NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1:
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Business and Operations
Overview
INVENT Ventures, Inc. (“INVENT”) is a technology venture fund that creates, builds, and invests in web and mobile technology companies. We develop businesses in the consumer Internet, mobile and biotechnology markets, and own six companies at different stages of development.
We supply our companies with the capital to cultivate their initial product, and provide management and operational 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 and the public markets. INVENT also provides 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.
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”.
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.
11
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”.
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, 2013, 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.
GOING CONCERN
The Company incurred a loss from operations of $216,102 during the six months ended June 30, 2014. The Company’s only sources of cash flow have been from investments in the Company’s common stock, borrowing on the company’s line of credit, issuances of convertible notes, management fees from portfolio companies, and loans from its CEO. If the Company is unable to continue to raise sufficient capital to meet its operating needs or generate cash flow from operations, substantial doubt exists regarding the Company's ability to continue as a going concern.
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 continue to operate on a non-consolidated basis.
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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.
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, 2014, the Company had no 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, 2014 and 2013, 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.
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).
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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, 2014 and December 31, 2013. 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.
As of June 30, 2014 and December 31, 2013, 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, 2014:
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Estimated dividends
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None
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Expected volatility
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156.9% - 268.2%
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Risk-free interest rate
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2.53%
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Expected term
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Various (0.25 – 1.54 years)
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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, 2014, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company.
NOTE 3:
INVESTMENTS AND VALUATION
The Company’s investment securities are summarized as follows at June 30, 2014 and December 31, 2013, the valuation of which are all based on Level 3 inputs:
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June 30,
2014
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December 31,
2013
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|
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|
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Cost
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$
|
524,202
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$
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506,387
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Unrealized appreciation (depreciation)
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5,545,630
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9,123,238
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Fair market value
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$
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6,069,832
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$
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9,629,626
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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.
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.
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At June 30, 2014, all of our portfolio investments are valued based on level 3 inputs.
We measure derivative liabilities at fair value using the Black-Scholes option pricing model with assumptions that include the fair value of the stock underlying the derivative instrument, the exercise or conversion price of the derivative instrument, the risk free interest rate for a term comparable to the term of the derivative instrument and the volatility rate and dividend yield for our common stock. For derivative instruments convertible into or exercisable for shares of our preferred stock, we considered the price per share of $.50 paid by unrelated parties as the fair value of our common stock. For derivative instruments convertible into or exercisable for shares of our common stock, we considered the results of a valuation performed by a third party specialist and other internal analyses performed by management to determine the value of our stock at the commitment dates of applicable transactions. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has not paid dividends to date and does not expect to pay dividends in the foreseeable future due to its substantial accumulated deficit. Accordingly, expected dividends yields are currently zero. Expected volatility is based principally on historical stock price volatility and an analysis of historical volatilities of similarly situated companies in the marketplace for a number of periods that is at least equal to the contractual term or estimated life of the applicable financial instrument.
We also considered the use of the lattice or binomial models with respect to valuing derivative financial instruments that feature anti-dilution price protection; however, the differences in the results are insignificant due to the low probability of triggering price adjustments in such financial instruments.
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.
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.
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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, 2014, 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.
Our Portfolio of Investments
The following table represents our schedule of our controlled investments as of June 30, 2014.
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Company
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Industry
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Sub-Industry
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$ Owned
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Market Value
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Virurl, Inc.
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Web-based tech
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Advertising
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48%
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1,277,961
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Stockr, Inc.
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Web-based tech
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Financial Services
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63%
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2,661,455
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LottoPals, Inc.
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Web-based tech
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Social Gaming
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99%
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83,347
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Clowd, Inc.
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Web-based tech
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Location-based Communication
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99%
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99,742
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Sanguine Biosciences, Inc.
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Biotechnology
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Life Science
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42%
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|
1,889,764
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Stocktown Productions, Inc.
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Creative Arts
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Productions
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|
81%
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57,563
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|
|
|
|
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$6,069,832
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The following are descriptions of our portfolio companies.
1)
Virurl, Inc. – virurl.com (revenue-generating)
Virurl, Inc. (“VIRURL”) native advertising technology company that allows brands to create instant viral advertising campaigns on the web. VIRURL operates the REVENUE.COM platform, which 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 network 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. 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.
