------------------------------------------
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
----------------------------------------------------------------
to and the manner in which we raise additional capital, which may
- -----------------------------------------------------------------
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,
-48-
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.
Future offerings of debt securities, which would be senior to our
-----------------------------------------------------------------
common stock upon liquidation, or equity securities, which could
- ----------------------------------------------------------------
dilute our existing stockholders and be senior to our common stock for
- ----------------------------------------------------------------------
the purposes of distributions, may have an adverse effect on the value
- ----------------------------------------------------------------------
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
-49 -
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
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
-------
Consulting, Inc., a Florida corporation, Plaintiff, vs. Nortia Capital
- ----------------------------------------------------------------------
Partners, Inc., a Florida corporation, Defendant, Case No.
- ------------------------------------------------
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 April 2005, we 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 consists of one share of the Company's common stock and one
two-year warrant to purchase the Company's common stock at an exercise
-50-
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. The shares have
not been issued and have been recorded as issuable in the Company's
financial statements as of July 31, 2005.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None.
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.
-51-
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
-------------------------------
William Bosso,
Chief Executive Officer
Dated: November 18, 2005 By: /S/ ROBERT HUNZIKER
-------------------------------
Robert Hunziker,
Chief Financial Officer
-52-