Attached files
| file | filename |
|---|---|
| EX-4.1 - AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMIT - Silo Pharma, Inc. | f10q0317ex4i_pointcapital.htm |
| EX-32.2 - CERTIFICATION - Silo Pharma, Inc. | f10q0317ex32ii_pointcapital.htm |
| EX-32.1 - CERTIFICATION - Silo Pharma, Inc. | f10q0317ex32i_pointcapital.htm |
| EX-31.2 - CERTIFICATION - Silo Pharma, Inc. | f10q0317ex31ii_pointcapital.htm |
| EX-31.1 - CERTIFICATION - Silo Pharma, Inc. | f10q0317ex31i_pointcapital.htm |
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 March 31, 2017
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 814-01038
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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth 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) | Emerging growth company | ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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 May 14, 2017, 50,082,441 shares of common stock, par value $0.0001 per share, were outstanding.
POINT CAPITAL, INC.
FORM 10-Q
March 31, 2017
TABLE OF CONTENTS
| Page | |
| PART I - FINANCIAL INFORMATION | |
| Item 1. Financial Statements | 1 |
| Consolidated Statements of Assets and Liabilities – As of March 31, 2017 (unaudited) and December 31, 2016 | 1 |
| Consolidated Statements of Operations (unaudited) – For the three months ended March 31, 2017 and 2016 | 2 |
| Consolidated Statement of Changes in Net Assets (unaudited) – For the three months ended March 31, 2017 and 2016 | 3 |
| Consolidated Statements of Cash Flows (unaudited) – For the three months ended March 31, 2017 and 2016 | 4 |
| Consolidated Schedule of Investments as of March 31, 2017 (unaudited) | 5 |
| Consolidated Schedule of Investments as of December 31, 2016 | 6 |
| Consolidated Schedule of Investments by Industry as of March 31, 2017 (unaudited) and December 31, 2016 | 7 |
| Notes to Consolidated Financial Statements (unaudited) | 8 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 23 |
| Item 4. Controls and Procedures | 23 |
| PART II - OTHER INFORMATION | |
| Item 1. Legal Proceedings | 24 |
| Item 1A. Risk Factors | 24 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 24 |
| Item 3. Defaults Upon Senior Securities | 24 |
| Item 4. Mine Safety Disclosures | 24 |
| Item 5. Other Information | 24 |
| Item 6. Exhibits | 24 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
POINT CAPITAL, INC. AND SUBSIDIARY
Consolidated Statements of Assets and Liabilities
| March 31, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Investments at fair value | ||||||||
| Non-controlled/Non-affiliated investments (cost of $1,109,176 and $1,098,096 at March 31, 2017 and December 31, 2016, respectively) | $ | 1,516,778 | $ | 634,873 | ||||
| Cash and cash equivalents | 495,037 | 579,209 | ||||||
| Interest receivable | 43,160 | 58,549 | ||||||
| Prepaid expenses | 26,549 | 26,973 | ||||||
| Total Assets | $ | 2,081,524 | $ | 1,299,604 | ||||
| LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 90,189 | $ | 53,098 | ||||
| Total Liabilities | 90,189 | 53,098 | ||||||
| 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; 50,082,441 shares issued and outstanding at March 31, 2017 and December 31, 2016 | 5,009 | 5,009 | ||||||
| Additional paid-in capital | 1,871,080 | 1,871,080 | ||||||
| Accumulated net investment loss | (138,312 | ) | - | |||||
| Accumulated undistributed net realized loss on investments | (554,044 | ) | (566,360 | ) | ||||
| Unrealized appreciation (depreciation) on investments | 407,602 | (463,223 | ) | |||||
| Total Net Assets | 1,591,335 | 846,506 | ||||||
| Total Liabilities and Net Assets | $ | 2,081,524 | $ | 1,299,604 | ||||
| Net Asset Value per Common Share | $ | 0.03 | $ | 0.02 | ||||
See accompanying notes to unaudited consolidated financial statements.
| 1 |
POINT CAPITAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| INVESTMENT INCOME: | ||||||||
| Non-controlled/Non-affiliated investments: | ||||||||
| Interest income | $ | 7,434 | $ | 17,502 | ||||
| Total investment income | 7,434 | 17,502 | ||||||
| OPERATING EXPENSES: | ||||||||
| Compensation expense | 45,000 | 27,500 | ||||||
| Professional fees | 77,610 | 84,783 | ||||||
| Filing fees | 1,138 | 708 | ||||||
| Insurance expense | 8,924 | 8,190 | ||||||
| Bad debt expense | 6,750 | - | ||||||
| General and administrative expenses | 6,324 | 5,452 | ||||||
| Total operating expenses | 145,746 | 126,633 | ||||||
| NET INVESTMENT LOSS | (138,312 | ) | (109,131 | ) | ||||
| NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||||||
| Net realized gain (loss) on investments | ||||||||
| Non-controlled/Non-affiliated investments | 12,316 | (6,836 | ) | |||||
| Net unrealized gain on investments | ||||||||
| Non-controlled/Non-affiliated investments | 870,825 | 11,841 | ||||||
| Net realized and unrealized gain on investments | 883,141 | 5,005 | ||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 744,829 | $ | (104,126 | ) | |||
See accompanying notes to unaudited consolidated financial statements.
| 2 |
POINT CAPITAL, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Net Assets
For the Three Months Ended March 31, 2017 and 2016
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||
| Accumulated | Undistributed Net | Unrealized Appreciation | ||||||||||||||||||||||||||
Common Stock, $0.0001 Par Value | Additional Paid In | Net Investment | Realized Gain (Loss) On | (Depreciation) on | Total | |||||||||||||||||||||||
| Shares | Amount | Capital | Loss | Investments | Investments | Net Assets | ||||||||||||||||||||||
| Balance - December 31, 2015 | 50,582,441 | $ | 5,059 | $ | 2,318,842 | $ | - | $ | (217,750 | ) | $ | (146,671 | ) | $ | 1,959,480 | |||||||||||||
| Cancellation of shares | (500,000 | ) | (50 | ) | 50 | - | - | - | - | |||||||||||||||||||
| Net (decrease) increase in net assets resulting from operations | - | - | - | (109,131 | ) | (6,836 | ) | 11,841 | (104,126 | ) | ||||||||||||||||||
| Balance - March 31, 2016 (Unaudited) | 50,082,441 | $ | 5,009 | $ | 2,318,892 | $ | (109,131 | ) | $ | (224,586 | ) | $ | (134,830 | ) | $ | 1,855,354 | ||||||||||||
| Balance - December 31, 2016 | 50,082,441 | $ | 5,009 | $ | 1,871,080 | $ | - | $ | (566,360 | ) | $ | (463,223 | ) | $ | 846,506 | |||||||||||||
| Net (decrease) increase in net assets resulting from operations | - | - | - | (138,312 | ) | 12,316 | 870,825 | 744,829 | ||||||||||||||||||||
| Balance - March 31, 2017 (Unaudited) | 50,082,441 | $ | 5,009 | $ | 1,871,080 | $ | (138,312 | ) | $ | (554,044 | ) | $ | 407,602 | $ | 1,591,335 | |||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| 3 |
POINT CAPITAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 744,829 | $ | (104,126 | ) | |||
| Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities: | ||||||||
| Purchases of investments | - | (98,727 | ) | |||||
| Net realized (gain) loss on investments | (12,316 | ) | 6,836 | |||||
| Net unrealized gain on investments | (870,825 | ) | (11,841 | ) | ||||
| Proceeds from sale of investments | 17,236 | 78,371 | ||||||
| Non-cash interest income | - | (5,000 | ) | |||||
| Bad debt expense | 6,750 | |||||||
| Increase in interest receivable | (7,361 | ) | (12,500 | ) | ||||
| Decrease in prepaid expenses | 424 | 10,065 | ||||||
| Increase (decrease) in accounts payable and accrued expenses | 37,091 | (53,450 | ) | |||||
| Net Cash Used In Operating Activities | (84,172 | ) | (190,372 | ) | ||||
| Net decrease in cash and cash equivalents | (84,172 | ) | (190,372 | ) | ||||
| Cash and Cash Equivalents - Beginning of Period | 579,209 | 722,764 | ||||||
| Cash and Cash Equivalents - End of Period | $ | 495,037 | $ | 532,392 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Taxes paid | $ | - | $ | - | ||||
See accompanying notes to unaudited consolidated financial statements.
| 4 |
POINT CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2017
(Unaudited)
| Fair | % of | |||||||||||||||||||
| United States (U.S.) Company | Industry | Type of Investment | Principal/Shares | Cost | Value | Net Assets | ||||||||||||||
| Non-controlled/Non-affiliated investments | ||||||||||||||||||||
| Accelerize, Inc. (2) | Application Software | Common Stock | 136,879 | $ | 75,279 | $ | 45,170 | 2.84 | % | |||||||||||
| Accelerize, Inc. (2) | Application Software | Warrants | 60,000 | 38,533 | 7,666 | 0.48 | % | |||||||||||||
| Actinium Pharmaceuticals Inc. (2) | Biotechnology | Warrants | 29,250 | 51,055 | 4,069 | 0.26 | % | |||||||||||||
| Arista Power, Inc. (1) (2) | Electrical Components & Equipment | Series A Convertible Preferred Stock | $ | 100,000 | - | - | 0.00 | % | ||||||||||||
| Arista Power, Inc. (1) (2) | Electrical Components & Equipment | Warrants | 750,000 | - | - | 0.00 | % | |||||||||||||
| Cesca Therapeutics, Inc. (2) | Health Care Equipment | Warrants | 825 | 14,159 | 953 | 0.06 | % | |||||||||||||
| CombiMatrix Corp.(2) | Life Sciences Tools & Services | Warrants | 2,589 | 31,021 | 575 | 0.04 | % | |||||||||||||
| DatChat Inc. (1)(2) | Application Software | Common Stock | 2,000,000 | 100,150 | 100,150 | 6.29 | % | |||||||||||||
| DatChat Inc. (1) | Application Software | 10% Debenture (Due 12/2016) | $ | 35,000 | 35,000 | 35,000 | 2.20 | % | ||||||||||||
| Home Bistro, Inc.(1) | Personal Services | 15% Convertible Debenture (Due 11/2015) | $ | 150,000 | 150,000 | 150,000 | 9.43 | % | ||||||||||||
| Home Bistro, Inc. (1) (2) | Personal Services | Warrants | 75,000 | - | - | 0.00 | % | |||||||||||||
| IPSIDY INC. (formerly ID Global Solutions Corporations) (1) | Biometric Technology | Common Stock | 3,881,667 | 84,676 | 776,334 | 48.79 | % | |||||||||||||
| IPSIDY INC. (formerly ID Global Solutions Corporations) (1) (2) | Biometric Technology | Warrants | 2,200,000 | 38,219 | 349,142 | 21.94 | % | |||||||||||||
| iNeedMD Holdings, Inc. (1) (2) | Health Care Supplies | Common Stock | 25,000 | 795 | 7,500 | 0.47 | % | |||||||||||||
| MabVax Therapeutics Holdings Inc. (1) (2) | Biotechnology | Warrants | 9,009 | 30,674 | 4 | 0.00 | % | |||||||||||||
| MultiMedia Platforms, Inc.(1) | Multimedia Technology | 9% Debenture (Due 7/2016) | $ | 100,000 | 38,461 | - | 0.00 | % | ||||||||||||
| MultiMedia Platforms, Inc. (1) (2) | Multimedia Technology | Common Stock | 15,000 | 4,500 | - | 0.00 | % | |||||||||||||
| MultiMedia Platforms, Inc. (1) (2) | Multimedia Technology | Warrants | 333,334 | 61,539 | - | 0.00 | % | |||||||||||||
| Orbital Tracking Corp. (1)(2) | Communications Equipment | Series D Convertible Preferred Stock | 23,449 | 11,724 | 9,989 | 0.63 | % | |||||||||||||
| Orbital Tracking Corp. (1)(2) | Communications Equipment | Common Stock | 531,020 | 26,552 | 11,311 | 0.71 | % | |||||||||||||
| Pershing Gold Corp.(2) | Mining Exploration | Warrants | 6,838 | 9,965 | - | 0.00 | % | |||||||||||||
| Pish Posh Baby, LLC.(1)(2) | Online Retail - Specialty Apparel | Membership Units | 19,155 | 149,988 | 9,194 | 0.58 | % | |||||||||||||
| Provectus BioPharmaceuticals Inc.(2) | Biotechnology | Common Stock | 100,000 | 74,000 | 4,290 | 0.27 | % | |||||||||||||
| Provectus BioPharmaceuticals Inc.(2) | Biotechnology | Warrants | 100,000 | 1,000 | 1,500 | 0.09 | % | |||||||||||||
| Rennova Health, Inc. (1) (2) | Biotechnology | Warrants | 160,000 | 1,600 | 3,200 | 0.20 | % | |||||||||||||
| Vapor Corp. (1) (2) | Tobacco | Warrants | 0 | 48,513 | - | 0.00 | % | |||||||||||||
| Xtant Medical Holdings, Inc. | Health Care Supplies | Warrants | 11,513 | 31,773 | 731 | 0.05 | % | |||||||||||||
| Total Non-controlled/Non-affiliated investments | $ | 1,109,176 | $ | 1,516,778 | 95.33 | % | ||||||||||||||
| Net Assets at March 31, 2017 | $ | 1,591,335 | ||||||||||||||||||
(1) Securities are exempt from registration under Rule 144A promulgated under the Securities Act.
