UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended September 30, 2015

 

☐   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 333-173163

 

POINT CAPITAL, INC.

(Exact name of small business issuer as specified in its charter)

 

	Delaware		27-3046338
	(State of incorporation)		(IRS Employer ID Number)

 

285 Grand Avenue

Building 5

Englewood, New Jersey 07631

 (Address of principal executive offices)

 

(201) 408-5126

(Issuer's telephone number)

 

	(Former name, former address and former fiscal year, if changed since last report)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit and post such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

As of November 18, 2015, 50,582,441 shares of common stock, par value $0.0001 per share, were outstanding.

 

 

 

POINT CAPITAL, INC.

FORM 10-Q

September 30, 2015

 

TABLE OF CONTENTS

 

		Page
PART I  - FINANCIAL INFORMATION
Item 1. Financial Statements			3
Consolidated Statements of Assets and Liabilities – As of September 30, 2015 (unaudited) and December 31, 2014			3
Consolidated Statements of Operations (unaudited) – For the three and nine months ended September 30, 2015 and 2014			4
Consolidated Statement of Changes in Net Assets (unaudited) – For the nine months ended September 30, 2015 and 2014			5
Consolidated Statements of Cash Flows (unaudited) – For the nine months ended September 30, 2015 and 2014			6
Consolidated Schedule of Investments as of September 30, 2015 (unaudited)			7
Consolidated Schedule of Investments as of December 31, 2014			8
Notes to Consolidated Financial Statements (unaudited)			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			24
Item 4. Controls and Procedures			24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			25
Item 1A. Risk Factors			25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			25
Item 3. Defaults Upon Senior Securities			25
Item 4. Mine Safety Disclosures			25
Item 5. Other Information			25
Item 6. Exhibits			25

 

 

Item 1. Financial Statements.

 

 Point Capital, Inc. and Subsidiary

Consolidated Statements of Assets and Liabilities

 

 

		September 30, 2015				December 31, 2014
		(unaudited)
ASSETS
Investments at fair value
Non-controlled/Non-affiliated investments (cost of $1,950,850 and $1,163,250 at September 30, 2015 and December 31, 2014)		$	1,601,646			$	1,008,437
Cash and cash equivalents			779,243				1,739,520
Interest receivable			8,991				2,380
Dividends receivable			6,800				2,250
Prepaid expenses			19,533				18,945
Total Assets		$	2,416,213			$	2,771,532
LIABILITIES
Accounts payable and accrued expenses		$	765			$	2,554
Total Liabilities			765				2,554
Redeemable Series A, Convertible Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 1,000,000 shares designated; 4,000 shares issued and outstanding ($100 per share redemption value)			400,000				400,000
NET ASSETS
Common stock, $0.0001 par value, 100,000,000 shares authorized; 50,582,441 shares issued and outstanding at September 30, 2015 and December 31, 2014			5,058				5,058
Additional paid-in capital			3,749,244				3,686,486
Accumulated net investment loss			(167,381	)			-
Accumulated undistributed net realized loss on investments			(54,515	)			-
Unrealized depreciation on investments			(349,204	)			(154,813	)
Accumulated deficit			(1,167,754	)			(1,167,754	)
Total Net Assets			2,015,448				2,368,978
Total Liabilities and Net Assets		$	2,416,213			$	2,771,532
Net Asset Value per Common Share		$	0.04			$	0.05

 

See accompanying notes to unaudited consolidated financial statements.

 

 

Point Capital, Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
INVESTMENT INCOME:
Interest and dividend income
Non-controlled/Non-affiliated investments		$	11,606			$	4,510			$	24,448			$	15,918
OPERATING EXPENSES:
Compensation expense			24,166				-				74,370				-
Professional fees			8,958				11,340				75,100				48,536
Filing fees			1,206				1,917				7,501				5,692
Consulting fees			-				130,500				-				130,500
Insurance expense			8,193				-				25,256				25,480
General and administrative expenses			3,022				7,291				9,602				11,725
Total operating expenses			45,545				151,048				191,829				221,933
NET INVESTMENT LOSS			(33,939	)			(146,538	)			(167,381	)			(206,015	)
NET REALIZED AND UNREALIZED (LOSS) GAIN ON INVESTMENTS:
Net realized gain (loss) on investments
Non-controlled/Non-affiliated investments			59,220				104,260				(54,515	)			104,260
Net change in unrealized depreciation on investments
Non-controlled/Non-affiliated investments			(486,125	)			(293,023	)			(194,391	)			(228,221	)
Net realized and unrealized loss on investments			(426,905	)			(188,763	)			(248,906	)			(123,961	)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS		$	(460,844	)		$	(335,301	)		$	(416,287	)		$	(329,976	)

 

See accompanying notes to unaudited consolidated financial statements.

 

 

Point Capital, Inc. and Subsidiary

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

																		Accumulated
																		Undistributed Net				Unrealized
		Common Stock, $0.0001 Par Value								Additional Paid In				Accumulated Net Investment				Realized Gain (Loss) On				Appreciation (Depreciation) on				Accumulated				Total
		Shares				Amount				Capital				Loss				Investments				Investments				Deficit				Net Assets
Balance - December 31, 2013			40,606,200			$	4,061			$	2,919,449			$	(71,986	)		$	39,754			$	65,143			$	(1,167,754	)		$	1,788,667
Common stock issued ($0.20/share)			1,650,000				165				329,835				-				-				-				-				330,000
Common stock issued ($0.30/share)			1,700,001				170				509,830				-				-				-				-				510,000
Shares issued for services			6,626,240				663				1,374,585				-				-				-				-				1,375,248
Offering costs			-				-				(1,258,388	)			-				-				-				-				(1,258,388	)
Net increase (decrease) in net assets resulting from operations			-				-				-				(206,015	)			104,260				(228,221	)			-				(329,976	)
Balance - September 30, 2014 (Unaudited)			50,582,441			$	5,059			$	3,875,311			$	(278,001	)		$	144,014			$	(163,078	)		$	(1,167,754	)		$	2,415,551
Balance - December 31, 2014			50,582,441			$	5,058			$	3,686,486			$	-			$	-			$	(154,813	)		$	(1,167,754	)		$	2,368,977
Stock-based compensation			-				-				62,758				-				-				-				-				62,758
Net decrease in net assets resulting from operations			-				-				-				(167,381	)			(54,515	)			(194,391	)			-				(416,287	)
Balance - September 30, 2015 (Unaudited)			50,582,441			$	5,058			$	3,749,244			$	(167,381	)		$	(54,515	)		$	(349,204	)		$	(1,167,754	)		$	2,015,448

  

See accompanying notes to unaudited consolidated financial statements.

 

  

Point Capital, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

 

		Nine Months Ended September 30,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations		$	(416,287	)		$	(329,976	)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:
Purchases of investments			(1,195,213	)			(1,227,750	)
Net realized loss (gain) on investments			54,515				(104,260	)
Net change in unrealized depreciation of investments			194,391				228,221
Proceeds from sale of investments			353,098				524,103
Stock options issued for services			62,758				150,000
(Increase) decrease in interest receivable			(6,611	)			600
Increase in dividend receivable			(4,550	)			(4,500	)
Decrease in accounts payable and accrued expenses			(1,790	)			2,473
Increase in prepaid expenses			(588	)			(37,500	)
			-
Net Cash Used In Operating Activities			(960,277	)			(798,589	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable			-				(15,000	)
Proceeds from issuance of common stock			-				840,000
Offering costs			-				(33,140	)
Net Cash Provided By Financing Activities			-				791,860
Net decrease in cash and cash equivalents			(960,277	)			(6,729	)
Cash and cash equivalents - Beginning of period			1,739,520				2,010,620
Cash and cash equivalents - End of period		$	779,243			$	2,003,891
Supplemental Disclosure of Cash Flow Information:
Interest paid		$	-			$	1,726
Taxes Paid		$	-			$	915
Non-cash Financing Activities
Issuance of stock options for services		$	62,758			$	-
Offering costs paid		$	-			$	(1,225,248	)
Issuance of common stock for services		$	-			$	1,375,248

 

See accompanying notes to unaudited consolidated financial statements.

 

 

POINT CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2015

(Unaudited)

 

														Fair				% of
Company		Industry		Type of Investment		Principal/Shares				Cost				Value				Net Assets
Non-controlled/Non-affiliated investments
Accelerize, Inc.		Application Software		Common Stock			100,000				61,467				46,000				2.28	%
Accelerize, Inc.		Application Software		Warrants			60,000				38,533				18,370				0.91	%
Actinium Pharmaceuticals Inc. (2)		Biotechnology		Common Stock			39,000				126,111				69,030				3.43	%
Actinium Pharmaceuticals Inc. (2)		Biotechnology		Warrants			29,250				51,055				32,195				1.60	%
Arista Power, Inc. (1)		Electrical Components & Equipment		Series A Convertible Preferred Stock			100,000				46,505				15,000				0.74	%
Arista Power, Inc. (1)		Electrical Components & Equipment		Warrants			750,000				53,495				21,149				1.05	%
Cesca Therapeutics, Inc. (2)		Health Care Equipment		Warrants			16,500				14,159				3,445				0.17	%
CombiMatrix Corp.(2)		Life Sciences Tools & Services		Warrants			38,835			$	31,021			$	39,939				1.98	%
DatChat Inc. (1)(2)		Application Software		Common Stock			2,000,000				100,150				65,097				3.23	%
DatChat Inc. (1)(2)				10% Debenture (Due 7/2015)		$	30,000				30,000				30,000				1.49	%
Dejour Energy Inc. (2)		Oil & Gas Exploration		Warrants			800,000				36,308				0				0.00	%
Home Bistro, Inc.		Other		15% Convertible Debenture (Due 11/2015)			150,000				150,000				150,000				7.44	%
Home Bistro, Inc.		Other		Warrants			75,000				0				0				0.00	%
ID Global Solutions Corporations		Biometric Technology		10% Debenture (Due 7/2016)		$	100,000				61,781				61,781				3.07	%
ID Global Solutions Corporations		Biometric Technology		Warrants			2,200,000				38,219				38,219				1.90	%
iNeedMD Holdings, Inc. (1)(2)		Health Care Supplies		Common Stock			25,000				795				795				0.04	%
MabVax Therapeutics Holdings Inc. (2)		Biotechnology		Common Stock			133,333				69,326				142,666				7.08	%
MabVax Therapeutics Holdings Inc. (2)		Biotechnology		Warrants			66,667				30,674				42,064				2.09	%
MultiMedia Platforms, Inc.		Multimedia Technology		9% Debenture (Due 7/2016)			100,000				38,461				38,461				1.91	%
MultiMedia Platforms, Inc.		Multimedia Technology		Warrants			333,334				61,539				61,539				3.05	%
Optex Systems Holdings Inc. (1)(2)		Aerospace & Defense		Series B Convertible Prefered			104,433				104,432				147,871				7.35	%
Orbital Tracking Corp. (1)(2)		Communications Equipment		Series C Convertible Preferred Stock			200,000				100,000				75,000				3.72	%
Orbital Tracking Corp. (1)(2)		Communications Equipment		Series D Convertible Preferred Stock			100,000				50,000				75,000				3.72	%
Pershing Gold Corp.(2)		Mining Exploration		Common Stock			17,094				90,035				65,470				3.25	%
Pershing Gold Corp.(2)		Mining Exploration		Warrants			6,838				9,965				906				0.04	%
PishPosh Inc.(1)(2)		Online Retail - Specialty Apparel		Convertible Preferred Stock			287,500				149,988				89,700				4.45	%
PishPosh Inc.(1)(2)		Online Retail - Specialty Apparel		Warrants			50,000				12				754				0.3	%
Provectus BioPharmaceuticals Inc.(2)		Biotechnology		Common Stock			100,000				74,000				57,500				2.85	%
Provectus BioPharmaceuticals Inc.(2)		Biotechnology		Warrants			100,000				1,000				31,160				1.55	%
Pulmatrix Inc. (f/k/a Ruthigen Inc.) (1)(2)(3)		Biotechnology		Common Stock			23,044				251,326				113,146				5.61	%
Pulmatrix Inc. (f/k/a Ruthigen Inc.) (1)(2)		Biotechnology		Series A Warrants			8,276				207				202				0.00	%
Vapor Corp. (1)		Tobacco		Common Stock			21,428				-				10,285				0.51	%
Vapor Corp. (1)		Tobacco		Warrants			90,909				48,513				43,042				2.14	%
Xtant Medical Holdings, Inc. (formerly Bacterin Holdings International Inc.)		Health Care Supplies		Warrants			11,513				31,773				15,860				0.79	%
Total Non-controlled/Non-affiliated investments										$	1,950,850			$	1,601,646				79.47	%
Reconciliation to Net Assets:
Investments at fair value														$	1,601,646				79.47	%
Cash and cash equivalents															779,243				38.67	%
Other current assets															35,324				1.75	%
Liabilities in excess of other assets															(400,765	)			(19.88	)%
Net Assets														$	2,015,448				100.00	%

 

(1) Securities are exempt from registration under Rule 144A promulgated under the Securities Act.

(2) Securities are not income producing.

(3) Converted $101,530 in principal and interest into common shares.

 

See accompanying notes to unaudited consolidated financial statements.

 

 

POINT CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2014

 

