UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

 

For Quarter Ended:	March 31, 2012
Commission File Number:	814-00720

 

LOS ANGELES SYNDICATE OF TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

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

 

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

(Address of principal executive office) (zip code)

 

(702) 943-0320

(Issuer’s telephone number)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to file such files). Yes x No ¨.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

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

 

The number of shares outstanding of registrant’s common stock, par value $.001 per share, as of March 31, 2012, is 11,826,899 shares.

 

 

Los Angeles Syndicate of Technology, Inc.

 

INDEX

 

		Page
		No.
Part I	Financial Information
Item 1:	Condensed Financial Statements
	Statements of Net Assets as of March 31, 2012 and December 31, 2011	3
	Statements of Operations – For the Three Months Ended March 31, 2012 and 2011	4
	Statements of Cash Flows – For the Three Months Ended March 31, 2012 and 2011	5
	Statements of Changes in Net Assets – For the Three Months Ended March 31, 2012 and 2011	6
	Financial Highlights – For the Three Months Ended March 31, 2012 and 2011	7
	Schedule of Investments as of March 31, 2012	8
	Schedule of Investments as of December 31, 2011	9
	Notes to Condensed Financial Statements	10
Item 2:	Managements' Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3:	Quantitative and Qualitative Disclosure about Market Risk	29
Item 4:	Controls and Procedures	29
Part II	Other Information	30
Item 1:	Legal Proceedings	30
Item 1A:	Risk Factors	30
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3:	Defaults Upon Senior Securities	30
Item 4:	Submission of Matters to a Vote of Security Holders	30
Item 5:	Other Information	30
Item 6:	Exhibits	30
Signatures		31
Exhibits

 

 

PART 1: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

 

Los Angeles Syndicate of Technology, Inc.

Statements of Net Assets

 

		March 31,				December 31,
		2012				2011
						(Restated)
						(Audited)
ASSETS
Investments in portfolio companies:
Controlled (cost $427,153 at March 31, 2012 and $411,004 at December 31, 2011)		$	10,404,827			$	11,659,497
Non-controlled (cost $0 at March 31, 2012 and $0 at December 31, 2011)			-				-
Total investments			10,404,827				11,659,497
Cash and cash equivalents			15,146				11,462
Office furniture and equipment, net			9,044				9,803
Deposit			8,600				8,600
TOTAL ASSETS			10,437,617				11,689,362
LIABILITIES
Accounts payable, trade			20,924				5,445
Amounts due to related parties			121,727				120,990
Deferred income taxes			-				-
Accrued payroll expenses			148,194
TOTAL LIABILITIES			290,845				126,435
NET ASSETS		$	10,146,772			$	11,562,927
Commitments and contingencies (Note 9)
COMPOSITION OF NET ASSETS:
Common stock, $.001 par value, authorized 100,000,000 shares; 11,826,899 and 11,791,899 shares issued and outstanding at March 31, 2012 and December 31, 2011			11,827				11,792
Additional paid in capital			3,605,824				3,570,859
Stock subscription receivable			(13,300	)			(15,100	)
Accumulated deficit:							-
Accumulated net operating loss			(3,091,008	)			(2,908,872	)
Net realized (loss) on investments			(344,245	)			(344,245	)
Net unrealized appreciation of investments			9,977,674				11,248,493
NET ASSETS		$	10,146,772			$	11,562,927
NET ASSET VALUE PER SHARE		$	0.86			$	0.98

 

See accompanying notes to financial statements.

 

 

Los Angeles Syndicate of Technology, Inc.

Statements of Operations

Three Months Ended March 31

  

