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Item 2. Management’s Discussion and Analysis

2023-08-15 compared with 2023-05-22 · 35 added, 33 removed, 92 unchanged (43% 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/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.

Our MD&A should be read in conjunction with our Annual Report on Form 10-K 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 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:

During the six months ended June 30, 2023, we made $8,900,500 of investment portfolio and had $9,149,194 of redemptions and repayments, resulting in net investments at amortized cost of $16,552,481 at the end of the period.

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

Our portfolio composition by major class, based on fair value at June 30, 2023, was as follows:

Investments at

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RESULTS OF OPERATIONS

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,

Our operating results for the three and six months ended June 30, 2023 and June 30, 2022 were as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Investment Income:

1 unchanged sentence

Net Investment Gain (Loss)

$ (1,025,767 )

Investment Income

4 unchanged sentences

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

For the three and six months ended June 30, 2023, our total investment income was $907,502 and $1,771,530, respectively For the three and six months ended June 30, 2022 our total investment income was $1,236,505 and $2,236,711, respectively.

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

1 unchanged sentence

Professional Fees

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.

For the three and six months ended June 30, 2023, we had $287,325 and $417,176 professional fees expense, respectively.

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

The increase is due to the costs incurred to amend our Form 10K filing for December 31, 2022.

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.

For the three and six months ended June 30, 2023, we had $147,161 and $1,277,600 of payroll expense, respectively, and we had $30,000 and $562,968 of directors fees, respectively.

For the three and six months ended June 30, 2022, we had $114,542 and $310,984 of payroll expense, respectively, and we had $87,073 and $117,073 of directors fees, 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 in November and December 2022 (which were issued subject to shareholder approval).

On January 20, 2023 company shareholders approved the options and the related incentive plan 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.

For the three and six months ended June 30, 2023, we had $43,333 and $78,000 of interest expense, respectively.

For the three and six months ended June 30, 2022, we had $47,794 and $117,853 of interest expense, respectively.

The decrease is due less borrowing on the line of credit during the current period.

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.

For the three and six months ended June 30, 2023, we had $94,569 and $94,569, respectively, of sales of investments and $5,109,625 and 9,054,625, respectively, of repayments on short-term loans, resulting in $41,371 of realized gains and $558,629 of realized losses, respectively.

For the three and six months ended June 30, 2022, we had $0 and $552,898, respectively, of sales of investments and $6,825,000 and 7,425,000, respectively, of repayments on short-term loans, resulting in $5,750 of realized losses and $133,020 of realized gains, respectively.

Net Change in Unrealized Appreciation (Depreciation) on Investments

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.

For the three and six months ended June 30, 2023, our investments had $21,107 of unrealized depreciation and $627,316 of unrealized appreciation, respectively.

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.

Changes in Net Assets from Operations

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.

For the three and six months ended June 30, 2023, we recorded a net increase in net assets from operations of $70,721 and a net decrease in net assets from operations of $647,323, respectively.

Based on the weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2023, our per-share net increase in net assets from operations was $0.01 and our per share net decrease in net assets from operations was $0.10, respectively.

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 $0.11 and $0.19, respectively.

Cash Flows for the Six Months Ended June 30, 2023 and 2022

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, 2023, net cash provided in operating activities was $11,886.

Cash flows provided in operating activities for the six months ended June 30, 2023 were primarily related to the funding of our short-term loans and purchases of investments aggregating $8,900,500, offset mostly by redemptions and repayments of short-term loans and investments totaling $9,149,194.

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.

FINANCIAL CONDITION

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

As of June 30, 2023, we had cash of $1,101,527, an increase of $11,886 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.

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.”

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.

19 unchanged sentences

OFF-BALANCE-SHEET ARRANGEMENTS

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.

During the six months ended June 30, 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

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