01—Abstract
Summary
Summary of the 10-K filed August 13, 2012. Cited figures are marked; the original filing is the authoritative source.
This 10-K covers Techs Loanstar, Inc. (OTCQB: TCLN), which was renamed Quture International, Inc. after its August 2011 share exchange with Quture, Inc. The filing does not match the company named in the request (Byrn, Inc., BRRN).
For fiscal year ended April 30, 2012, the financials reflect Quture as the accounting acquirer. Revenue was $40,900,a up from $19,900, but the net loss widened to $2,676,257 from $119,269. About $1.3 million of the expense came from non-cash warrant and stock compensation, and software development ($460,055) and salaries ($227,000) were the other major costs.
The company is a pre-commercial healthcare performance-measurement software business whose products (QualOptima and QSurg) are still being migrated onto the InterSystems platform, and it had no full-time employees. The balance sheet is weak. At April 30, 2012 the company had $51,521b in cash, total liabilities of $2,288,999, and a stockholders' deficit of $(2,203,354).
Its auditor, R.R. Hawkins & Associates, expressed substantial doubt about its ability to continue as a going concern. Management states that current cash will not satisfy requirements for the next twelve months and estimates roughly $480,000c of operating costs plus $48,000 for reporting over that period.
The MD&A also contains a contradictory statement that current cash will be sufficient for the next 12 months, which investors should weigh carefully. Disclosure controls were deemed not effective, with three material weaknesses identified. For investors, the key issues are funding dependence, dilution, and execution risk.
Convertible notes totaling $315,000d in face value convert at a 50% discount to market, and the authorized share count is 2.5 billion against roughly 2.2 billion shares outstanding. The CEO controls about 68% of the voting power.
The InterSystems license expires in September 2012, and the QualOptima commercial launch is planned for later in 2012. The stock traded between $0.0011 and $0.1633 across the two reported quarterly price tables, reflecting high volatility and thin trading.
02—Key points
Key Highlights
- Revenue rose to $40,900 in FY2012 from $19,900 in FY2011, but remains negligible relative to a $2.68 million net loss.
- Net loss increased to $2,676,257 from $119,269, driven largely by $1,307,000 in warrant and stock-based compensation and $460,055 in software development costs.
- Going concern doubt was raised by the auditor; the company had $51,521 in cash against $2,288,999 in total liabilities and a stockholders' deficit of $(2,203,354) at April 30, 2012.
- Management estimates about $528,000 in cash needs over the next twelve months, and management says existing funds are insufficient to meet those needs.
- Convertible notes with $315,000 face value convert at 50% of the average of the lowest three trading prices, creating significant dilution risk; 2.21 billion shares were outstanding as of August 9, 2012.
- The CEO, G. Landon Feazell, controls about 68% of the voting power through Starslide Global Holdings, limiting minority shareholders' influence.
- Disclosure controls and internal control over financial reporting were concluded not effective, citing three material weaknesses including no functioning audit committee and inadequate segregation of duties.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed August 13, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $21K$41K | −48.7% |
| Operating Expenses | $2.33M$139K | +1571.4% |
| Operating Income | $7.55M-$119K | +6431.9% |
| Interest Expense | -$169K-$62K | −173.9% |
| Net Income | -$1.58M-$342K | −361.3% |
| EPS (Basic) | $-0.01$-0.01 | 0.0% |
05—Questions
Frequently Asked Questions
Why did the net loss increase so sharply in fiscal 2012?
Most of the increase came from non-cash charges. Warrant and stock-based compensation totaled $1,307,000, and interest expense plus derivative-related charges added about $391,077 in other expenses. Salaries rose to $227,000, software development to $460,055, and professional fees and rent also increased as the company became public through the reverse merger with Quture.
Can the company continue as a going concern?
The auditor expressed substantial doubt about the company's ability to continue as a going concern. Management acknowledges that current cash will not cover the next twelve months, and it depends on raising capital from private investors, loans, and stock sales. If financing is not secured, management says the company would have to cease operations, and investors could lose their entire investment.
What is the risk of dilution for current shareholders?
Dilution risk is substantial. The company has $315,000 in convertible notes that convert at a 50% discount to market, and it has reserved 140,000,000 shares for these notes. It also has 87,000,000 outstanding warrants and 10,500,000 options, plus a remaining reserve of 120,061,687 shares for the share exchange. Authorized common stock is 2.5 billion shares, and management expects further equity or convertible financing.
Does the company have revenue-generating products and a clear path to commercialization?
Not yet. Revenue was only $40,900 for the year. The flagship QualOptima product is still in demonstration at hospitals such as the University of Miami and Niagara Falls Memorial, and the company plans to negotiate installation contracts in fall 2012. Both products are being migrated to the InterSystems platform, and the InterSystems license expires in September 2012 with renewal under discussion.
06—Continue