What changed in this filing

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Item 1A. Risk Factors

2022-03-14 compared with 2021-03-10 · 116 added, 78 removed, 1 unchanged (99% of the section changed)

consider the following risk factors, in addition to the other information presented or incorporated by reference into this Annual

Report on Form 10-K, in evaluating our business and any investment decision relating to our securities.

Related to our Business

have little operating history upon which to evaluate our business.

recently –

within the past 13 months - withdrew our election to be treated as a BDC under the 1940 Act, and during that same

short span of time have refocused our business on providing short-term specialty finance to private businesses, small-cap public

companies and high-net-worth individuals.

The financial results included in this report relate to our business operations as a

BDC during 2019 (a business in which we are no longer engaged) and our new short-term specialty finance business operations during

Given that our current business has been developed and pursued over the prior 13 months, and the comparative prior-year financials

included in this report reflect the results of operations for a different business, investors have little means to evaluate the

likelihood of our future success.

may need to raise additional capital in the near future to fund operations, and such capital may not be available to us in sufficient

amounts or on acceptable terms.

time being, management believes that our current cash is sufficient to continue operations for the foreseeable future, and has

no potential or actual plans to seek additional financing.

Nevertheless, various future developments may cause us to seek or require

additional financing.

financing could be sought from a number of sources, including but not limited to additional sales of equity or debt securities,

or loans from banks, other financial institutions or affiliates of the Company.

We cannot, however, be certain that any such financing

will be available on terms favorable or acceptable to us if at all.

If additional funds are raised by the issuance of our equity

securities, such as through the issuance of stock, convertible securities, or the issuance and exercise of warrants, then the ownership

interest of our existing shareholders will be diluted.

If additional funds are raised by the issuance of debt or other equity instruments,

we may become subject to certain operational limitations, and such securities may have rights senior to the rights of our common

shareholders.

If adequate funds are not available on acceptable terms, we may be unable to consummate acquisitions or investments

desired by our management and board.

ability to identify and consummate investment opportunities, and any need we may have for additional capital, will almost certainly

be affected by general economic conditions.

economic conditions will almost certainly impact our ability to (i) identify and pursue and consummate investment opportunities,

and (ii) if necessary, seek and obtain additional financing on terms acceptable or favorable to us, if at all.

a deterioration in general economic conditions may slow the development of our business.

are highly dependent on the services provided by certain executives and key personnel.

depends in significant part upon the continued service of our senior management personnel.

In particular, the Company is materially

dependent upon the services of Douglas M.

ITEM 1A RISK FACTORS

You should consider the following risk factors, in addition to the other information presented or incorporated by reference into this Annual Report on Form 10-K, in evaluating our business and any investment decision relating to our securities.

We have little operating history upon which to evaluate our current business.

We withdrew our election to be treated as a BDC under the 1940 Act at the end of 2019, and during the two years since that time have refocused our business on providing short-term specialty finance to private businesses, small-cap public companies and high-net-worth individuals.

Given that our current business has been developed and pursued over the two years prior to this filing, investors have little means to evaluate the likelihood of our future success.

We may need to raise additional capital to fund our operations, and such capital may not be available to us in sufficient amounts or on acceptable terms.

For the time being, management believes that our current cash is sufficient to continue operations for the foreseeable future, and has no potential or actual plans to seek additional financing.

Nevertheless, various future developments may cause us to seek or require additional financing.

For instance, we may determine to seek additional financing to avail ourselves of additional opportunities to provide specialty finance solutions to borrowers.

Alternatively, we may seek additional financing in the event that a material portion of our investments default, leaving us with little means to pay for our operations and continue making investments.

In any event, additional financing could be sought from a number of sources, including but not limited to additional sales of equity or debt securities, or loans from financial institutions or our affiliates.

We cannot, however, be certain that any such financing will be available on terms favorable or acceptable to us if at all.

If additional funds are raised by the issuance of our equity securities, such as through the issuance of stock, convertible securities, or the issuance and exercise of warrants, then the ownership interest of our existing shareholders will be diluted.

If additional funds are raised by the issuance of debt or other equity instruments, we may become subject to certain operational limitations, and such securities may have rights senior to the rights of our common shareholders.

If adequate funds are not available on acceptable terms, we may be unable to consummate acquisitions or investments desired by our management and board.

Our search for and ability to consummate specialty finance investment opportunities may be materially and adversely affected by COVID-19.

The global spread of the strain of coronavirus known as COVID-19 and its variants, declared a global pandemic by the World Health Organization on March 11, 2020, has resulted in governmental impositions of mandatory closures, quarantines and other restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions.

It is unclear whether the pandemic may significantly worsen during the upcoming months, which may result in further restrictions on business, travel, and other activities.

The COVID-19 pandemic has adversely affected the domestic and global economies and financial markets, and the business of our potential borrowers could be materially and adversely affected, decreasing our appetite to consummate transactions that we might have otherwise concluded were attractive.

Furthermore, we may be unable to complete an investment if continued concerns relating to COVID-19 continue to restrict travel, limit the ability to have meetings or access a potential borrower’s personnel.

The extent to which COVID-19 impacts our search for new investment opportunities will depend on future developments, which are highly uncertain and cannot be predicted.

If the disruptions posed by COVID-19 or other matters of domestic or global concern continue for an extensive period of time, our ability to consummate investments, or the operations of our potential and actual borrowers, may be materially adversely affected.

Of course, materially adverse effects upon the operations of our actual borrowers could impair their ability to pay us all of the amounts owing to us, or to pay us in a timely manner.

Finally, our ability to consummate additional transactions may be dependent on our ability to raise equity and debt financing.

This ability may be impacted by COVID-19 and other events, including as a result of increased market volatility, decreased market liquidity and third-party financing being unavailable on terms acceptable to us or at all.

Overall, the COVID-19 pandemic may generally have the effect of heightening many of the other risks described in this “Risk Factors” section by increasing their likelihood or amplifying their magnitude.

Changes in laws or regulations, or a failure to comply with laws and regulations, may adversely affect our business, including our results of operations and ultimately the price of our publicly traded securities.

We are subject to various local, state and federal laws and regulations.

Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly.

Those laws and regulations and their interpretation and manner of application or enforcement may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations.

In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination, and results of operations.

Any of these outcomes would likely adversely affect the trading price of our publicly traded securities.

Although we have identified general guidelines that we believe are important in evaluating prospective investment opportunities, we may enter into transactions with borrowers that do not meet such guidelines, increasing the risk that the price of our publicly traded securities could be volatile.

Although we have identified general guidelines for evaluating prospective investment opportunities, it is possible that a borrower with which we enter into a transaction will not have all, or any, of the attributes outlined in those guidelines.

If we complete transactions with borrowers that do not meet some or any of these guidelines, it is possible that such an investment may not be as successful as an alternative opportunity that were to satisfy some or all of those guidelines.

Investments that do not perform as well as imagined, or as well as they otherwise might have, in combination with the public knowledge that we may stray, or have strayed, from strict implementation of our investment guidelines, could affect the volatility of the trading price of our publicly traded securities.

We may provide specialty finance solutions to early-stage companies, financially unstable businesses, or a borrower lacking an established record of revenue or earnings, which could adversely affect the price of our publicly traded securities.

While we believe that being entrepreneurial in our approach to specialty finance is a strength, we may complete investments with an early-stage company, a financially unstable business or an entity lacking an established record of revenues, cash flows or earnings.

These kinds of transactions present numerous risks associated with investing in a business without a proven business model and with limited historical financial data, volatile revenues, cash flows or earnings and difficulties in obtaining and retaining key personnel.

Although our management endeavors to evaluate the risks inherent in each particular investment we consider and make, we may not be able to properly ascertain or assess all of the significant risk factors and we may not have adequate time to complete a full evaluation of those risks.

Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business.

The manifestation of any of these risks could adversely affect the trading price of our publicly traded securities.

Many of our specialty finance investment transactions involve borrowers about which little, if any, information is publicly available, which may impair our ability to identify borrowers able to repay our loans and adversely affect the price of our publicly traded securities.

In pursuing our business, we often interact with a privately held companies about which very little public information exists.

As a result, we are often required to make our investment decision on the basis of limited information, nearly all of which is obtained from the business itself, which may result in our consummating an investment with a borrower that is not as solvent or profitable as we suspected, if at all.

These risks could affect our results of operations and, ultimately, the trading price of our publicly traded securities.

If we are deemed to be an investment company under the 1940 Act, we may be required to institute burdensome compliance requirements and our activities may be restricted.

In such an event, our business would likely be materially and adversely affected.

If we are deemed to be an investment company under the 1940 Act, then our activities may be restricted, including:

● restrictions on the nature of our investments;

● restrictions on the issuance of securities;

● a requirement to register as an investment company;

● adoption of a specific form of corporate structure and changes in corporate governance;

● the hiring of a chief compliance officer, and adoption and implementation of various policies and requirements;

● additional reporting, record-keeping, voting, proxy and disclosure requirements, together with other rules and regulations.

In order not to be regulated as an investment company under the 1940 Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading of “investment securities” and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S.

government securities and cash items) on an unconsolidated basis.

We do not believe that our principal activities will subject us to the 1940 Act.

To this end, we hold reserve un-invested assets in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940 Act, which invest only in direct U.S.

government treasury obligations.

Furthermore, we monitor our investment holdings as a whole to ensure that investments and other holdings which may be considered “investment securities” do not comprise more than 40% of our total assets.

We undertake this analysis (1) on a quarterly basis and in connection with the review and preparation of our financial statements filed as part of our quarterly and annual reports with the SEC, and (2) at other times when we are considering how to structure a new transaction that is of a significant size—with “significance” largely based on the outcome of our most recent quarterly review.

This review is generally undertaken by our Chief Financial Officer and may involve outside legal counsel, in particular in a case where we are considering the structure of a potential new transaction.

If, however, we do not invest as discussed above or are otherwise unsuccessful in ensuring that no more than 40% of our total assets consist of “investment securities,” then we may be deemed to be subject to the 1940 Act.

If that were to be the case, compliance with the additional regulatory burdens imposed under the 1940 Act would require additional expenses for which we have not allotted funds, and would surely hinder our ability to operate as profitably as we have since the withdrawal of our BDC election.

This outcome would of course adversely affect the trading price of our publicly traded securities.

We may engage in transactions with businesses that may be affiliated with our officers, directors or significant shareholders, and which may involve actual or potential conflicts of interest.

We may decide to make investments in one or more businesses affiliated with our officers, directors or significant shareholders.

Such investment opportunities may compete with other opportunities for our investment dollars.

Although we are not specifically focusing on, or targeting, any particular transaction with any affiliates or affiliated entities, we would pursue such a transaction if we determined that such an affiliated investment were attractive from a risk-adjusted return perspective, and such transaction were approved by a majority of our independent and disinterested directors.

Any such activity would involve actual or potential conflicts of interest.

Although we are confident that we can navigate these conflicts consistent with best practices and applicable law, the existence or appearance of such conflicts of interest could make our publicly traded securities less attractive and thereby reduce their trading prices.

A limited number of shareholders control substantially all of our voting stock and, as a result, control the election of our Board of Directors.

As a result, these shareholders may exert an influence on actions requiring a shareholder vote, potentially in a manner that you do not support.

Five shareholders own shares representing approximately 63.42% of our issued and outstanding common stock.

As a result, investors in our common stock cannot reasonably expect to have any influence over the election of our directors or other matters submitted to a vote of our shareholders.

Instead, our existing significant shareholders will exert a substantial influence on the election of our directors and any actions requiring or otherwise put to a shareholder vote, potentially in a manner that you do not support.

Examples of such voting matters, apart from the election of our directors, includes amendments to our articles of incorporation, bylaws, and approval of major corporate transactions.

The concentrated amount of control over our affairs held by a relatively few number of significant investors could serve to reduce the attractiveness or liquidity of our common stock, and thereby depress its trading price.

Our ability to identify and consummate investment opportunities, and any need we may have for additional capital, will almost certainly be affected by general economic conditions.

General economic conditions will almost certainly impact our ability to (i) identify and pursue and consummate investment opportunities, and (ii) if necessary, seek and obtain additional financing on terms acceptable or favorable to us, if at all.

Therefore, a deterioration in general economic conditions may adversely affect our business or slow the growth of our business.

We are highly dependent on the services provided by certain executives and key personnel.

Our success depends in significant part upon the continued service of our senior management personnel.

In particular, we are materially dependent upon the services of Douglas M.

Polinsky, our Chief Executive Officer and Chairman, and Joseph A.

Geraci, II, our

Chief Financial Officer and a director of the Company.

Although we currently have employment agreements with these individuals,

these agreements will not necessarily prevent the departure of these executives, whether due to death, disability, retirement or

Any loss of services provided by these executives would likely have a material and adverse effect on our operations

and ability to execute our business plans.

articles of incorporation grant our board of directors the power to designate and issue additional shares and classes of common

and preferred stock.

Our authorized

capital consists of 250,000,000 shares of capital stock.