(2) Securities are not income producing.
See accompanying notes to unaudited consolidated financial statements.
| 5 |
POINT CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2016
| Fair | % of | |||||||||||||||||||
| United States (U.S.) Company | Industry | Type of Investment | Principal/Shares | Cost | Value | Net Assets | ||||||||||||||
| Non-controlled/Non-affiliated investments | ||||||||||||||||||||
| Accelerize, Inc. (2) | Application Software | Common Stock | 136,879 | $ | 75,279 | $ | 71,177 | 8.41 | % | |||||||||||
| Accelerize, Inc. (2) | Application Software | Warrants | 60,000 | 38,533 | 16,617 | 1.96 | % | |||||||||||||
| Actinium Pharmaceuticals Inc. (2) | Biotechnology | Warrants | 29,250 | 51,055 | 1,418 | 0.17 | % | |||||||||||||
| Arista Power, Inc. (1) (2) | Electrical Components & Equipment | Series A Convertible Preferred Stock | $ | 100,000 | - | - | 0.00 | % | ||||||||||||
| Arista Power, Inc. (1) (2) | Electrical Components & Equipment | Warrants | 750,000 | - | - | 0.00 | % | |||||||||||||
| Aytu Bioscience, Inc. (1) (2) | Biotechnology | Warrants | 67,709 | 2,625 | 20,005 | 2.36 | % | |||||||||||||
| Cesca Therapeutics, Inc. (2) | Health Care Equipment | Warrants | 825 | 14,159 | 1,044 | 0.12 | % | |||||||||||||
| CombiMatrix Corp.(2) | Life Sciences Tools & Services | Warrants | 2,589 | 31,021 | 41 | 0.00 | % | |||||||||||||
| DatChat Inc. (1)(2) | Application Software | Common Stock | 2,000,000 | 100,150 | 100,150 | 11.83 | % | |||||||||||||
| DatChat Inc. (1) | Application Software | 10% Debenture (Due 12/2016) | $ | 35,000 | 35,000 | 35,000 | 4.13 | % | ||||||||||||
| Home Bistro, Inc.(1) | Personal Services | 15% Convertible Debenture (Due 11/2015) | $ | 150,000 | 150,000 | 150,000 | 17.72 | % | ||||||||||||
| Home Bistro, Inc. (1) (2) | Personal Services | Warrants | 75,000 | - | - | 0.00 | % | |||||||||||||
| ID Global Solutions Corporations (1) | Biometric Technology | 10% Debenture (Due 7/2016) | $ | 100,000 | 61,781 | 100,000 | 11.81 | % | ||||||||||||
| ID Global Solutions Corporations (1) | Biometric Technology | Common Stock | 20,000 | 9,190 | 1,000 | 0.12 | % | |||||||||||||
| ID Global Solutions Corporations (1) (2) | Biometric Technology | Warrants | 2,200,000 | 38,219 | 59,836 | 7.07 | % | |||||||||||||
| iNeedMD Holdings, Inc. (1) (2) | Health Care Supplies | Common Stock | 25,000 | 795 | 7,500 | 0.89 | % | |||||||||||||
| MabVax Therapeutics Holdings Inc. (1) (2) | Biotechnology | Warrants | 9,009 | 30,674 | 682 | 0.08 | % | |||||||||||||
| MultiMedia Platforms, Inc.(1) | Multimedia Technology | 9% Debenture (Due 7/2016) | $ | 100,000 | 38,461 | - | 0.00 | % | ||||||||||||
| MultiMedia Platforms, Inc. (1) (2) | Multimedia Technology | Common Stock | 15,000 | 4,500 | - | 0.00 | % | |||||||||||||
| MultiMedia Platforms, Inc. (1) (2) | Multimedia Technology | Warrants | 333,334 | 61,539 | - | 0.00 | % | |||||||||||||
| Orbital Tracking Corp. (1)(2) | Communications Equipment | Series D Convertible Preferred Stock | 23,449 | 11,724 | 25,794 | 3.05 | % | |||||||||||||
| Orbital Tracking Corp. (1)(2) | Communications Equipment | Common Stock | 531,020 | 26,552 | 29,206 | 3.45 | % | |||||||||||||
| Pershing Gold Corp.(2) | Mining Exploration | Warrants | 6,838 | 9,965 | - | 0.00 | % | |||||||||||||
| Pish Posh Baby, LLC.(1)(2) | Online Retail - Specialty Apparel | Membership Units | 19,155 | 149,988 | 9,194 | 1.09 | % | |||||||||||||
| Provectus BioPharmaceuticals Inc.(2) | Biotechnology | Common Stock | 100,000 | 74,000 | 1,960 | 0.23 | % | |||||||||||||
| Provectus BioPharmaceuticals Inc.(2) | Biotechnology | Warrants | 100,000 | 1,000 | 110 | 0.01 | % | |||||||||||||
| Rennova Health, Inc. (1) (2) | Biotechnology | Warrants | 160,000 | 1,600 | 3,840 | 0.45 | % | |||||||||||||
| Vapor Corp. (1) (2) | Tobacco | Common Stock | 0 | - | - | 0.00 | % | |||||||||||||
| Vapor Corp. (1) (2) | Tobacco | Warrants | 0 | 48,513 | - | 0.00 | % | |||||||||||||
| Xtant Medical Holdings, Inc. | Health Care Supplies | Warrants | 11,513 | 31,773 | 299 | 0.04 | % | |||||||||||||
| Total Non-controlled/Non-affiliated investments | $ | 1,098,096 | $ | 634,873 | 74.99 | % | ||||||||||||||
| Net Assets at December 31, 2016 | $ | 846,506 | ||||||||||||||||||
(1) Securities are exempt from registration under Rule 144A promulgated under the Securities Act.
