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Item 2. Management’s Discussion and Analysis

2022-11-18 compared with 2022-08-15 · 44 added, 31 removed, 81 unchanged (48% of the section changed)

27 unchanged sentences

PORTFOLIO AND INVESTMENT ACTIVITY

During the six months ended June 30, 2022, we made $9,103,580 of investments and loans and had $7,977,898 of redemptions and repayments, resulting in net investments at amortized cost of $15,191,759 at the end of the period.

During the six months ended June 30, 2021, we made $13,250,664 of investments and loans and had $9,889,827 of redemptions and repayments, resulting in net investments at amortized cost of $11,864,762 at the end of that period.

Our investment composition by major class, based on fair value at June 30, 2022, was as follows:

During the nine months ended September 30, 2022, we made $13,924,333 of investments and loans and had $10,076,483 of redemptions and repayments, resulting in net investments at amortized cost of $17,913,927 at the end of the period.

During the nine months ended September 30, 2021, we made $18,133,352 of investments and loans and had $16,363,964 of redemptions and repayments, resulting in net investments at amortized cost of $10,562,451 at the end of that period.

Our investment composition by major class, based on fair value at September 30, 2022, was as follows:

Investments at

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Short-term Non-banking Loans

Preferred Stock

RESULTS OF OPERATIONS

Our operating results for the three and six months ended June 30, 2022 and June 30, 2021 were as follows:

For the Three Months Ended

For the Six Months Ended

Our operating results for the three and nine months ended September 30, 2022 and September 30, 2021 were as follows:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Investment Income:

Operating Expenses:

Net Investment Gain

Net Investment Gain (Loss)

Investment Income

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On occasion, we may also generate revenue from dividends and capital gains on equity investments we make, if any, or on warrants or other equity interests that we may acquire.

For the three and six months ended June 30, 2022, interest earned on our loan portfolio was $1,081,505 and $1,776,711, respectively, and our fees charged in connection with the loans was $155,000 and $450,000, respectively.

For the three and six months ended June 30, 2021, interest earned on our loan portfolio was $675,549 and $1,093,391, respectively, and our fees charged in connection with the loans was $0 and $129,000, respectively.

For the three and nine months ended September 30, 2022, interest earned on our loan portfolio was $1,053,714 and $2,840,425, respectively, and our fees charged in connection with the loans was $61,510 and $511,510, respectively.

For the three and nine months ended September 30, 2021, interest earned on our loan portfolio was $663,101 and $1,756,492, respectively, and our fees charged in connection with the loans was $92,500 and $221,500, respectively.

The increase in the most recent period is primarily due to a combination of strong demand for our short-term loans and our enhanced ability to satisfy that demand with the additional cash resources we have derived from prior loans that have been repaid to us.

Our loan portfolio generates interest income, with a weighted average rate on the loans of 25%.

Our loan portfolio generates interest income, with a weighted-average interest rate on the loans of 26%.

Professional Fees

For the three and six months ended June 30, 2022, we had $197,591 and $392,989 professional fees expense, respectively.

For the three and six months ended June 30, 2021, we had $77,539 and $220,347 professional fees expense, respectively.

The increase for the six months in 2022 is due to legal costs incurred to close on several new short-term banking loans and our efforts to seek additional financing to grow our business.

For the three and nine months ended September 30, 2022, we had $916,359 and $1,309,348 professional fees expense, respectively.

For the three and nine months ended September 30, 2021, we had $79,950 and $300,297 professional fees expense, respectively.

The increase for the nine months in 2022 is due to legal costs incurred to close on several new short-term banking loans, to obtain our listing on the Nasdaq exchange,and our efforts to seek additional financing through a public offering of our common stock to grow our business.

Net Realized Gain from Investments

For the three and six months ended June 30, 2022, we had $6,825,000 and $7,977,898, respectively, of sales of investments, resulting in $5,750 of realized losses and $133,020 of realized gains, respectively.

For the three and six months ended June 30, 2021, we had $4,853,170 and $9,889,827, respectively, of sales of investments, resulting in $621,600 and $3,529,599, respectively, of realized gains.

For the three and nine months ended September 30, 2022, we had $2,098,585 and $10,076,483, respectively, of sales of investments, resulting in $0 and $133,020 of realized gains, respectively.

For the three and nine months ended September 30, 2021, we had $6,474,137 and $16,363,964, respectively, of sales of investments, resulting in $289,138 and $3,818,737, respectively, of realized gains.

Net Change in Unrealized Appreciation (Depreciation) on Investments

For the three and six months ended June 30, 2022, our investments had $5,750 of unrealized appreciation and $16,297 of unrealized depreciation, respectively.

For the three and six months ended June 30, 2021, our investments had $83,100 of unrealized appreciation and $430,150 of unrealized depreciation, respectively.

For the three and nine months ended September 30, 2022, our investments had $0 of unrealized appreciation and $16,297 of unrealized depreciation, respectively.

For the three and nine months ended September 30, 2021, our investments had $774,169 and $1,204,319 of unrealized depreciation, respectively.

Changes in Net Assets from Operations

For the three and six months ended June 30, 2022, we recorded a net increase in net assets from operations of $518,008 and $930,119, respectively.

Based on the weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2022, our per-share net increase in net assets from operations was $0.05 and $0.09, respectively.

For the three and six months ended June 30, 2021, we recorded a net increase in net assets from operations of $781,506 and $2,526,548, respectively.

Based on the weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2021, our per-share net increase in net assets from operations was $0.07 and $0.23, respectively.

Cash Flows for the Six Months Ended June 30, 2022 and 2021

For the three and nine months ended September 30, 2022, we recorded a net decrease in net assets from operations of $36,126 and a net increase in net assets from operations of $893,993, respectively.

Based on the weighted-average number of shares of common stock outstanding for the three and nine months ended September 30, 2022, our per-share net decrease in net assets from operations was $0.01 and our per share net increase from operations was $0.18, respectively.

For the three and nine months ended September 30, 2021, we recorded a net increase in net assets from operations of $31,288 and $2,557,836, respectively.

Based on the weighted-average number of shares of common stock outstanding for the three and nine months ended September 30, 2021, our per-share net increase in net assets from operations was $0.01 and $0.53, respectively.

Cash Flows for the Nine months Ended September 30, 2022 and 2021

The level of cash flows used in or provided by operating activities is affected primarily by our provision of short-term loans, purchases of other investments, redemptions and repayments of our loans or investments, and other related factors.

For the six months ended June 30, 2022, net cash used in operating activities was $3,381,576.

Cash flows used in operating activities for the six months ended June 30, 2022 were primarily related to the funding of our short-term loans and purchases of investments aggregating $9,103,580, offset mostly by redemptions and repayments of short-term loans and investments totaling $7,977,898.

For the six months ended June 30, 2021, net cash used in operating activities was $3,386,278.

Cash flows used in operating activities for the six months ended June 30, 2021 were primarily related to the funding of our short-term loans and purchases of investments aggregating $13,250,664, offset mostly by redemptions and repayments of short-term loans and investments totaling $9,889,827.

For the nine months ended September 30, 2022, net cash used in operating activities was $6,429,293.

Cash flows used in operating activities for the nine months ended September 30, 2022 were primarily related to the funding of our short-term loans and purchases of investments aggregating $13,924,333, offset mostly by redemptions and repayments of short-term loans and investments totaling $10,076,483.

For the nine months ended September 30, 2021, net cash used in operating activities was $1,306,775.

Cash flows used in operating activities for the nine months ended September 30, 2021 were primarily related to the funding of our short-term loans and purchases of investments aggregating $18,133,352, offset mostly by redemptions and repayments of short-term loans and investments totaling $16,363,964.

For the nine months ended September 30, 2022, net cash provided in financing activities was $6,354,795.

Cash flows provided in financing activities for the nine months ended September 30, 2022 were primarily related to our public offering and our draw on the available line of credit, offset by payments against the line of credit.

For the nine months ended September 30, 2021, net cash used in financing activities was $539,296.

Cash flows used in financing activities for the nine months ended September 30, 2021 were related to the payment of our stock dividend to investors.

FINANCIAL CONDITION

As of June 30, 2022, we had cash of $629,572, a decrease of $1,306,576 from December 31, 2021.

As of September 30, 2022, we had cash of $1,861,650, a decrease of $74,498 from December 31, 2021.

We expect that our existing funds, together with any funds raised in the future, will be used primarily to fund our provision of short-term non-bank loans and specialty finance solutions or for other general corporate purposes, including paying our operating expenses and servicing our existing debt.

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government securities or other high quality debt securities maturing in one year or less from the time of investment.

On April 26, 2022, we filed a registration statement on Form S-1 with the U.S.

Securities and Exchange Commission seeking to register an offer and sale of shares of our common stock in a firm-commitment underwritten offering.

To the extent our Board of Directors determines in the future, based on our financial condition and capital market conditions, that additional capital would allow us to grow our business or otherwise take advantage of additional opportunities, we may seek to raise additional equity capital or engage in borrowing.

On August 9, 2022, we effected a stock combination (reverse stock split) of our common shares on a 1-for-2.25 basis such that every 2.25 shares of common stock issued and outstanding on that date were combined into one share of common stock.

Any fractional share resulting from the reverse stock split was rounded up to the nearest whole share.

The reverse stock split was approved by our Board of Directors in accordance with Minnesota law, and resulted in a proportionate reduction in the number of authorized shares of capital stock available for issuance under our articles of incorporation.

On a post-reverse-split basis, we are authorized to issue up to 111,111,111 shares of capital stock.

On August 11, 2022, we completed a public offer and sale of 1,250,000 common shares pursuant to a registration statement filed with the SEC and declared effective on August 9, 2022.

We sold these shares at $4.00 per share, resulting in gross proceeds of $5,000,000.

As part of the registered public offering, we granted the underwriters a 45-day option to purchase up to 187,500 additional common shares at the offering price, less underwriting discounts, which option was not exercised.

In connection with the offering, we issued the underwriter a five-year warrant to purchase up to 75,000 common shares at the per-share price of $5.00.

Our net proceeds after the payment of underwriting discounts, underwriting expenses, and offering-related expenses we incurred were otherwise obligated to pay, were approximately $4,041,000.

CRITICAL ACCOUNTING ESTIMATES

10 unchanged sentences

OFF-BALANCE-SHEET ARRANGEMENTS

During the six months ended June 30, 2022, we did not engage in any off-balance sheet arrangements as described in Item 303(a)(4) of Regulation S-K.

During the nine months ended September 30, 2022, we did not engage in any off-balance sheet arrangements as described in Item 303(a)(4) of Regulation S-K.

FORWARD-LOOKING STATEMENTS

18 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis