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 January 31, 2007
[ ] 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 90-0254041
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(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 February 26, 2007, there were approximately 26,494,054 shares
of common stock, $0.001 par value, issued and outstanding and 1,964,955
shares issuable.
Nortia Capital Partners, Inc.
Form 10-Q Index
January 31, 2007
Page
----
Part I-Financial Information
Item 1. Financial Statements 2
Balance Sheets at January 31, 2007 (Unaudited) 3
Statement of Operations for the Nine and Three Months
Ended January 31, 2007 and 2006 and for the period from
May 1, 2006 (inception of development stage) to January
31, 2007 (Unaudited) 4
Statement of Cash Flows for the Nine Months Ended
January 31, 2007 and 2006 and for the period from May
1, 2006 (inception of development stage) to January 31,
2007 (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
------
(Unaudited)
January 31, April 30,
2007 2006
----------- -----------
Current Assets
Cash $ 18,045 $ 32,401
Other receivable - 4,150
----------- -----------
Total Current Assets 18,045 36,551
=========== ===========
Property and Equipment, net 2,390 -
Investments ----------- -----------
Non-Marketable Securities
Non-marketable equity securities 100,000 -
----------- -----------
Total Non-Marketable Securities 100,000 -
Marketable Securities
Related party marketable equity securities at cost 625,000 1,250
----------- -----------
Total Marketable Securities 625,000 1,250
Total Investments 725,000 1,250
----------- -----------
Other Assets
Loan receivable - 100,000
----------- -----------
Total Other Assets - 100,000
Total Assets 745,435 137,801
=========== ===========
LIABILITIES
-----------
Current Liabilities
Accounts payable 23,634 17,193
Due to related party 32,140 -
Accrued expenses 9 4,128
----------- -----------
Total Current Liabilities 55,783 21,321
=========== ===========
Commitments and Contingencies (Note 6)
See accompanying notes to unaudited financial statements.
4
Nortia Capital Partners, Inc.
(A Development Stage Company)
Balance Sheets (Continued)
STOCKHOLDERS' EQUITY
--------------------
(Unaudited)
January 31, April 30,
2007 2006
----------- -----------
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 26,494,054 and 22,813,254 shares
issued and outstanding 26,494 22,813
Common stock issuable, 1,964,955 and 4,874,855
shares outstanding 1,965 4,875
Additional paid in capital 7,346,286 6,500,828
Accumulated deficit (6,412,035) (12,398)
Deficit accumulated during development stage (896,808) (6,399,638)
Accumulated other comprehensive income 623,750 -
----------- -----------
Total Stockholders' Equity 689,652 116,480
=========== ===========
Total Liabilities and Stockholders' Equity $ 745,435 $ 137,801
=========== ===========
See accompanying notes to unaudited financial statements.
5
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Operations
(Unaudited)
Period from
May 1, 2006
(Inception of
Nine Three Development Stage)
Months Ended Months Ended to
January 31, January 31, January 31,
2007 2006 2007 2006 2007
------------------------ ------------------------ -----------
Revenues $ 145,000 $ - $ 5,000 $ - $ 145,000
Operating Expenses
General and administrative 188,291 257,476 59,982 53,533 188,292
Depreciation 482 - 482 - 482
Rent 12,254 14,906 1,500 1,611 12,254
Consulting 50,881 141,698 7,700 33,118 50,881
Compensation 711,868 449,605 28,110 116,435 711,868
Professional 126,309 413,158 32,142 167,853 126,309
------------------------ ------------------------ -----------
Total Operating Expenses 1,090,085 1,276,843 129,916 372,550 1,090,085
------------------------ ------------------------ -----------
Operating Loss (945,085) (1,276,843) (124,916) (372,550) (945,085)
Other Income (Expense)
Gain on sale of available
for sale securities 50,000 - - - 50,000
Interest expense (4,678) (160) (4,667) (160) (4,678)
Interest income 2,955 390 2,713 52 2,955
------------------------ ------------------------ -----------
Other Income (Expense) 48,277 230 (1,954) (108) 48,277
------------------------ ------------------------ -----------
Net Loss $ (896,808) $(1,276,613) $ (126,870) $ (372,658) $ (896,808)
======================== ======================== ===========
Comprehensive Income (Loss)
Unrealized gain on available
for sale securities 623,750 - 623,750 - 623,750
------------------------ ------------------------ -----------
Total Comprehensive Income
(Loss) $ (273,058) $(1,276,613) $ 496,880 $ (372,658) $ (273,058)
======================== ======================== ===========
Net Loss Per Share-Basic and
Diluted $ (0.03) $ (0.05) $ (0.00) $ (0.01) $ (0.03)
======================== ======================== ===========
Weighted Average Shares -
Basic & Diluted 28,169,030 26,482,720 28,459,008 27,085,220 28,169,030
======================== ======================== ===========
See accompanying notes to unaudited financial statements
6
Nortia Capital Partners, Inc.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
Period from May 1, 2006
Nine (Inception of
Months Ended Development Stage) to
January 31, January 31,
2007 2006 2007
---------------------------- -------------------
Cash Flows From Operating Activities:
Net loss $ (896,808) $ (1,276,613) $ (896,808)
Adjustments to reconcile net loss to net cash
used in operations:
Stock compensation expense 550,000 - 550,000
Gain on available-for-sale securities (50,000) - (50,000)
Depreciation 482 - 482
Contributed services expense - 4,400 -
Amortization of deferred consulting - 86,700 -
Changes in operating assets and liabilities:
Decrease in other receivable 54,150 - 54,150
Increase in accounts payable 11,441 24,546 11,441
Increase in due to related party 32,140 - 32,140
Decrease in accrued expenses (4,118) (49,765) (4,119)
---------------------------- ----------------
Net Cash Used In Operating Activities (302,713) (1,210,732) (302,713)
---------------------------- ----------------
Cash Flows From Investing Activities:
Issuance of note receivable - (52,500) -
Purchase of property and equipment (2,872) - (2,872)
---------------------------- ----------------
Net Cash Used In Investing Activities (2,872) (52,500) (2,872)
---------------------------- ----------------
Cash Flows From Financing Activities:
Proceeds from issuance of stock
subscription deposit - 39,600 -
Proceeds from sale of common stock 291,229 1,229,420 291,229
---------------------------- ----------------
Net Cash Provided By Financing Activities 291,229 1,269,020 291,229
---------------------------- ----------------
Net (decrease) increase in Cash (14,356) 5,788 (14,356)
---------------------------- ----------------
Cash at Beginning of Period 32,401 11,703 32,401
---------------------------- ----------------
Cash at End of Period $ 18,045 $ 17,491 $ 18,045
============================ ================
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 loan receivable to non-marketable securities
at cost $ 100,000 $ - $ 100,000
Common stock issuable for conversion of accounts payable 5,000 - 5,000
Common stock issued for cancellation of services - 84 -
Common stock issued for conversion of preferred stock - 300 -
See accompanying notes to unaudited financial statements
7
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(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 that 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
significant 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.