Pursuant to authority granted by our articles of incorporation, our board

of directors, without any action by our shareholders, may designate and issue shares in such classes or series (including other

classes or series of preferred stock) as it deems appropriate, and may establish the rights, preferences and privileges of such

shares, including dividends, liquidation and voting rights.

The rights of holders of new classes or series of stock that may be

so designated and issued could be superior to the rights of holders of our common shares.

The designation and issuance of shares

of capital stock having preferential rights could adversely affect other rights appurtenant to shares of our common stock.

any issuances of additional stock—common or preferred—will dilute the ownership interest of then-current holders of

our capital stock and may dilute our book value per share.

stock is thinly traded, which may make it difficult to sell shares of our common stock.

stock is thinly traded and may remain thinly traded for the foreseeable future.

A low trading volume will generally make it difficult

for our shareholders to sell their shares as and when they choose.

Furthermore, low trading volumes are generally understood to

depress market prices.

As a result, our shareholders may not always be able to resell shares of our common stock publicly at the

time and prices that they feel are fair or appropriate.

may not pay dividends on our common stock.

not pay cash dividends on our common stock and have only a limited history of paying dividends.

Accordingly, investors in our common

stock may only obtain a return on their investment, if any, upon a subsequent sale of their shares.

is subject to two operating leases for office space expiring March 31, 2022.

These leases do not have significant lease escalations,

holidays, concessions, leasehold improvements, or other build-out clauses.

Further, the leases do not contain contingent rent provisions.

The leases do not include options to renew.

LEGAL PROCEEDINGS

Geraci, II, our Chief Financial Officer and a director of the our company.

Although we currently have employment agreements with these individuals, these agreements will not necessarily prevent the departure of these executives, whether due to death, disability, retirement or otherwise.

Any loss of the services provided by these executives would likely have a material and adverse effect on our operations and ability to execute our business plans.

Our articles of incorporation grant our Board of Directors the power to designate and issue additional shares and classes of common and preferred stock.

Our authorized capital consists of 250,000,000 shares of capital stock.

Pursuant to authority granted by our articles of incorporation, our Board of Directors, without any action by our shareholders, may designate and issue shares in such classes or series (including other classes or series of preferred stock) as it deems appropriate, and may establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights.

The rights of holders of new classes or series of stock that may be so designated and issued could be superior to the rights of holders of our common shares.

The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights appurtenant to shares of our common stock.

Furthermore, any issuances of additional stock—common or preferred—will dilute the ownership interest of then-current holders of our common stock and may dilute our book value per share.

If social unrest, acts of terrorism, regime changes, changes in laws and regulations, political upheaval or policy changes or enactments occur in a country in which we may operate after we effect our initial business combination, it may result in a negative impact on our business.

Social unrest, acts of terrorism, changes in laws and regulations, political upheaval and policy changes or enactments could negatively impact our business.

These negative impacts would likely adversely affect the trading price of our common stock.

Minnesota law does not require us to hold an annual meeting of shareholders, which could delay the opportunity for our shareholders to elect directors.

We are not required under Minnesota law to hold an annual meeting of shareholders each year.

If, however, we have not held an annual meeting within the prior 15 months, shareholders holding 3% of our then-issued and outstanding shares of common stock will have the power to cause us to call and hold an annual meeting.

Unless and until we hold an annual meeting of shareholders, our shareholders may not be afforded the opportunity to elect directors and to discuss company affairs with management.

We may issue additional common stock or preferred shares without the approval of our shareholders.

Any such issuances would dilute the interest of our shareholders and likely present other risks.

Our articles of incorporation authorize the issuance of up to 250,000,000 shares of capital stock.

Because we have only 10,790,413 shares of common stock issued and outstanding, our Board of Directors has the power and authority to issue a substantial number of additional shares of common stock or preferred shares.

The issuance of additional common stock or preferred shares:

● may significantly dilute the equity interest of our then-current shareholders;

● may subordinate the rights of holders of common stock if preferred shares are issued with rights senior to those afforded our common stock;

● could cause a change in control if a substantial number of common stock are issued, which could result in the resignation or removal of our present officers and directors;

● may adversely affect prevailing market price for our common stock.

Cyber incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss.

We depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of third parties with which we may deal.

Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data.

We have not made a significant investment in data security protection, and we may not be sufficiently protected against such occurrences.

We may not have sufficient resources to adequately protect against, or to investigate and remediate any vulnerability to, cyber incidents.

It is possible that any of these occurrences, or a combination of them, could have adverse consequences on our business and lead to financial loss.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors