UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-26843
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NORTIA CAPITAL PARTNERS, INC.
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(Exact name of registrant as specified in its charter)
Nevada 90-0254041
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(State of Incorporation) (I.R.S. Employer
Identification Number)
400 Hampton View Court
Alpharetta, Georgia 30004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 777-6795
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes[ ] No [X]
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of "accelerated filer and large accelerated
filer" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [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]
The aggregate market value of common stock held by non-affiliates
of the Registrant on November 21, 2005, based on the closing
sales price on that date of $1.55, as reported by Pink Sheets
LLC, was $1.90. For the purposes of calculating this amount
only, all directors and executive officers of the Registrant have
been treated as affiliates. There were 22,813,254 shares of the
Registrant's common stock outstanding and issued as of August 11,
2006. Additionally, there were 4,874,855 shares issuable. In
total, there are 27,688,109 shares outstanding, issued and
issuable, as of August 11, 2006.
NORTIA CAPITAL PARTNERS, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 30, 2006
TABLE OF CONTENTS
PART I
Item 1. Business.....................................................4
Item 1A. Risk Factors.................................................6
Item 1B. Unresolved Staff Comments....................................12
Item 2. Properties...................................................12
Item 3. Legal Proceedings............................................12
Item 4. Submission of Matters to a Vote of Security Holders..........13
PART II
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities...................................................13
Item 6. Selected Financial Data......................................16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................16
Item 7A. Quantitative and Qualitative Disclosure about
Market Risk..................................................30
Item 8. Financial Statements and Supplementary Data..................30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................30
Item 9A. Controls and Procedures......................................31
Item 9B. Other Information............................................31
PART III
Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation.......................................34
Item 12. Security Ownership of Certain Beneficial Owners
and Management...............................................36
Item 13. Certain Relationships and Related Transactions...............37
Item 14. Principal Accountant Fees and Services.......................37
PART IV
Item 15. Exhibits and Financial Statement Schedules...................39
SIGNATURES
PART I
Item 1. Business
Nortia Capital Partners, Inc.
Nortia Capital Partners, Inc. ("Nortia," "we," "us," "our," or
the "Company") is an Atlanta, Georgia based firm that elected to
become a Business Development Company ("BDC") in January 2005,
pursuant to the provisions of Section 54(a) of the Investment
Company Act of 1940 (the "1940 Act"). The Company operated as a
BDC for regulatory oversight and reporting purposes throughout
the period covered by this Form 10-K. The Company was in the
development stage throughout this period; and it has not
generated any revenue to date from its business plan. Effective
May 2, 2006, the Company filed a Form N-54C with the United
States Securities and Exchange Commission ("SEC") withdrawing its
election to be regulated as a BDC. The Company intends to pursue
a new business model whereby it will provide merchant banking-
type services to small, private companies seeking to become
publicly held and traded, as described further below. The
ability of the Company to continue as a going concern is
dependent on the Company's ability to implement its new business
plan, raise capital, and generate revenues. There can be no
assurance that the Company will be successful in implementing its
revised business plan.
History of Company Development
Nortia was 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 original business plan. In March 2001, we
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. At that time, present
management raised capital and commenced preparations to operate
as a BDC, whereby we intended to be regulated pursuant to certain
requirements of the 1940 Act applicable to BDCs.
Effective August 2, 2004, BF Acquisition Group I, Inc. changed
its name to Nortia Capital Partners, Inc.
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 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.
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.
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.
On January 4, 2005, we filed Form N-54A with the SEC and elected
to be regulated as a BDC pursuant to Section 54 of the 1940 Act.
As a result, we operated as an investment company and planned to
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announce a number of investments in the future, each of which was
to be designed to build an investment portfolio and enhance the
Company's shareholder value. It was our intention to provide
capital and advisory services for management buyouts,
recapitalizations, and the growth and capital needs of emerging
growth companies. As a BDC, we expected to derive our revenues
through direct investments into private companies, start-up
companies, and through the opportunities provided by turn around
companies. Additionally, we intended to provide fee based
business expertise through in-house consultants and contract
consultants.
The Company expected to invest in emerging and development-stage
companies that intended to be listed and traded on US equity
markets, including the OTC Bulletin Board. It was intended that
the primary use of Company resources would be to invest in
private and micro-cap companies that typically lack the necessary
capital and depth of management to expand their businesses.
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 with respect to which a comment letter
was issued by the SEC staff to the Company. As a result, we
understood we were out of compliance with certain of the rules
and regulations governing the business and affairs, financial
status, and financial reporting items required of BDCs.
Ultimately, the Board of Directors of the Company (the "Board")
caused the Company to take immediate and substantial steps to
remediate certain of the compliance failures, and the Company
informed the SEC staff of these steps.
Accordingly, after careful consideration of the 1940 Act
requirements applicable to BDCs, an evaluation of the Company's
ability to operate as a going concern in an investment company
regulatory environment, the cost of 1940 Act compliance needs and
a thorough assessment of potential alternative business models,
the Board determined that continuation as a BDC was not in the
best interest of the Company and its shareholders. On February
10, 2006, upon the recommendation of the Board, a majority of the
then outstanding shares voted to approve withdrawal of our
election as a BDC.
On May 2, 2006, we filed form N-54C with the SEC formally
withdrawing our election to be subject to the 1940 Act, pursuant
to the provisions of section 54(c) of the Act. As of that date,
the Company was no longer a BDC and now intends to at all times
conduct its activities in such a way that it will not be deemed
an "investment company" subject to regulation under the 1940 Act.
Thus, it will not hold itself out as being engaged primarily in
the business of investing, reinvesting or trading in securities.
In addition, the Company intends to conduct its business in such
a manner as to ensure that it will at no time own or propose to
acquire investment securities having a value exceeding 40 percent
of the Company's total assets at any one time.
For the period between January 4, 2005 (commencement of our
status as a BDC) and April 30, 2006, we explored certain
investment opportunities. In July 2005, we entered into an
agreement, as our first project, to acquire a minority equity
interest in Holley Communications Investment, Inc. Additionally,
in March 2006, we acquired a minority interest in Knight Energy
Corp. The Company, however, never generated any revenue from its
business plan as a BDC.
We previously intended to elect to be treated as an RIC under
Subchapter M of the Code as soon as practicable. As a RIC, we
generally would not have been taxed on investment company taxable
income or realized net capital gains, to the extent that such
taxable income or gains are distributed, or deemed to be
distributed, to stockholders on a timely basis. However, with the
filing of Form N-54C with the SEC in May 2006 as discussed
previously, the Company is no longer a BDC and will not qualify
as a RIC.
5
New Business Model
Subsequent to our withdrawal as a BDC, Nortia has changed the
nature of its business focus from investing, owning, holding, or
trading in investment securities toward that of an operating
company intending to pursue a business model whereby it will
provide merchant banking-type services to small, private
companies seeking to become publicly held and traded.
Specifically, the Company intends to identify small private
companies and assist them with managerial, accounting and
financial advice and help them to raise necessary capital by
introducing them to potential investment advisors. As
compensation for these services, the Company proposes to receive
shares of the companies, which we expect will then be registered
in their initial public offerings. The Company anticipates that
the shares it receives as compensation will be assessed at par
value. The Company will at all times report shares it receives as
compensation on its periodic reports filed with the SEC. Upon the
initial public offering, the Company will immediately distribute
to its shareholders a portion of the shares held. The Company
intends to at all times conduct its activities in such a way that
it will not be deemed an "investment company" subject to
regulation under the 1940 Act. Thus, it will not hold itself out
as being engaged primarily in the business of investing,
reinvesting or trading in securities. In addition, the Company
intends to conduct its business in such a manner as to ensure
that it will at no time own or propose to acquire investment
securities having a value exceeding 40 percent of the Company's
total assets at any one time.
In order to implement our new business model, we will need to
either become licensed as a broker-dealer or acquire a licensed
broker-dealer. In either case, we must apply for and obtain the
requisite approvals of the National Association of Securities
Dealers ("NASD"). As this business plan is relatively unique,
there is no guarantee that we will obtain such NASD approvals
within a reasonable time period or at all. Therefore, we may not
be able to effect our business plan. In addition, the Company
has not engaged in this line of business before and there is no
guarantee that it will be successful in implementing the business
plan, or that if implemented, it will ever have revenues from the
business.
Employees
As of June 16, 2006, we had three full-time employees, none of
which is represented by a union. We believe that our
relationship with our employees is good.
Item 1A. 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 Annual Report on Form 10-K, 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.
6
We have suffered significant operating loss in our current fiscal
year and since inception.
During the fiscal year ended April 30, 2006, we had a net loss of
$1,629,461, and we have had significant cumulative net losses
since inception. 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. As discussed previously, we
have had no revenues during the fiscal year ended April 30, 2006,
and subsequently, we have had no revenues since electing to
become a BDC. Effective May 2, 2006, we are no longer a BDC and
are commencing a new business model as a merchant banking firm.
There is no assurance that we will be successful under our new
business model, achieve revenues and provide sufficient cash flow
to fund our required expenditures. Additionally, there is no
assurance that additional equity or debt financing will be
available on terms acceptable to our management.
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.
When the Company ceased to be a BDC in May 2006, the shareholders
lost certain protections, including the following:
* The Company is no longer subject to the requirement that it
maintain a ratio of assets to senior securities of at least
200%;
* The Company is no longer prohibited from protecting any
director or officer against any liability to the Company or
the Company's shareholders arising from willful malfeasance,
bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of that person's office;
* The Company is no longer required to provide and maintain a
bond issued by a reputable fidelity insurance company to
protect it against larceny and embezzlement;
* The Company is no longer required to ensure that a majority
of the directors are persons who are not "interested
persons," as that term is defined in the 1940 Act, and
certain persons that would be prevented from serving on the
Company's board if it were a BDC (such as investment
bankers) will be able to serve on the Company's board;
* The Company is no longer subject to provisions of the 1940
Act regulating transactions between BDCs and certain
affiliates and restricting the Company's ability to issue
warrants and options;
* The Company will be able to change the nature of its
business and fundamental investment policies without having
to obtain the approval of its shareholders;
* The Company is no longer subject to provisions of the 1940
Act prohibiting the issuance of securities at a price below
net asset value;
* The Company is no longer subject to the other provisions and
protections set forth in Sections 55 through 64 of the 1940
Act and the rules and regulations promulgated thereunder.
However, the Board will still be subject to customary
principles of fiduciary duty with respect to the Company and
its shareholders. In addition, withdrawal of the Company's
election to be treated as a BDC did not affect the Company's
7
registration under Section 12(b) of the Securities Exchange
Act of 1934 (the "Exchange Act"). Under the Exchange Act,
the Company is required to file periodic reports on Form 10-
K, Form 10-Q, Form 8-K, proxy statements and other reports
required under the Exchange Act; or
* The withdrawal of the Company's election to be regulated as
a BDC results in a change in its method of accounting. BDC
financial statement presentation and accounting uses the
value method of accounting used by investment companies,
which allows BDCs to recognize income and value their
investments at market value as opposed to historical cost.
Operating companies use either the fair-value or historical-
cost methods of accounting for financial statement
presentation and accounting for securities held, depending
on how the investment is classified and how long the company
intends to hold the investment. Changing the Company's
method of accounting could reduce the market value of its
investments in privately held companies by eliminating the
Company's ability to report an increase in value of its
holdings as they occur. The Company believes that, in light
of its limited assets, the effect of the change in method of
accounting should not be material. In accordance with
generally accepted accounting principles, the change from a
BDC to an operating company will be retrospectively applied
to prior periods. The Company does not believe that
withdrawing its election to be regulated as a BDC will have
any impact on its federal income tax status, because the
Company never elected to be treated as a RIC. Instead, the
Company has always been subject to corporate level federal
income tax on its income (without regard to any
distributions it makes to its shareholders) as a "regular"
corporation under Subchapter C of the Internal Revenue Code.
We are highly dependent upon management, and 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.
Operating 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;
8
* significant volatility in the market price and trading
volume of securities of business development companies or
other financial services companies;
* volatility resulting from trading in derivative securities
related to our common stock including puts, calls, long-term
equity anticipation securities, or LEAPs, or short trading
positions;
* changes in regulatory policies or tax guidelines with
respect to business development companies or regulated
investment companies;
* actual or anticipated changes in our earnings or
fluctuations in our operating results or changes in the
expectations of securities analysts;
* general economic conditions and trends;
* loss of a major funding source; or
* departures of key personnel.
We have a limited operating history 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.
Additionally, effective May 2006, we have withdrawn our election
to be a BDC and have commenced a new business model as a merchant
banking firm. 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 business
objective and that the value of our common stock or other
securities could decline substantially. As a result, we have
very limited operating results under these regulatory frameworks
that would demonstrate either their effect on the business or our
ability to manage the business within these frameworks. In
addition, the Company has not engaged in this line of business
before, and there is no guarantee that it will be successful in
implementing the business plan, or that if implemented, it will
ever have revenues from the business. Our new 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.
We may not be able to obtain the regulatory approvals necessary
to implement our new business plan.
In order to implement our new business model, we will need to
either become licensed as a broker-dealer or acquire a licensed
broker-dealer. In either case, we must apply for and obtain the
requisite approvals of the NASD. As this business plan is
relatively unique, there is no guarantee that we will obtain such
NASD approvals within a reasonable time period or at all.
Therefore, we may not be able to effect our business plan.
9
The Company is subject to the underlying risks of the new,
developing businesses which the Company will assist.
Effective May 2, 2006, the Company intends to pursue a business
model whereby it would provide merchant banking-type services to
small, private companies seeking to become publicly held and
traded. Specifically, the Company will identify small private
companies (the "Clients") and assist them with managerial,
accounting and financial advice and help them to raise necessary
capital by introducing them to potential investment advisors. As
compensation for these services, the Company proposes to receive
shares of the Client, which will then be registered by the Client
in its initial public offering. Successful achievement 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. Moreover, the Company's task of
identifying and helping to build successful new and emerging
enterprises is difficult. There can be no assurance that the
Company will be successful in identifying and developing these
ventures.
The Company may continue to be deemed an "investment company"
subject to regulation under the 1940 Act.
Under the new business model as a merchant bank, the Company
intends to at all times, conduct its activities in such a way
that it will not be deemed an "investment company" subject to
regulation under the 1940 Act. Thus, it will not hold itself out
as being engaged primarily in the business of investing,
reinvesting or trading in securities. In addition, the Company
intends to conduct its business in such a manner as to ensure
that it will at no time own or propose to acquire investment
securities having a value exceeding 40 percent of the Company's
total assets at any one time. The regulations under the 1940 Act
are complex. As a non-BDC entity, there is a risk that the
Company will perform an activity such that it meets the criteria
as an "investment company" and will be subject to the 1940 Act
requirements. Under the Company's new business model as a
merchant banking firm, it will acquire shares in Clients.
Accordingly, the Company must ensure that these shares of Clients
do not put the Company in the business of "investing, reinvesting
or trading in securities." The consequences of such an event
would result in significant financial and regulatory liability to
the Company.
The Company may hold investment securities having a value
exceeding 40 percent of the Company's assets at any one time.
The Company must ensure that shares of Clients do not exceed 40
percent of the Company's assets at any one time. The consequences
of such an event are would result in significant financial and
regulatory liability to the Company.
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.
Management has discretionary use of Company assets.
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.
10
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.
We operate in a competitive market for investment opportunities.
We compete for investments with a large number of private equity
funds and mezzanine funds, business development companies, other
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.
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 or our stockholders to liquidate such
securities. In addition, if we, or our stockholders, 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.
Our Clients may not successfully complete their initial public
offerings.
As compensation for services, the Company proposes to receive
shares of the Client, which will then be registered by the Client
in its initial public offering. Upon the Client's initial public
offering, the Company will immediately distribute to its
shareholders a portion of the Client's shares held. The ability
to successfully complete an initial public offering are subject
to numerous constraints, including cash requirements for legal
and accounting and regulatory requirements including the SEC,
stock exchange and listing entities. There is a risk that the
Clients will not successfully complete their initial public
offering, and therefore the Company would not be able to
distribute "freely tradable" shares to its shareholders and the
shares would remain "restricted" as to resale in private
companies.
Changes in the law or regulations that govern us could have a
material impact on us or our operations.
As a public company, we are regulated by the SEC and other
federal and state regulatory agencies. In addition, changes in
the laws or regulations that govern, for example, real estate
investment trusts and small business investment companies may
11
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.
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 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We do not own any real estate or other physical properties
materially important to our operation. Our administrative and
principal executive offices are located at 400 Hampton View
Court, Alpharetta, Georgia 30004. We believe that our office
facilities are suitable and adequate for our business as it is
contemplated to be conducted.