8
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(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.
Effective August 2, 2004, BF Acquisition Group I, Inc. changed
its name to Nortia Capital Partners, Inc.
On October 15, 2004, we entered into a definitive share exchange
agreement (the "Exchange Agreement") with Global Life Sciences,
Inc. ("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.
The Company expected to invest in emerging and development-stage
companies that 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 lacked the necessary capital and depth
of management to expand their businesses.
9
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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.
As a result, on September 15, 2006, the Company sold its entire
50,000 share interest in Universal Capital Management, Inc. to an
unrelated third party for a price of $50,000 and received a non
interest bearing note receivable due and payable in six months.
The Company liquidated the Universal position in order to not be
subject to the 1940 Act. In November 2006, the Company received
all $50,000 of the cash proceeds in full payment of the note
receivable.
The Company holds 1,250,000 shares of Knight Energy Corp. and
the shares have been valued at $625,000 in the accompanying
financial statements as of January 31, 2007. However, in March
2007, the Company entered into a voting trust agreement ("VTA")
whereby the Company is the trustee and will have voting control
for 12,200,000 shares of Knight common stock or approximately 60%
of the outstanding shares have agreed to the terms of the VTA.
As a result of the VTA, and because the Company has voting
control over approximately 60% of the Knight outstanding shares,
the Company believes that the 1,250,000 Knight shares it holds
are not "investment securities" as defined by the 1940 Act.
However, if the SEC disagrees with the Company's position on the
Knight securities, it may be subject to potential enforcement
action by the SEC to additional liability.
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. However, the
Company has made the decision to not pursue this opportunity
further. Additionally, in March 2006, we acquired a minority
interest in Knight. The Company, however, never generated any
revenue from its business as a BDC.
10
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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 investors. 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.
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
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.
Accounts Receivable
Accounts receivable result from the sale of the Company's
services and is reported at anticipated realizable value. The
Company estimates its allowance for doubtful accounts based on a
specific identification basis and additional allowances as needed
based upon historical collections experience. Accounts
receivable is considered past due if payment has not been
received from the customer within thirty days and management
reviews the customer accounts on a routine basis to determine if
an account should be charged off.
11
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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. 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
because of the short maturity of those instruments. The estimated
fair value of our other obligations is estimated based on the
current rates offered to us for similar maturities. Based on
prevailing interest rates and the short-term maturity of all of
our indebtedness, management believes that the fair value of our
obligations approximates book value at January 31, 2007.
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
12
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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 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
13
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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 or nine month
periods ended January 31, 2007 and 2006, 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.
Net Income (Loss) per Share of Common Stock
Basic earnings (loss) per common share (Basic EPS) excludes
dilution and is computed by dividing net income (loss) by the
weighted average number of common shares outstanding or
subscribed during the period. Diluted earnings (loss) per share
(Diluted EPS) reflects the potential dilution that could occur if
stock options or other contracts to issue common stock, such as
warrants or convertible notes, were exercised or converted into
common stock. 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.
At January 31, 2007, there were warrants to purchase 1,960,410
shares of the Company's common stock which may dilute future
earnings per share. The January 31, 2007 total includes
1,196,155 warrants exercisable and 764,255 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.
14
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) as
currently reported by the Company adjusted for other
comprehensive gains (losses). Other comprehensive gains (losses)
for the Company consists of unrealized gains (losses) related to
the Company's equity securities accounted for as available-for-
sale with changes in fair value recorded through stockholders'
equity.
Note 3. Going Concern
- ----------------------
As reflected in the accompanying financial statements, the
Company had a net loss of $896,808 (inclusive of a one time
$550,000 non-cash stock compensation charge) and net cash used in
operations of $302,713 for the nine months ended January 31,
2007. However, the Company recorded a $623,750 unrealized gain
on available-for-sale securities and had a comprehensive loss of
$273,058 during the nine months ended January 31, 2007 and a
comprehensive gain of $496,880 during the three months ended
January 31, 2007. The Company has an accumulated deficit of
$6,412,035 and a deficit accumulated during the development stage
of $896,808 at January 31, 2007.
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 investors. 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 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
15
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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 OTC 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, as well as other beneficial
ownership interest including warrants, options, and convertible
or exchangeable securities. The Company owned 50,000 common
shares of Universal, which it acquired in November 2004 for
$1,625 and which represented a non-controlling position of
approximately 1% of the outstanding common stock of Universal.
As discussed in the preceding paragraph, the entire $1,625
purchase price was impaired previously and the Company's basis
in Universal was zero.
As of July 31, 2006, the Company 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 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 financial statements as of July 31, 2006.
On September 15, 2006, the Company sold its entire 50,000 share
interest in Universal to an unrelated third party for a price of
$50,000 and received a non interest bearing note receivable due
and payable in six months. The Company liquidated the Universal
position in order to not be subject to the 1940 Act.
Accordingly, the Company recorded the transaction as note
receivable with an offset as a gain on the sale of available for
sale securities. As a result of the sale, the financial
statements for the six months ended October 31, 2006 reflected a
reversal of the $200,000 unrealized gain on available for sale
securities previously recorded. In November 2006, the entire
$50,000 note receivable was paid in full and the note receivable
was reduced to zero.
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 July 2005, the Company announced the execution of a definitive
Share Exchange Agreement by and among Holley Communications,
Inc., a Delaware corporation and wholly-owned subsidiary of the
Company (the "Investment Sub"), Holley Communications Canada,
Inc., a Canadian Corporation ("Holley Canada"), and us. Pursuant
to the Share Exchange Agreement and subject to certain closing
conditions, the Investment Sub will issue 28,500,000 shares of
its common stock, equivalent to 95% of its then-issued and
outstanding common stock, to Holley Canada. In exchange,
Holley Canada will transfer and assign all of Holley Canada's
equity interest in Holley Communications Investment, Inc.,
a British Virgin Islands company ("Holley Communications"),
to the Investment Sub. Holley Communications is
16
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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 October 2006, the Company made the decision to terminate the
definitive Share Agreement and all discussions related to a
transaction have ceased.
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 AAPC, representing a non-
controlling equity position of approximately 7% of AAPC as of
October 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 January 31, 2007 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 January 31, 2007.
In accordance with APB 18, the Company has classified the
investment as a non-marketable security at cost in the
accompanying financial statements (See Note 9 - Subsequent
Events.)
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
includes four producing natural gas wells. Stephens County has
been a successful producer of oil and gas over the last fifty
years. Subsequently, Knight acquired the remaining 25% interest
and now owns 100% of the independent oil and gas services
company. Knight also owns and operates its own drilling rig that
will be used to drill additional wells on the current leased
property as well as other potential properties that Knight is
reviewing for consideration. Knight is currently reviewing
further acquisitions and investments in the oil and gas industry
as well as other energy related businesses and assets. Nortia
has agreed to provide Knight with merchant banking services that
include advice on mergers 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 Statement of Financial Accounting Standards
No. 123 "FASB 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
17
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
method. See Note 7 - Related Party Transactions.
In June 2006, Knight executed a definitive stock exchange
agreement ("Agreement") with Integrated Technology Group, Inc.
("ITG"). Upon the subsequent closing of the Agreement in
November 2006, the Company became a wholly-owned subsidiary of
ITG. Pursuant to this transaction, Knight was merged into ITG
with ITG as the survivor; Knight assumed the SEC reporting
responsibilities of ITG and ITG changed its name to Knight Energy
Corp., a Nevada corporation. Under the terms of the Agreement,
the shareholders of Knight received an aggregate of 13,750,000
newly issued shares of ITG common stock and 4,511,500 shares that
are subscribed but not issued, which represents a one-for-one
share exchange of Knight's stock for ITG stock (the
"Transaction"). Additionally, the existing 6,025,000 ITG shares
were reverse split on a 1 for 2 basis, resulting in 3,012,500 pre-
Transaction ITG shares outstanding before the exchange.
Therefore, the Company still owns 1,250,000 shares of Knight.
Knight's securities are currently traded over-the-counter on the
pink sheets under the symbol "KNEC" (See Note 9 - Subsequent
Events). Previously and because the Agreement had not closed, in
accordance with APB 18, the Company had classified the investment
in Knight as a non-marketable security at cost or $1,250. The
Company evaluated the investment as of January 31, 2007 and since
the Agreement closed in November 2006 and the Knight closing
stock price on January 31, 2007 was $1.90 per share, an
adjustment to the historical cost recorded of $1,250 was required
in accordance with SFAS 115. However, Knight initiated a private
placement offering of its securities to accredited investors at
$0.50 per share and the offering was still outstanding as of
January 31, 2007. In accordance with SFAS 115, the Company has
utilized the $0.50 per share valuation and the 1,250,000 shares
have been valued at $625,000 and classified the investment as an
available-for-sale marketable security at fair value in the
accompanying financial statements as of January 31, 2007. As a
result of the valuation, the Company recorded a $623,750
unrealized gain on available for sale equity securities in the
stockholders' equity section of the financial statements as of
January 31, 2007. Additionally, since the Company's CEO and CFO
are also the CEO and CFO of Knight, the Company has classified
the investment separately as a related party transaction in the
accompanying financial statements.
Since withdrawing its election to be regulated as a BDC, it has
been the Company's intention 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.
As discussed above, on September 15, 2006, the Company sold its
entire 50,000 share interest in Universal to an unrelated third
party for a price of $50,000 and received a non interest bearing
note receivable due and payable in six months. The Company
liquidated the Universal position in order to not be subject to
the 1940 Act.
18
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
The following represents information about securities held with
loss positions as of January 31, 2006 (there were no securities
held with loss positions as of January 31, 2007):
Securities in loss
------------------
positions less than Aggregate Aggregate Fair
- ------------------- --------- --------------
12 months: Unrealized Losses Value
---------- ----------------- -----
Equity securities $ 48,581 $ -
=========== ===========
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 26,494,054 were
issued and outstanding at January 31, 2007, 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 January 31, 2007. As of
January 31, 2007, 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 1,964,955 shares that are
issuable and outstanding at January 31, 2007. Including issuable
shares, we have 28,459,009 shares outstanding and issuable as of
January 31, 2007.
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 previously authorized, issued and
outstanding. 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 January 31, 2007, the Company had no preferred
stock authorized, issued and outstanding.
Common Stock and Common Stock Issuable
As of 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. In September and
19
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
October 2006, all of the shares were issued by the transfer agent
and transferred by the Company from Common Stock issuable to Common
Stock 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 earned 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.
In September 2006, all of the shares were issued by the transfer
agent and transferred by the Company from Common Stock issuable
to Common Stock in the accompanying financial statements.
In April 2005, the Company initiated a private placement offering
for the issuance of up to 1,000,000 units at an offering price of
$1.10 per share ("Unit"). Each Unit consisted of one share of
the Company's $0.001 par value common stock and one two-year
warrant to purchase the Company's common stock at an exercise
price of $2.00 per share. The offering included an option for an
over-allotment of up to 200,000 units or a maximum issuance of
1,200,000 units. Effective January 16, 2006, the offering was
terminated and in total, the Company received $1,315,770 of
proceeds from the issuance of the Units, representing 1,196,155
shares of common stock and 1,196,155 two-year warrants to
purchase common stock at $2.00 per share. As of January 31,
2007, 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 January 31, 2007, the Company
has received $840,679 of proceeds from the issuance of the Units
($549,450 and $291,229 in fiscal years 2006 and 2007,
respectively), representing 764,255 shares of common stock and
764,255 two-year warrants to purchase common stock at $2.00 per
share. As of January 31, 2007, 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 January 31, 2007, the Company has received $2,146,449 of
proceeds from the issuance of the Units ($86,350, $1,778,870 and
$291,229 in fiscal years 2005, 2006 and 2007, respectively),
representing 1,960,410 shares of common stock and 1,960,410 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 issued pursuant to each offering become exercisable
at each closing date of the private placement offering. At
January 31, 2007, there were warrants to purchase 1,960,410
shares of the Company's common stock, of which 1,196,155
20
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
warrants were exercisable and 764,255 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 2005
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 discussed above.
In August 2006, the Company granted 500,000 shares of common stock
to the new Chief Financial Officer of the Company. Since the
Company was in the process of a Private Placement Offering as
discussed above, the shares were valued at the Private Placement
offering price of $1.10 per share or $550,000 and recorded as
compensation in accompanying financial statements.
Warrants
As discussed previously, in April 2005, the Company initiated a
Private Placement Offering for the issuance of up to 1,000,000
units at an offering price of $1.10 per share. Each unit
consists of one share of the Company's $0.001 par value common
stock and one two-year warrant to purchase the Company's common
stock at an exercise price of $2.00 per share. The offering
included an option for an over-allotment of up to 200,000 units
or a maximum issuance of 1,200,000 units. Effective January 16,
2006, the offering was terminated and in total, the Company
received $1,315,770 of proceeds from the issuance of the Units,
representing 1,196,155 shares of common stock and 1,196,155 two-
year warrants to purchase common stock at $2.00 per share.
In January 2006, the Company initiated a new private placement
offering for the issuance of up to 1,000,000 units at an offering
price of $1.10 per share ("Unit"). Each Unit consisted of one
share of the Company's $0.001 par value common stock and one two-
year warrant to purchase the Company's common stock at an
exercise price of $2.00 per share. The offering included an
option for an over-allotment of up to 200,000 units or a maximum
issuance of 1,200,000 units. As of January 31, 2007, the Company
has received $840,679 of proceeds from the issuance of the Units
($549,450 and $291,229 in fiscal years 2006 and 2007,
respectively), representing 764,255 shares of common stock and
764,255 two-year warrants to purchase common stock at $2.00 per
share. As of January 31, 2007, 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 January 31, 2007, the Company has received $2,146,449 of
proceeds from the issuance of the Units ($86,350, $1,778,870 and
$291,229 in fiscal years 2005, 2006 and 2007, respectively),
representing 1,960,410 shares of common stock and 1,960,410 two-
year warrants to purchase common stock at $2.00 per share.
See note 9 - Subsequent Events for further information related to
the Private Placement Offerings.
For the two private placement offerings discussed above, the warrants
issued pursuant to each offering become exercisable at each closing
date of the private placement offering. At January 31, 2007, there
were warrants to purchase 1,960,410 shares of the Company's common
stock, of which 1,196,155 warrants were exercisable and 764,255
warrants that will become exercisable at the closing date of the
21
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
existing private placement offering, which had not occurred as of
the date of these unaudited financial statements.
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.
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 - See Note
9 - Subsequent Events.
The following table summarizes activity related to warrants
issued for cash proceeds during the nine months ended January 31,
2007:
Number of Shares Weighted Average
---------------- ----------------
Exercise Price
--------------
Balance at April 30, 2006 1,695,655 $ 2.00
Granted 264,755 2.00
Exercised - -
Forfeited - -
---------- ----------
Balance at January 31, 2007 1,960,410 $ 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. See Note 9 - Subsequent Events.
The terms of exercisable warrants to purchase our common stock
are summarized below:
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exerisable at Average
Range of Exercise January 31, Contractual Exercise January 31, Exercise
Prices 2007 Life Price 2007 Price
- ----------------------------------------------------------------------------------
$2.00 1,960,410 1.44 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.
22
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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.
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.
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.
The Company holds 1,250,000 shares of Knight Energy Corp. and
the shares have been valued at $625,000 in the accompanying
financial statements as of January 31, 2007. However, in March
2007, the Company entered into a voting trust agreement ("VTA")
whereby the Company is the trustee and will have voting control
for 12,200,000 shares of Knight common stock or approximately 60%
of the outstanding shares have agreed to the terms of the VTA.
As a result of the VTA, and because the Company has voting
control over approximately 60% of the Knight outstanding shares,
the Company believes that the 1,250,000 Knight shares it holds
are not "investment securities" as defined by the 1940 Act.
However, if the SEC disagrees with the Company's position on
the Knight securities, it may be subject to potential
enforcement action by the SEC to additional liability.
23
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
We believe that all named third-party defendants have meritorious
defenses to Mirador's Counterclaims, for the reasons set forth in
our Complaint.
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
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 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. 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.
For the nine months ended January 31, 2007, the Company recorded
$145,000 of revenue from two related parties. In August 2006,
the Company recorded $25,000 of consulting revenue from AAPC, a
company that Nortia holds an ownership position as discussed in
Note 4 - Investments and Loan receivable. As of January 31,
2007, the entire $25,000 accounts receivable balance was
collected in full by the Company. From August though December
2006, the Company recorded $120,000 of consulting revenue from
Knight, a company that Nortia holds an ownership position in as
discussed in Note 4 - Investments and Loan receivable. As of
January 31, 2007, the entire $120,000 accounts receivable balance
was collected in full by the Company.
Note 8. Concentrations
- -----------------------
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.
Revenues during 2007 were derived entirely from two customers
(83% and 17%) who were both related parties - see Note 7 -
Related Party Transactions.
Note 9. Subsequent Events
- --------------------------
On February 5, 2007, AAPC, one of the Company client companies,
announced that the SB-2 registration statement filed with the SEC
has become effective. AAPC is now in the process of filing a 15c-
211 registration with the NASD to begin tading on the over-the-
counter bulletin board.
On February 12, 2007, Knight, one of the Company client companies,
filed a Form 10-SB with the Securities and Exchange Commission.
The purpose of the Form 10-SB is to enable Knight to be a
24
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
publicly reporting company under the Securities Exchange Act
of 1934, which includes the filing of Forms 10-KSB and Forms 10-
QSB. This process involves review and comments by the SEC, and
corresponding modification to the form 10-SB by Knight until all
the SEC comments have been satisfied.
Effective March 12, 2007, the January 2006 Private Placement
Offering was terminated and in total, the Company received
$840,679 of proceeds from the issuance of the Units ($549,450 and
$291,229 in fiscal years 2006 and 2007, respectively),
representing 764,255 shares of common stock and 764,255 two-year
warrants to purchase common stock at $2.00 per share. In total
for the combined private placements, from April 2005 through
March 16, 2007, the Company received $2,146,449 of proceeds from
the issuance of the Units ($86,350, $1,778,870 and $291,229 in
fiscal years 2005, 2006 and 2007, respectively), representing
1,960,410 shares of common stock and 1,960,410 two-year warrants
to purchase common stock at $2.00 per share.$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.
On March 12, 2007, the Board of Directors approved a revision of
the terms for both of the Private Placement Offerings previously
discussed under Note 5 - Stockholders' Equity. Originally, 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
revision provides each investor with one additional share of the
Company's $0.001 par value common stock. Additionally, the
revision resets the exercise price for the two-year warrants from
$2.00 per share to $0.25 per share. As a result of the revision,
the Company will issue an additional 1,960,410 shares of common
stock to the Private Placement Offering investors and adjust the
warrant exercise price for 1,960,410 two-year warrants from $2.00
to $0.25 per share.
In accordance with FAS 123, the Company evaluated the revision
of the warrant exercise price from $2.00 to $0.25 per share and
utilized the Black Scholes method to determine valuation. As a
result of its evaluation, a valuation of approximately $889,000
was assigned to the revision of the warrant exercise price and
will be recorded to additional paid in capital as the warrants
were a component of a private placement offering.
The Company holds 1,250,000 shares of Knight Energy Corp. and
the shares have been valued at $625,000 in the accompanying
financial statements as of January 31, 2007. However, in March
2007, the Company entered into a voting trust agreement ("VTA")
whereby the Company is the trustee and will have voting control
for 12,200,000 shares of Knight common stock or approximately
60% of the outstanding shares have agreed to the terms of the
VTA. As a result of the VTA, and because the Company has voting
control over approximately 60% of the Knight outstanding shares,
the Company believes that the 1,250,000 Knight shares it holds
are not "investment securities" as defined by the 1940 Act.
However, if the SEC disagrees with the Company's position on the
Knight securities, it may be subject to potential enforcement
action by the SEC to additional liability.
In March 2007, the Atlanta District office of the SEC requested
that the Company voluntarily produce certain documents and
information relating in principal part to the April 2005 Private
Placement Offering of the Company's common stock. Management
intends to cooperate fully with the SEC in this matter.
25
Nortia Capital Partners, Inc.
(A Development Stage Company)
Notes to Financial Statements
January 31, 2007
(Unaudited)
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
26
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.
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 investors. 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 owned 50,000 common shares of Universal Capital
Management, Inc. ("Universal"), which it acquired in November
2004 for $1,625 and which represented a non-controlling position
of approximately 1% of the outstanding common stock of Universal.
On September 15, 2006, the Company sold its entire 50,000 share
interest in Universal to an unrelated third party for a price of
$50,000 and received a non interest bearing note receivable due
and payable in six months. The Company liquidated the Universal
position in order to not be subject to the 1940 Act.
Accordingly, the Company recorded the transaction as note
receivable with an offset as a gain on the sale of available for
sale securities. In November 2006, the Company received all
$50,000 of the cash proceeds in full payment of the note
receivable.
The Company holds 1,250,000 shares of Knight Energy Corp. and the
shares have been valued at $625,000 in the accompanying financial
statements as of January 31, 2007. However, in March 2007, the
Company entered into a voting trust agreement ("VTA") whereby the
Company is the trustee and will have voting control for 12,200,000
shares of Knight common stock or approximately 60% of the
outstanding shares have agreed to the terms of the VTA. As a
result of the VTA, and because the Company has voting control over
approximately 60% of the Knight outstanding shares, the Company
believes that the 1,250,000 Knight shares it holds are not
"investment securities" as defined by the 1940 Act. However, if
the SEC disagrees with the Company's position on the Knight
securities, it may be subject to potential enforcement action by
the SEC to additional liability.
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.
27
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.
As reflected in the accompanying financial statements, the
Company had a net loss of $896,808 (inclusive of a one time
$550,000 non-cash stock compensation charge) and net cash used in
operations of $302,713 for the nine months ended January 31,
2007. However, the Company recorded a $623,750 unrealized gain
on available-for-sale securities and had a comprehensive loss of
$273,058 during the nine months ended January 31, 2007 and a
comprehensive gain of $496,880 during the three months ended
January 31, 2007.The Company has an accumulated deficit of
$6,412,035 and a deficit accumulated during the development stage
of $896,808 at January 31, 2007.
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 investors. 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
28
and assumptions are reasonable, they are based upon information
presently available. Actual results may differ significantly from
these estimates.
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
January 31, 2007.
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 nine or three month
periods ended January 31, 2007 and 2006, 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.
29
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.
30
Results of Operations
Financial Analysis of the Nine and Three Months
- -----------------------------------------------
Ended January 31, 2007 and 2006
- -------------------------------
Nine Three
Months Ended Months Ended
January 31, January 31,
2007 2006 2007 2006
------------------------ ------------------------
Revenues $ 145,000 - 5,000 -
Operating Expenses
General and administrative 188,291 257,476 59,982 53,533
Depreciation 482 - 482 -
Rent 12,254 14,906 1,500 1,611
Consulting 50,881 141,698 7,700 33,118
Compensation 711,868 449,605 28,110 116,435
Professional 126,309 413,158 32,142 167,853
------------------------ ------------------------
Total Operating Expenses 1,090,085 1,276,843 129,916 372,550
------------------------ ------------------------
Operating Loss (945,085) (1,276,843) (124,916) (372,550)
Other Income (Expense)
Gain on sale of available for sale securities 50,000 - - -
Interest expense (4,678) (160) (4,667) (160)
Interest income 2,955 390 2,713 52
------------------------ ------------------------
Other Income (Expense) 48,277 230 (1,954) (108)
------------------------ ------------------------
Net Loss $ (896,808) $(1,276,613) $ (126,870) $ (372,658)
======================== ========================
Comprehensive Income (Loss)
Unrealized gain on available for sale securities 623,750 - 623,750 -
------------------------ ------------------------
Total Comprehensive Income (Loss) $ (273,058) $(1,276,613) $ 496,880 $ (372,658)
======================== ========================
Nine Months Ended January 31, 2007 Compared with Nine Months
- ------------------------------------------------------------
Ended January 31, 2006
- ----------------------
Revenues:
- --------
Revenues increased $145,000 to $145,000 for 2007 from zero in
2006. The Company has recently commenced a new development stage
and new business model as previously discussed and had its first
revenues from the new business model in 2007.
Operating Expenses:
- ------------------
Operating expenses decreased $186,758, or 15%, to $1,090,085 for
2007 from $1,276,843 for 2006. The decrease was primarily the
result of a $286,849 decrease in professional, a $90,817 decrease in
31
consulting, and a $69,188 decrease in general and administrative,
offset by a $262,263 increase in compensation. The decrease in
professional, consulting and general and administrative was because
in 2006, the Company was in the legal and regulatory process of
withdrawing its elction to be regulated as a BDC and in 2007, is
no longer a BDC. The increase in compensation is primarily from
a $550,000 increase in stock compensation. The increase in stock
compensation was for stock issued to an officer for services.
Other Income:
- ------------
Other income increased $48,047 or 20,890% to $48,277 of income
for 2007 from $230 of income in 2006. The increase was primarily
from a $50,000 gain on the sale of available for sale securities.
Comprehensive Income:
- --------------------
Comprehensive income increased $623,750 or 100% to $623,750 of
income for 2007 from zero in 2006. The increase was due entirely
to an unrealized gain on available for sale equity securities.
Three Months Ended January 31, 2007 Compared with Three Months
- --------------------------------------------------------------
Ended January 31, 2006
- ----------------------
Revenues:
- --------
Revenues increased $5,000 to $5,000 for 2007 from zero in 2006.
The Company has recently commenced a new development stage and
new business model as previously discussed and had its first
revenues from the new business model in 2007.
