SUI Group Holdings Ltd. 10-K

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. 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. 15 Table of Contents 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 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 our 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, 2023 2022 Investment Income: Interest Income $ 3,298,635 $ 4,199,453 Operating Expenses: General Operating Expenses 149,708 140,993 Legal and Accounting Expenses 761,525 1,592,218 Executive Management Compensation 1,848,393 941,590 Insurance Expense 108,039 111,110 Director's Fees 772,968 417,073 Interest Expense 78,000 195,893 Total Operating Expenses 3,718,633 3,398,877 Net Investment Gain (Loss) $ (419,998 ) $ 800,576 16 Table of Contents For the year ended December 31, 2023, we earned $2,836,060 from 26 different short-term loans; and an aggregate of $462,575 in related origination fees. 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. As the table above indicates, we incurred operating expenses aggregating $3,718,633 for the year ended December 31, 2023, and $3,398,877 for the year ended December 31, 2022. 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 $149,708 for the year ended December 31, 2023 and $140,993 for the year ended December 31, 2022. The increase in the current period is primarily related to higher fees incurred in relation to the unused portion on our line of credit (see Liquidity and Capital Resources below for more information). Legal and Accounting Expenses. Our legal and accounting expenses were $761,525 for the year ended December 31, 2023 and $1,592,218 for the year ended December 31, 2022. The decrease in the current period is primarily related to a decrease in legal, consulting and marketing costs incurred. Executive Management Compensation. Our executive management compensation was $1,848,393 for the year ended December 31, 2023 and $941,590 for the year ended December 31, 2022. The increase in 2023 over 2022 is due to a stock option issuance recognized in January 2023. Director’s Fees. Our director’s fees were $772,968 for the year ended December 31, 2023 and $417,073 for the year ended December 31, 2022. The increase in 2023 over 2022 is due to a stock option issuance recognized in January 2023. Interest Expense. Our interest expense was $78,000 for the year ended December 31, 2023 and $195,893 for the year ended December 31, 2022. The 2023 decrease from 2022 is due to a lower use of the line of credit arrangement we entered into in 2022 (see Liquidity and Capital Resources below for more information). For the year ended December 31, 2023 our net investment loss was $419,998. For the year ended December 31, 2022, our net investment gain was $800,576. The increased net investment loss during 2023 was primarily the result of the stock option issuance and recognition in January 2023 that was primarily to our officers and directors, in addition to lower interest income earned during the course of 2023, including related origination fees. Financial Condition At December 31, 2023, we had an increase in net assets of $718,703 as compared to December 31, 2022. This increase in net assets was primarily due to the issuance and exercise of stock options, partially offset by the decrease in the fair value of our investments and reduced cash and cash equivalents. Our net assets increased by $4,457,511 at December 31, 2022 as compared to December 31, 2021, 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. Liquidity and Capital Resources Summary cash flow data is as follows: For the Year Ended December 31, 2023 2022 Cash flows provided (used) by: Operating activities $ (1,137,617 ) $ (4,888,302 ) Financing activities 424,000 4,041,795 Net decrease in cash (713,617 ) (846,507 ) Cash, beginning of period 1,089,641 1,936,148 Cash, end of period $ 376,024 $ 1,089,641 17 Table of Contents 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 provided 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 accrued interest at the per annum rate of 8%, and all our obligations under the Loan Agreement were secured by a grant of a collateral security interest in substantially all of our assets. In January 2024, we terminated the Loan Agreement after having earlier satisfied all amounts thereunder. Any applicable fees for early termination of the Agreement were waived. During the course of 2023, the Loan Agreement, together with our cash and cash equivalents, were our primary sources of liquidity. With the termination of the Loan Agreement, however, our cash and cash equivalents are our remaining sources of liquidity as of the date of this report. In addition, we expect that some of our investment positions will mature, resulting in additional available cash. Management believes that these sources of liquidity, will be sufficient for the Company to fund its operations through the entirety of fiscal 2024. Accordingly, at present we have no definitive plans to obtain other sources of liquidity through borrowing or otherwise. Investment Activity In 2023, we made new investments aggregating $12,900,500, and refinanced or otherwise extended the term to maturity of investments aggregating $10,857,500. Of these amounts, $5 million were initially loaned to Mustang Funding, LLC in 2023, and another of $5 million earlier loaned in 2022 was refinanced, such that we had an aggregate of $10 million invested in Mustang Funding, LLC at December 31, 2023, all of which was due to mature at May 31, 2024. In 2023, we also wrote-down (i.e., reduced the fair market value of our short-term loans) an aggregate of $935,000 of our investments in preferred stock and $345,421 in one of our short-term loan investments. In general, these write-downs occurred due to our judgment that some aspect of our investment was no longer likely collectible in full on account of the borrower’s financial condition, prospects, or both. The write-downs were offset by an increase in market valuations of our remaining short-term loan portfolio as well as market changes in our common stock and other equity holdings, resulting in a net change in unrealized depreciation of $641,433 as reflected in the statement of operations. Capital Expenditures We did not have any material commitments for capital expenditures in fiscal 2023 and we do not anticipate any such capital expenditures for fiscal 2024. 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. 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. 18 Table of Contents