4)
Clowd, Inc. – clowd.com (stealth)
Clowd, Inc. (“Clowd”) is a real-time mobile communication system that connects people based on proximity and mutual interest.
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.
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 39,787,001 and 36,928,197 common shares outstanding at June 30, 2014 and December 31, 2013, respectively.
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 Assets”). On March 21, 2014, the Company and the seller of the GGAA Assets agreed to reverse the transaction, whereby the Company’s shares were returned to the Company and are in the process of being cancelled, and the GGAA Assets were returned to the seller.
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On June 30, 2014, the Company received four Notices of Conversion from two Convertible Note Holders notifying the Company that they wished to convert the total outstanding balance due from the Company under each of the Convertible Notes into shares of the Company’s common stock. The four combined Notices of Conversion requested that a total of $158,186 of debt, equal to the total outstanding principle and accrued interest due on the four Convertible Notes, be converted into shares of common stock. Per the terms of the Convertible Notes, the outstanding balance was converted into 1,129,902 shares Company common stock at a price equal to Net Asset Value per Share. The foregoing descriptions of the Notices of Conversion are qualified in its entirety by reference to the complete text of one of the Notices of Conversion, a copy of which is attached to our Form 8-K filed on June 30, 2014.
On June 30, 2014, The Company entered into Debt Conversion Agreements with two Promissory Note Holders that held three separate Promissory Notes issued by the Company to convert the total unpaid balances of those Promissory Notes into common stock of the Company. Pursuant to the Debt Conversion Agreements, the Promissory Note Holders will convert the entire balance of all three Promissory Notes equal to $242,046 into a total of 1,728,902 shares of the Company’s common stock at a price equal to Net Asset Value per Share. The foregoing descriptions of the Debt Conversion Agreements is qualified in its entirety by reference to the complete text of one of Debt Conversion Agreements, a copy of which is attached to our Form 8-K filed on June 30, 2014.
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.
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.
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 July 19, 2013, Knight, Inc., wholly owned by Bryce Knight, Chief Executive Officer of the Company, transferred 1,000,000 shares of INVENT common stock to multiple consultants for investor relations and advisory services to be rendered for the Company. Knight Inc. transferred stock to four (4) consultants in the amounts of 400,000 shares, 400,000 shares, 100,000 shares and 100,000 shares, respectively. These shares were valued at $0.24 per share representing the stock market closing price on May 22, 2013, the day in which the four agreements were originally entered into. The cost is being amortized over the estimated life of the consulting agreements, determined to be one (1) year for the two (2) consultants that received a total of 800,000 shares from Knight Inc. and two (2) years for the two (2) consultants that received a total of 200,000 shares from Knight Inc.
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On June 19, 2014, Knight, Inc., wholly owned by Bryce Knight, Chief Executive Officer of the Company, transferred 750,000 shares of INVENT common stock to consultants for investor relations and advisory services to be rendered for the Company. These shares were valued at $0.18 per share representing the stock market closing price on June 18, 2014. The cost is being amortized over the estimated life of the consulting agreement, determined to be one (1) year.
On June 19, 2014, the Company issued four Promissory Notes in the amount of U.S. $175,000 (the “Officer Promissory Notes”) to the Company’s four Officers: Bryce Knight, Tim Symington, James Jago, and Aaron Moore (the “Officers”). The Officer Promissory Notes were issued to each of the Officers in exchange for $175,000 of accrued compensation owed by the Company to the Officers for past services. The Officer Promissory Notes will mature on June 30, 2015 and have a 0% interest rate. The foregoing description of the Officer Promissory Notes is qualified in its entirety by reference to the complete text of the Officer Promissory Notes, copies of which were attached to our Form 8-K filed on June 26, 2014. On June 26, 2014, Bryce Knight transferred $125,000 of the Officer Promissory Notes due to him to two holders of the Company’s Convertible Notes.
At June 30, 2014 and December 31, 2013, the Company owed its CEO $731 and $4,965, respectively, for loans and expense reimbursements, which is included in due to related parties.
INVENT currently collects $24,000 per month, of which $19,200 is paid in cash, from VIRURL for managerial assistance and operational support 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.
We maintain our main office at 1930 Ocean Avenue in Santa Monica, California, which is under a month-to-month lease. Rent expense totaled $8,085 and $3,326 in the quarters ended June 30, 2014 and 2013, respectively.
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.
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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 was 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”). The Company is in negotiations with Threshold regarding a resolution for the Threshold Note. During the first six months outstanding, the Threshold Note bore interest at 7% per annum, and increased to 12% for the remaining six months until the Threshold Note was 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.
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.
On September 27, 2013, Company issued two convertible promissory notes in the amounts of U.S. $50,000 and U.S. $20,000, and on December 31, 2013, the Company issued a convertible promissory note in the amount of U.S. $30,000, (collectively the “Notes”). The Notes mature one year subsequent to their issuance date (“Maturity”), and are convertible into shares of the Company’s common stock at any time prior to Maturity at the lower of $0.27 per share or the Company’s Net Asset Value Per Share (“NAV/S”) as presented in the Company’s most recent quarterly or annual filing with the Securities and Exchange Commission, subject to conversion limitations set forth in the Convertible Promissory Note agreements executed on September 27, 2013 and December 31, 2013, respectively. On March 31, 2014 the Company received an advance in the amount of U.S. $25,000 from an existing holder of a portion of the Notes. The Company expects to convert the advance into promissory notes with substantially the same terms as the Notes.
The Notes bear interest at the rate of 12% per annum, payable upon the earlier of Maturity, acceleration, or prepayment of the Notes. All amounts owed by the Company under the Notes becomes immediately due and payable upon an event of default, which includes the Company’s failure to pay principal or interest on the Notes when due, the Company’s insolvency or failure to pay its debts as they become due, and the Company’s failure to maintain the listing of its common stock on at least one of the OTCBB or an equivalent exchange.
On June 19, 2014, the Company issued four Promissory Notes in the amount of U.S. $175,000 (the “Officer Promissory Notes”) to the Company’s four Officers: Bryce Knight, Tim Symington, James Jago, and Aaron Moore (the “Officers”). The Officer Promissory Notes were issued to each of the Officers in exchange for $175,000 of accrued compensation owed by the Company to the Officers for past services. The Officer Promissory Notes will mature on June 30, 2015 and have a 0% interest rate. The foregoing description of the Officer Promissory Notes is qualified in its entirety by reference to the complete text of the Officer Promissory Notes, copies of which were attached to our Form 8-K filed on June 26, 2014. On June 26, 2014, Bryce Knight transferred $125,000 of the Officer Promissory Notes due to him to two holders of the Company’s Convertible Notes.
On June 23, 2014, INVENT issued a convertible promissory note in the amount of U.S. $50,000 (the “June 2014 Convertible Note”). The June 2014 Convertible Note matures on June 23, 2015, and is convertible into shares of the Company’s common stock at any time prior to its maturity at the lower of $0.27 per share or the Company’s Net Asset Value Per Share (“NAV/S”) as presented in the Company’s most recent quarterly or annual filing with the Securities and Exchange Commission, subject to conversion limitations set forth in the Convertible Promissory Note agreements executed on June 23, 2014.
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The June 2014 Convertible Note bears interest at the rate of 12% per annum, payable upon the earlier of its maturity, acceleration, or prepayment of the Note. All amounts owed by the Company under the Note become immediately due and payable upon an event of default, which includes the Company’s failure to pay principal or interest on the June 2014 Convertible Note when due, the Company’s insolvency or failure to pay its debts as they become due, and the Company’s failure to maintain the listing of its common stock on at least one of the OTCBB or an equivalent exchange.
The foregoing description of the Notes is qualified in its entirety by reference to the complete text of the Notes, copies of which are attached to our Form 8-Ks filed on October 8, 2013, January 3, 2014, and June 26, 2014.
NOTE 9:
SUBSEQUENT EVENTS
The Company has evaluated events occurring after the date of these financial statements through August 11, 2014, the date that these financial statements were issued. There were no material subsequent events as of that date which would require disclosure in or adjustments to these financial statements.
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ITEM 2:
