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IDEA > SEC Filings for IDEA > Form 10-K on 15-Apr-2014All Recent SEC Filings

Show all filings for INVENT VENTURES, INC.

Form 10-K for INVENT VENTURES, INC.


15-Apr-2014

Annual Report


ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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;

general economic or business conditions may be worse than expected

the performance of our portfolio companies may not achieve projected levels;

legislative or regulatory changes may adversely affect our business;

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; and

our inability to raise additional capital if needed.

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.

MANAGEMENT'S ANALYSIS OF BUSINESS

INVENT Ventures, Inc. ("INVENT") 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".

LIQUIDITY AND CAPITAL RESOURCES AND CAPITAL EXPENDITURES

At December 31, 2013 and 2012, respectively, the Company had current assets of $218,792 and $215,699; current liabilities of $350,718 and $245,408; a working capital deficit of $131,926 and $29,709. The Company incurred a net loss from operations of $958,549 during the year ended December 31, 2013. The Company's only sources of cash flow have been from investments in the Company's common stock, borrowing on the company's line of credit, issuances of convertible notes, management fees, and loans from its CEO.

The financial statements do not include any adjustments that may result from the outcome of these uncertainties.


RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012, 2012 AND 2010


REVENUES


During the years ended December 31, 2012, 2011 and 2010, we had revenues as
follows.


                                   2013                2012               2011

Investment Income:
From controlled investments:
Management fees               $       136,075     $        105,000    $       88,500

Interest                                8,069                  987                 -

Dividends                                   -                    -                 -
   Total revenues                     144,144              105,987            88,500

Revenues in 2013, 2012 and 2011 were primarily derived from management fees from our portfolio companies. We expect that management fees from our portfolio companies will continue to be the primary source of revenues for the Company. During the fiscal year ended December 31, 2013, we also received interest income related to our investment in Sanguine Biosciences, Inc. ("Sanguine"). On January 14, 2013, we converted $101,249 of advances to Sanguine into an $101,249 convertible note carrying an 8% interest rate.

EXPENSES


Our annual expenses have grown from $213,097 in 2011, to $1,190,215 in 2013,
primarily driven by non-cash expenses incurred in 2013 and increased marketing
expenses, and are summarized as follows.


Expenses:                                             2013                 2012              2011
 Officer and employee compensation                 546,480              546,480            38,005
 Professional fees                                 263,621              292,987            50,410
 Director fees                                           -                1,000             3,000
 Rent                                               18,423               29,483            53,117
 Office supplies and expenses                       22,125                9,807            19,115
 Other general and administrative expense          187,239               86,271            49,450
 Interest expense                                  152,327                  193                 -
   Total expenses                                1,190,215              966,221           213,097

Professional fees decreased by $29,366 in 2013 from 2012 due primarily to a decrease in non-cash consulting fees and legal fees, partially offset by an increase in investor and public relations fees. Professional fees increased by $242,577 in 2012 from 2011 due primarily to an increase in non-cash consulting fees. Other contributors to the increase in professional fees in 2012 include increased legal fees, investor and public relations fees and video production expense, partially offset by a decline in accounting fees. Professional fees increased by $24,280 in 2011 from 2010 due to increased consulting fees, partially offset by a decline in audit fees and accounting fees. We expect our cash professional fees to grow as our portfolio expands and our non-cash professional fees to decline as we recognize the prepaid expenses related to the CEO share transfers referenced in Note 6.


Rent expense decreased $11,060 in 2013 compared to 2012, after a decline of $23,634 in 2012. The decrease in 2013 represents the move to our new headquarters in 2013. The decrease in 2012 represents consolidation of INVENT office space after one of our portfolio companies, Sanguine Biosciences, Inc. moved into a new laboratory and out from our Bay Street offices.

Office supplies increased $12,318 in 2013 from 2012 due to continued maturation of our portfolio companies and the move into new office space. After a $17,776 increase in 2011 to facilitate the growth of our portfolio, office supplies and expenses declined $9,308 in 2012 compared to 2011. As our portfolio companies mature and grow their management teams, we may require additional office supplies to support this growth.

Other general and administrative expense has grown each year since 2010. The increase in 2013 is primarily due to increased amortization expense from the acquisition of the GGAA assets in 2012, and an increase in marketing expenses, partially offset by declines in our transfer and registered agent fees.

NET REALIZED AND UNREALIZED GAIN (LOSS)


Net realized and unrealized gain (loss) for the years ended December 31, 2012,
2011 and 2010 is as follows:


 Net realized and unrealized gains
 (losses):                                   2013             2012           2011
 Net realized loss on investments, net of
 income taxes   of none                            -                  -        (393)

 Change in unrealized appreciation
 (depreciation) of investments, net of
 deferred tax of none                      (777,387)        (1,351,847)    2,783,297
      Net realized and unrealized gains
 (losses)                                  (777,387)        (1,351,847)    2,782,904

Realized and unrealized gains and losses are a function of the value of investments, either at the end of the year if still held, or when sold. The $777,387 of unrealized depreciation in 2013 is due to a reduction in our carrying value of Clowd, Inc. ("Clowd"), along with an increase in our cost basis of our portfolio companies which has the effect of reducing our fair market value adjustment, as discussed in more detail below.

In the quarter ended December 31, 2013, the Company recorded a $743,188 reduction in the carrying value of Clowd. This write down was the result of a merger between Clowd and Bar.PM whereby the surviving entity was valued at $1,486,375 in which the Company owned a 50% equity interest.

RECENT ACCOUNTING PRONOUNCEMENTS

There are several new accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company.
Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company's financial position or operating results. See Note 3 to the financial statements.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the period reported. On an ongoing basis, our management evaluates its estimates and assumptions, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in our estimates and assumptions could materially impact our results of operations and financial condition.

The SEC issued Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure about Critical Accounting Policies" ("FRR 60"), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition our most critical accounting policy is the valuation of our investments. The methods, estimates and judgments we use in applying this accounting policy has a significant impact on the results we report in our financial statements.


As a BDC, we are regulated by the 1940 Act. Section 2(a)(41) defines Value as
(i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is determined in good faith by the Board of Directors ("BOD"). We expect that few, if any, of our portfolio companies will have market quotations, and as such, we expect to rely on market transactions involving our portfolio companies and the fair value determined in good faith by our BOD for the valuation of our portfolio companies. Prior to this conversion, only marketable debt and equity securities and certain derivative securities were required to be carried at market value.

Portfolio assets for which market prices are available are valued at those prices. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date. However, most of the Company's current investments were acquired in privately negotiated transactions and may have no readily determinable market values. These securities are carried at fair value as determined by the BOD and outside professionals as necessary under the Company's valuation policy. Currently, the valuation policy provides for management's review of the management teams, financial conditions, and products and services of the portfolio companies. In situations that warrant such an evaluation, an independent business valuation may be obtained.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Not applicable.

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