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EX-32.2 - EXHIBIT 32.2 - INVENT Ventures, Inc.v352550_ex32-2.htm
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EX-31.2 - EXHIBIT 31.2 - INVENT Ventures, Inc.v352550_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - INVENT Ventures, Inc.v352550_ex31-1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, DC 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For Quarter Ended:                        June 30, 2013

 

Commission File Number:        814-00720

 

 

INVENT Ventures, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   20-5655532
(State or Jurisdiction of   (IRS Employer ID No)
Incorporation or Organization)    

 

3651 Lindell Road, Suite D #146, Las Vegas, NV 89103

(Address of principal executive office) (zip code)

 

(702) 943-0320

(Issuer’s telephone number)

 

Los Angeles Syndicate of Technology, Inc.

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.

 

Indicate by check mark whether the registrant 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 during the preceding 12 months (or for such shorter period that the registrant was required to file such files). Yes x No ¨.

 

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 definition of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨

 

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

 

The number of shares outstanding of registrant’s common stock, par value $.001 per share, as of August 9, 2013 is 36,928,197.

 

 
 

 

INVENT Ventures, Inc.

 

INDEX

 

      Page
      No.
       
Part I   Financial Information  
       
Item 1:   Condensed Financial Statements  
       
    Statements of Net Assets as of June 30, 2013 and December 31, 2012 3
    Statements of Operations – For the Three Months Ended June 30, 2013 and 2012 4
    Statements of Operations – For the Six Months Ended June 30, 2013 and 2012 5
    Statements of Cash Flows – For the Six Months Ended June 30, 2013 and 2012 6
    Condensed Statements of Changes in Net Assets – For the Six Months Ended June 30, 2013 and 2012 7
    Financial Highlights – For the Six Months Ended June 30, 2013 and 2012 8
    Schedule of Investments as of June 30, 2013 9
    Schedule of Investments as of December 31, 2012 10
    Notes to Condensed Financial Statements 11
Item 2:   Managements' Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3:   Quantitative and Qualitative Disclosure about Market Risk 32
Item 4:   Controls and Procedures 32
       
Part II   Other Information 33
       
Item 1:   Legal Proceedings 33
Item 1A:   Risk Factors 33
Item 2:   Unregistered Sales of Equity Securities and Use of Proceeds 33
Item 3:   Defaults Upon Senior Securities 33
Item 4:   Mine Safety Disclosures 33
Item 5:   Other Information 33
Item 6:   Exhibits 33
Signatures 35

 

2
 

 

PART 1: FINANCIAL INFORMATION

ITEM1: FINANCIAL STATEMENTS

 

INVENT Ventures, Inc.

(Formerly Known As Los Angeles Syndicate of Technology, Inc.)

Statements of Net Assets (Liabilities)

 

   June 30, 2013   December 31, 2012 
   (Unaudited)   (Unaudited) 
ASSETS          
Investments in portfolio companies:          
Controlled (cost $469,078 at June 30, 2013 and $452,467 at December 31, 2012)  $10,357,006   $10,353,093 
Total investments   10,357,006    10,353,093 
Cash   51,529    112,449 
Prepaid expenses and deposits   290,542    111,850 
Office furniture and equipment, net   8,112    9,715 
Purchased Software   297,500    332,500 
           
TOTAL ASSETS   11,004,689    10,919,607 
           
LIABILITIES          
Accounts payable, trade   57,849    55,502 
Amounts due to related parties   36,262    87,923 
Advances from non-affiliates   41,200    100,000 
Notes payable, net of unamortized discount   60,653    1,983 
Derivative instruments   39,785    - 
Accrued executive payroll expenses   814,543    551,453 
           
TOTAL LIABILITIES   1,050,292    796,861 
           
NET ASSETS  $9,954,397   $10,122,746 
           
Commitments and contingencies (Note 6)          
           
COMPOSITION OF NET ASSETS:          
Common stock, $.001 par value, authorized 100,000,000 shares; 36,928,197 shares issued and outstanding at June 30, 2013 and December 31, 2012   36,927    36,928 
Additional paid in capital   4,553,223    4,313,223 
Stock subscription receivable   (13,300)   (13,300)
Accumulated deficit:          
Accumulated net operating loss   (4,162,156)   (3,766,506)
Net realized (loss) on investments   (344,245)   (344,245)
Net unrealized appreciation of investments   9,883,948    9,896,646 
NET ASSETS  $9,954,397   $10,122,746 
           
NET ASSET VALUE PER SHARE  $0.27   $0.27 

 

See accompanying notes to financial statements.

 

3
 

 

INVENT Ventures, Inc.

(Formerly Known As Los Angeles Syndicate of Technology, Inc.)