Item 3. 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
12
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 Chief Executive
Officer, 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 4. Submission of Matters to a Vote of Security Holders
On April 7, 2006, The Company issued an information statement on
behalf of the Board of the Company to record holders of shares of
common stock as of the close of business on the record date March
14, 2006. The information statement provided notice that the
Board had recommended, and holders of a majority of the voting
power of our outstanding common stock had voted, to approve the
authorization to withdraw the Company's election to be treated as
a BDC under the 1940 Act. No other matters were submitted to a
vote of security holders during our fourth fiscal quarter ended
April 30, 2006.
PART II
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
PRICE RANGE OF COMMON STOCK
Our common stock is quoted by Pink Sheets LLC under the symbol
"NCPN." The following table sets forth the high and low bid
prices for our common stock for the periods indicated, as
reported by Pink Sheets LLC. Such quotations reflect inter-
dealer prices, without retail mark-up, mark-down, or commissions,
and may not necessarily represent actual transactions.
Bid (1)
-------
High Low
-------------
Year ending April 30, 2006:
- ---------------------------
First Quarter..................................... $2.25 $1.05
Second Quarter.................................... $2.15 $1.20
Third Quarter..................................... $2.20 $1.20
Fourth Quarter.................................... $3.06 $1.50
Year ended April 30, 2005:
- --------------------------
First Quarter..................................... $0.80 $0.10
13
Second Quarter.................................... $1.20 $0.60
Third Quarter..................................... $1.65 $0.55
Fourth Quarter................................... $4.28 $2.50
(1) Reflects one-for-ten reverse split with a record date of
October 12, 2004, and two-for-one forward split with a record
date of February 28, 2005.
- -----------------------------------------------------------------------------------------------
Closing Bid Price
-----------------
Premium of Premium or
High Sales Discounted of Low
Sales Price to Sales Price to Declared
Year Ending April 30, 2006 NAV(3) High Low NAV(4) NAV(4) Dividends
- -----------------------------------------------------------------------------------------------
First Fiscal Quarter $ .00 $ 2.25 $ 1.05 100% 100% -0-
Second Fiscal Quarter $ (.01) $ 2.15 $ 1.20 100% 100% -0-
Third Fiscal Quarter $ (.01) $ 2.20 $ 1.20 100% 100% -0-
Fourth Fiscal Quarter $ .00 $ 3.06 $ 2.50 100% 100% -0-
- -----------------------------------------------------------------------------------------------
Premium of Premium or
High Sales Discounted of Low
Sales Price to Sales Price to Declared
Year Ending April 30, 2006 NAV(3) High Low NAV(4) NAV(4) Dividends
- -----------------------------------------------------------------------------------------------
Third Fiscal
Quarter (commencing
January 4, 2005 (2)) $ (.03) $ 1.65 $ 0.55 102% 105% -0-
Fourth Fiscal Quarter $ (.01) $ 4.28 $ 1.50 100% 100% -0-
(1) Reflects one-for-ten reverse split with a record date of
October 12, 2004, and two-for-one forward split with a record
date of February 28, 2005.
(2) Date of our election to become regulated as a BDC under the
1940 Act.
(3) NAV per share is determined as of the last day in the
relevant quarter and therefore may not reflect the NAV per share
on the date of the high and low sales prices. The NAV's shown
are based on outstanding and issuable shares at the end of each
period.
(4) Calculated as of the respective high or low closing sales
price divided by the quarter end NAV.
On August 11, 2006, the last sales price of our common stock was
$1.26. As of August 11, 2006, there were approximately 400
holders of record of our common stock.
Penny Stock Rules
The SEC has adopted rules that regulate broker-dealer practices
in connection with transactions in penny stocks. Penny stocks
are generally equity securities with a market price of less than
$5.00, other than securities registered on certain national
securities exchanges or traded on the NASDAQ system, if current
price and volume information with respect to transactions in such
securities is provided by the exchange or system. The penny
stock rules require a broker-dealer, prior to a transaction (by a
person other than an established customer or an "accredited
investor") in a penny stock, among certain other restrictions, to
deliver a standardized risk disclosure document prepared by the
SEC, that: (a) contains a description of the nature and level of
14
risk in the market for penny stocks in both public offerings and
secondary trading; (b) contains a description of the broker's or
dealer's duties to the customer and of the rights and remedies
available to the customer with respect to a violation of such
duties or other requirements of the securities laws; (c) contains
a brief, clear, narrative description of a dealer market,
including bid and ask prices for penny stocks and the
significance of the spread between the bid and ask price; (d)
contains a toll-free telephone number for inquiries on
disciplinary actions; (e) defines significant terms in the
disclosure document or in the conduct of trading in penny stocks;
and (f) contains such other information and is in such form,
including language, type, size and format, as the SEC shall
require by rule or regulation. In addition, the penny stock
rules require a uniform two day waiting period following delivery
of the standardized risk disclosure document and receipt of a
signed and dated acknowledgement of receipt of such disclosure
document before the penny stock transaction may be completed.
The broker-dealer also must provide, prior to effecting any
transaction (by a person other than an established customer or an
"accredited investor") in a penny stock, the customer with (a)
bid and offer quotations for the penny stock; (b) the
compensation of the broker-dealer and its salesperson in the
transaction; (c) the number of shares to which such bid and ask
prices apply, or other comparable information relating to the
depth and liquidity of the market for such stock; and (d) a
monthly account statement showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from those
rules; the broker-dealer must make a special written
determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment
of the receipt of a risk disclosure statement, a written
agreement as to transactions involving penny stocks, and a signed
and dated copy of a written suitability statement. These
disclosure requirements may have the effect of reducing the
trading activity for our common stock. Therefore, stockholders
may have difficulty selling our securities.
Dividends
We have never declared or paid cash dividends on our common stock
and do not anticipate paying cash dividends in the foreseeable
future. We anticipate reinvesting profits, if any, into the
business. As of the end of our 2006 fiscal year, our board had
not declared any dividends.
Recent Sales of Unregistered Securities
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 ("Unit"). Each Unit consisted 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. The offering included an option for an
over-allotment of up to 200,000 units or a maximum issuance of
1,200,000 units. Effective January 16, 2005, the offering was
terminated and in total, the Company received $1,315,770 of
proceeds from the issuance of the Units, representing 1,196,155
shares of common stock and 1,196,155 two-year warrants to
purchase common stock at $2.00 per share.
In January 2006, the Company initiated a new private placement
offering for the issuance of up to 1,000,000 units at an offering
price of $1.10 per share ("Unit"). Each Unit consisted 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. The offering included an
option for an over-allotment of up to 200,000 units or a maximum
issuance of 1,200,000 units. As of April 30, 2006, the Company
has received $549,450 of proceeds from the issuance of the Units,
representing 499,500 shares of common stock and 499,500 two-year
warrants to purchase common stock at $2.00 per share.
In total for the combined private placements, through June 30,
2006, the Company has received $2,104,250 of proceeds from the
issuance of the Units, representing 1,912,955 shares of common
stock and 1,912,955 two-year warrants to purchase common stock at
$2.00 per share.
15
All of the private placements disclosed above were made solely to
"accredited investors," as such term is defined in rule 501 of
Regulation D under the Securities Act of 1933 (the "Securities
Act"). The securities have not been registered under the
Securities Act or the securities laws of any state or foreign
jurisdiction and will be offered and sold in reliance on the
exemption from registration afforded by section 4(2) of the
Securities Act and corresponding provisions of state securities
laws.
Item 6. Selected Financial Data
The Statement of Operations, Per Share, and Balance Sheet data
for the periods ended April 30, 2006, and 2005, are derived from
our financial statements that have been audited by Salberg &
Company, PA, our independent registered public accounting firm.
Information in response to this Item is incorporated herein by
reference from the tables in Notes 11 and 13 of the accompanying
Financial Statements. This selected financial data should be
read in conjunction with our financial statements and related
notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere
in this Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-looking Statements
The following analysis of our financial condition and results of
operations is qualified by reference to, and should be read in
conjunction with our audited financial statements and the notes
thereto contained elsewhere in this Form 10-K, as well as the
discussion hereunder. We may use words such as "anticipates,"
"believes," "expects," "intends," "will," "should," "may" and
similar expressions to identify forward-looking statements.
Such statements are based on currently available operating,
financial and competitive information and are subject to various
risks and uncertainties that could cause actual results to differ
materially from our historical experience and our present
expectations. Undue reliance should not be placed on such
forward-looking statements, as such statements speak only as of
the date on which they are made. 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 Annual Report on Form
10-K. We undertake no duty to update any forward-looking
statements made herein. Additional information regarding these
and other risks and uncertainties is also contained in our other
periodic filings with the SEC.
Certain statements in this report that relate to estimates or
expectations of our future performance or financial condition may
constitute "forward-looking statements." The forward-looking
statements involve risks and uncertainties, including, but not
limited to, statements as to:
* our future operating results;
* our business prospects and the prospects of our
portfolio companies;
* the impact of investments that we expect to make;
* the dependence of our future success on the general
economy and its impact on the industries in which we invest;
16
* the ability of our portfolio companies to achieve their
objectives;
* our expected financings and investments;
* the adequacy of our cash resources and working capital; and
* the timing of cash flows, if any, from the operations of
our portfolio companies.
Going Concern
As reflected in the accompanying financial statements, the
Company has a net loss of $1,629,461 and net cash used in
operations of $1,656,922 for the year ended April 30, 2006 as a
BDC. Additionally, the Company has an accumulated deficit of
$12,398 and a deficit accumulated during the development stage of
$6,399,638 at April 30, 2006. These items, respectively, raise
substantial doubt about our ability to continue as a going
concern. The ability of the Company to continue as a going
concern is dependent on the Company's ability to implement its
new business plan, raise capital, and generate revenues. 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.
General
The results of operations presented in the accompanying financial
statements are divided into two classifications. The year ended
April 30, 2006 and the four month period from January 1, 2005
through April 30, 2005 reflects the Company's results as a BDC.
The year ended April 30, 2004 and the eight-month period from May
1, 2004 through December 31, 2004, reflects the Company's results
prior to operating as a BDC. The results of operations from
January 1, 2005 to January 3, 2005, the BDC election date, were
not material. Accounting principles used in the preparation of
the financial statements beginning January 1, 2005 are different
from those of prior periods and, therefore, the financial
position and results of operations of this period is not directly
comparable. The Company utilizes the cumulative effect method to
reflect the effects of conversion to a BDC. There was no
cumulative effect adjustment from the conversion to a BDC in
January 2005.
Previously, the Company planned on generating future revenues as
a BDC through direct investments into private companies, start-up
companies, and through the opportunities provided by turnaround
companies. However, as previously discussed in the "Business"
section, the Company filed a form N-54C with the SEC in May 2006
withdrawing its election to be a BDC under the 1940 Act. The
Company has changed the nature of its business focus from
investing, owning, holding, or trading in investment securities
toward that of an operating company intending to pursue a
business model whereby it will provide merchant banking-type
services to small, private companies seeking to become publicly
held and traded whose focus will be developing a viable
investment business plan.
The time required for Nortia to become profitable from operations
is highly uncertain, especially in light of the new business
model discussed above. We cannot assure you that we will achieve
or sustain operating profitability or generate sufficient cash
flow to meet our planned capital expenditures and working capital
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.
17
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.
Overview of Operations
Securities-related Matters
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.
At January 31, 2005, we had $504,000 of ten percent debentures
outstanding. Utilizing an effective date of April 15, 2005, the
entire $504,000 was exchanged for the Company's 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
were 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 year and the debenture provisions included a
penalty of five percent for any default that occurs. As a result
of the debenture exchange, we have recorded 2,427,200 shares of
our common stock as issuable at April 30, 2005 and recorded a
loss on exchange of the debt in the amount of $2,104,285 in the
accompanying Statement of Operations. The loss on the exchange
of the debt was calculated utilizing a $1.10 per share fair
market value for our common stock, obtained from a recent private
placement offering.
From November 2004 through February of 2005, we received $188,000
of proceeds from the issuance of promissory notes to several
parties. The promissory note terms bear interest at 10% per
annum, payable 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 common stock at an
exchange rate of $0.25 per share. No shares of common stock were
offered in exchange for accrued interest, which was to be
forgiven in accordance with the terms of the exchange documents.
As a result of the promissory note exchanges, we have recorded
752,000 shares of our common stock as issuable at April 30, 2005
and recorded a loss on exchange of the debt in the amount of
$634,273 in the accompanying Statement of Operations. The loss
on the exchange of the debt was calculated utilizing a $1.10 per
share fair market value for our common stock, obtained from a
recent private placement offering.
In April 2005, the Company initiated a private placement offering
for the issuance of up to 1,000,000 units at an offering price of
$1.10 per share ("Unit"). Each Unit consisted 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. The offering included an option for an
over-allotment of up to 200,000 units or a maximum issuance of
1,200,000 units. Effective January 16, 2005, the offering was
terminated and in total, the Company received $1,315,770 of
proceeds from the issuance of the Units, representing 1,196,155
shares of common stock and 1,196,155 two-year warrants to
purchase common stock at $2.00 per share.
In January 2006, the Company initiated a new private placement
offering for the issuance of up to 1,000,000 units at an offering
price of $1.10 per share ("Unit"). Each Unit consisted 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. The offering included an
option for an over-allotment of up to 200,000 units or a maximum
issuance of 1,200,000 units. As of April 30, 2006, the Company
has received $549,450 of proceeds from the issuance of the Units,
representing 499,500 shares of common stock and 499,500 two-year
18
warrants to purchase common stock at $2.00 per share.
In total for the combined private placements as of April 30,
2006, the Company has received $1,865,220 of proceeds from the
issuance of the Units, representing 1,695,655 shares of common
stock and 1,695,655 two-year warrants to purchase common stock at
$2.00 per share.
Other Matters
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. In connection with that prospective
offering, we filed a Form 1-E with the SEC, which was reviewed in
the ordinary course and with respect to which a comment letter
was issued by the SEC staff to the Company ("Comment Letter").
As a result, we currently understand that were 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 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. As
of the date of this filing, no shares have been issued under the
1-E in exchange for the promissory notes. In response to the
Comment Letter, during fiscal 2006, the Company conducted a
review of its compliance with the 1940 Act and determined that it
was not in compliance with several important provisions of that
Act. Specifically, the Company determined that it had issued
securities in return for services, potentially violating Section
23 of the 1940 Act, had granted shares of the Company's common
stock as compensation to the Company's Chief Executive Officer
and President and had neglected to adopt compliance policies and
procedures. The Board of Directors, including the Directors who
are not interested persons of the Company, reviewed the facts
surrounding these compliance failures and their implications for
the Company. Ultimately, the Directors caused the Company to take
immediate and substantial steps to remediate the compliance
failures, and the Company informed the SEC Staff of these steps.
However, there can be no assurance that such steps will fully
cure all of the 1940 Act compliance deficiencies to which the
Company became subject, nor how any failure to cure those
deficiencies will impact the Company in the future. Moreover, the
Company's significant compliance and remediation costs, in terms
of both time and dollars, have operated as an encumbrance on the
Company's resources. Accordingly, after careful consideration of
the 1940 Act requirements applicable to BDCs, an evaluation of
the Company's ability to operate as a going concern in an
investment company regulatory environment, the cost of 1940 Act
compliance needs and a thorough assessment of potential
alternative business models, the Board determined that
continuation as a BDC was not in the best interest of the Company
and its shareholders and approved the recommendation, that the
Company file a Form N-54C and withdraw its election to be
registered as a BDC.
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
19
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 expectation was that following
completion of transactions contemplated in the Share Exchange
Agreement, the Company would 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 December 2005, the Company signed a letter of intent to
provide $100,000 of funding for All American Pet, Inc., ("AAPC"),
a New York corporation, with its principal office in Encino,
California. AAPC produces markets and sells super premium dog
food primarily through supermarkets and grocery stores and has
secured commitments to distribute its products through
approximately 6,000 supermarkets and grocery stores. As of
April 30, 2006, the Company has funded the entire $100,000
commitment and was working on a formal agreement for the terms of
the funding. Accordingly, the $100,000 has been recorded as a
Loan Receivable in the accompanying Financial Statements.
In January 2006, Bruce A. Hall was appointed Chief Financial
Officer of the Company. In connection with Mr. Hall's
appointment, Robert Hunziker resigned as Chief Financial Officer
of the Company.
In March 2006, the Company acquired 1,250,000 shares of Knight
Energy Corp. ("Knight") for a purchase price of $1,250. Knight
is a holding company that operates and develops energy related
businesses and assets. In March of 2006 Knight acquired a 75%
equity interest in an independent oil and gas services company
that owns an executed lease agreement among other assets in
Stephens County, Texas. The lease agreement contains approximately
160 acres that include four producing natural gas wells.
