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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-17 · 28 added, 47 removed, 83 unchanged (47% of the section changed)

27 unchanged sentences

PORTFOLIO AND INVESTMENT ACTIVITY

During the nine months ended September 30, 2023, we made $11,900,500 of investment purchases and had $11,124,193 of redemptions and repayments, resulting in net investments at amortized cost of $17,577,481 at the end of the period.

During the nine months ended September 30, 2022, we made $9,103,580 of investment purchases 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 September 30, 2023, was as follows:

During the three months ended March 31, 2024, we made $73,438 of investment purchases and had $308,797 of redemptions and repayments, resulting in net investments at amortized cost of $18,366,616 as of March 31, 2024.

During the three months ended March 31, 2023, we made $6,900,500 of investment purchases 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.

Our portfolio composition by major class, based on fair value at March 31, 2024, was as follows:

Investments at

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RESULTS OF OPERATIONS

Our operating results for the three and nine months ended September 30, 2023 and September 30, 2022 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, 2024 and March 31, 2023 were as follows:

Investment Income:

1 unchanged sentence

Net Investment Gain (Loss)

$ (1,025,767 )

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 nine months ended September 30, 2023, our total investment income was $725,158 and $2,496,688, respectively.

For the three and nine months ended September 30, 2022, our total investment income was $1,115,224 and $3,351,935, respectively.

The decrease is due to an overall reduction in our short-term non-bank lending activity.

For the three months ended March 31, 2024 and 2023, our total investment income was $832,667 and $864,028, respectively.

Our loan portfolio generates interest income, with an average rate on the loans of 16.2%.

Professional Fees

For the three and nine months ended September 30, 2023, we had $184,008 and $601,184 professional fees expense, respectively.

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

The decrease is due to the significant costs we incurred during and in conjunction with our public offering of common stock in 2022, partially offset by our costs incurred to amend our Form 10K filing for December 31, 2022 during 2023.

For the three months ended March 31, 2024 and 2023, we had $138,371 and $129,851 of professional fees expense, respectively.

Payroll and Directors Fees

For the three and nine months ended September 30, 2023, we had $141,040 and $1,418,640 of payroll expense, respectively, and we had $30,000 and $592,968 of directors fees, respectively.

For the three and nine months ended September 30, 2022, we had $122,477 and $433,461 of payroll expense, respectively, and we had $30,000 and $147,073 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.

For the three months ended March 31, 2024 and 2023, we had $151,066 and $1,130,439 of payroll expense, respectively.

In addition, director fees were $30,000 and $532,968 for the three months ended March 31, 2024 and 2023, respectively.

The increase in 2023 over 2024 is due to a stock option issuance recognized in January 2023.

Interest Expense

For the three and nine months ended September 30, 2023, we had $0 and $78,000 of interest expense, respectively.

For the three and nine months ended September 30, 2022, we had $46,779 and $164,632 of interest expense, respectively.

The decrease is due to our reduced borrowing on the line of credit during the current period.

For the three months ended March 31, 2024 and 2023, we had $320 and $34,667 of interest expense, respectively.

The decrease is due to the termination of the line of credit agreement at the end of 2023.

Net Realized Gain (Loss) from Investments

For the three and nine months ended September 30, 2023, we had $0 and $94,569, respectively, of sales of investments and $1,975,000 and 11,029,625, respectively, of repayments on short-term loans, resulting in $0 and $558,629 of realized losses, respectively.

For the three and nine months ended September 30, 2022, we had $0 and $552,898, respectively, of sales of investments and $2,098,585 and $9,523,585, respectively, of repayments on short-term loans, resulting in $0 and $133,020 of realized gains, respectively.

For the three months ended March 31, 2024, we had $308,797 of proceeds from sale of investments, resulting in $24,495 of realized gains.

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.

Net Change in Unrealized Appreciation (Depreciation) on Investments

For the three and nine months ended September 30, 2023, our investments had $2,175 and $629,491 of unrealized appreciation, respectively.

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

For the three months ended March 31, 2024, our investments included $51,751 of unrealized appreciation.

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

Changes in Net Assets from Operations

For the three and nine months ended September 30, 2023, we recorded a net increase in net assets from operations of $369,560 and a net decrease in net assets from operations of $277,763, respectively.

Based on the weighted-average number of shares of common stock outstanding for the three and nine months ended September 30, 2023, our per-share net increase in net assets from operations was $0.06 and our per share net decrease in net assets from operations was $0.04, respectively.

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 in net assets from operations was $0.18, respectively.

Cash Flows for the Nine months Ended September 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 nine months ended September 30, 2023, net cash used in operating activities was $550,781.

Cash flows used in operating activities for the nine months ended September 30, 2023 were primarily related to the funding of our short-term loans and purchases of investments aggregating $11,900,500, offset mostly by redemptions and repayments of short-term loans and investments totaling $11,124,193.

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 three months ended March 31, 2024, we recorded a net increase in net assets from operations of $382,103.

Based on the weighted-average number of shares of common stock outstanding for the three months ended March 31, 2024, our per-share net increase in net assets from operations was $0.06.

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.

Cash Flows for the Three Months Ended March 31, 2024 and 2023

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, 2024, net cash provided in operating activities was $128,701.

Cash flows used in operating activities for the three months ended March 31, 2024 were primarily related to redemptions and repayments of investments totaling $308,797.

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

Cash flows provided 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.

FINANCIAL CONDITION

As of September 30, 2023, we had cash of $962,860, a decrease of $126,781 from December 31, 2022.

As of March 31, 2024, we had cash of $504,725, an increase of $128,701 from December 31, 2023.

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.

1 unchanged sentence

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.

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 nine months ended September 30, 2023, 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, 2024, 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