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Item 2. Management’s Discussion and Analysis

2023-05-22 compared with 2022-11-18 · 43 added, 43 removed, 82 unchanged (51% of the section changed)

23 unchanged sentences

Our principal expenses relate to operating expenses, the largest components of which are generally professional fees, payroll, occupancy, and insurance expenses.

Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, as well as our reports on Forms 10-Q and 8-K and other publicly available information.

Our MD&A should be read in conjunction with our Annual Report on Form 10-K/A for the year ended December 31, 2022, as well as our reports on Forms 10-Q and 8-K and other publicly available information.

All amounts herein are unaudited.

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PORTFOLIO AND INVESTMENT ACTIVITY

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:

During the three months ended March 31, 2023, we made $6,900,500 of investments and loans and had $3,945,000 of redemptions and repayments, resulting in net investments at amortized cost of $19,715,304 as of March 31, 2023.

During the three months ended March 31, 2022, we made $7,025,000 of investments and loans and had $1,152,898 of redemptions and repayments, resulting in net investments at amortized cost of $19,943,929 as of March 31, 2022.

Our portfolio composition by major class, based on fair value at March 31, 2023, 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 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,

Our operating results for the three months ended March 31, 2023 and March 31, 2022 were as follows:

For the Three Months Ended March 31,

Investment Income:

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Net Investment Gain (Loss)

$ (1,025,767 )

Investment Income

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Any such fees will be recognized as earned.

In some cases, the interest payable to us on the short-erm loans we provide may accrue or be paid in the form of additional debt.

In some cases, the interest payable to us on the short-term loans we provide may accrue or be paid in the form of additional debt.

The principal amount of the debt instruments, together with any accrued but unpaid interest thereon, will generally become due at the maturity date of those debt instruments.

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 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 interest rate on the loans of 26%.

For the three months ended March 31, 2023 and 2022, our total investment income was $864,028 and $1,000,206, respectively.

The decrease is due to a decrease in our short-term non-bank lending activity.

Our loan portfolio generates interest income, with an average rate on the loans of 18.9%.

Professional Fees

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 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.

For the three months ended March 31, 2023 and 2022, we had $129,851 and $198,518 of professional fees expense, respectively.

The decrease is due to the decrease in our short-term non-bank lending activity and the legal costs incurred to close those deals.

Payroll and Directors Fees

For the three months ended March 31, 2023 and 2022, we had $1,130,439 and $196,442 of payroll expense, respectively.

In addition, director fees were $532,968 and $30,000 for the three months ended March 31, 2023 and 2022, respectively.

The increase in the current period was due in large part to the company’s issuance of 870,000 10-year options to directors, officers and consultants to the company in November and December 2022 (which were issued subject to shareholder approval).

On January 20, 2023 the company approved the options at a special meeting held for that purpose.

These options generated a noncash expense of $1,460,209.

Interest Expense

For the three months ended March 31, 2023 and 2022, we had $34,667 and $66,939 of interest expense, respectively.

The decrease is due less borrowing on the line of credit during the first quarter of 2023.

Net Realized Gain (Loss) from Investments

For the three months ended March 31, 2023, we had $3,945,000 of proceeds from sale of investments, resulting in $600,000 of realized losses.

For the three months ended March 31, 2022, we had $1,152,898 of proceeds from sale of investments, resulting in $138,770 of realized gains.

Net Change in Unrealized Appreciation (Depreciation) on Investments

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.

For the three months ended March 31, 2023, our investments included $648,423 of unrealized appreciation.

For the three months ended March 31, 2022, our investments included $22,047 of unrealized depreciation.

Changes in Net Assets from Operations

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 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.

For the three months ended March 31, 2023, we recorded a net decrease in net assets from operations of $718,044.

Based on the weighted-average number of shares of common stock outstanding for the three months ended March 31, 2023, our per-share net decrease in net assets from operations was $0.12.

For the three months ended March 31, 2022, we recorded a net increase in net assets from operations of $412,111.

Based on the weighted-average number of shares of common stock outstanding for the three months ended March 31, 2022, our per-share net increase in net assets from operations was $0.09.

Cash Flows for the Three Months Ended March 31, 2023 and 2022

The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and repayments of portfolio investments, among other factors.

For the three months ended March 31, 2023, net cash used in operating activities was $3,399,812.

Cash flows used in operating activities for the three months ended March 31, 2023 were primarily related to purchases of investments totaling $6,900,500, offset by redemptions and repayments totaling 3,945,000.

For the three months ended March 31, 2022, net cash used in operating activities was $7,190,128.

Cash flows provided in operating activities for the three months ended March 31, 2022 were primarily related to purchases of investments totaling $7,025,000.

FINANCIAL CONDITION

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.

Pending use of our cash as described, we may invest some portion of our cash in U.S.

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

As of March 31, 2023, we had cash of $439,829, a decrease of $649,812 from December 31, 2022.

The primary use of our existing funds and any funds raised in the future is expected to be for our investments in portfolio companies or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities.

Pending investment in portfolio companies, our investments may consist of cash, cash equivalents, U.S.

government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to collectively as “temporary investments.” As of the date of this filing, we expect that substantially all of our temporary investments will be redeployed into portfolio company investments by December 31, 2023.

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.

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OFF-BALANCE-SHEET ARRANGEMENTS

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.

During the three months ended March 31, 2023, we did not engage in any off-balance sheet arrangements as described in Item 303(a)(4) of Regulation S-K.

FORWARD-LOOKING STATEMENTS

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The foregoing list is not exhaustive.

For a more complete summary of the risks and uncertainties facing our company and its business and relating to our forward-looking statements, please refer to our Annual Report on Form 10-K filed on March 10, 2021 (related to our year ended December 31, 2021) and in particular the section thereof entitled “Risk Factors.” Because of the significant uncertainties inherent in forward-looking statements pertaining to our company, the inclusion of those statements should not be regarded as a representation or warranty by us or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever.

For a more complete summary of the risks and uncertainties facing our company and its business and relating to our forward-looking statements, please refer to our Annual Report on Form 10-K filed on April 17, 2023 (related to our year ended December 31, 2022) and in particular the section thereof entitled “Risk Factors.” Because of the significant uncertainties inherent in forward-looking statements pertaining to our company, the inclusion of those statements should not be regarded as a representation or warranty by us or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever.

We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this filing.

1 unchanged sentence

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