Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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[X]
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2014
OR
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[ ]
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______ to _______
Commission File Number: 000-54706
MV PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in its Charter)
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Nevada
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83-0483725
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(State of Incorporation)
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(IRS Employer Identification No.)
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10752 Deerwood Park Blvd.
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S. Waterview II, Suite 100
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Jacksonville, FL 32256
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(Address of principal executive offices)
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(904) 586-8673
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.10 Par Value Per Share
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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [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 (§232.405 of this chapter) during the preceding 12 months ). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
There were 21,202,323 shares of common stock issued and outstanding as of November 12, 2014.
MV Portfolios, Inc.
Form 10-Q
For the Quarter ended September 30, 2014
Table of Contents
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Page
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Part I - Financial Information
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Part II - Other Information
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-i-
PART I
FINANCIAL INFORMATION
MV PORTFOLIOS, INC. AND SUBSIDIARIES
Table of Contents
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Unaudited Consolidated Financial Statements:
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1
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2
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3
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4
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5
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MV PORTFOLIOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30, 2014
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June 30, 2014
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Assets
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Current assets:
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Cash
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$ | 554,503 | $ | 1,468,401 | ||||
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Prepaid expenses
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166,667 | 280,880 | ||||||
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Assets held for sale – from discontinued operations
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3,167 | 3,608 | ||||||
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Deferred financing costs
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- | 689,556 | ||||||
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Total current assets
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724,337 | 2,442,445 | ||||||
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Mining rights
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450,000 | - | ||||||
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Total assets
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$ | 1,174,337 | $ | 2,442,445 | ||||
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Liabilities and Stockholders' Deficit
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Current liabilities:
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Accounts payable and accrued expenses
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$ | 534,688 | $ | 640,364 | ||||
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Derivative liabilities
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2,283,712 | 2,365,315 | ||||||
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Convertible notes
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- | 3,959,995 | ||||||
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Total current liabilities
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2,818,400 | 6,965,674 | ||||||
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Convertible notes, net of unamortized discounts of $0 and $211,543
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- | 113,457 | ||||||
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Total liabilities
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2,818,400 | 7,079,131 | ||||||
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Stockholders' deficit:
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Convertible preferred stock, Series A, par value $0.001 per share; 50,000,000 shares authorized; 8,000,000 shares issued and outstanding
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8,000 | 8,000 | ||||||
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Convertible preferred stock, Series B, par value $0.001 per share; 3,592,240 shares authorized; 3,592,238 and no shares issued and outstanding
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3,593 | - | ||||||
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Convertible preferred stock, Series C, par value $0.001 per share; 50,000,000 shares authorized; 7,717,170 and no shares issued and outstanding
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7,717 | - | ||||||
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Convertible preferred stock, Series D, par value $0.001 per share; 50,000,000 shares authorized; 20,000 and no shares issued and outstanding
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20 | - | ||||||
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Common stock, par value $0.10 per share; 300,000,000 shares authorized; 16,895,518 and 11,026,013 shares issued and outstanding
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760,436 | 173,486 | ||||||
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Additional paid-in capital
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13,631,577 | (238,674 | ) | |||||
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Accumulated deficit
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(16,055,406 | ) | (4,579,498 | ) | ||||
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Total stockholders' deficit
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(1,644,063 | ) | (4,636,686 | ) | ||||
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Total liabilities and stockholders' deficit
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$ | 1,174,337 | $ | 2,442,445 | ||||
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See accompanying notes to the unaudited consolidated financial statements.
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MV PORTFOLIOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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MV Portfolios, Inc. and Subsidiaries
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MV Patents, LLC
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Three Months Ended
September 30, 2014 |
Three Months Ended
September 30, 2013 |
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Operating expenses:
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General and administrative
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$ | 6,927,127 | $ | 150,727 | ||||
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Loss from operations
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6,927,127 | 150,727 | ||||||
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Other income (expenses):
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Interest expense
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(4,629,943 | ) | (3,399 | ) | ||||
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Gain on change in fair value of derivative liabilities
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81,603 | - | ||||||
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Total other expenses, net
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(4,548,340 | ) | (3,399 | ) | ||||
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Loss from continuing operations
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(11,475,467 | ) | (154,126 | ) | ||||
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Loss from discontinued operations
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(441 | ) | - | |||||
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Net loss
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$ | (11,475,908 | ) | $ | (154,126 | ) | ||
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Basic and diluted net loss per share:
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Loss from continuing operations per share
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$ | (0.92 | ) | |||||
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Loss from discontinued operations per share
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(0.00 | ) | ||||||
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Net loss per share
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$ | (0.92 | ) | |||||
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Weighted average number of common shares outstanding
- basic and diluted |
12,478,079 | |||||||
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See accompanying notes to the unaudited consolidated financial statements.
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MV PORTFOLIOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 2014
(UNAUDITED)
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Additional Paid-in Capital
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Accumulated Deficit
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Preferred Stock
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Common Stock
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Shares
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Amount
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Shares
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Amount
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Total
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Balances, June 30, 2014
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8,000,000 | $ | 8,000 | 11,026,013 | $ | 173,486 | $ | (238,674 | ) | $ | (4,579,498 | ) | $ | (4,636,686 | ) | |||||||||||||
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Common stock issued to related party for mining rights
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- | - | 300,000 | 30,000 | 420,000 | - | 450,000 | |||||||||||||||||||||
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Common stock issued for liabilities
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- | - | 169,505 | 16,950 | 322,059 | - | 339,009 | |||||||||||||||||||||
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Common stock issued for services
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- | - | 1,400,000 | 140,000 | 2,660,000 | - | 2,800,000 | |||||||||||||||||||||
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Common stock issued for exchange of warrants
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- | - | 4,000,000 | 400,000 | (400,000 | ) | - | - | ||||||||||||||||||||
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Series B preferred stock issued for liabilities
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79,530 | 80 | - | - | 299,920 | - | 300,000 | |||||||||||||||||||||
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Conversion of notes to Series B preferred stock
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3,512,710 | 3,513 | - | - | 347,758 | - | 351,271 | |||||||||||||||||||||
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Conversion of notes to Series C preferred stock
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7,717,170 | 7,717 | - | - | 3,850,861 | - | 3,858,578 | |||||||||||||||||||||
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Series D preferred stock issued for services
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20,000 | 20 | - | - | 39,980 | - | 40,000 | |||||||||||||||||||||
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Beneficial conversion feature
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- | - | - | - | 3,660,000 | - | 3,660,000 | |||||||||||||||||||||
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Options expense
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- | - | - | - | 2,669,673 | - | 2,669,673 | |||||||||||||||||||||
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Net loss
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- | - | - | - | - | (11,475,908 | ) | (11,475,908 | ) | |||||||||||||||||||
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Balances, September 30, 2014
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19,329,410 | $ | 19,330 | 16,895,518 | $ | 760,436 | $ | 13,631,577 | $ | (16,055,406 | ) | $ | (1,644,063 | ) | ||||||||||||||
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See accompanying notes to the unaudited consolidated financial statements.
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MV PORTFOLIOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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MV Portfolios, Inc. and Subsidiaries
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MV Patents, LLC
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Three Months Ended
September 30, 2014 |
Three Months Ended
September 30, 2013 |
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Cash flows from operating activities:
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Net loss
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$ | (11,475,908 | ) | $ | (154,126 | ) | ||
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Adjustments to reconcile net loss to net cash
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flows used in operating activities:
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Depreciation
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441 | - | ||||||
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Amortization of debt discounts and deferred financing costs
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4,561,099 | - | ||||||
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Gain on change in fair value of derivative liabilities
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(81,603 | ) | - | |||||
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Options expense
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2,669,673 | - | ||||||
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Common stock issued for services
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2,800,000 | - | ||||||
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Series D preferred stock issued for services
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40,000 | - | ||||||
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Loss on common stock issued for liabilities
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229,850 | - | ||||||
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Loss on Series B preferred stock issued for liabilities
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220,470 | - | ||||||
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Change in operating assets and liabilities:
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Prepaid expenses
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114,213 | - | ||||||
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Accounts payable and accrued expenses
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307,867 | 41,054 | ||||||
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Accrued salaries, member
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- | 45,275 | ||||||
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Other liabilities
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- | 50,000 | ||||||
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Net cash used in operating activities
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(613,898 | ) | (17,797 | ) | ||||
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Cash flows from financing activities:
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Repayment of convertible notes
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(300,000 | ) | - | |||||
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Proceeds from participation notes
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- | 20,000 | ||||||
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Net cash (used) provided by financing activities
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(300,000 | ) | 20,000 | |||||
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Net (decrease) increase in cash
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(913,898 | ) | 2,203 | |||||
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Cash, beginning of period
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1,468,401 | 2,523 | ||||||
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Cash, end of period
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$ | 554,503 | $ | 4,726 | ||||
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Supplemental disclosures of cash flow information:
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Interest paid
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$ | 15,000 | $ | - | ||||
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Income taxes paid
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- | - | ||||||
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Non-cash investing and financing activities:
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Beneficial conversion feature
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$ | 3,660,000 | $ | - | ||||
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Series B preferred stock issued for liabilities
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79,530 | - | ||||||
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Conversion of convertible notes to Series C preferred stock
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3,858,578 | - | ||||||
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Conversion of convertible notes to Series B preferred stock
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351,271 | - | ||||||
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Common stock issued to related party for mining rights
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450,000 | - | ||||||
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Common stock issued for liabilities
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109,159 | - | ||||||
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Common stock issued for exchange of warrants
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400,000 | - | ||||||
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See accompanying notes to the unaudited consolidated financial statements.
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MV PORTFOLIOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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1.
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Interim Financial Statements
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The unaudited consolidated financial statements of MV Portfolios, Inc. and Subsidiaries (collectively the “Company”) as of September 30, 2014 and for the three month periods ended September 30, 2014 and 2013 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
The consolidated balance sheet of the Company at June 30, 2014 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by the SEC. Such adjustments are of a normal, recurring nature. It is suggested that these unaudited consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2014. The results of operations for interim periods are not necessarily indicative of the operating results to be expected for the full year or any other interim period.
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2.
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General Organization and Business
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MV Portfolios, Inc. and subsidiaries (collectively the “Company”) is a Nevada corporation. The Company was an exploration stage mining company with a focus on the identification, acquisition and development of rare and precious metals mining properties in the Americas. On February 7, 2014, the Company entered into a securities exchange agreement (the “Securities Exchange”) with MVP Portfolio, LLC (“MVP Portfolio”), a Florida limited liability company, MV Patents, LLC (“MV Patents”), a Florida limited liability company and majority member of MVP Portfolio, and other members of MVP Portfolio (all such members collectively, the “Members”). Pursuant to the Securities Exchange, the Members sold all of their membership interests in MVP Portfolio to the Company in exchange for an aggregate of 9,385,000 shares of common stock, $0.10 par value per share, after taking into account the 1 for 100 reverse stock split (the “Reverse Split”) of the Company’s issued and outstanding common stock. Following the Securities Exchange, the Company assumed the additional line of business of MVP Portfolio.
The Securities Exchange was consummated in anticipation of a 1 for 100 Reverse Split. As the share exchange is dependent upon the Reverse Split, all share and per share amounts herein have been retroactively restated to reflect the 1 for 100 Reverse Split as if it has been effected during all periods presented.
MV Patents, formed on July 11, 2011, has limited operations. MVP Portfolio was formed on July 26, 2013 as a wholly owned subsidiary of MV Patents. On August 30, 2013, MV Patents transferred a portion of its patents without recourse to MVP Portfolio. Pursuant to the Securities Exchange on February 7, 2014, MVP Portfolio ceased to be a subsidiary of MV Patents and became a wholly owned subsidiary of the Company. MV Patents is deemed to be the predecessor entity to MVP Portfolio.
On March 6, 2014, MVP Portfolio changed its form of organization to a Florida corporation from a Florida limited liability company, and changed its name to Visual Real Estate, Inc. (“VRE”). VRE has historically maintained a June 30 fiscal year, through MV Patents, the predecessor business to MVP Portfolio.
VRE has commenced its planned principal operations of patent licensing and assertion of rights under patents against parties believed to be selling goods or services that rely upon VRE’s patented technology. VRE owns a patent portfolio it refers to as “Video Drive-by” and online mapping, which has previously been used by its predecessors and licensees commercially. The patent portfolio consists of eight (8) issued and sixteen (16) pending patents. The patents disclose systems and methods for providing video drive-by data to enable a street level view of a neighborhood surrounding a geographic location. The systems include, generally, a video and data server farm incorporating at least one (1) video storage server that stores video image files containing video drive-by data corresponding to a geographic location, a data base server that processes a data query received from a user over the internet and an image processing server.
On March 17, 2014 VRE filed a patent infringement lawsuit against Google Inc. in the United States District Court for the Middle District of Florida. The lawsuit claims infringement of three of Visual Real Estate’s patents: U.S. Patent number 7,389,181, entitled “Apparatus and Method for Producing Video Drive-By Data Corresponding to a Geographic Location”; U.S. Patent number 7,929,800, entitled “Methods and Apparatus for Generating a Continuum of Image Data”; and U.S. Patent number 8,078,396, entitled “Methods for and Apparatus for Generating a Continuum of Three Dimensional Image Data.” Among other things, the complaint identifies Google Street View and Google Earth as infringing Visual Real Estate’s patents. The case number is 3:14-cv-00274-TJC-PDB. On August 20, 2014 Google, Inc. filed four petitions for InterParties Review against the three asserted patents. VRE plans to respond to the petition prior to December 31, 2014.
Subsequent to the Securities Exchange, the Company changed its fiscal year end to June 30, which is VRE’s year end.
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3.
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Going Concern
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The Company is engaged in limited operations. The ongoing business plan of the Company is to assert its intellectual property rights to monetize its patents through net recoveries. Net recoveries relate to monetary payments received by the Company in respect to its patents through judgments, settlements, royalty agreements, or other disposition of the patents or cash proceeds of any equity actually received as consideration for any such disposition, including those received in connection with litigation.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As shown in the accompanying consolidated financial statements, the Company has incurred losses for all periods presented, as the ongoing business has not yet commenced. The Company has not established an ongoing source of revenues and has funded activities to date primarily from convertible notes offerings. In addition, the Company had a working capital deficit as of September 30, 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is subject to a number of risks including, but not limited to, the need to obtain adequate funding and possible risk of failure to monetize its patents. If the Company does not successfully monetize its patents, it will be unable to generate revenues or achieve profitability.
Management’s plan with respect to funding the ongoing operations is to secure equity financing through access to U.S. capital markets as a registrant of the U.S. Securities and Exchange Commission.
While the Company believes it will be successful in obtaining the necessary financing to (i) fund its operations, (ii) monetize its patents and meet revenue projections and (iii) manage costs, it does not currently have any financing plans in place and there are no assurances that such additional funding will be achieved and that it will succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue as a going concern. Operating results for the three month period ended September 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015.
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4.
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Discontinued Operations
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Pursuant to the Securities Exchange, the pre-existing mining business was discontinued.
On April 28, 2014 the Company notified Mexivada Mining Corp. and Compania Minera Mexivada S.A de C.V., of termination of the Mexivada Property Option Agreement dated as of February 11, 2011, as amended October 24, 2011, and that the Company would not pay any further fees or expenses associated with the Agreement. The remaining interests were sold on July 24, 2014.
The following table presents summarized operating results for these discontinued operations. The table below does not present MV Patents because the historical financial information represents the activity of MV Patents as the predecessor business to VRE, and does not include any of the operations of the discontinued exploration stage mining business. The historical financial information for MV Patents for the three months ended September 30, 2013 is included in the accompanying consolidated financial statements.
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Three Months Ended September 30, 2014
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Loss from discontinued operations
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$ | 441 | ||
Components of assets from discontinued operations consist of the following as of September 30, 2014 and June 30, 2014.
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September 30, 2014
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June 30, 2014
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Current assets:
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Property and equipment
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$ | 8,809 | $ | 8,809 | ||||
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Less: accumulated depreciation
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(5,642 | ) | (5,201 | ) | ||||
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Total assets held for sale
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$ | 3,167 | $ | 3,608 | ||||
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5.
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Related Party Transactions
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Officer and director fees totaled $148,250 and $86,524 for the three month periods ended September 30, 2014 and 2013, respectively. The total compensation of officers and directors was recorded as a component of general and administrative expenses.
In September 2014 the Company granted 4,690,339 common stock options to its officers (see Note 10). The total fair value of the award was estimated to be $9,380,675. Share-based compensation expense is recognized ratably over the vesting periods. For the three month period ended September 30, 2014, the Company recognized share-based compensation expense as a component of general and administrative expenses of $2,669,673.
As of September 30, 2014 and June 30, 2014, the Company owed its officers and directors $17,917 for compensation which was recorded as accounts payable and accrued liabilities in its consolidated balance sheets.
In August 2014, the Company issued 300,000 shares of common stock for certain unpatented mining claims valued at $450,000 on the date of the acquisition. The mining claims were owned by a company whose sole owner is an officer and Director of the Company.
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6.
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Derivative Liabilities
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As of September 30, 2014 and June 30, 2014, there were 2,823,128 and 2,820,778 outstanding derivative warrants, respectively, with 1,411,564 and 1,410,389 common shares issuable upon exercise, respectively. The warrants qualify as derivative liabilities due to the existence of reset provisions which cause the instruments to no longer be indexed to the Company’s own stock under FASB ASC 815.
The Company estimated the fair value of the outstanding derivative warrants using a probability-weighted scenario analysis model. As of September 30, 2014 and June 30, 2014, the fair value of the derivative warrants was determined to be $2,283,712 and $2,365,315, respectively resulting in a gain on the change in the fair value of derivative liabilities of $81,603 for the three month period ended September 30, 2014.
The following is a summary of the key assumptions used in the probability-weighted scenario analysis model to estimate the fair value of the warrants as of September 30, 2014 and June 30, 2014:
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September 30, 2014
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June 30, 2014
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Common stock issuable upon exercise of warrants
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1,411,564 | 1,410,389 | ||||||
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Exercise price
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$ | 1.10 |
$0.90 and $1.10
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Market price of the Company’s common stock
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$ | 1.70 | $ | 1.75 | ||||
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Risk free interest rate
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0.58 | % | 0.47 | % | ||||
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Dividend yield
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0.00 | % | 0.00 | % | ||||
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Volatility
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336.01 | % | 278.08 | % | ||||
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Expected term
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1.23-1.79 years
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1.48-2.04 years
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See Note 7 for fair value hierarchy of the derivative liabilities.
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7.
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Fair Value Measurements
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As defined in FASB ASC Topic 820, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Topic requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Pricing inputs other than quoted market prices included in Level 1 that are based on observable market data and are directly or indirectly observable for substantially the full term of the asset or liability. These include quoted market prices for similar assets or liabilities, quoted market prices for identical or similar assets in markets that are not active, adjusted quoted market prices, inputs from observable data such as interest rate and yield curves, volatilities or default rates observable at commonly quoted intervals or inputs derived from observable market data by correlation or other means.
Level 3: Pricing inputs that are unobservable or less observable from objective sources. Unobservable inputs should only be used to the extent observable inputs are not available. These inputs maintain the concept of an exit price from the perspective of a market participant and should reflect assumptions of other market participants. An entity should consider all market participant assumptions that are available without unreasonable cost and effort. These are given the lowest priority and are generally used in internally developed methodologies to generate management's best estimate of the fair value when no observable market data is available.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. Certain assets and liabilities are reported at fair value on a recurring or non-recurring basis in the Company’s consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:
Cash, Prepaid expenses, Accounts payable, Accrued liabilities
The carrying amounts approximate fair value because of the short-term nature or maturity of the instruments.
Derivative liabilities
The Company’s determination of fair value of its derivative instruments incorporates various factors required under FASB Topic ASC 815. See Note 6 for the fair value calculations. The fair values of the Company’s derivatives are valued using less observable data from objective sources as inputs into internal valuation models. Therefore, the Company considers the fair value of its derivatives to be Level 3 hierarchy.
The following table sets forth the fair value hierarchy within our financial assets and liabilities by level that they were accounted for at fair value on a recurring basis as of September 30, 2014 and June 30, 2014:
|
Fair Value Measurement at September 30, 2014
|
||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
||||||||||
|
Liabilities:
|
||||||||||||
|
Warrant derivative liabilities
|
$ | - | $ | - | $ | 2,283,712 | ||||||
|
Total
|
$ | - | $ | - | $ | 2,283,712 | ||||||
|
Fair Value Measurement at June 30, 2014
|
||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
||||||||||
|
Liabilities:
|
||||||||||||
|
Warrant derivative liabilities
|
$ | - | $ | - | $ | 2,365,315 | ||||||
|
Total
|
$ | - | $ | - | $ | 2,365,315 | ||||||
The following table sets forth the changes in the fair value of derivative liabilities for the three month period ended September 30, 2014:
|
Balance, June 30, 2014
|
$ | 2,365,315 | ||
|
Change in fair value of derivative liabilities
|
(81,603 | ) | ||
|
Balance, September 30, 2014
|
$ | 2,283,712 |
|
8.
|
Convertible Notes
|
On September 2, 2014, the Company converted $351,271 of convertible notes, including accrued interest of $26,271, into 3,512,710 shares of the Company’s Series B convertible preferred stock, par value $0.001 (the “Series B Preferred Stock”), at a post-Reverse Split conversion price of $0.10 and subject to a 9.99% conversion blocker. Each share of Series B Preferred Stock will participate in dividends and other distributions on an equivalent basis with common stock. Holders of Series B Preferred Stock shall vote together with the holders of common stock as a single class, and each holder of outstanding shares of Series B Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series B Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on a particular matter.
On August 26, 2014, the Company converted $3,858,578 of convertible notes, including accrued interest of $198,583, into 7,717,170 shares of the Company’s Series C convertible preferred stock, par value $0.001 (the “Series C Preferred Stock”), at a post-Reverse Split conversion price of $0.50 and subject to a 9.99% conversion blocker. Each share of Series C Preferred Stock will be entitled to a liquidation preference equal to $0.001 per share. Otherwise, the Series C Preferred Stock will be equivalent in all respects to the Common Stock, with each share of Series C Preferred stock entitled to one vote and the holders of the Series C Preferred Stock voting together with the holders of the Common Stock. The Series C Preferred Stock is convertible into common stock at a ratio of 1 to 1.
Pursuant to the conversion of convertible notes into Series C Preferred Stock, the Company incurred interest expense of $3,660,000 related to a beneficial conversion feature that existed within the underlying transactions.
During the three month period ended September 30, 2014, additional amortization expense of $211,543 and $689,556 was recognized associated with the debt discounts and deferred financing costs, respectively, related to the notes originally issued in November 2013, February 2014 and March 2014. The discounts and deferred financing costs associated with these notes were completely amortized at September 30, 2014.
|
9.
|
Stockholders’ Equity
|
In August 2014, the Company issued 300,000 common shares for certain unpatented mining claims valued at $450,000 on the date of the acquisition. The mining claims were owned by a company whose sole owner is a related party.
In September 2014, the Company issued 79,530 shares of Series B Preferred Stock as settlement of an outstanding payable of $79,530 for legal fees owed to an unrelated party. The fair value of the shares was determined to be $300,000 resulting in an additional expense of $220,470 recognized during the three months ended September 30, 2014. All shares of Series B Preferred Stock are convertible into common stock at a ratio of 1 to 1.
In September 2014, the Company issued an aggregate of 1,400,000 common shares to unrelated parties in exchange for financial advisory, investment banking and consulting services valued at $2,800,000. The expense was recognized in full during the three months ended September 30, 2014.
In September 2014, the Company issued an aggregate of 169,505 common shares to two unrelated parties as settlement of outstanding payables of $109,159 owed for professional services. The fair value of the shares was determined to be $339,009 resulting in an additional expense of $229,850 recognized during the three months ended September 30, 2014.
In September 2014, the Company issued 20,000 shares of Series D convertible preferred stock (the “Series D Preferred Stock”), to officers and Directors for compensation valued at $40,000. The Series D Preferred Stock will be equivalent in all respects to the Company’s common stock, except that each share of Series D Preferred Stock will be entitled to cast 1,000 votes per share and contain liquidation preference. All shares of Series D Convertible Preferred Stock are convertible into common stock at a ratio of 1 to 1.
As a result of the effectuation of the Reverse Split on September 8, 2014, the Company issued 4,000,000 common shares under an exchange agreement for warrants originally issued in November 2013.
Outstanding shares of Series A convertible preferred stock are convertible into common shares at a ratio of 100 to 1.
|
10.
|
Stock Options and Warrants
|
Options
On February 7, 2014, the Company’s Board of Directors voted to terminate the 2007 Stock Option Plan and adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which provides for the issuance of incentive awards of up to 6,150,564 shares of the Company’s Common Stock to officers, key employees, consultants and directors. The options’ exercise price will be no less than the closing price of the Company’s shares on the day of issuance. When incentive stock options are granted to an employee who, at the time the incentive stock option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company, the per share exercise price will be no less than 110% of the closing price of the Company’s shares on the day of issuance.
On February 7, 2014, the Company granted an aggregate of 4,690,339 common stock options to certain officers and advisors of the Company. The stock options were granted upon the effectuation of the Reverse Split on September 8, 2014. The options are exercisable at $0.50 per share and expire on February 7, 2024. 3,690,339 of the options vest in twelve quarterly installments beginning February 7, 2014 and 1,000,000 of the options vest in twelve monthly installments beginning February 7, 2014. The total fair value of the award was estimated to be $9,380,675. $2,669,673 was expensed during the three months ended September 30, 2014 and $6,711,002 will be recognized over the remaining vesting period of the options. These were the only stock options outstanding at September 30, 2014, leaving 1,460,225 options available for grant under the 2014 Plan.
The estimated fair value of each option award granted was determined on the date of effectiveness of the grant using the Black-Scholes option valuation model. The following weighted-average assumptions were used for the options granted during the three months ended September 30, 2014:
|
2014
|
|
|
Risk-free interest rate
|
2.48%
|
|
Expected volatility
|
312.48% - 317.03%
|
|
Dividend yield
|
0%
|
|
Expected option term
|
10 years
|
A summary of the status of the Company’s stock option plan as of September 30, 2014 and changes during the three months ended September 30, 2014 is as follows:
|
Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Term (Years)
|
Aggregate Intrinsic Value
|
|||||||||||||
|
Outstanding at June 30, 2014
|
- | $ | - | |||||||||||||
|
Granted
|
4,690,339 | 0.500 | ||||||||||||||
|
Outstanding at September 30, 2014
|
4,690,339 | 0.500 | 9.362 | $ | 5,628,407 | |||||||||||
|
Exercisable at September 30, 2014
|
1,198,390 | $ | 0.500 | 9.362 | $ | 1,438,068 | ||||||||||
Warrants
The following table presents the warrant activity during the three month period ended September 30, 2014 presented on a post 1 for 100 Reverse Split basis:
|
Common Shares Covered by Warrants
|
Weighted Average Exercise Price
|
Weighted Average Remaining Term (Years)
|
Aggregate Intrinsic Value
|
|||||||||||||
|
Outstanding at June 30, 2014
|
2,000,689 | $ | 0.894 | 1.879 | $ | 1,860,154 | ||||||||||
|
Granted
|
- | - | ||||||||||||||
|
Reset adjustment
|
1,175 | 1.100 | ||||||||||||||
|
Outstanding at September 30, 2014
|
2,001,864 | $ | 0.924 | 1.627 | $ | 1,555,298 | ||||||||||
|
Exercisable at September 30, 2014
|
2,006,955 | $ | 0.924 | 1.627 | $ | 1,555,298 | ||||||||||
|
11.
|
Retirement Plan
|
Effective January 1, 2014, the Company adopted a qualified 401(k) deferred compensation plan, with deferrals beginning in June 2014. All employees who are eighteen years or older and have worked for at least three consecutive months are eligible to participate in the plan. The plan provides for mandatory safe-harbor matching contributions and discretionary non-elective contributions as determined by management. The Company did not elect to make any contributions for the three month period ended September 30, 2014.
|
12.
|
Commitments and Contingencies
|
Concentration of Credit Risk
The Company maintains its cash in a restricted escrow account in an institution insured by the Federal Deposit Insurance Corporation and, at times, balances may exceed government insured limits. The Company has never experienced any losses related to these balances.
Employment Agreements
The Company has employment agreements with two employees and a separate consulting agreement with one of the Company’s executive officers. The aggregate future commitment under these agreements is as follows:
|
Twelve Months ending September 30,
|
||||
|
2015
|
$ | 475,000 | ||
|
2016
|
430,000 | |||
|
2017
|
150,500 | |||
| $ | 1,055,500 | |||
These agreements provide for additional bonus payments that are calculated as defined.
Other
The Company is involved in various legal proceedings and litigation arising in the ordinary course of business. In the opinion of management and legal counsel, the outcome of such proceedings and litigation will not have a material adverse effect on the Company's consolidated financial statements.
Pursuant to the Securities Exchange the Company agreed to pay the members of MV Patents ten (10%) percent of the net proceeds to be received from any enforcement activities or sales transactions related to the patents owned or applications pending as of the closing of the Securities Exchange.