				Type of										Fair				% of
Company		Industry		Investment		Principal/Shares				Cost				Value				Net Assets
Non-controlled/Non-affiliated investments
Intercloud Systems, Inc. (1)(3)		IT Consulting & Other Services		Common Stock			17,425			$	108,875			$	50,881				2.15	%
CombiMatrix Corp.(2)		Life Sciences Tools & Services		Warrants			38,835				31,021				47,540				2.01	%
Pulmatrix Inc. (f/k/a Ruthigen Inc.) (2)		Biotechnology		Common Stock			20,690				149,796				72,415				3.06	%
				Series A Warrants			20,690				207				6,160				0.26	%
Arista Power, Inc. (1)		Electrical Components & Equipment		Series A Convertible Preferred Stock			100,000				46,505				35,000				1.48	%
				Warrants			750,000				53,495				47,923				2.01	%
Cesca Therapeutics, Inc. (2)		Health Care Equipment		Common Stock			55,000				68,341				56,100				2.36	%
				Warrants			16,500				14,159				9,605				0.40	%
Musclepharm Corp. (2)(4)		Personal Products		Common Stock			2,500				22,500				21,250				0.89	%
PishPosh Inc.(1)(2)		Online Retail - Specialty Apparel		Convertible Preferred Stock			287,500				149,988				95,856				4.04	%
				Warrants			50,000				12				339				0.00	%
Bacterin Holdings International Inc.(2)		Health Care Supplies		Common Stock			23,026				99,475				69,769				2.94	%
				Warrants			11,513				31,773				17,383				0.72	%
Dejour Energy Inc. (2)		Oil & Gas Exploration		Warrants			800,000				36,308				25,369				1.06	%
iNeedMD Holdings, Inc.		Health Care Supplies		Common Stock			25,000				795				795				0.02	%
Orbital Tracking Corp. (1)(2)		Communications Equipment		Series C Convertible Preferred Stock			200,000				100,000				100,000				4.21	%
				Series D Convertible Preferred Stock			100,000				50,000				50,000				2.10	%
Optex Systems Holdings Inc. (1)		Aerospace & Defense		12% Convertible Debenture (Due 11/2016)		$	100,000				100,000				179,520				7.57	%
Vapor Corp. (1)		Tobacco		7% Convertible Debenture (Due 11/2015)		$	100,000				51,487				62,700				2.64	%
				Warrants			90,909				48,513				59,832				2.52	%
Total Non-controlled/Non-affiliated investments										$	1,163,250			$	1,008,437				42.57	%
Reconciliation to Net Assets:
Investments at fair value														$	1,008,437				42.57	%
Cash and cash equivalents															1,739,520				73.43	%
Other current assets															23,575				1.00	%
Liabilities in excess of other assets															(402,554	)			(16.99	)%
Net Assets														$	2,368,978				100.00	%

 

(1) Securities are exempt from registration under Rule 144A promulgated under the Securities Act.

(2) Securities are not income producing.

(3) Converted $112,000 in principal and interest into common shares.

(4) Security is subject to an 8 month (12.5%/month) bleed-out agreement. No more than 1,250 shares can be sold per month.

 

See accompanying notes to unaudited consolidated financial statements.

 

 

The following table shows the portfolio composition by industry grouping based on fair value at September 30, 2015 and December 31, 2014:

 

		September 30, 2015
		(unaudited)								December 31, 2014
Industry Classification		Investments at Fair Value				Percentage of Total Portfolio				Investments at Fair Value				Percentage of Total Portfolio
IT Consulting & Other Services		$	-				0.00	%		$	50,881				5.05	%
Life Sciences Tools & Services			39,939				2.49	%			47,540				4.71	%
Biotechnology			487,963				30.47	%			78,575				7.79	%
Biometric Technology			100,000				6.24	%			-				0.00	%
Electrical Components & Equipment			36,149				2.26	%			82,923				8.22	%
Health Care Equipment			3,445				0.22	%			65,705				6.52	%
Personal Products			-				0.00	%			21,250				2.11	%
Online Retail - Specialty Apparel			90,454				5.65	%			96,195				9.54	%
Health Care Supplies			16,655				1.04	%			87,947				8.72	%
Oil & Gas Exploration			-				0.00	%			25,369				2.52	%
Mining Exploration			66,376				4.14	%			-				0.00	%
Communications Equipment			150,000				9.37	%			150,000				14.87	%
Aerospace & Defense			147,871				9.23	%			179,520				17.80	%
Tobacco			53,327				3.33	%			122,532				12.15	%
Application Software			159,467				9.96	%			-				0.00	%
Multimedia Technology			100,000				6.24	%			-				-
Other			150,000				9.37	%			-				-
		$	1,601,646				100.00	%		$	1,008,437				100.00	%

 

See accompanying notes to the unaudited consolidated financial statements

 

 

POINT CAPITAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

 

NOTE 1 - ORGANIZATION AND BUSINESS

 

Point Capital, Inc. (the “Company”) was incorporated in the State of New York on July 13, 2010. On January 24, 2013, the Company changed its state of incorporation from New York to Delaware.

  

On October 4, 2013, the Company filed a Form N-54A and elected to become a Business Development Company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).

 

The Company’s investment objective is to provide current income and capital appreciation. The Company intends to accomplish its objective by investing in the common stock, preferred stock, warrants and convertible notes of small and mid-cap companies. The Company’s investments are made principally through direct investments in prospective portfolio companies.  However, the Company may also purchase securities in private secondary transactions. The Company to a lesser extent will also invest in private companies that meet its investment objectives. The Company meets the definition of an investment company in accordance with the guidance under Accounting Standards Codification Topic 946 “Financial Services – Investment Companies.”

 

On March 27, 2014, the Company formed a wholly-owned subsidiary, Hemp Funding, Inc., to invest in companies that are positioned for growth in the legal cannabis industry. The subsidiary has not made any investments to date.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and principles of consolidation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, ("U.S. GAAP") and include the financial statements of the Company and its wholly-owned subsidiary, Hemp Funding, Inc. All intercompany transactions and balances have been eliminated.

 

All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2015, and the results of operations and cash flows for the nine months ended September 30, 2015 have been included. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year. The accounting policies and procedures employed in the preparation of these consolidated financial statements have been derived from the audited financial statements of the Company for the fiscal year ended December 31, 2014, which are contained in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 31, 2015. The consolidated balance sheet as of December 31, 2014, contained herein, was derived from those consolidated financial statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates. Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s) to value share options and similar instruments.

 

 

 

POINT CAPITAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with high credit quality financial institutions. The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 or by the Securities Investor Protection Corporation (“SIPC”) up to $250,000. At September 30, 2015, the Company had cash balances exceeding the FDIC and SIPC insurance limit on interest bearing accounts. To reduce its risk associated with the failure of such financial institutions, the Company evaluates at least annually the rating of the financial institutions in which it holds deposits.

 

Securities Transactions

 

Securities transactions are recorded on a trade date basis. Securities transactions outside conventional channels, such as private transactions, are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale, and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively. The Company records interest and dividend income on an accrual basis beginning on the trade settlement date (the date on which a financial transaction is settled and monies from the transaction have occurred) or the ex-dividend date, respectively, to the extent that the Company expects to collect such amounts. Commissions and other costs associated with transactions involving securities, including legal costs, are included in the cost basis of purchases and deducted from the proceeds of sales.

 

Realized Gain or Loss and Net Change in Unrealized Appreciation or Depreciation of Portfolio Investments

 

Realized gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company's cost basis and the net proceeds received from such disposition without regard to unrealized appreciation or depreciation previously recognized.  Realized gains and losses on investment transactions are determined by specific identification. Net change in unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment, including any reversal of previously recorded unrealized appreciation/depreciation when gains or losses are realized.

 

Valuation of Investments

 

Our investments consist of loans and securities issued by public and privately-held companies, including convertible debt, loans, equity warrants and preferred and common equity securities.

 

The Company applies the accounting guidance of Accounting Standards Codification Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”). This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

 

The guidance also establishes a fair value hierarchy for measurements of fair value as follows:

 

	●	Level 1 - quoted market prices in active markets for identical assets or liabilities.
	●	Level 2 - inputs other than quoted market prices that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
	●	Level 3 - unobservable inputs for which little or no market activity exists, therefore requiring an entity to develop its own assumptions.

 

 

POINT CAPITAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Valuation of Investments (continued)

 

On a quarterly basis, The Board of Directors (the “Board”) of the Company, in good faith, determines the fair value of investments in the following manner:

 

Equity securities which are listed on a recognized stock exchange are valued at the closing trade price on the last trading day of the valuation period. For equity securities that carry a restriction inherent to the security, a restriction discount is applied, as appropriate. Investments in warrants are valued at fair value using the Black-Scholes option pricing model. Investments in securities which are convertible at a date in the future are valued assuming a full conversion into common shares and valued based on the methodology for equity securities described above.  Investments in unlisted securities are valued using a market approach net of the appropriate discount for lack of marketability.

 

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors.

 

Because there is not a readily available market value for some of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.

 

The following are the Company’s investments owned by levels within the fair value hierarchy at September 30, 2015:

 

		Level 1				Level 2				Level 3				Total
Common Stock		$	504,097			$	-			$	65,892			$	569,989
Convertible Preferred Stock			-				15,000				387,571				402,571
Convertible Debentures			-				-				250,242				250,242
Debenture			-				-				30,000				30,000
Warrants			-				217,172				131,672				348,844
Total Investments		$	504,097			$	232,172			$	865,377			$	1,601,646

  

 

POINT CAPITAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Valuation of Investments (continued)

 

The following are the Company’s investments owned by levels within the fair value hierarchy at December 31, 2014:

 

		Level 1				Level 2				Level 3				Total
Common Stock		$	270,415			$	-			$	795			$	271,210
Convertible Preferred Stock			-				35,000				245,856				280,856
Convertible Debentures			-				-				242,220				242,220
Warrants			-				153,979				60,172				214,151
Total Investments		$	270,415			$	188,979			$	549,043			$	1,008,437

 

The following additional disclosures relate to the changes in fair value of the Company’s Level 3 investments during the nine months ended September 30, 2015 and 2014:

 

		Nine Months Ended September 30,
		2015				2014
Balance at beginning of period		$	549,043			$	147,231
Purchase of investments at cost			585,582				150,000
Repayment and conversion of convertible debentures			(151,487	)			-
Net change in unrealized depreciation on investments			(117,761	)			(93,626	)
Net transfers in and/or out of Level 3 (1)(2)			-				(147,231	)
Balance at end of period		$	865,377			$	56,374
Net change in unrealized depreciation in earnings relating to assets still held		$	(117,761	)		$	(93,626	)

  

	(1)	Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.
	(2)	Transfers occurred due to the expiration of the restriction under Rule 144A of the Securities Act.

 

Investment Type

Fair Value at September 30, 2015

Valuation Technique

Unobservable inputs

Input

Common Stock

$

65,097

Recent Transactions

Discount for lack of marketability(“DLOM”)

35

%

Common Stock

$

795

Recent Transactions

N/A

N/A

Convertible Preferred Stock

$

89,700

Comparable market approach

DLOM Price/Sales Multiple

35% 1.35x

Convertible Preferred Stock

$

147,871

Comparable market value

DLOM

41

%

Convertible Preferred Stock

$

150,000

Recent Transactions

N/A

N/A

Convertible Debentures

$

250,242

Recent Transactions

N/A

N/A

Debenture

$

30,000

Recent Transaction

N/A

N/A

Warrants

$

754

Comparable market approach

DLOM Price/Sales Multiple

35% 1.35x

Warrants

$

31,160

Dealer quote

N/A

N/A

Warrants

$

99,758

Recent Transactions

N/A

N/A

$

865,377

 

 

POINT CAPITAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Valuation of Investments (continued)

 

Investment Type		Fair Value at December 31, 2014				Valuation Technique		Unobservable inputs		Input
Common Stock		$	795			Recent Transaction		N/A			N/A
Convertible Preferred Stock		$	95,856			Comparable market approach		DLOM			35	%
								Price/Sales Multiple			1.38	x
Convertible Preferred Stock		$	150,000			Recent Transaction		N/A			N/A
Convertible Debentures		$	179,520			Comparable market value		Restriction discount			56	%
Convertible Debentures		$	62,700			Comparable market value		Restriction discount			43	%
Warrants		$	340			Comparable market approach		Price/Sales Multiple			1.38	x
Warrants		$	59,832			Comparable market value		Restriction discount			43	%
		$	549,043

 

If the price multiple or sales multiple were to increase or decrease, the fair value of the investments would increase or decrease, respectively. If the DLOM or restriction discount were to increase or decrease, the fair value of the investments would decrease or increase, respectively.

 

Portfolio Company Investment Classification

 

The Company classifies its portfolio company investments in accordance with the requirements of the 1940 Act.  Under the 1940 Act, “Controlled Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to nominate greater than 50% of the board representation.  Under the 1940 Act, “Affiliated Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities.  Under the 1940 Act, “Non-Controlled/Non-Affiliated Investments” are defined as investments that are neither Controlled Investments nor Affiliated Investments. At September 30, 2015 and December 31, 2014, the Company did not have any Controlled or Affiliated investments.

 

Offering and Related Offering Costs

 

During the nine months ended September 30, 2014, the Company issued 1,650,000 shares of common stock for gross proceeds of $330,000 through a private capital raise.

 

Offering costs include any costs associated with the offering of the Company’s shares.

 

During the nine months ended September 30, 2014, the Company incurred $33,140 in offering expenses to a third party placement agent (“Agent”) associated with capital raising activities with gross proceeds of $330,000. The offering costs were paid to the Agent based upon a 7% fixed amount related to gross proceeds raised. The Agent is also entitled to receive an additional amount up to 3% in a non-accountable expense allowance.

 

In addition to the above offering costs, the Agent was issued 6,126,240 shares of common stock as additional compensation for a maximum raise of $2,000,000. As of March 31, 2014, the Agent raised $2,305,000 and was entitled to 6,126,240 shares which have a fair value (based on $0.20/share price of the private placement transactions) of $1,225,248 upon final closing. The fair value of these shares was recorded as a reduction of offering proceeds upon issuance of the shares in March 2014.

 

The Company incurred $1,258,388 in offering expenses for the nine months ended September 30, 2014.

 

 

POINT CAPITAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

  

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Stock-Based Compensation for Obtaining Employee Services

 

The Company records compensation expense associated with stock options and other forms of equity compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of FASB ASC Topic 718, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model.

 

In January 2015, the Company created an Option Agreement in an effort to provide incentives to its independent directors. Under the provisions of the Option Agreement, if the Company’s common shares are traded in one of the national exchanges, the grant-date share price of the Company’s common stock will be used to measure the fair market value of the common shares issued. However, if the Company’s common shares are thinly traded, the use of share prices established in its most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and the lack of consistent trading in the market.

 

The Company estimates the fair value of share options and similar instruments on the date of grant using a Black-Scholes option-pricing valuation model.

 

The compensation cost for an award of share-based employee compensation is classified as equity recognized over the requisite service period, with a corresponding credit to equity (generally, paid-in capital).

 

The Company made a policy decision to recognize compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

 

Income Taxes

 

For 2014, the Company was treated for federal income tax purposes, and intends to qualify thereafter, as a RIC under Subchapter M of the Code. Generally, a RIC is exempt from federal income taxes if it distributes at least 90% of ‘‘Investment Company Taxable Income,’’ as defined in the Code, each year. Dividends paid up to one year after the current tax year can be carried back to the prior tax year for determining the dividends paid in such tax year. The Company intends to distribute sufficient dividends to maintain its RIC status each year. The Company is also subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income each calendar year, 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. The Company will generally endeavor each year to avoid any federal excise taxes.

  

The Company accounts for income taxes in accordance with accounting guidance FASB ASC Topic 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

 

The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.  Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the applicable period.  Although the Company files federal and state tax returns, its major tax jurisdiction is federal.

 

 

POINT CAPITAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income Taxes (continued)

 

As of September 30, 2015 and December 31, 2014, the Company had not recorded a liability for any unrecognized tax positions.  Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.  The Company’s policy is to include interest and penalties related to income taxes, if applicable, in general and administrative expenses.  

 

Recent Accounting Pronouncements

 

In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”), which removes the requirement to include, as well as provide certain disclosure for, investments in the fair value hierarchy for which the fair value is measured at net asset value using the practical expedient. Disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. ASU 2015-07 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. We do not believe the adoption of ASU 2015-07 will have a material impact on our consolidated financial statements.

 

NOTE 3 - REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK

 

In April 2013, the Company issued 4,000 shares of Series A, Convertible Preferred Stock (the “Preferred Stock”) for $400,000. Holders of Preferred Stock vote together with holders of Common Stock on an as-converted basis. Each share is currently convertible into 500 shares of common stock at the option of the holder (subject to a 9.99% beneficial ownership limitation) based on a conversion formula (the Stated Value, currently $100, divided by the Conversion Rate, currently $0.20.) The Conversion Rate may be adjusted upon the occurrence of stock dividends or stock splits or subsequent equity sales at a price lower than the current conversion rate. Each share has a $100 liquidation value. The holders of Preferred Stock are entitled to receive dividends on an as-converted basis if paid on Common Stock.

 

The Series A, Convertible Preferred Stock is redeemable at the option of the holder upon the occurrence of certain “triggering events.” In case of a triggering event, the holder has the right to redeem each share held for cash (currently $100/share) or impose a dividend rate on all of the outstanding Preferred Stock at 6% per annum thereafter. A triggering event occurs if the Company fails to deliver certificates representing conversion shares, fails to pay the amount due pursuant to a Buy-In, fails to have available a sufficient number of authorized shares, fails to observe any covenant in the Certificate of Designation unless cured within 30 calendar days, shall be party to a Change in Control Transaction, sustains a bankruptcy event, fails to list or quote its common stock for more than 20 trading days in a twelve-month period, sustains any monetary judgment, writ or similar final process filed against the Company for more than $100,000 and such judgment writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days, or fails to comply with the Asset Coverage requirement.

 

Because certain of these “triggering events” are outside the control of the Company, the Preferred Stock is classified within the temporary equity section of the statement of assets and liabilities.

 

The Preferred Stock has forced conversion rights where the Company may force the conversion of the Preferred Stock if certain conditions are met. The Company may elect to redeem some or all of the outstanding Preferred Stock for the Stated Value (currently $100/share) provided that proper notice is provided to the holders and that a number of conditions (the “Equity Conditions”) have been met.

 

If any shares of Preferred Stock are outstanding and the Company is a Business Development Company, the Company shall have asset coverage of at least 200% as of the close of business on the last business day of a calendar quarter. If the Company fails to comply with this requirement and it is not cured on a timely basis, the Company shall, to the extent permitted by the 1940 Act and Delaware law, proceed to redeem a sufficient number of shares of Preferred Stock (at $100/share plus any unpaid dividends and distributions) to meet is asset coverage requirement.

 

The Company believes the carrying amount reported in the consolidated balance sheets for the Preferred Stock of $400,000 approximates the fair market value of such Preferred Stock based on the short-term maturity of these instruments which also equals the redemption value reflected as on the consolidated balance sheets.

 

 

POINT CAPITAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

 

NOTE 4 - STOCK OPTIONS

 

The Company entered into an agreement with its independent directors to issue each independent director of the board 112,500 options for the first quarter of 2015 and 37,500 on the first day of each quarter going forward at a strike price equal to the then fair market value. Each option issuance vests over a three-month period. On January 1, 2015, each independent director of the Company’s board was issued 112,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30 for an aggregate of 337,500 options. Additionally, on April 1, 2015 and July 1, 2015, each independent director of the Company’s board was issued 37,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30 per share, the fair value of the Company’s common stock on the date of grant, expiring five years from the date of issuance for an aggregate of 225,000 options.

 

To calculate the option-based compensation, the Company used the Black-Scholes option-pricing model. The Company’s determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, risk-free interest rate, and the expected life of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The expected volatility, holding period, and forfeitures of options are based on historical experience. To determine the fair value of the stock options, the Company utilized a 1.63% risk-free rate and 40% volatility during the nine months ended September 30, 2015.

 

As of September 30, 2015, there are 562,500 options exercisable. As of September 30, 2015, there was no unvested stock-based compensation expense to recognize. Total share-based compensation expense recognized was $62,758 for the nine months ended September 30, 2015. The aggregate intrinsic value at September 30, 2015 was $0 and was calculated based on the difference between the Company’s share price established in its most recent PPM and the exercise price of the underlying options.

 

NOTE 5 - FINANCIAL HIGHLIGHTS

 

The following is a schedule of financial highlights for the nine months ended September 30, 2015 and 2014:

 

Net asset value per common share data:		For the Nine Months ended September 30,
		2015				2014
Net asset value per common share, beginning of period		$	0.05			$	0.04
Net investment gain (loss)			0.00				0.00
Net realized gain (loss) on investments			0.00				0.00
Net change in unrealized appreciation (depreciation) on investments			(0.01	)			0.00
Net increase (decrease) in net assets resulting from operations			(0.01	)			0.00
Capital stock transactions:
Issuance of common stock			0.00				0.03
Offering costs from issuance of common stock			0.00				(0.03	)
Net increase in net assets from capital stock transactions			0.00				0.00
Net asset value per common share, end of period		$	0.04			$	0.04
Ratios and supplemental data:
Per share market price, end of period (1)		$	1.69			$	-
Total return (2)			(14.92	)%			1.95	%
Common shares outstanding, end of period			50,582,441				48,382,440
Weighted average common shares outstanding during period			50,582,441				45,256,726
Net assets, end of period		$	2,015,448			$	2,090,853
Annualized ratio of operating expenses to average net assets			(10.83	)%			(6.36	)%
Annualized ratio of net investment loss to average net assets			(8.87	)%			(5.34	)%
Portfolio Turnover			27.06	%			-	%

  

1.		The shares of the Company's common stock were listed in the OTC Market beginning January 5, 2012.  There was no market price for the shares as of September 30, 2014.
2.		Total return is based on the change in net asset value during the period, adjusted for the impact of capital stock transactions and related offering costs. Since there was no market price for the nine months ended September 30, 2014 and the shares were not actively traded in 2014 and for the nine months ended September 30, 2015, total return based on stock price has not been presented for the nine months ended September 30, 2015 and 2014.

 

NOTE 6 – SUBSEQUENT EVENTS 

 

In November 2015, the Company sold marketable securities consisting of common shares for net proceeds of approximately 67,600.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

As used in this Form 10-Q, references to “Point Capital,” Company,” “we,” “our” or “us” refer to Point Capital, Inc. unless the context otherwise indicates.

 

Forward-Looking Statements

 

The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”). This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Overview

 

We are a closed-end, non-diversified investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”).  As a business development company, we are required to comply with certain regulatory requirements.  For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. For the 2015 tax year, we will elect to be treated for tax purposes as a regulated investment company, or a RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).  

 

Investment Strategy

 

We will seek to invest in companies that are asset rich and generating cash flow on a sustainable basis. Further, when identifying prospective portfolio companies, we will seek the following attributes, which we believe will help us generate higher total returns with an acceptable level of risk. These attributes are:

 

●

Strong management teams with meaningful equity ownership. We will seek experienced management teams with an established track record of success in place or available. We will typically require the portfolio companies to have proper incentives to align management’s goals with ours. Generally, we will seek companies in which the management teams have significant equity interests.

 

●

Secure market positions that present attractive growth opportunities. We will seek companies that we believe possess advantages in scale, scope, customer loyalty, product pricing, or product quality versus their competitors, minimizing sales risk and generating margins that can be readily forecast.

 

●

Industries with favorable trends.  We will seek industries with favorable industry trends and companies performing well within their industries and poised to benefit from a catalyst.

 

●

Investing in private companies. We may invest in start-up companies or companies with speculative business plans.  We may also consider companies that are underperforming compared to their potential due to structural impediments with opportunities to restructure and refocus strategy and resources.

 

 

●

Diversification. We will seek to diversify our portfolio among companies engaged in a variety of industries, thereby potentially reducing the risk of a downturn in any one industry having a disproportionate impact on the value of our portfolio. We cannot assure you that we will be successful in this regard.

 

●

Structure financing terms to limit down side risk.  Originating our own lending opportunities through our network will permit us to structure loans to enhance the element of capital preservation for our stockholders.

 

●

Private equity sponsorship. Often we will seek to participate in transactions sponsored by what we believe to be high-quality private equity firms. Point Capital’s senior management team believes that a private equity sponsor’s willingness to invest significant sums of equity capital into a company provides an additional level of due diligence investigation and is an implicit endorsement of the quality of the investment. Further, by co-investing with quality private equity firms which commit significant sums of equity capital with junior priority to our future debt investments, we may benefit from having due diligence on our investments performed by both parties.

 

●

Viable exit strategy. We intend to focus our investment activity primarily in companies whose business models and growth prospects offer attractive exit possibilities, including repayment of our investments, with the potential for capital gain on any equity interest we hold through an initial public offering of common stock, a merger, a sale or other recapitalization. See “Investment Objectives and Strategy.”

 

We plan to be the lead investor for transactions, as well as a co-investor with investment institutions for other transactions. Moreover, we may acquire investments in the secondary loan market, and, in analyzing such investments, we will employ the same analytical process that we use for our primary investments.

 

Portfolio Update

 

As of September 30, 2015, we held twenty portfolio companies all of which are non-controlled and non-affiliated investments.

 

MultiMedia Platforms Inc. (MMPW) - On July 6, 2015, we completed an investment of $100,000 in a 9% convertible debenture and 333,334 warrants of MultiMedia Platforms Inc., an OTCQB listed company. We have the right to convert all or any portion of the then aggregate outstanding principal amount of this note, together with any accrued and unpaid interest thereon, into shares of common stock of MMPW at the lower of $.30 per share or at such price that equals 85% of the price of the MMPW’s common stock or common stock equivalent sold at the next equity or convertible debt financing with gross proceeds to MMPW of no less than $1,000,000. Each warrant expires on March 6, 2018 and is exercisable at an exercise price equal to the lesser of (i) $0.75 or (ii) 85% of the exercise price of the warrants issued at the next equity or convertible debt financing with gross proceeds to MMPW of no less than $1,000,000. MultiMedia Platforms Inc. is a multimedia technology and publishing company that integrates print media with social media, and related online platforms, to deliver information and advertising to niche markets.

 

Home Bistro, Inc. (“Home Bistro”) - On August 7, 2015, we completed an investment of $150,000 in a 15% convertible debenture and 75,000 warrants of Home Bistro, Inc. We have the right to convert all or any portion of the then aggregate outstanding principal amount of this note, together with any accrued and unpaid interest thereon, into shares of common stock of Home Bistro at any time following a closing date, at 75% of the pricing of the Home Bistro’s securities offered at their next round of financing. Each warrant expires on August 7, 2020 and is exercisable at an exercise price equal to 150% of the pricing of Home Bistro’s next round of financing. Home Bistro, Inc. is a private company.

 

 

Accelerize, Inc. (ACLZ) - On August 17, 2015, we completed an investment of $100,000 in 100,000 shares of common stock and 60,000 warrants of Accelerize Inc., an OTC BB listed company. Each warrant expires on August 17, 2020 and is exercisable at an exercise price of $1.32. Accelerize, Inc. provides software solutions for businesses interested in expanding their online advertising spending.

 

ID Global Solution Corp. (IDGS) - On June 25, 2015, we completed an investment of $100,000 in a 10% convertible debenture and 2,200,000 warrants of ID Global Solution Corp., an OTCBB listed company. We have the right to convert all or any portion of the then aggregate outstanding principal amount of this debenture, together with any accrued and unpaid interest thereon, into shares of common stock of IDGS at $.03 per share. Each warrant expires on June 25, 2020 and is exercisable at an exercise price of $0.05. ID Global Solution Corp. is an international biometrics and payment processing company with a unique technology platform that provides valuable, secure payment processing for consumers as well as for merchants.

 

Provectus BioPharmaceuticals Inc. (PVCT) - On June 22, 2015, we completed an investment of $75,000 in 100,000 shares of common stock and 100,000 warrants in Provectus BioPharmaceuticals Inc., an NYSE listed company. Each warrant expires on June 22, 2020 and is exercisable at an exercise price of $0.85. Provectus BioPharmaceuticals Inc. is a development-stage biopharmaceutical company that is primarily engaged in developing ethical pharmaceuticals for oncology and dermatology indications. PVCTs goal is to develop alternative treatments that are safer, more effective, less invasive and more economical than conventional therapies.

 

Pershing Gold Corp. (PGLC) - On April 10, 2015, we completed an investment of $100,000 in 17,094 shares of common stock and 6,838 warrants in Pershing Gold Corp., a NASDAQ listed company. Each warrant expires on April 10, 2017 and is exercisable at an exercise price of $7.92. Pershing Gold Corp. operates as a gold exploration company that seeks out and develops significant gold exploration and development properties in the state of Nevada.

 

MabVax Therapeutics Holdings Inc. (MBVX) - On April 6, 2015, we completed an investment of $100,000 in 133,333 shares of common stock and 66,667 warrants of MabVax Therapeutics Holdings Inc., an OTCBB listed company. Each warrants expire on October 6, 2017 and are exercisable at $1.50 per common share. MabVax Therapeutics Holdings Inc. is a biopharmaceutical company that discovers, develops, and commercializes small molecule drugs to treat serious diseases. MVBX’s most advanced product development programs are for the treatment of cancer and diabetes.

 

Pulmatrix Inc. (PULM) - On March 21, 2014, we completed a $150,003 investment in 8,276 shares of common stock and 8,276 warrants of Pulmatrix, Inc. a NASDAQ listed company. These warrants expire on March 21, 2016 and the exercise price of these warrants is $18.125 per common share. Additionally, on February 13, 2015, we completed a $100,000 investment in a 5% convertible debenture of Pulmatrix, Inc. On June 30, 2015, $100,000 of principal and $1,530 of interest of this 5% convertible debenture was converted into 14,768 shares of common stock. Pulmatrix focuses on the discovery, development, and commercialization of pharmaceutical-grade hypochlorous acid based therapeutics to prevent and treat infection in invasive applications.

 

DatChat Inc. Between February 6, 2015 and April 2, 2015, we completed a $100,150 investment in 2,000,000 shares of common stock in DatChat, Inc., a private company that develops mobile messaging applications as well as other intellectual property. Additionally, on May 2015, we completed a $30,000 investment in a 10% debenture.

 

Actinium Pharmaceuticals Inc. (ATNM) - On February 6, 2015, we completed a $190,100 investment in 43,000 shares of common stock and 29,250 warrants of Actinium Pharmaceuticals Inc., a NYSE listed company. ATNM operates as a biopharmaceutical company that develops alpha particle immunotherapeutic and other radiopharmaceuticals for select applications. The warrants expire on February 6, 2019 and are exercisable at $6.50 per common share. On May 26, 2015, we sold 4,000 shares of this common stock.

 

 

Optex Systems Holdings, Inc. (OPXS) - On November 17, 2014, we completed a $100,000 investment in a 12% convertible debenture of Optex Systems Holdings, Inc., an OTCBB listed company that manufactures optical sighting systems and assemblies primarily for Department of Defense (DOD) applications. OPXS also manufactures and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies. On March 26, 2015, $100,000 of principal and $4,433 of interest of the convertible debt converted into 64.10 shares of Series B Convertible Preferred Stock which is convertible into 41,773 shares of OPXS common stock.

 

Vapor Corp. (VPCO) - On November 14, 2014, we completed a $100,000 investment in a 7% convertible debenture and 90,909 warrants of Vapor Corp., a NASDAQ listed company that markets and distributes electronic cigarettes. VPCO distributes electronic devices that vaporize a liquid solution, which provides users an experience akin to smoking without actual combustion. The warrants expire on November 14, 2019 and the exercise price of the warrants is $2.00 per share. On August 3, 2015, the Company collected the principal amount of $100,000 and all unpaid and accrued interest. Additionally, in September 2015, pursuant to certain anti-dilutive provisions in the convertible debt agreement, the Company received 21,428 common shares of VPCO.

 

iNeedMD Holdings, Inc. (NEMD) - On October 15, 2014, we completed a $795 investment in 25,000 shares of common stock of iNeedMD Holdings Inc., an OTCBB listed company that manufactures medical devices that acquires and transmits health related data.

 

Orbital Tracking Corp. (TRKK) - On October 10, 2014, we completed a $150,000 investment in 200,000 shares of Series C Preferred Stock and 100,000 shares of Series D Preferred Stock of Orbital Tracking Corp., an OTC BB listed company that provides satellite telecommunications voice airtime, tracking devices and services, and ground station construction. TRKK provides mobile voice and data communications services globally via satellite. Each shares of Series C Preferred converts into 10 shares of common stock. Each shares of Series D Preferred convert into 20 shares of common stock.

 

Dejour Energy, Inc. (DEJ) - On August 12, 2014, we completed a $200,000 investment in 800,000 shares of common stock and 800,000 warrants of Dejour Energy, Inc., a NYSE listed company. DEJ is an independent oil and natural gas company operating multiple exploration and production projects in North America's Piceance Basin and Peace River Arch regions. The warrants expire on December 31, 2015 and the exercise price of the warrants is $0.35 per share. We currently hold 800,000 warrants.

 

Xtant Medical Holdings, Inc. (formerly Bacterin International Holdings, Inc.) (XTNT) - On August 1, 2014, we completed a $131,248 investment in 23,026 shares of common stock and 11,513 warrants of Xtant Medical Holdings, Inc., a NYSE listed company that produces human tissue for orthopedic procedures. BONE produces allografts of human calcellous bone which has been demineralized. BONE also produces medical devices for orthopedic, plastic, and cardiovascular surgery; and antimicrobial coatings for medical devices. The warrants expire on August 1, 2019 and the exercise price of the warrants is $7.12 per share. We currently hold 11,513 warrants.

 

PishPosh, Inc. - On July 2, 2014, we made an investment of $150,000 in convertible preferred stock and 50,000 three-year warrants exercisable at $1.00 per share of PishPosh, Inc., a private company that operates a commerce platform serving parents and grandparents of newborns, infants, and toddlers. $100,000 of the convertible preferred stock is convertible at $1.00 per common share and $50,000 is convertible at $0.2666 per common share.

 

Cesca Therapeutics, Inc.(KOOL) - On June 13, 2014, we completed an $82,500 investment in 55,000 shares of common stock and 16,500 warrants of Cesca Therapeutics, Inc., a NASDAQ listed company that operates as a supplier of products targeting the worldwide adult stem cell market. KOOL offers automated and semi-automated devices and single-use processing disposables that enable the collection, processing and cryopreservation of stem cells and other cellular tissues from cord blood and bone marrow used in regenerative medicine. The warrants expire on June 13, 2019 and the exercise price of the warrants is $1.55 per share. We currently hold 16,500 warrants.

 

Arista Power, Inc. (ASPW) - On March 31, 2014, we completed a $100,000 investment in 9% convertible preferred stock and 750,000 warrants of Arista Power, Inc., an OTCBB listed company that develops and manufactures renewable power equipment. ASPW produces wind turbines, solar energy systems, and custom-designed power management systems. The Preferred Stock is convertible into shares of common stock at a conversion price equal to $0.20 per common share. The warrants expire on March 31, 2019 and the exercise price of the warrants is $0.25 per common share.

 

 

CombiMatrix Corp. (CBMX) - On December 19, 2013, we completed an $80,000 investment in Series D Convertible Preferred Stock and warrants of CombiMatrix Corp., a Nasdaq-listed company. CBMX is a molecular diagnostics company specializing in DNA-testing services for development disorders. The preferred stock was converted into common stock at $2.06 per share. The warranst expire on December 19, 2018 and the exercise price of the warrants is $3.12 per common share. We currently hold 38,835 warrants of CombiMatrix.

 

Results of Operations

 

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto.

 

For the three and nine months ended September 30, 2015, the principal measure of our financial performance was the net increase (decrease) in our net assets resulting from operations, which includes:

 

	(i)	Net investment income (loss), which is primarily the interest and dividends earned from investing in debt and equity securities, less our operating expenses and provision or benefit for income taxes;
		Net realized gain (loss) on investments which reflects the difference between the proceeds from an exit of an investment and the cost at which the investment was carried on our consolidated balance sheets, and;

(ii)

Net change in unrealized appreciation (depreciation) on investments.  Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses.  Net realized gain (loss), if any, is the difference between the net proceeds from the disposition of portfolio company securities and their stated cost.  Net unrealized appreciation (depreciation) from investments is the net change in the fair value of our investment portfolio.

 

Investment Income.  We recognize investment income on our investments which includes interest income from cash and cash equivalents and our convertible debenture investments, dividend income from our convertible preferred investment, and income from the receipt of common shares received pursuant to anti-dilutive terms in certain investments. For the three months ended September 30, 2015 and 2014, investment income amounted to $11,606 and $4,510, respectively. For the nine months ended September 30, 2015 and 2014, investment income amounted to $24,448 and $15,918, respectively. The increase was attributable to an increase in investments made in convertible debt instruments.

 

Operating Expenses. Operating expenses consist of compensation expense, professional fees which include accounting fees, filing fees related to SEC required filings, consulting expense, and insurance expense. For the three months ended September 30, 2015, total operating expenses were $45,545 as compared to $151,048 for the three months ended September 30, 2014, a decrease of $105,503. The decrease was primarily attributable a decrease in stock-based consulting fees of $112,500 and other consulting fees of $18,000 offset be an increase in compensation of $24,168. For the nine months ended September 30, 2015, total operating expenses were $191,829 as compared to $221,933 for the nine months ended September 30, 2014, a decrease of $30,104. The decrease was primarily attributable a decrease in stock-based consulting fees of $112,500 and other consulting fees of $18,000 offset by an increase in compensation of $74,370 and an increase in professional fees of $26,563.

 

Net Realized Gain (Loss) on Investments. For the three months ended September 30, 2015 and 2014, we realized a net gain (loss) from the partial sales of our investments of $59,220 and $104,260, respectively. For the nine months ended September 30, 2015 and 2014, we realized a net gain (loss) from the partial sales of our investments of $(54,515) and $104,260, respectively.

 

Net Change in Unrealized Appreciation (Depreciation) on Investments. As of September 30, 2015 and December 31, 2014, the cost basis in our portfolio companies was $1,950,850 and $1,163,250 with a fair market value of $1,601,646 and $1,008,437, respectively. The net change in unrealized appreciation (depreciation) on investments for the three months ended September 30, 2015 and 2014 was $(486,125) and $(293,023), respectively. The net change in unrealized depreciation on investments for the nine months ended September 30, 2015 and 2014 was $194,391 and $228,221, respectively.

 

 

Net Increase (Decrease) in Net Assets Resulting from Operations. For the three months ended September 30, 2015 and 2014, the net decrease in net assets resulting from operations was $(460,844) and $(335,301), respectively. For the nine months ended September 30, 2015 and 2014, the net decrease in net assets resulting from operations was $(416,287) and $(329,976), respectively,

 

Liquidity and Capital Resources

 

As of September 30, 2015, the Company had $779,243 in cash and cash equivalents, compared to $1,739,520 as of December 31, 2014, a decrease of $960,277. This decrease was primarily attributable to purchase of investments of approximately $1,195,000 offset by proceeds from the sale of investments of $353,000 generated from the sale of certain investments in portfolio companies.

 

The Company believes that our existing available cash will enable the Company to meet the working capital requirements for at least 12 months.

 

Operating, Investing and Financing Cash Flows

 

For the nine months ended September 30, 2015 and 2014, net cash used in operations was $960,277 and $798,589, respectively. Our cash flow used in operations for the nine months ended September 30, 2015 and 2014 was primarily attributable to our net loss and the purchase of investments offset by proceeds from the sale of investments.

 

For the nine months ended September 30, 2015 and 2014, net cash provided by financing activities was $0 and $791,860, respectively. Our cash flow from financing activities during the nine months ended September 30, 2014 was primarily due to $840,000 in proceeds received from the sale of our common stock offset by the repayment of notes payable of $15,000 and the payment of offering costs of $33,140.

 

We currently have no commitments with any person for any capital expenditures.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Stock-Based Compensation for Obtaining Director Services

 

We entered into an agreement with our directors to issue each independent director of the board 112,500 options for the first quarter of 2015 and 37,500 on the first day of each quarter going forward at a strike price equal to the then fair market value. Each option issuance vests over a 3-month period. On January 1, 2015, each independent director of the Company’s board was issued 112,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30. On April 1, 2015, each independent director of the Company’s board was issued 37,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30. On July 1, 2015, each independent director of the Company’s board was issued 37,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30. As of September 30, 2015 there are 562,500 options exercisable.

 

As of September 30, 2015, there was no unvested stock-based compensation expense to recognize. Total share-based compensation expense recognized was $62,758 for the nine months ended September 30, 2015. The aggregate intrinsic value at September 30, 2015 was $0 and was calculated based on the difference between the Company’s share price established in its most recent private placement memorandum (“PPM”) and the exercise price of the underlying options.

 

 

To calculate the option-based compensation, the Company used the Black-Scholes option-pricing model. The Company’s determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, risk-free interest rate, and the expected life of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The expected volatility, holding period, and forfeitures of options are based on historical experience. To determine the fair value of the stock options, the Company utilized a 1.63% risk-free rate and 40% volatility.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

During the normal course of its business, the Company trades various financial instruments and enters into various financial transactions where the risk of potential loss due to market risk, credit risk and other risks can equal or exceed the related amounts recorded. The success of any investment activity is influenced by general economic conditions that may affect the level and volatility of equity prices, interest rates and the extent and timing of investor participation in the markets for both equity and interest rate sensitive investments. Unexpected volatility or illiquidity in the markets in which the Company directly or indirectly holds positions could impair its ability to carry out its business and could cause losses to be incurred.

 

Market risk represents the potential loss that can be caused by increases or decreases in the fair value of investments resulting from market fluctuations.

 

Credit risk represents the potential loss that would occur if counterparties fail to perform pursuant to the terms of their obligations. In addition to its investments, the Company is subject to credit risk to the extent a custodian or broker with whom it conducts business is unable to fulfill contractual obligations.

 

Item 4. Controls and Procedures.

 

Under the supervision and with the participation of our management, our principal executive officer and principal financial officer included, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2015. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were ineffective at such time to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls, which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, was inappropriate to allow timely decisions regarding required disclosure. Additionally, based on management’s assessment, the Company determined that there were significant weaknesses in its internal control over financial reporting as of September 30, 2015 as discussed in Item 9A. Controls and Procedures in our most recent 10-K filing (filed on March 31, 2015).

 

We have begun to take steps to improve our internal controls over financial reporting and to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals and to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II

 

OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There are no pending legal proceedings to which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficially of more than 5% of any class of voting securities of our company, or security holder is a party adverse to us or has a material interest adverse to us. Our property is not the subject of any pending legal proceedings.

 

Item 1A. Risk Factors

 

There have been no material changes to our risk factors as previously disclosed in our most recent 10-K filing.

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Unregistered Sales of Equity Securities

 

On July 1, 2015, the Board granted each of the three non-employee members of the Board non-qualified stock options to purchase up to 37,500 shares of the Company’s common stock each for an aggregate of 112,500 stock options, which shall be at an exercise price of $.30 per share, the fair market value of the Company’s common stock on the date of grant, expiring five years from the date of issuance. Such option shall vest in equal amounts over a period of three months at the rate of 12,500 shares per month. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

During the quarter ended September 30, 2015 the Company was contacted by the Securities and Exchange Commission with respect to potential non-compliance by the Company of certain provisions of the Investment Company Act of 1940. Subsequent to the Company responding to the issues raised on a conference call among the Securities and Exchange Commission and certain representatives of the Company, the Company has had no further communication with the Commission regarding this matter.

 

Item 6. Exhibits

 

Exhibit No.		Description
31.1		Rule 13a-14(a)/15d14(a) Certifications of Richard A Brand, the Principal Executive Officer*
31.2		Rule 13a-14(a)/15d14(a) Certifications of Adam Wasserman, the Principal Financial Officer*
32.1		Section 1350 Certifications of Richard A. Brand, the Principal Executive Officer*
32.2		Section 1350 Certifications of Adam Wasserman, the Principal Financial Officer*

  

* Filed herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

POINT CAPITAL, INC.
By:	/s/ Richard A. Brand
	Name: Richard A. Brand
	Title:   Chairman, Chief Executive Officer and Director (Principal Executive Officer)

 

Dated: November 20, 2015
By:	/s/ Adam Wasserman
	Name: Adam Wasserman
	Title:   Chief Financial Officer (Principal Financial and Accounting Officer)

  

 

Dated: November 20, 2015

 

 

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