(2) Securities are not income producing.
See accompanying notes to unaudited consolidated financial statements.
| 6 |
POINT CAPITAL, INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS BY INDUSTRY
March 31, 2017 (Unaudited) and December 31, 2016
The following table shows the portfolio composition by industry grouping based on fair value at March 31, 2017 and December 31, 2016
| March 31, 2017 (Unaudited) | December 31, 2016 | |||||||||||||||
| Industry Classification | Investments at Fair Value | Percentage of Total Portfolio | Investments at Fair Value | Percentage of Total Portfolio | ||||||||||||
| Application Software | $ | 187,986 | 12.39 | % | $ | 222,944 | 35.12 | % | ||||||||
| Biometric Technology | 1,125,476 | 74.20 | % | 160,836 | 25.33 | % | ||||||||||
| Biotechnology | 13,063 | 0.86 | % | 28,015 | 4.41 | % | ||||||||||
| Communications Equipment | 21,300 | 1.40 | % | 55,000 | 8.66 | % | ||||||||||
| Health Care Equipment | 953 | 0.06 | % | 1,044 | 0.16 | % | ||||||||||
| Health Care Supplies | 8,231 | 0.54 | % | 7,799 | 1.23 | % | ||||||||||
| Life Sciences Tools & Services | 575 | 0.04 | % | 41 | 0.01 | % | ||||||||||
| Online Retail - Specialty Apparel | 9,194 | 0.61 | % | 9,194 | 1.45 | % | ||||||||||
| Personal Services | 150,000 | 9.89 | % | 150,000 | 23.63 | % | ||||||||||
| $ | 1,516,778 | 100.00 | % | $ | 634,873 | 100.00 | % | |||||||||
See accompanying notes to unaudited consolidated financial statements
| 7 |
POINT CAPITAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
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”). In addition, we have elected to be treated for federal income tax purpose, and intend to qualify annually, as a regulated investment company, or (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended, or (the “Code”).
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 and is inactive.
The Company’s investment activities are managed by Eric Weisblum, the Company’s chief executive officer.
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 March 31, 2017, and the results of operations and cash flows for the three months ended March 31, 2017 have been included. The results of operations for the three months ended March 31, 2017 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, 2016, which are contained in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 31, 2017. The consolidated balance sheet and consolidated schedule of investments as of December 31, 2016, contained herein, were 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. Significant estimates during the three months ended March 31, 2017 and 2016 include the valuation of the Company’s investments.
| 8 |
POINT CAPITAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
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 March 31, 2017, 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. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate their fair market value based on the short-term maturity of these instruments.
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 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.
Net 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. 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 - Valuations based on unadjusted quoted market prices in active markets for identical assets or liabilities. | |
| ● | Level 2 - Valuations based on 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. |
| 9 |
POINT CAPITAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Valuation of Investments (continued)
| ● | Level 3 - Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and is based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the market or income approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples, and discounts for lack of marketability. |
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, or at the respective investment’s face value, whichever is a better indicator of fair value. 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 certain 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 readily available 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.
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 March 31, 2017 and December 31, 2016, the Company did not have any Controlled or Affiliated investments.
Revenue Recognition
The Company records interest and dividend income on an accrual basis to the extent that the Company expects to collect such amounts.
| 10 |
POINT CAPITAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs.
In order to qualify for favorable tax treatment as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its investment company taxable income, as defined by the Code. To avoid federal excise taxes, the Company must distribute annually at least 98% of its ordinary income and 98.2% of net capital gains from the current year and any undistributed ordinary income and net capital gains from the preceding years. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required. Additionally, if more than 25% of the Company’s total assets is invested in the securities of one entity, the Company would not meet the diversification tests in order to qualify as a RIC for federal income tax purposes.
At March 31, 2017, the Company failed this diversification test since the Company’s investment in IPSIDY INC. (formerly ID Global Solutions Corporation) (“IDGS”) accounted for approximately 54% of the Company’s total assets. The Company may be eligible for relief under certain RIC provisions. A fund which meets the requirements of the diversification test at the close of any quarter shall not lose its status as a RIC because of a discrepancy during a subsequent quarter between the value of its various investments and such requirements unless such discrepancy exists immediately after the acquisition of any security or other property and is wholly or partly the result of such acquisition. This discrepancy was not caused by the acquisition of any security. Accordingly, the Company believes it would not lose its status as a RIC even though it failed to satisfy the diversification requirements since the discrepancy resulted from the fluctuation in the fair value of the IDGS investment. Additionally, the failure was not a result of willful neglect. If the Company decides to retain its status as a RIC, the Company must dispose of the asset causing the failure within six months of the end of the quarter in which it identified the failure to cure the failure unless the Company would otherwise be in compliance within the six month period and the Company may be required to pay an excise tax of $50,000. If the Company does not retain its status as a RIC, the Company will be subject to income taxes at corporate tax rates. The loss of the Company’s status as a RIC is not expected to have any impact on the Company’s financial position or results of operations. The Company may decide not to retain its status as RIC and it cannot provide assurance that it would qualify for any such relief should the Company fail to divest of this asset in the six-month period.
Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital in excess of par or accumulated net realized loss, as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax characterization of income or loss and any non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Company’s annual RIC tax return.
New Accounting Pronouncements
In January 2016, FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the impact of ASU No. 2016-01 will have any effect on its consolidated financial statements and related disclosures.
| 11 |
POINT CAPITAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
NOTE 3 – PORTFOLIO INVESTMENTS
The following are the Company’s investments owned by levels within the fair value hierarchy at March 31, 2017 (unaudited):
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Common Stock | $ | 71,271 | $ | - | $ | 873,484 | $ | 944,755 | ||||||||
| LLC Membership | - | - | 9,194 | 9,194 | ||||||||||||
| Convertible Preferred Stock | - | 9,989 | - | 9,989 | ||||||||||||
| Convertible Debentures | - | - | 150,000 | 150,000 | ||||||||||||
| Debenture | - | - | 35,000 | 35,000 | ||||||||||||
| Warrants | 3,200 | - | 364,640 | 367,840 | ||||||||||||
| Total Investments | $ | 74,471 | $ | 9,989 | $ | 1,432,318 | $ | 1,516,778 | ||||||||
The following are the Company’s investments owned by levels within the fair value hierarchy at December 31, 2016:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Common Stock | $ | 110,843 | $ | - | $ | 100,150 | $ | 210,993 | ||||||||
| LLC Membership | - | - | 9,194 | 9,194 | ||||||||||||
| Convertible Preferred Stock | - | 25,794 | - | 25,794 | ||||||||||||
| Convertible Debentures | - | - | 250,000 | 250,000 | ||||||||||||
| Debenture | - | - | 35,000 | 35,000 | ||||||||||||
| Warrants | 23,846 | - | 80,046 | 103,892 | ||||||||||||
| Total Investments | $ | 134,689 | $ | 25,794 | $ | 474,390 | $ | 634,873 | ||||||||
The following additional disclosures relate to the changes in fair value of the Company’s Level 3 investments during the three months ended March 31, 2017 and 2016:
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Balance at beginning of year | $ | 474,390 | $ | 907,154 | ||||
| Interest receivable converted to common stock, at cost | 16,000 | 5,000 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | 941,928 | (66,563 | ) | |||||
| Net transfers out of Level 3 (1) | - | (150,000 | ) | |||||
| Balance at end of period | $ | 1,432,318 | $ | 695,591 | ||||
| March 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (Unaudited) | ||||||||
| Net unrealized appreciation (depreciation) for Level 3 investments at period end | $ | 524,486 | $ | (368,928 | ) | |||
| (1) | Transfers occurred due to the expiration of the restriction under Rule 144A of the Securities Act and to the development of an active market. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur. |
| 12 |
POINT CAPITAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
NOTE 3 – PORTFOLIO INVESTMENTS (continued)
At March 31, 2017 and December 31, 2016, level 3 investments consisted of the following:
| Investment Type | Fair Value at (Unaudited) | Valuation Technique | Unobservable inputs | Input | ||||||||||
| Common Stock | $ | 873,484 | Recent Transactions | N/A | N/A | |||||||||
| LLC Membership Units | $ | 9,194 | Recent Transactions | N/A | N/A | |||||||||
| Convertible Debentures | $ | 150,000 | Recent Transactions | N/A | N/A | |||||||||
| Debenture | $ | 35,000 | Recent Transaction | N/A | N/A | |||||||||
| Warrants | $ | 364,640 | Black-Scholes Option Pricing Model | Volatility | 26.0% to 144.2 | % | ||||||||
| $ | 1,432,318 | |||||||||||||
| Investment Type | Fair Value at December 31, 2016 | Valuation Technique | Unobservable inputs | Input | ||||||||||
| Common Stock | $ | 100,150 | Recent Transactions | N/A | N/A | |||||||||
| LLC Membership Units | $ | 9,194 | Recent Transactions | N/A | N/A | |||||||||
| Convertible Debentures | $ | 250,000 | Recent Transactions | N/A | N/A | |||||||||
| Debenture | $ | 35,000 | Recent Transaction | N/A | N/A | |||||||||
| Warrants | $ | 80,046 | Black-Scholes Option Pricing Model | Volatility | 38.6% to 136.9 | % | ||||||||
| $ | 474,390 | |||||||||||||
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.
NOTE 4 - REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK
In April 2013, pursuant to a Series A Preferred Stock Purchase Agreement (the “Preferred Stock Agreement”), 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.
| 13 |
POINT CAPITAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
NOTE 4 - REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK (continued)
Pursuant to the Preferred Stock Agreement, the Company agreed that as long as the purchasers of its Series A Preferred Stock are holding said shares, the Company would comply in all respects with our reporting and filing obligations under the Exchange Act. The Company did not file its annual report for the year ended December 31, 2015 and its quarterly reports for the period ended March 31, 2016 and June 30, 2016, in a timely manner. The Company is currently not in breach of its agreement to remain current. The purchase agreement does not provide for any immediate consequence or default provision such as a reduction in the conversion price of the Series A Preferred, immediate redemption or the like.
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.
On March 31, 2017, the Company’s board of directors approved the amendment and restatement of the original Certificate of Designation in order to expressly ensure that holders of the Company’s Preferred Stock have the right to elect at least two directors at all times, have complete priority over any other class as to distribution of assets and payments of dividends, and have equal voting rights with every other outstanding voting stock. On May 11, 2017, the Company filed this amendment and restatement with the State of Delaware.