		2012				2011
						(Restated)
Investment Income:
From controlled investments:
Management fees		$	10,500			$	27,500
Interest			987				-
Dividends			-				-
Total revenues			11,487				27,500
Expenses:
Officer and employee compensation			136,620				59,000
Professional fees			22,912				7,186
Rent			8,887				7,350
Office supplies and expenses			4,876				2,842
Other general and administrative expense			20,328				5,745
Total expenses			193,623				82,123
Loss before income taxes			(182,136	)			(54,623	)
Income tax expense (benefit)			-				-
Continuing operations income tax adjustment (See Note 7)							(27,000	)
Net loss from operations			(182,136	)			(81,623	)
Net realized and unrealized gains (losses):
Net realized loss on investments, net of income taxes of none
Controlled			-				-
Non-controlled / Non-Affiliate			-				-
Change in unrealized appreciation (depreciation) of investments, net of deferred tax of none in 2012 and 2011
Controlled			(1,270,819	)			2,890,175
Non-controlled / Non-Affiliate			-				-
Net realized and unrealized gains (losses)			(1,270,819	)			2,890,175
Unrealized appreciation income tax adjustment (See Note 7)							2,612,000
Net increase (decrease) in net assets (liabilities) from operations		$	(1,452,955	)		$	5,420,552
Net increase (decrease) in net assets (liabilities) from operations per share, basic and diluted		$	(0.12	)		$	0.47
Weighted average common shares outstanding, basic and diluted			11,803,657				11,647,176

 

See accompanying notes to financial statements.

 

 

Los Angeles Syndicate of Technology, Inc.

Statements of Cash Flows

Three Months Ended March 31

 

		2012				2011
						(Restated)
Cash flows from operating activities:
Net increase (decrease) in net assets (liabilities) from operations		$	(1,452,955	)		$	2,835,552
Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used by operating activities:
Change in net unrealized depreciation (appreciation) of investments			1,270,819				(2,890,175	)
Net realized (gain) loss on investments			-				-
Deferred income taxes			-				-
Deferred income tax adjustment			-				-
Advances to portfolio companies			(16,149	)			(59,288	)
Proceeds from sale of investments			-				-
Depreciation and amortization			759				759
Common stock issued for services			-				-
Changes in operating assets and liabilities:
Deposits and prepaid expenses			-				-
Increase in accounts payable			15,479				3,371
Increase in accrued liabilities			148,194
Increase in amounts due to related parties			737				13,258
IRS refund paid to related party			-				-
Net cash used by operating activities			(33,116	)			(96,523	)
Cash flows from investing activities:
Purchase of furniture and equipment			-				-
Net cash used in investing activities			-				-
Cash flows from financing activities:
Proceeds from issuance of common stock			35,000				125,000
Collection of stock subscriptions			1,800				50,550
Net cash provided by financing activities			36,800				175,550
Net increase in cash and cash equivalents			3,684				79,027
Cash and cash equivalents, beginning of period			11,462				374
Cash and cash equivalents, end of period		$	15,146			$	79,401
Supplemental Cash Flow Information:
Interest paid		$	-			$	-
Income taxes paid			-				-
Non-cash investing and financing activities:
Common stock issued in exchange for:
Amounts due related parties			-				175,000
Stock subscriptions receivable			-				-
Stock subscriptions receivable cancelled			-				12,000
Purchase of portfolio company rescinded			-				65,000
Acquisition of investments			-				-
Convertible note payable issued to CEO			-				-

 

See accompanying notes to financial statements.

 

 

Los Angeles Syndicate of Technology, Inc.

Condensed Statements of Changes in Net Assets

Three Months Ended March 31

 

		2012				2011
						(Restated)
Changes in net assets (liabilities) from operations:
Net loss from operations		$	(182,136	)		$	(81,623	)
Net realized gain (loss) on sale of investments			-				-
Change in net unrealized appreciation (depreciation) of investments, net			(1,270,819	)			2,890,175
Unrealized appreciation income tax adjustment (1)			-				2,612,000
Net increase (decrease) in net assets (liabilities) from operations			(1,452,955	)			5,420,552
Capital stock transactions:
Common stock issued:
Cash			35,000				125,000
Amount due shareholder			-				175,000
Stock subscriptions collected			1,800				50,550
Rescission of investment acquisition			-				(65,000	)
Net increase in net assets from stock transactions			36,800				285,550
Net increase (decrease) in net assets (liabilities)			(1,416,155	)			5,706,102
Net assets, beginning of period			11,562,927				5,829,470
Net assets, end of period		$	10,146,772			$	11,535,572

 

(1) 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).

 

See accompanying notes to financial statements.

 

 

Los Angeles Syndicate of Technology, Inc.

Financial Highlights

Three Months Ended March 31

 

		2012				2011
						(Restated)
PER SHARE INFORMATION
Net asset (liability) value, beginning of period		$	0.98			$	0.49
Net (increase) decrease from operations			(0.02	)			(0.01	)
Net change in realized gains (losses) and unrealized appreciation (depreciation) of investments			(0.11	)			0.25
Net (increase) decrease from changes in deferred liabilities (1)			-				0.22
Net increase (decrease) from stock transactions (2)			0.00				0.02
Net asset (liability) value, end of period		$	0.86			$	0.98
Per share market value:
Beginning of period		$	2.25			$	2.50
End of period		$	2.50			$	2.50
Investment return, based on change in market price from beginning to end of period (3)			11.1	%			0.0	%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period		$	10,146,772			$	11,535,572
Average net assets			10,854,850				8,682,521
Annualized expenses			774,493				328,492
Annualized net increase (decrease) in net assets from  operations			(5,811,819	)			11,342,208
Annualized ratio of expenses to average net assets			7.1	%			3.8	%
Annualized ratio of net increase (decrease) in net assets from  operations to average net assets			(53.5	%)			130.6	%
Shares outstanding at end of period			11,826,899				11,589,399
Weighted average shares outstanding during period			11,803,657				11,647,176

 

(1) 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).

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

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

 

See accompanying notes to financial statements.

 

 

Los Angeles Syndicate of Technology, Inc.

Schedule of Investments

March 31, 2012

 

				Percent/
		Date of		shares				Number of								Historical				Fair
		acquisition		owned				Shares / Units								cost				value
Investments in controlled portfolio companies:
								Common Stock				Preferred Stock
Virurl, Inc.		Sep-10			56	%			5,780,000				338,422			$	99,195			$	1,624,043
Stockr, Inc.		Sep-10			63	%			5,666,667				-				66,646				2,661,455
LottoPals, Inc.		Sep-10			99	%			6,000,000				-				43,448				3,000,000
Clowd, Inc.		Sep-10			99	%			6,000,000				-				86,086				2,987,551
Sanguine Biosciences, Inc.		Sep-10			42	%			4,000,000				-				98,302				98,302
Stocktown Productions, Inc.		Sep-10			81	%			16,704,953				-				33,476				33,476
																	427,153				10,404,827
Investments in non-controlled portfolio companies-miscellaneous																	-				-
					Total investments											$	427,153				10,404,827
					Cash and other assets, less liabilities																(258,055	)
					Net asset value at March 31, 2012															$	10,146,772

  

See accompanying notes to financial statements.

 

 

Los Angeles Syndicate of Technology, Inc.

Schedule of Investments

December 31, 2011

 

				Percent/
		Date of		shares				Number of				Historical				Fair
		acquisition		owned				Shares / Units				cost				value
Investments in controlled portfolio companies:
Virurl, Inc.		Sep-10			64	%			5,780,000			$	96,398			$	2,887,440
Stockr, Inc.		Sep-10			63	%			5,666,667				66,169				2,661,455
LottoPals, Inc.		Sep-10			99	%			6,000,000				40,359				3,000,000
Clowd, Inc.		Sep-10			99	%			6,000,000				85,027				2,987,551
Sanguine Biosciences, Inc.		Sep-10			42	%			4,000,000				92,902				92,902
Stocktown Productions, Inc.		Sep-10			81	%			16,704,953				30,149				30,149
													411,004				11,659,497
Investments in non-controlled portfolio companies-miscellaneous													-				-
					Total investments							$	411,004				11,659,497
					Cash and other assets, less liabilities												(96,570	)
					Net asset value at December 31, 2011											$	11,562,927

 

See accompanying notes to financial statements.

 

 

Los Angeles Syndicate of Technology, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 1:

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Business and Operations

 

Overview

 

Los Angeles Syndicate of Technology, Inc. (“last.vc”) is a technology incubator that creates, builds, and invests in web and mobile technology companies. We develop businesses in digital media, consumer internet, and social networking, and own six companies at different stages of development.