Outstanding shares of common stock includes 150,000 shares that contain nonstandard anti-dilution provisions which reset with future issuances of common stock if the Company issues any common stock, or securities convertible into or exercisable for shares of common stock, at a price per share or conversion or exercise price per share less than $2.00. These anti-dilution rights mature on December 31, 2015.
|
13.
|
Subsequent Events
|
In October 2014, the Company issued 1,221,250 common shares upon the conversion of 1,221,250 shares of Series B preferred stock.
In October 2014, the Company issued an aggregate of 2,685,555 common shares upon the conversion of 2,685,555 shares of Series C preferred stock.
In October 2014, the Company issued 400,000 common shares and warrants to purchase 900,000 common shares to a third party for consulting services. There are 3 tranches of warrants, each comprising of warrants to purchase 300,000 shares, at exercise prices of $0.50, $1,00 and $2.00 per share. The warrants are exercisable immediately and expire on October 27, 2019.
Statement of Forward-Looking Information
This Report on Form 10-Q and other written and oral statements made from time to time by us may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.
Overview
MV Portfolios, Inc. (“we” or the “Company”) historically has been an exploration stage mining company with a focus on the identification, acquisition and development of rare and precious metals mining properties in the Americas. On February 7, 2014, the Company entered into a securities exchange agreement (the “Securities Exchange”) with MVP Portfolio, LLC, a Florida limited liability company (“MVP Portfolio”), MV Patents, LLC, a Florida limited liability company (“MV Patents”), and the majority member of MVP Portfolio and other members of MVP Portfolio (all such members collectively, the “Members”). Pursuant to the Securities Exchange, the Members sold all of their membership interests in MVP Portfolio to the Company in exchange for an aggregate of 9,385,000 shares of common stock, $0.001 par value per share, taking into account the anticipated reverse stock split of our issued and outstanding common stock on a one for one hundred basis (the “Reverse Stock Split”). Following the Securities Exchange, we assumed the additional line of business of MVP Portfolio as more fully described in our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on February 10, 2014.
On March 6, 2014, MVP Portfolio changed its form of organization to a Florida corporation from a Florida limited liability company, and changed its name to Visual Real Estate, Inc. (“VRE”). VRE has historically maintained a June 30 fiscal year which has been adopted as the fiscal year for the Company.
VRE is a development-stage company engaged in the business of patent licensing and assertion of rights under patents against parties believed to be selling goods or services that rely upon VRE’s patented technology. VRE owns a patent portfolio it refers to as “Video Drive-by” and online mapping, which has been used commercially. VRE currently owns a patent portfolio consisting of eight issued and sixteen pending patents. The patents disclose systems and methods for providing video drive-by data to enable a street level view of a neighborhood surrounding a geographic location.
The systems include, generally, a video and data server farm incorporating at least one video storage server that stores video image files containing video drive-by data corresponding to a geographic location, a data base server that processes a data query received from a user over the internet and an image processing server.
The Securities Exchange was consummated in anticipation of the Reverse Stock Split, which was effectuated on August 28, 2014; all share and per share amounts herein reflect the 1 for 100 Reverse Stock Split.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Our historical results of operations up to February 6, 2014 reflect the business of MV Patents, which operated the VRE business, and MVP Portfolio, as the predecessor of the Company’s business. Results of operations from February 7, 2014 through the date of this report include the pre-Securities Exchange business unrelated to VRE, which is reflected as discontinued operations in the consolidated financial statements, and the business of VRE. The results of operations for the three months ended September 30, 2014 include the consolidated results of operations of MV Portfolios, Inc. and Subsidiaries including (i) CalGold de Mexico, S. de R.L. de C.V., formed to explore mining opportunities in Mexico, and included in discontinued operations and (ii) VRE.
Results of operations for the three month periods ended September 30, 2013 includes the results of operations of MV Patents, as the predecessor business to VRE.
Comparison of the three months ended September 30, 2014 and September 30, 2013
Our general and administrative expenses totaled $6,927,127 and $150,727 for the three months ended September 30, 2014 and 2013, respectively. General and administrative expenses increased to $6,927,127 for the three months ended September 30, 2014 from $150,727 for the three months ended September 30, 2013, primarily due to fees paid to consultants and professional service providers, and share based compensation for the officers of the company.
We recorded non-operating expense of $4,548,340 during the three months ended September 30, 2014, compared to non-operating expenses of $3,399 during the three months ended September 30, 2013. The increase was primarily related to interest expense of $3,660,000 associated with the beneficial conversion feature on certain notes payable that were converted into Series C Preferred Stock on August 26, 2014. The company also incurred interest expense of $901,099 associated with the amortization of debt discounts and deferred financing costs, related to notes originally issued in November 2013, February 2014 and March 2014.
We had a net loss of $11,475,908 for the three months ended September 30, 2014 and a net loss of $154,126 for the three months September 30, 2013, including losses from discontinued operations of $441 and $0, respectively, relating to the pre-Securities Exchange mining activities of MV Portfolios and Subsidiary.