NOTE 5 – CONCENTRATIONS AND CREDIT RISKS
Financial instruments that subjected the Company to concentrations of market risk consisted principally of equity investments and debt instruments (other than cash equivalents), which collectively represented approximately 72.9% and 48.9% of the Company’s total assets at March 31, 2017 and December 31, 2016, respectively. These investments consist of certain securities in companies with no readily determinable market values or in non-public companies, and as such are valued in accordance with the Company’s fair value policies and procedures. The Company’s investment strategy represents a high degree of business and financial risk due to the fact that certain of the Company’s portfolio investments (other than cash equivalents) are generally illiquid, in small and middle market companies, and include entities with little operating history or entities that possess operations in new or developing industries. Investments in non-public entities should they become publicly traded, would generally be (i) subject to restrictions on resale, if they were acquired from the issuer in private placement transactions; and (ii) susceptible to market risk. Additionally, the Company is classified as a non-diversified investment company within the meaning of the 1940 Act, and therefore may invest a significant portion of our assets in a relatively small number of portfolio companies, which gives rise to a risk of significant loss should the performance or financial condition of one or more portfolio companies deteriorate.
| 14 |
POINT CAPITAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
NOTE 6 - FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the three months ended March 31, 2017 and 2016:
| For the Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net asset value per common share data: | ||||||||
| Net asset value per common share, beginning of period | $ | 0.02 | $ | 0.04 | ||||
| Net investment 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 | ) | |||||
| Net asset value per common share, end of period | $ | 0.03 | $ | 0.04 | ||||
| Ratios and supplemental data: | ||||||||
| Per share market price, end of period (1) | $ | 0.50 | $ | 1.00 | ||||
| Total return (2) | 88.00 | % | (5.32 | )% | ||||
| Common shares outstanding, end of period | 50,082,441 | 50,082,441 | ||||||
| Weighted average common shares outstanding during period | 50,082,441 | 50,538,485 | ||||||
| Net assets, end of period | $ | 1,591,335 | $ | 1,855,354 | ||||
| Ratio of operating expenses to average net assets | (14.38 | )% | (6.60 | )% | ||||
| Ratio of net investment loss to average net assets | (13.65 | )% | (5.69 | )% | ||||
| Portfolio Turnover | 1.60 | 6.65 | ||||||
| (1) | The shares of the Company's common stock were listed in the OTC Market beginning on January 5, 2012. The Company’s shares were not actively traded through March 31, 2017. |
| (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 the shares were not actively traded during the period presented, total return based on stock price has not been presented for the three months ended March 31, 2017 and 2016. |
NOTE 7 – RISKS AND UNCERTAINTIES
As a business development company, the Company must continue to comply with numerous rules and regulations under the 1940 Act, including without limitation, maintaining at least 70% of its total assets as "qualifying assets", having a majority of non-interested directors on its board, maintaining its securities under specific regulations, and the Company must meet certain diversification tests. Currently, the Company is not in compliance. The Company failed the diversification test since the Company’s investment in IPSIDY INC. (formerly ID Global Solutions Corporation) (“IDGS”) accounted for approximately 54% of the Company’s total assets. Although the Company may be eligible for relief under certain RIC provisions, such relief may require that the Company dispose of its investment in IDGS. Such dispositions could have a material adverse effect on the Company and its stockholders. The Company may need to dispose of such investments quickly, which would make it difficult to dispose of such investments on favorable terms. In addition, because these types of investments will generally be illiquid, the Company may have difficulty in finding a buyer and, even if it does find a buyer, the Company may have to sell the investments at a loss. If the Company loses its status as a business a business development company, this would have a material adverse effect on the Company’s ability to invest, on the Company’s operating results, financial condition and ability to pay dividends, and on the value of its common stock.
| 15 |
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. We are 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”), and intends to qualify thereafter.
Investment Strategy
We seek to invest in companies that are asset rich and generating cash flow on a sustainable basis. Further, when identifying prospective portfolio companies, we 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 do not expect to 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. |
| 16 |
| ● | 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 March 31, 2017, we held 18 portfolio companies. All are non-controlled and non-affiliated investments.
Accelerize, Inc. (ACLZ) – As of March 31, 2017, we own 136,879 shares of common stock and 60,000 warrants of Accelerize Inc., an OTCQB listed company. Each warrant expires on August 18, 2020 and is exercisable at an exercise price of $1.32 per common share. ACLZ owns and operates CAKE, a Software-as-a-Service, or SaaS, platform providing online tracking and analytics solutions for advertisers and online marketers. The Company provides software solutions for businesses interested in optimizing their digital advertising spend.
Actinium Pharmaceuticals Inc. (ATNM) - As of March 31, 2017, we own 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 11, 2019 and are exercisable at $6.50 per common share.
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., a 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. In March 2015, ASPW filed a form with the Securities and Exchange Commission to termination its registration under Section 12(g) of the securities exchange act of 1934. On December 31, 2015, we determined that the fair value of ASPW was zero and accordingly, for the year ended December 31, 2015, we recorded a realized loss on investments of $100,000.
Cesca Therapeutics, Inc. (KOOL) - As of March 31, 2017, we own 825 warrants (adjusted to reflect 1 for 20 reverse split effective March 7, 2016) of Cesca Therapeutics, Inc., a Nasdaq-listed company, who operates as a supplier of products targeting the worldwide adult stem cell market. The company 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. These warrants are exercisable at a price of $31.00 per share and expire on June 18, 2019.
CombiMatrix Corp. (CBMX) - On December 19, 2013, we completed an investment in warrants of CombiMatrix Corp., a Nasdaq-listed company. CBMX is a molecular diagnostics company specializing in DNA-testing services for development disorders. We currently hold 2,589 warrants of CombiMatrix. The warrants expire on December 19, 2018 and the exercise price of the warrants is $46.80 per common share. (All warrant information adjusted to reflect 1 for 15 reverse split effective January 29, 2016).
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. In February 2016, we increased the principal amount of this debenture by $5,000 in connection with the extension of debenture due date to December 2016.
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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.
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 OTCPinks listed company. We had 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 a conversion price of $.03 per share. Each warrant expires on June 25, 2020 and is exercisable at an exercise price of $0.05. In March 2016, we purchased 20,000 common shares IDGS of for $9,190 and during the three months ended March 31, 2017, we sold 5,000 common shares. In January 2017, we converted the $100,000 10% convertible debt and accrued interest receivable of $16,000 into 3,866,667 share common shares of IDGS. 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.
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 OTCPinks listed company that manufactures medical devices that acquires and transmits health related data.
MabVax Therapeutics Holdings Inc. (MBVX) - As of March 31, 2017, we own 9,009 warrants (adjusted to reflect 1 for 7.4 reverse split effective August 16, 2016) of MabVax Therapeutics Holdings Inc., a NASDAQ listed company. Each warrants expire on October 6, 2017 and are exercisable at $11.10 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.
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 July 6, 2019 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. In October 2015, we received 15,000 common shares of MMPW as payment of accrued interest receivable. 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. On October 4, 2016, MMPW filed a voluntary petition under Chapter 11 of Title 11 under the United States Code. The cases were filed in the United States Bankruptcy Court, Southern District of Florida. Accordingly, at March 31, 2017, our investment in MMPW is valued at zero.
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 OTCQB 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. During 2016, each share of Series C Preferred converted into 10 shares of TRKK common stock for an aggregate of 2,000,000 common shares. Each share of Series D Preferred converts into 20 shares of TRKK common stock for an aggregate of 2,000,000 common shares. On June 6, 2016, we converted 76,551 Series D preferred shares into 1,531,020 shares of TRKK common stock, At March 31, 2017, we own 23,449 Series D preferred shares which are convertible into 468,980 shares of common stock, and 531,020 common shares.
Pershing Gold Corp. (PGLC) - As of March 31, 2017, we own 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. PGLC operates as a gold exploration company that seeks out and develops gold exploration and development properties in the state of Nevada.
Pish Posh Baby LLC. - On July 2, 2014, we made an investment of $150,000 in Convertible Preferred Stock of PishPosh, Inc. is a private company that operates a commerce platform serving parents and grandparents of newborns, infants, and toddlers. $100,000 of the Convertible Preferred Stock was convertible at $1.00 and $50,000 was convertible at $0.2666. In January 2016, pursuant to an Asset Purchase Agreement, all holders of notes, shares of its common stock, Series A Preferred Stock and warrants to purchase common stock exchange their securities into 420,000 membership units (the “Units”) issued by Pish Posh Baby LLC, a Delaware limited liability company (“PPB”). Accordingly, we currently own 19,155 membership units in PPB.
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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.
Rennova Health, Inc. (RNVA) - Rennova Health, Inc. is a vertically integrated provider of healthcare related products and services. RNVA’s principal lines of business are (i) clinical laboratory operations, (ii) supportive software solutions, which includes Electronic Health Records (“EHR”), Medical Billing Services and Laboratory Information Services (“LIS”) and (iii) decision support and informatics operations. In July 2016, we completed a $72,000 investments in 160,000 common shares and 160,000 warrants of RNVA. In August 2016, we sold all 160,000 common shares. We currently hold 160,000 warrants that expire on June 30, 2021.
Vapor Corp. (VPCO) - On November 14, 2014, we completed a $100,000 investment in a 7% convertible debenture and warrants of Vapor Corp., an OTCQB 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. 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 common shares of VPCO. In February 2016, VPCO effected a 1 for 70 reverse stock split and in June 2016, VPCO effected a 1 for 20,000 reverse stock split. All share and warrant information has been adjusted to reflect 1 for 70 and 1 for 20,000 reverse split which adjusted our share and warrant amounts to zero.
Xtant Medical 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. XTNT produces allografts of human cancellous bone which has been demineralized. XTNT 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. During 2015, we sold 23,026 shares of XTNT. We currently hold 11,513 warrants.
Results of Operations
For the three months ended March 31, 2017 and 2016, 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), (ii) net realized gain (loss) on investments, and (iii) 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: For the three months ended March 31, 2017 and 2016, we earned interest income of $7,434 and $17,502, respectively, primarily resulting from interest earned on convertible debt and other debt. The decrease was attributable to a decrease in income-earning investments.
Operating Expenses: For the three months ended March 31, 2017 and 2016, total operating expenses consisted of the following:
| For the Three Months | ||||||||
| Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Compensation expense | $ | 45,000 | $ | 27,500 | ||||
| Professional fees | 77,610 | 84,783 | ||||||
| Filing fees | 1,138 | 708 | ||||||
| Insurance expense | 8,924 | 8,190 | ||||||
| Bad debt | 6,750 | - | ||||||
| General and administrative expenses | 6,324 | 5,452 | ||||||
| Total operating expenses | $ | 145,746 | $ | 126,633 | ||||
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Changes in operating expenses primarily consisted of the following:
Compensation expense: For the three months ended March 31, 2017, we incurred compensation expense of $45,000 as compared $27,500 for the three months ended March 31, 2016, an increase of $17,500 or 63.6%. During the three months March 31, 2017, compensation paid to our chief executive officer was $15,000 as compared to $0 during the three months ended March 31, 2016.
Professional fees: For the three months ended March 31, 2017, professional fees decreased by $7,173 or 8.5% as compared to the three months ended March 31, 2016. These decreases was attributable to a decrease in legal fees of $22,373 and a decrease in consulting fees of $6,000 offset by an increase in accounting fees of $21,200.
Bad debt expense: For the three months ended March 31, 2017, we wrote off interest receivable of $6,750 deemed uncollectable. We did not incur bad debt expense in the 2016 period.
Net Investment loss: For the three months ended March 31, 2017 and 2016, net investment loss amount to $138,312 and $109,131, respectively.
