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IDEA > SEC Filings for IDEA > Form 10-Q on 13-May-2014All Recent SEC Filings

Show all filings for INVENT VENTURES, INC.

Form 10-Q for INVENT VENTURES, INC.


13-May-2014

Quarterly Report


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, 2013.

Company

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".

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 March 31, 2014 and 2013

Revenues - The Company received $43,500 in management fee revenues from its controlled portfolio companies in 2014, a 38% increase from the same period of 2013. 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 $2,171 of interest income in the first fiscal quarter of 2014 related to the Company's convertible note holdings in Sanguine.

The following table details expenses for the three months ended March 31, 2014:

     Expenses:                                 March 31, 2014   March 31, 2013
      Officer and employee compensation               136,620          136,620
      Professional fees                                61,052           36,814
      Director fees                                         -                -
      Rent                                              5,088            3,769
      Office supplies and expenses                      5,729            2,615
      Other general and administrative expense         37,753           29,552
      Interest expense                                 23,009           58,870
        Total expenses                                269,252          268,240

Officer and employee compensation in the three months ended March 31, 2014 was flat when compared to the same period in 2013. Professional fees increased by approximately 66% in the three months ended March 31, 2014 when compared to prior year, driven by decreases in non-cash investor relations and public relations expenses, partially offset by declines in legal fees and video expenses. Other general and administrative expense increased approximately 28% in the three months ended March 31, 2014 when compared to prior year, due primarily to an increase in marketing expenses, partially offset by a decline in amortization expense.


The following table details the net realized and unrealized (losses) for the three months ended March 31, 2014 and 2013:

 Net realized and unrealized (losses):            March 31, 2014   March 31, 2013
  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     (2,934,812)         (10,364)
      Net realized and unrealized (losses)           (2,934,812)         (10,364)

In the quarter ended March 31, 2014, the Company incurred unrealized depreciation of $2,934,812. This depreciation is due primarily to a $2,918,088 reduction in the carrying value of LottoPals. On May 6, 2014, the Company's portfolio company, LottoPals received notice from Aeon Multi-Opportunity Fund I, LLC ("Aeon") that the $1,000,000 financing at a pre-investment valuation of $3,000,000 set forth in a Letter of Intent signed by both parties on January 27, 2014 could not be completed during the second quarter of 2014. LottoPals was notified that Aeon still wished to close the financing but it would have to be at a later date. In light of this development, as well as other qualitative considerations, the Company's Board of Directors determined that LottoPals would be carried at cost of $81,912, a write-down of $2,918,088 from the carrying value at December 31, 2013 of $3,000,000.

The additional depreciation is due to increases in the cost basis of our other portfolio companies, excluding Stocktown which we carry at cost. The increase in our cost basis reduces the amount of unrealized appreciation we carry on our balance sheet.

These adjustments are 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 $132,310 during the three months ended March 31, 2014.

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 from portfolio companies, and loans from its CEO. If the Company is unable to continue to raise sufficient capital to meet its operating needs or generate cash flow from operations, substantial doubt exists regarding 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 stockholders. 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 $6,856,067 and from this, are subtracted liabilities of $1,634,179. There are no shares of preferred stock outstanding but the rights of preferred stockholders would be included if there were. The resulting NAV at March 31, 2014 is $5,221,887. 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 $0.14 at March 31, 2014.

ITEM 3:

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