 

We supply our companies with the capital to cultivate their initial product, and provide hands-on support services to reduce startup costs and accelerate time to market. Our services include product development and design, corporate formation and structure, and exposure to additional financing. last.vc also provides office space, financial and accounting resources, marketing and branding, and legal guidance. By offering these services, we enable our network of entrepreneurs to focus on developing their products. We believe that this structure offers the most value for entrepreneurs and the highest return potential to investors, and results in efficiencies in how companies are built and brought to market.

 

Our mission is to foster technology innovation in Los Angeles by partnering with the most talented entrepreneurs in southern California and providing them with the capital and tools to bring their ideas to market. Los Angeles has no shortage of entrepreneurs or innovation, but currently lacks the infrastructure, capital and expertise to develop these businesses as efficiently as other markets. last.vc is working to change this.

 

last.vc 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).

 

 

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”). This action was taken to best facilitate a planned business model of developing and producing oil and natural gas. The Company entered into a letter of intent to acquire all the major oil and gas properties of Xtreme Oil & Gas, Inc. (XTOG.OB), which was a major shareholder of the Company. After several attempts to reach a deal to purchase the properties of Xtreme, it became evident that a deal could not be reached by the 4th Quarter of 2009.

 

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 in enact a 1 for 50 reverse stock split of the Company’s outstanding Common Stock. Both corporate actions were effective with FINRA 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 with FINRA on October 14, 2010.

 

On February 9, 2011 the Company’s Board of Directors were notified by Vineet Jindal that he was resigning as Chief Investment Officer of last.vc effective immediately in order to assume the role of Chief Executive Officer of Stockr, Inc., a majority owned portfolio company of last.vc.

 

On February 12, 2011 the Company’s Board of Directors were notified by Management that the Company would exercise its repurchase option to purchase 2,700,000 shares of Company Common Stock pursuant to its Share Purchase Agreement and Employment Agreement with Mr. Jindal. Per the terms of the agreement, last.vc repurchased 600,000 shares at Mr. Jindal’s cost value and then cancelled those shares. The Company transferred its right to repurchase the remaining 2,100,000 to employees of last.vc, who repurchased these shares at Mr. Jindal’s original cost value.

 

 

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

 

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. Pursuant to FASB Topic 250, the Company had a change in accounting principle when it re-elected to BDC status. Topic 250 requires retroactive restatement of the company’s financial statements to conform to the current presentation for all periods presented.

 

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, 2010, as filed with the Securities and Exchange Commission.

 

The accompanying financial statements reflect the accounts of last.vc 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 $182,136 during the three months ended March 31, 2012. The Company’s only sources of cash flow have been from the sale of the Company’s restricted common stock, management fees from portfolio companies, and loans from the CEO.

 

The Company is in process of raising funds through private placements of common stock to meet its operating expense requirements and to meet the initial funding requirements of its controlled portfolio companies. If the Company is unable to continue to raise sufficient capital to meet its operating needs, doubt exists 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

 

As noted above, when the Company filed its election to be regulated pursuant to the 1940 Act, it resulted in a change in accounting principle. Accordingly, the financial statements have been restated as if the Company was operating as a BDC for all periods presented. Pursuant to Regulation S-X, Rule 6, the Company will operate on a non-consolidated basis.

 

Management Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America 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. At March 31, 2012 and 2011, there are no potentially dilutive common stock equivalents. Accordingly, no common stock equivalents are included in the earnings (loss) per share calculations and basic and diluted earnings per share are the same for all periods presented.

 

 

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 this conversion, only marketable debt and equity securities and certain derivative securities were required to be carried at market value.

 

Portfolio assets for which market prices are available are valued at those prices. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date. However, 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 BOD and outside professionals as necessary under the Company’s valuation policy. Currently, the valuation policy provides for management’s review of the management team, financial conditions, and products and services 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 March 31, 2012 and 2011, 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).

 

 

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. This treatment is similar to the treatment discussed above.

 

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. 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 all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property and equipment exists at March 31, 2012 and December 31, 2011. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment 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 March 31, 2012 and December 31, 2011, there were zero options outstanding from the 1997 Plan. 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.

 

 

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 March 31, 2012, 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 March 31, 2012 and December 31, 2011, the valuation of which are all based on Level 3 inputs:

 

		2012				2011
Cost		$	427,153			$	411,004
Unrealized appreciation (depreciation)			9,977,674				11,248,493
Fair market value		$	10,404,827			$	11,659,497

 

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.