Net Realized And Unrealized (Loss) Gain On Investments:
Net Realized Gain (Loss) on Investments: During the three months ended March 31, 2017 and 2016, we disposed of certain investment positions and recognized a net realized gain (loss) of $12,316 and $(6,836), respectively.
Net Change in Unrealized Loss on Investments: At March 31, 2017 and December 31, 2016, we had a cost basis in our portfolio companies of $1,109,176 and $1,098,096 with a fair market value of $1,516,778 and $634,873, respectively. The net unrealized gain on investments for the three months ended March 31, 2017 and 2016 was $870,825 and $11,841, respectively. During the three months ended March 31, 2017, we converted our debt investment in Ipsidy, Inc. (f/k/s ID Global Solutions, Inc,) of $100,000 and the related interest receivable of $16,000 into 3,866,667 common shares of Ipsidy, Inc. Based on our analysis of the fair value of our investments in Ipsidy, Inc., for the three months ended March 31, 2017, we recorded an unrealized gain of approximately $951,000.
Net Decrease in Net Assets Resulting from Operations For the three months ended March 31, 2017 and 2016, the net increase (decrease) in net assets resulting from operations was $744,829 and $(104,126), respectively.
Liquidity and Capital Resources
As of March 31, 2017, we had $495,037 in cash and cash equivalents, compared to $579,209 as of December 31, 2016, a decrease of $84,172. We primarily used operating cash to pay professional fees and compensation expense.
The Company believes that our existing available cash will enable the Company to meet its working capital requirements for at least 12 months from the date of this report.
The Company has no agreements or arrangements to raise capital.
Since inception we have funded our operations and the purchase of our investments primarily through equity financings and we expect that we will continue to fund our operations through the equity and debt financing, either alone or through strategic alliances. Additional funding may not be available on favorable terms, if at all. We intend to continue to fund our business by way of equity or debt financing until realized gains on our investments can support our operations. If we raise additional capital through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing shareholders will be reduced and those shareholders may experience significant dilution. We cannot assure you that we will be able to raise the working capital as needed in the future on terms acceptable to us, if at all.
Although we believe that our existing available cash will enable us to meet our working capital requirements for at least 12 months, we may need to raise additional funds to continue investing in portfolio companies. If we are unable to raise capital, we may be required to reduce the scope of our investment activities, which could harm our business plans, financial condition and operating results, or cease our operations entirely, in which case, you will lose all of your investment.
We currently have no commitments with any person for any capital expenditures.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). We 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 investments to date. The Company consolidates the subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
We consider all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents.
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. We record 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 we expect 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.
Net Realized Gains or Losses and Net Change in Unrealized Gains or Losses on 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. Net change in unrealized gains or losses is computed as the difference between the fair value of the investment and the cost basis of such investment.
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.
We apply 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, we consider 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 - Valuations based on unadjusted quoted market prices in active markets for identical assets or liabilities. | |
| ● | Level 2 - Valuations based on 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. | |
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| ● | Level 3 - Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and is based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the market or income approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples, and discounts for lack of marketability. |
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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 based on inputs such as stock volatility, risk-free interest rates, holding period and dividend yield. 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, or at the respective investment’s face value, whichever is a better indicator of fair value. 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 we may take into account in fair value pricing our 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, we value substantially all of our portfolio investments at fair value as determined in good faith by our 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 our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a readily available market existed for such investments and may differ materially from the values that we 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 we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.
Revenue Recognition
We record interest and dividend income on an accrual basis to the extent that we expect to collect such amounts. We do not accrue as a receivable interest on debt or dividend of preferred shares for accounting purposes if there is reason to doubt the ability to collect such interest.
Income Taxes
We are treated for federal income tax purposes 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. We intend to distribute sufficient dividends to maintain its RIC status each year. We are also subject to nondeductible federal excise taxes if we do 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 we paid no federal income taxes. We will generally endeavor each year to avoid any federal excise taxes.
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We account 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.
We did not have any distributable income as of March 31, 2017 or 2016.
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.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, who is also our principal executive officer and principal financial officer, 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 March 31, 2017. 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.
| ● | our failure to timely recognize that we issued shares to a consultant in 2014 and stock options to directors in 2015 in contravention of Section 23(a) of the Investment Act of 1940, | |
| ● | the lack of Investment Act experienced internal staff, | |
| ● | a lack of segregation of duties within accounting functions. | |
| ● | a lack of control over custodian of certain instruments. | |
| ● | a lack of control over valuation of certain investments. |
As of March 31, 2017, we concluded that such weaknesses continue to exist. Management determined that the deficiencies, evaluated in the aggregate, could potentially result in a material misstatement of the consolidated financial statements in a future annual or interim period that would not be prevented or detected. Therefore the deficiencies constitute material weaknesses in internal control. Based on that evaluation, management determined that our internal controls over financial reporting were not effective as of March 31, 2017.
Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, 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.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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.
None
Item 3. Defaults Upon Senior Securities.
Pursuant to a Preferred Stock Agreement, we agreed that as long as the purchasers of its Series A Preferred Stock are holding said shares, we would comply in all respects with our reporting and filing obligations under the Exchange Act. We did not file our annual report for the year ended December 31, 2015 and our quarterly reports for the period ended March 31, 2016 and June 30, 2016, in a timely manner. We are currently not in breach of our agreement to remain current. The purchase agreement does not provide for any immediate consequence or default provision such as a reduction in the conversion price of the Series A Preferred, immediate redemption or the like.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
* Filed herewith.
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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. | ||
| Dated: May 17, 2017 | By: | /s/ Eric Weisblum |
| Name: | Eric Weisblum | |
| Title: | Chairman,
Chief Executive Officer and Director (Principal Executive Officer) | |
| Dated: May 17, 2017 | By: | /s/ Adam Wasserman |
| Name: | Adam Wasserman | |
| Title: | Chief
Financial Officer (Principal Financial and Accounting Officer) |
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