Statements of Operations

(Unaudited)

 

   Three Months Ended, 
   June 30, 2013   June 30, 2012 
         
Investment Income:          
From controlled investments:          
Management fees  $36,575   $31,500 
Interest   2,067    - 
           
Total revenues   38,642    31,500 
Expenses:          
Officer and employee compensation   136,620    136,620 
Professional fees   75,664    53,352 
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    204,919 
Change in fair market value of derivative liability   9,946    - 
           
Loss before income taxes   (240,174)   (173,419)
           
Net loss from operations   (240,174)   (173,419)
           
Net realized and unrealized (losses):          
Net realized loss on investments, net of income taxes of none          
Controlled   -    - 
Non-controlled / Non-Affiliate   -    - 
Change in unrealized appreciation (depreciation) of investments, net of deferred tax of none          
Controlled   (2,334)   278,982 
Non-controlled / Non-Affiliate   -    - 
Net realized and unrealized (losses)   (2,334)   278,982 
           
Net (decrease) increase in net assets (liabilities) from operations  $(242,508)  $105,563 
           
Net (decrease) increase in net assets (liabilities) from operations per share, basic and diluted  $(0.01)  $0.00 
           
Weighted average common shares outstanding:          
Basic   36,928,197    35,596,741 
Diluted   37,128,197    35,596,741 

 

See accompanying notes to financial statements.

 

4
 

 

INVENT Ventures, Inc.

(Formerly Known As Los Angeles Syndicate of Technology, Inc.)

Statements of Operations

(Unaudited)

 

   Six Months Ended, 
   June 30, 2013   June 30, 2012 
         
Investment Income:          
From controlled investments:          
Management fees  $68,075   $42,000 
Interest   3,763    987 
           
Total revenues   71,838    42,987 
Expenses:          
Officer and employee compensation   273,240    273,240 
Professional fees   112,478    87,707 
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 
Change in fair market value of derivative liability   89,515    - 
           
Loss before income taxes   (395,650)   (366,997)
           
Net loss from operations   (395,650)   (366,997)
           
Net realized and unrealized (losses):          
Net realized loss on investments, net of income taxes of none          
Controlled   -    - 
Non-controlled / Non-Affiliate   -    - 
Change in unrealized appreciation (depreciation) of investments, net of deferred tax of none          
Controlled   (12,698)   (991,836)
Non-controlled / Non-Affiliate   -    - 
Net realized and unrealized (losses)   (12,698)   (991,836)
           
Net (decrease) in net assets (liabilities) from operations  $(408,348)  $(1,358,833)
           
Net (decrease) in net assets (liabilities) from operations per share, basic and diluted  $(0.01)  $(0.04)
           
Weighted average common shares outstanding:          
Basic   36,928,197    35,468,994 
Diluted   37,128,197    35,468,994 

 

See accompanying notes to financial statements.

 

5
 

  

INVENT Ventures, Inc.

(Formerly Known As Los Angeles Syndicate of Technology, Inc.)

Statements of Cash Flows

(Unaudited)

 

   Six Months Ended, 
   June 30, 2013   June 30, 2012 
Cash flows from operating activities:          
Net increase (decrease) in net assets (liabilities) from operations  $(408,348)  $(1,358,833)
Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used by operating activities:          
Change in net unrealized depreciation (appreciation) of investments   12,698    991,836 
Amortization of debt discount   27,500    - 
Non-cash interest expense   56,799    - 
Change in fair market value of derivative liability   (89,515)   - 
Advances to portfolio companies   (16,611)   (27,095)
Depreciation and amortization   36,603    1,520 
Non-cash consulting expenses   42,585    58,797 
Changes in operating assets and liabilities:          
Decrease in prepaid expenses and deposits   18,722    (7,985)
Increase in accounts payable   2,347    9,238 
Increase in accrued liabilities   263,091    274,814 
Decrease in advances from non-affiliates   (58,800)   - 
Decrease in amounts due to related parties   (51,661)   (8,760)
Net cash used in operating activities   (164,590)   (66,468)
Cash flows from investing activities:          
Purchase of furniture and equipment   -    (124)
Investment in non-affiliated portfolio company   -    - 
Net cash used in investing activities   -    (124)
Cash flows from financing activities:          
Proceeds from issuance of common stock   -    95,000 
Collection of stock subscriptions   -    1,800 
Increase in notes payable   103,670    4,839 
Net cash provided by financing activities   103,670    101,639 
Net increase (decrease) in cash and cash equivalents   (60,920)   35,047 
Cash, beginning of period   112,449    11,462 
Cash, end of period  $51,529   $46,509 
           
Supplemental Cash Flow Information:          
           
Non-cash investing and financing activities:          
Common stock transferred by shareholder in exchange for:          
Consulting services (Note 5)   240,000    250,000 

 

See accompanying notes to financial statements.

 

6
 

  

INVENT Ventures, Inc.

(Formerly Known As Los Angeles Syndicate of Technology, Inc.)

Condensed Statements of Changes in Net Assets (Liabilities)

(Unaudited)

 

   Six Months Ended, 
   June 30, 2013   June 30, 2012 
         
Changes in net assets (liabilities) from operations:          
Net loss from operations  $(395,650)  $(366,997)
Net realized loss on sale of investments   -    - 
Change in net unrealized appreciation (depreciation) of investments, net   (12,698)   (991,836)
Net (decrease) in net assets (liabilities) from operations   (408,348)   (1,358,833)
           
Capital stock transactions:          
Common stock issued:          
Cash   -    95,000 
Amount due shareholder   -    - 
Asset purchases   -    - 
Stock subscriptions collected   -    1,800 
Rescission of investment acquisition   -    - 
Related party share transfers for non-cash consulting expenses   240,000    250,000 
Net increase in net assets from stock transactions   240,000    346,800 
           
Net (decrease) in net assets (liabilities)   (168,348)   (1,012,033)
Net assets (liabilities), beginning of period   10,122,746    11,562,927 
Net assets (liabilities), end of period  $9,954,397   $10,550,894 

 

See accompanying notes to financial statements.

