UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File number: 0-26843
--------------
Nortia Capital Partners, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 90-025041
- ------------------------------ -------------------
(STATE OR JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
400 Hampton View Court, Alpharetta, Georgia 30004
- ------------------------------------------- -------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 777-6795
---------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).
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]
As of August 31, 2006, there were approximately 22,813,254 shares
of common stock, $0.001 par value, issued and outstanding and 5,110,155
shares issuable and outstanding.
Nortia Capital Partners, Inc.
Form 10-Q Index
July 31, 2006
Page
----
Part I-Financial Information
Item 1. Financial Statements 2
Balance Sheets at July 31, 2006 (Unaudited) 3
Statement of Operations for the Three Months Ended
July 31, 2006 and 2005 and for the period from
May 1, 2006 (inception of development stage) to
July 31, 2006 (Unaudited) 4
Statement of Cash Flows for the Three Months Ended
July 31, 2006 and 2005 and for the period from
May 1, 2006 (inception of development stage) to
July 31, 2006 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 33
Item 4. Controls and Procedures 34
Part II-Other Information
Item 1. Legal Proceedings 34
Item 1A. Risk Factors 35
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds 37
Item 3. Defaults upon Senior Securities 38
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 5. Other Information 38
Item 6. Exhibits 39
Signatures 40
PART I
FINANCIAL INFORMATION
Item 1-Financial Statements
3
Nortia Capital Partners, Inc.
(A Development Stage Company)
Balance Sheets
ASSETS
------
July 31, April 30,
2006 2006
(Unaudited)
--------------- --------------
Current Assets
Cash $ 42,255 $ 32,401
Other receivable 400 4,150
--------------- --------------
Total Current Assets 42,655 36,551
=============== ==============
Property and Equipment, net 2,872 -
--------------- --------------
Investments
Marketable Securities
Available-for-sale equity securities at
fair market value 200,000 -
Non-Marketable Securities
Non-marketable equity securities at cost 100,000 -
Related party non-marketable equity
securities at cost 1,250 1,250
--------------- --------------
Total Non-Marketable Securities 101,250 1,250
Total Investments 301,250 1,250
--------------- --------------
Other Assets
Note receivable - 100,000
--------------- --------------
Total Other Assets - 100,000
Total Assets $ 346,777 $ 137,801
=============== ==============
LIABILITIES
-----------
Current Liabilities
Accounts payable $ 5,000 $ 17,193
Accrued expenses 35,395 4,128
--------------- --------------
Total Current Liabilities 40,395 21,321
=============== ==============
Commitments and Contingencies (Note 6)
STOCKHOLDERS' EQUITY
--------------------
Preferred stock, Series A, $0.001 par
value, 5,000,000 shares authorized zero
shares issued and outstanding $ - $ -
Common stock, $0.001 par value, 50,000,000
shares authorized 22,813,254 shares issued
and outstanding 22,813 22,813
Common stock issuable, 5,110,155 and
4,874,855 shares 5,110 4,875
Additional paid in capital 6,759,422 6,500,828
Accumulated deficit (6,412,035) (12,398)
Deficit accumulated during development stage (268,928) (6,399,638)
Accumulated other comprehensive income 200,000 -
--------------- --------------
Total Stockholders' Equity 306,382 116,480
=============== ==============
Total Liabilities and Stockholders' Equity $ 346,777 $ 137,801
=============== ==============
See accompanying notes to unaudited financial statements.
4
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Operations
(Unaudited)
Period from
May 1, 2006
Three Months Ended (Inception of
July 31, Development Stage)
2006 2005 to July 31, 2006
--------------------------------- -----------------
Operating Expenses
General and administrative $ 77,817 $ 111,595 $ 77,817
Rent 5,404 12,077 5,404
Consulting 3,000 36,857 3,000
Compensation 117,610 129,760 117,610
Professional 65,218 87,498 65,218
--------------------------------- -----------------
Total Operating Expenses 269,049 377,787 269,049
--------------------------------- -----------------
Operating Loss (269,049) (377,787) (269,049)
Other Income (Expense)
Interest expense (11) - (11)
Interest income 132 211 132
--------------------------------- -----------------
Other Income (Expense) 121 211 121
--------------------------------- -----------------
Net Loss $ (268,928) $ (377,576) $ (268,928)
================================= =================
Comprehensive Gain
Unrealized gain on available for
sale securities 200,000 - 200,000
--------------------------------- -----------------
Total Comprehensive Loss $ (68,928) $ (377,576) $ (68,928)
================================= =================
Net Loss Per Share - Basic and Diluted $ (0.01) $ (0.01) $ (0.01)
================================= =================
Weighted Average Shares 27,845,709 25,802,127 27,845,709
================================= =================
See accompanying notes to unaudited financial statements
5
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
Period from
May 1, 2006
Three Months Ended (Inception of
July 31, Development Stage)
2006 2005 to July 31, 2006
--------------------------------- -----------------
Cash Flows From Operating Activities:
Net loss $ (268,928) $ (377,576) $ (268,928)
Adjustments to reconcile net loss to net
cash used in operations:
Amortization of deferred consulting - 30,600 -
Changes in operating assets and liabilities:
Decrease in other receivable 3,750 - 3,750
Decrease in accounts payable (12,193) (59,357) (12,193)
Increase in accrued expenses 31,268 19,799 31,268
--------------------------------- -----------------
Net Cash Used In Operating Activities (246,103) (386,534) (246,103)
--------------------------------- -----------------
Cash Flows From Investing Activities:
Purchase of property and equipment (2,872) - (2,872)
--------------------------------- -----------------
Net Cash Used In Investing Activities (2,872) - (2,872)
--------------------------------- -----------------
Cash Flows From Financing Activities:
Proceeds from sale of common stock 258,829 635,793 258,829
--------------------------------- -----------------
Net Cash Provided By Financing Activities 258,829 635,793 258,829
--------------------------------- -----------------
Net Increase in Cash 9,854 249,259 9,854
--------------------------------- -----------------
Cash at Beginning of Period 32,401 11,703 32,401
--------------------------------- -----------------
Cash at End of Period $ 42,255 $ 260,962 $ 42,255
================================= =================
Supplemental Disclosure of Cash Flow
Information:
- ------------------------------------
Cash paid during the period for:
Interest $ - $ - $ -
================================= =================
Taxes $ - $ - $ -
================================= =================
Supplemental Disclosure of Non-Cash
Investing and Financing Transactions:
- -------------------------------------
Conversion of note receivable to
non-marketable equity securities $ 100,000 $ - $ 100,000
Unrealized gains on available-for-sale
equity securities, net 200,000 - 200,000
See accompanying notes to unaudited financial statements
6
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
Note 1. Basis of Presentation
- ------------------------------
The accompanying unaudited financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America and the rules and
regulations of the United States of America Securities and
Exchange Commission ("SEC") for interim financial information.
Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial
position and results of operations.
It is management's opinion, however, that all material
adjustments (consisting of normal recurring adjustments and
certain non-recurring adjustments) have been made which are
necessary for a fair financial statement presentation. The
results for the interim period are not necessarily indicative of
the results to be expected for the year.
