Quarterly Report (10-q)

Datum : 14/11/2017 @ 20h44
Quelle : Edgar (US Regulatory)
Name : Point Capital, Inc. (PC) (PTCI)
Kurs : 0.2  0.0 (0.00%) @ 14h08
Point Capital, Inc. share price Chart

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarter ended September 30, 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)

 

1086 Teaneck Road, Suite 3A

Teaneck, New Jersey 07666

(Address of principal executive offices)

 

(201) 408-5126

(Issuer’s telephone number)

 

  285 Grand Avenue, Building 5, Englewood, NJ 07631  
  (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 November 14, 2017, 50,082,441 shares of common stock, par value $0.0001 per share, were outstanding.

 

 

 

 

 

 

POINT CAPITAL, INC.

FORM 10-Q

September 30, 2017

 

TABLE OF CONTENTS

 

  Page
PART I - FINANCIAL INFORMATION  
Item 1.    Financial Statements 1
Condensed Statements of Assets and Liabilities – As of September 30, 2017 (unaudited) and December 31, 2016 1
Condensed Statements of Operations (unaudited) – For the three and nine months ended September 30, 2017 and 2016 2
Condensed Statement of Changes in Net Assets (unaudited) – For the nine months ended September 30, 2017 and 2016 3
Condensed Statements of Cash Flows (unaudited) – For the nine months ended September 30, 2017 and 2016 4
Schedule of Investments as of September 30, 2017 (unaudited) 5
Schedule of Investments as of December 31, 2016 6
Schedule of Investments by Industry as of September 30, 2017 (unaudited) and December 31, 2016 7
Notes to Condensed 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.

Condensed Statements of Assets and Liabilities

 

    September 30, 2017     December 31, 2016  
    (Unaudited)        
ASSETS            
Investments at fair value            
Non-controlled/Non-affiliated investments (cost of $996,642 and $1,098,096 at September 30, 2017 and December 31, 2016, respectively)   $ 1,064,005     $ 634,873  
Cash and cash equivalents     301,690       579,209  
Interest receivable     56,160       58,549  
Prepaid expenses     4,700       26,973  
                 
Total Assets   $ 1,426,555     $ 1,299,604  
                 
LIABILITIES                
Accounts payable and accrued expenses   $ 30,397     $ 53,098  
                 
Total Liabilities     30,397       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 September 30, 2017 and December 31, 2016     5,009       5,009  
Additional paid-in capital     1,871,080       1,871,080  
Accumulated net investment loss     (301,055 )     -  
Accumulated undistributed net realized loss on investments     (646,239 )     (566,360 )
Unrealized appreciation (depreciation) on investments     67,363       (463,223 )
                 
Total Net Assets     996,158       846,506  
                 
Total Liabilities and Net Assets   $ 1,426,555     $ 1,299,604  
                 
Net Asset Value per Common Share   $ 0.02     $ 0.02  

 

See accompanying notes to unaudited condensed financial statements.

 

  1  

 

 

POINT CAPITAL, INC.

Condensed Statements of Operations

(Unaudited)

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2017     2016     2017     2016  
                         
INVESTMENT INCOME:                        
Non-controlled/Non-affiliated investments:                        
Interest income   $ 6,504     $ 11,256     $ 20,478     $ 40,789  
                                 
Total investment income     6,504       11,256       20,478       40,789  
                                 
OPERATING EXPENSES:                                
Compensation expense     45,000       40,000       135,000       97,500  
Professional fees     36,890       35,509       129,567       221,267  
Filing fees     484       1,266       3,246       2,958  
Insurance expense     8,925       8,225       26,774       23,405  
Bad debt expense     -       -       6,750       -  
General and administrative expenses     6,860       8,097       20,196       22,488  
                                 
Total operating expenses     98,159       93,097       321,533       367,618  
                                 
NET INVESTMENT LOSS     (91,655 )     (81,841 )     (301,055 )     (326,829 )
                                 
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:                                
Net realized gain (loss) on investments                                
Non-controlled/Non-affiliated investments     (80,913 )     131       (79,879 )     23,400  
Net unrealized gain (loss) on investments                                
Non-controlled/Non-affiliated investments     (346,575 )     (349,795 )     530,586       (666,541 )
                                 
Net realized and unrealized gain (loss) on investments     (427,488 )     (349,664 )     450,707       (643,141 )
                                 
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS   $ (519,143 )   $ (431,505 )   $ 149,652     $ (969,970 )

 

See accompanying notes to unaudited condensed financial statements.

 

  2  

 

 

POINT CAPITAL, INC.

Condensed Statements of Changes in Net Assets

For the Nine Months Ended September 30, 2017 and 2016

(Unaudited)

 

                            Accumulated              
                    Accumulated     Undistributed     Unrealized        
    Common Stock,
$0.0001 Par Value
    Additional Paid In     Net Investment     Net  Realized
Gain (Loss)
    Appreciation (Depreciation)     Total  
    Shares     Amount     Capital     Loss     On Investments     on 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     -       -       -       (326,829 )     23,400       (666,541 )     (969,970 )
                                                         
Balance - September 30, 2016 (Unaudited)     50,082,441     $ 5,009     $ 2,318,892     $ (326,829 )   $ (194,350 )   $ (813,212 )   $ 989,510  
                                                         
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     -       -       -       (301,055 )     (79,879 )     530,586       149,652  
                                                         
Balance - September 30, 2017 (Unaudited)     50,082,441     $ 5,009     $ 1,871,080     $ (301,055 )   $ (646,239 )   $ 67,363     $ 996,158  

 

See accompanying notes to unaudited condensed financial statements.

 

  3  

 

 

POINT CAPITAL, INC.

Condensed Statements of Cash Flows

(Unaudited)

 

    For the Nine Months Ended September 30,  
    2017     2016  
             
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net increase (decrease) in net assets resulting from operations   $ 149,652     $ (969,970 )
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:                
Purchases of investments     -       (255,726 )
Net realized (gain) loss on investments     79,879       (23,400 )
Net unrealized (gain) loss on investments     (530,586 )     666,541  
Proceeds from sale of investments     37,575       467,407  
Non-cash interest income     -       (5,000 )
Bad debt expense     6,750       -  
Increase in interest receivable     (20,361 )     (35,777 )
Decrease in prepaid expenses     22,273       17,582  
Decrease in accounts payable and accrued expenses     (22,701 )     (41,466 )
                 
Net Cash Used In Operating Activities     (277,519 )     (179,809 )
                 
Net decrease in cash and cash equivalents     (277,519 )     (179,809 )
                 
Cash and Cash Equivalents - Beginning of Period     579,209       722,764  
                 
Cash and Cash Equivalents - End of Period   $ 301,690     $ 542,955  
                 
Non-cash investing and financing activities:                
Interest receivable converted into investments   $ 16,000     $ 2,152  

 

See accompanying notes to unaudited condensed financial statements.

 

  4  

 

 

POINT CAPITAL, INC.

SCHEDULE OF INVESTMENTS

September 30, 2017

(Unaudited)

United States (U.S.) Company   Industry   Type of Investment   Principal/Shares     Cost     Fair Value     % of  Net Assets  
Non-controlled/Non-affiliated investments                            
Accelerize, Inc. (2)   Application Software   Common Stock     100,379     $ 55,205     $ 27,102       2.72 %
Accelerize, Inc. (2)   Application Software   Warrants     60,000       38,533       4,802       0.48 %
                                         
Actinium Pharmaceuticals Inc. (2)   Biotechnology   Warrants     29,250       51,055       22       0.00 %
                                         
Arista Power, Inc. (1) (2)   Electrical Components & Equipment   Series A Convertible Preferred Stock     100       -       -       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       910       0.09 %
                                         
CombiMatrix Corp.(2)   Life Sciences Tools & Services   Warrants     2,589       31,021       606       0.06 %
                                         
DatChat Inc. (1)(2)   Application Software   Common Stock     2,000,000       100,150       100,150       10.05 %
DatChat Inc. (1)   Application Software   10% Debenture (Due 12/2016)   $ 35,000       35,000       35,000       3.51 %
                                         
Home Bistro, Inc.(1)   Personal Services   15% Convertible Debenture (Due 11/2015)   $ 150,000       150,000       150,000       15.06 %
Home Bistro, Inc. (1) (2)   Personal Services   Warrants     75,000       -       -       0.00 %
                                         
IPSIDY INC.  (formerly ID Global Solutions Corporations) (1)   Biometric Technology   Common Stock     3,866,667       77,781       503,053       50.50 %
IPSIDY INC.  (formerly ID Global Solutions Corporations) (1) (2)   Biometric Technology   Warrants     2,200,000       38,219       203,873       20.47 %
                                         
iNeedMD Holdings, Inc. (1) (2)   Health Care Supplies   Common Stock     25,000       795       12,750       1.28 %
                                         
MabVax Therapeutics Holdings Inc. (1) (2)   Biotechnology   Warrants     9,009       30,674       -       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       6,988       0.70 %
Orbital Tracking Corp. (1)(2)   Communications Equipment   Common Stock     531,020       26,552       7,912       0.79 %
                                         
Pish Posh Baby, LLC.(1)(2)   Online Retail - Specialty Apparel   Membership Units     19,155       149,988       9,194       0.92 %
                                         
Provectus BioPharmaceuticals Inc.(2)   Biotechnology   Warrants     100,000       1,000       510       0.05 %
                                         
Vapor Corp. (1) (2)   Tobacco   Warrants     -       48,513       -       0.00 %
                                         
Xtant Medical Holdings, Inc.   Health Care Supplies   Warrants     11,513       31,773       1,133       0.11 %
                                         
Total Non-controlled/Non-affiliated investments               $ 996,642     $ 1,064,005       106.79 %
Net Assets at September 30, 2017                           $ 996,158          

 

(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 condensed financial statements.  

  5  

 

 

POINT CAPITAL, INC.

SCHEDULE OF INVESTMENTS

December 31, 2016

United States (U.S.) Company   Industry   Type of Investment   Principal/Shares     Cost     Fair Value     % of  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

      -       -       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 consolidated financial statements.

  6  

 

 

POINT CAPITAL, INC.

SCHEDULE OF INVESTMENTS BY INDUSTRY

September 30, 2017 (Unaudited) and December 31, 2016

 

The following table shows the portfolio composition by industry grouping based on fair value at September 30, 2017 and December 31, 2016

 

    September 30, 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   $ 167,054       15.70 %   $ 222,944       35.12 %
Biometric Technology     706,926       66.44 %     160,836       25.33 %
Biotechnology     532       0.05 %     28,015       4.41 %
Communications Equipment     14,900       1.40 %     55,000       8.66 %
Health Care Equipment     910       0.09 %     1,044       0.16 %
Health Care Supplies     13,883       1.30 %     7,799       1.23 %
Life Sciences Tools & Services     606       0.06 %     41       0.01 %
Online Retail - Specialty Apparel     9,194       0.86 %     9,194       1.45 %
Personal Services     150,000       14.10 %     150,000       23.63 %
    $ 1,064,005       100.00 %   $ 634,873       100.00 %

  

See accompanying notes to unaudited consolidated financial statements

 

  7  

 

 

POINT CAPITAL, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 elected to be treated for federal income tax purpose as a regulated investment company, or (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended, or (the “Code”). Since March 31, 2017, the Company failed a RIC diversification test since one of the Company’s investments accounted for approximately 25% of the Company’s total assets. If the Company were to correct the failure, the Company should have disposed 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 and the Company would be required to pay an excise tax of $50,000. As of September 30, 2017, the Company had not cured its failure to retain its status as a RIC and the Company does not intend to retain its RIC status. Accordingly, the Company is subject to income taxes at corporate tax rates.

 

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 also invested 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 .”

 

Currently, the Company is considering various options, including liquidation, merger with another BDC or registered investment company, merger with an operating company and the withdrawal of its election to be regulated as a BDC.

 

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. During 2017, this subsidiary was dissolved.

 

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 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, through the date of dissolution. All intercompany transactions and balances have been eliminated. 

 

All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2017, and the results of operations and cash flows for the periods ended September 30, 2017 and 2016 have been included. The results of operations for the three and nine months ended September 30, 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 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 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 nine months ended September 30, 2017 and 2016 include the valuation of the Company’s investments.  

 

  8  

 

 

POINT CAPITAL, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 September 30, 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.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 September 30, 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.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income Taxes

 

Through March 31, 2017, the Company elected to be treated as a RIC under Subchapter M of the Code and operated 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.

 

Since 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 over 25% of the Company’s total assets (49.6% of total assets at September 30, 2017). 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. The failure was not a result of willful neglect. If the Company were to correct the failure, the Company should have disposed 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 would be required to pay an excise tax of $50,000. As of the September 30, 2017, the Company had not cured its failure to retain its status as a RIC and the Company does not intend to retain its RIC status. Accordingly, 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.

 

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 tax returns.

 

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 a material effect on its consolidated financial statements and related disclosures.

 

  11  

 

 

POINT CAPITAL, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

 

NOTE 3 – PORTFOLIO INVESTMENTS

 

The following are the Company’s investments owned by levels within the fair value hierarchy at September 30, 2017 (unaudited):

 

    Level 1     Level 2     Level 3     Total  
Common Stock   $ 550,817     $ -     $ 100,150     $ 650,967  
LLC Membership     -       -       9,194       9,194  
Convertible Preferred Stock     -       6,988       -       6,988  
Convertible Debentures     -       -       150,000       150,000  
Debenture     -       -       35,000       35,000  
Warrants     -       -       211,856       211,856  
Total Investments   $ 550,817     $ 6,988     $ 506,200     $ 1,064,005  

 

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 nine months ended September 30, 2017 and 2016:

 

    Nine Months Ended
September 30,
 
    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     115,810       (182,728 )
Net transfers out of Level 3 (1)     (100,000 )     (272,500 )
Balance at end of period   $ 506,200     $ 456,926  

 

    September 30,     December 31,  
    2017     2016  
    (Unaudited)        
Net unrealized appreciation (depreciation) for Level 3 investments at period end   $ (313,886 )   $ (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.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

 

NOTE 3 – PORTFOLIO INVESTMENTS (continued)

 

At September 30, 2017 and December 31, 2016, level 3 investments consisted of the following:

 

Investment Type  

Fair Value at
September 30,
2017

(Unaudited)

    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   $ 150,000     Recent Transactions   N/A     N/A  
Debenture   $ 35,000     Recent Transaction   N/A     N/A  
Warrants   $ 211,856     Black-Scholes Option Pricing Model   Volatility     70.4% to 166.6 %
    $ 506,200                  

 

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.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 74.6% and 48.9% of the Company’s total assets at September 30, 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.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

 

NOTE 6 - FINANCIAL HIGHLIGHTS

 

The following is a schedule of financial highlights for the nine months ended September 30, 2017 and 2016:

 

    For the Nine Months Ended
September 30,
 
    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     (0.01 )     (0.01 )
Net realized gain (loss) on investments     0.00       0.00  
Net change in unrealized appreciation (depreciation) on investments     0.01       (0.01 )
Net increase (decrease) in net assets resulting from operations     0.00       (0.02 )
Net asset value per common share, end of period   $ 0.02     $ 0.02  
Ratios and supplemental data:                
Per share market price, end of period (1)   $ 0.20     $ 1.00  
Total return (2)     17.68 %     (49.84 )%
Common shares outstanding, end of period     50,082,441       50,082,441  
Weighted average common shares outstanding during period     50,082,441       50,233,901  
Net assets, end of period   $ 996,158     $ 989,510  
Ratio of operating expenses to average net assets     (25.44 )%     (22.32 )%
Ratio of net investment loss to average net assets     (23.82 )%     (19.84 )%
Portfolio Turnover     1.24       18.01  

 

(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 September 30, 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 nine months ended September 30, 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. 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. Currently, the Company is not in compliance. Since March 31, 2017, the Company failed a RIC diversification test since the Company’s investment in IPSIDY INC. (formerly ID Global Solutions Corporation) (“IDGS”) accounted for over 25% of the Company’s total assets (49.6% of total assets at September 30, 2017). If the Company were to correct the failure, the Company should have disposed of the asset causing the failure within six months of the end of the quarter in which it identified the failure unless the Company would otherwise be in compliance within the six month period. Additionally, the Company would be required to pay an excise tax of $50,000. As of September 30, 2017, the Company had not cured its failure to retain its status as a RIC and the Company does not intend to retain its RIC status. Accordingly, the Company is subject to income taxes at corporate tax rates.

 

If the Company loses its status or decides to revoke 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. Through March 31, 2017, we were 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”).  However, since March 31, 2017, we failed a RIC diversification test since our investment in IPSIDY INC. (formerly ID Global Solutions Corporation) (“IDGS”) accounted for over 25% of our total assets (49.6% of total assets at September 30, 2017). We were eligible for relief under certain RIC provisions. Unless we would otherwise be in compliance, in order to cure the failure, we must dispose of the asset causing the failure within six months of the end of the quarter in which we identified the failure. Additionally, we may be required to pay an excise tax of $50,000. As of the September 30, 2017, we had not cured our failure to retain our status as a RIC and we do not intend to retain our RIC status. Accordingly, we are subject to income taxes at corporate tax rates. The loss of our status as a RIC is not expected to have any impact on our financial position or results of operations.

 

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.  

 

  16  

 

  

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

 

  Structure financing terms to limit down side risk.   Originating our own lending opportunities through our network will permit us to structure loans to enhance the element of capital preservation for our stockholders.
     
  Private equity sponsorship . Often we will seek to participate in transactions sponsored by what we believe to be high-quality private equity firms. Point Capital’s senior management team believes that a private equity sponsor’s willingness to invest significant sums of equity capital into a company provides an additional level of due diligence investigation and is an implicit endorsement of the quality of the investment. Further, by co-investing with quality private equity firms which commit significant sums of equity capital with junior priority to our future debt investments, we may benefit from having due diligence on our investments performed by both parties.

 

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

 

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

 

Portfolio Update

 

As of September 30, 2017, we held 16 portfolio companies. All are non-controlled and non-affiliated investments.

 

Accelerize, Inc. (ACLZ) – As of September 30, 2017, we own 100,379 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 September 30, 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 t ermination 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 September 30, 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).

 

  17  

 

 

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.

 

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.

 

IPSIDY INC. (formerly 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 six months ended June 30, 2017, we sold these 20,000 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. IDGS 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 September 30, 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 expired on October 6, 2017. 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 September 30, 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 September 30, 2017, we own 23,449 Series D preferred shares which are convertible into 468,980 shares of common stock, and 531,020 common shares.

 

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. 

 

  18  

 

 

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. During the three months ended September 30, 2017, we sold all 100,000 shares of common stock.

 

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) - As of September 30, 2017, we own 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.

 

Results of Operations

 

For the three and nine months ended September 30, 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 September 30, 2017 and 2016, we earned interest income of $6,504 and $11,256, and for the nine months ended September 30, 2017 and 2016, we earned interest income of $20,478 and $40,789, 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 and nine months ended September 30, 2017 and 2016, total operating expenses consisted of the following:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2017     2016     2017     2016  
Compensation expense   $ 45,000     $ 40,000     $ 135,000     $ 97,500  
Professional fees     36,890       35,509       129,567       221,267  
Filing fees     484       1,266       3,246       2,958  
Insurance expense     8,925       8,225       26,774       23,405  
Bad debt expense     -       -       6,750       -  
General and administrative expenses     6,860       8,097       20,196       22,488  
                                 
     Total operating expenses   $ 98,159     $ 93,097     $ 321,533     $ 367,618  

 

Changes in operating expenses primarily consisted of the following:

 

Compensation expense: For the three months ended September 30, 2017, we incurred compensation expense of $45,000 as compared $40,000 for the three months ended September 30, 2016, an increase of $5,000 or 12.5%. During the three months ended September 30, 2017, compensation paid to our chief executive officer was $15,000 as compared to $10,000 during the three months ended September 30, 2016. For the nine months ended September 30, 2017, we incurred compensation expense of $135,000 as compared $97,500 for the nine months ended September 30, 2016, an increase of $37,500 or 38.5%. During the nine months ended September 30, 2017, compensation paid to our chief executive officer was $45,000 as compared to $10,000 during the nine months ended September 30, 2016.

 

  19  

 

 

Professional fees: For the three months ended September 30, 2017, professional fees increased by $1,381 or 3.9% as compared to the three months ended September 30, 2016. This increases was attributable to an increase in legal fees of $16,777 and a decrease in accounting fees of $15,395. For the nine months ended September 30, 2017, professional fees decreased by $91,700 or 41.1% as compared to the nine months ended September 30, 2016. These decreases was attributable to a decrease in legal fees of $37,081, a decrease in accounting fees of $48,619, and a decrease in consulting fees of $6,000.

 

 Bad debt expense: For the three and nine months ended September 30, 2017, we wrote off interest receivable of $0 and $6,750 deemed uncollectable, respectively. We did not incur bad debt expense in the 2016 periods.

 

Net Investment loss: For the three months ended September 30, 2017 and 2016, net investment loss amount to $91,655 and $81,841, respectively. For the nine months ended September 30, 2017 and 2016, net investment loss amount to $301,055 and $326,829, respectively.

 

Net Realized And Unrealized (Loss) Gain On Investments:

 

Net Realized Gain (Loss) on Investments: During the three months ended September 30, 2017 and 2016, we disposed of certain investment positions and recognized a net realized gain (loss) of $(80,913) and $131, respectively. During the nine months ended September 30, 2017 and 2016, we disposed of certain investment positions and recognized a net realized (loss) gain of $(79,879) and $23,400, respectively.

 

Net Change in Unrealized Loss on Investments : At September 30, 2017 and December 31, 2016, we had a cost basis in our portfolio companies of $996,642 and $1,098,096 with a fair market value of $1,064,005 and $634,873, respectively. The net unrealized loss on investments for the three months ended September 30, 2017 and 2016 was $346,575 and $349,795, respectively. The net unrealized gain (loss) on investments for the nine months ended September 30, 2017 and 2016 was $530,586 and $(666,541), respectively. During the nine months ended September 30, 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 and nine months ended September 30, 2017, we recorded an unrealized (loss) gain of approximately $(410,058) and $539,280, respectively.

 

Net Decrease in Net Assets Resulting from Operations: For the three months ended September 30, 2017 and 2016, the net decrease in net assets resulting from operations was $519,143 and $431,505, respectively. For the nine months ended September 30, 2017 and 2016, the net increase (decrease) in net assets resulting from operations was $149,652 and $(969,970), respectively.

 

Liquidity and Capital Resources

 

As of September 30, 2017, we had $301,690 in cash and cash equivalents, compared to $579,209 as of December 31, 2016, a decrease of $277,519. We primarily used operating cash to pay professional fees and compensation expense. 

 

The Company believes that our existing available cash and liquid investments 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. 

 

  20  

 

 

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.
     
  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.

        

  21  

 

 

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

 

Through March 31, 2017, we elected to be treated as a RIC under Subchapter M of the Code and operated 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, we are required to distribute annually to our stockholders at least 90% of our investment company taxable income, as defined by the Code. To avoid federal excise taxes, we must distribute annually at least 98% of our 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 we choose to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to stockholders. We will accrue excise tax on estimated undistributed taxable income as required. Additionally, if more than 25% of our total assets is invested in the securities of one entity, we would not meet the diversification tests in order to qualify as a RIC for federal income tax purposes. 

 

Since March 31, 2017, we failed this diversification test since our investment in IPSIDY INC. (formerly ID Global Solutions Corporation) (“IDGS”) accounted for over 25% of our total assets (49.6% of total assets at September 30, 2017). We 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. The failure was not a result of willful neglect. If we were to correct the failure, we should have disposed of the asset causing the failure within six months of the end of the quarter in which we identified the failure to cure the failure unless we would otherwise be in compliance within the six month period and we would be required to pay an excise tax of $50,000. As of the September 30, 2017, we had not cured the failure to retain our status as a RIC and we do not intend to retain our RIC status. Accordingly, we are subject to income taxes at corporate tax rates. The loss of our status as a RIC is not expected to have any impact on our financial position or results of operations.

 

  22  

 

  

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 our annual tax returns.

 

We did not have any distributable income as of September 30, 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 September 30, 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 September 30, 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 September 30, 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. 

 

  23  

 

 

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  

Other than discussed below, there have been no material changes to our risk factors as previously disclosed in our most recent 10-K filing. 

We are subject to corporate-level income tax since we are unable to qualify as a RIC under Subchapter M of the Code.  

To obtain and maintain RIC tax treatment under the Code, we were required to meet certain asset diversification requirements. The asset diversification requirement states that no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Since March 31, 2017, we failed this diversification test since our investment in IPSIDY INC. (formerly ID Global Solutions Corporation) (“IDGS”) accounted for over 25% of our total assets (49.6% of total assets at September 30, 2017). As of the September 30, 2017, we had not cured the failure to retain our status as a RIC and we do not intend to retain our RIC status. Accordingly, we are subject to income taxes at corporate tax rates. The loss of our status as a RIC is not expected to have any impact on our financial position or results of operations. 

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.  

On March 6, 2017, the Board unanimously approved the proposal to seek stockholder approval to authorize the withdrawal of the Company’s election to be regulated as a BDC under the 1940 Act, referred to herein as the “ Corporate Action .” The Board approved the proposal because it believes that it is in the best interests of the Company and its stockholders to make this change for various reasons including increased investment opportunities and greater access to capital through flexible financing activities. 

On April 11, 2017, the Majority Stockholders adopted resolutions by Written Consent authorizing the Board to undertake the Corporate Action. This Corporate Action will become effective immediately upon the Company’s filing of Form N-54C—“Notification of Withdrawal of Election to be Subject to Sections 55 Through 65 of the Investment Company Act of 1940” with the SEC (the ” Notice of Withdrawal ”). This Notice of Withdrawal, when filed, will immediately terminate the Company’s status as a BDC under the 1940 Act. This approval does not, however, guarantee that the Company will file its Notice of Withdrawal. Rather, the Company intends to file its Notice of Withdrawal only if it identifies suitable business opportunities which would allow the Company to conduct its business as an operating company rather than as an investment company, as described in Section 3 of the 1940 Act.

Item 6. Exhibits

 

Exhibit No.   Description
4.1   Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated by reference to Form 10-Q filed on May 17, 2017)
     
31.1   Rule 13a-14(a)/15d14(a) Certifications of Principal Executive Officer*
     
31.2   Rule 13a-14(a)/15d14(a) Certifications of Principal Financial Officer*
     
32.1   Section 1350 Certifications of Principal Executive Officer*
     
32.2   Section 1350 Certifications of Principal Financial Officer*

 

* Filed herewith.

   

  24  

 

 

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: November 14, 2017 By: /s/ Eric Weisblum
  Name:  Eric Weisblum
  Title:  Chairman, Chief Executive Officer and
Director (Principal Executive Officer)

 

Dated: November 14, 2017 By: /s/ Adam Wasserman
  Name: Adam Wasserman
  Title:  Chief Financial Officer
(Principal Financial and Accounting Officer)

  

 

25

 

Point Capital, Inc. (USOTC:PTCI)
Historical Stock Chart

1 Jahr : Von Nov 2016 bis Nov 2017

Click Here for more Point Capital, Inc. Charts.

Point Capital, Inc. (USOTC:PTCI)
Intraday Stock Chart

Heute : Samstag 18 November 2017

Click Here for more Point Capital, Inc. Charts.
Kürzlich von Ihnen besucht
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.

Der Markt LS (Lang&Schwarz) wird als Realtime Indikation kostenlos angezeigt und bietet Ihnen außerbörsliche Realtime Aktienkurse in der Zeit von Mo-Fr 08:00 bis 23:00, Samstags 10:00 bis 13:00 und Sonntags an.
NYSE und AMEX Kurse sind um mindestens 20 Minuten zeitverzögert.
Alle weiteren Kurse sind um mindestens 15 Minuten zeitverzögert, sofern nicht anders angegeben.
P:30 V:de D:20171118 21:30:30