Item 1. Business
Corporate Background
Point Capital, Inc. was incorporated under its original name Gold Swap Inc. under the laws of the State of New York on July 13, 2010. On December 11, 2012, shareholders holding 25,519,700 (representing 83.3%) of the issued and outstanding shares of Common Stock executed and delivered to the Company their written consent to change the Company’s state of incorporation from New York to Delaware by the merger of Gold Swap with and into its wholly-owned subsidiary, Point Capital, Inc., and to change the name of the Company from “Gold Swap Inc.” to “Point Capital, Inc.” The Definitive Information Statement pursuant to Section 14(c) of the Securities Exchange Act of 1934 was mailed to shareholders on or about December 31, 2012. The merger was effective on January 24, 2013.
We are a closed-end, non-diversified investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). As a business development company, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. For 2014, we will elect to be treated for tax purposes as a regulated investment company, or a RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
The address of our principal executive office is c/o Point Capital, Inc., 285 Grand Avenue, Building 5, Englewood, NJ 07631. Our telephone number is 201-408-5126. Our internet website is www.pointcapitalinc.com.
Investment Objective
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 will also consider investing in private companies that meet its investment objectives.
Competition
A large number of entities compete with us to make the types of investments that we target as part of our business strategy. We compete for such investments with a large number of venture capital funds, other equity and non-equity based investment funds, investment banks and other sources of financing, including traditional financial services companies such as commercial banks and specialty finance companies. Many of our competitors are substantially larger than us and have considerably greater financial, technical and marketing resources than we do. In addition, some of our competitors may require less information than we do and/or have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we can. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company and, as a result, such companies may be more successful in completing their investments. There can be no assurance that the competitive pressures we face will not have a material adverse effect on our business, financial condition, and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.
Governance
Our Board of Directors monitors and performs an oversight role with respect to our business and affairs, including with respect to investment practices and performance, compliance with regulatory requirements and the services, expenses and performance of our service providers. Among other things, our Board of Directors approves the appointment of our officers, reviews and monitors the services and activities performed by our officers, approves the engagement, and reviews the performance of, our independent registered public accounting firm, and provides overall risk management oversight.
Section 56(a) of the 1940 Act requires that at least a majority of the Company’s Board of Directors be composed of independent Directors. To be considered independent, a Director may not be (i) an officer or employee of the Company, (ii) a direct or indirect beneficial owner of 5% or more of the Company’s voting shares, (iii) an immediate family member of an affiliate of the Company, (iv) any interested person of an investment adviser or principal underwriter to the Company, (v) legal counsel to the Company (or acted as such at any time during the preceding two completed fiscal years) or (vi) a person that has had a material business relationship with the Company at any time during the last two fiscal years. Our current Board of Directors consists of five members, three of whom we consider independent.
Our Board of Directors has established an Audit Committee to assist the Board of Directors in fulfilling its oversight responsibilities. The Audit Committee is composed of Van Parker, Committee Chairman, Joel Stone, and Leonard Schiller. The Audit Committee’s responsibilities include overseeing our accounting and financial reporting processes, our systems of internal controls over financial reporting, and audits of our financial statements.
Intellectual Property
We do not own any intellectual property rights except for our internet websites at the following URLs: www.pointcapitalinc.com and www.hempfundinginc.com.
Employees
We have no employees other than our three executive officers, who are also two of our five directors. All functions including development, strategy, negotiations and administration are currently being provided by our executive officers. Our officers and directors do not work exclusively for us and do not devote all of their time to our operations. Their other activities prevent them from devoting their full-time to our operations.
Item 1A.
Item 1A. Risk Factors
Risks Relating to Our Business and Structure
We could lose our status as a business development company or be precluded from investing according to our current business plan.
As a business development company, we must continue to comply with numerous rules and regulations under the 1940 Act, including without limitation, maintaining at least 70% of our total assets as "qualifying assets", having a majority of non-interested directors on our board and maintaining our securities under specific regulations. Currently we are in compliance. However, if we lose our status as a business a business development company, this would have a material adverse effect on our ability to invest, on our operating results, financial condition and ability to pay dividends, and on the value of our common stock. Such a ruling or decision also may require that we dispose of investments that we made. Such dispositions could have a material adverse effect on us and our stockholders. We may need to dispose of such investments quickly, which would make it difficult to dispose of such investments on favorable terms. In addition, because these types of investments will generally be illiquid, we may have difficulty in finding a buyer and, even if we do find a buyer, we may have to sell the investments at a substantial loss.
Our ability to achieve our investment objectives depends on our ability to manage and support our investment process. If we were to lose any members of its senior management team, our ability to achieve our investment objectives could be significantly harmed.
We will depend on the investment expertise, skill and network of business contacts of our professional staff who will evaluate, negotiate, structure, execute, monitor and service our investments. Messrs. Brand and Weisblum are not subject to employment contracts, nor will they receive any compensation from us initially. The departure of Messrs. Brand and Weisblum could have a material adverse effect on our ability to achieve our investment objectives.
Our ability to achieve our investment objectives depends on our ability to identify, analyze, invest in, finance and monitor companies that meet our investment criteria. Our capabilities in structuring the investment process, providing competent, attentive and efficient services to us, and facilitating access to financing on acceptable terms depend on the employment of investment professionals in an adequate number and of sufficient sophistication to match the corresponding flow of transactions. To achieve our investment objectives, we may need to hire, train, supervise and manage new investment professionals to participate in our investment selection and monitoring process. We may not be able to find investment professionals in a timely manner or at all. Failure to support our investment process could have a material adverse effect on our business, financial condition and results of operations.
Because our business model depends to a significant extent upon relationships with commercial banks, investment banks and private equity sponsors, our inability to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.
We expect to depend on the relationships of our investment team with private equity sponsors, investment banks and commercial banks, and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If we fail to maintain those existing relationships or develop new relationships with other sponsors or sources of investment opportunities, we will not be able to grow our investment portfolio. In addition, individuals with whom our investment team has relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.
We may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses.
We compete for investments with other business development companies and investment funds (including private equity funds, mezzanine funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, have begun to invest in areas in which they have not traditionally invested, including making investments in small- to mid-sized private, U.S. companies. Competition for investment opportunities in small and middle market, U.S. companies may intensify. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we are forced to match our competitors’ pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant part of our competitive advantage stems from the fact that the market for investments in small and middle market, U.S. companies is underserved by traditional commercial banks and other financial sources. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act will impose on us as a business development company.
A significant portion of our investment portfolio will be recorded at fair value as determined in good faith by our board of directors and, as a result, there is and will be uncertainty as to the value of our portfolio investments.
Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by our board of directors. Typically, there is not a public market for the securities of the privately held companies in which we intend to invest. As a result, we will value these securities quarterly at fair value as determined in good faith by our board of directors. Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation. The ongoing financial crisis in Europe has continued to affect corporate debt markets and has resulted in significant net unrealized depreciation in the portfolios of many existing BDCs, reducing their net asset value. Stressed companies may need to be written down even if current on principal and interest payments to us if valuations for similar companies have declined in the general markets. Depending on market conditions, we may face similar losses, which could reduce our net asset value and have a material adverse impact on our business, financial condition and results of operations.
Certain factors that may be considered in determining the fair value of our investments include dealer quotes for securities traded on the secondary market for institutional investors, the nature and realizable value of any collateral, the portfolio company’s earnings, cash flow and its ability to make payments on its indebtedness, the markets in which the portfolio company does business, comparison to comparable publicly-traded companies, discounted cash flow and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize upon the sale of one or more of our investments.
The amount of any distributions we may make is uncertain. We may not be able to pay you distributions, and our distributions may not grow over time.
We hope to be able to pay distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a business development company can limit our ability to pay distributions. All distributions will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our future status as a regulated investment company, compliance with applicable business development company regulations and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay distributions to our stockholders in the future. Distributions from the proceeds of securities offerings or from borrowings also could reduce the amount of capital we ultimately invest in interests of portfolio companies.
Our board of directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.
Our board of directors has the authority to modify or waive our current operating policies, investment criteria and strategies without prior notice and without stockholder approval (except as required by the 1940 Act). However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a business development company. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and value of our stock. Nevertheless, the effects might be adverse, which could negatively impact our ability to pay you distributions and cause you to lose all or part of your investment. Moreover, we will have significant flexibility in investing our capital and may use net proceeds in ways with which stockholders may not agree.
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
We and our future portfolio companies will be subject to regulation at the local, state and federal level. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect.
Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy to avail ourselves of new or different opportunities. Such changes could result in material differences to our strategies and may result in our investment focus shifting from our areas of expertise to other types of investments in which we may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.
Efforts to comply with the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act may adversely affect us.
We are subject to the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” and the related rules and regulations promulgated by the SEC. Our management is required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder. We are required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. As a result, we expect to continue to incur significant additional expenses in the near term, which may negatively impact our financial performance and our ability to make distributions. This process also will result in a diversion of management’s time and attention. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations and we may not be able to ensure that the process is effective or that our internal control over financial reporting is or will be effective in a timely manner. In the event that we are unable to maintain or achieve compliance with the Sarbanes-Oxley Act and related rules, we may be adversely affected.
We may experience fluctuations in our quarterly results.
We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rates payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.
Our portfolio may be concentrated in a limited number of portfolio companies and industries. Beyond the asset diversification requirements associated with our future qualification as a RIC under Subchapter M of the Code, we will not have fixed guidelines for diversification, and while we will not target any specific industries, our investments may be concentrated in relatively few industries. As a result, the aggregate returns we will realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. Additionally, a downturn in any particular industry in which we are invested could also significantly impact the aggregate returns we realize. A “RIC” is a regulated investment company under Subchapter M of the Code. A RIC generally does not have to pay corporate level federal income taxes on any income that it distributes to its stockholders from its tax earnings and profits. To qualify as a RIC, a company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to obtain RIC tax treatment, a company must distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income,” which is generally its net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses.
We have limited prior experience managing business development companies and regulated investment companies, or RIC.
While Mr. Brand, our chief executive officer, has experience in management positions with BDCs and RICs, other members of the management of Point Capital do not. The investment philosophy and techniques we will use by may differ from those investments with which some of our investment professionals have experience. Accordingly, the results we may achieve may differ substantially from those of previously managed funds. The 1940 Act and the Code impose numerous constraints on the operations of business development companies and RICs that do not apply to some of the other types of investment vehicles previously managed by our management team. For example, under the 1940 Act, business development companies are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or U.S. public companies with market valuations less than $250 million. Moreover, qualification for RIC tax treatment under subchapter M of the Code requires satisfaction of source-of-income, diversification and other requirements. The failure to comply with these provisions in a timely manner could prevent us from qualifying as a business development company or RIC, or could force us to pay unexpected taxes and penalties, which could be material. We have limited prior experience managing a business development company or RIC. Its lack of experience in managing a portfolio of assets under such constraints may hinder its ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objectives.
We may be obligated to make distributions to shareholders with respect to recognized non-cash income.
For federal income tax purposes, we may be required to recognize taxable income (such as deferred interest that is accrued as original issue discount) in circumstances in which we do not receive a corresponding payment in cash and to make distributions with respect to such income to maintain our status as a RIC even though we will not have received any corresponding cash amount. Under such circumstances, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. This difficulty in making the required distribution may be amplified to the extent that we are required to pay an incentive fee with respect to such accrued income for which we have not received a corresponding cash payment. If this occurs, we may have to sell some of our future investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
The time and resources that individuals we employ may be diverted and we may face additional competition due to the fact that individuals we employ are not prohibited from raising money for or managing another entity that makes the same types of investments that we target.
Our personnel are not prohibited by an agreement with us from raising money for and managing another investment entity that makes the same types of investments as those we may target. As a result, the time and resources that these individuals may devote to us may be diverted. In addition, we may compete with any such investment entity for the same investors and investment opportunities. We do not intend to invest in portfolio companies in which the other funds managed by our professionals are investing or are invested. We do not intend to seek exemptive relief from the SEC.
There are significant potential conflicts of interest which could impact our investment returns.
Our executive officers may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do. Accordingly, certain of our officers may have obligations to investors in other entities managed by their affiliates, the fulfillment of which obligations might not be in the best interests of us or our stockholders. In addition, we note that any affiliated investment vehicle currently existing, or formed in the future, and managed by our investment adviser or any of its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us.
Risks Related to Business Development Companies
Failure to invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy and maintaining our status as a business development company.
As a business development company, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets, or we could lose our status as a BDC, which would have a material adverse effect on our business, financial condition and result of operations. Similarly, these rules could prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position, or could require us to dispose of investments at an inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying investments in the portfolio for compliance purposes, the proceeds from such sale could be significantly less than the current value of such investments.
Failure to maintain our status as a business development company would reduce our operating flexibility.
If we do not remain a business development company, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.
Regulations governing our operation as a business development company and RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.
As a result of the annual distribution requirement to qualify as a RIC, we may need to periodically access the capital markets to raise cash to fund new investments. We may issue “senior securities,” including borrowing money from banks or other financial institutions only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. Our ability to issue different types of securities is also limited. Compliance with these requirements may unfavorably limit our investment opportunities and reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend. As a business development company, therefore, we intend to continuously issue equity at a rate more frequent than our privately owned competitors, which may lead to greater stockholder dilution.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions for investment purposes, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we will be permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.
Under the 1940 Act, we generally are prohibited from issuing or selling our common stock at a price below net asset value per share, which may be a disadvantage as compared with other public companies. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if our board of directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders as well as those stockholders that are not affiliated with us approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the fair value of such securities.
Our ability to enter into transactions with our affiliates will be restricted.
We will be prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of a majority of the independent members of our board of directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act and we will generally be prohibited from buying or selling any securities from or to such affiliate absent the prior approval of our board of directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our board of directors and, in some cases, the SEC. If a person acquires more than 25.0% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. As a result of these restrictions, we may be prohibited from buying or selling any security from or to any portfolio company of a private equity fund managed by an affiliate without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.
We are uncertain of our sources for funding our future capital needs; if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected.
In the event that we develop a need for additional capital in the future for investments or for any other reason, sources of funding may not be available to us. Consequently, if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected. As a result, we would be less able to achieve portfolio diversification and our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our stockholders.
Risks Related to Our Current and Future Investments
Our investments in prospective portfolio companies may be risky, and we could lose all or part of our investment.
We intend to invest primarily in senior secured term loans, second lien secured loans, mezzanine debt and, to a lesser extent, subordinated debt and selected equity investments issued by small and middle market companies.
Senior Secured Loans and Second Lien Loans. When we extend senior secured term loans and second lien loans, we expect to generally take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries. We expect this security interest to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our loans may decrease in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. Also, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.
Mezzanine and Subordinated Debt. Our mezzanine and subordinated debt investments will generally be subordinated to senior loans and will generally be unsecured. This may result in a heightened level of risk and volatility or a loss of principal which could lead to the loss of the entire investment.
These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and our stockholders to non-cash income. Since we will not receive any principal repayments prior to the maturity of some of our mezzanine debt investments, such investments will be of greater risk than amortizing loans.
Equity Investments. We expect to make selected equity investments. In addition, when we invest in first and second lien senior loans or mezzanine debt, we may acquire warrants to purchase equity securities. Our goal is ultimately to dispose of these equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
In addition, investing in small and middle market companies involves a number of significant risks, including that they:
● may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;
● may have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns;
● are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us;
● generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers and directors may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and
● may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.
Our future portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
We expect to invest primarily in first lien, second lien, mezzanine debt and, to a lesser extent, subordinated debt issued by small and middle market U.S. companies. Our future portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
Even though we intend to generally structure certain of our investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial assistance.
Second priority liens on collateral securing loans that we expect to make to our future portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
Certain loans that we expect to make to our future portfolio companies will be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the company’s remaining assets, if any.
The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.
We generally will not control our future portfolio companies.
We do not expect to control most of our future portfolio companies, even though we may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we will be subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to expected lack of liquidity for our future investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.
We will be exposed to risks associated with changes in interest rates.
We will be subject to financial market risks, including changes in interest rates. To the extent that we invest in fixed-rate loans or securities rather than floating-rate debt instruments, general interest rate fluctuations may have a substantial negative impact on our investments and investment opportunities and, accordingly have a material adverse effect on our investment objectives and our rate of return on invested capital. In addition, an increase in interest rates would make it more expensive to use debt for our financing needs, if any.
Economic recessions or downturns could impair our future portfolio companies and harm our operating results.
We expect that some of our future portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. Therefore, we may have non-performing assets, and the value of our portfolio could to decrease during these periods. Adverse economic conditions also may decrease the value of collateral securing some of our future debt investments and the value of our future equity investments. Economic slowdowns or recessions could lead to financial losses in our future portfolio and a decrease in our expected revenues, net income and asset values. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing future investments and harm our operating results.
Defaults by our current and future portfolio companies will harm our operating results.
A current or future portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we may hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting future portfolio company.
We may not realize gains from our current or future equity investments.
Certain investments that we may make could include warrants or other equity securities. In addition, we may make direct equity investments in companies. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we may receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our future equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a future portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We intend to seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these puts rights for the consideration provided in our investment documents if the issuer is in financial distress.
An investment strategy including privately held companies presents certain challenges, including the lack of available information about these companies.
We may invest in privately held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress. Second, the investments themselves tend to be less liquid. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. Finally, less public information generally exists about private companies. Further, these companies may not have third-party debt ratings or audited financial statements. We will be required therefore to rely on our ability to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies. These companies and their financial information will generally not be subject to the Sarbanes-Oxley Act and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. As a result, the relative lack of liquidity and the potential diminished capital resources of our target portfolio companies may affect our investment returns.
The lack of liquidity in our investments may adversely affect our business.
We intend to invest in companies whose securities are not publicly traded, and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our future investments in the near-term. We expect that our future investments will generally be subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of our current and future investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.
We may not have the funds or ability to make additional investments in our current or future portfolio companies.
We may not have the funds or ability to make additional investments in our current and future portfolio companies. After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected return on the investment.
Risks Relating to Debt Financing
If we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us.
The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. If we use leverage to partially finance our future investments, through borrowing from banks and other lenders, you will experience increased risks of investing in our shares. If the value of our future assets increases, leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock distribution payments. Leverage is generally considered a speculative investment technique.
Changes in interest rates may affect our cost of capital and net investment income.
Since we intend to use debt to finance investments, our future net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our future net investment income. In periods of rising interest rates when we have debt outstanding, our cost of funds will increase, which could reduce our future net investment income. We expect that our long-term fixed-rate investments will be financed primarily with equity and long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. Also, we have limited experience in entering into hedging transactions, and we will initially have to purchase or develop such expertise. You should also be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments.
Federal Income Tax Risks
We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements.
To obtain and maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.
● The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90.0% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. We will be subject to a 4.0% nondeductible federal excise tax, however, to the extent that we do not satisfy certain additional minimum distribution requirements on a calendar-year basis. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
● The income source requirement will be satisfied if we obtain at least 90.0% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources.
● The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50.0% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other acceptable securities; and no more than 25.0% 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.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because we expect that most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.
If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our future net assets, the amount of future income available for distribution and the amount of our future distributions.
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
For federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash.
Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our stockholders in order to satisfy the annual distribution requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
Risks Relating to Our Common Stock
The holder of Series A Convertible Preferred Stock has rights senior to those of the holders of common shares.
In connection with the issuance of 4,000 shares of Series A Convertible Preferred Stock for an aggregate purchase price of $400,000, the holder of the preferred stock has certain rights and preferences. These rights include the right to elect a majority of the board if so entitled to do so under the 1940 Act, the right to approve the Company ceasing to be a business development company and veto rights over certain actions by the Company. Each share of Series A Convertible Preferred Stock is convertible to 500 shares of common stock, subject to customary anti-dilution provisions as well as upon subsequent equity sales, subsequent rights offerings, prorata distributions and fundamental transactions, all as more fully described in the Certificate of Designation of Preferences, Rights and Limitations. However, the holder of the Series A Convertible Preferred Stock agreed to waive the anti-dilution provision with respect to issuances by the Company at an effective price less than $0.20 per share. The Company also agreed with the holder of the shares of Series A Convertible Preferred Stock that, subject to certain exceptions, it will not issue any convertible securities or equity.
“Penny Stock” rules may make buying or selling our securities difficult.
Trading in our securities is subject to the SEC’s “penny stock” rules and it is anticipated that trading in our securities will continue to be subject to the penny stock rules for the foreseeable future. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker- dealers by such requirements may discourage broker-dealers from recommending transactions in our securities, which could limit the liquidity and adversely affect the market price for our common stock.
Our securities are dually quoted on the OTCBB and the OTCQB, which may not provide us much liquidity for our investors as an exchange, such as the NASDAQ Stock Market or other national or regional exchanges.
Our securities are dually quoted on the OTCBB and the OTCQB. Both the OTC Bulletin Board (OTCBB) and the OTCQB level of the OTC Markets are electronic quotation systems that provide significantly less liquidity than the NASDAQ Stock Market or other national or regional exchanges. Securities quoted on the OTCBB and/or the OTCQB are usually thinly traded, highly volatile, have fewer market makers and are not followed by analysts. The SEC’s order handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTCBB or the OTCQB. Quotes for stocks included on the OTC markets are not listed in newspapers. Therefore, prices for securities traded solely on the OTCBB and/or the OTCQB may be difficult to obtain and holders of our securities may be unable to resell their securities at or near their original acquisition price, or at any price. We cannot assure you a public trading market will develop. As a result you may not receive a return of all of your invested capital.
You may not be able to sell your shares for more than what you paid.
The market price of our common stock could fluctuate in the future in response to various factors, including, but not limited to: quarterly variations in operating results; our ability to control costs and improve cash flow; announcements of technological innovations or new products by us or by our competitors; changes in investor perceptions; and new products or product enhancements by us or our competitors.
The stock market in general has continued to experience volatility which may further affect our stock price.
Our articles of incorporation and bylaws could discourage acquisition proposals, delay a change in control or prevent other transactions.
Provisions of our articles of incorporation and bylaws, as well as provisions of Delaware General Corporation Law, may discourage, delay or prevent a change in control of our company or other transactions that you as a shareholder may consider favorable and may be in your best interest. Our articles of incorporation and bylaws contain provisions that: authorize the issuance of shares of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and discourage a takeover attempt; limit who may call special meetings of shareholders; and require advance notice for business to be conducted at shareholder meetings.
Our directors have the authority to issue common and preferred shares without shareholder approval, and preferred shares can be issued with such rights, preferences, and limitations as may be determined by our board of directors. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future. We presently have no commitments or contracts to issue any other shares of preferred stock. Authorized and unissued preferred stock could delay, discourage, hinder or preclude an unsolicited acquisition of our company, could make it less likely that shareholders receive a premium for their shares as a result of any such attempt, and could adversely affect the market prices of, and the voting and other rights, of the holders of outstanding shares of our common stock.
Your interest in the Company will be diluted if we issue additional shares, which could reduce the overall value of your investment.
Stockholders in our Company do not have preemptive rights to any shares of common stock we issue in the future. Our charter authorizes us to issue 100,000,000 shares of common stock. Subject to applicable limitations and restrictions we granted to the holders of our Series A Convertible Preferred Stock, our board may elect to sell additional shares of our securities in future private or public offerings, issue equity interests in private offerings or issue share-based awards to our independent directors or employees. To the extent we issue additional equity interests, your percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments, you may also experience dilution in the book value and fair value of your shares in the Company.
Certain provisions of our charter and bylaws as well as provisions of the Delaware General Corporation Law could deter takeover attempts and have an adverse impact on the value of our common stock.
Our charter and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from attempting to acquire us. Under the Delaware General Corporation Law, “control shares” acquired in a “control share acquisition” have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiror, by officers or by directors who are employees of the corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act under the Delaware General Corporation Law any and all acquisitions by any person of our shares of stock. Our board may amend the bylaws to remove that exemption in whole or in part without stockholder approval. The Control Share Acquisition Act (if we amend our bylaws to be subject to that act) may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Under the Delaware General Corporation Law, specified “business combinations,” including certain mergers, consolidations, issuances of equity securities and other transactions, between a Delaware corporation and any person who owns 10.0% or more of the voting power of the corporation’s outstanding shares, and certain other parties (each an “interested stockholder”), or an affiliate of the interested stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Thereafter any of the specified business combinations must be approved by a super majority vote of the stockholders unless, among other conditions, the corporation’s common stockholders receive a minimum price for their shares. We are subject to the Delaware Business Combination Act.
Under the Delaware General Corporation Law, certain statutory provisions permit a corporation that is subject to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and that has at least three outside directors to be subject to certain corporate governance provisions that may be inconsistent with the corporation’s charter and bylaws. Among other provisions, a board of directors may classify itself without the vote of stockholders. Further, the board of directors, by electing into certain statutory provisions and notwithstanding the charter or bylaws, may (i) provide that a special meeting of stockholders will be called only at the request of stockholders entitled to cast at least a majority of the votes entitled to be cast at the meeting, (ii) reserve for itself the right to fix the number of directors, and (iii) retain for itself sole authority to fill vacancies created by the death, removal or resignation of a director. A corporation may be prohibited by its charter or by resolution of its board of directors from electing any of the provisions of the statute. We are not prohibited from implementing any or all of the statute.
Additionally, our board of directors may, without stockholder action, authorize the issuance of shares of stock in one or more classes or series, including preferred stock; and our board of directors may, without stockholder action, amend our charter to increase the number of shares of stock of any class or series that we have authority to issue. These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the value of our common stock.
Item 1B.
Item 1B. Unresolved Staff Comments
Not Applicable.
Item 2.
Item 2. Properties
Our principal executive offices are located at 285 Grand Avenue, Building 5, Englewood, NJ 07631. We are not paying any rent for such space and we believe that our current office space will be adequate for the foreseeable future.
Item 3.
Item 3. 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 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is quoted on the OTCQB under the symbol “PTCI”, formerly “GDSW.” Our common stock was listed on January 5, 2012. The following table sets forth the range of high and low sales prices of our common stock as reported on the OTCQB Market for the period beginning May 13, 2014, our initial trade date, through December 31, 2014.
Security Holders
As of March 31, 2015, there were 50,582,441 shares of common stock issued and outstanding, which were held by approximately 93 stockholders of record.
We are authorized to issue 100,000,000 shares of common stock and 5,000,000 shares of blank check preferred stock, of which 1,000,000 are designated as Series A Convertible Preferred Stock.
On April 24, 2013, the Company executed and delivered a Stock Purchase Agreement with Alpha Capital Anstalt (the “Purchaser”) to purchase 4,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”) at a purchase price of $100.00 per share, or $400,000. In connection with the purchase of the Preferred Stock, the Company agreed not to enter into or exercise any equity line of credit or similar agreement, issue or agree to issue any floating or variable priced equity linked instruments or any equity with price reset rights. The Company also agreed, subject to certain exceptions, not to issue any equity, convertible debt or other securities convertible into common stock or equity of the Company without the prior written consent of the Purchaser.
Each share of Preferred Stock is convertible by the holder at any time into 500 shares of common stock, as adjusted. The Certificate of Designation of the Preferred Stock provides for full ratchet anti-dilution provisions, other than with respect to certain securities issuances. In addition, if the Company issues equity or options, warrants or other convertible securities to the common stockholders, the holder of the Preferred Stock shall be entitled to receive such securities pro rata as if the Preferred Stock was convertible. The holders of the Preferred Stock vote with the holders of the common stock on an as converted basis. If the holder of the Preferred Stock shall be entitled under the Investment Company Act of 1940 to elect a majority of the Board of Directors of the Company, the number of directors constituting the board of directors shall automatically be increased by the smallest number so that, when added to the two directors elected exclusively by the holders of the Preferred Stock, such number would constitute a majority of the board. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, the holders of Preferred Stock shall have preference to any distribution of the assets of the Company to the holders of common stock of the Company.
The Company has the right to force conversion of all or a part of the issued and outstanding shares of Preferred Stock (i) if there is an effective registration statement which includes the resale of the common stock underlying the Preferred Stock, or such stock is freely resellable under Rule 144; (ii) the volume weighted average price exceeds $0.40 per share; and (iii) the average daily volume of the common stock exceeds $25,000. The Company also has the right under certain conditions to redeem all or some of the outstanding shares of Preferred Stock for $100 per share.
As a business development company under the Investment Company Act of 1940, if the Company’s asset coverage is less than 200% as of the end of each quarter, the Company shall redeem a sufficient number of shares of Preferred Stock to enable it to meet said requirements. The mandatory redemption price is the liquidation preference of the Preferred Stock which is $100 per share, plus any unpaid dividends.
The Purchaser agreed to restrict its ability to convert the Preferred Stock and receive shares of the Company if the number of shares of common stock beneficially held by the Purchaser and its affiliates in the aggregate after such conversion exceeds 9.99% of the then outstanding shares of common stock.
Dividend Policy
We have not declared or paid dividends on our common stock since our formation. Declaration or payment of dividends, if any, in the future, will be at the discretion of our Board of Directors and will depend on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the board of directors. There are no contractual restrictions on our ability to declare or pay dividends.
Recent Sales of Unregistered Securities
On August 1, 2014, the Company issued 250,000 shares of the Company’s common stock to a purchaser for $75,000 ($0.30/share), based upon the fair value of the Company’s common stock on the date of issuance. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
On July 16, 2014, the Company issued 500,000 shares of the Company’s common stock to a consultant in exchange for consulting services. The fair value of the common stock $150,000 based upon the fair value of the Company’s most recent offering price ($0.30/share). The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
On July 1, 2014, the Company issued 1,450,001 shares of the Company’s common stock to various purchasers for $435,000 ($0.30/share), based upon the fair value of the Company’s common stock on the date of issuance. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
On March 25, 2014, the Company issued 6,126,240 shares of the Company’s common stock to Network 1 Financial Securities, Inc. as part of offering costs associated with the $2,000,000 capital raise. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
On January 31, 2014, the Company issued 1,650,000 shares of the Company’s common stock to various purchasers for $330,000 ($0.20/share), based upon the fair value of the Company’s common stock on the date of issuance. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
Equity Compensation Plans
We do not have any equity compensation plans, other than the option plan adopted by the Board for the independent directors described below.
Item 6.
Item 6. Selected Financial Data.
The following selected financial data for the years ended December 31, 2014 and 2013 (prior to 2013, Selected Financial Data was not required to be presented as the Company was a “smaller reporting company”) is derived from our financial statements which have been audited by EisnerAmper LLP, our independent registered public accounting firm. The data should be read in conjunction with our financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual report.
(1) Per share amounts are calculated using weighted average shares outstanding during the period.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements contained in this Annual Report, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to our future operating performance and the products we expect to offer and other statements contained herein regarding matters that are not historical facts, are "forward-looking" statements. Future filings with the SEC, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may contain forward-looking statements, because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.
All forward-looking statements speak only as of the date on which they are made and reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements. See “Special Note Regarding Forward-Looking Statements” elsewhere in this Annual Report.
We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.
The following discussion and analysis should be read in conjunction with the audited financial statements and notes thereto included elsewhere in this Annual Report.
Overview
We are a closed-end, non-diversified investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). As a business development company, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. For the 2014 tax year, we will elect to be treated for tax purposes as a regulated investment company, or a RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
Investment Strategy
We will seek to invest in companies that are asset rich and generating cash flow on a sustainable basis. Further, when identifying prospective portfolio companies, we will seek the following attributes, which we believe will help us generate higher total returns with an acceptable level of risk. These attributes are:
● Strong management teams with meaningful equity ownership. We will seek experienced management teams with an established track record of success in place or available. We will typically require the portfolio companies to have proper incentives to align management’s goals with ours. Generally, we will seek companies in which the management teams have significant equity interests.
● Secure market positions that present attractive growth opportunities. We will seek companies that we believe possess advantages in scale, scope, customer loyalty, product pricing, or product quality versus their competitors, minimizing sales risk and generating margins that can be readily forecast.
● Industries with favorable trends. We will seek industries with favorable industry trends and companies performing well within their industries and poised to benefit from a catalyst.
● Investing in private companies. We do not expect to invest in start-up companies or companies with speculative business plans. We may also consider companies that are underperforming compared to their potential due to structural impediments with opportunities to restructure and refocus strategy and resources.
● Diversification. We will seek to diversify our portfolio among companies engaged in a variety of industries, thereby potentially reducing the risk of a downturn in any one industry having a disproportionate impact on the value of our portfolio. We cannot assure you that we will be successful in this regard.
● Structure financing terms to limit down side risk. Originating our own lending opportunities through our network will permit us to structure loans to enhance the element of capital preservation for our stockholders.
● 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 December 31, 2014, we held thirteen portfolio companies. All are non-controlled and non-affiliated investments.
Optex Systems Holdings, Inc. (OPXS) On November 17, 2014, we completed a $100,000 investment in a 12% Convertible Debenture. Optex Systems Holdings, Inc., an OTC BB listed company, manufactures optical sighting systems and assemblies primarily for Department of Defense (DOD) applications. The Company also manufactures and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies.
Vapor Corp. (VPCO) On November 14, 2014, we completed a $100,000 investment in a 7% Convertible Debenture as well as 90,909 warrants. Vapor Corp., a Nasdaq listed company, markets and distributes electronic cigarettes. The Company distributes electronic devices that vaporize a liquid solution, which provides users an experience akin to smoking without actual combustion. The exercise price of the warrants is $2.00 per share.
iNeedMD Holdings, Inc. (NEMD) On October 15, 2014, we completed a $795 investment in 25,000 shares of Common Stock. iNeedMD Holdings Inc., an OTC BB listed company, operates as a holding company. The Company, through its subsidiaries, manufactures medical devices that acquires and transmits health related data.
Orbital Tracking Corp. (TRKK) On October 10, 2014, we completed a $150,000 investment in 200,000 shares of Series C Preferred Stock and 100,000 shares of Series D Preferred Stock. Orbital Tracking Corp., an OTC BB listed company, provides satellite telecommunications voice airtime, tracking devices and services, and ground station construction. The company provides mobile voice and data communications services globally via satellite. Each shares of Series C Preferred convert into 10 shares of common stock. Each shares of Series D Preferred convert into 20 shares of common stock.
NXT-ID, Inc. (NXTD) On September 11, 2014, we completed a $100,000 investment in 36,363 shares of Common Stock as well as 36,363 listed warrants (NXTDW). NXT-ID, Inc., a NASDAQ listed company, is a development stage technology company that is focused on products, solutions, and services that have a need for biometric secure access control. The exercise price of the warrants is $3.00 per share. We have sold this investment.
Dejour Energy, Inc. (DEJ) On August 12, 2014, we completed a $200,000 investment in 800,000 shares of Common Stock as well as 800,000 warrants. Dejour Energy, Inc., a NYSE listed company, is an independent oil and natural gas company operating multiple exploration and production projects in North America's Piceance Basin and Peace River Arch regions. The exercise price of the warrants is $0.35 per share. We currently hold 800,000 warrants.
Bacterin International Holdings, Inc. (BONE) On August 1, 2014, we completed a $131,248 investment in 23,026 shares of Common Stock as well as 11,513 warrants. Bacterin International Holdings, Inc., a NYSE listed company, produces human tissue for orthopedic procedures. The Company produces allografts of human calcellous bone which has been demineralized. Bacterin also produces medical devices for orthopedic, plastic, and cardiovascular surgery; and antimicrobial coatings for medical devices. The exercise price of the warrants is $7.12 per share.
PishPosh, Inc. On July 2, 2014, we made an investment of $150,000 in Convertible Preferred Stock. The effective date of the investment is July 2, 2014. 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 is convertible at $1.00 and $50,000 is convertible at $0.2666.
Musclepharm Corp. On June 19, 2014, we completed a $90,000 investment in 10,000 shares of Common Stock. Musclepharm Corp., an OTC BB listed company, markets sports nutrition products. The company's products include amino acids, herbs and proteins and are intended to enhance workouts, repair muscles, and nourish the body. The company markets its products through specialty retailers throughout the world. We currently hold 2,500 shares of common stock.
Cesca Therapeutics, Inc. On June 13, 2014, we completed an $82,501 investment in 55,000 shares of Common Stock as well as 16,500 warrants. Cesca Therapeutics, Inc., a Nasdaq listed company, 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. The exercise price of the warrants is $1.55 per share.
Arista Power, Inc. On March 31, 2014, we completed a $100,000 investment in 9% Convertible Preferred Stock as well as 750,000 warrants. Arista Power, Inc., an OTC BB listed company, develops and manufactures renewable power equipment. The company produces wind turbines, solar energy systems, and custom-designed power management systems. The Preferred Stock is convertible into shares of common stock at our discretion at a conversion price equal to $0.20. The exercise price of the warrants is $0.25 per share.
Ruthigen, Inc. On March 21, 2014, we completed a $150,003 investment in 20,690 shares of Common Stock as well as 20,690 warrants. Ruthigen, Inc., a Nasdaq listed company, focuses on the discovery, development, and commercialization of pharmaceutical-grade hypochlorous acid based therapeutics to prevent and treat infection in invasive applications. The exercise price of the warrants is $7.25 per share.
Be Active Holdings, Inc. On February 18, 2014, we completed a $100,000 investment in 3,333,333 shares of Common Stock as well as 3,333,333 warrants. Be Active Holdings, Inc., an OTC BB listed company, manufactures and sells low fat, low calorie, and natural probiotic frozen yogurt primarily to supermarkets, as well as to convenience and other foods stores. The exercise price of the warrants is $0.03 per share. We exercised 3,333,333 warrants on a cashless basis and received 2,729,468 shares of common stock. We have sold this investment.
CombiMatrix Corp. On December 19, 2013 we completed an $80,000 investment in Series D Convertible Preferred Stock and warrants. CombiMatrix Corp., a Nasdaq-listed company, is a molecular diagnostics company specializing in DNA-testing services for development disorders. The preferred stock was convertible to common stock at $2.06 per share. The exercise price of the warrants is $3.12 per share. We currently hold 38,835 warrants of CombiMatrix.
Intercloud Systems, Inc. On December 13, 2013, we completed a $100,000 investment in a 12% Convertible Debenture as well as 315 shares of common stock. Intercloud Systems, Inc., a Nasdaq listed company, is a single-source provider of end-to-end IT and telecom solutions to the service provider and corporate enterprise markets through cloud platforms and professional services. The debenture, which matures June 13, 2015, is convertible into shares of common stock of InterCloud at our discretion at a conversion price equal to the lesser of $6.36 or 85% of the price in a qualified underwritten public offering. We exercised the entire Convertible Debenture and accrued interest into 17,925 shares of common stock. We currently hold 17,425 shares of common stock.
Results of Operations
For the years ended December 31, 2014, 2013 and 2012, 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.
Net Change in Unrealized Appreciation (Depreciation) For the years ended December 31, 2014 and 2013, we had a cost basis in our portfolio companies of $1,163,250 and $131,021 with a fair market value of $1,008,437 and $196,164, respectively. The net change in unrealized appreciation (depreciation) for the years ended December 31, 2014 and 2013 was $(219,956) and $65,143, respectively. There was no investment activity for the year ended December 31, 2012.
Investment Income For the years ended December 31, 2014 and 2013, we earned interest income from cash and cash equivalents of $34 and $25, respectively. During the years ended December 31, 2014 and 2013, we also earned $13,781 and $600 of interest from our convertible debenture investments, respectively. In addition, during the years ended December 31, 2014 and 2013, we also earned $6,750 and $0 of dividend income, respectively. Except as set forth above, we did not earn any other investment income during the years ended December 31, 2014, 2013 and 2012. There was no investment activity in for the year ended December 31, 2012.
Net Realized Gain For the years ended December 31, 2014 and 2013, we disposed of certain positions recognizing a net realized gain of $92,276 and $39,754, respectively. There was no investment activity for the year ended December 31, 2012.
Operating Expenses For the year ended December 31, 2014, total operating expenses were $269,435 consisting mainly of professional accounting, legal, consulting and Edgar fees related to SEC required filings. For the years ended December 31, 2013 and 2012 total operating expenses were $72,611 and $39,446, respectively, which consisted mainly of professional accounting, legal, and Edgar fees related to SEC required filings.
Net Increase (Decrease) in Net Assets Resulting from Operations For the years ended December 31, 2014 and 2013, the net increase (decrease) in net assets resulting from operations was $(376,549) and $32,911, respectively. For the year ended December 31, 2012, the net loss was $39,446.
Liquidity and Capital Resources
As of December 31, 2014, the Company had $1,739,520 in cash and cash equivalents, compared to $2,010,620 as of December 31, 2013, primarily generated from the sale of 11,625,000 common shares at $0.20 per share for a total gross offering price of $2,325,000, of which $330,000 was raised during the three months ended March 31, 2014. In addition, the company sold 1,700,001 for gross proceeds of $510,000 ($0.30/share) during the three months ended September 30, 2014.
The Company believes that our existing available cash will enable the Company to meet the working capital requirements for at least 12 months.
The Company has no agreements or arrangements to raise capital. Network 1 Financial Services Inc. completed an offer to sell up to $2,000,000 of common shares (of which $2,305,000 has been closed upon as of January 31, 2014) in accordance with the terms of the placement agency agreement. As of the date of this filing, total direct offering costs paid in cash were $231,190. The placement agent was also entitled to 6,126,240 shares of the Company’s common stock which was issued on March 25, 2014. These shares have a fair value of $1,225,248, based upon the cash offering price of $0.20/share, which represented the best evidence of fair value at the date of issuance.
We currently have no commitments with any person for any capital expenditures.
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"). 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 investments to date. The Company consolidates the subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers 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. The Company records interest and dividend income on an accrual basis beginning on the trade settlement date or the ex-dividend date, respectively, to the extent that the Company expects to collect such amounts. Commissions and other costs associated with transactions involving securities, including legal costs, are included in the cost basis of purchases and deducted from the proceeds of sales.
Realized Gain or Loss and Net Change in Unrealized Appreciation or Depreciation of Portfolio Investments
Realized gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company's cost basis and the net proceeds received from such disposition without regard to unrealized appreciation or depreciation previously recognized. Realized gains and losses on investment transactions are determined by specific identification. Net change in unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment, including any reversal of previously recorded unrealized appreciation/depreciation when gains or losses are realized.
Valuation of Investments
The Company applies the accounting guidance of Accounting Standards Codification Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”). This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The guidance also establishes a fair value hierarchy for measurements of fair value as follows:
● Level 1 - quoted market prices in active markets for identical assets or liabilities.
● Level 2 - inputs other than quoted market prices that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3 - unobservable inputs for which little or no market activity exists, therefore requiring an entity to develop its own assumptions.
The Board of Directors (the “Board”) of the Company, in good faith, determines the fair value of investments in the following manner:
Portfolio investments are reported on the balance sheet at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:
Equity securities which are listed on a recognized stock exchange are valued at the closing trade price on the last trading day of the valuation period. For equity securities that carry a restriction inherent to the security, a restriction discount is applied, as appropriate. Investments in warrants are valued at fair value using the Black-Scholes option pricing model. Investments in securities which are convertible at a date in the future are valued assuming a full conversion into common shares and valued based on the methodology for equity securities described above. Investments in unlisted securities are valued using a market approach net of the appropriate discount for lack of marketability. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.
Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors.
Because there is not a readily available market value for some of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.
Income Taxes
For 2014, The Company intends to elect to be treated for federal income tax purposes, and intends to qualify thereafter, as a RIC under Subchapter M of the Code. Generally, a RIC is exempt from federal income taxes if it distributes at least 90% of ‘‘Investment Company Taxable Income,’’ as defined in the Code, each year. Dividends paid up to one year after the current tax year can be carried back to the prior tax year for determining the dividends paid in such tax year. The Company intends to distribute sufficient dividends to maintain its RIC status each year. The Company is also subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income each calendar year, 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. The Company will generally endeavor each year to avoid any federal excise taxes.
The company did not have any distributable income as of December 31, 2014 and 2013.
Item 7A.
Item 7A. 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, liquidity risk 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 8.
Item 8. Financial Statements and Supplementary Data.
Point Capital, Inc.
Financial Statements
December 31, 2014 and 2013
CONTENTS
EisnerAmper LLP
750 Third Avenue
New York, NY 10017-2703
T 212.949.8700
F 212.891.4100
www.eisneramper.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Point Capital, Inc.
We have audited the accompanying consolidated statements of assets and liabilities of Point Capital, Inc. and subsidiary (the "Company"), including the consolidated schedules of investments as of December 31, 2014 and December 31, 2013, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the years in the three year period ended December 31, 2014 and financial highlights for each of the years in the two year period ended December 31, 2014. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2014 and 2013, by correspondence with the custodians. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Point Capital, Inc. and subsidiary as of December 31, 2014 and 2013, and the results of their operations, changes in their net assets, and their cash flows for each of the years in the three year period ended December 31, 2014, and financial highlights for each of the years in the two year period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
New York, New York
March 31, 2015
New York | New Jersey | Pennsylvania | California | Cayman Islands
EisnerAmper is an independent member of PKF International Limited
See accompanying notes to financial statements
(1) Not presented for 2014 and 2013 as presentation of earnings per share is not required for investment companies.
See accompanying notes to financial statements
See accompanying notes to financial statements
See accompanying notes to financial statements
(1) Securities are exempt from registration under Rule 144A promulgated under the Securities Act.
(2) Securities are not income producing.
(3) Converted $112,000 in principal and interest into common shares.
(4) Security is subject to an 8 month (12.5%/month) bleed-out agreement. No more than 1,250 shares can be sold per month.
See accompanying notes to financial statements
(1) Securities are exempt from registration under Rule 144A promulgated under the Securities Act.
(2) Securities are not income producing.
*Certain prior year investment industry disclosures have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. In the quarter ended June 30, 2014, the Company concluded that it was appropriate to classify its investments in accordance with Global Industry Classification Standards ("GICS"). Accordingly, the Company has revised the investment classifications. Corresponding reclassifications have also been made to the reported investment industry classifications on the December 31, 2013 Schedule of Investments. This change in classification does not materially affect previously reported financial statement information.
The following table shows the portfolio composition by industry grouping based on fair value at December 31, 2014 and December 31, 2013:
See accompanying notes to the financial statements
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
1.Organization and Business
Point Capital, Inc. (the “Company”), was incorporated in the State of New York on July 13, 2010.
Prior to January 24, 2013, the Company intended to purchase precious metals and second-hand jewelry for refining and resale. The Company had not clearly identified how it would operate its business, only that it would explore commercial feasibility.
On January 24, 2013, the merger of Point Capital, Inc., an inactive Delaware corporation, with Gold Swap, Inc., a New York corporation, became effective. As a result, (a) Gold Swap’s state of incorporation changed from New York to Delaware and (b) the name of the company changed from “Gold Swap Inc.” to “Point Capital, Inc.”
On October 4, 2013, the Company filed a Form N-54A and elected to become a Business Development Company (“BDC”) under the Investment Company Act of 1940, as amended (“the 1940 Act”).
The Company’s investment objective is to provide current income and capital appreciation. The Company intends to accomplish its objective by investing in the common stock, preferred stock, warrants and convertible notes of small and mid-cap companies. The Company’s investments are made principally through direct investments in prospective portfolio companies. However, the Company may also purchase securities in private secondary transactions. The Company to a lesser extent will also invest in private companies that meet its investment objectives. The Company is an investment company and applies the specialized accounting and reporting guidance of Accounting Standards Codification Topic 946 “Financial Services - Investment Companies.”
2.Summary of Significant 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"). 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 investments to date. The Company consolidates the subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
Securities Transactions
Securities transactions are recorded on a trade date basis. Securities transactions outside conventional channels, such as private transactions, are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale, and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively. The Company records interest and dividend income on an accrual basis beginning on the trade settlement date or the ex-dividend date, respectively, to the extent that the Company expects to collect such amounts. Commissions and other costs associated with transactions involving securities, including legal costs, are included in the cost basis of purchases and deducted from the proceeds of sales.
Realized Gain or Loss and Net Change in Unrealized Appreciation or Depreciation of Portfolio Investments
Realized gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company's cost basis and the net proceeds received from such disposition without regard to unrealized appreciation or depreciation previously recognized. Realized gains and losses on investment transactions are determined by specific identification. Net change in unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment, including any reversal of previously recorded unrealized appreciation/depreciation when gains or losses are realized.
Valuation of Investments
The Company applies the accounting guidance of Accounting Standards Codification Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”). This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The guidance also establishes a fair value hierarchy for measurements of fair value as follows:
● Level 1 - quoted market prices in active markets for identical assets or liabilities.
● Level 2 - inputs other than quoted market prices that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3 - unobservable inputs for which little or no market activity exists, therefore requiring an entity to develop its own assumptions.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
The Board of Directors (the “Board”) of the Company, in good faith, determines the fair value of investments in the following manner:
Portfolio investments are reported on the balance sheet at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:
Equity securities which are listed on a recognized stock exchange are valued at the closing trade price on the last trading day of the valuation period. For equity securities that carry a restriction inherent to the security, a restriction discount is applied, as appropriate. Investments in warrants are valued at fair value using the Black-Scholes option pricing model. Investments in securities which are convertible at a date in the future are valued assuming a full conversion into common shares and valued based on the methodology for equity securities described above. Investments in unlisted securities are valued using a market approach net of the appropriate discount for lack of marketability.
Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors.
Because there is not a readily available market value for some of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.
The following are the Company’s investments owned by levels within the fair value hierarchy at December 31, 2014:
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
The following are the Company’s investments owned by levels within the fair value hierarchy at December 31, 2013:
The following additional disclosures relate to the changes in fair value of the Company’s Level 3 investments as of December 31, 2014:
The following additional disclosures relate to the changes in fair value of the Company’s Level 3 investments as of December 31, 2013:
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
If the price multiple or sales multiple were to increase or decrease, the fair value of the investments would increase or decrease, respectively. If the DLOM or restriction discount were to increase or decrease, the fair value of the investments would decrease or increase, respectively.
Portfolio Company Investment Classification
The Company classifies its portfolio company investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Controlled Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to nominate greater than 50% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities. Under the 1940 Act, “Non-Controlled/Non-Affiliated Investments” are defined as investments that are neither Controlled Investments nor Affiliated Investments.
At December 31, 2014 and 2013, the Company did not have any Controlled or Affiliated investments.
Offering and Related Offering Costs
During the year ended December 2014, the Company issued 3,350,001 shares of common stock for gross proceeds of $840,000 through several private capital raises.
Offering costs include any costs associated with the offering of the Company’s shares.
During the year ended December 31, 2014, the Company incurred $33,140 in offering expenses to a third party placement agent (“Agent”) associated with capital raising activities with gross proceeds of $330,000. The offering costs were paid to the Agent based upon a 7% fixed amount and an additional amount up to 3% in a non-accountable expense allowance related to gross proceeds raised.
In addition to the above offering costs, the Agent was issued 6,126,240 shares of common stock as additional compensation for a maximum raise of $2,000,000. As of June 30, 2014, the agent raised $2,305,000 and was entitled to 6,126,240 shares which have a fair value (based on $0.20/share price of the private placement transactions) of $1,225,248 upon final closing. The fair value of these shares was recorded as a reduction of offering proceeds upon issuance of the shares in March 2014.
The Company incurred $198,050 and $0 in offering costs for the years ended December 31, 2013 and 2012, respectively.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
On July 16th, 2014, the Company entered into a consulting agreement with a consultant in exchange for services. These services include bringing to the Company’s attention opportunities which meet the Company’s objectives, introducing the Company to new or emerging potential investments, and assisting the Company as reasonably requested in exchange for 500,000 shares of the Company’s common stock and $6,000 per month for four months. The fair value of the common stock is $150,000 based upon the fair value of the Company’s most recent offering price ($0.30/share).
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 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.
Income Taxes
For 2014, The Company intends to elect to be treated for federal income tax purposes, and intends to qualify thereafter, as a RIC under Subchapter M of the Code. Generally, a RIC is exempt from federal income taxes if it distributes at least 90% of ‘‘Investment Company Taxable Income,’’ as defined in the Code, each year. Dividends paid up to one year after the current tax year can be carried back to the prior tax year for determining the dividends paid in such tax year. The Company intends to distribute sufficient dividends to maintain its RIC status each year. The Company is also subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income each calendar year, 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. The Company will generally endeavor each year to avoid any federal excise taxes.
The Company accounts for income taxes in accordance with accounting guidance FASB ASC Topic 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the applicable period. Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The 2011, 2012, 2013 and 2014 federal tax years for the Company remain subject to examination by tax authorities.
As of December 31, 2013, the Company had not recorded a liability for any unrecognized tax positions. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. The Company’s policy is to include interest and penalties related to income taxes, if applicable, in general and administrative expenses. There were no such expenses for the years ended December 31, 2014, 2013, and 2012.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial statements upon adoption.
In June 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2013-08, Financial Services-Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements ("ASU 2013-08"). ASU 2013-08 amends the criteria that define an investment company, clarifies the measurement guidance and requires certain additional disclosures. Public companies are required to apply ASU 2013-08 prospectively for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU 2013-08 did not have a material effect on our financial condition or results of operations.
3.Notes Payable
During February 2012, the Company executed notes payable for $15,000. The notes bear interest at 6%, default interest at 12% and are unsecured. The notes were amended in April 2012 to provide that all the notes are due and payable in February 2014. These notes were repaid in January 2014.
4.Redeemable Series A, Convertible Preferred Stock
In April 2013, the Company issued 4,000 shares of Series A, Convertible Preferred Stock (the “Preferred Stock”) for $400,000. Holders of Preferred Stock vote together with holders of Common Stock on an as-converted basis. Each share is currently convertible into 500 shares of common stock at the option of the holder (subject to a 9.99% beneficial ownership limitation) based on a conversion formula (the Stated Value, currently $100, divided by the Conversion Rate, currently $0.20.) The Conversion Rate may be adjusted upon the occurrence of stock dividends or stock splits or subsequent equity sales at a price lower than the current conversion rate. Each share has a $100 liquidation value. The holders of Preferred Stock are entitled to receive dividends on an as-converted basis if paid on Common Stock.
The Series A, Convertible Preferred Stock is redeemable at the option of the holder upon the occurrence of certain “triggering events.” In case of a triggering event, the holder has the right to redeem each share held for cash (currently $100/share) or impose a dividend rate on all of the outstanding Preferred Stock at 6% per annum thereafter. A triggering event occurs if the Company fails to deliver certificates representing conversion shares, fails to pay the amount due pursuant to a Buy-In, fails to have available a sufficient number of authorized shares, fails to observe any covenant in the Certificate of Designation unless cured within 30 calendar days, shall be party to a Change in Control Transaction, sustains a bankruptcy event, fails to list or quote its common stock for more than 20 trading days in a twelve month period, sustains any monetary judgment, writ or similar final process filed against the Company for more than $100,000 and such judgment writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days, or fails to comply with the Asset Coverage requirement. Because certain of these “triggering events” are outside the control of the company, the Preferred Stock is classified within the temporary equity section of the statement of assets and liabilities.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
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.
5.Income Taxes
As of December 31, 2014, the Company did not have a difference between book basis and tax basis cost of investments as of December 31, 2014. The aggregate gross unrealized appreciation and gross unrealized depreciation on a tax basis was $124,851 and $(279,664) at December 31, 2014, respectively.
For the year ended December 31, 2014, the reconciliation of net decrease in net assets resulting from operations to taxable loss is as follows:
During 2014, as a result of permanent book-to-tax differences, the Company decreased accumulated net investment loss and decreased additional paid-in capital by $188,825. Aggregate stockholders’ equity was not affected by this reclassification. There were no deferred tax assets or liabilities as of December 31, 2014. Tax information for the fiscal year ended December 31, 2014 is an estimate and will not be finally determined until the Company files its 2014 tax return.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
As of December 31, 2014, the components of accumulated gain and losses on a tax basis were as follows:
The Company had a net operating loss (“NOL”) carryforward of approximately $124,000 through December 31, 2013, expiring through 2033. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after a change in control (generally greater than a 50% change in ownership). An ownership change was triggered in June 2013, but there is no limitation on the NOL’s that have been incurred through that date. The Company intends to elect to be taxed as a Regulated Investment Company (“RIC”) for the year ended December 31, 2014. The NOL carryforwards cannot be used to offset income in years where the RIC election is in effect.
Deferred tax assets at December 31, 2013 and 2012 were approximately as follows:
The valuation allowance at December 31, 2013 was $22,000. The net change in valuation allowance during the period ended December 31, 2013, was a decrease of approximately $14,000.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty existed relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2013.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
The actual tax benefit differs from the expected tax benefit for the period ended December 31, 2013 (computed by applying the U.S. Federal Corporate tax rate of 34% to income before taxes and 5.94% for state income taxes, a blended rate of 39.94%) as follows:
6.Selected Quarterly Financial Data (Unaudited)
The following table sets forth certain quarterly financial information for each of the last five quarters ended December 31, 2014.
(1) Prior to the quarter ended December 31, 2013, the Company filed as a "smaller reporting company." Accordingly, Selected Quarterly Financial Data is presented starting wuth the quarter ended December 31, 2013.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
7.Financial Highlights
The following is a schedule of financial highlights for the year ended December 31, 2014 and 2013 (1):
1.Prior to 2013, the Company was not an investment company. Accordingly, financial highlights are presented for the years ended December 31, 2014 and 2013 only.
2.Issuance of common stock for the years ended December 31, 2014 and 2013 is based on the average increase in net asset value attributable to each share issued in the Company's offerings during such period.
3.The shares of the Company's common stock were listed in the OTC Market beginning January 5, 2012. There was no market price for the shares as of December 31, 2013.
4.Total return is based on change in net asset value during the period, adjusted for the impact of capital stock transactions and related offering costs. Since there was no market price for the year ended December 31, 2013 and the shares were not actively traded in 2014, total return based on stock price has not been presented for the years ended December 31, 2014 and 2013.
Point Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2014
8.Subsequent Events
On January 1, 2015, each independent director of the Company’s board was issued 112,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30. The directors entered into an agreement to issue each independent director of the board 112,500 options for the first quarter of 2015 and 37,500 on the first day of each quarter going forward at a strike price equal to the then fair market value.
On February 06, 2015, the Company purchased 39,000 shares of Actinium Pharmaceuticals Inc. (symbol: ATNM) common stock and 29,250 warrants for $175,500 in a public offering.
On February 06, 2015, the Company purchased 500,000 shares of YssUp Inc. (private company) common stock for $100,000.
On February 13, 2015, the Company made a $100,000 5% loan to Pulmatrix Inc. (private company).
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
As disclosed in the Current Report on Form 8-K filed by the Company on March 5, 2014, the Company retained EisnerAmper LLP as its principal independent accountants.
Item 9A.
Item 9A. 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 December 31, 2014. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were ineffective at such time to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls, which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, was inappropriate to allow timely decisions regarding required disclosure. Additionally, based on management’s assessment, the Company determined that there were material weaknesses in its internal control over financial reporting as of December 31, 2014.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rules 13a-15(f) and 15d-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP.
Our internal control over financial reporting includes those policies and procedures that:
1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and our dispositions of assets;
2. Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual financial statements, our management has conducted an assessment of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, we have concluded that, as of December 31, 2014, the matters involving internal controls and procedures that our management considered to be material weaknesses were: (1) inadequate segregation of duties consistent with control objectives and (2) ineffective controls over period end financial disclosure and reporting processes.
To preserve its assets and protect them from abuse, Section 17(f)(1) of the 1940 Act requires a business development company to place its assets in the custody of a bank meeting certain requirements, a member of the national securities exchange, or the business development company itself. On August 13, 2014, the Company executed a Custody Agreement with U.S. Bank National Association to hold our assets. The Custodian’s address is One Federal Street, Boston, MA 02110. Telephone number: 312-332-7323.
On July 30, 2014, the Company added two independent members to the Board of Directors and the Audit Committee, Joel Stone and Leonard Schiller. Richard Brand, our CEO, resigned from the Committee so as to have a fully independent Audit Committee. There have been no other changes in the Company's internal control over financial reporting during our fourth quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Pursuant to rules established by the SEC, this annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
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.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Set forth below are the names, ages and present principal occupations or employment, and material occupations, positions, offices or employments for the past five years of our current directors and executive officers.
Richard A. Brand, Chairman, CEO and Director, has been a consultant to the Whalehaven Group of Funds since October 2011. From June 2010 until October 2011, Mr. Brand was a registered representative with Andrews Securities where his responsibilities included acting as dealer manager for Keating Capital, Inc. (Nasdaq: KIPO), a business development company. From December 2009 through May 2010, Mr. Brand was a Council Member at Gerson Lehrman Group and Advisory Council Member at Global Capital Service Group, Ltd. From March 2007 until November 2009, Mr. Brand was a sector head and investment committee member at the Yorkville Advisor, an investment advisory firm. From October 2004 to February 2007, Mr. Brand worked at Prospect Capital, Inc. (Nasdaq: PSEC), a business development company, where he held various positions, culminating in head of originations. Mr. Brand holds a Masters of Business Administration from the University of Chicago and the Series 7 - General Securities Representative, and the Series 63 - Uniform Securities Agent State Law Examination securities registrations. He is a Member, Global Association of Risk Professionals.
Eric Weisblum, President, Chief Compliance Officer and Director, co-founded Whalehaven Capital in 2003. Mr. Weisblum is currently a Partner of Whalehaven Capital’s General Partner and Managing Member of JAWS Capital Partners, LLC. From 2002 to 2003, Mr. Weisblum was a registered representative with Domestic Securities, a New Jersey-based broker dealer. While with Domestic Securities, Mr. Weisblum held the Series 7 - General Securities Representative, the Series 63 - Uniform Securities Agent State Law Examination, and the Series 55 - Registered Equity Trader securities registrations. From 1993 to 2002, Mr. Weisblum originated, structured, traded, and placed structured financing transactions at M.H. Meyerson & Co. Inc., a publicly traded registered investment bank. Mr. Weisblum holds a Bachelor of Arts degree from the University of Hartford’s Barney Business School.
Vadim Mats, Chief Financial Officer, has been the Chief Financial Officer of Whalehaven Capital since June 2010 and Chief Financial Officer of JAWS Capital Partners, LLC since March 2011. From July 2007 to December 2009, Mr. Mats was an Assistant Controller at Eton Park Capital Management. From June 2007 to July 2007, Mr. Mats was Senior Fund Accountant of Bank of New York. Mr. Mats graduated cum laude from the Zicklin School of Business at Bernard Baruch College with a Bachelor’s degree in Business Administration, specializing in finance and investments and holds a Master of Science in accounting and finance from the Zicklin School of Business at Bernard Baruch College. Further, Mr. Mats is a CAIA Charter Holder. From January 2011, Mr. Mats has been a director of Wizard World, Inc. (symbol: WIZD), a publicly traded company.
Van E. Parker, Director, has been a board member and Executive Director of the Mediation Center of Charlottesville, Inc. since August 2013 and is a Virginia Supreme Court certified mediator. He previously served as interim Executive Director of the City of Milford’s Milford Arts Council. From June 2010 through August 2012 he was the development director and financial advisor to the Transportation Association of Greenwich, Inc. Mr. Parker was a Managing Director and later a Senior Advisor to Centre Capital Advisors, LLC, of Greenwich, CT, a registered broker-dealer, from 2007 through February 2013. In 2009 through 2010 Mr. Parker was an advisor to the chief executive officer of the Institute for Advanced Science and Engineering. Mr. Parker was a board member and chairman of the audit committee of Prospect Capital Corp. from its start in 2004 through 2008. Previously, he served as senior credit officer for Xerox Credit, Inc. Mr. Parker earned a Bachelor of Arts degree in political science at Colgate University and a MBA from the Graduate School of Business at Columbia University. He is a graduate of the Xerox Advanced Management School. Mr. Parker has received FINRA Series 62, 63 and 79 securities licenses.
Leonard Schiller, is President and Managing Partner of the Chicago law firm of Schiller Klein PC and has been associated with the firm since 1977. Mr. Schiller also has served as the President of The Dearborn Group, a residential property management and real estate company with properties located in the Midwest. Mr. Schiller has also been involved in the ownership of residential properties and commercial properties throughout the country. Mr. Schiller has acted as a principal in numerous private loan transactions and has been responsible for the structure, and management of these transactions. Mr. Schiller has also served as a member of the Board of Directors of IMALL, an internet search engine company, which was acquired by Excite@Home. He also served as a member of the Board of AccuMed International, Inc., a company which manufactured and marketed medical diagnostic screening products, which was acquired by Molecular Diagnostics, Inc. He presently serves as a director of Milestone Scientific, Inc., a Delaware company. He also serves as a director of Gravitas Cayman Corp. and a Limited Partner of Gravitas Capital Partners LLC, a private hedge fund.
Joel A. Stone, since 2005, has been a real estate investor. In addition, since early the early 1990’s, Mr. Stone has been a principal in the Hostmark Hospitality Group, an Illinois company and in 2011, co-founded The Fin Branding Company, a manufacturer of electronic cigarettes. Although he remained a principal with the VanKampen Group (including serving as Financial Principal for VanKampen Merritt, Inc. from 1980 to 1982, and president of its holding companies from 1980 to 1985) until its sale in 1985, in 1980 he created and served as President from 1980 to 1990 and Chief Executive Officer of VMS Realty Partners, a real estate syndicator and owner/operator entity controlling almost $10 billion of assets until it started liquidating its assets in 1990. It took Mr. Stone approximately 15 years to dispose of the last of VMS's assets. Prior thereto, in 1971 Mr. Stone co-founded a Certified Public Accounting firm at which he specialized in tax matters. Mr. Stone's early employment includes work as Internal Revenue agent, controller of a life insurance company, a senior tax accountant with a large public accounting firm and an attorney specializing in tax matters. Mr. Stone graduated DePaul University in 1966 with a Bachelor of Science in Commerce majoring in accountancy. In 1966, he became a Certified Public Accountant. In 1970, he earned a Juris Doctor degree from Depaul College of Law. Mr. Stone has been Chairman of the Board for the Jewish Federation of Metropolitan Chicago and a National Trustee of the Foundation Fighting Blindness.
There are no familial relationships among any of our officers or directors. None of our directors or officers, except for Vadim Mats and Leonard Schiller, is a director in any other reporting companies. None of our directors or officers has been affiliated with any company that has filed for bankruptcy within the last ten years. The Company is not aware of any proceedings to which any of the Company’s officers or directors, or any associate of any such officer or director, is a party adverse to the Company or has a material interest adverse to it.
There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations.
Each director of the Company serves for a term of one year or until the successor is elected at the Company's annual shareholders' meeting and is qualified, subject to removal by the Company's shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.
Audit Committee, Auditors, Financial Expert and Code of Ethics
The Board of Directors of the Company is required to establish an Audit Committee. Members of the Audit Committee must be independent members of the Company’s Board of Directors. When a BDC’s audit committee is comprised solely of independent Directors, the BDC is exempt from the requirement under Section 32(a) of the 1940 Act to have its independent public accountant submitted for ratification or rejection by shareholders so long as it has also adopted an audit committee charter, setting forth the committee’s structure, duties, powers and method of operation. The audit committee charter (and any modification thereto) must be maintained and preserved permanently in an easily accessible place.
The Board of Directors must determine whether the Audit Committee has at least one member who is a financial expert. In making this determination, the Board must consider whether the potential financial expert possesses five distinct attributes, which generally relate to that member’s experience with an understanding of financial statements, accounting policies and procedures, internal controls, and Audit Committee functions. The Board must also consider the manner in which the potential expert acquired these attributes. The expert should be an independent director and, other than in his or her capacity as a member of the Board of its Committees, must not accept, directly or indirectly, any consulting, advisory or other compensatory fee from the Company.
The Company considers Mr. Parker a financial expert and an independent director.
The Audit Committee of our Board has selected EisnerAmper LLP as the Company’s independent registered public accounting firm to audit the Company’s financial statements for the fiscal year ending December 31, 2014. The Audit Committee, in its discretion and subject to approval by our Board in accordance with the 1940 Act, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
We have adopted a Code of Business Ethics (the “Code”) that applies to all of our officers and directors. The Board reviews, approves and recommends any changes to the Code. It also reviews any violations of the Code. The Code is currently available on our website at www.pointcapital.com. If we make any substantive amendments to the Code or grant any waiver from a provision of the Code to any executive officer or director, we will promptly disclose the nature of the amendment.
Potential Conflicts of Interest
Since we do not have a compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our reporting directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Point Capital, Inc. with the Securities and Exchange Commission, or the Commission. Officers, directors and stockholders holding more than 10% of the class of stock are required to furnish us with copies of all Section 16(a) forms they file with the Commission.
To our knowledge, based solely on review of the copies of such reports, we believe that during the fiscal year ended December 31, 2014 all applicable Section 16(a) filing requirements were complied with by our executive officers and directors except that (i) Richard Brand failed to file a Form 3 reporting that he is an officer and director of the Company and a Form 4 reporting an acquisition of shares, (ii) Eric Weisblum failed to file a Form 3 reporting that he is an officer and director of the Company and a Form 4 reporting an acquisition of shares and (iii) Van E. Parker failed to file a Form 3 reporting that he is an officer and director of the Company.
Item 11.
Item 11. Executive Compensation.
The following table provides certain information regarding compensation awarded to, earned by or paid to persons serving as our principal executive officer and our principal financial officer during fiscal 2014, 2013 and 2013 (each a “named executive officer”). There were no highly compensated officers who had total compensation exceeding $100,000 for fiscal 2014, 2013 or 2012.
Summary Compensation Table
Since our incorporation on July 13, 2010 until his resignation on January 28, 2013, Melvin Schlossberg had been our Chairman, President, Chief Executive Officer, Secretary and a director. We had no formal employment or consulting agreement with Mr. Schlossberg. During the period from July 13, 2010 (inception) to December 31, 2010, Mr. Schlossberg was issued 20,000,000 shares of our common stock in consideration for his services as an officer to the Company, valued in the amount of $1,000,000.
Since July 20, 2010 until his resignation on January 28, 2013, Donald Ptalis had been our Chief Financial Officer and a director. We had no formal employment or consulting agreement with Mr. Ptalis. During the period from July 13, 2010 (inception) to December 31, 2010, Mr. Ptalis was issued 500,000 shares of our common stock in consideration for his services as an officer of the Company, valued in the amount of $25,000.
Since July 20, 2010 until January 28, 2013, Vadim Mats had been our Vice President of Business Development. On January 28, 2013 Mr. Mats was appointed Chief Financial Officer. We had no formal employment or consulting agreement with Mr. Mats. During the period from July 13, 2010 (inception) to December 31, 2010, Mr. Mats was issued 1,000,000 shares of our common stock in consideration for his services as an officer of the Company, valued in the amount of $50,000.
Since our incorporation on July 13, 2010, no stock options or stock appreciation rights were granted to any of our directors or executive officers, none of our directors or executive officers exercised any stock options or stock appreciation rights, and none of them hold unexercised stock options. We have no long-term incentive plans.
Outstanding Equity Awards
Since our incorporation on July 13, 2010, no stock options or stock appreciation rights were granted to any of our named officers, none of our named officers exercised any stock options or stock appreciation rights, and none of them hold unexercised stock options. We have no long-term incentive plans.
Compensation of Directors
During the period from July 13, 2010 (inception) to December 31, 2014, none of our directors received compensation for services rendered in their capacity as a director.
* On January 1, 2015, each independent director of the Company’s board was issued 112,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30. The directors entered into an agreement to issue each independent director of the board 112,500 options for the first quarter of 2015 and 37,500 on the first day of each quarter going forward at a strike price equal to the then fair market value.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of March 31, 2015, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 50,582,441 shares of our common stock issued and outstanding as of March 31, 2014. We do not have any outstanding options, warrants or other securities exercisable for or convertible into shares of our common stock. Unless otherwise indicated, the address of each person listed is c/o Point Capital, Inc., c/o Mr. Richard Brand, 285 Grand Avenue, Building 5, Englewood, NJ 07631
(1) Michael Finkelstein has voting and dispositive power as to the shares held by Whalehaven Capital Fund Limited.
(2) Konrad Ackerman has voting and dispositive power as to the shares held by Alpha Capital Anstalt. The address of Alpha Capital is Pradafut 7 Furstentums 1490 Vaduz Liechtenstein C4 99999.
(3) Does not include 2,000,000 shares of common stock based on the 4,000 shares of Series A Convertible Preferred Stock held by Alpha Capital, each share of which is convertible by the holder at any time into 500 shares of common stock. The Certificate of Designations of the Series A held by Alpha Capital Anstalt contain provisions prohibiting the holder from acquiring more than 4.99% beneficial ownership of the Company’s common stock upon conversion of the Series A Preferred Stock.
Item 13.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Our current office space is provided free of charge by our President.
On August 15, 2014, Eric Weisblum contributed 3,584,160 shares of the Company’s common stock to Whalehaven Capital Fund Limited.
On November 6, 2013, Whalehaven Capital Fund Limited, a Bermuda corporation (“Whalehaven”) purchased 7,902,453 shares of the Company’s common stock for a purchase price of $790.25
On June 20, 2013, Melvin Schlossberg sold the 12,097,547 shares of the Company’s common stock for a total purchase price of $120.97 to the following purchasers: Alpha Capital Anstalt, a Liechtenstein corporation (“Alpha”), purchased 1,560,057 shares for $15.60, Whalehaven, purchased 1,316,570 for $13.17, Chi Squared Capital, Inc. purchased 2,063,120 for $20.63, Richard A. Brand purchased 2,042,080 for $20.42, Eric Weisblum purchased 3,584,160 shares for $35.84, Barbara Mittman purchased 1,378,404 shares for $13.78, and David Lubin purchased 153,156 shares for $1.53.
On June 20, 2013, Eric Weisblum contributed 500,000 shares of the Company’s common stock to Sable Ridge Capital Opportunity Fund, L.P., a Delaware Limited Partnership.
On June 20, 2013, Eric Weisblum purchased 500,000 from Donald L. Ptalis for a purchase price of $1.
On June 20, 2013, Alpha purchased 1,500,000 shares of the Company’s common stock from DPIT1 LLC for a purchase price of $15,000.
On April 25, 2012 the Company executed amendments to 6% promissory notes with five lenders, each note identical and each note in the original principal amount of $3,000. The principal and accrued interest thereof are due and payable on February 25, 2014. Melvin Schlossberg, the former president, chief executive officer and director, is the father-in-law of one the lenders, Corie Weisblum. These notes were repaid in January 2014.
On February 10, 2012, Whalehaven purchased 1,500,000 shares of the Company’s common stock from Lifeline Industries Inc. for a purchase price of $15,000. On June 21, 2012, Corie Weisblum contributed 1,519,700 shares of the Company’s common stock to Whalehaven. On September 27, 2012, Efrat Finkelstein contributed 1,500,000 shares of the Company’s common stock to Whalehaven. On November 29, 2012, Vadim Mats contributed 1,000,000 shares of the Company’s common stock to Whalehaven.
On July 13, 2010, we issued 1,500,000 shares of our common stock to Mrs. Corie Weisblum. These shares were issued in exchange for $7,500. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mrs. Weisblum is founder of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
On July 13, 2010, we issued 1,500,000 shares of our common stock to Mrs. Efrat Finkelstein. These shares were issued in exchange for $7,500. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mrs. Finkelstein is founder of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
On July 13, 2010, we issued 1,500,000 shares of our common stock to Osher Capital Inc., a New York corporation, in which Mr. Arie Kluger is the controlling shareholder. These shares were issued in exchange for $7,500. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Kluger is a founder of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
On July 13, 2010, we issued 1,500,000 shares of our common stock to Lifeline Industries, Inc., a New York corporation in which Robb Knie is the sole officer and controlling shareholder. These shares were issued in exchange for $7,500. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Knie is a founder of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
On July 13, 2010, we issued 1,500,000 shares of our common stock to DPIT1 LLC, a Nevada limited liability company in which Samuel DelPresto is the sole officer and controlling person. These shares were issued in exchange for $7,500. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. DelPresto is a founder of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
On July 13, 2010, we issued 1,500,000 shares of our common stock to Momona Capital LLC, a New York limited liability company in which Arie Rabinowitz is the sole officer and controlling person. These shares were issued in exchange for $7,500. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Rabinowitz is a founder of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
On July 20, 2010, we issued 1,000,000 shares of our common stock to Vadim Mats. These shares were issued in exchange for services rendered as an officer of the Company, valued in the amount of $50,000. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Mats is an officer of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
On July 20, 2010, we issued 20,000,000 shares of our common stock to Melvin Schlossberg. These shares were issued in exchange for services rendered as an officer of the Company, valued in the amount of $1,000,000. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Schlossberg was an officer and director of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
On July 20, 2010, we issued 500,000 shares of our common stock to Donald Ptalis. These shares were issued in exchange for services rendered as an officer of the Company, valued in the amount of $25,000. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Ptalis was an officer and a director of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
Item 14.
Item 14. Principal Accounting Fees and Services
Our board of directors reviews and pre-approves audit and permissible non-audit services performed by our independent registered public accounting firm, EisnerAmper LLP (“EisnerAmper”) and our predecessor independent registered public accounting firm, Berman & Company, P.A. (“Berman”) as well as the fees for such services to ensure that the provision of such services is compatible with maintaining independence.
Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to our board of directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. Our board of directors may also pre-approve particular services on a case-by-case basis.
The following table shows the fees for services provided by EisnerAmper for the year ended December 31, 2014 and for services provided by EisnerAmper and Berman for the year ended December 31, 2013:
(1) Audit fees - these fees relate to the audit of our annual financial statements and the review of our interim quarterly financial statements.
(2) The 2014 audit Fees include the fees incurred for the reaudit of the year ended December 31, 2012, fees related to the 2014 audit, and fees related to the quarterly reviews of the nine months ended September 30, 2014. The 2014 and 2013 audits were performed by EisnerAmper LLP and the 2013 quarterly reviews were performed by Berman.
All services provided by and all fees paid to Berman were pre-approved by our board of directors. None of the services described above were approved pursuant to the exception provided in Rule 2-01(c)(7)(i)(C) of Regulation S-X promulgated by the SEC.
PART IV
Item 15.
Item 15. Exhibits
(1) Incorporated by reference to the corresponding exhibit filed with our Registration Statement on Form S-1 on March 30, 2011.
(2) Incorporated by reference to the corresponding exhibit filed with the Information Statement on Schedule 14C filed with the Securities and Exchange Commission on December 28, 2012.
(3) Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K dated April 24, 2013 as filed with the Securities and Exchange Commission on April 30, 2013.
(3) Incorporated by reference to the Current Report on Form 10-Q for the quarter ended March 31, 2012 as filed with the Securities and Exchange Commission on May 15, 2012
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Point Capital, Inc.
By: /s/ Richard A. Brand
Richard A. Brand
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Vadim Mats
Vadim Mats
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 31, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Richard A. Brand
Chairman, Chief Executive Officer, and Director
March 31, 2015
Richard A. Brand
(Principal Executive Officer)
/s/ Vadim Mats
Chief Financial Officer
March 31, 2015
Vadim Mats
(Principal Financial
and Accounting Officer)
/s/ Eric Weisblum
Director
March 31, 2015
Eric Weisblum
/s/ Van E. Parker
Director
March 31, 2015
Van E. Parker
/s/ Leonard Schiller
Director
March 31, 2015
Leonard Schiller
/s/ Joel A. Stone
Director
March 31, 2015
Joel A. Stone