SUI Group Holdings Ltd. 10-K/A

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below should be read in conjunction with our audited financial statements, and notes thereto, filed together with this Form 10-K. 17 Table of Contents Cautionary Note Regarding Forward-Looking Statements Certain statements in this report may constitute “forward-looking statements” for purposes of federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the “Risk Factors” section of this report and those summarized below: · our being a company with little operating history; · our ability to select appropriate specialty finance investment opportunities; · our expectations around the performance of borrowers in which we invest; · our success in retaining our officers and directors, or replacing them in the event we lose their services; · actual and potential conflicts of interest involving our directors or management team; · our ability to obtain additional financing, if needed and on acceptable terms; · our ability to source quality prospective borrowers for our specialty finance solutions; · our ability to consummate transactions due to the uncertainty resulting from the ongoing COVID-19 pandemic and other unpredictable events such as terrorist attacks, natural disasters or other significant outbreaks of infectious diseases; · the dependence of our success on the general economy and its impact on the industries in which we invest; · the ability of our portfolio companies to achieve their objectives; · our regulatory structure and tax treatment; · the adequacy of our cash resources and working capital; · the timing of cash flows, if any, we receive from our investments; · our overall financial performance and financial condition following this offering; · our public securities’ potential liquidity and trading price; · the lack of a market for our securities; and · the other risks and uncertainties discussed in “Risk Factors” and elsewhere in this report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Results of Operations For the Year Ended December 31, 2022 (Restated) 2021 Investment Income: Interest Income $ 4,199,453 $ 2,656,201 Operating Expenses: General Operating Expenses 140,993 107,203 Legal and Accounting Expenses 1,592,218 453,440 Executive Management Compensation 941,590 556,432 Insurance Expense 111,110 108,165 Director's Fees 417,073 120,000 Interest Expense 195,893 9,511 Net Investment Gain $ 800,576 $ 1,301,450 18 Table of Contents For the year ended December 31, 2022, we earned $3,397,443 from 31 different short-term loans; and an aggregate of $802,010 in related origination fees. For the year ended December 31, 2021, we earned $11,480 in interest payments from one equity investment company, an aggregate of $2,099,684 from 26 short-term loans; an additional $25,037 in bank interest on cash balances and note receivable; an aggregate of $467,500 in origination fees relating to our short-term loans; and an additional $52,500 in late fee penalties. As the table above indicates, we incurred operating expenses aggregating $3,398,877 for the year ended December 31, 2022, and $1,354,751 for the year ended December 31, 2021. A summary of the various components of our operating expenses for these periods is set forth below. General Operating Expenses. Our general operating expenses were $140,993 for the year ended December 31, 2022 and $107,203 for the year ended December 31, 2021. The increase in the current period is primarily related to fees incurred during 2022 in relation to our line of credit (see Liquidity and Capital Resources below for more information on the “Loan Agreement” comprising our line of credit). Legal and Accounting Expenses. Our legal and accounting expenses were $1,592,218 for the year ended December 31, 2022 and $453,440 for the year ended December 31, 2021. The increase in the current period is primarily related to legal, consulting and underwriting fees and costs incurred in connection with our public offering and listing on the Nasdaq Capital Market tier of the Nasdaq exchange. Executive Management Compensation. Our executive management compensation was $941,590 for the year ended December 31, 2022 and $556,432 for the year ended December 31, 2021. The increase is due to an accrued cash bonus at December 31, 2022, paid in January, 2023. Director’s Fees. Our director’s fees were $417,073 for the year ended December 31, 2022 and $120,000 for the year ended December 31, 2021. The increase is due to a one-time director’s stock bonus in April, 2022 and an accrued cash bonus at December 31, 2022, paid in January, 2023 Interest Expense. Our interest expense was $195,893 for the year ended December 31, 2022 and $9,511 for the year ended December 31, 2021. The increase is due to our use of the line of credit arrangement we entered into in 2022 (see Liquidity and Capital Resources below for more information on the “Loan Agreement” comprising our line of credit). For the year ended December 31, 2022 our net investment gain was $800,576. For the year ended December 31, 2021, our net investment gain was $1,301,450. The decreased net investment gain during 2022 was primarily the result of an accrued bonus at December 31, 2022 that was paid to our executive management team and directors in January, 2023, offset by higher interest income earned during 2022 from the short-term specialty finance solutions we provided in the form of short-term promissory notes bearing higher rates of interest and return, including related origination fees, offset by. Financial Condition For the year ended December 31, 2022, we had an increase in net assets of $4,457,511. This increase in net assets was primarily due to the capital we raised during our August 2022 public offering and an increase in our interest income earned from the short-term loans we provided. Our net assets increased by $1,773,162 for the year ended December 31, 2021, primarily due to the increase in our interest income earned from the short-term loans we provided. 19 Table of Contents Liquidity and Capital Resources Summary cash flow data is as follows: For the Year Ended December 31, 2022 2021 Cash flows provided (used) by: Operating activities $ (4,888,302 ) $ (1,886,094 ) Financing activities 4,041,795 (1,618,337 ) Net decrease in cash (846,507 ) (3,504,431 ) Cash, beginning of period 1,936,148 5,440,579 Cash, end of period $ 1,089,641 $ 1,936,148 On January 3, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Eastman Investment, Inc., a Nevada corporation, and Lyle A. Berman, as trustee of the Lyle A. Berman Revocable Trust. The Loan Agreement provides us with a $5 million revolving line of credit to use in the ordinary course of our short-term specialty finance business. Amounts drawn under the Loan Agreement accrues interest at the per annum rate of 8%, and all our obligations under the Loan Agreement are secured by a grant of a collateral security interest in substantially all of our assets. The Loan Agreement, together with our cash and cash equivalents, together comprise our sources of liquidity. Management believes that these sources of liquidity, together with cash obtained through maturing investments earlier made, will be sufficient for the Company to fund its operations through the entirety of fiscal 2023. Accordingly, at present we have no definitive plans to obtain other sources of liquidity through borrowing. On February 11, 2022, we filed a registration statement on Form S-1 seeking to register an offering of five-year common stock warrants that we intended to distribute to our shareholders as a dividend, and up to 2,697,603 shares of our common stock purchasable upon the exercise of those warrants. The warrants were contemplated to be exercisable at a price of $9.00 per share of common stock (adjusted to account for the August 2022 reverse stock split we effected on a 1-for-2.25 ratio). We recently determined to abandon this contemplated offering, and expect to file a withdrawal of this registration statement with the Commission soon after the filing of this report. Capital Expenditures We did not have any material commitments for capital expenditures in fiscal 2022 and we do not anticipate any such capital expenditures for fiscal 2023. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, nor are we a party to any contract or other obligation not included on its balance sheet that has, or is reasonably likely to have, a current or future effect on our financial condition. Critical Accounting Policies Critical accounting policies are policies that are both most important to the portrayal of the Company’s financial condition and results, and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to investment valuation and interest and dividend income as an investment company. 20 Table of Contents Investment Valuation Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by our Board of Directors, based on, among other things, the input of our executive management, the Audit Committee of our Board of Directors and any independent third party valuation expert that may be engaged by management to assist in the valuation of our portfolio investments. Valuation determinations are in all cases made in conformity with the written valuation policies and procedures respecting the valuation of company investments. Use of Estimates Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The application of GAAP requires that we make estimates that affect our reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of investment income and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates. 21 Table of Contents