Stephens County has been a successful producer of oil and gas
over the last fifty years. Knight also owns and operates its
own drilling rig that will be used to drill additional wells on
the current leased property as well as other potential properties
that Knight is reviewing for consideration. Knight is currently
reviewing further acquisitions and investments in the oil and gas
industry as well as other energy related businesses and assets.
Nortia has agreed to provide Knight with Merchant Banking
services that include advice on mergers & acquisitions, capital
markets, public markets strategies and raising capital. In
addition to the common stock that Nortia has received for
services, Knight has also granted Nortia options to purchase
additional common shares. Nortia received 1,250,000 options to
purchase Knight common shares with an exercise price of $.50 as
well as 1,250,000 options to purchase Knight common shares with
an exercise price of $1.00.
Recent Developments after Fiscal Year End
In May 2006, the Company formally completed an agreement related
to $100,000 of funding provided to AAPC, as discussed previously.
The agreement grants the Company a non-controlling equity
position for 750,000 shares of AAPC. Additionally, the Company
received 500,000 warrants to purchase AAPC shares at $0.50 per
share. As a result of the agreement, the Company's Loan
Receivable position of $100,000 as of April 30, 2006 will be
converted to an investment in common shares of AAPC.
20
On May 2, 2006, the Form N-54C was filed with the SEC withdrawing
its election to be regulated as a BDC. The Company now intends
to pursue a business model whereby it would provide merchant
banking-type services to small, private companies seeking to
become publicly held and traded. Specifically, the Company
intends to identify small private companies (the "Clients") and
assist them with managerial, accounting and financial advice and
help them to raise necessary capital by introducing them to
potential investment advisors. As compensation for these
services, the Company proposes to receive shares of the Client,
which will then be registered by the Client in its initial public
offering. The Company anticipates that the shares it receives as
compensation will be assessed at par value. The Company will at
all times report shares it receives as compensation on its
periodic reports filed with the SEC. Upon the Client's initial
public offering, the Company will immediately distribute to its
shareholders a portion of the Client's shares held. The Company
intends to at all times conduct its activities in such a way that
it will not be deemed an "investment company" subject to
regulation under the 1940 Act. Thus, it will not hold itself out
as being engaged primarily in the business of investing,
reinvesting or trading in securities. In addition, the Company
intends to conduct its business in such a manner as to ensure
that it will at no time own or propose to acquire investment
securities having a value exceeding 40 percent of the Company's
total assets at any one time. The Company's violations of the
1940 Act may cause the Company to incur certain liabilities.
Such liabilities can not be estimated by management as of this
time. However, such liabilities, if incurred, could have a
significant impact on the Company's ability 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 the
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 3 "Summary of Significant
Accounting Policies" in the notes to our audited financial
statements contained in our Annual Report on Form 10-K for the
year ended April 30, 2006. 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. If the Company issued
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.
21
Fair Value of Financial Instruments
We define the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value of
accounts receivable, accounts payable and accrued liabilities
approximates fair value because of the short maturity of those
instruments. The estimated fair value of our other obligations
is estimated based on the current rates offered to us for similar
maturities. Based on prevailing interest rates and the short-
term maturity of all of our indebtedness, management believes
that the fair value of our obligations approximates book value at
April 30, 2006.
Valuation of Common Stock Issued For Services
The Company issued common stock to several parties during the
years ended April 30, 2006, 2005 and 2004. For all of these
issuances, valuation was determined based upon the stock closing
price on the date of grant.
Valuation of Investments
The value of investments in publicly traded securities is
determined using quoted market prices discounted for restrictions
on resale, if any. During the covered period, while we were a
BDC, for financial statement purposes, investments for which
market quotations are not readily available 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.
Now that the Company is no longer a BDC, it is currently
evaluating its valuation policy and anticipates making certain
changes to it.
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.
22
RESULTS OF OPERATIONS
Post Election as a Business Pre Election as a Business
---- ---
Development Company Development Company
-------------------------- --------------------------
Twelve Four Eight Twelve
Months Ended Months Ended Months Ended Months Ended
Apr. 30, 2006 Apr. 30, 2005 Dec. 31, 2004 Apr. 30, 2004
------------------------------ ------------------------------
Investment and Pre-BDC Operating Income
Consulting income $ - $ - $ 153,699 $ 146,301
Investment income - portfolio investments
Interest - - - -
Dividends - - - -
------------------------------ ------------------------------
Total Investment and Pre-BDC Operating Income - - 153,699 146,301
Operating Expenses
General and administrative 348,175 102,556 94,223 75,133
Bad debt - 1,625 - -
Rent 20,441 15,927 23,072 -
Consulting 141,698 559,500 82,342 -
Compensation 654,438 127,525 245,465 186,799
Debenture penalty - 9,225 2,175 -
Directors fees 14,622 - 225,150 12,000
Interest expense 2,927 26,643 15,054 11,447
Impairment of investments - 45,331 3,250 -
Professional 447,633 77,728 109,892 20,000
------------------------------ ------------------------------
Total Operating Expenses 1,629,934 966,060 800,623 305,379
------------------------------ ------------------------------
Net Investment and Pre-BDC Operating Loss (1,629,934) (966,060) (646,924) (159,078)
Other Income (Expense)
Loss on sale of available for sale securities - - (64,738) -
Loss on conversion of debt - (2,738,559) - -
Other than temporary loss on for sale securities - - (195,000) -
Other income - 33 4,536 -
Interest income 473 (8) 8 11
------------------------------ ------------------------------
Other Income (Expense) 473 (2,738,534) (255,194) 11
------------------------------ ------------------------------
Net Decrease in Net Assets (post BDC)
and Net Loss (pre BDC)
Before Income Taxes $(1,629,461) $(3,704,595) $ (902,119) $ (159,067)
============================== ==============================
Income tax expense - - - (4,397)
------------------------------ ------------------------------
Net Decrease in Net Assets (post BDC)
and Net Loss (pre BDC) $(1,629,461) $(3,704,595) $ (902,119) $ (163,464)
============================== ==============================
Comprehensive Loss
Unrealized losses on available for
sale securities - - (139,052) 139,052
------------------------------ ------------------------------
Total Comprehensive Loss $(1,629,461) $(3,704,595) $(1,041,171) $ (24,412)
============================== ==============================
23
Note: To help the reader better understand our results of
operations, all references below to 2005 represent the year ended
April 30, 2005, which is a combination of the four months ended
April 30, 2005 (operations as a BDC) and the eight months ended
December 31, 2004 (operations prior to becoming a BDC). All
references to 2004 represent the year ended April 30, 2004 as
operations prior to becoming a BDC. All references to 2006
represent the year ended April 30, 2006 operations as a BDC).
Fiscal Year Ended April 30, 2006 versus Fiscal Year Ended April 30, 2005
- ------------------------------------------------------------------------
Investment and Pre-BDC Operating Income:
Investment and Pre-BDC Operating Income decreased $153,699, or
100%, to zero for 2006 from $153,699 for 2005. We had no
investment income from our BDC operations for 2006. In 2005, we
recorded $153,699 of consulting fees as operating income prior to
becoming a BDC.
Operating Expenses:
Operating expenses decreased $136,749, or 8%, to $1,629,934 for
2006 from $1,766,684 for 2005. The decrease was primarily the
result of a $500,144 decrease in consulting and a $210,528
decrease in directors' fees, offset by a $281,448 increase in
compensation and a $260,013 increase in professional. The
decrease in consulting and directors fees was primarily the
result that prior to the Company becoming a BDC in 2005, these
fees were paid primarily from the issuance of stock for services.
The increase in compensation and professional was primarily from
an increase in employee compensation, accounting and legal as a
result of the Company becoming a BDC and the resulting increased
requirements for employee and professional services.
Other Income (Expense):
Other income (expense) increased $2,994,201 of income, or 100%,
to $473 of other income for 2006 from $2,993,728 of other expense
in 2005. The increase was primarily due to a $2,738,559 loss on
the exchange of debt to common stock in 2005 with no comparable
item for 2006.
Income Tax Expense:
There was no income tax expense for either 2006 or 2005 due to
the Company's decrease in net assets (post BDC) and net loss (pre
BDC).
Comprehensive Loss:
Comprehensive loss decreased $139,052, or 100%, to zero for 2006
from comprehensive loss of $139,052 in 2005. In 2005, the
Company realized $139,052 of previous unrealized gains on
available-for-sale securities of $185,000, offset by unrealized
losses of $45,948.
Fiscal Year Ended April 30, 2005 versus Fiscal Year Ended April 30, 2004
- ------------------------------------------------------------------------
Investment and Pre-BDC Operating Income:
Investment and Pre-BDC Operating Income increased $7,398, or
5.1%, to $153,699 for 2005 from $146,301 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
24
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
year ended April 30, 2004, we recorded $146,301 of the consulting
fees as pre-BDC operating income and recorded $153,699 of
consulting fees as pre-BDC operating income 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 pre-BDC operating
income, 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 $1,461,305, or 479%, to $1,766,683
for 2005 from $305,379 for 2004. The increase was primarily the
result of a $641,842 increase in consulting, a $213,150 increase
in directors' fees, a $186,191 increase in compensation and a
$167,620 increase in professional. The increase in consulting,
compensation and directors fees was primarily from the issuance
of stock for services. 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 Expense:
Other expense increased $2,993,739, or 26,868%, to $2,993,728 of
other expense for 2005 from $11 of other income in 2004. The
increase was primarily due to a $2,738,559 loss on the exchange
of debt to common stock. The loss on exchange was comprised of
two components:
1. At January 31, 2005, we had $504,000 of 10% debentures
outstanding. Utilizing an effective date of April 15, 2005, the
entire $504,000 was exchanged for the Company's 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
were granted in lieu of accrued interest and penalties. As of
January 31, 2005, $228,000 of the Debentures was in default as
the term was for one year and the debenture provisions included a
penalty of five percent for any default that occurs. As a result
of the debenture exchange, we have recorded 2,427,200 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.
2. 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 10%
per annum, payable 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 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 have 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.
25
Income Tax Expense:
Income tax expense decreased $4,397, or 100% to zero for 2005
from $4,397 in 2004. The decrease was because in 2004, non-
deductible stock issuances put the Company into a net income
position and the recording of the applicable income tax expense.
In 2005, there was no income tax due to the Company's net
decrease in assets (post BDC) and net loss (pre BDC).
Comprehensive Loss:
Comprehensive loss increased $139,052, or 100%, from
comprehensive income of $139,052 in 2004. The change was due to
the realization in 2005 of previous unrealized gains on available-
for-sale securities of $185,000, offset by unrealized losses of
$45,948.
Liquidity and Capital Resources:
Cash was $32,401 at April 30, 2006 as compared to $11,703 at
April 30, 2005 and working capital surplus was $15,230 at April
30, 2006 as compared to a working capital deficit of $129,629 at
April 30, 2005. The change in working capital from a deficit in
2005 to a surplus in 2006 was primarily due to a significant use
of cash for the payment of accounts payable and accrued expenses.
Additionally, net assets increased $246,109 from a net liability
position of $129,629 at April 30, 2005 to a net asset position of
$116,480 at April 30, 2006.
Operating Activities
Cash used in operating activities was $1,656,922 for 2006 as
compared to $532,816 for 2005. The increase in cash used
resulted primarily from the increase in the net loss as described
previously under "Results of Operations."
Investing Activities
Cash used in investing activities was $101,250 for 2006 compared
to cash used in investing activities of $14,405 for 2005. The
change in cash used was from a $100,000 issuance of a note
receivable and a $1,250 investment in a minority owned non-
controlled affiliate in 2006 compared to $14,405 of proceeds from
the sale of available-for-sale securities in 2005.
Financing Activities
Cash flows provided by financing activities was $1,778,870 for
2006 compared to $521,350 for 2005. For 2006, the Company
received $1,778,870 of proceeds from a private placement of
common stock. In 2005, the Company received $86,350 of proceeds
from a private placement of common stock, $247,000 of proceeds
from the issuance of debentures and $188,000 of proceeds from the
issuance of promissory notes.
Debt
We had no debt outstanding at April 30, 2006.
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
26
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. 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 10% debentures
outstanding. Utilizing an effective date of April 15, 2005, the
entire $504,000 was exchanged for the Company's 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
were granted in lieu of accrued interest and penalties. As of
January 31, 2005, $228,000 of the Debentures was in default as
the term was for one year and the debenture provisions included a
penalty of five percent for any default that occurs. As a result
of the debenture exchange, we have recorded 2,427,200 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.
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 10% per
annum, payable 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 have 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.
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 ("Unit"). Each Unit consisted 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. The offering included an option for an
over-allotment of up to 200,000 units or a maximum issuance of
1,200,000 units. Effective January 16, 2005, the offering was
terminated and in total, the Company received $1,315,770 of
proceeds from the issuance of the Units, representing 1,196,155
shares of common stock and 1,196,155 two-year warrants to
purchase common stock at $2.00 per share.
In January 2006, the Company initiated a new private placement
offering for the issuance of up to 1,000,000 units at an offering
price of $1.10 per share ("Unit"). Each Unit consisted 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. The offering included an
option for an over-allotment of up to 200,000 units or a maximum
issuance of 1,200,000 units. As of April 30, 2006, the Company
27
has received $549,450 of proceeds from the issuance of the Units,
representing 499,500 shares of common stock and 499,500 two-year
warrants to purchase common stock at $2.00 per share.
In total for the combined private placements, the Company has
received $1,865,220 of proceeds from the issuance of the Units,
representing 1,695,655 shares of common stock and 1,695,655 two-
year warrants to purchase common stock at $2.00 per share.
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.
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 a 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
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. As discussed previously, we have had no revenues
for 2006 and effective May 2, 2006, are no longer a BDC and are
commencing a new business model as a merchant banking firm.
There is no guarantee that we will be successful under our new
business model, achieve revenues and provide sufficient cash flow
to fund our required expenditures.
Presently, our only source of cash is from external financing in
the form of the issuance of debt or the issuance of our common
stock. We cannot assure you that we can obtain sufficient
proceeds, if any, and borrowings or the sale of our common stock
under any financing structures we are able to secure that 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 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. 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 are planning on obtaining additional cash proceeds from the
issuance of our common stock and believe that we will have
sufficient operating cash to meet our required expenditures for
the next 12 months. For a further discussion related to our
ability to have sufficient cash flow to meet our planned
expenditures, please see "2006 Outlook," below.
Contractual Obligations and Commercial Commitments
We have no contractual obligations or commitments at either April
30, 2006, 2005 or 2004.
28
Off-Balance Sheet Arrangements
We have no Off-Balance Sheet arrangements at either April 30,
2006, 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 May 2005, the FASB issued SFAS No. 154, entitled Accounting
Changes and Error Corrections. SFAS No. 154 replaces APB Opinion
No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements, and changes
the requirements for the accounting for and reporting of a change
in accounting principle. SFAS No. 154 applies to all voluntary
changes in accounting principle and to changes required by an
accounting pronouncement in the instance that the pronouncement
does not include specific transition provisions. APB Opinion No.
20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new
accounting principle. SFAS No. 154 requires retrospective
application to prior periods' financial statements of changes in
accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of
the change. SFAS No. 154 defines retrospective application as the
application of a different accounting principle to prior
accounting periods as if that principle had always been used or
as the adjustment of previously issued financial statements to
reflect a change in the reporting entity. SFAS No. 154 also
redefines restatement as the revising of previously issued
financial statements to reflect the correction of an error. SFAS
No. 154 carries forward without change the guidance contained in
APB Opinion No. 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting
estimate. SFAS No. 154 also carries forward the guidance in APB
Opinion No. 20 requiring justification of a change in accounting
principle on the basis of preferability. SFAS No. 154 is
effective in fiscal years beginning after December 31, 2005. The
Company is in the process of evaluating the impact of changing
from a BDC to an operating company but anticipates that the
adoption of SFAS No. 154 will not have a material effect on the
Company's 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 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.
Previously, the adoption of SFAS 123 (Revised) would not have had
an impact on the financial statements since the Company generally
could no longer issue stock based compensation for services under
the 1940 Act, except in certain approved circumstances. However,
with the Company's May 2006 election to withdraw as a BDC, SFAS
123 (Revised) may have an impact and will require further
evaluation by the Company.
29
2006 Outlook
The ability to implement our new business plan successfully will
be heavily dependent on securing additional capital from the
issuance of our common stock or through debt.
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. As discussed previously, we have had no revenues
for 2006 and effective May 2, 2006, are no longer a BDC and are
commencing a new business model as a merchant banking firm.