 

 

7
 

 

INVENT Ventures, Inc.

(Formerly Known As Los Angeles Syndicate of Technology, Inc.)

Financial Highlights

(Unaudited)

 

   Six Months Ended, 
   June 30, 2013   June 30, 2012 
         
PER SHARE INFORMATION          
Net asset (liability) value, beginning of period  $0.27   $0.33 
Net decrease from operations   (0.01)   (0.01)
Net change in realized gains (losses) and unrealized appreciation (depreciation) of investments   (0.00)   (0.03)
Net increase from stock transactions (1)   0.01    0.01 
Share transfers for non-cash consulting expenses   -    - 
           
Net asset (liability) value, end of period  $0.27   $0.30 
           
Per share market value:          
Beginning of period  $0.25   $0.83 
End of period  $0.20   $0.53 
           
Investment return, based on change in market price from beginning to end of period (2)   (20.0)%   (36.0)%
           
RATIOS/SUPPLEMENTAL DATA          
           
Net assets (liabilities), end of period  $9,954,397   $10,550,894 
Average net assets (liabilities)   10,038,572    10,336,820 
Annualized expenses   1,114,006    819,968 
Annualized net increase (decrease) in net assets (liabilities) from operations   (816,696)   (2,717,666)
Annualized ratio of expenses to average net assets (liabilities)   11.1%   7.9%
Annualized ratio of net increase (decrease) in net assets (liabilities) from operations to average net assets (liabilities)   (8.1)%   (26.3)%
Shares outstanding at end of period   36,928,197    35,660,697 
Weighted average shares outstanding during period   36,928,197    35,468,994 

 

(1) Includes the effect of using weighted average shares outstanding during the period for components of net asset (liability) and using actual shares outstanding at the end of the period for net asset (liability) at the end of the period.

 

(2) Periods of less than one year are not annualized.

 

See accompanying notes to financial statements.

 

8
 

 

INVENT Ventures, Inc.

(Formerly Known As Los Angeles Syndicate of Technology, Inc.)

Schedule of Investments

June 30, 2013

 

      Percent/                 
   Date of  shares   Number of   Historical   Fair 
   acquisition  owned   Shares / Units   cost   value 
                        
Investments in controlled portfolio companies:                            
           Common   Preferred           
           Stock   Stock           
Virurl, Inc.  Jul-10   45%   5,780,000    338,422   $94,889   $1,277,980 
Stockr, Inc.  Jul-10   63%   5,666,667    -    67,695    2,661,142 
LottoPals, Inc.  Jul-10   99%   6,000,000    -    59,148    3,000,000 
Clowd, Inc.  Sep-10   99%   6,000,000    -    96,548    1,486,375 
Sanguine Biosciences, Inc.  Jul-10   42%   4,000,000    -    109,053    1,889,764 
Stocktown Productions, Inc.  Jul-10   81%   16,704,953    -    41,745    41,745 
                      469,078    10,357,006 
                             
       Total investments      $469,078    10,357,006 
       Cash and other assets, less liabilities         (402,609)
       Net asset value at June 30, 2013        $9,954,397 

 

See accompanying notes to financial statements.

 

9
 

  

INVENT Ventures, Inc.

(Formerly Known As Los Angeles Syndicate of Technology, Inc.)

Schedule of Investments

December 31, 2012

 

      Percent/                 
   Date of  shares   Number of   Historical   Fair 
   acquisition  owned   Shares / Units   cost   value 
                        
Investments in controlled portfolio companies:                            
           Common   Preferred           
           Stock   Stock           
Virurl, Inc.  Jul-10   48%   5,780,000    338,422   $92,343   $1,277,980 
Stockr, Inc.  Jul-10   63%   5,666,667    -    67,671    2,661,455 
LottoPals, Inc.  Jul-10   99%   6,000,000    -    56,185    3,000,000 
Clowd, Inc.  Sep-10   99%   6,000,000    -    93,508    1,486,375 
Sanguine Biosciences, Inc.  Jul-10   42%   4,000,000    -    105,241    1,889,764 
Stocktown Productions, Inc.  Jul-10   81%   16,704,953    -    37,519    37,519 
                      452,467    10,353,093 
                             
       Total investments      $452,467    10,353,093 
       Cash and other assets, less liabilities         (230,347)
       Net asset value at December 31, 2012        $10,122,746 

 

See accompanying notes to financial statements. 

 

10
 

 

INVENT Ventures, Inc.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 1:             DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Business and Operations

 

Overview

 

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”.

 

11
 

 

History

 

The Company, formerly Bay Street Capital (“BSC”), Small Cap Strategies (“SCS”), and Photonics Corporation (“Photonics”), was re-domiciled in Nevada through a reverse merger effective on September 30, 2006 where Photonics, a California corporation, merged into Small Cap Strategies, Inc., a Nevada corporation, with SCS being the surviving entity. The effect of this corporate action was to change the Company’s state of incorporation from the State of California to the State of Nevada.