Operating Expenses:
- ------------------
Operating expenses decreased $242,636, or 65%, to $129,916 for
2007 from $372,550 for 2006. The decrease was primarily the
result of a $135,711 decrease in professional, a $88,325 decrease
in compensation and a $25,418 decrease in consulting. The
decrease in professional and consulting was because in 2006, the
Company was in the legal and regulatory process of no longer
being a BDC and in 2007, is no longer a BDC. The decrease in
compensation was directly related to a lack of cash available to
pay compensation and management's desire to forgo compensation in
order to provide financing for operational requirements to grow
the business.
Other Income (Expense):
- ----------------------
Other expense increased $1,846 of expense or 1,709% to $1,954 of
expense for 2007 from $108 of expense in 2006. The increase was
from a net increase in interest expense over interest income.
Comprehensive Income:
- --------------------
Comprehensive income increased $623,750 or 100% to $623,750 of
income for 2007 from zero in 2006. The increase was due entirely
to an unrealized gain 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
significant revenue or sufficient cash to fund our new business
model operating activities for the next twelve months.
Presently, our only primary 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.
32
Cash was $18,045 at January 31, 2007 as compared to $32,401 at
April 30, 2006. The decrease in cash was the result of $291,229
of net proceeds from the sale of common stock, offset by $302,713
of cash used in operations and $2,872 for the purchase of
property and equipment.
Operating Activities: Cash used in operating activities was
- --------------------
$302,713 for 2007 as compared to $1,210,732 for 2006. The
decrease in cash used resulted primarily from a $550,000 stock
compensation expense add back for stock issued for past services
to an officer of the Company.
Investing Activities: Cash used in investing activities was
- --------------------
$2,872 in 2007 as compared to zero in 2006. All of the cash used
in 2007 was from the purchase of property and equipment.
Financing Activities: Cash provided by financing activities was
- --------------------
$291,229 for 2007 as compared to $1,269,020 for 2006. 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 significant revenues for
2007 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 primary 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
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 January 31, 2007.
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, 2006, the offering was
terminated and in total, the Company received $1,315,770 of proceeds
from the issuance of the Units, representing 1,196,155 shares of
common stock and 1,196,155 two-year warrants to purchase common
33
stock at $2.00 per share. As of January 31, 2007, 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 October 31, 2006, the Company
has received $840,679 of proceeds from the issuance of the Units
($549,450 and $291,229 in fiscal years 2006 and 2007,
respectively), representing 764,255 shares of common stock and
764,255 two-year warrants to purchase common stock at $2.00 per
share. As of January 31, 2007, 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 January 31, 2007, the Company has received $2,146,449 of
proceeds from the issuance of the Units ($86,350, $1,778,870 and
$291,229 in fiscal years 2005, 2006 and 2007, respectively),
representing 1,960,410 shares of common stock and 1,960,410 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.
Effective March 12, 2007, the January 2006 Private Placement
Offering was terminated and in total, the Company received
$840,679 of proceeds from the issuance of the Units ($549,450 and
$291,229 in fiscal years 2006 and 2007, respectively),
representing 764,255 shares of common stock and 764,255 two-year
warrants to purchase common stock at $2.00 per share. In total
for the combined private placements, from April 2005 through
March 16, 2007, the Company received $2,146,449 of proceeds from
the issuance of the Units ($86,350, $1,778,870 and $291,229 in
fiscal years 2005, 2006 and 2007, respectively), representing
1,960,410 shares of common stock and 1,960,410 two-year warrants
to purchase common stock at $2.00 per share.$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.
On March 12, 2007, the Board of Directors approved a revision of
the terms for both of the Private Placement Offerings previously
discussed. Originally, 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 revision provides each investor with one
additional share of the Company's $0.001 par value common stock.
Additionally, the revision resets the exercise price for the two-
year warrants from $2.00 per share to $0.25 per share. As a
result of the revision, the Company will issue an additional
1,960,410 shares of common stock to the Private Placement
Offering investors and adjust the warrant exercise price for
1,960,410 two-year warrants from $2.00 to $0.25 per share.
In accordance with FAS 123, the Company evaluated the revision of
the warrant exercise price from $2.00 to $0.25 per share and
utilized the Black Scholes method to determine valuation. As a
result of its evaluation, a valuation of approximately $889,000
was assigned to the revision of the warrant exercise price and
will be recorded to additional paid in capital as the warrants
were a component of a private placement offering.
34
In March 2007, the Company received correspondence from the SEC
primarily in relation to its April 2005 Private Placement
Offering. The SEC has requested certain information and the
Company is in the process of reviewing the correspondence in
order to respond to the request.
Contractual Obligations and Commitments
We have no contractual obligations and commitments at January 31,
2007.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements at January 31, 2007.
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.
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.
On September 15, 2006, the Company sold its entire 50,000 share
interest in Universal to an unrelated third party for a price of
$50,000 and received a non interest bearing note receivable due
and payable in six months. The Company liquidated the Universal
position in order to not be subject to the 1940 Act.
The Company holds 1,250,000 shares of Knight Energy Corp. and the
shares have been valued at $625,000 in the accompanying financial
statements as of January 31, 2007. However, in March 2007, the
Company entered into a voting trust agreement ("VTA") whereby the
Company is the trustee and will have voting control for 12,200,000
shares of Knight common stock or approximately 60% of the
outstanding shares have agreed to the terms of the VTA. As a
result of the VTA, and because the Company has voting control over
approximately 60% of the Knight outstanding shares, the Company
believes that the 1,250,000 Knight shares it holds are not
"investment securities" as defined by the 1940 Act. However, if
the SEC disagrees with the Company's position on the Knight
securities, it may be subject to potential enforcement action by
the SEC to additional liability.
In March 2007, the Atlanta District office of the SEC requested
that the Company voluntarily produce certain documents and
information relating in principal part to the April 2005 Private
Placement Offering of the Company's common stock. Management
intends to cooperate fully with the SEC in this matter.
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 twelve months, we will incur any (although there can be no
assurance that the funds that we will require to operate our business
35
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.
Item 4. Controls and Procedures
As of January 31, 2007 (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.
36
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.
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.
37
We have previously suffered significant operating losses.
As reflected in the accompanying financial statements, the
Company had a net loss of $896,808 (inclusive of a one time
$550,000 non-cash stock compensation charge) and net cash used in
operations of $302,713 for the nine months ended January 31,
2007. However, the Company recorded a $623,750 unrealized gain
on available-for-sale securities and had a comprehensive loss of
$273,058 during the nine months ended January 31, 2007 and a
comprehensive gain of $496,880 during the three months ended
January 31, 2007. The Company has an accumulated deficit of
$6,412,035 and a deficit accumulated during the development stage
of $896,808 at January 31, 2007.
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 investors. 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.
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 and 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 business model is highly dependant on key relationships.
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
38
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.
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 investors. 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.
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 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.
On September 15, 2006, the Company sold its entire 50,000 share
interest in Universal to an unrelated third party for a price of
39
$50,000 and received a non interest bearing note receivable due
and payable in six months. The Company liquidated the Universal
position in order to not be subject to the 1940 Act.
The Company holds 1,250,000 shares of Knight Energy Corp. and the
shares have been valued at $625,000 in the accompanying financial
statements as of January 31, 2007. However, in March 2007, the
Company entered into a voting trust agreement ("VTA") whereby the
Company is the trustee and will have voting control for 12,200,000
shares of Knight common stock or approximately 60% of the
outstanding shares have agreed to the terms of the VTA. As a
result of the VTA, and because the Company has voting control over
approximately 60% of the Knight outstanding shares, the Company
believes that the 1,250,000 Knight shares it holds are not
"investment securities" as defined by the 1940 Act. However, if
the SEC disagrees with the Company's position on the Knight
securities, it may be subject to potential enforcement action by
the SEC to additional liability.
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, 2006, the offering was
terminated and in total, the Company received $1,315,770 of
proceeds from the issuance of the Units, representing 1,196,155
shares of common stock and 1,196,155 two-year warrants to
purchase common stock at $2.00 per share. As of January 31,
2007, 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 October 31, 2006, the Company
has received $840,679 of proceeds from the issuance of the Units
($549,450 and $291,229 in fiscal years 2006 and 2007,
respectively), representing 764,255 shares of common stock and
764,255 two-year warrants to purchase common stock at $2.00 per
share. As of January 31, 2007, 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 January 31, 2007, the Company has received $2,146,449 of
proceeds from the issuance of the Units ($86,350, $1,778,870 and
$291,229 in fiscal years 2005, 2006 and 2007, respectively),
representing 1,960,410 shares of common stock and 1,960,410 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.
In August 2006, the Company granted 500,000 shares of common stock
to the new Chief Financial Officer of the Company. Since the
Company was in the process of a Private Placement Offering as
discussed above, the shares were valued at the Private Placement
offering price of $1.10 per share or $550,000 and recorded as
compensation in accompanying financial statements.
Effective March 12, 2007, the January 2006 Private Placement
Offering was terminated and in total, the Company received
$840,679 of proceeds from the issuance of the Units ($549,450 and
$291,229 in fiscal years 2006 and 2007, respectively),
representing 764,255 shares of common stock and 764,255 two-year
warrants to purchase common stock at $2.00 per share. In total
for the combined private placements, from April 2005 through
March 16, 2007, the Company received $2,146,449 of proceeds from
the issuance of the Units ($86,350, $1,778,870 and $291,229 in
fiscal years 2005, 2006 and 2007, respectively), representing
1,960,410 shares of common stock and 1,960,410 two-year warrants
40
to purchase common stock at $2.00 per share.$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.
On March 12, 2007, the Board of Directors approved a revision of
the terms for both of the Private Placement Offerings previously
discussed. Originally, 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 revision provides each investor with one
additional share of the Company's $0.001 par value common stock.
Additionally, the revision resets the exercise price for the two-
year warrants from $2.00 per share to $0.25 per share. As a
result of the revision, the Company will issue an additional
1,960,410 shares of common stock to the Private Placement
Offering investors and adjust the warrant exercise price for
1,960,410 two-year warrants from $2.00 to $0.25 per share.
In accordance with FAS 123, the Company evaluated the revision of
the warrant exercise price from $2.00 to $0.25 per share and
utilized the Black Scholes method to determine valuation. As a
result of its evaluation, a valuation of approximately $889,000
was assigned to the revision of the warrant exercise price and
will be recorded to additional paid in capital as the warrants
were a component of a private placement offering.
In March 2007, the Company received correspondence from the SEC
primarily in relation to its April 2005 Private Placement
Offering. The SEC has requested certain information and the
Company is in the process of reviewing the correspondence in
order to respond to the request.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
41
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
42
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: March 16, 2007 /s/ William Bosso
------------------------
William Bosso
Chief Executive Officer
Date: March 16, 2007 /s/ Bruce A. Hall
-------------------------
Bruce A. Hall
Chief Financial Officer
43