There is no assurance that we will be successful under our new
business model, achieve revenues and provide sufficient cash flow
to fund our required expenditures. Additionally, there is no
assurance that additional equity or debt financing will be
available on terms acceptable to our management.
The outcome of the above matters could have a significant impact
on our ability to continue as a going concern.
Item 7A. Quantitative and Qualitative Disclosure 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 shares at
the closing price on the valuation date. We expect to value debt
and equity securities that are not publicly traded, or that we
are restricted from trading, at fair value as determined in good
faith by our Board of Directors. In making such determination,
we expect that the Board of Directors will value non-convertible
debt securities at cost plus amortized original issue discount,
if any, unless adverse factors lead to a determination of a
lesser valuation. In valuing convertible debt, equity, or other
securities, we expect that the Board of Directors will determine
the fair value based on the collateral, the issuer's ability to
make payments, the current and forecasted earnings of the issuer,
sales to third parties of similar securities, the comparison to
publicly traded securities, and other pertinent factors. Due to
the uncertainty inherent in the valuation process, such estimates
of fair value may differ significantly from the values that would
have been used had a ready market for the securities existed, and
the differences could be material. Additionally, changes in the
market environment and other events that may occur over the life
of the investments may cause the gains or losses ultimately
realized on these investments to be different than the valuations
assigned at other times.
Item 8. Financial Statements and Supplementary Data
See Item 15.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
30
Item 9A. Controls and Procedures
As of April 30, 2006 (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.
There was no significant change in our internal control over
financial reporting (as defined in Rule 13a-15(f) of the
Securities Exchange Act of 1934) that occurred during our most
recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The officers and directors of the Company are as follows:
Name Age Position
- ------------------------------------------------------------------------
William J. Bosso 57 Chief Executive Officer
and Director
Matthew T. Henninger 39 President, Secretary and
Director
Bruce A. Hall 49 Chief Financial Officer
Robert Hunziker 52 Director
J.P. Baron 45 Director
John Benton 53 Director
Michael E. Marshall 48 Director
John A. Van Tuin 43 Director
Each director of the Company holds such position until the next
annual meeting of the Company's stockholders and until his
successor is duly elected and qualified. The officers hold
office until the first meeting of the board of directors
following the annual meeting of stockholders and until their
successors are chosen and qualified, subject to early removal by
the board of directors.
William J. Bosso has served as chief executive officer of the
Company since December 2004 and has served as one of Company's
directors since October 2004. In July 2004, Mr. Bosso became a
director and president of the Company but resigned from both
positions in October 2004. Later that month, he was reappointed
as a director of the Company and in December 2004 he was
31
appointed as chief executive officer of the Company. Previously,
he served as a director and president of Nortia Capital Partners,
Inc., a Florida corporation ("Nortia Florida"), from April 2003
until December 2004, when it merged into the Company. Mr. Bosso
has served as a consultant to privately and publicly held
corporations for the past 15 years. From 1992 to 1993, he served
as vice president of OCG Technologies, Inc., a medical appliance,
healthcare software and medical billing company, and from 1994 to
1997, he served as president and CEO of Affinity Entertainment,
Inc., a television and movie company. Prior to that, Mr. Bosso
was an account executive with Paine Webber. Mr. Bosso has been a
consultant to businesses in the telecommunications, insurance,
airline, medical, entertainment, stock transfer, financial
communications, restaurant, and golf equipment industries.
Matthew T. Henninger has served as president of the Company since
December 2004 and has served as one of the Company's directors
since October 2004. In July 2004, Mr. Henninger became a
director and chief executive officer of the Company but resigned
from both positions in October 2004. Later that month, he was
reappointed as a director of the Company and in December 2004, he
was appointed president of the Company. Previously, he served as
a director and chief executive officer of Nortia Florida from
July 2004 until December 2004, when it merged into the Company.
Mr. Henninger is currently president of Finanziell Kaufer, Inc.,
a Los Angeles, California boutique turnaround investment firm.
During 2002 and 2003, he was a director of Print Data Corp., a
specialty distributor of information technology products and
services. During 2000 and 2001, he served as the president of
The Aromatherapy of Rome, a leading manufacturer of aromatherapy
products in the United States. During 1998 and 1999, he served
as the chief executive officer of Ceres San Francisco, a leading
manufacturer of specialty candles.
Bruce A. Hall was appointed chief financial officer of the
Company in January 2006. Since May 2003, Mr. Hall has been a
consultant providing financial and management services for
several public and private companies. Additionally, since May
2004, Mr. Hall, as a consultant, has been the interim Chief
Financial Officer of RG America, Inc., a publicly traded company
that provides a broad array of synergistic products and services
that addresses several key financial aspects of the commercial
real estate market. Since January 2005, Mr. Hall, as a
consultant, has been the interim Chief Executive Officer and
Chief Financial Officer of Dent Zone International, Inc., a
private company providing after market services for the
automobile market. From May 1999 through May 2003, Mr. Hall was
the Chief Financial Officer of Probex Corp., a formerly publicly
traded used oil recycling company that filed for protection under
Chapter 7 of the United States Bankruptcy Code in May 2003.
Previously, he held senior level positions at Recognition
Equipment, Inc., Harris Adacom Corporation, was a multi-family
housing developer and began his career in public accounting with
Arthur Young & Company, a predecessor of Ernst & Young LLP.
Robert Hunziker was appointed chief financial officer and a
director of the Company in May 2005. In January 2006, he
resigned from his position as chief financial officer but remains
a director of the Company. He is a consultant with National
Restaurant Brokers ("NRB") in Atlanta, Georgia. NRB is a
valuation and merger and acquisition firm specializing in the
restaurant industry. Prior to joining NRB, Mr. Hunziker was an
investment consultant with various insurance companies and banks.
Mr. Hunziker was also an operations/audit consultant for the Ford
Motor Company and started his career as a staff accountant for
Price Waterhouse.
J.P. Baron has served as a director of the Company since October
2004. He also served as a director of Nortia Florida from April
2003 until December 2004, when it merged with the Company. He
also presently serves as chairman and chief executive officer of
Cogen, Inc. Mr. Baron has been an investor, founder, developer,
builder, and financier of many businesses during the past 20
years. He is experienced in various sectors such as: real estate
development, commodities trading, oil and gas, financial
services, noble metals, communications, entertainment, and
environment/energy. He serves on the advisory boards of
32
several pre-public and public companies.
John Benton has served as a director of the Company since October
2004. He also served as a director of Nortia Florida from April
2003 until December 2004, when it merged with the Company. He
also presently serves as a vice president of Hatfield Philips and
as a Section 42 team leader responsible for all aspects of team
direction, loan and property workouts, and investor
communication. Mr. Benton joined Hatfield Philips (a Special
Services of Lehman Brothers' Principal Transaction Group Debt and
Equity Commercial Real Estate Portfolios) as a senior asset
manager, in the Special Servicing and Workout Group. Mr. Benton
has over 20 years of multifamily and commercial real estate
experience. Mr. Benton came to Hatfield Philips, Inc. from
Allied Capital Corporation where he was a vice president in
charge of asset management and workouts.
Michael E. Marshall has served as a director of the Company since
October 2004. He also served as president, chief financial
officer, and secretary of the Company from October 2004 to
December 2004. Mr. Marshall has been employed by Gibbs & Olson,
Inc, a consulting engineering firm located in southwest
Washington, since 1996 as a project engineer and project manager.
John A. Van Tuin was appointed a director of the Company in
December 2004. Mr. Van Tuin is an "independent" director. Since
2002, Mr. Van Tuin has been a principal with Bradford Equities
Management, L.L.C., a New York based Private Equity firm. For
the four years prior to joining Bradford, Mr. Van Tuin was a Vice
President at River Capital, Inc., a private equity firm in
Atlanta, Georgia. During 1996 through 1998, he was employed by
KPMG LLP, most recently as a Managing Director in its Corporate
Finance & Health Ventures Group. In addition, Mr. Van Tuin
worked at GE Capital and Heller Financial. He also worked at HK
International LP, a private equity firm and for the past six
hears has served as a Director of Consumer Product Enterprises, Inc.
The Audit Committee
The Audit Committee operates pursuant to a charter approved by
the Board of Directors. The charter sets forth the
responsibilities of the Audit Committee. The primary function of
the Audit Committee is to serve as an independent and objective
party to assist the Board of Directors in fulfilling its
responsibilities for overseeing and monitoring the quality and
integrity of the Company's financial statements, the adequacy of
the Company's system of internal controls, the review of the
independence, qualifications and performance of the Company's
independent registered public accounting firm, and the
performance of the Company's internal audit function. The Audit
Committee is presently composed of two persons - Messrs. Baron
and Benton (Chair), each of whom is considered independent. The
Company's Board of Directors has determined that J.P. Barron is
the "audit committee financial expert" as defined under Item 401
of Regulation S-K of the 1934 Act. Messrs. Baron and Benton each
meet the current independence and experience requirements of Rule
10A-3 of the 1934 Act.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the 1934 Act, the Company's
directors and executive officers, and any persons holding more
than 10% of its common stock, are required to report their
beneficial ownership and any changes therein to the SEC and the
Company. Specific due dates for those reports have been
established, and the Company is required to report herein any
failure to file such reports by those due dates. Based on the
Company's review of Forms 3, 4 and 5 filed by such persons, the
Company believes that during the fiscal year ended April 30,
2006, all Section 16(a) filing requirements applicable to such
persons were met in a timely manner.
33
Code of Ethics
On August 29, 2005, the Company adopted a Code of Ethics for
its Principal Executive Officer and Senior Financial Officer
(the "Code of Ethics"). A copy of the Code of Ethics is filed
as Exhibit 10.1 to the 2005 Form 10-K. The Code of Ethics is
also available free of charge by writing to the Company at
400 Hampton View Court, Alpharetta, Georgia 30004. The Code
of Ethics establishes procedures for personal investment and
restricts certain transactions by our personnel. The Code of
Ethics generally does not permit investment by our employees in
securities that may be purchased or held by us. Any updates to
the Code of Ethics will be disclosed by the Company on a Form 8-K.
Item 11. Executive Compensation
COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth the remuneration of each of the
Company's executive officers during each of its three most recent
fiscal years:
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
- -------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Restricted Securities
Name Other Annual Stock Underlying/ LTIP All Other
Position Year Salary($) Bonus($) Compensation($) Award(s)($)(1) Options/SARs(#) Payouts($) Comp($)
- -------------------------------------------------------------------------------------------------------------------------
William J. Bosso 2004 17,500 -0- -0- 80,000(1) -0- -0- -0-
Director, CEO 2005 98,837 -0- -0- 85,000(5) -0- -0- -0-
2006 298,833 -0- -0- -0- -0- -0- -0-
Harrysen Mittler (4) 2004 -0- -0- -0- 92,000(2) -0- -0- -0-
Director, Chief 2005 -0- -0- -0- 70,000(6) -0- -0- -0-
Financial Officer (3) 2006 -0- -0- -0- -0- -0- -0- -0-
Matthew Henninger 2004 -0- -0- -0- -0- -0- -0- -0-
Director, President 2005 76,154 -0- -0- 71,150(7) -0- -0- -0-
2006 278,333 -0- -0- -0- -0- -0- -0-
Robert Hunziker 2004 -0- -0- -0- -0- -0- -0- -0-
Director, Chief 2005 -0- -0- -0- 10,000(8) -0- -0- -0-
Financial Officer(3)(9)2006 -0- -0- 10,000(10) -0- -0- -0- -0-
Bruce A. Hall 2004 -0- -0- -0- -0- -0- -0- -0-
Chief 2005 -0- -0- -0- -0- -0- -0- -0-
Financial Officer (9) 2006 35,000 -0- -0- -0- -0- -0- -0-
- -------------------------------------------------------------------------------------------------------------------------
(1) In March 2004, the Company granted 1,000,000 shares of its
$0.001 par value Common Stock to William J. Bosso for his
services as President of the Company. The shares were valued at
$0.08 per share and $80,000 was recorded as compensation expense
in the accompanying Financial Statements as there was no stated
term or agreement.
(2) In March 2004, Mr. Mittler was elected Chief Financial
Officer and a Director of the Company. The Company granted Mr.
Mittler 1,150,000 shares of its $0.001 par value Common Stock a
compensation for his services, 1,000,000 as Chief Financial
Officer and 150,000 as a Director. The shares were valued at
$0.08 per share and $80,000 was recorded as compensation expense
and $12,000 as directors fees in the accompanying Financial
Statements.
34
(3) Effective May 27, 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.
(4) Mr. Mittler was a consultant for 2005 and therefore received
no salary. However, he received $52,405 of payments that were
recorded as consulting in the accompanying Statement of
Operations.
(5) In October 2004, the Company granted 750,000 shares of its
$0.001 par value Common Stock to William J. Bosso for his
services as CEO of the Company. The shares were valued at $0.10
per share and $75,000 was recorded as compensation expense in the
accompanying Financial Statements as there was no stated term or
agreement. In October 2004, the Company granted 100,000 shares of
its $0.001 par value Common Stock to Mr. Bosso for his services
as a director of the Company. The shares were valued at $0.10
per share and $10,000 was recorded as director fees in the
accompanying Financial Statements as there was no stated term or
agreement.
(6) In October 2004, the Company granted 600,000 shares of its
$0.001 par value Common Stock to Harrysen Mittler for his
services as CFO of the Company. The shares were valued at $0.10
per share and $60,000 was recorded as compensation expense in the
accompanying Financial Statements as there was no stated term or
agreement. In October 2004, the Company granted 100,000 shares
of its $0.001 par value Common Stock to Mr. Mittler for his
services as a director of the Company. The shares were valued at
$0.10 per share and $10,000 was recorded as director fees in the
accompanying Financial Statements as there was no stated term or
agreement.
(7) In June 2004, the Company granted 1,000,000 shares of its
$0.001 par value Common Stock to Matthew Henninger for his
services as President of the Company. The shares were valued at
$0.001 per share and $1,000 was recorded as compensation expense
in the accompanying Financial Statements as there was no stated
term or agreement. In June 2004, the Company granted 150,000
shares of its $0.001 par value Common Stock to Mr. Henninger for
his services as a director of the Company. The shares were valued
at $0.001 per share and $150 was recorded as director fees in the
accompanying Financial Statements as there was no stated term or
agreement. In October 2004, the Company granted 600,000 shares
of its $0.001 par value Common Stock to Mr. Henninger for his
services as President of the Company. The shares were valued at
$0.10 per share and $60,000 was recorded as compensation expense
in the accompanying Financial Statements as there was no stated
term or agreement s there was no stated term or agreement. In
October 2004, the Company granted 100,000 shares of its $0.001 par
value Common Stock to Mr. Henninger for his services as a director
of the Company. The shares were valued at $0.10 per share and
$10,000 was recorded as director fees in the accompanying
Financial Statements as there was no stated term or agreement.
(8) In October 2004, the Company granted 100,000 shares of its
$0.001 par value Common Stock to Robert Hunziker for his services
as a director of the Company. The shares were valued at $0.10
per share and $10,000 was recorded as director fees in the
accompanying Financial Statements as there was no stated term or
agreement.
(9) Effective January 18, 2006, Robert Hunziker resigned as Chief
Financial Officer. In connection with his resignation, and
effective the same date, Bruce A. Hall was appointed Chief
Financial Officer.
(10) Represents compensation expense for unpaid services provided
by Rob Hunziker
The Company has no stock option, retirement, pension, or profit-
sharing programs for the benefit of directors, officers, or other
employees.
35
No director received any type of compensation from the Company
for serving in such capacity.
The Company has no investment adviser as defined in section
2(a)(20) of the 1940 Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 16, 2006, each
stockholder who owned more than 5% of our outstanding shares of
common stock, each director, the chief executive officer, our
executive officers and our directors and executive officers as a
group. As of such date, there were no persons that owned 25% or
more of our outstanding voting securities and no person would be
deemed to control us, as such term is defined in the 1940 Act.
Unless otherwise indicated, we believe that each beneficial owner
set forth in the table has sole voting and investment power.
Number of Percentage
Name and Address of Owner Shares Owned of Class (1)
- ---------------------------------------------------------------------
William J. Bosso (3, 4)
400 Hampton View Court
Alpharetta, Georgia 30004 5,220,000 18.85%
Matthew T. Henninger (4)
555 West 5th Street
Los Angeles, California 90013 2,801,000 10.12%
Bruce A. Hall
836 Blue Jay Lane
Coppell, TX 75019 - -
Robert Hunziker
80 Johnson Ferry Road NE
Atlanta, Georgia 30328 200,000 *
John W. Benton, III
4609 Village Green Drive
Roswell, Georgia 30075 490,000 1.77%
J.P. Baron, II
701 Rossland Road East, Suite 382
Whitby, Ontario, Canada L1N 9K3 500,000 1.81%
Michael E. Marshall
6524 Elizan Drive NW
Olympia, Washington 98502 250,000 0.91%
John A. Van Tuin
255 Huguenot Street, #202
New Rochelle, New York 10801 250,000 0.91%
36
Harrysen Mittler
16-1375 Southdown Road, #126
Mississauga, Ontario L5J 2Z1
Canada 3,667,068 13.24%
--------------------------
All Officers and Directors as a
Group (9 persons) 13,378,068 48.32%
- --------------------------------------------------------------
* Constitutes less than 1%
(1) Based upon 27,688,109 shares of Company's Common Stock
outstanding and issuable as of June 16, 2006.
(2) Includes 200,000 shares of the Company's Common Stock
issuable as a result of the conversion (at the current conversion
ratio) of all of the Company's Convertible Preferred A Stock
previously owned by such individual.
(3) Includes 400,000 shares held by Mr. Bosso's children, in
respect of which shares, Mr. Bosso disclaims beneficial
ownership.
(4) Excludes 125,000 shares for Mr. Bosso and 125,000 shares for
Mr. Henninger that are in the process of being cancelled.
Item 13. Certain Relationships and Related 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, 2005, we repaid the remaining
$613.
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
eight months ended December 31, 2004, the $3,000 was repaid in
full.
For our corporate office in Georgia, we currently do not have a
lease and we are not paying rent. It is being provided to the
Company by an officer/director free of charge. 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
corporate office space in the near future and that the cost of
the space may be material to our operations.
Item 14. Principal Accountant Fees and Services
Our audit committee selected Salberg & Company, PA, as
independent registered public accounting firm for the Company for
the fiscal year ending April 30, 2006. Salberg & Company, PA,
has advised the Company that neither the firm nor any present
member or associate of it has any material financial interest,
direct or indirect, in the Company or its subsidiaries.
Audit Fees: Audit fees consist of fees billed for professional
services rendered for the audit of our year-end financial
statements and services that are normally provided by Salberg &
Company, PA, in connection with statutory and regulatory filings.
Fees incurred by the Company were an aggregate of $56,000 for
each quarterly review associated with our Form 10-Q (or, prior to
our becoming a BDC, our Form 10-QSB) filings and any amendments
thereto and for the annual audit of the Company's financial
statements included as part of our Form 10-K filing.
37
Audit-Related Fees: Audit-related services consist of fees
billed for assurance and related services that are reasonably
related to the performance of the audit or review of our
financial statements and are not reported under "Audit Fees."
These services include attest services that are not required by
statute or regulation and consultations concerning financial
accounting and reporting standards. Such fees aggregated $800
during the fiscal year ending April 30, 2006.
Tax Services Fees: Tax fees consist of fees billed for
professional services for tax compliance. These services include
assistance regarding federal, state, and local tax compliance.
There were no tax service fees incurred by the Company during the
fiscal year ending April 30, 2006.
All Other Fees: Other fees would include fees for products and
services other than the services reported above. There were no
other fees doing the fiscal year ending April 30, 2006.
The Audit Committee of our board of directors operates under a
written charter adopted by our board of directors. Management is
responsible for our internal controls and the financial reporting
process. The independent registered public accounting firm is
responsible for performing an independent audit of our financial
statements in accordance with auditing standards generally
accepted in the United States and expressing an opinion on the
conformity of those audited financial statements in accordance
with accounting principles generally accepted in the United
States. The Audit Committee's responsibility is to monitor and
oversee these processes. The Audit Committee is also directly
responsible for the appointment, compensation, and oversight of
the Company's independent registered public accounting firm.
The Audit Committee has established a pre-approval policy that
describes the permitted audit, audit-related, tax and other
services to be provided by Salberg & Company, PA, the Company's
independent registered public accounting firm. The policy
requires that the Audit Committee pre-approve the audit and non-
audit services performed by the independent registered public
accounting firm in order to assure that the provision of such
service does not impair the auditor's independence.
Any requests for audit, audit-related, tax and other services
that have not received general pre-approval must be submitted to
the Audit Committee for specific pre-approval, and cannot
commence until such approval has been granted. Normally, pre-
approval is provided at regularly scheduled meetings of the Audit
Committee. However, the Audit Committee may delegate pre-
approval authority to one or more of its members. The member or
members to whom such authority is delegated shall report any pre-
approval decisions to the Audit Committee at its next scheduled
meeting. The Audit Committee does not delegate its
responsibilities to pre-approve services performed by the
independent registered public accounting firm to management.
The Audit Committee has reviewed the audited financial statements
and met and held discussions with management regarding the
audited financial statements. Management has represented to the
Audit Committee that the Company's financial statements were
prepared in accordance with accounting principles generally
accepted in the United States. The Audit Committee has discussed
with Salberg & Company, PA, the Company's independent registered
public accounting firm, matters required to be discussed by
Statement of Auditing Standards No. 61 (Communication with Audit
Committees). The Audit Committee received and reviewed the
written disclosures and the letter from the independent
registered public accounting firm required by Independence
Standard No. 1, Independence Discussions with Audit Committees,
as amended by the Independence Standards Board, and has discussed
with the auditors the auditors' independence.
Based on the Audit Committee's discussion with management and the
independent registered public accounting firm, the Audit
Committee's review of the audited financial statements, the
38
representations of management and the report of the independent
registered public accounting firm to the Audit Committee, the
Audit Committee recommends that the board of directors include
the audited financial statements in the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 2006, for filing
with the SEC.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
The following audited financial statements and related documents
are presented herein on the following pages:
Report of Independent Registered Public Accounting Firm F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of changes in Stockholders' Equity (Deficiency) F-5
Statement of Changes in Net Assets F-8
Statements of Cash Flows F-9
Schedule of Investments F-10
Notes to Financial Statements F-11
(b) Exhibits
Exhibit No. Exhibit Description
- ----------------------------------
3.1 Certificate of Incorporation of Nortia Capital
Partners, Inc.[1]
3.2 Bylaws of Nortia Capital Partners, Inc.[1]
14 Code of Ethics[2]
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.*
__________________________________________________
* Filed herewith
[1] Incorporated by reference to the Company's
Form 10-SB filed July 27, 1999.
[2] Incorporated by reference to the Company's
Form 10-K filed November 23, 2005.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NORTIA CAPITAL PARTNERS, INC.
By: /s/William J. Bosso
---------------------------------
William J. Bosso
Chief Executive Officer
By: /s/Matthew Henninger
---------------------------------
Matthew Henninger
President
By: /s/Bruce A. Hall
---------------------------------
Bruce A. Hall
Chief Financial Officer
Date: August 15, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
- ------------------------------------------------------------------------
/s/ WILLIAM J. BOSSO Chief Executive Officer August 15, 2006
William J. Bosso and Director
/s/ MATTHEW HENNINGER President August 15, 2006
Matthew Henninger and Director
/s/ BRUCE A. HALL Chief Financial Officer August 15, 2006
Bruce A. Hall
/s/ J. P. BARON Director August 15, 2006
J. P. Baron
/s/ JOHN BENTON Director August 15, 2006
John Benton
/s/ MICHAEL E. MARSHALL Director August 15, 2006
Michael E. Marshall
/s/ JOHN A. VAN TUIN Director August 15, 2006
John A. Van Tuin
40
Nortia Capital Partners, Inc.
(A Development Stage Company)
Page No.
Report of Independent Registered Public Accounting Firm F-2
Balance Sheets at April 30, 2006 and 2005 F-3
Statements of Operations for the year ended April 30, 2006,
the four months ended April 30, 2005, the eight months ended
December 31, 2004, the year ended April 30, 2004 , and the
period from May 1, 2003 (inception of development stage) to
April 30, 2006 F-4
Statements of Changes in Stockholders' Equity (Deficiency)
for the years ended April 30, 2006, 2005 and 2004 F-5
Statement of Changes in Net Assets for the year ended
April 30, 2006 and the four months ended April 30, 2005 F-8
Statement of Cash Flows for the year ended April 30, 2006,
the four months ended April 30, 2005, the eight months ended
December 31, 2004, the year ended April 30, 2004, and the
period from May 1, 2003 (inception of development stage) to
April 30, 2006 F-9
Schedule of Investments at April 30, 2006 F-10
Notes to Financial Statements F-11
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
To the Board of Directors and Shareholders of:
Nortia Capital Partners, Inc. (a development stage company)
We have audited the accompanying balance sheets of Nortia Capital
Partners, Inc. (a development stage company), including the schedule
of investments as of April 30, 2006 and 2005, and the related
statements of operations, changes in stockholders' equity
(deficiency), and cash flows for the year ended April 30, 2006, the
four months ended April 30, 2005, the eight months ended December 31,
2004 and the year ended April 30, 2004 and for the period from May 1,
2003 (inception of development stage) to April 30, 2006, and the
statement of changes in nets assets for the year ended April 30, 2006
and the four months ended April 30, 2005. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As more fully discussed in Note 1 to the financial statements,
accounting principles used in the preparation of the financial
statements beginning January 1, 2005 (upon conversion to a business
development company under the Investment Act of 1940, as amended) are
different than those of prior periods and therefore are not directly
comparable.
As more fully discussed in Note 4 to the financial statements,
securities amounting to $1,250 (1% of total assets and 1% of net
assets) have been valued at fair value as determined by the Board of
Directors. We have reviewed the procedures applied by the directors
in valuing such securities and have inspected underlying
documentation; while in the circumstances the procedures appear to be
reasonable and the documentation appropriate, determination of fair
values involves subjective judgment which is not susceptible to
substantiation by auditing procedures.
In our opinion, subject to the effect on the financial statements of
the valuation of securities determined by the Board of Directors as
described in the preceding paragraph, the financial statements
referred to above present fairly, in all material respects, the
financial position of Nortia Capital Partners, Inc. (a development
stage company), including the schedule of investments at April 30,
2006 and 2005, and the results of its operations and its cash flows
for the year ended April 30, 2006, the four months ended April 30,
2005, the eight months ended December 31, 2004 and the year ended
April 30, 2004 and for the period from May 1, 2003 (inception of
development stage) to April 30, 2006, and the statement of changes in
nets assets for the year ended April 30, 2006 and the four months
ended April 30, 2005 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company's recurring losses from
operations, net loss of $1,629,461 and net cash used in operations of
$1,656,922 for the year ended April 30, 2006, an accumulated deficit
of $12,398 and a deficit accumulated during the development stage of
$6,399,638 at April 30, 2006, respectively, raise substantial doubt
about its ability to continue as a going concern. Management's plans
as to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ SALBERG & COMPANY, P.A.
Boca Raton, Florida
July 20, 2006
F-2
Nortia Capital Partners, Inc.
(A Development Stage Company)
Balance Sheets
ASSETS
------
April 30,
---------------------------
2006 2005
---------------------------
Current Assets
Cash $ 32,401 $ 11,703
Other receivable 4,150 -
---------------------------
Total Current Assets 36,551 11,703
===========================
Investments
Investments in affiliates - minority-owned 1,250 -
---------------------------
Total Investments 1,250 -
---------------------------
Other Assets
Loan receivable 100,000 -
---------------------------
Total Other Assets 100,000 -
---------------------------
Total Assets 137,801 11,703
===========================
LIABILITIES
-----------
Current Liabilities
Accounts payable 17,193 87,171
Accrued expenses 4,128 54,161
---------------------------
Total Current Liabilities 21,321 141,332
===========================
Net Assets 116,480 (129,629)
===========================
Commitments and Contingencies (Note 8)
STOCKHOLDERS' EQUITY (DEFICIENCY)
---------------------------------
Preferred stock, Series A, $0.001 par
value, 5,000,000 shares authorized
Zero and 300,000 shares issued and
outstanding $ - 300
Common stock, $0.001 par value,
50,000,000 shares authorized 22,813,254
and 22,297,254 shares issued and
outstanding 22,813 22,297
Common stock issuable, 4,874,855 and
3,257,700 shares 4,875 3,258
Additional paid in capital 6,500,828 4,713,791
Accumulated deficit (12,398) (12,398)
Deficit accumulated during development stage (6,399,638) (4,770,177)
---------------------------
116,480 (42,929)
Less: Deferred consulting - (86,700)
---------------------------
Total Stockholders' Equity (Deficiency) 116,480 (129,629)
===========================
Total Liabilities and Stockholders'
Equity (Deficiency) $ 137,801 $ 11,703
===========================
Net Asset Value Per Share $ (0.00) $ (0.01)
===========================
See accompanying notes to financial statements.
F-3
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statements of Operations
Post Election as a Business Pre Election as a Business
---- --- Period from
Development Company Development Company May 1, 2003
----------------------------- ----------------------------- (Inception of
Twelve Four Eight Twelve Development
Months Ended Months Ended Months Ended Months Ended Stage) to
Apr. 30, 2006 Apr. 30, 2005 Dec. 31, 2004 Apr. 30, 2004 Apr 30, 2006
----------------------------- ----------------------------- -------------
Investment and Pre-BDC Operating Income
Consulting income $ - $ - $ 153,699 $ 146,301 $ 300,000
Investment income - portfolio investments
Interest - - - - -
Dividends - - - - -
----------------------------- ----------------------------- -------------
Total Investment and Pre-BDC Operating - - 153,699 146,301 300,000
Operating Expenses
General and administrative 348,175 102,556 94,223 75,133 620,087
Bad debt - 1,625 - - 1,625
Rent 20,441 15,927 23,072 - 59,441
Consulting 141,698 559,500 82,342 - 783,540
Compensation 654,438 127,525 245,465 186,799 1,214,228
Debenture penalty - 9,225 2,175 - 11,400
Directors fees 14,622 - 225,150 12,000 251,772
Interest expense 2,927 26,643 15,054 11,447 56,071
Impairment of investments - 45,331 3,250 - 48,581
Professional 447,633 77,728 109,892 20,000 655,253
----------------------------- ----------------------------- -------------
Total Operating Expenses 1,629,934 966,060 800,623 305,379 3,701,997
----------------------------- ----------------------------- -------------
Net Investment and Pre-BDC Operating Loss (1,629,934) (966,060) (646,924) (159,078) (3,401,997)
Other Income (Expense)
Loss on sale of available for sale
securities - - (64,738) - (64,738)
Loss on conversion of debt - (2,738,559) - - (2,738,559)
Other than temporary loss on for sale
securities - - (195,000) - (195,000)
Other income - 33 4,536 - 4,568
Interest income 473 (8) 8 11 485
Other Income (Expense) 473 (2,738,534) (255,194) 11 (2,993,244)
----------------------------- ----------------------------- -------------
Net Decrease in Net Assets (post BDC) and
Net Loss (pre-BDC) Before Income Taxes $ (1,629,461) $ (3,704,595) $ (902,119) $ (159,067) $ (6,395,241)
Income tax expense - - - (4,397) (4,397)
----------------------------- ----------------------------- -------------
Net Decrease in Net Assets (post BDC)
and Net Loss (pre BDC) $ (1,629,461) $ (3,704,595) $ (902,119) $ (163,464) $ (6,399,638)
============================= ============================= =============
Comprehensive Loss
Unrealized losses on available for sale
securities - - (139,052) 139,052 -
----------------------------- ----------------------------- -------------
Total Comprehensive Loss $ (1,629,461) $ (3,704,595) $ (1,041,171) $ (24,412) $ (6,399,638)
============================= ============================= =============
Net Decrease in Net Assets (post BDC) and
Net loss Per Share - Basic and Diluted $ (0.06) $ (0.16) $ (0.07) $ (0.07) $ (0.40)
============================= ============================= =============
Weighted Average Shares 26,708,109 22,627,384 13,522,418 2,225,000 16,058,278
============================= ============================= =============
See accompanying notes to financial statements
F-4
Nortia Capital Partners, Inc.
Statements of Changes in Stockholders' Equity (Deficiency)
Years Ended April 30, 2006, 2005 and 2004
Deficit
Common Stock Accum. Accumulated Total
Preferred Stk. Common Stock Issuable Addt'l During Other Stkhldrs
-------------- ------------------ --------------- Paid-In Accum. Deferred Devlpmnt Comprehensive Equity
Shares Amount Shares Amount Shares Amount Capital Deficit Consulting Stage Income (Loss) (Def.)
------------------------------------------------------------------------------------------------------------------
BALANCE AT
APRIL 30, 2003 $ - $ - $4,550,000 $4,550 $ - $ - $ 2,841 $(12,398) $ - $ - $ - $ (5,007)
Common stock
for compensation
and directors
fees-$0.16 per
share - - - - 4,300,000 4,300 167,700 - - - - 172,000
Unrealized
gains on for
sale
securities,
net - - - - - - - - - - 139,052 139,052
Net loss (pre
BDC), year
ended April
30, 2004 - - - - - - - - - (163,464) - (163,464)
______________________________________________________________________________________________________________
BALANCE AT
APRIL 30, 2004 - - 4,550,000 4,550 4,300,000 4,300 170,541 (12,398) - (163,464) 139,052 142,581
Common stock
for consulting
- $0.015
per share - - 270,000 270 - - 3,780 - - 4,050
Common stock
for consulting
- $0.0005
per share - - 30,000 30 - - (15) - - - - 15
Common stock
for consulting
- $0.505
per share - - 250,000 250 - - 126,000 - (126,250) - - -
Common stock
for consulting
- $0.50
per share - - 30,000 30 - - 14,970 - - - - 15,000
Common stock
for consulting
- $0.505
per share - - 450,000 450 - - 226,800 - (227,250) - - -
Common stock
for legal
- $0.05
per share - - 200,000 200 - - 9,800 - - - - 10,000
Common stock
for compensation
- $0.0005
per share - - 2,000,000 2,000 - - (1,000) - - - - 1,000
Common stock
for compensation
- $0.04
per share - - 4,000,000 4,000 (4,000,000) (4,000) - - - - - -
Common stock
for compensation
- $0.05
per share - - 3,900,000 3,900 - - 191,100 - - - - 195,000
Common stock
for director
fees - $0.0005
per share - - 300,000 300 - - (150) - - - - 150
Common stock
for director
fees - $0.04
per share - - 300,000 300 (300,000) (300) - - - - - -
Common stock
for director
fees - $0.05
per share - - 1,800,000 1,800 - - 88,200 - - - - 90,000
Common stock
for director
fees - $0.54
per share - - 250,000 250 - - 134,750 - - - - 135,000
Recapital-
ization 300,000 300 3,427,254 3,427 - - (172,057) - - - - (168,330)
Realized loss
on for sale
securities - - - - - - - - - - (139,052) (139,052)
Amortization
of deferred
consulting - - - - - - - - 58,917 - - 58,917
Net loss (pre
BDC), eight
months ended
December 31,
2004 - - - - - - - - - (902,119) - (902,119)
_________________________________________________________________________________________________________________
BALANCE AT
DECEMBER 31,
2004 300,000 300 21,757,254 21,757 - - 792,719 (12,398) (294,583)(1,065,583) - (557,788)
=================================================================================================================
See accompanying notes to financial statements
F-5
Nortia Capital Partners, Inc.
Statements of Changes in Stockholders' Equity (Deficiency) (Continued)
Years Ended April 30, 2006, 2005 and 2004
Deficit
Common Stock Accum. Accumulated Total
Preferred Stk. Common Stock Issuable Addt'l During Other Stkhldrs'
-------------- ------------------ --------------- Paid-In Accum. Deferred Devlpmnt Comprehensive Equity
Shares Amount Shares Amount Shares Amount Capital Deficit Consulting Stage Income (Loss) (Def.)
-------------------------------------------------------------------------------------------------------------------
Common stock
for consulting
- $0.73
per share - - 300,000 300 - - 218,700 - (109,500) - - 109,500
Common stock
for consulting
- $0.51
per share - - 240,000 240 - - 122,160 - (122,400) - - -
Common stock
for conversion
of debentures - - - - 2,427,200 2,427 2,667,493 - - - - 2,669,920
Common stock
for conversion
of prom. notes - - - - 752,000 752 826,448 - - - - 827,200
Common stock for
private placement - - - - 78,500 79 86,272 - - - - 86,350
Amortization of
deferred
consulting - - - - - - - - 439,783 - - 439,783
Net decrease in
net assets (post
BDC),four months
ended April 30,
2005 - - - - - - - - - (3,704,595) - (3,704,595)
________________________________________________________________________________________________________________
BALANCE AT
APRIL 30, 2005 300,000 300 22,297,254 22,297 3,257,700 3,258 4,713,791 (12,398) (86,700) (4,770,177) - (129,629)
Common stock
from private
placement -
$1.10 per share - - - - 1,617,155 1,617 1,777,253 - - - - 1,778,870
Compensation
expense for
officer not
being paid - - - - - - 10,000 - - - - 10,000
Amortization of
deferred
consulting - - - - - - - - 86,700 - - 86,700
Conversion of
preferred
stock to common
stock (300,000)(300) 600,000 600 - - (300) - - - - -
Common stock
cancelled
for termination
of services - - (84,000) (84) - - 84 - - - - -
Net decrease in
net assets (post
BDC), year ended
April 30, 2006 - - - - - - - - - (1,629,638) - (1,629,461)
_________________________________________________________________________________________________________________
BALANCE AT
APRIL 30, 2006 - - 22,813,254 22,813 4,874,855 4,875 6,500,828 (12,398) 0 (6,399,638) - 116,480
=================================================================================================================
See accompanying notes to financial statements
F-6
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Changes in Net Assets
Year Ended Four Months Ended
April 30, April 30,
2006 2005
------------------------------------
Decrease in net assets from operations:
Impairment of investments $ - $ (45,331)
Net operating losses (1,629,461) (3,659,264)
------------------------------------
Net decrease in net assets from operations (1,629,461) (3,704,595)
Common Stock transactions 1,778,870 4,132,754
Compensation expense for officer not
being paid 10,000 -
Amortization of deferred consulting 86,700 -
------------------------------------
Total increase in Net Assets 246,109 428,159
Net Assets:
Beginning of Period (129,629) (557,788)
------------------------------------
End of period $ 116,480 $ (129,629)
====================================
See accompanying notes to financial statements
F-7
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Cash Flows
Post Election as a Business Pre Election as a Business
---- --- Period from
Development Company Development Company May 1, 2003
----------------------------- ----------------------------- (Inception of
Twelve Four Eight Twelve Development
Months Ended Months Ended Months Ended Months Ended Stage) to
Apr. 30, 2006 Apr. 30, 2005 Dec. 31, 2004 Apr. 30, 2004 Apr 30, 2006
----------------------------- ----------------------------- -------------
Cash Flows From Operating Activities:
Net decrease in net assets (post BDC) and
net loss (pre BDC) $ (1,629,461) $ (3,704,595) $ (902,119) $ (163,464) $ (6,399,638)
Adjustments to reconcile net decrease in
net assets (post BDC) and net loss
(pre BDC) to net cash used in operations:
Debenture issued for legal services - - - 5,000 5,000
Compensation expense for officer not
being paid 10,000 - - - 10,000
Bad debt expense - 1,625 - - 1,625
Impairment of investments - 45,331 3,250 - 48,581
Debenture issued for consulting services - - 7,000 - 7,000
Loss on sale of available for sale
securities - - 64,738 - 64,738
Other than temporary loss on available
for sale securities - - 195,000 - 195,000
Compensation related to conversion of debt - 2,000 - - 2,000
Loss on conversion of debt - 2,738,559 - - 2,738,559
Transfer of for sale securities for
consulting services - - 2,100 - 2,100
Provision for accounts receivable - - - - -
Common stock issued for compensation - - 196,000 160,000 356,000
Common stock issued for directors fees - 124,500 225,150 12,000 237,150
Common stock issued for consulting services - - 4,065 - 128,565
Common stock issued for legal services - - 10,000 - 10,000
Amortization of deferred consulting 86,700 439,783 58,917 - 585,400
Common stock based revenue - - (153,699) (146,301) (300,000)
Changes in operating assets and liabilities:
Decrease in prepaid expenses - - - 540 540
Increase in other receivable (4,150) - (6,500) - (10,650)
Increase (decrease) in employee receivable - 26,932 (26,932) - -
Increase (decrease) in accounts payable (69,978) 12,340 6,501 5,000 (46,137)
Increase (decrease) in due to related party - 0 (1,113) 1,113 -
Increase (decrease) in accrued expenses (50,035) 28,514 69,837 14,824 63,141
----------------------------- ----------------------------- -------------
Net Cash Used In Operating Activities (1,656,922) (285,011) (247,805) (111,288) (2,301,026)
----------------------------- ----------------------------- -------------
See notes to accompanying financial statements
F-8
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Cash Flows (Continued)
Post Election as a Business Pre Election as a Business
---- --- Period from
Development Company Development Company May 1, 2003
----------------------------- ----------------------------- (Inception of
Twelve Four Eight Twelve Development
Months Ended Months Ended Months Ended Months Ended Stage) to
Apr. 30, 2006 Apr. 30, 2005 Dec. 31, 2004 Apr. 30, 2004 Apr 30, 2006
----------------------------- ----------------------------- -------------
Cash Flows From Investing Activities:
Purchase of available for sale securities - - - (49,948) (49,948)
Issuance of loan receivable (100,000) - - - (100,000)
Investments in affiliates - minority owned (1,250) - - - (1,250)
Proceeds from sale of available for sale
securities - - 14,405 - 14,405
--------------------------------------------------------------- -------------
Net Cash Provided By (Used In) Investing
Activities (101,250) - 14,405 (49,948) (136,793)
Cash Flows From Financing Activities:
Proceeds from issuance of promissory
notes - 113,000 75,000 - 188,000
Proceeds from sale of common stock 1,778,870 86,350 - - 1,865,220
Proceeds from issuance of debentures - 50,000 197,000 170,000 417,000
----------------------------- ----------------------------- -------------
Net Cash Provided By Financing Activities 1,778,870 249,350 272,000 170,000 2,470,220
Net Increase (decrease) in Cash 20,698 (35,661) 38,600 8,764 32,401
Cash at Beginning of Period 11,703 47,364 8,764 - -
Cash at End of Period $ 32,401 $ 11,703 $ 47,364 $ 8,764 $ 32,401
=================================================================================
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash paid during the period for:
Interest $ - $ - $ - $ - $ -
=================================================================================
Taxes $ - $ - $ - $ - $ -
=================================================================================
Supplemental Disclosure of Non-Cash Investing
and Financing Transactions:
=============================================
Debenture issued for available-for-sale
securities $ - $ - $ - $ 75,000 $ 75,000
Unrealized gains on available-for-sale
securities, net - - (139,052) 139,052 -
Recapitalization of accounts payable - - 63,330 - 63,330
Common stock issuable for conversion of
debentures and accrued interest - 552,235 - - 552,235
Common stock issuable for conversion of
promissory notes and accrued interest - 192,927 - - 192,927
Common stock cancelled for termination
of services 84 - - - 84
Common stock issued for conversion of
preferred stock 300 - - - 300
See accompanying notes to financial statements
F-9
Nortia Capital Partners, Inc.
(A Development Stage Company)
Schedule of Investments
April 30, 2006
Title of Percentage of
Securities Held Class Held on At Apr. 30, 2006
By The a Fully ----------------------
Company Industry Company Diluted Basis Cost Fair Value
- -------------------------------------------------------------------------------------------------------------------
Investments - (1)(2)
- -------------------------------------------------------------------------------------------------------------------
Avix Technologies, Inc. (3) Telecom Common Stock 11% $ 43,706 $ -
- -------------------------------------------------------------------------------------------------------------------
BF Acquisition Group V, Inc. (3) Shell Common Stock 10% 1,625 -
- -------------------------------------------------------------------------------------------------------------------
Knight Energy Corp. (3) (4) Oil & Gas Common Stock 7% 1,250 1,250
- -------------------------------------------------------------------------------------------------------------------
Total Investments - Minority Owned
Other Non-Controlled Affiliates 46,581 1,250
- -------------------------------------------------------------------------------------------------------------------
Universal Capital Management, Inc. (3) Investments Common Stock 1% 1,625 -
- -------------------------------------------------------------------------------------------------------------------
IPI Fundraising, Inc. (3) Shell Common Stock 1% 1,625 -
- -------------------------------------------------------------------------------------------------------------------
Total Investments - Unaffiliated Issuers 3,250 -
- -------------------------------------------------------------------------------------------------------------------
Total Investments $ 49,831 $ 1,250
===================================================================================================================
Total Investments 49,831 1,250
Unearned Income - -
----------------------
Total Investments, net of Unearned Income $ 49,831 $ 1,250
======================
(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.
(3) Public company
(4) Related Party
See accompanying notes to financial statements
F-10
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
1. HISTORY AND NATURE OF BUSINESS
Nortia Capital Partners, Inc. ("Nortia", "we", "us", "our", or the
"Company") is a publicly held Atlanta, Georgia based business
development company ("BDC") that provides debt and equity investment
capital to companies in a variety of industries which it believes
present opportunities for superior performance through liquidity
events, internal growth, product, or geographic expansion, the
completion of complimentary add-on acquisitions, or industry
consolidations.
On January 4, 2005, we filed a Form N-54A with the United States
Securities and Exchange Commission ("SEC") and elected to be treated
as a BDC under sections 55 through 65 of the Investment Act of 1940
(the "Act"). Prior to our BDC election, we were in the start-up phase
of operations and generally had a dormant operating history.
We have operated as a development stage company during the period
covered by this report since we have not generated any revenue from
our BDC business plan.
See Subsequent Events Note 12.
Pre-BDC Organizational History
- ------------------------------
We were formerly 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 opportunistic 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, raised additional capital and
recommenced preparations to implement our business plan.
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 (the "Exchange Agreement") with Global Life Sciences, Inc.,
a publicly traded Nevada corporation ("Global"), whereby it was
contemplated that we would become a wholly owned subsidiary of Global.
On December 2, 2004, the Exchange Agreement was consummated and,
pursuant to its terms, we became a wholly owned subsidiary of Global
in a transaction accounted for as a recapitalization of the Company
(See Note 6 - Recapitalization). On December 3, 2004, we were merged
with and into Global. Subsequent to the recapitalization, Global
changed its name to "Nortia Capital Partners, Inc." As a result of the
recapitalization, the Company is no longer a Florida corporation and
is now organized under the laws of the State of Nevada.
Post-BDC Operations
- -------------------
On January 4, 2005, the Board of Directors of the Company determined
that it was in the best interest of the Company and its shareholders
to file an election to be treated as BDC under the 1940 Act. As a
result of its new status as a BDC, the Company planned to provide
capital and advisory services for liquidity events, management
buyouts, recapitalizations, and the growth and capital needs of
emerging and growth companies.
F-11
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
The Company expected to invest in emerging and development-stage
micro-cap companies that intended to be listed on US equity markets,
including the OTC Bulletin Board, but which lack the necessary capital
and depth of management to expand their businesses.
The Company's BDC investment objective was to generate both capital
appreciation and, to a lesser extent, current income from its
investments. In order to achieve this objective, we intended to
invest in public and private companies in a wide array of industries,
including manufacturing, distribution, and service industries,
throughout the United States. We may also invest to a limited extent
in selected foreign companies, to the extent that such investments are
consistent with the limitations on such investing by BDCs under the
1940 Act. Furthermore, we plan to target emerging growth companies
that have an executable business plan for growth and a well-managed
infrastructure. Portfolio investments are held for purposes of
deriving investment income and future capital gains.
We also expect to provide diligence and structuring services on
private finance transactions, as well as provide structuring,
transaction, management, consulting and other services to portfolio
companies in which we invest.
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.
The results of operations presented in the accompanying financial
statements are divided into two classifications. The year ended April
30, 2006 and the four month period from January 1, 2005 through April
30, 2005 reflects the Company's results as a BDC. The year ended
April 30, 2004 and the eight-month period from May 1, 2004 through
December 31, 2004, reflects the Company's results prior to operating
as a BDC. The results of operations from January 1, 2005 to January
3, 2005, the BDC election date, were not material. Accounting
principles used in the preparation of the financial statements
beginning January 1, 2005 are different from those of prior periods
and, therefore, the financial position and results of operations of
this period is not directly comparable. The Company utilizes the
cumulative effect method to reflect the effects of conversion to a
BDC. There was no cumulative effect adjustment from the conversion to
a BDC in January 2005.
On May 2, 2006, we filed form N-54C with the SEC formally withdrawing
our election to be subject to the "Act", pursuant to the provisions of
section 54(c) of the Act. Nortia has changed the nature of its
business focus from investing, owning, holding, or trading in
investment securities toward that of an operating company intending to
pursue a business model whereby it will provide merchant banking-type
services to small, private companies seeking to become publicly held
and traded whose focus will developing a viable investment business
plan - See Commitments and Contingencies Note 9 and Subsequent Events
Note 12.
F-12
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
2. GOING CONCERN
As reflected in the accompanying financial statements, the Company has
a net loss of $1,629,461 and net cash used in operations of $1,656,922
for the year ended April 30, 2006 as a BDC. Additionally, the Company
has an accumulated deficit of $12,398 and a deficit accumulated during
the development stage of $6,399,638 at April 30, 2006.
