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MV PORTFOLIOS, INC. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of financial condition and results of operations are based on the preparation of our financial statements in accordance with U.S. generally accepted accounting principles, highlight the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described and should be read in conjunction with the financial information included elsewhere in this Annual Report, including our audited financial statements for the years ended June 30, 2014 and 2013 and the related notes. References in this Management's Discussion and Analysis of Financial Condition and Results of Operations to "MV Portfolios," "us," "we," "our," and similar terms refer to MV Portfolios, Inc. (formerly California Gold. Corp.), a Nevada corporation. This discussion includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as "anticipate," "estimate," "plan," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions are used to identify forward-looking statements. Historical information presented relates to MV Patents operations prior to the closing of the MVP Acquisition. Where relevant and applicable we have presented information relating to our financial condition following the closing of the MVP Acquisition. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. See "Note Regarding Forward-Looking Statements." Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in "Risk Factors" and elsewhere in this Annual Report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise. Background and Recent Developments MV Portfolios, Inc. (formerly California Gold Corp.) ("MV Portfolios" or the "Company") is a Nevada corporation. MV Portfolios was an exploration stage mining company with a focus on the identification, acquisition and development of rare and precious metals mining properties in the Americas. On February 7, 2014, the Company entered into a securities exchange agreement (the "Securities Exchange") with MVP Portfolio, LLC, a Florida limited liability company ("MVP Portfolio"), MV Patents, LLC ("MV Patents") a Florida limited liability company and majority member of MVP Portfolio, and other members of MVP Portfolio (all such members collectively, the "Members"). Pursuant to the Securities Exchange, the Members sold all of their membership interests in MVP Portfolio to the Company in exchange for an aggregate of 9,385,000 shares of common stock, $0.001 par value per share, after taking into account an anticipated 1 for 100 reverse stock split (the "Reverse Split") of the Company's issued and outstanding common stock. Following the Securities Exchange, the Company assumed the additional line of business of MVP Portfolio. The Securities Exchange was consummated in anticipation of a 1 for 100 Reverse Split. As of the date of the filing of this Form 10K, the Reverse Split has been effected. All share and per share amounts herein have been retroactively restated to reflect the 1 for 100 Reverse Split. MV Patents, formed on July 11, 2011 has limited operations. MVP Portfolio was formed on July 26, 2013 as a wholly owned subsidiary of MV Patents. On August 30, 2013, MV Patents transferred a portion of its patents without recourse to MVP Portfolio. Pursuant to the Securities Exchange on February 7, 2014, MVP Portfolio ceased to be a subsidiary of MV Patents and became a wholly owned subsidiary of MV Portfolios, Inc. MV Patents is deemed to be the predecessor entity to MVP Portfolio. -25--------------------------------------------------------------------------------- Table of Contents On March 6, 2014, MVP Portfolio changed its form of organization to a Florida corporation from a Florida limited liability company, and changed its name to Visual Real Estate, Inc. ("VRE"). VRE has historically maintained a June 30 fiscal year, through MV Patents, the predecessor business to MVP Portfolio. The Securities Exchange was accounted for as a reverse recapitalization, such that MVP Portfolio (VRE) as of February 6, 2014, the legal acquiree, is considered the acquirer for accounting purposes and VRE is treated as the surviving and continuing entity. Pursuant to the Securities Exchange, the pre-Securities Exchange exploration stage mining business will be discontinued, and the business of VRE will be continued. In addition, VRE's management has assumed operational, management and governance control of the Company. The accounting for a reverse recapitalization is similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets should be recorded. The fair value of the consideration effectively transferred in a reverse recapitalization is equal to the net tangible assets (liabilities) assumed. Results of Operations The financial position, operating results and cash flows presented herein for the periods prior to February 7, 2014, represent those of MV Patents, the predecessor entity. The financial position, operating results and cash flows presented herein for the periods subsequent to February 6, 2014, represent those of the Company and VRE (formerly MVP Portfolio), collectively the successor entity. The results of operations and cash flows for the year ended June 30, 2014 includes the combined results of operations and changes in cash flows of MV Patents from July 1, 2013 through February 6, 2014 and the consolidated results of operations of MV Portfolios and Subsidiaries (including (i) the Company's wholly owned subsidiary, CalGold de Mexico, S. de R.L. de C.V., formed to explore mining opportunities in Mexico, and included in discontinued operations as of and for the periods ending June 30, 2014 and (ii) VRE) for the period February 7, 2014 through June 30, 2014. Fiscal Years Ended June 30, 2014 and 2013 General and administrative expenses increased from $882,120 in the fiscal year ended June 30, 2013 to $1,484,776 in the fiscal year ended June 30, 2014, or 68%, primarily due to professional fees related to accounting and legal services, and increased salary expenses. Our acquisition-related costs increased from $0 in the fiscal year ended June 30, 2013 to $1,075,040 in the fiscal year ended June 30, 2014. Acquisition-related costs increased due to the recent Securities Exchange. Non-operating expenses increased from $4,757 in the fiscal year ended June 30, 2013 to $2,147,704 in the year