 

On March 7, 2006, the Company filed a notification under Form N54a with the SEC indicating our election to be regulated as a business development company under the 1940 Act.

 

On November 24, 2008, the Company filed Form N-54C with the Securities and Exchange Commission (“SEC”) to notify the SEC of the withdrawal of our previous election to be regulated as a Business Development Company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”).

 

The Board of Directors resolved on November 15, 2009 that the Company would again pursue the business model of an investment and management company. On April 12, 2010, we filed Form N-54a with the SEC to elect to be treated as a BDC governed under the Investment Act of 1940.

 

On July 20, 2010, the Company’s Board of Directors unanimously approved and a majority of shareholders consented to a Name Change to Bay Street Capital, Inc. and authorized the Company to enact a 1-for-50 reverse stock split of the Company’s outstanding Common Stock. Both corporate actions were effective on August 31, 2010.

 

On September 24, 2010, the Company’s Board of Directors unanimously approved and a majority of shareholders consented to a name change to Los Angeles Syndicate of Technology, Inc. The name change was effective on October 14, 2010.

 

On July 20, 2012, the Company’s Board of Directors and stockholders holding a majority of our voting shares authorized the following actions:

 

·The amendment of our Articles of Incorporation to change our corporate name to INVENT Ventures, Inc. (the “Name Change”). The Name Change was effective on Septemer 19, 2012;

 

·Request to FINRA that our stock symbol be changed from “LAST” to “IDEA” (the “Symbol Change”). Our stock symbol was temporarily changed by FINRA to “LASTD” until October 19, 2012 when it permenantly changed to “IDEA”;

 

·The implementation of a forward stock split of our common stock issued and outstanding where every one (1) share of our common stock owned by a stockholder automatically changed into and become three (3) new shares of our common stock (the “Forward Stock Split”). The Forward Stock Split became effective on September 19, 2012.

 

Following the Forward Stock Split, there were 36,800,697 shares outstanding as of September 30, 2012.

 

The Company currently operates as an internally managed closed-end non-diversified Business Development Company and is traded under the symbol “IDEA”.

 

12
 

 

Pursuant to Regulation S-X, Rule 6, the Company operates on a non-consolidated basis. Operations of portfolio companies are reported at the portfolio company level and only the appreciation or impairment of these investments is included in the Company’s financial statements.

 

Unaudited Condensed Interim Financial Statements Basis of Presentation

 

Interim financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, all adjustments necessary for the fair presentation of financial statements for the interim periods have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. The interim unaudited financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission.

 

The accompanying financial statements reflect the accounts of INVENT and the related results of its operations. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments in which the Company has a controlling interest.

 

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GOING CONCERN

 

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 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 funding requirements of its controlled portfolio companies. 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.

 

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

 

NOTE 2:             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

Pursuant to Regulation S-X, Rule 6, the Company operates, and will to operate on a non-consolidated basis.

 

Management Estimates

 

The preparation of financial statements in conformity with 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. None of the Company’s cash is restricted.

 

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Net Increase (Decrease) in Net Assets (Liabilities) from Operations Per Share (Earnings (Loss) per Share)

 

The Company is required to report both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all potentially dilutive shares outstanding.

 

Basic EPS is computed by dividing our net increase (decrease) in net assets (liabilities) from operations per share available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At June 30, 2013, the Company had 200,000 potentially dilutive shares outstanding.

 

Valuation of Investments (as an Investment Company)

 

As a BDC, we are regulated by the Investment Company Act of 1940 (the “Act”). Section 2(a)(41) of the Act 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 our conversion a BDC, 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, some 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 Board of Directors and outside professionals as necessary under the Company’s valuation policy. Currently, the valuation policy provides for management’s review of the products and services, management team and financial conditions of the portfolio company. In situations that warrant such an evaluation, an independent business valuation may be obtained.

 

Income Taxes

 

The Company intends to operate so as to qualify to be taxed as a RIC under Subchapter M of the Code and, as such, will not be subject to federal income tax on the portion of taxable income and gains distributed to stockholders (See Note 7).

 

As of June 30, 2013 and 2012, the Company had no accrued interest or penalties relating to any tax obligations. The Company currently has no federal or state examinations in progress, nor has it had any federal or state tax examinations since its inception. The last three years of the Company's tax returns are subject to federal and state tax examination.

 

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Comprehensive Income

 

All items required to be recognized under accounting standards as components of comprehensive income are required to be reported in a financial statement that is displayed with the same prominence as other financial statements. Standards require that an enterprise (a) classify items of other comprehensive income by their nature in financial statements and (b) display the accumulated balance of other comprehensive income separately in the equity section of the balance sheet for all periods presented. The Company’s comprehensive income (loss) does not differ from its reported net income (loss).

 

As an investment company, the Company must report changes in the fair value of its investments outside of its operating income on its statement of operations and reflect the accumulated appreciation or depreciation in the fair value of its investments as a separate component of its stockholders’ deficit.

 

Fair Value of Financial Instruments

 

Disclosure of fair value information about financial instruments is required when it is practicable to estimate that value. The carrying amounts of the Company’s cash, marketable equity securities, accounts receivable and accounts payable approximate their estimated fair value due to the short-term maturities of these financial instruments and because related interest rates offered to the Company approximate current rates.

 

Fixed Assets

 

Fixed assets are stated at cost, less accumulated depreciation or amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets (generally five and seven years). The carrying amount of our fixed assets, primarily consisting of purchased software, computers, electronics and other office furniture, is evaluated periodically to determine if adjustment to the depreciation or amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of any of its fixed assets exist at June 30, 2013 and December 31, 2012. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When fixed assets are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.

 

Stock Based Compensation

 

The compensation cost relating to share-based payment transactions (including the cost of all employee stock options) is required to be recognized in the financial statements. That cost will be measured based on the estimated fair value of the equity or liability instruments issued. The Company’s financial statements reflect an expense for all share-based compensation arrangements granted on or after January 1, 2006 and for any such arrangements that are modified, cancelled or repurchased after that date, based on the grant-date estimated fair value.

 

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As of June 30, 2013 and December 31, 2012, there were zero options outstanding under any of the Company’s equity compensation plans. These options expired in September 2011.

 

Concentration of Credit Risk

 

Cash is maintained at financial institutions. The Federal Deposit Insurance Corporation (“FDIC”) insures accounts at each institution for up to $250,000. At times, cash balances may exceed the FDIC insurance limit of $250,000.

 

Common Stock Purchase Warrants and Other Derivative Financial Instruments

 

We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 ("Contracts in Entity's Own Equity"). We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

 

Our derivative instruments consisting of warrants to purchase our common stock were valued using the Black-Scholes option pricing model, using the following assumptions at June 30, 2013:

 

  Estimated dividends   None
       
  Expected volatility   599%
       
  Risk-free interest rate   2.53%
       
  Expected term  

2.54 years  

 

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. At June 30, 2013, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company.

 

Prior Year Adjustments

 

Prior period amounts have been restated to reflect the reclassification and the resulting reduction of professional fees incurred in the quarter ended March 31, 2012.

 

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NOTE 3:         INVESTMENTS AND VALUATION

 

The Company’s investment securities are summarized as follows at June 30, 2013 and December 31, 2012, the valuation of which are all based on Level 3 inputs:

 

   June 30, 2013   December 31, 2012 
         
Cost  $469,078   $452,467 
Unrealized appreciation (depreciation)   9,887,927    9,900,626 
Fair market value  $10,357,006   $10,353,093 

 

We follow Accounting Standards Codification (‘‘ASC’’) Topic 820 — Fair Value Measurements and Disclosures (“Topic 820”) for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve a degree of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

 

Our fair value analysis includes an analysis of recent capital transactions with unrelated investors, the future cash flow projections of our investments, value of intellectual property and other proprietary assets. Financial investments recorded at fair value in the Company’s financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. Topic 820 provides the following description of the three levels:

 

Level 1:      Inputs are unadjusted, quoted prices in active markets for identical financial instruments at the measurement date.

 

Level 2:      Inputs include quoted prices for similar financial instruments in active markets and inputs that are observable for the financial instruments, either directly or indirectly. Level 2 inputs also include inputs, other than quoted prices, that are observable for the asset or liability being valued, either directly or indirectly.

 

Level 3:      Inputs include unobservable inputs for the asset or liability. The inputs into the determination of fair value are based upon the best information available and require management judgment.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and we consider factors specific to the investment.

 

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The following section describes the types of inputs we use for level 3 within the fair value hierarchy in which the investment is categorized, and the valuation techniques we use to measure the fair value of our investments.

 

Level 3 inputs we use include the terms of recent capital transactions with unrelated investors, financial statement metrics of comparable companies, nonfinancial-statement metrics of comparable companies, projected cash flows of our investments, applicable discount rates, the value of developed intellectual property, the value of the domain name and other proprietary assets.

 

At June 30, 2013, all of our portfolio investments are valued based on level 3 inputs.

 

FASB provides guidance on the determination of fair value. Accounting Standards Codification Topic 820 establishes a framework for measuring fair value that includes three distinct valuation techniques, (i) the Market Approach, (ii) the Income Approach and (iii) the Asset Approach. There is no single standard for determining fair value in good faith under any of these approaches, and as a result, determining fair value requires judgment be applied to the facts and circumstances of each of our portfolio investments. Topic 820 notes that in some cases the use of multiple valuation techniques will be appropriate. Under such circumstances, Topic 820 recommends that the results of the various techniques be evaluated and weighted appropriately. For investments where multiple valuation techniques are used to measure fair value, management evaluates and weights the results, considering the reasonableness of the range indicated by those results.

 

Following are descriptions of each technique and how we apply them to our portfolio companies.

 

·Market Approach. The market approach uses prices and other relevant information generated by market transactions involving our portfolio companies, or identical or comparable assets or liabilities. Common applications of this approach include our use of the valuation implied by market transactions in our portfolio companies and market multiples derived from a set of comparable companies. When determining fair value under the Market Approach, we often draw from the terms of recent capital transactions with unrelated investors.

 

·Income Approach. The income approach incorporates estimates of future cash flows or earnings and discounts them to a single present value based on current market expectations. Under the Income Approach we apply multiple discounted cash flow (“DCF”) methods to derive estimates of fair value.

 

·Asset Approach. The asset approach is based on the fair value of the portfolio company’s assets less the fair value of its liabilities. When applying this approach, we evaluate (1) the aggregate amount of capital invested by INVENT in such company (our “Cost Basis”), and (2) the fair value of the company’s assets less the fair value of the company’s liabilities.

 

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As an investment company, the Company will invest in illiquid securities including equity securities of private companies. The structure of each equity security is specifically negotiated to enable the Company to protect its investment and maximize its returns. The Company’s investments are generally subject to some restrictions on resale and generally have no established trading market.

 

We expect that the majority of our investments will continue to be recorded at fair value based on Level 2 and Level 3 inputs and values determined in good faith by our Board of Directors utilizing the input of our management and advisory board. With respect to investments for which market quotations are not readily available, we undertake a disciplined valuation process on a quarterly basis, which is detailed below.

 

1.Management considers which fair value techniques are applicable based on the type of investment being valued. If applying the asset approach, our management team aggregates the costs spent to develop the business and estimates the current cost to replicate such technology by another party. Under the market approach, our management team considers all transactions involving the portfolio company, as well as examines the current valuation levels of comparable investments. When applying the income approach, our management team develops cash flow forecasts and utilizes various discounted cash flow valuation techniques to approximate fair value. Management evaluates and weights the resulting valuations, considering the reasonableness of the range indicated by those results.

 

2.Preliminary valuation conclusions are discussed with the Board of Directors and subsequently discussed with members of our advisory board.

 

3.The Board of Directors considers the proposed valuations and determines the value of our portfolio companies in good faith based on the input of our management team and our advisory board.

 

We will record unrealized depreciation on investments when we believe that an investment has decreased in value or if the collection of a loan is doubtful. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our investment has also appreciated in value, where appropriate.

 

At June 30, 2013, 100% of our assets represented investments in portfolio companies recorded at fair value, as determined by our Board of Directors. Due to the inherent uncertainty in determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined in good faith by our Board of Directors may differ significantly from the value that would have been used had a ready market existed for such investments, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.

 

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Our Portfolio of Investments

 

The following table represents our schedule of our controlled investments as of June 30, 2013.

 

Company  Industry  Sub-Industry  % Owned   Market Value 
                 
Virurl, Inc.  Web-based tech  Advertising   45%   1,277,980 
Stockr, Inc.  Web-based tech  Financial Services   63%   2,661,142 
LottoPals, Inc.  Web-based tech  Social Gaming   99%   3,000,000 
Clowd, Inc.  Web-based tech  Location-based Communication   99%   1,486,375 
Sanguine Biosciences, Inc.  Biotechnology  Life Science   42%   1,889,764 
Stocktown Productions, Inc.  Creative Arts  Productions   81%   41,745 
                 
              $10,357,006 

 

The following are descriptions of our portfolio companies.

 

1)Virurl, Inc. – virurl.com (revenue-generating)

 

Virurl, Inc. (“VIRURL”) is an online marketplace that allows brands to create instant viral advertising campaigns on the web. The VIRURL platform enables marketers to launch viral campaigns by compensating Internet users to share videos, articles, music, and other media with their friends via email, social networks, and anywhere else on the web.

 

2)Stockr, Inc. – stockr.com (LIVE)

 

Stockr, Inc. (“Stockr”) is a social platform for the stock market. Stockr connects investors directly to the people, publishers and companies they care about, enabling users to see and discuss which stocks other users are trading in real-time. Users are empowered to exchange trading ideas, track the trades of those within their network, and gauge their investment performance relative to the Stockr community. Stockr embraces the social element of investing, and brings identity and transparency to an otherwise anonymous environment, unveiling a new layer of market information.

 

3)Sanguine Biosciences, Inc. – sanguinebio.com (revenue-generating)

 

Sanguine Biosciences, Inc. (“Sanguine”) provides highly viable primary human cells and tissues to the academic and industrial life science research community. The product offering spans customers’ needs mainly in the In Vitro Research & Development stage of Drug Development. The organization holds proprietary cryopreservation technology that allows for >90% post-thaw viability of primary human cells and tissues. Sanguine’s vision is to develop into the global leader in high quality cells and tissues for life science research and development.

 

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4)Clowd, Inc. – clowd.com (stealth)

 

Clowd, Inc. (“Clowd”) is developing technologies in the mobile telehealth industry to improve patient-doctor interaction and make it easier for patients to connect with doctors and medical professionals.

 

5)LottoPals, Inc. – lottopals.com (stealth)

 

LottoPals, Inc. (“LottoPals”) is developing web and mobile applications to allow people to play state lotteries with their friends online. Every week, millions of people play the lottery, both individually and by forming pools with friends, family and coworkers. LottoPals is bringing the lottery online, making the experience more convenient and fun.

 

6)Stocktown Productions, Inc. – stocktownproductions.com (revenue-generating)

 

Stocktown Productions, Inc. (“Stocktown”) is a creative production company based in Santa Monica, California, specializing in video, animation and visual effects. In addition to video production, Stocktown provides web design, photography and graphic design work- bringing an original style and cutting-edge concepts to each project.

 

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NOTE 4:         COMPOSITION OF NET ASSETS (STOCKHOLDERS’ EQUITY)

 

Common Stock

The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.001 with each share having one voting right. There are 36,928,197 common shares outstanding at June 30, 2013 and December 31, 2012.

 

On July 20, 2012, the Company's the Board of Directors approved a resolution implementing a three-for-one forward stock split of the Company's Common Stock, which became effective on September 19, 2012.

 

On July 27, 2012, the Company issued 1,050,000 shares to purchase various assets that enhance the services we can offer to our portfolio companies and to broaden our reach and exposure to the Northern California technology market, including relationships with entrepreneurs, advisors, angel investors, and investor relations companies (the “GGAA”). The Company has recorded these assets at their cost basis as fixed assets in the accompanying financial statements.

 

Retroactive Adjustment For Forward Stock Split

 

On September 19, 2012, the Company effected a three-for-one forward stock split of its Common Stock. Consequently, all earnings per share and other share-related amounts and disclosures have been retroactively adjusted for this action.

 

NOTE 5:         RELATED PARTY TRANSACTIONS

 

The officer and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities as they become available. The officer and directors may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.

 

At June 30, 2013 and December 31, 2012, the Company owed its CEO $36,262 and $87,923, respectively, for loans and expense reimbursements, which is included in due to related parties. On March 30, 2011, the Company issued its CEO 175,000 shares of its common stock in exchange for $175,000 owed to the CEO.

 

Officer’s compensation and director’s fees related to the services provided by Bryce Knight, CEO and Director of the Company, are paid directly to Knight Inc. (formerly Knight Enterprises, Inc.), a Nevada corporation 100% owned by Bryce Knight.

 

During the quarter ended March 31, 2011 Vineet Jindal and Brendon Crawford, previously the Chief Investment Officer and Chief Technology Officer of INVENT, resigned from INVENT to assume the Chief Executive Officer and Chief Technology Officer positions, respectively, at Stockr, Inc., a majority owned portfolio company of INVENT.

 

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On February 12, 2011 the Company’s Board of Directors were notified by Management that the Company would exercise its repurchase option to purchase 8,100,000 shares of Company Common Stock pursuant to its Share Purchase Agreement and Employment Agreement with Mr. Jindal. Per the terms of the agreement, INVENT repurchased 1,800,000 shares at Mr. Jindal’s cost value and then cancelled those shares. The Company transferred its right to repurchase the remaining 6,300,000 shares to employees of INVENT, who repurchased these shares at Mr. Jindal’s original cost value.

 

On February 23, 2012 and April 11, 2012, Knight, Inc., wholly owned by Bryce Knight, Chief Executive Officer of the Company, transferred 450,000 and 300,000 shares, respectively, to consultants for services to be rendered for the Company. These shares were valued at $0.33 per share representing the price at which shares were sold during the period. The cost is being amortized over the estimated life of the consulting agreements, generally determined to be one year except for one consultant where the cost is being amortized over 33 months.

 

On May 22, 2013, the Company entered into three agreements with consultants to render services to the Company. Included in the contracts was a requirement that Knight, Inc., wholly owned by Bryce Knight, Chief Executive Officer of the Company, transfer 1,000,000 shares to the consultants for the contracted services. The transferred shares were valued at $0.24 per share representing the price at which INVENT shares closed on the day preceding the date of contract execution. The cost is being amortized over the estimated life of the consulting agreements, which is one year for a contract representing 800,000 of the transferred shares and 24 months for the remaining contracts. Please reference Note 9: Subsequent Events for detail surrounding the transfer of the shares.

 

INVENT currently collects $10,500 per month from VIRURL for managerial assistance provided by the Company to VIRURL.

 

NOTE 6:         COMMITMENTS AND CONTINGENCIES

 

General

From time-to-time, some of the Company’s portfolio companies may receive correspondence or other notices of alleged breach of license agreement or other contract. Some of these notifications provide a period of time in which to cure an alleged breach or default. The failure of the Company’s portfolio companies to cure an alleged breach or default may have a material adverse impact on the Company’s results of operations and financial position.

 

Leases

The Company currently maintains its corporate office at 3651 Lindell Road, Suite D#146, Las Vegas, Nevada 89103 on a month-to-month basis. Our chief executive officer is providing the space at minimal cost.

 

In addition, we have maintained operations offices in Santa Monica, California, one of which is under a month-to-month lease. Rent expense totaled $3,326 and $6,767 in the quarters ended June 30, 2013 and 2012, respectively.

 

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The Company also maintains offices on a month-to-month basis for its portfolio companies at 137 Bay Street, Santa Monica, California. These costs are classified as advances to portfolio companies.

 

NOTE 7:         INCOME TAXES

 

The Company intends to operate so as to qualify to be taxed as a RIC under Subchapter M of the Code and, as such, will not be subject to federal income tax on the portion of taxable income and gains distributed to stockholders.

 

To qualify as a RIC, we are required to meet certain income and asset diversification tests. In addition, in order to be eligible for pass-through tax treatment as a RIC, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income” as defined by the Code.

 

Taxable income includes the Company’s taxable interest, dividend and fee income, as well as taxable net capital gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized.

 

In the three months ended March 31, 2011, the Company recorded two income tax adjustments to reflect the reversal of a deferred tax liability associated with unrealized gains generated by increases in value of our portfolio companies in periods prior to our RIC election as these taxes are no longer payable.

 

NOTE 8:         INDEBTEDNESS

 

On January 14, 2013, the Company converted the $100,000 advance from non-affiliates into a promissory note in the amount of U.S. $110,000 (the “Threshold Note”) to Threshold Financial, LLC, a Wisconsin corporation (“Threshold”). The Threshold Note was priced to Threshold at $100,000, equal to 90.91% of its principal amount. The Threshold Note is due on the earlier of January 14, 2014 or the receipt of no less than U.S. $2,000,000 in funding from any private placement of equity securities (a “Qualified Equity Financing”). During the first six months outstanding, the Threshold Note bears interest at 7% per annum, increasing to 12% for the remaining six months until the Threshold Note is due. All amounts owed by the Company under the Threshold Note become immediately due and payable upon an event of default, which includes the Company’s failure to pay the Threshold Note for 10 days after Threshold’s notice thereof and the Company’s insolvency or failure to pay its debts as they become due.

 

In conjunction with the Threshold Note, the Company also issued Threshold a warrant to purchase shares of Company common stock (the “Threshold Warrant”). The Threshold Warrant has a term of three years and entitles Threshold to purchase $100,000 of shares of Common Stock at an exercise price equal to the lesser of $0.50 per share or the price per share of the Company’s capital stock sold to investors in its next Qualified Equity Financing. In issuing the Threshold Warrant, the Company relied on the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended, based upon the limited nature of the issuance.

 

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Based on authoritative guidance, we have accounted for the Threshold Warrants as liabilities. The liability for the warrants, measured at fair value, based on a Black-Scholes option pricing model, has been offset by a reduction in the carrying value of the related Threshold Note.

 

NOTE 9:         SUBSEQUENT EVENTS

 

Subsequent events have been evaluated through August 9, 2013, the date the financial statements were available to be issued.

 

On July 19, 2013, Knight, Inc., wholly owned by Bryce Knight, Chief Executive Officer of the Company, transferred 1,000,000 shares to consultants for services to be rendered for the Company. The shares were issued in accordance with the consulting contracts executed on May 22, 2013 referenced in Note 5: Related Party Transactions.

 

There were no additional items that would have a material impact to the financial statements presented in this Form 10-Q.

 

NOTE 10:         PRIOR YEAR ADJUSTMENTS

 

Certain reclassifications have been made in the accompanying financial statements to reflect changes in the treatment of the share transfers made by the CEO on February 23, 2012 and April 11, 2012, as referenced in the Related Party Transaction section of this form 10Q. Prior period amounts have been restated to reflect the economic value of the share transfers in the prepaid asset account, with the cost being amortized on a monthly basis over the estimated life of the consulting agreements.

 

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:

 

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·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.

 

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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.

 

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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.

 

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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)

 

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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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ITEM 3:          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the risk of loss arising from changes in market rates and prices. We are primarily exposed to equity price risk, which arises from exposure to securities that represent an ownership interest in our portfolio companies. The value of our equity securities and our other investments are based on quoted market prices or our Board of Directors’ good faith determination of their fair value (which is based, in part, on quoted market prices). Market prices of common equity securities, in general, are subject to fluctuations, which could cause the amount to be realized upon the sale or exercise of the instruments to differ significantly from the current reported value. The fluctuations may result from perceived changes in the underlying economic characteristics of our portfolio companies, the relative price of alternative investments, general market conditions and supply and demand imbalances for a particular security.

 

ITEM 4:          CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of June 30, 2013. Based on that review and evaluation, the CEO and CFO concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including insuring that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Controls

 

There have been no changes in internal controls or in other factors that could materially affect these controls during the quarter ended June 30, 2013, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

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PART II:        OTHER INFORMATION

 

ITEM 1:          LEGAL PROCEEDINGS

 

Not Applicable.

 

ITEM 1A:      RISK FACTORS

 

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

ITEM 2:         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There were no common stock shares sold during the three months ended June 30, 2013.

 

ITEM 3:        DEFAULTS UPON SENIOR SECURITIES

 

Not Applicable.

 

ITEM 4:        MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5:        OTHER INFORMATION

 

Not applicable

 

ITEM 6:        EXHIBITS

 

The following exhibits are filed with this report on Form 10-Q.

 

31.1Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer.

 

31.2Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer.

 

32.1Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer.

 

32.2Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer.

 

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101.INSXBRL Instance Document.

 

101.SCHXBRL Taxonomy Extension Schema Document.

 

101.CALXBRL Taxonomy Extension Calculation Linkbase Document.

 

101.DEFXBRL Taxonomy Extension Definition Linkbase Document.

 

101.LABXBRL Taxonomy Extension Label Linkbase Document.

 

101.PREXBRL Taxonomy Extension Presentation Linkbase Document.

 

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SIGNATURE

 

Pursuant to the requirements 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.

 

  INVENT VENTURES, INC.
       
DATE   SIGNATURE/TITLE
       
August 9, 2013   By: /s/ Bryce Knight
    Bryce Knight
    Chief Executive Officer and
    Chairman
       
August 9, 2013   By: /s/ James Jago
    James Jago
    Chief Financial Officer

 

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