The ability of the Company to continue as a going concern is dependent
on the Company's ability to further implement its business plan, raise
capital, and generate revenues.
Previously, the Company planned on generating future revenues as a BDC
through direct investments into private companies, start-up companies,
and through the opportunities provided by turnaround companies.
However, as previously discussed in Note 1, the Company filed a form
N-54C with the SEC in May 2006 withdrawing its election to be a BDC
under the 1940 Act. As a result of this election, the Company has
changed the nature of its business focus from investing, owning,
holding, or trading in investment securities toward that of an
operating company intending to pursue a business model whereby it will
provide merchant banking-type services to small, private companies
seeking to become publicly held and traded whose focus will developing
a viable investment business plan
The time required for Nortia to become profitable from operations is
highly uncertain, especially in light of the new business model
discussed above. We cannot assure you that we will achieve or sustain
operating profitability or generate sufficient cash flow to meet our
planned capital expenditures and working capital requirements. If
required, our ability to obtain additional financing from other
sources also depends on many factors beyond our control, including the
state of the capital markets and the prospects for our business. The
necessary additional financing may not be available to us or may be
available only on terms that would result in further dilution to the
current owners of our common stock.
The 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.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Concentration
- ---------------------------------------
The accompanying financial statements are prepared in accordance with
the guidance in the AICPA's Audit and Accounting Guide, "Audits of
Investment Companies" and in accordance with Article 6 of Regulation
S-X, since the Company elected to be regulated as a Business
Development Company effective January 4, 2005.
In accordance with Article 6 of Regulation S-X under the Securities
Act of 1933 and Securities Exchange Act of 1934 (the "1934 Act"), the
Company does not consolidate portfolio company investments, including
those in which it has a controlling interest.
Accounting Estimates
- --------------------
When preparing financial statements in conformity with United States
Generally Accepted Accounting Principles ("U.S. GAAP"), our management
must make estimates based on future events that 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 includes evaluation of a beneficial
F-13
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
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.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include all highly liquid investments with a
maturity date of three months or less when purchased.
Loan Receivable
- ---------------
Loan receivable results from a $100,000 funding for a third-party
company, however, no formal agreement for the terms of the funding had
been completed as of April 30, 2006. Management has reviewed the loan
receivable to determine collectibility and if the account should be
charged off. The Company required no collateral for the loan
receivable. Subsequent to April 30, 2006, a formal agreement was
reached and the $100,000 loan receivable will be converted to an
investment in common shares and warrants of a company.
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 controlled companies 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
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. As of April 30, 2006, 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.
Accounting for the Impairment of Long-Lived Assets
- --------------------------------------------------
We account for the impairment of long-lived assets in accordance with
Financial Accounting Standards, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which requires that long-
lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be
recoverable. Recoverability of the asset is measured by comparison of
F-14
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
its carrying amount to the undiscounted cash flow that the asset or
asset group is expected to generate. If such assets or asset groups
are considered to be impaired, the loss recognized is the amount by
which the carrying amount of the property, if any, exceeds its fair
market value. Based upon our evaluation, no impairment was determined
for the years ended April 30, 2006 and 2005.
Beneficial Conversion Feature in Convertible 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 receivables, accounts
payable and accrued liabilities approximates fair value because of the
short maturity of those instruments. The estimated fair value of our
other obligations is estimated based on the current rates offered to
us for similar maturities. Based on prevailing interest rates and the
short-term maturity of all of our indebtedness, management believes
that the fair value of our obligations approximates book value at
April 30, 2006.
Valuation of Common Stock Issued for Services
- ---------------------------------------------
The Company issued common stock to several parties during the years
ended April 30, 2005 and 2004. For all of these issuances, valuation
was determined based upon the stock closing trade price on the date of
grant.
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, 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.
F-15
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
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.
Revenue Recognition
- -------------------
The Company recognizes revenues in accordance with the guidance in the
SEC Staff Accounting Bulletin 104. Revenue is recognized when
persuasive evidence of an arrangement exists, as services are provided
over the term of a service contract, and when collection of the fixed
or determinable selling price is reasonable assured. The Company
follows EITF 00-8 "Accounting by a Grantee for an Equity Instrument to
be Received in Conjunction with Providing Goods or Services" when
determining the measurement date to value securities received for
services.
Revenues from the activities as a BDC 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".
Concentration of Risk
- ---------------------
Our financial instruments that are potentially exposed to credit risk
consist primarily of cash, receivables and accounts payable, for which
the carrying amounts approximate fair value. At certain times during
the year, our demand deposits held in banks exceeded the federally
insured limit of $100,000.
The Company has received cash proceeds from two private placements as
discussed further in Note 7 - Stockholders Equity (Deficiency). In
total, through April 30, 2006 for the combined private placements, the
Company has received $1,865,220 of proceeds, representing 1,695,655
shares of common stock and 1,695,655 two-year warrants to purchase
common stock at $2.00 per share. The majority of these proceeds were
from Europe.
During 2004 and 2005, all pre-BDC revenues were derived from the
securities received under a consulting contract.
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.
Net 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 items to adjust the numerator or denominator
in the EPS computations. Therefore, diluted EPS equals basic EPS.
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 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
F-16
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
presented in the accompanying Financial Statements for all share and
per share data.
Comprehensive Loss
- ------------------
Comprehensive loss includes net 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 for pre-BDC periods.
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 May 2005, the FASB issued SFAS No. 154, entitled Accounting Changes
and Error Corrections. SFAS No. 154 replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements, and changes the requirements
for the accounting for and reporting of a change in accounting
principle. SFAS No. 154 applies to all voluntary changes in
accounting principle and to changes required by an accounting
pronouncement in the instance that the pronouncement does not include
specific transition provisions. APB Opinion No. 20 previously
required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the
cumulative effect of changing to the new accounting principle. SFAS
No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS No. 154 defines retrospective
application as the application of a different accounting principle to
prior accounting periods as if that principle had always been used or
as the adjustment of previously issued financial statements to reflect
a change in the reporting entity. SFAS No. 154 also redefines
restatement as the revising of previously issued financial statements
to reflect the correction of an error. SFAS No. 154 carries forward
without change the guidance contained in APB Opinion No. 20 for
reporting the correction of an error in previously issued financial
statements and a change in accounting estimate. SFAS No. 154 also
carries forward the guidance in APB Opinion No. 20 requiring
justification of a change in accounting principle on the basis of
preferability. SFAS No. 154 is effective in fiscal years beginning
after December 31, 2005. The Company is in the process of evaluating
the impact of changing from a BDC to an operating company but
anticipates that the adoption of SFAS No. 154 will not have a material
effect on the Company's 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
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
F-17
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
business issuer, this Statement is effective as of the beginning of
the first interim or annual reporting period that begins after
December 15, 2005. Previously, the adoption of SFAS 123 (Revised)
would not have had an impact on the financial statements since the
Company generally could no longer issue stock based compensation for
services under the 1940 Act, except in certain approved circumstances.
However, with the Company's May 2006 election to withdraw as a BDC,
SFAS 123 (Revised) may have an impact and will require further
evaluation by the Company.
Reclassifications
- -----------------
Certain amounts in the 2004 and 2005 financial statements have been
reclassified to conform to the 2006 presentation.
4. LOAN RECEIVABLE AND INVESTMENTS
In November 2003, we issued $75,000 of debentures in exchange for
100,000 shares of freely trading common stock in Global. 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 Global. 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 rendered to Global. 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 a 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 for 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 a
second 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 a third of these companies instead of the cash due of $1,625.
The remaining $1,625 from 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 recorded an impairment loss for the
entire $4,875 in our 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 recorded $1,625 of bad debt
expense in our statement of operations for the year ended April 30,
2005.
In September 2003, we entered into a consulting contract with Global
(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 its common stock, valued
F-18
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
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 an 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 Avix Technologies, Inc., a
publicly held company that emerged from bankruptcy under Chapter 11 of
the federal bankruptcy code. There is a minimal active trading market
for the shares and the company is in the process of developing its
primary product to offer to the market but has not achieved this
progress as of the date of the accompanying financial statements.
Accordingly, we have recorded an impairment loss in fiscal year 2004
for the entire $43,706, which is classified as impairment of
investments in the accompanying financial statements.
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 (the
"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, the 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 ("Holley Communications"), to the
Investment Sub. As of April 30, 2006, this transaction had not yet
been consummated. Management anticipates that following the
completion of transactions contemplated by the Share Exchange
Agreement, the Company will register (or cause to be registered) and
distribute as a special dividend to the stockholders of the Company,
substantially all of the Company's shares in the Investment Sub.
F-19
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
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 December 2005, the Company signed a letter of intent to provide
$100,000 of funding for All American Pet, Inc., ("AAPC"), a New York
corporation, with its principal office in Encino, California. AAPC
produces markets and sells super premium dog food primarily through
supermarkets and grocery stores and has secured commitments to
distribute its products through approximately 6,000 supermarkets and
grocery stores. As of April 30, 2006, the Company has funded the
entire $100,000 commitment and was working on a formal agreement for
the terms of the funding. Accordingly, the $100,000 has been recorded
as a Loan Receivable in the accompanying Financial Statements (See
Subsequent Events Note 12).
In March 2006, the Company acquired 1,250,000 shares of Knight Energy
Corp. ("Knight") for a purchase price of $1,250. Knight is a holding
company that operates and develops energy related businesses and
assets. In March of 2006 Knight acquired a 75% equity interest in an
independent oil and gas services company that owns an executed lease
agreement among other assets in Stephens County, Texas. The lease
agreement contains approximately 160 acres that include four producing
natural gas acquired the other 25% and now wells. Stephens County has
been a successful producer of oil and gas over the last fifty years.
Subsequently, Knight acquired the remaining 25% interest and now owns
100% of the independent oil and gas services company. Knight also
owns and operates its own drilling rig that will be used to drill
additional wells on the current leased property as well as other
potential properties that Knight is reviewing for consideration.
Knight is currently reviewing further acquisitions and investments in
the oil and gas industry as well as other energy related businesses
and assets. Nortia has agreed to provide Knight with merchant banking
services that include advice on mergers & acquisitions, capital
markets, public markets strategies and raising capital. In exchange
for these services, Knight has granted Nortia warrants to purchase
additional common shares. Nortia received 1,250,000 warrants to
purchase Knight common shares with an exercise price of $.50, as well
as 1,250,000 warrants to purchase Knight common shares with an
exercise price of $1.00. The Company evaluated the warrants in
accordance with FAS 123 and utilized the Black Scholes method to
determine valuation. As a result of its evaluation, no value was
assigned to the warrants as the exercise price was significantly
greater than the fair value of the warrants. - See Related Party and
Affiliate Transaction Note 10.
The following represents information about securities held with loss
positions as of April 30, 2006 and 2005:
Securities in loss
- ------------------
positions more than Aggregate Aggregate
- ------------------- --------- ---------
12 months: Unrealized Losses Fair Value
- ---------- ----------------- ----------
Equity securities $48,581 $ -
======= =========
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 were 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
F-20
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
the option of the Company, the debenture holders were 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 was not binding and solely at the option of
the Company.
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 -
Loan Receivable and 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. Additionally, an
amount equal to twenty percent (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 (5%) 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 during fiscal 2005 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).
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 in twelve 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 during fiscal 2005 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).
6. RECAPITALIZATION
On October 15, 2004, we entered into an Exchange Agreement with
Global, whereby it was contemplated that we would become a wholly
owned subsidiary of Global. On December 2, 2004, the Exchange
Agreement was consummated and, pursuant to its terms, we became a
wholly owned subsidiary of Global in a transaction accounted for as a
recapitalization of the Company. On December 3, 2004, we were merged
with and into Global. Subsequent to the recapitalization, Global
changed its name to "Nortia Capital Partners, Inc." Pursuant to the
terms of the Exchange Agreement, the shareholders of the Company
received an aggregate of 17,350,000 newly issued shares of Global
common stock, which represented a one-for-one share exchange of the
Company's stock for Global stock (the "Transaction"). Immediately
F-21
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
after 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
was 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 was recorded as accounts payable and
subsequently paid.
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, 2006, 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
in outstanding shares at April 30, 2006. As of April 30, 2006,
3,300,021 of these shares had been returned and cancelled by the
Company's transfer agent.
7. STOCKHOLDERS' EQUITY (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 22,813,254 were issued and
outstanding at April 30, 2006. 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 4,874,855 shares that
issuable as of April 30, 2006. Including issuable shares, we have
27,688,109 shares outstanding and issuable as of April 30, 2006.
We were previously authorized to issue up to 5,000,000 shares of
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. In September 2005, such shares were converted into an
aggregate of 600,000 post-split Common Shares and the authorization
for Series A Preferred Stock has been cancelled. Accordingly, at
April 30, 2006, the Company had no preferred stock outstanding.
Common Stock
- ------------
In March 2004, we granted 4,300,000 shares of our common stock for
compensation and board fees to two individuals. At the time of grant,
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 $0.04 per share, valued on the grant
date and expensed immediately as $160,000 of compensation expense and
F-22
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
$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 September 2004, the shares were
issued and have been reclassed from Common Stock Issuable to Common
Stock.
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 the 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 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
shares were issuable as of January 31, 2005 and were issued by the
Company's 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
April 30, 2006 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. At the time of
grant, 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. 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 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. At the time of grant, 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. At the time of grant, 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.
F-23
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
As a result of our research, we determined that the appropriate
methodology was to utilize $0.05 per share, the valuation utilized for
preferred shares issued for director services on the same date (see
Issuances of Preferred Stock below). As a result, the Company has
expensed immediately $50,000 of director fees.
In October 2004, we granted 800,000 shares to our Advisory Board
members as fees for their services, comprised of 200,000 share
issuances to four individuals. At the time of grant, 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 $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. As a result of the termination, in January 2006, the
consulting group returned 84,000 of the shares previously issued and
these have been cancelled by the transfer agent as of January 31,
2006.
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 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 Company's
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 year. As of January 31, 2006, the
entire $122,400 of deferred consulting has been expensed and recorded
as consulting expense in the accompanying Statement of Operations.
The shares have not been issued as of April 30, 2006 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 year. The consulting agreement specified
that up to 450,000 shares would be issued for services 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
fiscal 2005 financial statements. Additionally, the 150,000 shares
F-24
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
had not been issued as of April 30, 2006 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 ("Unit"). Each Unit consisted 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. The
offering included an option for an over-allotment of up to 200,000
units or a maximum issuance of 1,200,000 units. Effective January 16,
2006, the offering was terminated and in total, the Company received
$1,315,770 of proceeds from the issuance of the Units, representing
1,196,155 shares of common stock and 1,196,155 two-year warrants to
purchase common stock at $2.00 per share.
In January 2006, the Company initiated a new private placement
offering for the issuance of up to 1,000,000 units at an offering
price of $1.10 per share ("Unit"). Each Unit consisted 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. The offering included an option for an over-
allotment of up to 200,000 units or a maximum issuance of 1,200,000
units. As of April 30, 2006, the Company has received $549,450 of
proceeds from the issuance of the Units, representing 499,500 shares
of common stock and 499,500 two-year warrants to purchase common stock
at $2.00 per share - See Subsequent Events Note 12.
In total for the combined private placements through April 30, 2006,
the Company has received $1,865,220 of proceeds from the issuance of
the Units ($86,350 and $1,778,870 in 2005 and 2006, respectively),
representing 1,695,655 shares of common stock and 1,695,655 two-year
warrants to purchase common stock at $2.00 per share - See Subsequent
Events Note 12.
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 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 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 per the requirements of
the 1940 Act. Accordingly, the Company is in the process of
rescinding these shares.
In September 2005, the Company issued 600,000 post-split shares of
common stock from the conversion of 300,000 shares of Series A
Preferred Stock.
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
F-25
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
from the preferred stock's date of issuance (the "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. In September 2005, the Company issued
600,000 post-split shares of common stock from the conversion of the
300,000 shares of Series A Preferred Stock discussed above.
Additionally, the authorization for Series A Preferred Stock has been
cancelled. Accordingly, at April 30, 2006, the Company had no
preferred stock outstanding.
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 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. The offering included an option for an over-
allotment of up to 200,000 units or a maximum issuance of 1,200,000
units. Effective January 16, 2006, the offering was terminated and in
total, the Company received $1,315,770 of proceeds from the issuance
of the Units, representing 1,196,155 shares of common stock and
1,196,155 two-year warrants to purchase common stock at $2.00 per
share.
In January 2006, the Company initiated a new private placement
offering for the issuance of up to 1,000,000 units at an offering
price of $1.10 per share ("Unit"). Each Unit consisted 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. The offering included an option for an over-
allotment of up to 200,000 units or a maximum issuance of 1,200,000
units. As of April 30, 2006, the Company has received $549,450 of
proceeds from the issuance of the Units, representing 499,500 shares
of common stock and 499,500 two-year warrants to purchase common stock
at $2.00 per share - See Subsequent Events Note 12.
In total for the combined private placements through April 30, 2006,
the Company has received $1,865,220 of proceeds from the issuance of
the Units ($86,350 and $1,778,870 in 2005 and 2006, respectively),
representing 1,695,655 shares of common stock and 1,695,655 two-year
warrants to purchase common stock at $2.00 per share - See Subsequent
Events Note 12.
For the two private placement offerings discussed above, the warrants
become exercisable at the closing date of the private placement
offering.
The following table summarizes activity related to warrants during the
years ended April 30, 2006, 2005 and 2004:
Weighted Average
Number of Shares Exercise Price
---------------- ----------------
Balance at April 30, 2003 - $ -
Granted - -
Exercised - -
Forfeited - -
----------- ------------
Balance at April 30, 2004 - -
Granted 78,500 2.00
Exercised - -
Forfeited - -
----------- ------------
F-26
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
Balance at April 30, 2005 78,500 2.00
Granted 1,617,155 2.00
Exercised - -
Forfeited - -
----------- ------------
Balance at April 30, 2006 1,695,655 $ 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 Exercise Outstanding at Contractural Exercise Exercisable at Exercise
Prices Apr. 30, 2006 Life Price Apr. 30, 2006 Price
- ----------------------------------------------------------------------------------------------
$2.00 1,695,655 2.00 years $2.00 1,196,155 $2.00
===== ========= ========== ===== ========= =====
8. INCOME TAXES
There was no income tax for the year ended April 30, 2006 or from the
twelve-month period aggregated from the four months ended April 30,
2005 and the eight months ended December 31, 2004 due to the Company's
net loss. There was no income tax for the year ended April 30, 2004
due to the Company's net loss.
The Company's tax expense differs from the "expected" tax expense
(computed by applying the Federal Corporate tax rate of 34% to loss
before taxes), as follows:
Four Months Four Months Eight Months
Ended Ended Ended
April 30, April 30, December 31,
2006 2005 2004
------------- -------------- -------------
Computed "expected" tax expense (benefit) $ (554,016) $ (1,259,562) $ (306,720)
Stock based issuances 32,878 191,856 168,005
Change in valuation allowance 521,138 1,067,706 138,715
-------------------------------------------------
Income tax expense $ - $ - $ -
=================================================
The tax effects of temporary differences that gave rise to
significant portions of deferred tax assets and liabilities are as
follows:
F-27
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
April 30, April 30,
2006 2005
-------------- --------------
Deferred tax assets
Net operating loss.......... $ 884,158 $ 1,114,869
-------------- --------------
Total deferred tax assets..... 884,158 1,114,869
Valuation allowance........... (884,158) (1,114,869)
Net deferred tax asset........ $ - $ -
============== ==============
In assessing the recoverability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. The valuation allowance
has been increased by $884,158 for the year ended April 30, 2006 as a
result of increased net operating losses. Net operating loss carry-
forwards aggregate approximately $2,600,466 and expire in years
through 2026.
Previously, in light of our election in January 2005 to be a BDC, we
intended to elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code. However, with the
Company's filing of form N54C in May 2006 to not be treated as a BDC,
the regulated investment company election will no longer be made.
9. 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.
We have one office location, our corporate office in Atlanta, Georgia,
and we currently do not have a lease and are not paying rent for our
office space. It is being provided to the Company by an
officer/director free of charge (See Note 10 - 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 corporate office space in the near future and that the
cost of the space may be material to our operations.
In January 2005, the Company filed an election to become subject to
the 1940 Act, such that it could commence conducting business as a
BDC. The Company elected BDC status intending to provide debt and
equity capital to companies that it believed presented opportunities
for superior performance through liquidity events, recapitalizations,
internal growth, product, or geographic expansion, the completion of
complementary add-on acquisitions, or industry consolidations. The
Company generally expected to invest in emerging and development-stage
micro-cap companies that intended to be listed on U.S. equity markets,
including the OTC Bulletin Board, but which otherwise lacked the
necessary capital and depth of management to expand their businesses.
Commensurate with those goals, in June 2005, the Company determined to
begin an offering of shares of common stock as a BDC in accordance
with the exemption from registration requirements of the Securities
Act of 1933 (the "1933 Act") as provided by Regulation E. In
connection with that prospective offering, the Company filed a Form 1-
E with the SEC, which was subsequently reviewed and a comment letter
issued (the "Comment Letter").
As a result, the Company understood that it may have been out of
compliance with certain of the rules and regulations governing the
business and affairs, financial status, and financial reporting items
required of BDCs. In response to the Comment Letter, during fiscal
2006, the Company conducted a review of its compliance with the 1940
Act and determined that it was not in compliance with several
important provisions of that Act. Specifically, the Company
determined that it had issued securities in return for services,
potentially violating Section 23 of the 1940 Act, had granted shares
of the Company's common stock as compensation to the Company's Chief
Executive Officer and President and had neglected to adopt compliance
policies and procedures. The Board of Directors, including the
Directors who are not interested persons of the Company, reviewed the
facts surrounding these compliance failures and their implications for
the Company. Ultimately, the Directors caused the Company to take
F-28
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
immediate and substantial steps to remediate the compliance failures,
and the Company informed the SEC Staff of these steps. However, there
can be no assurance that such steps will fully cure all of the 1940
Act compliance deficiencies to which the Company became subject, nor
how any failure to cure those deficiencies will impact the Company in
the future. Moreover, the Company's significant compliance and
remediation costs, in terms of both time and dollars, have operated as
an encumbrance on the Company's resources.
Accordingly, after careful consideration of the 1940 Act requirements
applicable to BDCs, an evaluation of the Company's ability to operate
as a going concern in an investment company regulatory environment,
the cost of 1940 Act compliance needs and a thorough assessment of
potential alternative business models, the Board determined that
continuation as a BDC was not in the best interest of the Company and
its shareholders and approved the recommendation, that the Company
file a Form N-54C and withdraw its election to be registered as a BDC.
On May 2, 2006, the Form N-54C was filed with the SEC giving
notification that the Company intends to pursue a business model
whereby it would provide merchant banking-type services to small,
private companies seeking to become publicly held and traded.
Specifically, the Company will identify small private companies (the
"Clients") and assist them with managerial, accounting and financial
advice and help them to raise necessary capital by introducing them to
potential investors. As compensation for these services, the Company
proposes to receive shares of the Client, which will then be
registered by the Client in its initial public offering. The Company
anticipates that the shares it receives as compensation will be
assessed at par value. The Company will at all times report shares it
receives as compensation on its periodic reports filed with the SEC.
Upon the Client's initial public offering, the Company will
immediately distribute to its shareholders all of the Client's shares
held. The Company will at all times conduct its activities in such a
way that it will not be deemed an "investment company" subject to
regulation under the 1940 Act. Thus, it will not hold itself out as
being engaged primarily in the business of investing, reinvesting or
trading in securities. In addition, the Company will conduct its
business in such a manner as to ensure that it will at no time own or
propose to acquire investment securities having a value exceeding 40
percent of the Company's total assets at any one time. The Company's
violations of the 1940 Act may cause the Company to incur certain
liabilities. Such liabilities can not be estimated by management as of
this time. However, such liabilities, if incurred, could have a
significant impact on the Company's ability to continue as a going
concern.
When the Company ceases to be a BDC in May 2006, the shareholders will
lose certain protections, including the following:
The Company will no longer be subject to the requirement that it
maintain a ratio of assets to senior securities of at least 200%;
The Company will no longer be prohibited from protecting any director
or officer against any liability to the Company or the Company's
shareholders arising from willful malfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of that person's office
The Company will no longer be required to provide and maintain a bond
issued by a reputable fidelity insurance company to protect it against
larceny and embezzlement
The Company will no longer be required to ensure that a majority of
the directors are persons who are not "interested persons," as that
term is defined in section 56 of the 1940 Act, and certain persons
that would be prevented from serving on the Company's board if it were
a BDC (such as investment bankers) will be able to serve on the
Company's board
F-29
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
The Company will no longer be subject to provisions of the 1940 Act
regulating transactions between BDCs and certain affiliates and
restricting the Company's ability to issue warrants and options
The Company will be able to change the nature of its business and
fundamental investment policies without having to obtain the approval
of its shareholders
The Company will no longer be subject to provisions of the 1940 Act
prohibiting the issuance of securities at below net asset value
The Company will no longer be subject to the other provisions and
protections set forth in Sections 55 through 64 of the 1940 Act and
the rules and regulations promulgated thereunder. However, the Board
will still be subject to customary principles of fiduciary duty with
respect to the Company and its shareholders. In addition, withdrawal
of the Company's election to be treated as a BDC will not affect the
Company's registration under Section 12(b) of the Securities Exchange
Act of 1934 (the "Exchange Act"). Under the Exchange Act, the Company
is required to file periodic reports on Form 10-K, Form 10-Q, Form 8-
K, proxy statements and other reports required under the Exchange Act.
The withdrawal of the Company's election to be regulated as a BDC will
result in a change in its method of accounting. BDC financial
statement presentation and accounting uses the fair value method of
accounting used by investment companies, which allows BDCs to value
their investments at market value as opposed to historical cost and
recognize unrealized gains or losses in operations. Operating
companies use either the fair-value or historical-cost methods of
accounting for financial statement presentation and accounting for
securities held, depending on how the investment is classified and how
long the company intends to hold the investment and recognize
unrealized gains or losses as a component of Stockholders' Equity.
Changing the Company's method of accounting could reduce the market
value of its investments in privately held companies by eliminating
the Company's ability to report an increase in value of its holdings
as they occur. The Company believes that, in light of its limited
assets, the effect of the change in method of accounting should not be
material. In accordance with generally accepted accounting principles,
the change from a BDC to an operating company will be retrospectively
applied to prior periods. The Company does not believe that
withdrawing its election to be regulated as a BDC will have any impact
on its federal income tax status, because the Company never elected to
be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code. Instead, the Company has always been subject to
corporate level federal income tax on its income (without regard to
any distributions it makes to its shareholders) as a "regular"
corporation under Subchapter C of the Internal Revenue Code.
The outcome of the above matters could have a significant impact on
our ability to continue as a going concern.
10. RELATED PARTY AND AFFILIATE TRANSACTIONS
The following disclosures comply with generally accepted accounting
principles and the disclosure requirements under the SEC Regulation
SX, Article 6, with regard to affiliate investments and transactions.
See Schedule of Investments for identification of Investments in
Affiliates.
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, 2005, we repaid the remaining $613.
F-30
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
In June and August 2004, we received advances totaling $3,000 from a
company controlled by the wife of our Chief Executive Officer and was
classified in Due to Related Party. During the eight months ended
December 31, 2004, the $3,000 was repaid in full.
As discussed in Note 9 - Commitments and Contingencies, for our
corporate office in Georgia, we currently do not have a lease and we
are not paying rent. It is being provided to the Company by an
officer/director free of charge. 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 corporate office space in the near future and
that the cost of the space may be material to our operations.
As discussed in Note 4 - Loan Receivable and Investments, in March
2006, the Company acquired 1,250,000 shares of Knight Energy Corp.
("Knight") for a purchase price of $1,250. Knight is a holding
company that operates and develops energy related businesses and
assets. Nortia has agreed to provide Knight with merchant banking
services that include advice on mergers & acquisitions, capital
markets, public markets strategies and raising capital. In exchange
for these services, Knight has granted Nortia warrants to purchase
additional common shares. Nortia received 1,250,000 warrants to
purchase Knight common shares with an exercise price of $.50, as well
as 1,250,000 warrants to purchase Knight common shares with an
exercise price of $1.00. The Company evaluated the warrants in
accordance with FAS 123 and utilized the Black Scholes method to
determine valuation. As a result of its evaluation, no value was
assigned to the warrants as the exercise price was significantly
greater than the fair value of the warrants. In addition to the common
stock that Nortia has received for services, Knight has also granted
Nortia warrants to purchase additional common shares. Nortia received
1,250,000 options to purchase Knight common shares with an exercise
price of $.50 as well as 1,250,000 options to purchase Knight common
shares with an exercise price of $1.00. Although the Nortia
investment in Knight represents only approximately seven percent (7%)
of the outstanding shares of Knight, the Company's CEO and CFO are
also the CEO and CFO of Knight.
11. FINANCIAL INFORMATION
Following is a schedule of financial highlights for the year ended
April 30, 2006, during which period the Company operated as a BDC:
Year
Ended
April 30, 2006
--------------
Per Share Data:
Net Asset Value at Beginning of Period (1) $ (0.01)
Net Operating Loss (2) (0.06)
Common stock transactions (2) 0.07
Compensation expense for officer not paid (2) 0.00
Amortization of deferred consulting (2) 0.00
Impairment losses on Investments (2) (0.00)
--------------
Net increase in Stockholders Equity (Deficiency) 0.01
--------------
Net Asset Value at End of Period $ 0.00
==============
Per Share Market Value at End of Period $ 2.95
Total Return (2), (3) 103%
Common Stock Outstanding and Issuable at
End of Period 27,688,109
F-31
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
Ratio/Supplemental Data:
- -----------------------
Net Assets at End of Period $ 116,480
Ratio of Operating Expenses to Net Assets 1,399%
Ratio of Operating Loss to Net Assets 1,399%
(1) Based on Total Shares Outstanding and Issuable at beginning of
period.
(2) Based on Total Shares Outstanding and Issuable at end of period.
(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.
12. SUBSEQUENT EVENTS
In May 2006, the Company formally completed an agreement related to
$100,000 of funding provided to AAPC - See Loan Receivable and
Investments Note 4. The agreement grants the Company a non-
controlling equity position for 750,000 shares of AAPC. Additionally,
the Company received 500,000 warrants to purchase AAPC shares at $0.50
per share. As a result of the agreement, the Company's Loan
Receivable position of $100,000 as of April 30, 2006 will be converted
to an investment in common shares of AAPC.
From May 1, 2006 through June 30, 2006, the Company received $239,030
of proceeds, representing 217,300 common shares and 217,300 warrants,
from the January 2006 private placement offering for the issuance of
up to 1,000,000 units at an offering price of $1.10 per share ("Unit")
- - See Stockholders Equity (Deficiency) Note 7. Each Unit consisted 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. As of June 30, 2006, the Company has
received $788,480 of proceeds from the issuance of the Units,
representing 716,800 shares of common stock and 716,800 two-year
warrants to purchase common stock at $2.00 per share.
In total for the combined private placements discussed in Stockholders
Equity (Deficiency) Note 7, the Company has received $2,104,250 of
proceeds from the issuance of the Units, representing 1,912,955 shares
of common stock and 1,912,955 two-year warrants to purchase common
stock at $2.00 per share.
F-32
Nortia Capital Partners, Inc.
Notes to Financial Statements
Years Ended April 30, 2006, 2005 and 2004
13. UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of unaudited quarterly operating results
for the fiscal year ended April 30, 2006 and 2005:
Fiscal 2006 First Second Third Fourth
- ----------- ----------- ------------ ------------ ------------
Investment Income $ - $ - $ - $ -
Net Investment Loss (377,787) (526,505) (372,711) (352,931)
Net Decrease in Net Assets (377,576) (526,378) (372,658) (352,849)
Net Decrease in Net Assets
Per Share - Basic and Diluted $ (0.01) $ (0.02) $ (0.01) $ (0.02)
- ----------------------------------------------------------------------------------------------------
Fiscal 2005 First Second Third Fourth
- ----------- ----------- ------------ ------------ ------------
Investment and Pre-BDC Operating
Income $ 60,000 $ 93,699 $ - $ -
Net Investment and Pre-BDC
Operating Loss (57,989) (82,573) (664,623) (717,523)
Net Decrease in Net Assets (post
BDC) and Net Loss (pre BDC) (152,989) (186,773) (722,562) (3,544,390)
Net Decrease in Net Assets (post
BDC) and Net Loss (pre BDC)
Per Share - Basic and Diluted $ (0.02) $ (0.01) $ (0.04) $ (0.21)
- ----------------------------------------------------------------------------------------------------
Note:
The 2006 information reflects the Company operating as a BDC for the
entire year The 2005 information reflects the Company operating as a BDC
(post BDC) for the four months ended April 30, 2005 and as an operating
company (pre BDC) for the eight months ended December 31,
2004.
The Board of Directors approved a two-for-one stock split of the Company's
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 above
Unaudited quarterly data for all per share amounts.
F-33