 

At March 31, 2012, all of our portfolio investments are valued based on level 3 inputs.

 

The Financial Accounting Standards Board (“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 by unrelated investors 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 its assets less the fair value of its liabilities. When applying this approach, we evaluate (1) the aggregate amount of capital invested by LAST 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.

 

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 BOD and subsequently discussed with members of our advisory board.

 

3.

The BOD 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 March 31, 2012, 100% of our assets represented investments in portfolio companies recorded at fair value, as determined by our BOD. 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 March 31, 2012.

 

Company		Industry		Sub-Industry		% Owned				Market Value
Virurl, Inc.		Web-based tech		Advertising			56	%			1,624,043
Stockr, Inc.		Web-based tech		Financial Services			63	%			2,661,455
LottoPals, Inc.		Web-based tech		Social Gaming			99	%			3,000,000
Clowd, Inc.		Web-based tech		Location-based Communication			99	%			2,987,551
Sanguine Biosciences, Inc.		Biotechnology		Life Science			42	%			98,302
Stocktown Productions, Inc.		Creative Arts		Productions			81	%			33,476
										$	10,404,827

  

The following are descriptions of our portfolio companies.

 

1)

Virurl, Inc. – virurl.com (open Alpha)

 

Virurl, Inc. (“Virurl”), is an online advertising platform that allows advertisers to pay people to share links with their friends. By creating a forum where users are paid for sharing links, the VIRURL platform empowers content creators and advertisers to tap the organic social networks of the web to drive traffic to their sites.

 

Virurl is a “human-powered” advertising engine, enabling users to monetize what they are already doing everyday - sharing links with their friends.

 

 

2)

Stockr, Inc. – stockr.com (private Beta)

 

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

 

3)

Clowd, Inc. – clowd.com (stealth)

 

Clowd, Inc. (“Clowd”) is a communication platform that connects users based on location, not on who they know or follow. Clowd enables users to engage with those nearby from their phone to see the conversations happening at that moment. From nearby conversations among conference attendees to mobilized groups in distant countries, Clowd helps you connect with similar people in unfamiliar environments.

 

4)

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.

 

5)

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

 

Sanguine Biosciences, Inc. (“Sanguine”) is an international supplier of DNA data and bio-specimen to research organizations for the development of personalized medicines. Sanguine provides highly viable primary human cells and tissues to both the academic and industrial life science research communities through a new direct-to-patient platform. The current product offering spans customers’ needs in the In Vitro Research & Development stage of Drug Development. Sanguine’s vision is to develop into the global leader in high quality cells and tissues for life science research and development.

 

 

6)

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

 

Stocktown Productions 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 11,826,899 and 11,791,899 common shares outstanding at March 31, 2012 and December 31, 2011, respectively.

 

During the three months ended March 31, 2012, the Company sold 35,000 shares of its common stock for $35,000 in cash.

 

Effective August 31, 2010, the Company completed a 50:1 reverse stock split. All share transactions disclosed in the financial statements have been restated to give effect to the change.

 

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 September 27th, 2010 the Company entered into restricted share purchase agreements to offer restricted shares of the Company’s common stock for $.02 per share. The Company issued 11,510,000 shares to the CEO and 21 other individuals that had been engaged to join last.vc as executive officers, advisors, and consultants. The share purchase agreement contains a one year lock on the transfer of the shares and a 36 month vesting and repurchase provision that allows the Company to repurchase unvested shares at cost should an individual break the terms of their engagement agreement.

 

On September 28th, 2010 the Company issued 350,000 shares of Company common stock to Brad Curry pursuant to a debt to equity conversion agreement. Under the agreement, Mr. Curry agreed to convert $3,500 remaining debt to common stock at $.01 per share and forgive $3,000 of debt owed by the Company.