These unaudited financial statements should be read in
conjunction with Nortia Capital Partners, Inc.'s ("Nortia", "we",
"us", "our", or the "Company") audited financial statements and
notes thereto for the year ending April 30, 2006 included in the
Company's Form 10-K filed with the SEC on August 16, 2006.
Previously, the Company's financial statements were prepared in
accordance with the guidance in the AICPA's Audit and Accounting
Guide, "Audits of Investment Companies" because the Company
elected to be regulated as a business development company (a
"BDC") under the Investment Company Act of 1940 (the "1940 Act"),
effective January 4, 2005. The Company operated as a BDC for
regulatory oversight and reporting purposes throughout the period
covered by its Form 10-K for the year ended April 30, 2006.
Effective May 2, 2006, the Company filed a Form N-54C with the
SEC withdrawing its election to be regulated as a BDC. The
Company has commenced a new business model whereby it provides
merchant banking-type services to small, private companies
seeking to become publicly held and traded, as discussed further
under Note 2 - Nature of Operations.
The withdrawal of the Company's election to be regulated as a BDC
resulted in a change in its method of accounting. BDC financial
statement presentation and accounting uses the fair value method
of accounting, which allows BDCs to value their investments at
market value as opposed to historical cost and to recognize
unrealized gains or losses in operations. As an operating
company, the Company will 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. In light of its limited
assets, the effect of the change in method of accounting was not
material. In accordance with generally accepted accounting
principles, the change from a BDC to an operating company has
been retrospectively applied to prior periods.
With the new business model, effective May 2, 2006, the Company
has commenced a new development stage and has not generated any
revenue to date from its new business model. The results of
operations for May 1, 2006 through May 2, 2006 were not material
and therefore, the Company will utilize May 1, 2006 as the
inception date for the new development stage.
7
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
Note 2. Nature of Operations and Summary of Significant
Accounting Policies
-----------------------------------------------
Nature of Operations
- --------------------
Nortia is an Atlanta, Georgia based company that elected to
become a BDC in January 2005, pursuant to the provisions of the
1940 Act. The Company operated as a BDC for regulatory oversight
and reporting purposes throughout the period covered by its Form
10-K for the period ended April 30, 2006. Effective May 2, 2006,
the Company filed a Form N-54C with the SEC withdrawing its
election to be regulated as a BDC. The Company has commenced a
new business model whereby it provides merchant banking-type
services to small, private companies seeking to become publicly
held and traded, as discussed 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 (See Note 3 - Going Concern for further
discussion).
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 operate as an investment company
investing in small, private companies providing management
advice.
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 our required reports
in a timely manner 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 (the "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.
8
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
As a result, we planned to 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 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. However, as of
the date of these unaudited financial statements, due to a recent
increase in the value of one of its investments, the Company
currently holds investment securities exceeding 40 percent of the
Company's total assets. The management of the Company is making
every effort to remediate this issue as soon as practicable. See
Note 4 - Investments & Loan Receivable and Note 9 - Subsequent
Events.
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,
9
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
in March 2006, we acquired a minority interest in Knight Energy
Corp. The Company, however, never generated any revenue from its
business 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 were 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.
New Business Model
Subsequent to our withdrawal as a BDC, Nortia changed the nature
of its business focus from investing, owning, holding, or trading
in investment securities to that of an operating company
intending to 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 will at all times
report shares it receives as compensation on its periodic reports
filed with the SEC. Upon the client company's initial public
offering, the Company intends to immediately distribute to its
shareholders a portion of the shares held. The Company intends to
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. However, as of
the date of these unaudited financial statements, due to a recent
increase in the value of one of its investments, the Company
currently holds investment securities exceeding 40 percent of the
Company's total assets. The management of the Company is making
every effort to remediate this issue as soon as practicable. See
Note 4 - Investments & Loan Receivable and Note 9 - Subsequent
Events.
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"). 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.
Significant Accounting Policies
- -------------------------------
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
10
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
estimates. Significant estimates in the accompanying financial
statements include the determination of the fair value of
financial instruments, 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.
Derivative Instruments
- ----------------------
In connection with the sale of debt or equity instruments, we may
sell options or warrants to purchase our common stock. In certain
circumstances, these options or warrants may be classified as
derivative liabilities, rather than as equity. Additionally, the
debt or equity instruments may contain embedded derivative
instruments, such as variable conversion options, which in
certain circumstances may be required to be bifurcated from the
host instrument and accounted for separately as a derivative
instrument liability.
The identification of, and accounting for, derivative instruments
is complex. Derivative instrument liabilities are re-valued at
the end of each reporting period, with changes in fair value of
the derivative liability recorded as charges or credits to income
in the period in which the changes occur. For options, warrants
and bifurcated conversion options that are accounted for as
derivative instrument liabilities, we determine the fair value of
these instruments using the Black-Sholes option pricing model,
binomial stock price probability trees, or other valuation
techniques, sometimes with the assistance of a certified
valuation expert. These models require assumptions related to the
remaining term of the instruments and risk-free rates of return,
our current common stock price and expected dividend yield, and
the expected volatility of our common stock price based on not
only the history of our stock price but also the experience of
other entities considered comparable to us. The identification
of, and accounting for, derivative instruments and the
assumptions used to value them can significantly affect our
financial statements.
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 beneficial conversion terms
related to convertible instruments such as convertible debt or
convertible preferred stock. If the Company issues convertible
instruments, a beneficial conversion may exist if the holder,
upon conversion, may receive instruments that exceed the value of
the convertible instrument. Valuation of the benefit is
determined based upon various factors including the valuation of
equity instruments, such as warrants, that may have been issued
with the convertible instruments, conversion terms, value of the
instruments to which the convertible instrument is convertible,
etc. Accordingly, the ultimate value of the beneficial feature
is considered an estimate due to the partially subjective nature
of valuation techniques.
Fair Value of Financial Instruments
- -----------------------------------
We define the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value of
accounts payable and accrued liabilities approximates fair value
11
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
because of the short maturity of those instruments. The estimated
fair value of our other obligations is estimated based on the
current rates offered to us for similar maturities. Based on
prevailing interest rates and the short-term maturity of all of
our indebtedness, management believes that the fair value of our
obligations approximates book value at July 31, 2006.
Stock-Based Compensation
- ------------------------
Prior to its election as a BDC, the Company accounted 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," ("ABP 25") 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
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), and Statement of
Financial Accounting Standards No. 148 "Accounting for Stock
Based Compensation - Transition and Disclosure" ("SFAS 148"),
which permits entities to provide pro forma earnings (loss) per
share disclosures for employee stock option grants as if the fair
value based method defined in SFAS 123 had been applied.
The Company accounted for stock options or warrants issued to non-
employees in exchange 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.
Effective May 1, 2006, the Company adopted SFAS No. 123
(Revised), entitled Share-Based Payment. This revised Statement
eliminates the alternative to use APB 25's intrinsic value method
of accounting that was provided in SFAS No. 123 as originally
issued. Under APB 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. SFAS 123
(Revised) may have an impact and will require further evaluation
by the Company.