Liquidity and Capital Resources
Our cash and cash equivalents balance as of September 30, 2014 was $554,503 compared to $1,468,401 as of June 30, 2014. The decrease resulted primarily from the repayment of $300,000 of convertible notes and compensation expense to officers and employees of the Company.
In the future, we expect to seek to raise additional capital through additional sales of our equity or debt securities. There can be no assurance, however, that such financing will be available to us or, if it is available, that it will be available on terms acceptable to us and that it will be sufficient to fund our expected needs. If we are unable to obtain sufficient financing, we may not be able to proceed with our new business plan or meet our ongoing operational working capital needs.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles requires management to select appropriate accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.
In preparing our consolidated financial statements, we make estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methods. In some cases, these estimates are particularly difficult to determine and we must exercise significant judgment. We periodically evaluate our estimates and judgments that are most critical in nature. We believe that the following discussion of critical accounting policies address all important accounting areas where the nature of accounting estimates or assumptions is material due to the levels of subjectivity and judgment. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.
Derivative Financial Instruments
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. The estimated fair value of derivative warrants was calculated using a probability-weighted scenario analysis model at each measurement date. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period, in accordance with FASB ASC Topic 815, Derivatives and Hedging. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Stock-Based Compensation
The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under FASB ASC Topic 718, Compensation - Stock Compensation, which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments over the vesting period.
The Company also adopted FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees, to account for equity instruments issued to parties other than employees for acquiring goods or services. Such awards for services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable.
Commitments
The Company has employment agreements with two employees and a separate consulting agreement with one of the Company’s executive officers. The aggregate future commitment under these agreements is as follows:
|
12 Months ending September 30,
|
||||
|
2015
|
$
|
475,000
|
||
|
2016
|
430,000
|
|||
|
2017
|
150,500
|
|||
|
$
|
1,055,500
|
|||
These agreements provide for additional bonus payments that are calculated as defined.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not applicable.
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the quarterly period ended September 30, 2014, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, the Company’s management has concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2014.
However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. We believe that the foregoing steps will remediate the material weakness identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.
Management is in the process of determining how best to make the required changes that are needed to implement an effective system of internal control over financial reporting. Our management acknowledges the existence of this problem, and intends to develop procedures to address it to the extent possible given the Company’s limitations in financial and human resources.
Changes in Internal Controls over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II
OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
In the ordinary course of business, we actively pursue legal remedies to enforce our intellectual property rights. Other than ordinary routine litigation incidental to the business and other than as set forth below, we know of no material, active or pending legal proceedings against us.
On March 17, 2014, Visual Real Estate, Inc., our wholly-owned subsidiary and successor to MVP as a result of a corporate reorganization, filed a patent infringement lawsuit against Google Inc. in the United States District Court for the Middle District of Florida. The lawsuit claims infringement of three of Visual Real Estate’s patents: U.S. Patent number 7,389,181, entitled “Apparatus and Method for Producing Video Drive-By Data Corresponding to a Geographic Location”; U.S. Patent number 7,929,800, entitled “Methods and Apparatus for Generating a Continuum of Image Data”; and U.S. Patent number 8,078,396, entitled “Methods for and Apparatus for Generating a Continuum of Three Dimensional Image Data.” Among other things, the complaint identifies Google Street View and Google Earth as infringing Visual Real Estate’s patents. The case number is 3:14-cv-00274-TJC-PDB. On August 20, 2014 Google, Inc. filed four petitions for InterParties Review against the three asserted patents. VRE, Inc. plans to respond to the petition before the end of the year.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
The following issuances of securities were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended:
On August 24, 2014 we issued 300,000 common shares to The David Stephen Group, LLC, an entity affiliated with David Rector, our Chief Operating Officer and a director. These shares were issued as compensation for the assignment of certain unpatented mining claims located in Lander County, Nevada.
On September 8, 2014 we issued 400,000 common shares to a third party for consulting services.
On September 10, 2014 we issued 19,505 shares to a third party as compensation for bookkeeping services.
On September 16, 2014 we issued 150,000 common shares to a third party as compensation for legal services.
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
Not applicable.
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not applicable.
|
ITEM 5.
|
OTHER INFORMATION
|
None.
ITEM 6. EXHIBITS
|
Exhibit Number
|
Description
|
|
|
10.1
|
Assignment and Assumption Agreement between the Company and David Rector, dba The David Stephen Group
|
|
| 10.2 | Assignment of Mining Rights (1) | |
|
31.1
|
Certification of Chief Executive Officer of MV Portfolios, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification of Chief Financial Officer of MV Portfolios, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification of Chief Executive Officer of MV Portfolios, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
| 32.2 | Certification of Chief Financial Officer of MV Portfolios, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(1) Translated into English from original Spanish
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
MV Portfolios, Inc. (Registrant)
|
|||
|
November 14, 2014
|
By:
|
/s/ William D. Meadow
|
|
|
William D. Meadow
|
|||
|
Chief Executive Officer
(Principal Executive Officer)
|
|||
|
November 14, 2014
|
By:
|
/s/ Shea Ralph
|
|
|
Shea Ralph
|
|||
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|||