 

 

On November 24, 2008, the Company amended its Letter of Intent dated October 1, 2008, in which the Company agreed to acquire working interests in certain oil and gas properties and two operating companies from a shareholder, Xtreme Oil & Gas, Inc. The parties agreed to extend the closing date until March 30, 2009, in exchange for issuance of 50,000 shares of the Company’s common stock to Xtreme as an extension fee. The total purchase price was to be reduced by the extension fee. The shares were originally valued at $1,275,000, the amount at which the stock was trading on the date of the amendment and the total was initially expensed as an extension fee. On April 6, 2009, the Company and Xtreme agreed to rescind the extension agreement and the 50,000 shares were returned to the Company and cancelled. The LOI expired under its original terms on December 31, 2008; therefore the extension fee is not reflected in the financial statements. Xtreme owned 32.66% of the Company's common stock as of December 31, 2009. On May 10, 2010, Xtreme entered into a stock purchase agreement with the Company's CEO and the Company's CEO acquired the 8,000 shares previously owned by Xtreme.

 

At March 31, 2012 and December 31, 2011, the Company owed its CEO $121,727 and $120,990, respectively, for loans, accrued compensation and expense reimbursements, which is included in due to related parties. On March 30, 2011, the Company issued its CEO 175,000 shares of its common stock in exchange for $175,000 owed to the CEO.

 

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

 

As a result of the Xtreme merger not being completed and effective July 1, 2010, officers and employees of Xtreme returned 5,800 shares of the Company's common stock to be cancelled. Mr. Knight also returned 541 shares to be cancelled. The 6,341 shares were cancelled by the transfer agent on July 19, 2010. The cancellation of the shares was recorded as a contribution to capital by the shareholders on July 1, 2010.

 

Effective July 11, 2010, Knight, Inc., wholly owned by Bryce Knight, Chief Executive Officer of the Company, acquired 10,000 newly issued shares of the Company's common stock in exchange for $5,000 in cash previously paid to the Company. On September 27, 2010, Knight, Inc. acquired 3,250,000 shares pursuant to a share purchase agreement in exchange for $65,000 owed to Knight, Inc.

 

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

 

On February 12, 2011 the Company’s Board of Directors were notified by Management that the Company would exercise its repurchase option to purchase 2,700,000 shares of Company Common Stock pursuant to its Share Purchase Agreement and Employment Agreement with Mr. Jindal. Per the terms of the agreement, last.vc repurchased 600,000 shares at Mr. Jindal’s cost value and then cancelled those shares. The Company transferred its right to repurchase the remaining 2,100,000 to employees of last.vc, who repurchased these shares at Mr. Jindal’s original cost value.

 

 

On February 23, 2012, Knight, Inc., wholly owned by Bryce Knight, Chief Executive Officer of the Company, transferred 150,000 shares to three consultants for services to be rendered for the Company.

 

NOTE 6:

COMMITMENTS AND CONTINGENCIES

 

General

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

 

Leases

The Company currently maintains its corporate office at 3651 Lindell Road, Suite D#146, Las Vegas, Nevada 89103 on a month-to-month basis. Our chief executive officer is providing the space at minimal cost. In addition, we have maintained operations offices in Santa Monica, California, one of which is under a lease with the term ending in April 2012 which we expect to extend. Rent expense totaled $8,887 and $7,350 in the quarters ended March 31, 2012 and 2011, respectively.

 

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

 

NOTE 7:

INCOME TAXES

 

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

 

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

 

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

 

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

 

 

NOTE 8:

SUBSEQUENT EVENTS

 

N/A

 

NOTE 9:

AMENDMENT TO CONSOLIDATED FINANCIAL STATEMENTS

 

References to the quarterly period ended March 31, 2011 refer to the Form 10-Q/A filed by the Company with the Securities and Exchange Commission on August 24, 2011 (the “2011 10-Q/A”). The 2011 10-Q/A amended the Registrant’s annual report on form 10-Q for the quarterly period ended March 31, 2011, as filed with the Securities and Exchange Commission on May 13, 2011 (the “Amendment”).

 

The Amendment introduced the Company’s intention to elect to be taxed as an RIC under Subchapter M of the Internal Revenue Code of 1986, and recorded a deferred tax liability related to unrealized gains generated by the Company in the year ended December 31, 2010. See Note 7: Provision for Income Taxes for additional detail. The Amendment also reclassified the input level upon which we base our fair value measurements from Level 2 inputs to Level 3 inputs. See Note 4: Investments and Valuations for additional detail on the fair value hierarchy.