Value of Investments
- --------------------
The Company invests in various marketable equity instruments and
accounts for such investments in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") (see Note
4 - Investments and Loan Receivable).
Certain securities that the Company may invest in may be
determined to be non-marketable. Non-marketable securities where
the Company owns less than 20% of the investee are accounted for
at cost pursuant to APB No. 18, "The Equity Method of Accounting
for Investments in Common
Stock" ("APB 18").
Management determines the appropriate classification of its
investments at the time of acquisition and reevaluates such
determination at each balance sheet date. Available-for-sale
securities are carried at fair value, with unrealized gains and
12
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
losses, net of tax, reported as a separate component of
stockholders' equity. Investments classified as held-to-maturity
are carried at amortized cost. In determining realized gains
and losses, the cost of the securities sold is based on the
specific identification method.
The Company periodically reviews its investments in marketable
and non-marketable securities and impairs any securities whose
value is considered non-recoverable. The Company's determination
of whether a security is other than temporarily impaired
incorporates both quantitative and qualitative information; GAAP
requires the exercise of judgment in making this assessment,
rather than the application of fixed mathematical criteria. The
Company considers a number of factors including, but not limited
to, the length of time and the extent to which the fair value has
been less than cost, the financial condition and near term
prospects of the issuer, the reason for the decline in fair
value, changes in fair value subsequent to the balance sheet
date, and other factors specific to the individual investment.
The Company's assessment involves a high degree of judgment and
accordingly, actual results may differ materially from the
Company's estimates and judgments. The Company recorded no
impairment charges for securities during the three month periods
ended July 31, 2006 and 2005, respectively.
Revenue Recognition
- -------------------
The Company recognized 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
reasonably assured.
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. 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.
Income (Loss) per Share of Common Stock
- ---------------------------------------
Basic earnings per share ("EPS") are computed only on the
weighted average number of common shares outstanding during the
respective periods. There were no additional common stock
equivalents or other items to adjust the numerator or denominator
in the EPS computations.
The Company previously 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.
13
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
At July 31, 2006, there were warrants to purchase 1,930,955
shares of the Company's common stock outstanding which may dilute
future earnings per share. The July 31, 2006 total includes
1,196,155 warrants exercisable and 734,800 warrants that will
become exercisable at the closing date of the existing private
placement offering, which had not occurred as of the date of
these unaudited financial statements.
Comprehensive Income (Loss)
- ---------------------------
Comprehensive income (loss) includes net income (loss) as
currently reported by the Company adjusted for other
comprehensive gains (losses). Other comprehensive gains (losses)
for the Company consists of unrealized gains (losses) related to
the Company's equity securities accounted for as available-for-
sale with changes in fair value recorded through stockholders'
equity.
Note 3. Going Concern
- -----------------------
As reflected in the accompanying financial statements, the
Company had a net loss of $268,928 and net cash used in
operations of $246,103 for the three months ended July 31, 2006.
Additionally, the Company reported a comprehensive loss during
the three months ended July 31, 2006 of $68,928 and this amount
included $200,000 of unrealized gains on available for sale
equity securities. Additionally, the Company has an accumulated
deficit of $6,412,035 and a deficit accumulated during the
development stage of $268,928 at July 31, 2006.
The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its new
business model, raise capital, and generate revenues. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
We plan on generating revenues from our new business model by
providing 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 time required for us to become profitable from operations is
highly uncertain, and we cannot assure you that we will achieve
or sustain operating profitability or generate sufficient cash
flow to meet our planned capital expenditures 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.
Note 4. Investments and Loan Receivable
- -----------------------------------------
In April and May 2004, we paid $6,500 for professional services
for four companies and recorded a $1,625 receivable from each
company. For three of these companies, we agreed to receive
shares of their common stock instead of the cash due of $1,625
14
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
each. The remaining $1,625 from the final company is not
collectible. All of these companies had a limited operating
history and a significant stockholders' deficiency and there was
no practical way to value the common stock. For the three
companies that we received common stock, we recorded an
impairment loss for the combined $4,875 of investments in our
statement of operations for the year ended April 30, 2005. For
the remaining company that we did not receive common stock from,
we recorded $1,625 of bad debt expense in our statement of
operations for the year ended April 30, 2005.
In June 2006, one of the companies that we received common stock
for as discussed above commenced trading on the Over the Counter
Bulletin Board and changed its name to Universal Capital
Management, Inc. ("Universal"). Universal is a venture capital
firm specializing in emerging growth and late stage companies.
The firm primarily seeks to invest in the consumer products,
business services, healthcare services, medical devices, and
nanotechnology sectors. It invests in equity, equity related
securities, a combination of debt and equity instruments, and
well as other beneficial ownership interest including warrants,
options, and convertible or exchangeable securities. The Company
owns 50,000 common shares of Universal which it acquired in
November 2004 for $1,625 and which represents a non-controlling
position of approximately 1% of the outstanding common stock of
Universal as of July 31, 2006. The last trade price of Universal
was $4 per share on July 31, 2006 and the Company has valued the
Universal investment at $200,000, and recorded this amount as an
unrealized gain on available for sale equity securities in the
stockholders' equity section of the accompanying financial
statements as of July 31, 2006. In accordance with SFAS 115, the
Company had classified the investment as an available-for-sale
marketable security at fair value in the accompanying financial
statements.
Due to the recent increase in the value of the Universal shares,
as of July 31, 2006, the Company fell within the definition of an
"investment company" in the 1940 Act. The Company is not
registered as an investment company nor has it elected to be
registered as a business development company under that Act, as
would be required for companies which hold investment securities
having a value exceeding 40 percent of the value of such
company's total assets on an unconsolidated basis. Further, it
is not in compliance with other provisions of the 1940 Act
applicable to investment companies and, therefore, may be subject
to potential regulatory action by Federal and state regulators
and other potential litigation.
The Company is considering all of the options available to it in
order to comply with applicable regulations including, but not
limited to, terminating its investment company status by selling
sufficient shares of Universal. There can be no assurance as to
if or how the Company will resolve the issues caused by its
status as an unregistered investment company. See Note 2 - Nature
of Operations and Summary of Significant Accounting Policies and
Note 9 - Subsequent Events.
In April 2004, we acquired 2,587,983 shares for a purchase price
of $43,706 representing approximately 11% of Avix Technologies,
Inc. ("Avix"), a publicly held company that emerged from
bankruptcy under Chapter 11 of the federal bankruptcy code. There
was minimal active trading market for the shares and the company
was in the process of developing its primary product to offer to
the market. Accordingly, the Company recorded an impairment loss
in fiscal year 2004 for the entire $43,706, which was classified
as impairment of investments. In early August 2006, we
determined that Avix had ceased business by filing for
liquidation of its assets with the bankruptcy court. However,
since the Company has previously impaired the entire investment,
there is no effect on the financial statements of the Company.
In July 2005, the Company announced the execution of a definitive
Share Exchange Agreement by and among Holley Communications,
15
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
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 July 31, 2006, this transaction had not
yet been consummated and, as of the date of these unaudited
financial statements, management has serious doubt that the
transaction will close as negotiated. 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 had funded the entire $100,000
commitment and was working on a formal agreement for the terms of
the funding. Accordingly, the $100,000 was recorded as a Loan
Receivable in the Financial Statements as of April 30, 2006. In
May 2006, the Company formally completed an agreement related to
the $100,000 of funding provided to AAPC. The agreement grants
the Company 750, 000 common shares of AAP, representing a non-
controlling equity position of approximately 7% of AAPC as of
July 31, 2006. 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 was converted to an investment in
common shares of AAPC. The Company evaluated the investment as
of July 31, 2006 and since there is no trading market for the
common stock, considered numerous factors in its impairment
evaluation. As a result of this analysis, the Company believes
that the investment is not impaired and the historical cost of
$100,000 has been utilized as the value as of July 31, 2006. In
accordance with APB 18, the Company had classified the investment
as a non-marketable security at cost in the accompanying
financial statements.
In March 2006, the Company acquired 1,250,000 shares,
representing a non-controlling equity position of approximately
7% of the common shares outstanding 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
16
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
services that include advice on mergers and 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, resulting in a fair value of zero under the Black-
Scholes method. See Note 7 - Related Party Transactions.
In June 2006, Knight executed a stock exchange agreement with
Integrated Technology Group, Inc. ("ITGI"), which, upon closing,
will result in the former stockholders of Knight owning
approximately 85 percent, or 16,762,500 shares, of the issued and
outstanding common stock of ITGI. In connection with this
transaction, ITGI has changed its name to Knight. ITGI
securities are currently traded over-the-counter on the pink
sheets under the symbol "KNEC." However, the stock exchange
agreement has not closed as of the date of these unaudited
financial statements. Therefore, in accordance with APB 18, the
Company had classified the investment as a non-marketable
security at cost. Additionally, since the investment is with a
related party, the Company has classified the investment
separately as a related party transaction in the accompanying
financial statements.
The following is a summary of the investments in available-for-
sale marketable securities classified as a current asset at July
31, 2006:
Gross Gross
Unrealized Unrealized
Gains in Losses in
Accumulated Accumulated
Other Other
Available-for-Sale Comprehensive Comprehensive Estimated Fair
Securities: Cost Income Income Value
- ------------------ -------- ------------- ------------- --------------
Equity securities $1,625 $ 200,000 $ - $ 200,000
====== ========= ========= ========
For all marketable securities accounted for as available-for-sale
equity securities, the net unrealized gain for the three months
ended July 31, 2006 was $200,000.
Note 5. Stockholders' Equity
- ------------------------------
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 July 31, 2006, after giving
consideration to 5,104,406 common shares previously issued by
the Company's transfer agent that were returnable to the Company
under a mutual rescission agreement. The mutual rescission
agreement was a component of a December 2004 transaction
accounted for as a recapitalization of the Company. These shares
have been restricted as to transfer by the transfer agent and are
not included in outstanding shares at July 31, 2006. As of July
17
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
31, 2006, 3,300,021 of these shares had been returned and
cancelled by the Company's transfer agent.
The holders of the Company's common stock do not have any
preemptive right to subscribe for, or purchase, any shares of any
class of stock. Additionally, we have 5,110,155 shares that are
issuable and outstanding at July 31, 2006. Including issuable
shares, we have 27,923,409 shares outstanding and issuable as of
July 31, 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 July 31, 2006, the Company had no preferred stock
authorized, issued and outstanding.
Common Stock and Common Stock Issuable
- --------------------------------------
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 2,427,200 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 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.
As of July 31, 2006, none of the common stock has been issued and
is classified as common stock issuable in the accompanying
financial statements.
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 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 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. As of July 31, 2006, none of
the common stock has been issued and is classified 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
18
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
purchase common stock at $2.00 per share. As of July 31, 2006,
none of the common stock has been issued and is classified as
common stock issuable in the accompanying financial statements.
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 July 31, 2006, the Company
has received $808,279 of proceeds from the issuance of the Units
($549,450 and $258,829 in fiscal years 2006 and 2007,
respectively), representing 734,800 shares of common stock and
734,800 two-year warrants to purchase common stock at $2.00 per
share. As of July 31, 2006, none of the common stock has been
issued and is classified as common stock issuable in the
accompanying financial statements.
In total for the combined private placements, from April 2005
through July 31, 2006, the Company has received $2,124,049 of
proceeds from the issuance of the Units ($86,350, $1,778,870 and
$258,829 in fiscal years 2005, 2006 and 2007, respectively),
representing 1,930,955 shares of common stock and 1,930,955 two-
year warrants to purchase common stock at $2.00 per share.
The private placement offerings were offered without registration
under the Securities Act of 1933, as amended, pursuant to the
exemptions provided by Section 4(2) thereof and Rule 506 of
Regulation D (or Rule 903 of Regulation S where investor is a non-
U.S. person) promulgated by the SEC.
For the two private placement offerings discussed above, the
warrants become exercisable at the closing date of the private
placement offering. At July 31, 2006, there were warrants to
purchase 1,930,955 shares of the Company's common stock, of which
1,196,155 warrants were exercisable and 734,800 warrants that
will become exercisable at the closing date of the existing
private placement offering, which had not occurred as of the date
of these unaudited financial statements.
The Company evaluated the 1,196,155 warrants from the April
private placement that has closed and that are exercisable in
accordance with FAS 123 and utilized the Black Scholes method to
determine valuation. As a result of its evaluation, a valuation
of approximately $803,000 was assigned to the warrants and was
recorded to additional paid in capital as the warrants were a
component of a private placement offering. The warrants from the
second private placement offering will be evaluated when the
offering is closed and the warrants become exercisable.
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.
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,
19
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
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 July 31, 2006, the Company
has received $808,279 of proceeds from the issuance of the Units
($549,450 and $258,829 in fiscal years 2006 and 2007,
respectively), representing 734,800 shares of common stock and
734,800 two-year warrants to purchase common stock at $2.00 per
share.
In total for the combined private placements, from April 2005
through July 31, 2006, the Company has received $2,124,049 of
proceeds from the issuance of the Units ($86,350, $1,778,870 and
$258,829 in fiscal years 2005, 2006 and 2007, respectively),
representing 1,930,955 shares of common stock and 1,930,955 two-
year warrants to purchase common stock at $2.00 per share.
The private placement offerings were offered without registration
under the Securities Act of 1933, as amended, pursuant to the
exemptions provided by Section 4(2) thereof and Rule 506 of
Regulation D (or Rule 903 of Regulation S where investor is a non-
U.S. person) promulgated by the SEC.
For the two private placement offerings discussed above, the
warrants become exercisable at the closing date of the private
placement offering. At July 31, 2006, there were warrants to
purchase 1,930,955 shares of the Company's common stock, of which
1,196,155 warrants were exercisable and 734,800 warrants that
will become exercisable at the closing date of the existing
private placement offering, which had not occurred as of the date
of these unaudited financial statements.
The Company evaluated the 1,196,155 warrants from the April
private placement, that has closed and that are exercisable, in
accordance with FAS 123 and utilized the Black Scholes method to
determine valuation. As a result of its evaluation, a valuation
of approximately $803,000 was assigned to the warrants and was
recorded to additional paid in capital, as the warrants were a
component of a private placement offering. The warrants from the
second private placement offering will be evaluated when the
offering is closed and the warrants become exercisable.
The following table summarizes activity related to warrants
during the three months ended July 31, 2006:
Weighted Average
Number of Shares Exercise Price
---------------- ----------------
Balance at April 30, 2006 1,695,655 $ 2.00
Granted 235,300 2.00
Exercised - -
Forfeited - -
--------- ----------
Balance at July 31, 2006 1,930,955 $ 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.
20
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
The terms of exercisable warrants to purchase our common stock
are summarized below:
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Outstanding at Contractural Exercise Exercisable at Exercise
Prices July 31, 2006 Life Price July 31, 2006 Price
- ----------------- -------------- ------------ --------- -------------- ---------
$2.00 1,930,955 2.00 years $2.00 1,196,155 $2.00
===== ========= ========== ===== ========= =====
Note 6. 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.
Our corporate office is in Atlanta, Georgia, and we currently do
not have a lease and are not paying rent for this space. It is
being provided to the Company by an officer/director free of
charge (See Note 7 - Related Party Transactions). Usage of this
office space and the related value is de minimis. Therefore, no
expense has been recorded in the accompanying unaudited financial
statements. Additionally, we utilize executive office space in
both New York and Los Angeles on a month-to-month basis. The
cost of this space is recorded as office rent in the accompanying
unaudited 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 - Investments and Loan receivable, due to
the recent increase in the value of the Universal shares, as of
July 31, 2006, the Company fell within the definition of an
"investment company" in the 1940 Act. The Company is not
registered as an investment company nor has it elected to be
registered as a business development company under that Act, as
would be required for companies which hold investment securities
having a value exceeding 40 percent of the value of such
company's total assets on an unconsolidated basis. Further, it
is not in compliance with other provisions of the 1940 Act
applicable to investment companies and, therefore, may be subject
to potential regulatory action by Federal and state regulators
and other potential litigation. See also Note 2 - Nature of
Operations and Summary of Significant Accounting Policies and
Note 9 - Subsequent Events.
The Company is considering all of the options available to it in
order to comply with applicable regulations including, but not
limited to, terminating its investment company status by selling
sufficient shares of Universal. There can be no assurance as to
if or how the Company will resolve the issues caused by its
status as an unregistered investment company.
Note 7. Related Party Transactions
- ------------------------------------
As discussed in Note 6 - Commitments and Contingencies, for our
corporate office in Atlanta, 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
21
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
July 31, 2006
(Unaudited)
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 - Investments and Loan Receivable, 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. 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.
Note 8. Concentration of Risk
- ------------------------------
Our financial instruments that are potentially exposed to credit
risk consist primarily of cash. At certain times during the year
our demand deposits held in banks exceeded the federally insured
limit of $100,000.
Note 9. Subsequent Events
- ---------------------------
In August 2006, Mike Marshall resigned his position as a director
of the Company. There were no disagreements between Mr. Marshall
and the Company on any matters related to the Company's
operations, policies or practices.
In August 2006, Bruce A. Hall was appointed to the board in order
to fill the position vacated by Mr. Marshall. Mr. Hall is the
Chief Financial officer of the Company and was also elected to be
the Chief Compliance Officer of the Company.
As discussed in Note 4 - Investments and Loan receivable, the
Company owns 50,000 common shares of Universal which it acquired
in November 2004 for $1,625 and representing a non-controlling
position of approximately 1% of the outstanding common stock of
Universal as of July 31, 2006. Due to the recent increase in
the value of the Universal shares, as of July 31, 2006, the
Company fell within the definition of an "investment company" in
the 1940 Act. The Company is not registered as an investment
company nor has it elected to be registered as a business
development company under that Act, as would be required for
companies which hold investment securities having a value
exceeding 40 percent of the value of such company's total assets
on an unconsolidated basis. Further, it is not in compliance
with other provisions of the 1940 Act applicable to investment
companies and, therefore, may be subject to potential regulatory
action by Federal and state regulators and other potential
litigation.
In September 2006, the Company initiated the process to sell its
entire 50,000 common share position in Universal. The Company
anticipates that the sale will occur before October 31, 2006 and
that the Board will approve the sale. As a result of this
action, the Company believes upon the sale of the common shares,
it will no longer meet the definition of an "investment company"
in the 1940 Act and therefore not be in violation of the 1940
Act.
22
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
-------------------------------------------------
The following analysis of our financial condition and results of
operations contained in this section should be read in
conjunction with our unaudited financial statements and related
notes and schedules thereto appearing elsewhere in this Quarterly
Report, as well as the sections entitled "Selected Financial
Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements
and related notes and schedules thereto included in our annual
report on Form 10-K for the year ended April 30, 2006.
This Quarterly Report, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations,
contains forward-looking statements that involve substantial
risks and uncertainties. These forward-looking statements are not
historical facts, but rather are based on current expectations,
estimates and projections about our industry, our beliefs, and
our assumptions. Words such as "anticipates", "expects",
"intends", "plans", "believes", "seeks", and "estimates" and
variations of these words and similar expressions are intended to
identify forward-looking statements. These statements are not
guarantees of future performance and are subject to risks,
uncertainties, and other factors, some of which are beyond our
control and difficult to predict and could cause actual results
to differ materially from those expressed or forecasted in the
forward-looking statements, including without limitation:
* economic downturns or recessions may impair our
performance;
* a contraction of available credit and/or an inability to
access the equity markets could impair our activities;
* the risks associated with the possible disruption in the
Company's operations due to terrorism;
* future changes in laws or regulations and conditions in our
operating areas; and
* the risks, uncertainties and other factors we identify from
time to time in our filings with the Securities and Exchange
Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks.
Although we believe that the assumptions on which these forward-
looking statements are based are reasonable, any of those
assumptions could prove to be inaccurate, and as a result, the
forward-looking statements based on those assumptions also could
be inaccurate. In light of these and other uncertainties, the
inclusion of a projection or forward-looking statement in this
Quarterly Report should not be regarded as a representation by us
that our plans and objectives will be achieved. You should not
place undue reliance on these forward-looking statements, which
apply only as of the date of this Quarterly Report. We undertake
no obligation to update such statements to reflect subsequent
events.
Overview
- --------
Nortia is an Atlanta, Georgia based firm that elected to become a
BDC in January 2005, pursuant to the provisions of the 1940 Act.
The Company operated as a BDC for regulatory oversight and
reporting purposes throughout the period covered by its Form 10-K
for the period ended April 30, 2006. Effective May 2, 2006, the
23
Company filed a Form N-54C with the SEC withdrawing its election
to be regulated as a BDC. The Company has commenced a new
business model whereby it provides merchant banking-type services
to small, private companies seeking to become publicly held and
traded, as discussed 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.
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 will 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 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 owns 50,000 common shares of Universal Capital
Management, Inc. (Universal"), which it acquired in November 2004
for $1,625 and which represent a non-controlling position of
approximately 1% of the outstanding common stock of Universal as
of July 31, 2006. The last trade price of Universal was $4 per
share on July 31, 2006 and the Company has valued the Universal
investment at $200,000, and recorded this amount as an unrealized
gain on available for sale equity securities in the stockholders'
equity section of the accompanying financial statements as of
July 31, 2006. In accordance with SFAS 115, the Company had
classified the investment as an available-for-sale marketable
security at fair value in the accompanying financial statements.
Due to the recent increase in the value of the Universal shares,
as of July 31, 2006, the Company fell within the definition of an
"investment company" in the 1940 Act. The Company is not
registered as an investment company nor has it elected to be
registered as a business development company under that Act, as
would be required for companies which hold investment securities
having a value exceeding 40 percent of the value of such
company's total assets on an unconsolidated basis. Further, it
is not in compliance with other provisions of the 1940 Act
applicable to investment companies and, therefore, may be subject
to potential regulatory action by Federal and state regulators
and other potential litigation.
The Company is considering all of the options available to it in
order to comply with applicable regulations including, but not
limited to, terminating its investment company status by selling
sufficient shares of Universal. There can be no assurance as to
if or how the Company will resolve the issues caused by its
status as an unregistered investment company. See Recent
Developments after Quarter End below for further discussion.
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. 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
24
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.
Recent Developments after Quarter End
- -------------------------------------
In April 2004, we acquired 2,587,983 shares for a purchase price
of $43,706 representing approximately 11% of Avix Technologies,
Inc. ("Avix"), a publicly held company that emerged from
bankruptcy under Chapter 11 of the federal bankruptcy code. There
was a minimal active trading market for the shares and the
company was in the process of developing its primary product to
offer to the market. Accordingly, the Company recorded an
impairment loss in fiscal year 2004 for the entire $43,706, which
was classified as impairment of investments. In early August
2006, we determined that Avix had ceased business by filing for
liquidation of its assets with the bankruptcy court. However,
since the Company has previously impaired the entire investment,
there is no effect on the financial statements of the Company.
In August 2006, Mike Marshall resigned his position as a director
of the Company. There were no disagreements between Mr. Marshall
and the Company on any matters related to the Company's
operations, policies or practices.
In August 2006, Bruce A. Hall was appointed to the board in order
to fill the position vacated by Mr. Marshall. Mr. Hall is the
Chief Financial officer of the Company and was also elected to be
the Chief Compliance Officer of the Company.
As discussed above, the Company owns 50,000 common shares of
Universal which it acquired in November 2004 for $1,625 and which
represent a non-controlling position of approximately 1% of the
outstanding common stock of Universal as of July 31, 2006. Due
to the recent increase in the value of the Universal shares, as
of July 31, 2006, the Company fell within the definition of an
"investment company" in the 1940 Act. The Company is not
registered as an investment company nor has it elected to be
registered as a business development company under that Act, as
would be required for companies which hold investment securities
having a value exceeding 40 percent of the value of such
company's total assets on an unconsolidated basis. Further, it
is not in compliance with other provisions of the 1940 Act
applicable to investment companies and, therefore, may be subject
to potential regulatory action by Federal and state regulators
and other potential litigation.
In September 2006, the Company initiated the process to sell its
entire 50,000 common share position in Universal. The Company
anticipates that the sale will occur before October 31, 2006 and
that the Board will approve the sale. As a result of this
action, the Company believes upon the sale of the common shares,
it will no longer meet the definition of an "investment company"
in the 1940 Act and therefore not be in violation of the 1940
Act.
Going Concern
- -------------
Our long-term viability as a going concern is dependent on
certain key factors, as follows:
* The ability to continue to obtain sources of outside
financing to support near term operations and to allow us
to continue to make investments.
* The ability to increase profitability and sustain a cash
flow level that will ensure support for continuing
operations.
25
* The ability to obtain NASD approval to operate as a broker
dealer in order to implement our intended business model.
As reflected in the accompanying financial statements, the
Company had a net loss of $268,928 and net cash used in
operations of $246,103 for the three months ended July 31, 2006.
Additionally, the Company reported a comprehensive loss during
the three months ended July 31, 2006 of $68,928 and this amount
included $200,000 of unrealized gains on available for sale
equity securities. Additionally, the Company has an accumulated
deficit of $6,412,035 and a deficit accumulated during the
development stage of $268,928 at July 31, 2006.
The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its new
business model, raise capital, and generate revenues. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
We plan on generating revenues from our new business model by
providing 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 time required for us to become profitable from operations is
highly uncertain, and we cannot assure you that we will achieve
or sustain operating profitability or generate sufficient cash
flow to meet our planned capital expenditures 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.
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 the
valuation of our financial instruments, valuation of our
investments, revenue recognition and the valuation allowance for
deferred tax assets. We also have other key accounting estimates
and policies, but we believe that these other policies either do
not generally require us to make estimates and judgments that are
as difficult or as subjective, or it is less likely that they
would have a material impact on our reported results of
operations for a given period. For additional information, see
Note 2 "Nature of Operations and Summary of Significant
Accounting Policies" in the notes to our unaudited financial
statements contained in this Quarterly Report. 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.
26
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
July 31, 2006.
Valuation of Investments
- ------------------------
The Company invests in various marketable equity instruments and
accounts for such investments in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115").
Certain securities that the Company may invest in may be
determined to be non-marketable. Non-marketable securities where
the Company owns less than 20% of the investee are accounted for
at cost pursuant to APB No. 18, "The Equity Method of Accounting
for Investments in Common
Stock" ("APB 18").
Management determines the appropriate classification of its
investments at the time of acquisition and reevaluates such
determination at each balance sheet date. Available-for-sale
securities are carried at fair
value, with unrealized gains and losses, net of tax, reported as
a separate component of stockholders' equity. Investments
classified as held-to-maturity are carried at amortized cost. In
determining realized gains and losses, the cost of the securities
sold is based on the specific identification method.
The Company periodically reviews its investments in marketable
and non-marketable securities and impairs any securities whose
value is considered non-recoverable. The Company's determination
of whether a security is other than temporarily impaired
incorporates both quantitative and qualitative information; GAAP
requires the exercise of judgment in making this assessment,
rather than the application of fixed mathematical criteria. The
Company considers a number of factors including, but not limited
to, the length of time and the extent to which the fair value has
been less than cost, the financial condition and near term
prospects of the issuer, the reason for the decline in fair
value, changes in fair value subsequent to the balance sheet
date, and other factors specific to the individual investment.
The Company's assessment involves a high degree of judgment and
accordingly, actual results may differ materially from the
Company's estimates and judgments. The Company recorded no
impairment charges for securities during the three month periods
ended July 31, 2006 and 2005, respectively.
Revenue Recognition
- -------------------
The Company recognized 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
reasonably assured.
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
27
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. 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.
28
Results of Operations
- ---------------------
Financial Analysis of the Three Months Ended July 31, 2006 and 2005
- -------------------------------------------------------------------
Three Months Ended
July 31,
2006 2005
------------------------------
Operating Expenses
General and administrative $ 77,817 $ 111,595
Rent 5,404 12,077
Consulting 3,000 36,857
Compensation 117,610 129,760
Professional 65,218 87,498
------------------------------
Total Operating Expenses 269,049 377,787
------------------------------
Operating Loss (269,049) (377,787)
Other Income (Expense)
Interest expense (11) -
Interest income 132 211
------------------------------
Other Income (Expense) 121 211
------------------------------
Net Loss $ (268,928) $ (377,576)
==============================
Comprehensive Gain
Unrealized gain on available for
sale securities 200,000 -
------------------------------
Total Comprehensive Loss $ (68,928) $ (377,576)
==============================
Three Months Ended July 31, 2006 Compared with Three Months Ended
July 31, 2005
- -----------------------------------------------------------------
Revenues:
- --------
There was no revenue for either 2006 or 2005. The Company has
recently commenced a new development stage and new business model
as previously discussed and had no revenues for the three months
ended July 31, 2006.
Operating Expenses:
- ------------------
Operating expenses decreased $108,738, or 29%, to $269,049 for
2006 from $377,787 for 2005. The decrease was primarily the
result of a $33,857 decrease in consulting, a $33,778 decrease in
general and administrative and a $22,280 decrease in
professional. The decrease in professional and consulting was
primarily from a decrease in legal expense because in 2005, the
Company was gearing up for the extensive requirements of being a
BDC as compared to in 2006, the Company is now an operating
company without those same requirements. The decrease in
consulting was primarily from the amortization of a deferred
consulting agreement in 2005 with no corresponding amount in
2006. The decrease in general and administrative was primarily
29
from a decrease in analysis and research expense from 2005 to
2006 related to requirements of being a publicly traded company.
Other Income (Expense):
- ----------------------
Other income decreased $90 or 43% to $121 of income for 2006 from
$211 of income in 2005. The decrease was due to a decrease in
interest income earned on cash in the bank as a result of a
significant decrease in cash from 2006 to 2005.
Comprehensive Gain:
- ------------------
Comprehensive gain increased $200,000 or 100% to $200,000 of
income for 2006 from zero in 2005. The increase was due entirely
to unrealized gains on available for sale equity securities.
Liquidity and Capital Resources
- -------------------------------
To continue with our business plan, we will require additional
short-term working capital. We have not generated any revenue or
sufficient cash to fund our new business model operating
activities for the next twelve months. Presently, our only
source of cash is from external financing in the form of the
issuance of our common stock. We cannot assure you that that we
will obtain sufficient proceeds, if any, or that any proceeds
obtained will be sufficient to meet our projected cash flow
needs.
Cash was $42,255 at July 31, 2006 as compared to $32,401 at April
30, 2006. The increase in cash was the result of $258,829 of net
proceeds from the sale of common stock, offset by $246,103 of
cash used in operations and $2,872 for the purchase of property
and equipment. The cash used in operations was primarily the
result of $252,558 of net loss for the three months ended July
31, 2006.
Operating Activities: Cash used in operating activities was
- --------------------
$246,103 for 2006 as compared to $386,534 for 2005. The decrease
in cash used resulted primarily from the decrease in the net loss
from 2006 to 2005.
Investing Activities: Cash used in investing activities was
- --------------------
$2,872 in 2006 as compared to zero in 2005. All of the cash used
in 2006 was from the purchase of property and equipment.
Financing Activities: Cash flows provided by financing
- --------------------
activities was $258,829 for 2006 as compared to $635,793 for
2005. The decrease in cash provided by financing activities was
entirely due to a decrease in cash proceeds received by the
Company from the sale of 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 and a new development stage 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 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 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
30
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.
Debt
- ----
We had no debt outstanding at July 31, 2006.
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. As of July 31, 2006,
none of the common stock has been issued and is classified as
common stock issuable in the accompanying financial statements.
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 July 31, 2006, the Company
has received $808,279 of proceeds from the issuance of the Units
($549,450 and $258,829 in fiscal years 2006 and 2007,
respectively), representing 734,800 shares of common stock and
734,800 two-year warrants to purchase common stock at $2.00 per
share. As of July 31, 2006, none of the common stock has been
issued and is classified as common stock issuable in the
accompanying financial statements.
In total for the combined private placements, from April 2005
through July 31, 2006, the Company has received $2,124,049 of
proceeds from the issuance of the Units ($86,350, $1,778,870 and
$258,829 in fiscal years 2005, 2006 and 2007, respectively),
representing 1,930,955 shares of common stock and 1,930,955 two-
year warrants to purchase common stock at $2.00 per share.
For the two private placement offerings discussed above, the
warrants issued pursuant to each offering become exercisable at
the closing date of each private placement offering. At July 31,
2006, there were warrants to purchase 1,930,955 shares of the
Company's common stock, of which 1,196,155 warrants were
exercisable and 734,800 warrants that become exercisable at the
closing date of the existing private placement offering, which
had not occurred as of the date of these unaudited financial
statements.
The Company evaluated the 1,196,155 warrants from the April
private placement that has closed and that are exercisable in
accordance with FAS 123 and utilized the Black Scholes method to
determine valuation. As a result of its evaluation, a valuation
of approximately $803,000 was assigned to the warrants and was
31
recorded to additional paid in capital as the warrants were a
component of a private placement offering. The warrants from the
second private placement offering will be evaluated when the
offering is closed and the warrants become exercisable.
The private placement offerings were offered without registration
under the Securities Act of 1933, as amended, pursuant to the
exemptions provided by Section 4(2) thereof and Rule 506 of
Regulation D (or Rule 903 of Regulation S where investor is a non-
U.S. person) promulgated by the SEC.
Contractual Obligations and Commitments
- ---------------------------------------
We have no contractual obligations and commitments at July 31,
2006.
Off-Balance Sheet Arrangements
- ------------------------------
We have no off-balance sheet arrangements at July 31, 2006.
Contingent Liabilities
- ----------------------
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.
Our corporate office is in Atlanta, Georgia, and we currently do
not have a lease and are not paying rent for this space. 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 unaudited financial statements. Additionally, we
utilize executive office space in both New York and Los Angeles
on a month-to-month basis. The cost of this space is recorded as
office rent in the accompanying unaudited 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 previously, due to the recent increase in the value
of the Universal shares, as of July 31, 2006, the Company fell
within the definition of an "investment company" in the 1940 Act.
The Company is not registered as an investment company nor has it
elected to be registered as a business development company under
that Act, as would be required for companies which hold
investment securities having a value exceeding 40 percent of the
value of such company's total assets on an unconsolidated basis.
Further, it is not in compliance with other provisions of the
1940 Act applicable to investment companies and, therefore, may
be subject to potential regulatory action by Federal and state
regulators and other potential litigation. See also Note 2 -
Nature of Operations and Summary of Significant Accounting
Policies and Note 9 - Subsequent Events.
The Company is considering all of the options available to it in
order to comply with applicable regulations including, but not
limited to, terminating its investment company status by selling
sufficient shares of Universal. There can be no assurance as to
if or how the Company will resolve the issues caused by its
status as an unregistered investment company.
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
32
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 has evaluated the impact of changing from a BDC to an
operating company and the adoption of SFAS No. 154 did 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.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
----------------------------------------------
Because we currently have no long-term debt and do not expect
that, in the next 12 months, we will incur any (although there
can be no assurance that the funds that we will require to
operate our business during that period will be available to us
through sales of our equity or through short-term borrowings), we
do not consider a principal risk to be interest rate
fluctuations. If, in the future, we incur, or consider
incurring, a material amount of long-term debt, the occurrence of
such event could result in interest rate fluctuations becoming a
principal risk.
33
Item 4. Controls and Procedures
-----------------------
As of July 31, 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On April 21, 2005, Mirador Consulting, Inc., filed a Complaint
against Nortia Capital Partners, a Florida corporation and
predecessor to us, 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 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 judgment of default against the
Florida defendant. A motion to set aside the judgment against
the defendant was granted on August 30, 2005. A Motion to
Dismiss the Complaint with Prejudice was filed on September 16,
2005 and remains pending. We believe that both the Florida
defendant and we have meritorious defenses to the Complaint.
On September 1, 2005, we filed a Complaint against Mirador in the
Circuit Court of the Fifteenth Judicial Circuit 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. We are
seeking 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.
34
On November 1, 2005, Mirador filed its Answer and Affirmative
Defenses to the Complaint, as well as a Counterclaim and Third
Party Complaint. Mirador is claiming 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 it claims is due to it under the consulting
agreement. Mirador also claims other unspecified damages due to
our Company's refusal to issue Mirador an original stock
certificate for additional shares resulting from our Company's
stock split on or about February 28, 2005. In its Third Party
Complaint, Mirador also named our President, among others, and
alleged causes of action for tortuous interference with
contractual rights and conspiracy with the Company in respect of
such shares. Our charter and bylaws provide indemnification
rights to our executive officers and directors.
We believe that all named third-party defendants have meritorious
defenses to Mirador's Counterclaims, for the reasons set forth in
our Complaint.
Item 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 losing their
investment for an indefinite period. Except as disclosed below,
no risk factors have changed that were previously disclosed in
the Company's form 10-K filed August 16, 2006. The following
specific risks, not listed in any particular order of priority,
and the risks described previously in the Company's 10-K filed
August 16, 2006, should be considered carefully in evaluating the
Company, its business, and its common stock.
We have previously suffered significant operating losses.
- --------------------------------------------------------
As reflected in the accompanying financial statements, the
Company had a net loss of $268,928 and net cash used in
operations of $246,103 for the three months ended July 31, 2006.
Additionally, the Company reported a comprehensive loss during
the three months ended July 31, 2006 of $68,928 and this amount
included $200,000 of unrealized gains on available for sale
equity securities. Additionally, the Company has an accumulated
deficit of $6,412,035 and a deficit accumulated during the
development stage of $268,928 at July 31, 2006.
The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its new
business model, raise capital, and generate revenues. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
We plan on generating revenues from our new business model by
providing 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 time required for us to become profitable from operations is
highly uncertain, and we cannot assure you that we will achieve
or sustain operating profitability or generate sufficient cash
flow to meet our planned capital expenditures 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.
35
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. 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.
The Company is subject to the underlying risks of the new,
developing businesses which the Company will assist.
- ----------------------------------------------------------
Effective May 2, 2006, the Company is pursuing a business model
whereby it provides 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 each Client, which will then be registered by the
Client in its initial public offering. Successful growth 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.
36
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 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. 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.
As discussed previously, the Company owns 50,000 common shares of
Universal which it acquired in November 2004 for $1,625 and which
represents a non-controlling position of approximately 1% of the
outstanding common stock of Universal as of July 31, 2006. Due
to the recent increase in the value of the Universal shares, as
of July 31, 2006, the Company fell within the definition of an
"investment company" in the 1940 Act. The Company is not
registered as an investment company nor has it elected to be
registered as a business development company under that Act, as
would be required for companies which hold investment securities
having a value exceeding 40 percent of the value of such
company's total assets on an unconsolidated basis. Further, it
is not in compliance with other provisions of the 1940 Act
applicable to investment companies and, therefore, may be subject
to potential regulatory action by Federal and state regulators
and other potential litigation.
In September 2006, the Company initiated the process to sell its
entire 50,000 common share position in Universal. The Company
anticipates that the sale will occur before October 31, 2006 and
that the Board will approve the sale. As a result of this
action, the Company believes upon the sale of the common shares,
it will no longer meet the definition of an "investment company"
in the 1940 Act and therefore not be in violation of the 1940
Act.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
--------------------------------------------------
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. As of July 31, 2006,
none of the common stock has been issued and is classified as
common stock issuable in the accompanying financial statements.
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
37
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 July 31, 2006, the Company
has received $808,279 of proceeds from the issuance of the Units
($549,450 and $258,829 in fiscal years 2006 and 2007,
respectively), representing 734,800 shares of common stock and
734,800 two-year warrants to purchase common stock at $2.00 per
share. As of July 31, 2006, none of the common stock has been
issued and is classified as common stock issuable in the
accompanying financial statements.
In total for the combined private placements, from April 2005
through July 31, 2006, the Company has received $2,124,049 of
proceeds from the issuance of the Units ($86,350, $1,778,870 and
$258,829 in fiscal years 2005, 2006 and 2007, respectively),
representing 1,930,955 shares of common stock and 1,930,955 two-
year warrants to purchase common stock at $2.00 per share.
The private placement offerings were offered without registration
under the Securities Act of 1933, as amended, pursuant to the
exemptions provided by Section 4(2) thereof and Rule 506 of
Regulation D (or Rule 903 of Regulation S where investor is a non-
U.S. person) promulgated by the SEC.
Item 3. Defaults upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
In August 2006, Mike Marshall resigned his position as a director
of the Company. There were no disagreements between Mr. Marshall
and the Company on any matters related to the Company's
operations, policies or practices.
In August 2006, Bruce A. Hall was appointed to the board in order
to fill the position vacated by Mr. Marshall. Mr. Hall is the
Chief Financial officer of the Company and was also elected to be
the Chief Compliance Officer of the Company.
38
Item 6. Exhibits
--------
The following exhibits are filed with this report or are
incorporated herein by reference to a prior filing, in accordance
with Rule 12b-32 under the Securities Exchange Act of 1934.
Exhibit No. Description of Exhibit
- ----------- ----------------------
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]
23 Consent of Salberg & Company, P.A. [3]
31.1* Certification of Chief Executive Officer pursuant to
Rule 13a-14 of the Securities Exchange Act of 1934,
as amended.*
31.2* Certification of Chief Financial Officer pursuant to
Rule 13a-14 of the Securities Exchange Act of 1934,
as amended.*
32.1* Certification of Chief Executive Officer pursuant to
section 906 of The Sarbanes-Oxley Act of 2002.*
32.2* Certification of Chief Financial Officer pursuant to
section 906 of The Sarbanes-Oxley 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
[3] Incorporated by reference to the Company's Form 10-K filed
August 16, 2006
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NORTIA CAPITAL PARTNERS, INC.
-----------------------------
(Registrant)
Date: September 14, 2006 /s/ William Bosso
-----------------------------
William Bosso
Chief Executive Officer
Date: September 14, 2006 /s/ Bruce A. Hall
-----------------------------
Bruce A. Hall
Chief Financial Officer
40