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IDEA > SEC Filings for IDEA > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for INVENT VENTURES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for INVENT VENTURES, INC.


9-Aug-2013

Quarterly Report


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

Certain statements contained in this report that are not historical fact are "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "believes," "estimates," "projects" or similar expressions are intended to identify these forward-looking statements. These statements are subject to risks and uncertainties beyond our reasonable control that could cause our actual business and results of operations to differ materially from those reflected in our forward-looking statements. The safe harbor provisions provided in the Securities Litigation Reform Act do not apply to forward-looking statements we make in this report. Forward-looking statements are not guarantees of future performance. Factors that may cause actual results to differ materially from those contemplated by our forward-looking statements include the following:

our limited operating history;

our ability to successfully compete with other venture capital companies in obtaining attractive portfolio companies;

the general economy and its impact on our current and any future portfolio companies and the industries in which they operate;

the financial condition and ability of our current and any future portfolio companies to achieve their objectives;

legislative or regulatory changes may adversely affect our business and that of our portfolio companies;

our operating costs may be greater than expected;

we could lose key personnel, or spend a greater amount of resources attracting, retaining and motivating them than we have projected;

our inability to raise additional capital if needed; and

our ability to maintain our qualification as a regulated investment company and as a business development company.

We based our forward-looking statements on our current expectations about future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations actually will be achieved. We are under no duty to update any of the forward-looking statements after the date of this filing to conform those statements to actual results. In evaluating these statements, you should consider various factors, including the Risk Factors set out in Part I, Item 1.A in our Annual Report on Form 10-K for the year ended December 31, 2011.

Company

INVENT Ventures, Inc. ("INVENT"), formerly known as Los Angeles Syndicate of Technology, Inc., is a technology venture fund that creates, builds, and invests in web and mobile technology companies. We develop businesses in the consumer Internet, mobile and biotechnology markets, and own six companies at different stages of development.

We supply our companies with the capital to cultivate their initial product, and provide hands-on support services to reduce startup costs and accelerate time to market. Our services include product development and design, corporate formation and structure, and exposure to additional financing. INVENT also provides office space, financial and accounting resources, marketing and branding, and legal guidance. By offering these services, we enable our network of entrepreneurs to focus on developing their products. We believe that this structure offers the most value for entrepreneurs and the highest return potential to investors, and results in efficiencies in how companies are built and brought to market.

Our mission is to foster technology innovation in Los Angeles by partnering with the most talented entrepreneurs in southern California and providing them with the capital and tools to bring new ideas to market.

INVENT operates as an internally-managed, non-diversified, closed-end investment company that has elected to be treated as a business development company ("BDC") under the Investment Company Act of 1940. From incorporation through December 31, 2010, the Company was taxed as a corporation under Subchapter C of the Internal Revenue Code of 1986, (the "Code"). Effective January 1, 2011, the Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Code (see Note 7).

Our stock is publicly listed on the OTCQB market under the symbol "IDEA".

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, we will evaluate our estimates and judgments, including those related to revenue recognition, valuation of investments in portfolio companies, accrued expenses, financing operations, contingencies and litigation. We will base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We became a non-diversified internally managed, closed-end investment company under the Investment Company Act of 1940, as amended, in November 2009. Accordingly, the most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, such as the investments in portfolio companies. These accounting policies are described at relevant sections in this discussion and analysis and in the "Notes to Financial Statements" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Results of Operations

Comparison of the three months ended June 30, 2013 and 2012

Revenues - The Company received $36,575 in management fee revenues from its controlled portfolio companies in 2013, up 16.1% from $10,500 for the same period in 2012. As the Company's group of portfolio companies expands and matures, the Company expects its management fee income from its portfolio companies will increase. The Company also recorded $2,067 of interest income in the second fiscal quarter of 2013 related to the Company's convertible note holdings in Sanguine.

The following table details expenses for the three months ended June 30, 2013:

Expenses:                                   June 30, 2013       June 30, 2012
Officer and employee compensation                  136,620             136,620
Professional fees                                   75,664              53,352
Director fees                                            -                   -
Rent                                                 3,326               6,767
Office supplies and expenses                         1,438                 593
Other general and administrative expense            42,254               7,548
Interest expense                                    29,460                  39
Total expenses                                     288,762             204,918

Officer and employee compensation in the three months ended June 30, 2013 was flat when compared to the same period in 2012. Professional fees increased by $22,312 or 42% in the three months ended June 30, 2013 when compared to prior year, driven by increases in investor relations costs, the majority of which were non-cash, software service expenses, and audit fees, partially offset by declines non-cash consulting services. Other general and administrative expense increased in the three months ended June 30, 2013, due primarily to an increase in marketing expenses and amortization expense.

The following table details the net realized and unrealized (losses) for the three months ended June 30, 2013 and 2012:

Net realized and unrealized (losses):                         June 30, 2013       June 30, 2012
Net realized loss on investments, net of income taxes of
none                                                                       -                   -
Change in unrealized appreciation (depreciation) of
investments, net of deferred tax of none in 2011 and 2010             (2,334 )           278,982
Net realized and unrealized (losses)                                  (2,334 )           278,982

In the quarter ended June 30, 2013, the Company incurred unrealized depreciation of $2,334, due to an increase in our cost basis in our portfolio, partially offset by repayments of advances to portfolio companies by VIRURL. The fair value at which we carry our portfolio companies except Stocktown (which we carry at cost) did not change in the quarter ended June 30, 2013, however our cost basis increased, thereby reducing the amount of unrealized appreciation we carry on our balance sheet. The increase in cost basis was primarily due to accrued interest in Sanguine and additional investments in LottoPals and Clowd, partially offset by a repayment of a portion of the advances made by INVENT to VIRURL.

This adjustment is reflected in the change in unrealized appreciation (depreciation) of investments on our statement of operations.

More detail surrounding unrealized appreciation of investments is discussed in Note 3.

Comparison of the six months ended June 30, 2013 and 2012

Revenues - The Company received $68,075 in management fee revenues from its controlled portfolio companies in 2013, up $26,075 or 62% from $42,000 for the same period in 2012. As the Company's group of portfolio companies expands and matures, the Company expects its management fee income from its portfolio companies will increase. The Company also recorded $3,763 of interest income in the second fiscal quarter of 2013 related to the Company's convertible note holdings in Sanguine.

The following table details expenses for the three months ended June 30, 2013:

Expenses:                                   June 30, 2013       June 30, 2012
Officer and employee compensation                  273,240             273,240
Professional fees                                  112,478              87,707
Director fees                                            -                   -
Rent                                                 7,095              15,654
Office supplies and expenses                         4,052               5,468
Other general and administrative expense            71,807              27,876
Interest expense                                    88,331                  39
Total expenses                                     557,003             409,984

Officer and employee compensation in the three months ended June 30, 2013 was flat when compared to the same period in 2012. Professional fees increased by $24,771 or 428% in the six months ended June 30, 2013 when compared to prior year, driven by increases in investor relations costs, the majority of which were non-cash, and software service expenses, partially offset by declines non-cash consulting services and legal fees. Other general and administrative expense increased in the six months ended June 30, 2013, due primarily to an increase in marketing expenses and amortization expense, partially offset by a decline in travel and entertainment expenses.

The following table details the net realized and unrealized (losses) for the six months ended June 30, 2013 and 2012:

Net realized and unrealized (losses):                         June 30, 2013       June 30, 2012
Net realized loss on investments, net of income taxes of
none                                                                       -                   -
Change in unrealized appreciation (depreciation) of
investments, net of deferred tax of none in 2011 and 2010            (12,698 )          (991,836 )
Net realized and unrealized (losses)                                 (12,698 )          (991,836 )

In the six months ended June 30, 2013, the Company incurred unrealized depreciation of $12,698, due to an increase in our cost basis in our portfolio. The fair value at which we carry our portfolio companies except Stocktown (which we carry at cost) did not change in the quarter ended June 30, 2013, however our cost basis increased, thereby reducing the amount of unrealized appreciation we carry on our balance sheet. The increase in cost basis was due to increases in our cost basis across each company in our portfolio.

This adjustment is reflected in the change in unrealized appreciation (depreciation) of investments on our statement of operations.

More detail surrounding unrealized appreciation of investments is discussed in Note 3.

Liquidity and Capital Resources

The Company incurred a loss from operations of $395,650 during the six months ended June 30, 2013.

The Company's sources of cash flow have been from the sale of the Company's common stock, management fees from portfolio companies, notes payable, and advances from unaffiliated parties and the CEO. The Company has historically relied on these sources of capital in recent years to sustain its operations. Based on our cash position at June 30, 2013, we need additional capital to continue our operations.

The Company actively monitors its financing needs and intends to seek funds through private placements of common stock to meet its operating expense requirements and to meet the initial funding requirements of its controlled portfolio companies. If the Company is unable to continue to raise sufficient capital to meet its operating needs, doubt exists about the Company's ability to continue as a going concern.

Net Asset Value

As a BDC, certain of our activities and disclosures are made in reference to Net Asset Value ("NAV") which is the value of our portfolio assets less liabilities and preferred stock. This may be viewed, simply and generalized, as the value of our assets available to our common stock holders. As of the date of the financial information in this report, the value of our portfolio of assets including investments and securities in portfolio companies, other assets and cash is $11,004,689 and from this, are subtracted liabilities of $1,050,292. There are no shares of preferred stock outstanding but the rights of preferred stockholders would be included if there were. The resulting NAV at June 30, 2013 is $9,954,397. The Net Asset Value per Share ("NAV/S") is calculated by dividing the NAV by the number of common shares outstanding (36,928,197). The NAV/S is $0.27 at June 30, 2013.

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