ended June 30, 2014. The significant change over the prior year was primarily due to the loss on the change in the fair value of derivative liabilities and additional interest expense. We had net loss of $886,877 in the year ended June 30, 2013, and a net loss of $4,923,223 in the year ended June 30, 2014, including losses from discontinued operations of $0 in the year ended June 30, 2013 and $215,703 in the year ended June 30, 2014, relating to the pre-Securities Exchange mining activities of MV Portfolios, Inc. and Subsidiary. Liquidity and Capital Resources Our cash and cash equivalents balance as of June 30, 2013 was $2,523 and was $1,468,401 as of June 30, 2014. Due to our brief history and historical operating losses, our operations have not been a source of liquidity, and our sources of liquidity primarily have been from the sale of debt and proceeds. -26--------------------------------------------------------------------------------- Table of Contents 2014 10% Senior Secured Convertible Notes (the "2014 Notes") On February 7, 2014, concurrently with the closing of the Securities Exchange, we completed a first closing of the 2014 Notes Offering of $2,942,495 in principal amount of our 2014 Notes. On March 3, 2014, we completed a second closing of the 2014 Notes Offering for additional gross proceeds of $992,500. We will use these funds to finance the operations of our new MVP Portfolio related business. An additional $25,000 of the Notes was issued for the settlement of legal fees during the period from February 7, 2014 through March 31, 2014. The Notes bear interest at 10% and mature within one year from the date of issuance. The due date of the February 7, 2014 (the "February Notes") due May 8, 2014 and March 3, 2014 (the "March Notes") due June 1, 2014 were extended on May 30, 2014 to November 2, 2014 by exercise of the Company's right as set forth in Section 1.04 of the Notes to extend the respective maturity dates of the Notes by 90 days in order to provide for shareholder approval of certain proposals that are required prior to conversion of the Notes. The other terms and conditions of the Notes remain unchanged, The Company anticipates that once all requisite shareholder and other approvals are obtained that the Notes will convert in accordance with their terms however if the Notes become due on their due dates, as extended, the Company will not have the capital required to repay the Notes without raising additional capital and may be deemed in default of such Notes. In the future, we expect to seek to raise additional capital through additional sales of our equity or debt securities. There can be no assurance, however, that such financing will be available to us or, if it is available, that it will be available on terms acceptable to us and that it will be sufficient to fund our expected needs. If we are unable to obtain sufficient financing, we may not be able to proceed with our new business plan or meet our ongoing operational working capital needs. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Critical Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles requires management to select appropriate accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. See Note "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," in the accompanying Notes to our consolidated financial statements, for further descriptions of our major accounting policies and for information related to the impact of the implementation of new accounting pronouncements on our results of operations and financial position. In preparing our consolidated financial statements, we make estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methods. In some cases, these estimates are particularly difficult to determine and we must exercise significant judgment. We periodically evaluate our estimates and judgments that are most critical in nature. We believe that the following discussion of critical accounting policies address all important accounting areas where the nature of accounting estimates or assumptions is material due to the levels of subjectivity and judgment. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements. Fair Value Measurements The Company measures fair value in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). -27--------------------------------------------------------------------------------- Table of Contents Deferred Offering and Financing Costs The Company incurred direct incremental costs associated with procuring financing. These costs are deferred and recorded as an asset, and will be amortized over the life of the debt. Intangible Assets The Company has several patent portfolios. As of June 30, 2014 and 2013, no value has been assigned to the patents. The main patents in the portfolio were transferred to MV Patents, the predecessor business to VRE, by a member on July 25, 2011, for the consideration of $1 without recourse. The patents were transferred to VRE on August 30, 2013 without recourse. As such, the patents are recorded at historical cost, which was deemed to be zero at the time of transfer. Derivative Financial Instruments For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For warrants and convertible derivative financial instruments, the Company used a probability-weighted scenario analysis model to estimate the fair values. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period, in accordance with FASB ASC Topic 815, Derivatives and Hedging. Derivative instrument liabilities are classified in the consolidated balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. Stock-Based Compensation The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under FASB ASC Topic 718, Compensation - Stock Compensation , which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments over the vesting period. The Company also adopted FASB ASC Subtopic 505-50, Equity-Based Payments to Non-Employees, to account for equity instruments issued to parties other than employees for acquiring goods or services. Such awards for services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable. Recent Accounting Pronouncements For information regarding recent accounting pronouncements, see Note "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," in the Notes to our accompanying consolidated financial statements. |