01—Abstract
Summary
Summary of the 10-K filed August 9, 2011. Cited figures are marked; the original filing is the authoritative source.
Byrn, Inc. (filed as Techs Loanstar, Inc., ticker TCLN) is a development-stage shell that completed a reverse merger with ZenZuu USA, Inc. in February 2010.
The business is an exclusive 10-year U.S. license to ZenZuu's online social network and advertising revenue-share model, but the company has generated no revenue in fiscal 2011 (year ended April 30, 2011) and only nominal revenue since inception. The filing reports a net loss of $830,361a for FY2011 (down from $1,397,739 in the prior eleven-month period, which included an $808,333 license impairment), cash of just $408, total assets of $90,139, total liabilities of $1,458,777, and a stockholders' deficit of $(1,368,638). Management states that current funds are insufficient to continue operations and the auditor (R.R.
Hawkins & Associates) expresses substantial doubt about going concern. The investment case is dominated by dilution and balance-sheet stress. Shares outstanding rose from roughly 43 million to 182.6 million at fiscal year-end and to 342 million by July 29, 2011, driven by a 2-for-1 stock dividend, conversions of convertible notes at steep discounts (up to 45-65%b to market), and stock issued for accounts payable.
Subsequent to year-end, the company issued about 159.5 million more shares through July 31, 2011. The license itself carries a $550,000c unpaid balance and a 25% royalty on local advertising revenue, and the company's dependence on ZenZuu, whose operations were suspended in early 2009, is a central risk. Management has disclosed material weaknesses in internal controls, including no audit committee and no outside directors.
The filing also discloses a pending merger with Q'uture Inc., announced in April 2011 and definitive agreement signed July 25, 2011, which could change the company's business entirely. Investors should weigh the extremely speculative nature of the company, the heavy dilution, the going-concern doubt, and the uncertain outcome of the proposed acquisition.
02—Key points
Key Highlights
- No revenue in FY2011 (year ended April 30, 2011); net loss of $830,361, with operating expenses of $696,094 led by professional fees ($312,327), salaries ($240,000), and stock compensation ($122,500).
- Severe liquidity constraints: $408 in cash against $1.46 million in liabilities, a $1.37 million stockholders' deficit, and an auditor going-concern opinion.
- Heavy dilution: shares outstanding grew from about 43 million (April 2010) to 182.6 million (April 2011) and 342 million (July 2011), with a further 159.5 million shares issued after year-end; convertible notes convert at up to 45% discounts.
- Core asset is an exclusive U.S. license from ZenZuu, Inc. (~$1.0M fee, $550,000 still owed) with a 25% royalty on local advertising revenue; the prior-year $808,333 license impairment reflects doubts about its value.
- Pending acquisition of Q'uture Inc. (definitive merger agreement signed July 25, 2011), which could fundamentally change the business but remains subject to due diligence and audited financial statements.
- Disclosed material weaknesses: no functioning audit committee, no outside directors majority, inadequate segregation of duties, and ineffective period-end reporting controls; disclosure controls concluded not effective.
- Related-party reliance: officers Henry Fong and Barry Hollander accrue unpaid fees (~$792K related-party payables), and the company lacks employees beyond its two officers.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed August 9, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $41K$0 | — |
| Operating Expenses | $139K$4K | +3649.2% |
| Operating Income | -$119K-$4K | −3113.1% |
| Interest Expense | -$62K$0 | — |
| Net Income | -$342K-$4K | −9107.5% |
| EPS (Basic) | $-0.01$-0.01 | 0.0% |
05—Questions
Frequently Asked Questions
Does the company generate any revenue, and how close is it to commercializing its business?
No. The company reported zero revenue for the fiscal year ended April 30, 2011 and only nominal revenue since inception. Management states the business will not have significant operations until the ZenZuu license is commercialized, which depends on rebuilding ZenZuu's membership base and raising additional capital. No timeline for revenue generation is provided.
Can the company continue operating without additional financing?
Unlikely without new capital. With $408 in cash at April 30, 2011, management says current funds are insufficient for the next twelve months, and estimates about $300,000 to continue operations plus $48,000 to maintain SEC reporting status. The auditor has expressed substantial doubt about the company's ability to continue as a going concern, and management has said that without new funding it would have to cease operations.
How much dilution have existing shareholders experienced, and what could come next?
Substantial. Shares outstanding roughly quadrupled during the year, from about 43 million to 182.6 million at April 30, 2011, and reached 342 million by July 29, 2011, after the 2-for-1 dividend and conversions and share issuances for debt and services. Convertible notes with discounts of up to 45% to market price, plus options and warrants outstanding, suggest further dilution is likely if the company continues to finance itself through equity and convertible debt.
What is the status of the Q'uture acquisition and how does it affect the investment thesis?
The company announced plans to acquire Q'uture Inc. in April 2011 and signed a definitive merger agreement on July 25, 2011. Closing is subject to exchange and approval of schedules and exhibits, audited financial statements, and completion of due diligence. The filing does not provide the purchase price or financial details of Q'uture, so investors cannot evaluate the deal's economics from this report, and the outcome would substantially change the company's business from the ZenZuu social network license.
06—Continue