 

NOTE 10:

PRIOR YEAR ADJUSTMENTS

 

Certain reclassifications have been made in the accompanying financial statements to reflect changes in the treatment of the elimination of a deferred tax liability related to unrealized gains generated by the Company in the year ended December 31, 2010. Two income tax adjustments were applied to Statement of Operations for the period ended March 31, 2011 to reflect the elimination of the associated deferred tax liability. See Note 7: Income Taxes for more detail on these adjustments.

 

  

ITEM 2:       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD LOOKING STATEMENTS

 

Certain statements contained in this report that are not historical fact are "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "believes," "estimates," "projects" or similar expressions are intended to identify these forward-looking statements. These statements are subject to risks and uncertainties beyond our reasonable control that could cause our actual business and results of operations to differ materially from those reflected in our forward-looking statements. The safe harbor provisions provided in the Securities Litigation Reform Act do not apply to forward-looking statements we make in this report. Forward-looking statements are not guarantees of future performance. Factors that may cause actual results to differ materially from those contemplated by our forward-looking statements include the following:

 

·

our limited operating history;

 

·

our ability to successfully compete with other venture capital companies in obtaining attractive portfolio companies;

 

·

general economic or business conditions may be worse than expected

 

·

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

 

·

legislative or regulatory changes may adversely affect our business;

 

·

our operating costs may be greater than expected;

 

·

we could lose key personnel, or spend a greater amount of resources attracting, retaining and motivating them than we have projected; and

 

·

our inability to raise additional capital if needed.

 

We based our forward-looking statements on our current expectations about future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations actually will be achieved. We are under no duty to update any of the forward-looking statements after the date of this filing to conform those statements to actual results. In evaluating these statements, you should consider various factors, including the Risk Factors.

 

 

Company

Los Angeles Syndicate of Technology, Inc. (“last.vc”) is a technology incubator that creates, builds, and invests in web and mobile technology companies. We develop businesses in digital media, consumer internet, and social networking, and own six companies at different stages of development.

 

We supply our companies with the capital to cultivate their initial product, and provide hands-on support services to reduce startup costs and accelerate time to market. Our services include product development and design, corporate formation and structure, and exposure to additional financing. last.vc also provides office space, financial and accounting resources, marketing and branding, and legal guidance. By offering these services, we enable our network of entrepreneurs to focus on developing their products. We believe that this structure offers the most value for entrepreneurs and the highest return potential to investors, and results in efficiencies in how companies are built and brought to market.

 

Our mission is to foster technology innovation in Los Angeles by partnering with the most talented entrepreneurs in southern California and providing them with the capital and tools to bring their ideas to market. Los Angeles has no shortage of entrepreneurs or innovation, but currently lacks the infrastructure, capital and expertise to develop these businesses as efficiently as other markets. last.vc is working to change this.

 

last.vc 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).

 

Critical Accounting Policies and Estimates

 

Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, we will evaluate our estimates and judgments, including those related to revenue recognition, valuation of investments in portfolio companies, accrued expenses, financing operations, contingencies and litigation. We will base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We became a non-diversified internally managed, closed-end investment company under the Investment Company Act of 1940, as amended, in November 2009. Accordingly, the most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, such as the investments in portfolio companies. These accounting policies are described at relevant sections in this discussion and analysis and in the "Notes to Financial Statements" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

 

 

Results of Operations

 

Comparison of the three months ended March 31, 2012 and 2011

 

Revenues - The Company received $10,500 in management fee revenues from its controlled portfolio companies in 2012, down from $27,500 in 2011. As the Company's group of portfolio companies expands and matures, the Company expects its management fee income from its portfolio companies will increase and become more consistent. The Company also recorded $987 of interest income related to the accrued interest generated from a convertible note investment prior to the conversion of such notes into preferred stock of Virurl, Inc.

 

The following table details expenses for the three months ended March 31, 2012:

 

		2012				2011
Expenses:
Officer and employee compensation			136,620				59,000
Professional fees			22,912				7,186
Rent			8,887				7,350
Office supplies and expenses			4,876				2,842
Other general and administrative expense			20,328				5,745
Total expenses			193,623				82,123

 

Officer and employee compensation increased in the three months ended March 31, 2012 to $136,620. This increase reflects the Company’s initiation of monthly payroll for its executive team and the associated payroll tax expenses. Professional fees increased in 2012, driven by increases in legal fees, investor relations and public relations fees, and audit fees, partially offset by a reduction in accounting fees. Office supplies and expenses and other general and administrative expense expanded over the amount in 2011, due primarily to the expanded office and facilities for the portfolio companies, and increased travel and entertainment related to fundraising activities.

 

 

The following table details the net realized and unrealized gains (losses) for the three months ended March 31, 2012 and 2011:

 

		2012				2011
Net realized and unrealized gains (losses):
Net realized loss on investments, net of income taxes of none			-				-
Change in unrealized appreciation (depreciation) of investments, net of deferred tax of none in 2011 and 2010			(1,270,819	)			2,890,175
Net realized and unrealized gains (losses)			(1,270,819	)			2,890,175

 

On January 9, 2012, we converted $85,000 of advances to one of our portfolio companies, Virurl, Inc., into an $85,000 convertible note carrying an 8% interest rate. On March 2, 2012, Virurl, Inc. closed a preferred equity financing transaction with third party investor, whereby Virurl, Inc. issued new shares of preferred equity in return for cash proceeds and the conversion of the outstanding convertible notes, including any accrued interest thereon. In connection with this transaction, the Company recorded a $1,263,396 reduction to the carrying value of Virurl, Inc.

 

More detail surrounding unrealized appreciation of investments is discussed in Note 3.

 

Liquidity and Capital Resources

 

The Company incurred a loss from operations of $182,136 during the three months ended March 31, 2012.

 

The Company’s only sources of cash flow have been from the sale of the Company’s restricted common stock, management fees from its portfolio companies and loans from the CEO.

 

The Company is in process of raising funds through private placements of common stock to meet its operating expense requirements and to meet the initial funding requirements of its controlled portfolio companies. If the Company is unable to continue to raise sufficient capital to meet its operating needs, doubt exists about the Company's ability to continue as a going concern.

 

Net Asset Value

 

As a BDC, certain of our activities and disclosures are made in reference to Net Asset Value (“NAV”) which is the value of our portfolio assets less debt and preferred stock. This may be viewed, simply and generalized, as the value of our assets available to our common stock holders. As of the date of the financial information in this report, the value of our portfolio of assets including investments and securities in portfolio companies, other assets and cash is $10,437,617 and from this, are subtracted liabilities and debts of $290,845. There are no shares of preferred stock outstanding but the rights of preferred stockholders would be included if there were. The resulting NAV at March 31, 2012 is $10,146,772. The Net Asset Value per Share (“NAV/S”) is calculated by dividing the NAV by the number of common shares outstanding (11,826,899). The NAV/S is $0.86.

 

 

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4:

CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of March 31, 2012. Based on that review and evaluation, the CEO and CFO concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including insuring that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Controls

 

There have been no changes in internal controls or in other factors that could materially affect these controls during the quarter ended March 31, 2012, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

PART II:

OTHER INFORMATION

 

ITEM 1:

LEGAL PROCEEDINGS

 

Not Applicable.

 

ITEM 1A:

RISK FACTORS

 

Not Applicable.

 

ITEM 2:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

  

During the three months ended March 31, 2012, the Company sold 35,000 shares of its common stock for $35,000 in cash. The shares were sold pursuant to an exemption from registration under Section 4(2) promulgated under the Securities Act of 1933, as amended, and the proceeds of such sales were used for general corporate purposes and to support the growth of our portfolio companies.

 

ITEM 3:

DEFAULTS UPON SENIOR SECURITIES

 

Not Applicable.

 

ITEM 4:

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable

 

ITEM 5:

OTHER INFORMATION

 

Not applicable

 

ITEM 6:

EXHIBITS

 

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

 

Exhibit 31		Certifications pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32		Certifications pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	LOS ANGELES SYNDICATE OF TECHNOLOGY, INC.
DATE		SIGNATURE/TITLE
May 7, 2012		By:	/s/ Bryce Knight
		Bryce Knight
		Chief Executive Officer and
		Chairman
May 7, 2012		By:	/s/ James Jago
		James Jago
		Chief Financial Officer