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EX-31 - EXHIBIT 31.1 - NORAM CAPITAL HOLDINGSexhibit311.htm
EX-32 - EXHIBIT 32.1 - NORAM CAPITAL HOLDINGSexhibit321.htm
EX-31 - EXHIBIT 31.2 - NORAM CAPITAL HOLDINGSexhibit312.htm
EX-32 - EXHIBIT 32.2 - NORAM CAPITAL HOLDINGSexhibit322.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10 K/A

(Mark One)


x ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE  ACT OF 1934


For the fiscal year ended   September 30, 2009


o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934


For the transition period from           to _____


Commission File No:  0-2661


NorAm Capital Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

 

13-1946181

(State of jurisdiction of incorporation)

 

(IRS Employer Identification No.)


 

 

 

15303 North Dallas Parkway, Suite 1030, Addison, Texas

 

75001

(Address of principal executive offices)

 

(Zip Code)


(888) 886-6726

(Registrant’s telephone number)



Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   Common Stock ($0.002 par value per share)

Name of exchange on which registered:  OTCBB


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o    No  ý


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o    No  ý


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 last 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  ý     No  o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).  Yes  ý     No  o


Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ý















Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.


Large accelerated filer  o

  

Accelerated filer  o

Non-accelerated filer  o

  

Smaller reporting company   ý


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes  o    No  ý


The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of May 26, 2010 was $117,289 (computed by multiplying the closing sales price for our common stock on such date by the number of shares of common stock held by persons other than officers, directors or by record holders of 10% or more of the registrant’s outstanding common stock.  This characterization of officers, directors and 10% or more beneficial owners as affiliates is for purposes of computation only and is not an admission for any purposes that such people are affiliates of the registrant).


State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date.  The number of shares of the registrant's Class A, $.002 par value Common Stock outstanding as of May 26, 2010 was 14,599,101.  


Explanatory Note:

 

This Amendment No. 1 on Form 10-K/A (the “Amendment”) amends the Annual Report on Form 10-K of NorAm Capital Holdings, Inc. (“Company”) in its entirety for the year ended September 30, 2009, originally filed with the Securities and Exchange Commission on December 29, 2009.  This Amendment provides the information required by Item 308T of Regulation S-K, Item 9A, Annual Report on Internal Control over Financial Accounting, which was not included in the original filing.  

 



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PART I


Forward-looking Statements


In addition to historical information, this annual report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements are not based on historical facts, but rather reflect management’s current expectations concerning future results and events. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to uncertainties associated with the following:


(a) volatility or decline of our stock price;


(b) potential fluctuation in quarterly results;


(c) our failure to earn revenues or profits;


(d) inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement its business plans;


(e) inadequate capital to continue business;


(f) changes in demand for our products and services;


(g) rapid and significant changes in markets;


(h) litigation with or legal claims and allegations by outside parties; or


(i) insufficient revenues to cover operating costs.


There is no assurance that we will be profitable, we may not be able to successfully develop, manage or market our products and services, we may not be able to attract or retain qualified executives and technology personnel, our products and services may become obsolete, government regulation may hinder our business, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of warrants and stock options, and other risks inherent in the our business.


We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the factors described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q and Annual Report on Form 10-K and any Current Reports on Form 8-K filed by us.  All forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statement above.




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Item 1.   Description of Business


(A)   Business Development:


History of the Company


NORAM CAPITAL HOLDINGS, INC. (Formerly HARRELL HOSPITALITY GROUP, INC.) (the “Company”, “us” or “we”) is a Delaware corporation which was originally incorporated in 1959 in Massa­chusetts under the name of Formula 409, Inc.  In 1967, the Company's name was changed to The Harrell Corporation, in 1968 to Harrell International, Inc., and in 2000 to Harrell Hospitality Group, Inc.  The Company changed its state of incorporation from Massachusetts to Delaware in March, 1987.  The Company originally manufactured and sold a multi-purpose household spray cleaner under the registered trademark "Formula 409."  In 1970, the Company sold the rights to "Formula 409" to Clorox Corporation.  During the period 1970 to 1983 the Company was primarily engaged in the business of acquiring and operating food and non-food brokers which represented the products of various unrelated manufacturers to either the U. S. domestic civilian market or to the U. S. military resale system.  In 1983, the Company completed the divestiture of its consumer products broker­age businesses.  From 1983 to 1990 the Company was largely inactive.


In 1992 the Company acquired Hotel Management Group, Inc., a Texas corporation ("HMG"). The principals of HMG had significant experience in hotel operations and management, and the business of the Company changed to hotel acquisition and management.   The Company managed two hotels in California and made a number of attempts to acquire hotels in the United States.  The small size and lack of financial resources made such acquisitions difficult, and despite attempts to join with equity partners and financing partners in the acquisition and development of hotels, the Company was unsuccessful in establishing additional long term management contracts or ownership of hotels.   Therefore, the Company sold HMG and all other hospitality assets on September 29, 2006.


Change of Business to Financial Receivable Management


On November 2, 2006, Global Trek Property Holdings, L.P. (“Global Trek”), a company affiliated with Anthony Renteria, and Square Rock, Ltd. (“Square Rock”), a company affiliated with Daniel Cofall, as new investors, purchased 12,644,290 shares of Class A Common Stock issued by the Company, and thus acquired control of the Company.  Anthony Renteria and Daniel Cofall were appointed as the new Board of Directors. The Board changed the business of the Company from the hospitality industry to financial receivables management and debt collection.  These types of services are rendered for credit issuers or other holders of debt portfolios.  On January 5, 2007, the name of the Company was changed to NorAm Capital Holdings, Inc. to distinguish the business of the Company from its previous course of business in the hospitality industry.


Business Expansion


On June 29, 2009 the Company formed NorAm Media Group, Inc. (“NMG”), a Texas corporation and wholly owned subsidiary of the Company.  NMG plans to be involved in radio, television, internet and other broadcast media, with an emphasis on financial news and entertainment.


(B)   Business of the Issuer:


For the fiscal year ended September 30, 2009, the period covered by this Annual Report, the business of the Company was primarily in financial receivables management and debt collection management.  These services were rendered for credit issuers or other holders of debt portfolios.  In addition, the Company is engaging in the purchase and resale of portfolios of defaulted debt and may engage in the collection of debt portfolios for its own account.


The Company provides services to its clients to allow the clients to maximize their returns on their charged-off debt and accounts receivable.  These client companies include debt issuers, such as banks, credit card companies, short term “payday” lenders, automobile lenders and other creditors, secondary resellers of charged-off debt portfolios, and buyers of debt portfolios.  Clients may be domestic or international, although to date the Company has focused on domestic clients.  In addition to services for client companies, the Company engages in charged-off debt trading and debt buying and collection for its own account.  The Company plans to add its own debt collection services through a proposed debt service center that the Company may acquire or build.  For the most part, the debt involved is individual consumer debt, although other types of commercial debt may be considered.


In the third quarter of the fiscal year, the Company also formed NorAm Media Group, Inc. (“NMG”), a wholly owned subsidiary that is involved in radio and other broadcast media, primarily with an emphasis on financial and business news and entertainment.  At present Daniel Cofall hosts a daily drive-time talk radio show called the “Wall Street Shuffle”, which is broadcast on CNN Radio, KFXR 1190 Dallas, Texas.




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Revenue Sources and Revenue Models for the Debt Business


The Company provides the services in the debt business in several ways that are based on distinct but complementary revenue models.  The first revenue model the Company uses is that of charged-off debt trading.  This consists of contemporaneously purchasing and reselling debt portfolios acquired from debt issuers and other debt owners without first collecting or scoring the portfolios.  The Company profits from the margin between the price it purchases a portfolio from a seller and the resale price to a buyer.  At times a large national portfolio of debt, such as defaulted auto loans, might be acquired from a single debt issuer and broken up and sold in smaller portfolios such as individual states or groups of states.  This repackaging can increase profit margins to the Company depending on the demand for smaller portfolios and particular states.  In addition to acting as a principal in debt trading transactions, for a fee, the Company may, in other transactions serve as a broker to locate debt portfolios for buyers or locate debt buyers for sellers.  The debt trading revenue model requires the Company to have funds available to purchase a portfolio, but only for a very limited period of time since the resale generally occurs the same day, the next day or within a few days of the purchase.


The second of these is client services.  Client services includes providing collection agency management services to companies to help them maximize returns from their use of third-party debt collection companies, strategic advisory and consulting services to review their portfolios of delinquent debt and provide counsel on ways to maximize returns to the client companies from their receivables.  The Company plans to provide debt collection services itself once it has acquired the call center facilities and licenses necessary.  Through the proposed call center, the Company will also offer pre-chargeoff services to client companies such as customer reminder calls and follow-up calls.   The client advisory services are provided by contract on an hourly rate basis or may be negotiated on a monthly fee basis.  Typically, the debt collection management work would be billed to the client based on a contingency recovery fee basis from actual recoveries made by the collectors, although the management supervision may be by fixed monthly fee as well.  Debt collection services, once instituted, will generally be on a contingent fee based on a percentage of actual gross collections.


The third revenue model for the Company is buying charged-off debt portfolios for its own account, holding those portfolios and working the portfolios to collect the accounts.  Under this model, the Company purchases debt portfolios it believes will return a high yield and immediately begins the collection process.  At present, the Company utilizes one or more third-party collection agencies to collect the debt, provides liquidation strategies and closely monitors their progress.  Depending on the portfolio, legal actions may also be instituted to collect the debt.  The Company plans to establish its own call center and obtain licensing to have its own consumer debt collection operations.  At that time, the Company would also collect accounts on its own behalf for portfolios it owns, as well as provide services for other clients.  Typically, though not always, after the Company has held and collected a portfolio for some period of months, the remaining uncollected accounts will be repackaged and resold on the secondary market for a lump sum.  The debt buying and collecting revenue model requires the Company to have substantial funds available for an indefinite period of time.  Often, to have an opportunity to acquire promising debt portfolios the buyer must commit to the debt issuer to buy all monthly charge-offs of that issuer for a specified time period of six months or a year.  For this reason, the Company needs substantial financial liquidity or financial partners to undertake large scale debt buying.


Revenue Sources for the Broadcast Media Business


NMG will derive its revenue model from advertising fees charged for air time spots on our radio show.  These spots may be sold to local, regional or national organizations and can cover a wide range of categories.  Contracts with our advertisers are generally expected to be for a term of less than one year.  The Company recognizes advertising revenues as the advertisements are broadcast.  


Competitive Business Conditions and the Company’s Position in the Industry


The overall market for delinquent debt recovery services is increasing rapidly.  The amount of consumer credit outstanding nationally is at record levels, and charged-off consumer debt  continues to increase, both in dollar volume and in absolute number of accounts.  Consumer lenders are seeking to maximize their recoveries on the credit extended.   The lenders are using several different strategies to maximize their cash flow.


Collection of delinquent accounts is the first and most obvious way creditors make recoveries on defaulted debt.  Many employ internal collectors as the first method to collect past due accounts.  If internal collection efforts do not succeed, traditionally consumer lenders, such as credit card issuers, have engaged third-party collection agencies to assist for a relatively short period of time, usually 60 to 120 days. There are a large number of collection agencies throughout the United States, most offering similar services of collection of accounts in exchange for a percentage of collections received.  The Company does not have its own call center at present and does not perform collection services directly, although it plans to acquire or develop a collection agency within the next twelve months or so. The Company does offer to manage the distribution and placement of accounts to third-party collectors for the client creditor, using a competitive model among collectors and seeking niche collectors for very specific types of debt portfolios in order to increase the returns to the client creditor.  The Company can also monitor the liquidation rates being obtained and advise the creditor regarding optimal timing and selling strategies.  The Company believes this approach of providing  a value added service of optimizing recoveries from third-party collectors  and providing consulting services if desired, allows it to distinguish itself from the many other collection agency options that are available to the client creditor.




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The second major way the creditor produces cash from the delinquent accounts is to recall all uncollected accounts from the collection agency, make the determination that the accounts are not quickly collectible and label them as “charge-off” accounts and put them in a portfolio for resale for a discounted lump sum.  Large established credit issuers, such as credit card companies, routinely charge-off portfolios of uncollected accounts on a monthly basis and sell them for a negotiated or bid price.  Generally, such a creditor, sells all charge-offs for that month for the entire national portfolio for a particular credit card in one lump sale, and usually contracts are negotiated in which the buyer must commit to purchase all charge-offs at a stated rate for a period of six months or a year, called a “forward flow” contract.  There is strong competition to purchase forward flow charge-offs direct from the issuer of the debt.   This direct-from-issuer debt is generally considered by professional collectors to be among the most predictable and highest liquidating debt on the market, and returns high, stable yields.  There are therefore many buyers who would like to purchase at least a portion of these types of portfolios.  However, the major credit issuers desire not only to receive the best price from the sale of the charged-off portfolios, but are also concerned with their brand reputation and are thus concerned about the identity and reputation of the final holder of the debt and the collection procedures that will be used. Therefore, in the major issuer direct sales market, competition is fierce and there are only a comparatively few companies that have both the financial ability to make the purchases and are acceptable to the issuers.  The Company believes that the contacts in the industry, experience and reputation of its senior management give it the ability to successfully compete for the purchase of these types of products.  Financially, the ability of the Company to purchase a particular forward flow of debt would depend on a number of factors such as the size of the portfolio, the price, the duration of the flow, whether the purchase was for resale or for holding by the Company, whether the Company had a financial partner or financing available for the purchase or a buyer located for resale.  


Credit markets, both nationally and globally are facing extraordinary pressures.  As debt delinquencies increase, lenders are focused on generating recoveries from the charge-offs, and the volume and varieties of bad debt being sold has increased.  With the increases in supply, there is general pressure on the prices of debt portfolios, and with respect to many areas of defaulted debt, the prices are still falling. This negatively impacts companies that have locked in forward flow purchases at historically high rates, and some credit issuers are being forced by market conditions to reprice their portfolios to lower levels.  Both debt buyers and debt sellers are in the process of re-pricing to adjust for changing risk tolerance, liquidation curves and economic expectations.  Buyers change their expectations more rapidly than do sellers, and the markets are currently adjusting to these changes.  The Company does not hold significant portfolios of debt that are affected by these market pricing changes nor does it hold any long-term forward flow purchase commitments, thus its loss exposure is very limited during this period of transition.  However, debt trading can be difficult as sellers are reluctant to sell for lower prices and buyers are wary of liquidation projections and offer even lower prices. The Company expects that the debt trading market will be priced slightly lower in fiscal year 2010, with volumes of debt on the market still increasing as charge off levels increase.  However, due to the tightening of credit issuance and lowering of credit limits over the past year by credit card issuers, the increase in volume may begin to slow sometime in late fiscal 2010.


Sources of Debt Portfolios


As discussed above, consumer debt portfolios are regularly sold as charge-offs by major banks and credit card companies.  While the Company seeks such issuer direct portfolios, the Company is also pursuing a number of other sources of debt.  Through business development, education and counseling of clients, the Company is locating various companies that have never pooled the debt and sold it to buyers.  This represents entirely new sources of fresh issuer-direct debt that may have high value to debt buyers.   There are many different debt issuers that are potential sources, including automobile lenders, rent-to-own lenders, retail installment lenders, payday lenders, and internet lenders, among others.


In addition to the issuer direct market, the Company also participates in secondary resales of uncollected debt portfolios by debt collectors and other debt buyers.  Trading in the secondary market for charged-off debt is not fully established for all types of debt, and the Company is helping develop various niches of secondary debt resales.


Customers


There are many potential clients for the Company in that there are thousands of lenders and debt issuers who need financial receivable management services.  The Company is actively expanding the number of its seller and buyer sources, as well as its collection agency relationships.  While there are many potential sellers and buyers, the Company’s business to date has been concentrated among a few large issuers of debt and a few major purchasers of debt portfolios on a forward flow basis.


Licensing


Generally no licensing is required to trade or own debt portfolios or provide financial receivable management services to lenders.  However, in order to collect debts owing to individuals or consumers, most states require certain licenses or bonds, or both.  At present, the Company does not conduct debt collection services itself, and thus generally no licensing is required.  The Company utilizes fully licensed third-party collection agencies to handle its collections at this time. A few states, however, such as West Virginia, have taken more extreme positions that a company must itself obtain a separate collector’s license even if its debts are only collected through licensed third-party collectors.   As a consequence, the Company will refrain from and does not have plans to have accounts collected on its behalf in West Virginia.  If and when the Company enters the contingency collection market with its own facilities, it will be required to obtain the necessary state licenses and bonds.




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Effect of Government Regulation on the Business


All companies or entities that originate, service, collect or maintain consumer loans are subject to federal regulations regarding privacy of financial records and the fraudulent access to financial information.  Various statutes, such as the Fair Debt Collection Practices Act (the “FDCPA”), the Gramm-Leach-Bliley Act (the “GLB Act”), the Patriot Act, and the Fair Credit Reporting Act (the “FCRA”) regulate lenders, holders of debt and collectors of debt.  As a holder of debt, and as a liaison with debt collectors and lenders, the Company is affected by the governmental regulations.  The FDCPA imposes restrictions on debt collectors on the procedures and tactics that can be used in the debt collection process and prescribes certain notices that must be provided to debtors in a timely fashion.  Failure to adhere to the FDCPA can result in liability to the collector and to the creditor or holder of the debt for the violation, and the FDCPA gives a right to the debtor to bring legal action directly against these parties for violation of the regulations.  The GLB Act requires banks, financial institutions and debt collectors to provide annual privacy notices to debtors, to develop written security plans to safeguard non-public personal financial information, and to take precautions against pretexting and other fraudulent access to financial records of debtors.   


The consumer protection regulations are a fact of the business of consumer debt management, and the Company views the rules and regulations as something positive for the industry that should be embraced.  Too often the business of debt collection and defaulted debt trading is viewed negatively by the public, and the Company believes it is in its best interest and the best interest of its clients and the industry as a whole to raise the standards and elevate business ethics.  While legal compliance and security measures have a significant cost, the Company believes it is essential to the integrity of the business and the ultimate financial success of the business.   The Company works with industry trade groups such as the Debt Buyers Association (“DBA”) and the American Collectors Association (“ACA”) to stay current and advice on these topics.


Because of perceived lending practices and abuses, individual states are continually reviewing consumer laws and consumer lending regulations.  This type of state regulation can create risk that various loans and the collection of certain loans can become more restricted, licensed or even banned.  For example, some states have enacted legislation banning certain high interest loans to individuals, and several states are restricting or prohibiting “payday” loans.  


Business Development


The business of the Company does not require extensive product development or software development, and the Company does not anticipate large commitments of time, money or personnel towards such development.  However, a large amount of the executive management time is spent toward developing new client relationships and seeking new loan portfolios, new sellers of products and new buyers.


Employees


At September 30, 2009, the Company had 5 full time employees, and 2 people providing contract assistance.  


Item 1A.  Risk Factors


Our business, prospects, financial condition, and results of operations may be materially and adversely affected due to any of the following risks.  The trading of our common stock could decline due to any of these risks. Some of the statements in “Risk Factors” are forward looking statements.  See “Forward Looking Statements.”


Risks Related To Our Business


Because we have a relatively short operating history in the debt trading, debt collection management and receivables management business, it is difficult to evaluate our future prospects and this increases the risk of your investment .


Although we were incorporated in 1959, our operations in the debt trading and financial receivable management business commenced operations in 2007. While management remains cautiously optimistic about its prospects, the results require further evaluation. Accordingly, you have a limited opportunity to evaluate our business and future prospects because we have a limited operating history under our current business model. There is no certainty that future operations will be profitable. A limited operating history requires frequent evaluation to improve operations and/or remedy unforeseen difficulties that may occur. If we are unable to remedy unforeseen difficulties that materialize, our ability to achieve profitable operations could be impaired.


Our financial results may fluctuate from period to period as a result of several factors which could adversely affect our stock price.


Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside our control. Factors that will affect our financial results include:


availability of debt portfolios from issuers to purchase;


the amount of debt charged off that month by an issuer; often debt portfolios are sold on a “forward flow” basis and the



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amount of debt sold varies monthly depending on how much the debt issuer decides to charge off for that period;


entering or exiting major contracts to purchase and sell debt from issuers or other debt resellers;


regulatory changes; and


general economic conditions and economic conditions specific to our industry.


We are dependent on key members of management.


Our performance is substantially dependent on our Chief Executive Officer, Anthony Renteria, for debt portfolio acquisitions, sales and marketing, research and development. Daniel Cofall, our Chief Financial Officer, is also the officer primarily responsible for NMG and is the on-air talent for the broadcasts. Although these officers are major beneficial stockholders, there can be no assurance they will continue to serve as officers or directors. The inability to retain and continue to attract and retain qualified management and staff could significantly delay and may prevent the achievement of our business objectives, and could have a material adverse effect on our business, prospects, financial condition, and results of operations.  


The industry in which we operate is highly competitive.


Numerous well-known companies, which have substantially greater capital, financing and development capabilities and experience than we have, are presently engaged in the debt trading, debt collection and accounts receivable management business. Competitors with access to greater capital may be able to acquire larger or nationwide portfolios that would not be made available to us by virtue of our size or financing.  If we are unable to successfully compete in our chosen markets, our business, prospects, financial condition, and results of operations would be materially adversely affected.


We are heavily dependent on relationships with a few major debt sellers and debt buyers.


Although we are always seeking to increase our customer base, presently our revenues are heavily dependent on acquisitions of debt portfolios from very few issuers and resale of these portfolios to a very small number of debt buyers.  Any loss of a relationship with either a debt issuer or a debt buyer who is currently doing business with us would be significant.


Our purchase and sale contracts tend to have a short stated term.


In our debt trading business, the debt portfolios are either individually, or on a “forward flow” basis, in which the agreement is to purchase charged off debt portfolios monthly for some specified number of months.  However, even in forward flow contracts, the term is rarely more than six to twelve months in length, as both seller and buyer are usually reluctant to lock in prices for longer periods of time.  As a result, we may lose contracts periodically as the stated term ends and issuers seek additional bidders for the forward flow.  Similarly, from the buyers side, our debt buyers may not renew at the end of a stated term, and long term revenue spreads are thus difficult to predict.


Current worldwide economic conditions may  adversely affect our business, operating results and financial condition.


General worldwide economic conditions have experienced a significant downturn due to the effects of the subprime lending crisis, general credit market crisis, collateral effects on the finance and banking industries, concerns about inflation, slower economic activity, decreased consumer confidence, reduced capital spending, adverse business conditions and liquidity concerns.  Although certain aspects of our business are countercyclical, a general economic slowdown and tightening availability of financing may reduce the number of debt buyers who have the means to purchase debt from us, and the lack of investment capital or financing generally may have a negative effect on our ability to buy debt portfolios.  In addition, in difficult economic times, although more defaulted debt is available for collection, success rates in collection and liquidation rates on portfolios of defaulted debt tend to drop.  


Our ability to continue as a going concern may be dependent on raising additional capital, which we may not be able to do on favorable terms, or at all.


We may need to raise additional capital to support our current operations and develop a call center and expand our operations. We can provide no assurance that additional funding will be available on a timely basis, on terms acceptable to us, or at all. If we are unsuccessful raising additional funding, our business may not continue as a going concern. Even if we do find additional funding sources, we may be required to issue securities with greater rights than those currently possessed by holders of our common stock. We may also be required to take other actions that may lessen the value of our common stock or dilute our common stockholders, including borrowing money on terms that are not favorable to us or issuing additional equity securities. If we experience difficulties raising money in the future, our business and liquidity will be materially adversely affected.


Risks Related To Our Common Stock


Our stock price may be volatile, which could result in substantial losses for investors.




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The price of our common stock is quoted on the OTCBB and fluctuates significantly. As a result of these fluctuations, it may make it difficult for you to sell your shares of common stock when you want or at prices you find attractive. These fluctuations may result from a variety of factors, many of which are beyond our control.  These factors include:


quarterly variations in our operating results;


operating results that vary from the expectations of management, securities analysts and investors;


changes in expectations as to our business, prospects, financial condition, and results of operations;


announcements by us or our competitors regarding material developments;


the operating and securities price performance of other companies that investors believe are comparable to us;


future sales of our equity or equity-related securities;


changes in general conditions in our industry and in the economy, the financial markets and the domestic or international political situation;


departures of key personnel; and


regulatory considerations.


In addition, the stock market continues to experience extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons often unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price, regardless of our operating results.


Future sales of common stock or the issuance of securities senior to our common stock or convertible into, or exchangeable or exercisable for, common stock could adversely affect the trading price of our common stock and our ability to raise funds in new equity offerings.


Future sales of substantial amounts of our common stock or other equity-related securities in the public market or privately, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or other equity-related securities. We can make no prediction as to the effect, if any, that future sales of shares of common stock or equity-related securities, or the availability of shares of common stock for future sale, will have on the trading price of our common stock.


Our common stock is deemed a “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.


The SEC has adopted regulations that generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is currently less than $5.00 per share and therefore is a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.


There may not be sufficient liquidity in the market for our securities in order for investors to sell their securities.


There is currently only a limited public market for our common stock, which is listed on the Over-the-Counter Bulletin Board, and there can be no assurance that a trading market will develop further or be maintained in the future.   


As the ownership of our voting securities is concentrated in our directors, such individuals control us.


As of December 29, 2009, Anthony Renteria, our Chief Executive Officer and director and Daniel Cofall Executive Vice President and director, each beneficially own approximately 44.0% of our outstanding common stock. Accordingly, these individuals may be able to elect our directors and control the outcome of virtually all important stockholder decisions and may make such decisions in their own interest, which may not be in the best interests of other stockholders.


We may not  pay cash dividends on our common stock in the foreseeable future.


We have not declared or paid any cash dividends on our common stock, and we do not know if we will, or will be in a position to, in the foreseeable future. As a result, investors may have to sell their shares of our common stock to realize their investment. We currently intend to retain future earnings for use in the operation of our business and to fund future growth.  Our ability to pay future cash dividends on our common stock depends upon our results of operations, financial condition, cash



9




requirements, the availability of a surplus and other factors.


Item 1B.  Unresolved Staff Comments.


We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.




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Item 2.  Description of  Property


(A)

Principal Offices


On June 8, 2009, the Company entered into short term lease obligation for executive suites located in Vancouver Washington.  The office space is primarily used for sales and administrative support for the debt trading business of the Company.


On August 21, 2009, the Company entered into a long term lease obligation for approximately 2,500 square feet of office space located at 15303 North Dallas Parkway, Suite 1030, Addison, Texas 75001.  The office space is used for corporate offices of the Company and primarily for sales and research for NMG.


(B)

Investment Policies


The Board has not set any limit on the Company’s investments in real estate or real estate mortgages.  While the Company does not have plans at present to acquire real estate, interests in real estate or real estate mortgages, the Board may consider investment in real estate, and first or second mortgages or portfolios of mortgages, either for income or for long term investment, on a case by case basis.


Item 3.  Legal Proceedings


(1)

On January 22, 2008, the Company filed an action in the Circuit Court of the 17th Judicial Circuit for Palm Beach County, Florida, styled NorAm Capital Holdings, Inc., as Plaintiff, against Goldberg & Associates, LLC, a Florida limited liability company (“Goldberg LLC”) and Steven D. Goldberg, individually, as Defendants.


The Company alleges that on December 17, 2007 it entered into a contract with Goldberg LLC to purchase a portfolio of charged off debt from Goldberg LLC for a purchase price of $431,229.00 and wired funds to Goldberg LLC’s account on that date for the purchase.  However, despite representing and warranting to the Company that it owned the portfolio free and clear of all liens and encumbrances, Goldberg LLC did not in fact  own the portfolio of accounts, and apparently fraudulently diverted the Company’s funds for use as part of a purchase of real estate in Boca Raton, Florida.  Subsequent to the filing of the action, upon demand by the Company, Goldberg LLC executed a promissory note to the Company and granted the Company a mortgage lien on its real estate in Florida.


In the action filed, the Company has sought compensatory damages, pre-judgment interest, costs and attorneys fees from the Defendants in connection with its claims for fraud, conversion and breach of contract.  The Company has also sought to impose a constructive trust over the Florida real estate owned by Goldberg LLC and for an equitable lien on the real estate and against Goldberg LLC, and has asked the court for foreclosure of its mortgage on the real estate, along with costs, attorney fees and such other relief as the court may find appropriate.  On December 2, 2008, a Default Judgment in favor of the Company was granted by the court against Goldberg & Associates, LLC.  Steve Goldberg individually, however has defended on the basis of rights he claims under a lease that predates the Company’s mortgage.  Company’s counsel has been engaged in discovery and is still awaiting permission from the Court for foreclosure of the Company’s lien.  If the Court permits foreclosure of the Avatar first lien described below, the Company’s interest in the Florida real estate would be eliminated unless the Company is also successful in actions against Avatar described below.


(2)

On September 17, 2008, a complaint was filed by Avatar Income Fund II, LLC (“Avatar”) against Goldberg LLC, the Company and others in the 15th Judicial Circuit Court of Palm Beach County Florida.  Avatar alleges that Goldberg LLC defaulted in payment of its mortgage note to Avatar.  The purpose of the suit was to seek foreclosure of  the mortgage lien held by Avatar against certain real estate in Boca Raton, Florida owned by Goldberg LLC.  The real estate is same real estate that the Company is asserting its lien upon and seeking foreclosure of in the legal proceeding described  in (1) above.  The Company is named in this Avatar proceeding solely because of the Company’s position as lienholder.  The Company is contesting Avatar’s foreclosure action, asserting that the Company’s lien is equal or superior to Avatar’s lien by reason of Avatar’s negligence and constructive knowledge of the fraud involved in the purchase by Goldberg & Associates, LLC.  On September 2, 2009, a hearing was held and Avatar was granted Final Summary Judgment by the Court, and a foreclosure of Avatar’s first lien position was scheduled for early October 2009.  The Company filed an Emergency Motion to Vacate Final Judgment and Cancel Sale, and Defendant Steve Goldberg individually filed a similar motion to vacate and cancel the sale alleging various acts of consumer fraud against Avatar.  The Court granted defendant Goldberg’s motion, and the foreclosure sale has not occurred pending ruling on Goldberg’s claims.


Item 4.  Submission of Matters to a Vote of Security Holders


No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.




11




Part II


Item 5.  Market for Common Equity and Related Stockholder Matters


(A)

Market Investments


During the fourth quarter of Fiscal 2000, the Company’s Common Stock commenced trading on the NASD Over-the-Counter Bulletin Board (the “Bulletin Board”) under the symbol “HLTLA.”  The trading symbol was changed to “HLHGA” in connection with the reverse split that occurred on September 29, 2006.  Following the Company’s name change on January 5, 2007, the trading symbol was changed to “NRMH”.  There has been no material market for the Company stock from 1991 until this time.  The following table shows the range of closing bid prices for the Company's Common Stock in the over-the-counter market for the fiscal quarters indicated, as reported by the Bulletin Board.  The quotations represent limited or sporadic trading and, therefore, do not constitute an "established public trading market". The quotations represent inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.


 

Fiscal 2009 Bid Prices

 

Fiscal 2008 Bid Prices

 

High

Low

 

High

Low

First Quarter

$0.07

$0.07

 

$0.60

$0.52

Second Quarter

$0.07

$0.07

 

$0.75

$0.35

Third Quarter

$0.06

$0.06

 

$0.75

$0.75

Fourth Quarter

$0.06

$0.06

 

$0.75

$0.11


(B)

Holders


As of September 30, 2009, there were approximately 1,060 record holders of the Company's Class A Common Stock.


(C)

Dividends


There were no cash dividends paid on the Company’s Class A common stock in the last two fiscal years.    No express limits have been set on payment of dividends, other than those imposed by state corporate law statutes.  Delaware corporate law permits payment of dividends only out of surplus, or if there is no surplus, out of net profit from the current fiscal year and the preceding fiscal year.  


(D)

Securities Authorized for Issuance Under Equity Compensation Plan


As of September 30, 2009, there were no securities authorized for issuance under equity compensation plans.  All outstanding stock options had been cancelled by mutual agreement between the option holders and the Company.


(E)

Recent Sales of Unregistered Securities


Recent sales of securities by the Company within the past three years that have been made without registration under the Securities Act of 1933 have been disclosed in previous Form 10-Q or 10-QSB reports or Form 8-K reports.


Item 6.  Selected Financial Data


We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.


Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operation.


Critical Accounting Policies


Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities.  On an on-going basis, the Company evaluates its estimates, including those related to revenue recognition, accounts receivable and allowance for doubtful accounts, deferred tax assets, property and equipment, investments, accrued expenses, contingencies and litigation.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from these sources.  Actual results may differ from these estimates under different assumptions or conditions.


We have identified the policies below as critical to the Company’s business operations and the understanding of the Company’s results of operations.  For a detailed discussion on the application of these and other accounting policies, see Note B in the



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Notes to Consolidated Financial Statements.




13




Revenue Recognition


The Company has four principal categories of revenue: debt portfolio collection revenue, debt portfolio liquidation revenue, consulting fee revenue, and advertising revenue. Portfolio collection revenue is money collected from debtors on the defaulted accounts. Presently this collection is through licensed third party collection agencies that the Company uses to collect portfolios; in the future, once the Company has established its in-house collection capabilities, the Company may make these collection efforts itself, or through a licensed subsidiary or affiliate. The portfolio collection revenues may pertain to portfolios owned by others, in which case the collection function is performed by the Company as a service for the owner of the portfolio in exchange for a portion of the funds collected, or it may relate to the outright collecting of debt portfolios owned by the Company.  


Portfolio liquidation revenue is money the Company receives from reselling a portfolio of debt to another debt buyer. Portfolio liquidation revenue may come from either of two types of transactions: a purchase and almost immediate resale transaction, with no collection activity against account debtors while the Company owns the portfolio, or portfolio liquidation revenue may come from resale of remaining uncollected accounts in a portfolio that the Company has owned and collected for some period of time. For transactions with immediate purchase and resale, the Company reports revenues at the gross amount of the sales contract and the corresponding purchases as cost of sales in accordance with Statement of Financial Concepts #6.


The Company has adopted the cost recovery method of recognizing revenue on the collection of funds on its acquired portfolios. The cost recovery method is appropriate when collections on a particular pool or pools of accounts cannot be reasonably predicted. The Company adopted the cost recovery method due to (1) a lack of operating history, (2) no assurance that the Company will be able to raise the necessary capital to sustain operations, (3) the sole reliance on third party agencies to conduct collection activities, (4) no proven models to (a) reasonably determine the probability of collecting against any of the portfolios acquired to date or, (b) reasonably estimate the amount of funds collected therefrom. Under the cost recovery method, no revenue is recognized until the net acquisition cost of the pool or pools of accounts have been fully collected.  The Company will continue to use the cost recovery method until such time that it considers the collections of its portfolio of pools to be probable and estimable. At that point, and if applicable, the Company will begin to recognize income based on the interest method pursuant to the interest method under the guidance of FASB ASC 310-30,  Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.


Under the guidance of ASC 310-30 (and the amended Practice Bulletin 6), static pools of accounts are established. Pools purchased during a given period are aggregated based on certain common risk criteria. Each static pool is recorded at cost, which includes certain direct costs of acquisition paid to third parties, and is accounted for as a single unit for the recognition of income, principal payments and loss provision. Once a static pool is established, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). SOP 03-3 (and the amended Practice Bulletin 6) requires that the excess of the contractual cash flows over expected cash flows not be recognized as an adjustment of revenue or expense or on the balance sheet. SOP 03-3 initially freezes the internal rate of return, referred to as IRR, estimated when the finance receivables are purchased as the basis for subsequent impairment testing. Significant increases in expected future cash flows may be recognized prospectively through an upward adjustment of the IRR over a portfolio’s remaining life. Any increase to the IRR then becomes the new benchmark for impairment testing. Effective for fiscal years beginning after December 15, 2004 under ASC 310-30 and the amended Practice Bulletin 6, rather than lowering the estimated IRR if the collection estimates are not received, the carrying value of a pool would be written down to maintain the then current IRR. Income on finance receivables is accrued periodically based on each static pool’s effective IRR and shown net of allowance charges on the income statement. Cash flows greater than the interest accrual will reduce the carrying value of the static pool. Likewise, cash flows that are less than the accrual will accrete the carrying balance. The IRR is estimated and periodically recalculated based on the timing and amount of anticipated cash flows using our proprietary collection models. A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received.


The provisions of ASC 310-30 are generally applicable to the acquirers of long term financing instruments such as corporate notes payable, home loans, etc. The Company focuses exclusively on the acquisition of portfolios of small, sub-prime, defaulted consumer debt obligations. It is the Company’s intent to resell the uncollected balances of these portfolios within six to nine months of acquiring them.


Consulting fee revenues are monies that the Company charges for rendering services advising other companies on how to manage their receivables or maximize liquidation of existing portfolios of debt they may own, or how to implement strategies in the debt collection or acquisition business.  These revenues may be charged on a variety of bases, ranging from fixed fees to hourly charges to contingency recovery fees.  The Company recognizes consulting fee revenue upon rendering the consulting services.


Advertising revenues are monies charged for spots on our radio show for advertising.  These spots may be sold to local, regional and/or national and can cover a wide range of categories.  Our contracts with our advertisers will generally provide for a term which extends for less than a one year period.  The Company recognizes advertising revenues as advertisements are broadcast.  




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Portfolio Reserves


The Company acquires portfolios of defaulted consumer debt obligations at a substantial discount to the contractual value of the obligations. The negotiated discount is based on the Company’s determination of the deterioration of the credit quality of the obligations between the time of origination and acquisition by the Company. If the Company determines subsequent to the acquisition of the portfolios that it may be unable to recover its investment in its acquired portfolios, it will establish in the period of determination, a valuation allowance sufficient to provide for the expected losses. The valuation allowance subsequently will be reviewed periodically for changes in the expected losses and adjusted accordingly.  


Income Taxes


Deferred income taxes are determined using the liability method in accordance with FASB ASC 740-10, Accounting for Income Taxes.   Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated 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 temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.


Significant management judgment is required in determining the provision for income taxes and the recoverability of deferred tax assets.  Such determination is based on historical taxable income, with consideration given to estimates of future taxable income and the period over which deferred tax assets will be recoverable.  Due to earnings during the last year and estimated earnings over the next year, the Company expects full realization of net operating loss carryforwards and therefore no valuation allowance has been recorded at September 30, 2009. The Company recorded $217,700 of deferred tax assets in the year ended September 30, 2009.


In accordance with ASC 740-10, the Company classifies interest as a component of income tax expense. The implementation of ASC 740-10 had no impact on the Company’s consolidated financial statements, and no interest and penalties related to uncertain tax positions were accrued for the year ended September 30, 2009.


Foreign Currency Translation


All assets and liabilities in the balance sheet whose functional currency is other than the U.S. dollar are translated at year-end exchange rates.  All revenues and expenses in the statement of operations, are translated at average exchange rates for the year.  Any translation gains and losses are not included in determining net income (loss) but would be shown in accumulated other comprehensive income (loss) within the stockholders’ equity or redeemable preferred stock section of the balance sheet.  The Company did not incur any foreign currency translation gains or losses for the period ended September 30, 2009.  Foreign currency transaction gains and losses are included in determining net income (loss) and were not significant in 2008 or 2009.


Earnings (Loss) Per Common Share


The Company computes earnings per common share in accordance with FASB ASC 260-10, Earnings Per Share. ASC 260-10 provides for the calculation of basic and diluted earnings per share.  Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company.


Accounts Receivable


The Company performs periodic credit evaluations of its clients’ financial condition and extends credit to virtually all of its clients on an uncollateralized basis.  Credit losses to date have been insignificant and within management’s expectations.  Management will establish a bad debt reserve to cover management’s estimate of uncollectible accounts.  In the event of complete non-performance by the Company’s clients, the maximum exposure to the Company is the outstanding accounts receivable balance at the date of non-performance.


PLAN OF OPERATION FOR NEXT 12 MONTHS


Cash Requirements


Currently, the Company has entered into forward flow transactions that allow the Company to fund its day-to-day cash requirements without the need for borrowing or additional cash infusion.  In addition, the Company has received a cash infusion of $300,000 for purposes of acquiring an existing collection agency or building a call center, described in Part II Item 2 below.  


Expected Purchase of Assets or Equipment


Until the Company acquires or builds a debt collection call center, it does not expect major purchases of assets or equipment.  Once a debt collection call center is being acquired or developed, the Company would be acquiring computer servers,



15




workstations, telephone equipment, debt collection and management software and security equipment, as well as office facilities for the collectors.  The expected cost for the equipment is undetermined at this time, but would likely be several thousand dollars.


Product Development


The business of the Company does not require extensive product development or software development, and the Company does not anticipate large commitments of time, money or personnel towards such development during the next twelve months.


Changes in Number of Employees


The debt trading business can be increased significantly without corresponding increases in the number of employees.  Employee increases can be modest, with certain administrative and sales personnel being the likely additions.  Once a debt collection facility is added, the number of employees may change dramatically, and the number of employees is quite scalable in proportion to the volume of accounts being collected.  Collectors are typically paid on a contingent fee basis and increased on an as needed basis as new portfolios are added.


RESULTS OF OPERATIONS

A.

Revenues


Revenues for the year ended September 30, 2009 were $14,588,492.  This revenue was generated from the sale of portfolios purchased for resale, collections from portfolios placed with third party agencies for collection and consulting and advisory services.  Cost of revenues for the year ended September 30, 2009, were $13,912,251. The gross profit for the year was $676,241 or 4.64% of revenues.


B.

Operating expenses


Total operating expenses for the fiscal year ended September 30, 2009 were $643,381 or 4.41% of revenues. This balance primarily consists of $338,767 in compensation expenses, $68,724 in legal fees, $39,643 in accounting fees, and $56,036 in travel & entertainment expenses.


C.

Other income (expense)


Interest income for the year ending September 30, 2009 was $83,944.  This balance primarily consists of interest received of $21,070 on the $250,000 promissory note from the Buying Group, and $62,860 of interest accrued on the Goldberg promissory note.  Total interest expense for the year was $35,091 which primarily consists of $23,656 of interest incurred on the $225,000 working capital facility.  


D.

Off-Balance sheet arrangements.


The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, liquidity, capital expenditures or capital resources.


LIQUIDITY AND CAPITAL RESOURCES


On March 24th, the Company entered into two virtually identical $150,000 convertible debenture agreements with two private individuals.  The convertible debentures accrue interest at 5% per annum payable semi-annually on July 1 and December 1 of each year with a maturity date of May 24, 2024.  The holders at any time may convert the principal of the debentures into Class A Common Stock at a rate of 8.587703 shares for each $1.00 of principal converted.  


On May 6, 2008 the Company executed an unsecured line of credit demand note with Global Trek, an affiliate of Anthony J. Renteria, in the amount of $100,000 for working capital purposes.  The outstanding balance owing on this line of credit was $21,177 at September 30, 2009.  The note bears interest of five percent (5%) annually on the outstanding principal balance.  All principal and interest shall be due in full within thirty (30) days after written notice by the noteholder. The note may be paid in whole or in part without penalty or premium.  


On May 6, 2008, the Board authorized the Company to borrow up to $100,000 from Square Rock, an affiliate of Daniel Cofall.  The terms of the line of credit are the same as those with Global Trek.  As of September 30, 2009, there was no balance outstanding, and the entire line of credit was available to the Company.  


The Company has a $100,000 line of credit pursuant to an agreement, which was entered into with Chase Bank, NA on December 1, 2006. The full $100,000 was drawn on November 14, ,  2008, for working capital purposes. The daily outstanding line of credit balance bears interest at the annual rate of prime plus 1%, and interest  is payable monthly. As of September 30, 2009 no payments have been made to reduce the outstanding line of credit.




16




The Goldberg LLC litigation, described in Part I, Item 3 above, has had a significant negative impact on the liquidity of the Company since January 2008.   Although the transaction with Goldberg LLC represented unexpected net cash outflow of over $450,000 that strained Company resources, current operating cash flow has allowed the Company to reduce a significant amount of its outstanding liabilities.  




17




Management believes that the Company’s existing cash, together with anticipated cash flows from operations, borrowings, and sales of the Company’s securities, if necessary, will be sufficient to meet its cash requirements during the next twelve months.  


The foregoing statement regarding the Company’s expectations for continued liquidity is a forward-looking statement, and actual results may differ materially depending on a variety of factors, including variable operating results, difficulty borrowing or selling securities or presently unexpected uses of cash, such as for acquisitions, or to fund losses.


SUBSEQUENT EVENTS


Red Leopard Holdings, PLC (“Red Leopard”), a small UK company listed on the AIM London Stock Exchange, issued certain of its notes (the “Red Leopard Notes”) to the Company in 2006, and the Company has held these notes since their issuance. The Company’s holders of Class B Preferred Stock, Series 2, (the “Series 2 Stock”) have beneficial rights to the Red Leopard Notes. In order to attract much needed capital to Red Leopard, Red Leopard and the holders of a majority of the Series 2 Stock have approached the Company with a proposal to redeem all of the Red Leopard Notes for an amount of common stock of Red Leopard equal to 10% ownership in Red Leopard.


The Board of the Company has approved the redemption of the Red Leopard Notes under a Redemption Agreement negotiated with representatives of Red Leopard and based upon written consents of  the holders of a majority of the Series 2 Stock in favor of such Redemption Agreement.  The Company is awaiting final formal approval and execution from Red Leopard,


Item 8.  Financial Statements


The financial statements are filed as a part of this report:


See the Index to Financial Statements on page F-1 immediately following page 32 of this report. All such financial statements, schedules and supplementary data are incorporated herein by this reference.


Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


NONE


Item 9A.  Controls and Procedures


Evaluation of Disclosure Controls and Procedures


Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”) as of the end of the period covered by this annual report on Form 10-K.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were not effective as of such date, at a reasonable level of assurance, in ensuring that the information required to be disclosed by us in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.


Internal Control Over Financial Reporting


Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the interim or annual Consolidated Financial Statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


NorAm’s management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2009. In making this assessment, management used the criteria established in  Internal Control — Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on this



18




assessment, management concluded that our internal control over financial reporting was effective as of September 30, 2009.




19




This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.


Changes in Internal Controls over Financial Reporting


There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART III


Item 10.  Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(A) of the Exchange Act


Set forth below is information with respect to the directors and executive officers as of September 30, 2009:


NAME

POSITION WITH COMPANY

AGE

Anthony J. Renteria

Director , President and Chief Executive Officer

40

Daniel M. Cofall

Director, Executive Vice President and Chief Financial Officer

54

Daniel Stewart

Director

46


Each of these directors are elected to serve until the next annual meeting of shareholders and until their successors have been elected and qualified.  The board of directors is composed of three persons.  At the present time all three directors positions are filled.


ANTHONY J. RENTERIA was appointed the Chief Executive Officer, President and a Director of the Company in November 2006.  Mr. Renteria is also President and Chief Executive Officer of Global Trek, a partnership he founded in 2004 to provide debt management consulting services to U.S.-based debt buyers.  Prior to joining the Company, he was Executive Vice President and Chief Operating Officer for Forward Properties International, Inc. (“FPII”), a buyer and seller of portfolios of charged-off indebtedness.  While at FPII, Mr. Renteria was responsible for all North American acquisitions for FPII and oversaw the company’s day to day operations.  Mr. Renteria joined FPII in 2004 after spending nearly eleven years within the recovery and loss mitigation departments of the credit card banking industry.  From 2001 to 2004 Mr. Renteria was Recovery Manager for HSBC Bank (formerly known as Household Bank).  Mr. Renteria holds no director positions with other public companies.


DANIEL M. COFALL was appointed the Chief Financial Officer, Executive Vice President and a Director of the Company in November 2006.  Mr. Cofall is also the managing director of Square Rock, a company he founded in 2004 to provide financial advisory services to U.S.-based debt buyers. Prior to joining the Company, Mr. Cofall was the Executive Vice President and Chief Financial Officer for FPII.  In that capacity, Mr. Cofall was responsible for the administration, finance, and operations for all FPII’s activities in North America.  Mr. Cofall joined FPII in 2004.  From 2001 to 2004, Mr. Cofall served as a partner in Opes Partners, a private Dallas-based financial advisory firm.  Mr. Cofall also serves as president of NorAm Media Group, Inc., a wholly owned subsidiary of the Company, and is the host of an afternoon radio talk show called  the “Wall Street Shuffle”, which is broadcast on CNN Radio, KFXR 1190 Dallas, Texas.  Mr. Cofall holds no director positions with other public companies.


DANIEL STEWART was appointed to a Director position of the Company in April 2009.  For the last five years Mr. Stewart, age 46, has been employed by Daniel Frishberg Financial Services, Inc. d/b/a Frishberg & Kaleta, a Registered Investment Advisor and financial investment advisory firm, as its Dallas/Ft.Worth Branch Manager. Mr. Stewart holds no director positions with other public companies.


Audit Committee Financial Expert


The Board of the Company has determined that it does not have at least one audit committee financial expert serving on its audit committee.


Compliance with Section 16(a) of the Exchange Act


Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than ten percent of its Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission (“SEC”) and each exchange on which the Company’s securities are registered.  Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all ownership forms they file.  All such persons informed the Company that no filings were necessary during the year as there were no changes in their holdings.




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Item 11.  Executive Compensation


The following table contains information concerning the annual compensation and long-term compensation payable to named executive officers during each of the last three fiscal years.


Summary Compensation Table

 

Annual Compensation

 

Long term Compensation

Name and Principal Position

Year

Salary

Bonus

Other Annual Compensation

Securities Underlying Options

All Other Compensation

Daniel M Cofall, Chief Financial Officer, Executive Vice President

2009

$105,000

$0

$9,800¹

 

 

 

2008

$165,500

$25,000

$6,300¹

 

 

Anthony J. Renteria, Chief Executive Officer, President

2009

$105,000

$0

$9,800¹

 

 

 

2008

$158,000

$25,000

$6,300¹

 

 


¹Car allowance of $700 per month.


At the present time the Company has, and at all times during the past three fiscal years, the Company had no pension, retirement, annuity, deferred compensation, incentive or stock purchase, thrift or profit-sharing plan.


Item 12.  Security Ownership of Certain Beneficial Owners and Management


(A)

Five percent shareholders. The following table sets forth the persons who, as of December 29, 2009, who were known to the Company to be beneficial owners of more than five percent of each class of the voting securities of the Company:


Class of Securities

Name and Address of Beneficial Owner

Amount and Nature of Beneficial Owner

Percent of Class(1)

Class A Common

Global Trek Property Holdings, L.P.(2)

6675 Gatewick Drive

Frisco, Texas 75035

6,322,145

44.0%

Class A Common

Square Rock Ltd. Pension Plan (3)

2213 High Pointe

Corinth, Texas 76210

6,322,145

44.0%

Class A

Common

Daniel Stewart (4)

3542 Warick

Dallas, Texas 75229

2,576,310

Conversion privilege

15.0%


(1)

The percentage of each class is based on the total amount of outstanding securities plus, as to each person or group, the number of securities that person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.


(2)

Global Trek Property Holdings, L.P. is controlled by Anthony J. Renteria, the president, chief executive officer and a director of the Company.


(3)

Square Rock, Ltd. Pension Plan is an affiliate of Square Rock, Ltd., which is controlled by Daniel Cofall, executive vice president, chief financial officer and director of the Company.


(4)

Daniel Stewart and his father, James R. Stewart, each have the right to convert Company’s debentures they own into approximately 1,288,155 shares of Class A Common stock of the Company.




21




(B)

Security ownership of management.  The following table sets forth each class of equity securities owned by the executive officers and directors of the Company as of December 29, 2009, individually and as a group.


Class of securities

Name and address of beneficial owner

Amount and nature of beneficial owner

Percent of class(1)

Class A Common

Global Trek Property Holdings, L.P.(2)

6675 Gatewick Drive

Frisco, Texas 75035

6,322,145

44.0%

Class A Common

Square Rock Ltd. Pension Plan (3

2213 High Pointe

Corinth, Texas 76210

6,322,145

44.0%

Class A Common

Daniel Stewart (4)

3542 Warick

Dallas, Texas 75229

2,576,310

Conversion privilege

15.0%

Class A Common

All Executive Officers and Directors as a group

15,220,600

88.6%


(1)

The percentage of each class is based on the total amount of outstanding securities plus, as to each person or group, the number of securities that person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.


(2)

Global Trek Property Holdings, L.P. is controlled by Anthony J. Renteria, the president, chief executive officer and a director of the Company.


(3)

Square Rock, Ltd. Pension Plan is an affiliate of Square Rock, Ltd., which is controlled by Daniel Cofall, executive vice president, chief financial officer and director of the Company.


(4)

Daniel Stewart and his father, James R. Stewart, each have the right to convert Company’s debentures they own into approximately 1,288,155 shares of Class A Common stock of the Company.


Item 13.  Certain Relationships and Related Transactions


Certain transactions involving related parties in the last two years are described in Item 1 of this report.


Other revenue for the year ending September 30, 2008 represents consulting fees passed through to the Corporation by Dan Cofall, Executive Vice-President and CFO for his services to Biz Radio as an on air personality providing economic and financial analysis of the markets and news items.  This agreement was canceled on August 15 th  2008 and all monies owed to the Company have been received.


On May 6, 2008 the Company executed an unsecured line of credit demand note with Global Trek., an affiliate of Anthony J. Renteria, in the amount of $100,000 for working capital purposes, of which $90,000 was advanced by Global Trek to the Company.  The note bears interest at an annual rate of interest of 5% on the outstanding principal balance. All principal and interest shall be due in full within thirty (30) days written notice by the noteholder. The note may be paid in whole or in part without penalty or premium.


Similarly, on May 6, 2008, the Board authorized the Company to borrow up to $100,000 from Square Rock, an affiliate of Daniel Cofall, on a line of credit demand note bearing 5% interest, of which $11,000 has been advanced to the Company for working capital purposes.   All principal and interest shall be due in full within thirty (30) days written notice by the noteholder. The note may be paid in whole or in part without penalty or premium.


Item 14.  Principal Accountants’ Fees and Services


The following table discloses accounting fees and services that were billed by the Company’s independent registered public accounting firms, which for the year ending September 30, 2008 and for the year ending September 30, 2009 was Lightfoot Guest Moore & Co., PC:


Type of Services Rendered

2009 Fiscal Year

2008 Fiscal Year

(a) Audit Fees

$24,750

$20,000

(b) Audit related Fees

$13,164

$14,000

(c) Tax Fees

$0

$0

(d) All Other Fees

$0

$0


Before an accountant is engaged by the Company to render audit or non-audit services, the audit committee of the Company approves the engagement.  The audit committee does not have a pre-approval procedure for engaging auditors.  



22







23




PART IV


Item 15.  Exhibits


(b.)

Exhibits -


The following exhibits, as required by Item 601 of Regulation S-K, are attached hereto or incorporated herein by this reference:


(3)

Charter and bylaws:


(a)

Restated Certificate of Incorporation as last amended, effective as of March 31, 2000, a copy of which was filed with the Company's Form 14-C report February 14, 2000.


(b)

Certificate of Amendment of Restated Certificate of Incorporation, effective as of October 23, 2000, a copy of which was filed with the Company’s 14-C report on October 3, 2000.


(c)

Bylaws as amended July 19, 2000 and filed with the Form 10-Q report for the quarter ended June 30, 2000


(4)

Instruments defining rights of security holders:  


(a)

Certificate of Designations, Preferences and Rights of Class B Redeemable Preferred Stock Series 1, as filed with the Delaware Secretary of State on October 9, 2001.


b)

Certificate of Designations, Preferences and Rights of Class B Redeemable Preferred Stock Series 2, as filed with the Delaware Secretary of State on October 18, 2006.


(10)

Material Contracts:


(a)

Preferred Stock Purchase and Release of Debt Agreement between the Company and Businesship International, Inc. dated September 1, 1996, a copy of which was attached to the Company’s Form 10-K for the fiscal year ended September 30, 1996.


(b)

Stock Acquisition and Option Agreement between the Company and Merchant Capital Holdings, Ltd., dated November 23, 1999.


(c)

Employment Agreements (2) between the Company and Messrs. Marks and Barham dated November 23, 1999.


(d)

Shareholders’ Agreement dated November 23, 1999 by and among the Company, Merchant Capital Holdings, Ltd., Messrs. Marks and Barham, Barham Family Interests, Inc., and Marks & Associates, Inc.


(e)

Agreement between the Company and London & Boston Investments dated October 8, 2001 regarding sale and repurchase of ET Stock


(f)

Loan Agreement between the Company and Netcentric dated November 7, 2001


(g)

Hotel Acquisition Agreement between the Company and Galway Financial Group, Inc. dated December 10, 2001.


(h)

Loan Agreement between the Company and London & Boston Investments dated April 2002.


(i)

Termination Agreement between Galway Financial Group, Inc.  dated  August 22, 2002.


(j)

Loan Agreement between the Company and Merchant House Group dated December 20, 2002.


(k)

Hotel Acquisition and Services Agreement between the Company and Northshore Capital, Ltd.  dated as of May 1, 2003.


(l)

Hotel Acquisition and Services Agreement between the Company and RP Corporate Strategies, Ltd.  dated as of July 1, 2003.


(m)

Hotel Acquisition and Services Agreement between the Company and Apsley Estates, Ltd.  dated as of July 1, 2003



24





(n)

Settlement Agreements between the Company and certain officers and directors of the Company dated as of September 29, 2003.

(o)

Loan Agreement between the Company and Michael Connell dated November 24, 2003.


(p)

Directors Loan Agreements dated June 2004.


(q)

Directors Loan Agreements dated December 2004.


(r)

Share Purchase Agreement between RLH and the Company dated March 25, 2005.


(s)

Compromise and Settlement Agreement and Stock Purchase and Option Cancellation Agreement between the Company and Norman Marks regarding his resignation and separation from the Company April 1, 2005.


(t)

Agreement between RPC and the Company of April 1, 2005.


(u)

Stock Purchase Agreement by and between the Company and the Buying Group dated August 28, 2006.


(v)

Promissory Note in the amount of $250,000 made by the Buying Group payable to the Company dated as of September 29, 2006.


(w)

Security Agreement between the Buying Group and the Company dated September 29, 2006.


(x)

Bill of Sale and Assignment made by the Company as assignor dated September 29, 2006.


(y)

Release of Claims and Assumption of Liabilities by and between the Buying Group and the Company dated September 29, 2006.


(z)

Closing Agreement by and between the Company, HMG, and joined in by Paul Barham individually, dated September 29, 2006.


(aa)

Stock Acquisition Agreement by and among the Company, Global Trek and Square Rock dated September 29, 2006.


(ab)

Capital Commitment made by Global Trek and Square Rock dated November 2, 2006.


(14)

Code of Ethics


(31)

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


(32)

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(99)

Audit Committee Charter





25




SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

 

NORAM CAPITAL HOLDINGS, INC.

 

 

 

 

 

By: /s/ Anthony J. Renteria

 

 

Anthony J. Renteria

Date:   May 28, 2010

 

Chief Executive Officer and Director



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons comprising the majority of the current Directors on behalf of the registrant and in the capacities and on the dates indicated.


/s/ Daniel M. Cofall

 

Date:   May 28, 2010

Daniel M. Cofall

 

Date

Director

 

 

 

 

 

/s/ Anthony J. Renteria

 

Date:   May 28, 2010

Anthony J. Renteria

 

Date

Director and Chief Executive Officer

 

 

 

 

 




26




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




The Board of Directors and Stockholders

NorAm Capital Holdings, Inc. and Subsidiary

Dallas, Texas



We have audited the accompanying consolidated balance sheets of NorAm Capital Holdings, Inc. and Subsidiary as of September 30, 2009 and 2008, and the related consolidated statements of operations, redeemable preferred stock and stockholders’ equity (deficit), and cash flows for the years ended September 30, 2009 and 2008.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NorAm Capital Holdings, Inc. and Subsidiary as of September 30, 2009 and 2008 and the results of its operations and its cash flows for the years ended September 30, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.



/s/ Lightfoot Guest Moore & Co., PC


Dallas, Texas

December 29, 2009





F-1




NORAM CAPITAL HOLDINGS, INC. & SUBSIDIARY

 

CONSOLIDATED BALANCE SHEET

 

 

 

 

September 30,

 

2009

 

2008

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

390,337 

 

$

25,317 

Accounts receivable

 

30,912 

 

 

1,011 

Prepaid expenses

 

16,967 

 

 

Interest receivable

 

91,707 

 

 

49,199 

Note receivable – current portion

 

20,714 

 

 

23,175 

Debt portfolios held for resale

 

2,383 

 

 

36,488 

Deferred tax asset – current portion

 

21,470 

 

 

Goldberg receivable (net of allowance  of $79,532)

 

387,765 

 

 

387,765 

Total current assets

 

962,255 

 

 

522,955 

Notes receivable

 

849,834 

 

 

965,591 

Property and equipment (net of accumulated depreciation of $33,164)

 

79,872 

 

 

22,144 

Deferred tax asset – long term

 

170,000 

 

 

Total assets

$

2,061,961 

 

$

1,510,690 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE PREFERRED STOCK & STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

290,869 

 

$

195,408 

Accrued liabilities

 

10,106 

 

 

86,267 

Short-term notes payable and current portion of long-term notes payable

 

121,189 

 

 

18,827 

Loans from shareholders

 

50,400 

 

 

81,732 

Total current liabilities

 

472,564 

 

 

382,234 

Long-term liabilities:

 

 

 

 

 

Accrued undeclared redeemable preferred series B dividend

 

34,979 

 

 

34,979 

Long-term notes payable

 

170,246 

 

 

187,444 

Convertible debentures

 

300,000 

 

 

Total long-term liabilities

 

505,225 

 

 

222,423 

Total liabilities

 

977,789 

 

 

604,657 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Redeemable preferred stock:

 

 

 

 

 

Class B, $0.01 par, 1,500,000 shares authorized, 1,404,920 shares issued and outstanding, £0.26 per share voluntary liquidation preference ($0.48 per share @ September 30, 2009)

 

671,716 

 

 

766,760 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock:

 

 

 

 

 

Class A, $1.00 par, 1,000,000 shares authorized, 243,331 shares issued and outstanding, $1.00 per share involuntary liquidation preference

 

243,331 

 

 

243,331 

Common stock:

 

 

 

 

 

Class A, $0.002 par value, 100,000,000 shares authorized, 14,599,101 shares issued and outstanding

 

29,199 

 

 

29,199 

Additional paid-in capital

 

3,177,417 

 

 

3,177,417 

Accumulated deficit

 

(3,037,491)

 

 

(3,310,674)

Total stockholders’ equity

 

412,456 

 

 

139,273 

 Total liabilities, redeemable preferred stock & stockholders’ equity

$

2,061,961 

 

$

1,510,690 


See accompanying notes to consolidated financial statements.



F-2




NORAM CAPITAL HOLDINGS, INC. & SUBSIDIARY

 

 

 

 

 

STATEMENTS OF CONSOLIDATED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended

September 30,

  

2009

 

2008

Revenue:  

 

 

 

 

 

Debt portfolio liquidation revenue

$

13,889,091 

 

$

2,354,228 

Commission revenue

 

645,638 

 

 

249,000 

Debt portfolio collection revenue

 

13,128 

 

 

94,785 

Other revenue

 

40,635 

 

 

Total revenue

 

14,588,492 

 

 

2,698,013 

 

 

 

 

 

 

Cost of services:  

 

 

 

 

 

Liquidated pool recovery

 

13,899,861 

 

 

1,817,122 

Finance receivables recovery

 

4,159 

 

 

146,622 

Collection fees

 

3,282 

 

 

29,997 

Commissions

 

4,949 

 

 

15,641 

Total cost of services

 

13,912,251 

 

 

2,009,382 

Gross profit

 

676,241 

 

 

688,631 

 

 

 

 

 

 

Operating expenses:  

 

 

 

 

 

Compensation expense

 

338,767 

 

 

462,440 

Legal and professional fees

 

117,058 

 

 

175,154 

Other operating expenses

 

187,556 

 

 

236,838 

Total expenses

 

643,381 

 

 

874,432 

Operating income (loss)

 

32,860 

 

 

(185,801)

 

 

 

 

 

 

Other income (expense):  

 

 

 

 

 

Interest expense

 

(35,091)

 

 

(27,805)

Interest income

 

83,944 

 

 

77,781 

Total other income (expense)

 

48,853 

 

 

49,976 

Income (loss) before provision (benefit) for income taxes

 

81,713 

 

 

(135,825)

Provision for deferred tax benefit

 

217,700 

 

 

 

Provision for current income taxes

 

(26,230)

 

 

 

Net income (loss)

$

273,183 

 

$

(135,825)

 

 

 

 

 

 

Net income (loss) attributable to common stockholders – basic

$

0.01 

 

$

(0.01)

Net income (loss) attributable to common stockholders– diluted

$

0.01 

 

$

(0.01)

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

Basic

 

14,599,101 

 

 

14,539,923 

Diluted

 

15,940,194 

 

 

14,539,923 


See accompanying notes to consolidated financial statements.



F-3




NORAM CAPITAL HOLDINGS, INC. & SUBSIDIARY

STATEMENTS OF CONSOLIDATED REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

For the Years Ended September 30, 2009 and 2008

 

 

 

Redeemable

Preferred

Stock – Class

A

 

Preferred

Stock –

Class A

 

Common

Stock class–

A Shares

 

Common Stock

class-A

Amount

 

Additional

Paid-In

Capital

 

Accumulated

Deficit

 

Total

Stockholders’

Equity

(Deficit)

Balance at September 30, 2007

$

863,871 

 

$

243,331 

 

14,399,070 

 

$

28,799 

 

$

3,157,017 

 

$

(3,174,849)

 

$

254,298 

Net loss attributable to common stockholders  

 

 

 

 

 

 

 

 

 

 

(135,825)

 

 

(135,825)

Foreign currency adjustments

 

(97,111)

 

 

 

 

 

 

 

 

 

 

 

Fractional share correction

 

 

 

 

31 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

 

 

200,000 

 

 

400 

 

 

20,400 

 

 

 

 

20,800 

Balance at September 30, 2008

$

766,760 

 

$

243,331 

 

14,599,101 

 

$

29,199 

 

$

3,177,417 

 

$

(3,310,674)

 

$

139,273 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders  

 

 

 

 

 

 

 

 

 

 

273,183 

 

 

273,183 

Foreign currency adjustments

 

(95,044)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2009

$

671,716 

 

$

243,331 

 

14,599,101 

 

$

29,199 

 

$

3,177,417 

 

$

(3,074,457)

 

$

412,456 


See accompanying notes to consolidated financial statements.



F-4




NORAM CAPITAL HOLDINGS, INC. & SUBSIDIARY

STATEMENTS OF CONSOLIDATED CASH FLOWS

 

 

 

 

 

 

 

For the years ended

September 30,

 

2009

 

2008

Cash Flow from Operating Activities:

 

 

 

 

 

Net loss

$

273,183 

 

$

(135,825)

Adjustments to reconcile net income (loss) from net cash used by operating activities:

 

 

 

 

 

   Depreciation

 

17,604 

 

 

12,569 

   Issuance of common stock for services

 

 

 

20,800 

   Provision for debt portfolio collection

 

4,159 

 

 

45,209 

   Allowance for debt recovery

 

 

 

79,532 

Changes in assets and liabilities:

 

 

 

 

 

   Accounts receivable

 

(4,902)

 

 

24,190 

   Other receivables

 

 

 

12,688 

   Finance receivables purchased

 

(13,899,861)

 

 

(2,088,704)

   Proceeds from collections and sales of finance receivables

 

13,874,862 

 

 

2,115,449 

   Debt portfolios held for resale

 

29,947 

 

 

(81,697)

   Deferred income taxes

 

(191,470)

 

 

   Interest receivable

 

(42,508)

 

 

(49,199)

   Prepaid expenses

 

(16,967)

 

 

714 

   Accounts payable and accrued liabilities

 

19,300 

 

 

(62,219)

   Net cash used by operating activities

 

63,346 

 

 

(106,493)

 

 

 

 

 

 

Investing activities:  

 

 

 

 

 

   Issuance of note receivable Goldberg

 

 

 

(467,297)

   Collections on notes receivable

 

23,174 

 

 

12,592 

   Purchase of property and equipment

 

(75,332)

 

 

   Net cash (used)/provided by investing activities

 

(52,158)

 

 

(454,705)

 

 

 

 

 

 

Financing activities:  

 

 

 

 

 

   Proceeds from notes payable – related parties

 

42,423 

 

 

81,732 

   Payment on notes payable - related parties

 

(73,756)

 

 

   Proceeds from line-of-credit

 

190,344 

 

 

   Payment on line-of-credit

 

(90,344)

 

 

   Payment on notes payable

 

(14,835)

 

 

(10,029)

   Proceeds from sale of convertible debentures

 

300,000 

 

 

   Collection on series B preferred stock

 

 

 

25,008 

   Net cash provided by financing activities

 

353,832 

 

 

96,711 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

365,020 

 

 

(464,487)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

25,317 

 

 

489,804 

Cash and cash equivalents at end of period

$

390,337 

 

$

25,317 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Interest paid

$

35,091 

 

$

27,805 

Taxes paid

$

 

$


See accompanying notes to consolidated financial statements.





F-5



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.       Nature of Business


NorAm Capital Holdings, Inc. (“the Company” or “NorAm”) is a Delaware corporation.  The Company was formerly known as the Harrell Hospitality Group, Inc. (“HHG”), and was originally incorporated in 1959 in the state of Massachusetts under the name of Formula 409, Inc.  HHG was primarily involved in the management and development of hotels, mainly in the states of California and Texas, and the United Kingdom. The Company sold all hospitality assets on September 29, 2006.  On January 5, 2007, the name of the Company changed to NorAm Capital Holdings, Inc.  The name changed to help distinguish the business from its previous course of business in the hospitality industry.


The Company commenced operations in January, 2007.  New controlling shareholders of the Company, Global Trek Property Holdings, L.P. (“Global Trek”) and Square Rock, Ltd. Pension Plan (“Square Rock”) (together, Global Trek and Square Rock, the “New Investors”) changed the focus of the Company and instituted new operations in financial receivables management and debt collection.  These types of services are expected to be rendered for credit issuers or other holders of debt portfolios.  In addition, the Company is engaging in the purchase and resale of portfolios of debt and may engage in the collection of debt portfolios for its own account.


On June 29, 2009 the Company formed NorAm Media Group, Inc. (“NMG”), a Texas corporation and wholly owned subsidiary of the Company. NMG plans to be involved in radio, television, internet and other broadcast media, with an emphasis on financial news and entertainment.


B.       Summary of Significant Accounting Policies


A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:


Basis of Accounting


The accompanying consolidated financial statements, except the financial statements for the year ended September 30, 2008, include the accounts of NorAm and its wholly owned subsidiary, NorAm Media Group, Inc.  (collectively, the “Company”) and have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.  All significant intercompany transactions and balances have been eliminated in the consolidation.


Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates and assumptions.


Reclassifications


Certain reclassifications have been made to the Company’s consolidated financial statements for fiscal 2008 to conform to the fiscal 2009 presentation.


Cash and Cash Equivalents


The Company considers all highly-liquid investments with a maturity of three months or less when purchased to be cash equivalents.  At September 30, 2009 and 2008, the Company had no such investments included in cash and cash equivalents.


The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.  Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company has not experienced any losses in such accounts.


Accounts Receivable


The Company performs periodic credit evaluations of its customers' financial condition and extends credit to virtually all of its customers on an uncollateralized basis.  Credit losses to date have been within management's expectations.  Management will establish an allowance for bad debts to cover management's estimate of uncollectible accounts.  In the event of complete non-performance by the Company's customers, the maximum exposure to the Company is the outstanding accounts receivable balance at the date of non-performance.




F-6



Property and Equipment


Property and equipment are stated at cost.  Depreciation is computed on the straight-line method over the estimated lives of the assets.  Expenditures for major renewals and betterments that extend the useful lives are capitalized.  Expenditures for normal maintenance and repairs are expensed as incurred.  The cost of assets sold or abandoned and the related accumulated depreciation were eliminated from the accounts and any gains or losses were charged or credited to other income (expense) of the respective period. Estimated useful lives for property and equipment were as follows:


Computer software

3 years

Computer equipment

3 years

Furniture & Fixtures

5 years


Property and equipment consisted of computers and computer software aggregating $42,138, and furniture & fixtures aggregating $70,897 at September 30, 2009.


Revenue Recognition


The Company has four principal categories of revenue:  debt portfolio collection revenue, debt portfolio liquidation revenue, consulting fee revenue, and advertising revenue.  Portfolio collection revenue is money collected from debtors on the defaulted accounts.  Presently this collection is through licensed third party collection agencies that the Company uses to collect portfolios; in the future, once the Company has established its in-house collection capabilities, the Company may make these collection efforts itself, or through a licensed subsidiary or affiliate. The portfolio collection revenues may pertain to portfolios owned by others, in which case the collection function is performed by the Company as a service for the owner of the portfolio in exchange for a portion of the funds collected, or it may relate to the outright collecting of debt portfolios owned by the Company.  


Portfolio liquidation revenue is money the Company receives from reselling a portfolio of debt to another debt buyer.  Portfolio liquidation revenue may come from either of two types of transactions: a purchase and almost immediate resale transaction, with no collection activity against account debtors while the Company owns the portfolio, or portfolio liquidation revenue may come from resale of remaining uncollected accounts in a portfolio that the Company has owned and collected for some period of time. For transactions with immediate purchase and resale, the Company reports revenues at the gross amount of the sales contract and the corresponding purchases as cost of sales in accordance with Statement of Financial Concepts #6.


The Company has adopted the cost recovery method of recognizing revenue on the collection of funds on its acquired portfolios. The cost recovery method is appropriate when collections on a particular pool or pools of accounts cannot be reasonably predicted. The Company adopted the cost recovery method due to (1) a lack of operating history, (2) no assurance that the Company will be able to raise the necessary capital to sustain operations, (3) the sole reliance on third party agencies to conduct collection activities, (4) no proven models to (a) reasonably determine the probability of collecting against any of the portfolios acquired to date or, (b) reasonably estimate the amount of funds collected therefrom. Under the cost recovery method, no revenue is recognized until the net acquisition cost of the pool or pools of accounts have been fully collected.  The Company will continue to use the cost recovery method until such time that it considers the collections of its portfolio of pools to be probable and estimable. At that point, and if applicable, the Company will begin to recognize income based on the interest method pursuant to the interest method under the guidance of FASB ASC 310-30,  Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.   Interest income is discontinued when management determines future collection is unlikely.  Loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.


Under the guidance of ASC 310-30, static pools of accounts are established.  Pools purchased during a given period are aggregated based on certain common risk criteria. Each static pool is recorded at cost, which includes certain direct costs of acquisition paid to third parties, and is accounted for as a single unit for the recognition of income, principal payments and loss provision. Once a static pool is established, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). ASC 310-30 (and the amended Practice Bulletin 6) requires that the excess of the contractual cash flows over expected cash flows not be recognized as an adjustment of revenue or expense or on the balance sheet. ASC 310-30 initially freezes the internal rate of return, referred to as IRR, estimated when the finance receivables are purchased as the basis for subsequent impairment testing. Significant increases in expected future cash flows may be recognized prospectively through an upward adjustment of the IRR over a portfolio’s remaining life. Any increase to the IRR then becomes the new benchmark for impairment testing. Effective for fiscal years beginning after December 15, 2004 under ASC 310-30 rather than lowering the estimated IRR if the collection estimates are not received, the carrying value of a pool would be written down to maintain the then current IRR.  Income on finance receivables is accrued periodically based on each static pool’s effective IRR and shown net of allowance charges on the income statement. Cash flows greater than the interest accrual will reduce the carrying value of the static pool. Likewise, cash flows that are less than the accrual will accrete the carrying balance. The IRR is estimated and periodically recalculated based on the timing and amount of anticipated cash flows using our proprietary collection models. A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received.




F-7



The provisions of ASC 310-30 are generally applicable to the acquirers of long term financing instruments such as corporate notes payable, home loans, etc. The Company focuses exclusively on the acquisition of portfolios of small, sub-prime, defaulted consumer debt obligations. It is the Company’s intent to resell the uncollected balances of these portfolios within six to nine months of acquiring them.


Consulting fee revenues are monies that the Company charges for rendering services advising other companies on how to manage their receivables or maximize liquidation of existing portfolios of debt they may own, or how to implement strategies in the debt collection or acquisition business.  These revenues may be charged on a variety of bases, ranging from fixed fees to hourly charges to contingency recovery fees.  The Company recognizes consulting fee revenue upon rendering the consulting services.


Advertising revenues are monies charged for spots on our radio show for advertising.  These spots may be sold to local, regional and/or national and can cover a wide range of categories.  Our contracts with our advertisers will generally provide for a term which extends for less than a one year period.  The Company recognizes advertising revenues as advertisements are broadcast.  


Debt Portfolio Reserves


The Company acquires portfolios of defaulted consumer debt obligations at a substantial discount to the contractual value of the obligations. The negotiated discount is based on the Company’s determination of the deterioration of the credit quality of the obligations between the time of origination and acquisition by the Company.  If the Company determines subsequent to the acquisition of the portfolios that it may be unable to recover its investment in its acquired portfolios, it will establish in the period of determination, a valuation allowance sufficient to provide for the expected losses.  The valuation allowance subsequently will be reviewed periodically for changes in the expected losses and adjusted accordingly.  


Income Taxes


Deferred income taxes are determined using the liability method in accordance with FASB ASC 740-10, Accounting for Income Taxes.   Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated 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 temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.


Significant management judgment is required in determining the provision for income taxes and the recoverability of deferred tax assets.  Such determination is based on historical taxable income, with consideration given to estimates of future taxable income and the period over which deferred tax assets will be recoverable.  Due to earnings during the last year and estimated earnings over the next year, the Company expects full realization of net operating loss carryforwards and therefore no valuation allowance has been recorded at September 30, 2009. The Company recorded $217,700 of deferred tax assets in the year ended September 30, 2009.


In accordance with ASC 740-10, the Company classifies interest as a component of income tax expense.  The implementation of ASC 740-10 had no impact on the Company’s consolidated financial statements, and no interest and penalties related to uncertain tax positions were accrued for the year ended September 30, 2009.


Foreign Currency Translation


All assets and liabilities in the balance sheet whose functional currency is other than the U.S. dollar are translated at year-end exchange rates. All revenues and expenses in the statement of operations are translated at average exchange rates for the year.  Any translation gains or losses are not included in determining net income (loss) but would be shown in accumulated other comprehensive income (loss) within the stockholders' equity or redeemable preferred stock section of the balance sheet.  The Company did not incur any translation gains or losses for the periods ended September 30, 2009 or 2008.  Foreign currency transaction gains and losses are included in determining net income (loss) and were not significant in 2009 or 2008.


Earnings (Loss) Per Common Share


The Company computes earnings per common share in accordance with FASB ASC 260-10, Earnings Per Share. ASC 260-10 provides for the calculation of basic and diluted earnings per share.  Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company.




F-8



Fair Value of Financial Instruments


In accordance with the reporting requirements of FASB ASC 825-10, Disclosures About Fair Value of Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this statement and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments.  The estimated fair value of cash equivalents, accounts payable and accrued liabilities approximates their carrying amounts due to the relatively short maturity of these instruments.  The carrying value of notes receivable also approximates fair value since they bear market rates of interest.  None of these instruments are held for trading purposes.


C.       Notes Receivable


The Company has three notes receivable as of September 30, 2009.


One is a promissory note in the amount of $250,000 from a purchasing group made up of Paul Barham, Clive Russell, Geoffrey Dart, and Apsley Estates, Ltd. (collectively, the “Buying Group”) that purchased the Company’s subsidiaries, including Hotel Management Group, Inc. (“HMG”) and other hospitality assets, on September 29, 2006. The makers of the note are Paul Barham, Clive Russell, Geoffrey Dart and Apsley Estates, who are held jointly and severally liable.  The note is collateralized by the shares of HMG. The note bears interest at 10% per annum and is amortized quarterly with the final payment being due September 30, 2016.  This note is pledged by the Company as collateral to secure the Company’s obligations on three notes payable by the Company that total $225,000. The note balance at September 30, 2009 is $198,831.


The second is a loan note due from Red Leopard Holdings, plc (“RLH”), received by the Company as the final consideration for the sale of HHE.  The loan note is valued at £421,874, or $671,716 at September 30, 2009. The note bears interest at 3% per annum payable annually which began on March 31, 2007, on the outstanding principal balance. Any interest or principal proceeds received under this loan agreement are effectively dividend obligations of the Class B Redeemable Preferred shares and are payable when declared but generally not later than the full liquidation of the RLH note.  The note, due in full on March 31, 2015, is convertible into RLH common stock at the mid-market price on the day of conversion at the option of RLH. The Company considers its position to be similar to that of a fiduciary and, as such, will not recognize income from the interest proceeds. See Subsequent Event note.


The final is a promissory note in the amount of $439,000 from Goldberg & Associates, LLC and Steven Goldberg individually.  The note bears interest at 18% per annum, accruing from February 5 th , 2008 on the outstanding principal balance, and a mortgage has been signed by Goldberg & Associates, LLC with respect to certain real estate in Boca Raton, Florida to secure the note.  The note has matured and remains unpaid.  The note is currently in default status and due to the cost of recovering the principal of the note, an allowance of $79,532 was created.  In addition, accrued legal expenses of $28,298 have been accrued on the note in accordance with the civil lawsuit filed.  NorAm ceased accruing interest after the third quarter of 2009 due to the pending litigation described in Note L.


D.       Line of Credit


The Company has a $100,000 line of credit pursuant to an agreement, which was entered into with Chase Bank, NA on December 1, 2006. The full $100,000 was drawn on November 14, ,  2008, for working capital purposes.  The daily outstanding line of credit balance bears interest at the annual rate of prime plus 1%, and interest  is payable monthly.  As of September 30, 2009 no payments have been made to reduce the outstanding line of credit.


E.       Notes Payable


At the end of April, 2007 and at the beginning of May, 2007, the Company entered into three virtually identical $75,000 installment loan agreements with three private individuals.  The aggregate loan amount of $225,000 will be used for working capital for the purchase of defaulted debt obligations. These notes bear interest at the annual rate of 12% and are payable in quarterly installments of principal and interest of $3,245 each which began June 30, 2007. The notes are payable in full on June 30, 2010.  These notes are secured by the $250,000 note receivable from the Buying Group and its collateral. The balance of these notes at September 30, 2009 is $191,435.


NOTES PAYABLE – RELATED PARTIES


On May 6, 2008 the Company executed a line of credit demand note with Global Trek., an affiliate of Anthony J. Renteria, in the amount of $100,000 for working capital purposes, of which $90,000 was advanced by Global Trek to the Company during the fiscal year ended September 30, 2008.  The borrowings are evidenced by the promissory notes bearing interest at an annual rate of interest of 5% on the outstanding principal balance. All principal and interest shall be due in full within thirty (30) days written notice by the note holder. The note may be paid in whole or in part without penalty or premium. The principal balance of this note at September 30, 2009 is $21,177.




F-9



Similarly, on May 6, 2008, the Board authorized the Company to borrow up to $100,000 from Square Rock, an affiliate of Daniel Cofall, on a line of credit demand note bearing 5% interest, if such borrowings are necessary for working capital purposes, which aggregated $11,000 during the fiscal year ended September 30, 2008.  As of September 30, 2009 all outstanding principal has been repaid to Square Rock.


CONVERTIBLE DEBENTURE


On March 24th, the Company entered into two virtually identical $150,000 convertible debenture agreements with two private individuals.  The convertible debentures accrue interest at 5% per annum payable semi-annually on July 1 and December 1 of each year with a maturity date of May 24, 2024.  The holders at any time may convert the principal of the debentures into Class A Common Stock at a rate of 8.587703 shares for each $1.00 of principal converted.  


F.       Preferred Stock


Class A preferred stock is non-voting, non-convertible and pays a 10% annual non-cumulative dividend. The Company has the right, but not the obligation, to redeem the shares at any time at par value and the shares have a $1.00 involuntary liquidation preference.


Class B preferred stock is non-voting, redeemable and pays a 3% cumulative dividend.  These shares are uncertificated and have dividend preferences and redemption rights that have the effect of passing certain economic benefits to shareholders that the Company receives from a promissory note in the amount of £421,874 (approximately US$671,716 at September 30, 2009) made by RLH that the Company holds. These were issued through a dividend to all common stockholders on October 20, 2006.  The Company valued these shares based on the value of the note amount on the dividend date of October 20, 2006.  See Subsequent Event note.


H.       Income Taxes


Income tax expense for the years presented differs from the "expected" federal income tax expense computed by applying the U.S. federal statutory rate of 34% to income (loss) before income taxes for the years ended September 30.  The Company has established a valuation allowance to fully reserve the net deferred tax assets due to the uncertainty of the timing and amounts of future taxable income.  As a result of the change in ownership and change in line of business, any net operating loss carryforwards prior to September 30, 2006, are not available to offset future taxable income of the Company.  At September 30, 2009, the Company had an aggregate net operating loss carryforward of approximately $1,865,000 from operations which will begin to expire in 2021.


K.       Related Parties


The Company’s primary management consists of Anthony Renteria, President and CEO, and Daniel Cofall, Executive Vice-President and CFO.  Mr. Renteria owns a controlling interest of Global Trek Property Holdings, LP which owns approximately 45% of the outstanding shares of the Company.  


Mr. Cofall owns a controlling interest of Square Rock Ltd., which is affiliated with Square Rock Pension Plan which owns approximately 45% of the outstanding shares of the Company.


L.       Commitments and Contingencies


Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.


The Company leases certain facilities under operating leases, of which rent expense was approximately $6,500 for the year ended September 30, 2009.




F-10



On August 1, 2009, the Company signed a 66 month noncancelable operating lease to conduct its administrative activities out of commencing December 1, 2009. The lease contains a renewal option for an additional five-year period.  Future minimum rental payments due under the lease are as follows:


Year Ending

September 30,

 

Amount

2010

 

$

21,233

2011

 

 

63,699

2012

 

 

64,532

2013

 

 

66,197

2014

 

 

67,030

Thereafter

 

 

45,797


On January 22, 2008, the Company filed an action in the Circuit Court of the 17th Judicial Circuit for Palm Beach County, Florida, styled NorAm Capital Holdings, Inc., as Plaintiff, against Goldberg & Associates, LLC, a Florida limited liability company (“Goldberg LLC”) and Steven D. Goldberg, individually, as Defendants.


The Company alleges that on December 17, 2007 it entered into a contract with Goldberg LLC to purchase a portfolio of charged off debt from Goldberg LLC for a purchase price of $431,229.00 and wired funds to Goldberg LLC’s account on that date for the purchase.  However, despite representing and warranting to the Company that it owned the portfolio free and clear of all liens and encumbrances, Goldberg LLC did not in fact  own the portfolio of accounts, and apparently fraudulently diverted the Company’s funds for use as part of a purchase of real estate in Boca Raton, Florida.  Subsequent to the filing of the action, upon demand by the Company, Goldberg LLC executed a promissory note to the Company and granted the Company a mortgage lien on its real estate in Florida.


In the action filed, the Company has sought compensatory damages, pre-judgment interest, costs and attorneys fees from the Defendants in connection with its claims for fraud, conversion and breach of contract.  The Company has also sought to impose a constructive trust over the Florida real estate owned by Goldberg LLC and for an equitable lien on the real estate and against Goldberg LLC, and has asked the court for foreclosure of its mortgage on the real estate, along with costs, attorney fees and such other relief as the court may find appropriate.  On December 2, 2008, a Default Judgment in favor of the Company was granted by the court against Goldberg & Associates, LLC.  Steve Goldberg individually, however has defended on the basis of rights he claims under a lease that predates the Company’s mortgage.  Company’s counsel has been engaged in discovery and is still awaiting permission from the Court for foreclosure of the Company’s lien.  If the Court permits foreclosure of the Avatar first lien described below, the Company’s interest in the Florida real estate would be eliminated unless the Company is also successful in actions against Avatar described below.


On September 17, 2008, a complaint was filed by Avatar Income Fund II, LLC (“Avatar”) against Goldberg LLC, the Company and others in the 15 th  Judicial Circuit Court of Palm Beach County Florida.  Avatar alleges that Goldberg LLC defaulted in payment of its mortgage note to Avatar. The purpose of the suit was to seek foreclosure of  the mortgage lien held by Avatar against certain real estate in Boca Raton, Florida owned by Goldberg LLC.  The real estate is same real estate that the Company is asserting its lien upon and seeking foreclosure of in the legal proceeding described  in (1) above. The Company is named in this Avatar proceeding solely because of the Company’s position as lienholder. The Company is contesting Avatar’s foreclosure action, asserting that the Company’s lien is equal or superior to Avatar’s lien by reason of Avatar’s negligence and constructive knowledge of the fraud involved in the purchase by Goldberg & Associates, LLC.  On September 2, 2009, a hearing was held and Avatar was granted Final Summary Judgment by the Court, and a foreclosure of Avatar’s first lien position was scheduled for early October 2009. The Company filed an Emergency Motion to Vacate Final Judgment and Cancel Sale, and Defendant Steve Goldberg individually filed a similar motion to vacate and cancel the sale alleging various acts of consumer fraud against Avatar. The Court granted defendant Goldberg’s motion, and the foreclosure sale has not occurred pending ruling on Goldberg’s claims.


M.       Recent Accounting Pronouncements


During May 2009, the FASB issued Statements of Financial Standards No. 165 (“SFAS No. 165”), “Subsequent Events”.  SFAS No. 165 requires all public entities to evaluate subsequent events through the date that the financial statements are available to be issued and disclose in the notes the date through which the Company has evaluated subsequent events and whether the financial statements were issued or were available to be issued on the disclosed date.  SFAS No. 165 or FASB ASC 855-10 defines two types of subsequent events, as follows:  the first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet and the second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.  SFAS No. 165 or FASB ASC 855-10 is effective for interim and annual periods ending after June 15, 2009.  The Company has evaluated subsequent events through the time of filing these financial statements with the SEC on December 29, 2009.  The adoption did not have a material impact on the Company’s financial statements.




F-11



In June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative nongovernmental U.S. Generally Accepted Accounting Principles (“GAAP”) launched on July 1, 2009. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered non-authoritative.  The Codification is effective for our Company’s annual financial statements ending September 30, 2009.


N.       Subsequent Events


Red Leopard Holdings, PLC (“Red Leopard”), a small UK company listed on the AIM London Stock Exchange, issued certain of its notes (the “Red Leopard Notes”) to the Company in 2006, and the Company has held these notes since their issuance.  The Company’s  holders of Class B Preferred Stock, Series 2, (the “Series 2 Stock”) have beneficial rights to the Red Leopard Notes.  In order to attract much needed capital to Red Leopard, Red Leopard and the holders of a majority of the Series 2 Stock have approached the Company with a proposal to  redeem all of the Red Leopard Notes for an amount of common stock of Red Leopard equal to 10% ownership in Red Leopard.


The Board of the Company has approved the redemption of the Red Leopard Notes under a Redemption Agreement negotiated with representatives of Red Leopard and based upon written consents of  the holders of a majority of the Series 2 Stock in favor of such Redemption Agreement.  The Company is awaiting final formal approval and execution from Red Leopard.





F-12