Item
1. Financial Statements.
POINT
CAPITAL, INC.
CONDENSED
BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
177,346
|
|
|
$
|
336,679
|
|
Equity investments, at fair value (cost of $45,336 and $45,336 at March 31, 2019 and December 31, 2018, respectively)
|
|
|
264,021
|
|
|
|
215,528
|
|
Equity investments, at cost
|
|
|
12,766
|
|
|
|
12,766
|
|
Prepaid expenses and other current assets
|
|
|
40,308
|
|
|
|
34,031
|
|
Inventory
|
|
|
26,973
|
|
|
|
26,973
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
521,414
|
|
|
|
625,977
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Note receivable
|
|
|
200,000
|
|
|
|
200,000
|
|
Intangible asset
|
|
|
29,440
|
|
|
|
29,440
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
229,440
|
|
|
|
229,440
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
750,854
|
|
|
$
|
855,417
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
45,650
|
|
|
$
|
25,631
|
|
Insurance finance loan
|
|
|
12,535
|
|
|
|
22,344
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
58,185
|
|
|
|
47,975
|
|
|
|
|
|
|
|
|
|
|
Redeemable Series A, Convertible Preferred stock, $0.0001 par value, 1,000,000 shares shares designated; 4,000 shares issued and outstanding at March 31, 2019 and December 31, 2018 ($100 per share redemption value)
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 5,000,000 shares authorized
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 23,442,450 and 23,417,450 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
|
|
|
2,344
|
|
|
|
2,342
|
|
Additional paid-in capital
|
|
|
2,056,358
|
|
|
|
2,047,610
|
|
Accumulated deficit
|
|
|
(1,766,033
|
)
|
|
|
(1,642,510
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
292,669
|
|
|
|
407,442
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
750,854
|
|
|
$
|
855,417
|
|
See
accompanying unaudited notes to condensed financial statements.
POINT
CAPITAL, INC.
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
30,000
|
|
|
|
45,000
|
|
Professional fees
|
|
|
128,102
|
|
|
|
76,200
|
|
Insurance expense
|
|
|
8,174
|
|
|
|
8,798
|
|
Bad debt expense, net of recovery
|
|
|
(4,000
|
)
|
|
|
(5,000
|
)
|
General and administrative expenses
|
|
|
12,289
|
|
|
|
9,857
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
174,565
|
|
|
|
134,855
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(174,565
|
)
|
|
|
(134,855
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,003
|
|
|
|
8
|
|
Interest expense
|
|
|
(454
|
)
|
|
|
-
|
|
Net realized gain on equity investments (non-controlled/non-affiliated investments)
|
|
|
-
|
|
|
|
234,251
|
|
Net unrealized gain (loss) on equity investments (non-controlled/non-affiliated investments)
|
|
|
48,493
|
|
|
|
(81,855
|
)
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
51,042
|
|
|
|
152,404
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
$
|
(123,523
|
)
|
|
$
|
17,549
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,417,818
|
|
|
|
50,082,441
|
|
Diluted
|
|
|
23,417,818
|
|
|
|
52,082,441
|
|
See
accompanying unaudited notes to condensed financial statements.
POINT
CAPITAL, INC.
CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For
the Three Months Ended March 31, 2019 and 2018
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated Net
|
|
|
Accumulated Undistributed Net Realized
Gain (Loss)
|
|
|
Unrealized Appreciation (Depreciation)
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid In
|
|
|
Investment
|
|
|
On
|
|
|
on
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Investments
|
|
|
Investments
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
23,417,540
|
|
|
$
|
2,342
|
|
|
$
|
2,047,610
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,642,510
|
)
|
|
$
|
407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
25,000
|
|
|
|
2
|
|
|
|
8,748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(123,523
|
)
|
|
|
(123,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
23,442,540
|
|
|
$
|
2,344
|
|
|
$
|
2,056,358
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,766,033
|
)
|
|
$
|
292,669
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated Net
|
|
|
Accumulated Undistributed Net Realized
Gain (Loss)
|
|
|
Unrealized Appreciation (Depreciation)
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid In
|
|
|
Investment
|
|
|
On
|
|
|
on
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Investments
|
|
|
Investments
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
50,082,441
|
|
|
$
|
5,009
|
|
|
$
|
1,871,080
|
|
|
$
|
(470,388
|
)
|
|
$
|
(651,530
|
)
|
|
$
|
448,871
|
|
|
$
|
-
|
|
|
$
|
1,203,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in net assets resulting from operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(134,847
|
)
|
|
|
234,251
|
|
|
|
(81,855
|
)
|
|
|
-
|
|
|
|
17,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
|
50,082,441
|
|
|
$
|
5,009
|
|
|
$
|
1,871,080
|
|
|
$
|
(605,235
|
)
|
|
$
|
(417,279
|
)
|
|
$
|
367,016
|
|
|
$
|
-
|
|
|
$
|
1,220,591
|
|
See
accompanying unaudited notes to condensed financial statements.
POINT
CAPITAL, INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(123,523
|
)
|
|
$
|
17,549
|
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
8,750
|
|
|
|
-
|
|
Net realized gain on equity investments
|
|
|
-
|
|
|
|
(234,251
|
)
|
Net unrealized (gain) loss on equity investments
|
|
|
(48,493
|
)
|
|
|
81,855
|
|
Proceeds from sale of equity investments
|
|
|
-
|
|
|
|
297,225
|
|
Bad debt recovery
|
|
|
-
|
|
|
|
(5,000
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in prepaid expenses and other current assets
|
|
|
(6,277
|
)
|
|
|
299
|
|
Increase in accounts payable and accrued expenses
|
|
|
20,019
|
|
|
|
34,000
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
|
|
(149,524
|
)
|
|
|
191,677
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment of insurance finance loan
|
|
|
(9,809
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
(9,809
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS:
|
|
|
(159,333
|
)
|
|
|
191,677
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - beginning of period
|
|
|
336,679
|
|
|
|
294,591
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - end of period
|
|
$
|
177,346
|
|
|
$
|
486,268
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying unaudited notes to condensed financial statements.
POINT CAPITAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Unaudited)
NOTE
1 –
ORGANIZATION AND BUSINESS
Point
Capital, Inc. (the “Company”) was incorporated in the State of New York on July 13, 2010. On January 24, 2013, the
Company changed its state of incorporation from New York to Delaware. On September 29, 2018, the Company entered into an Asset
Purchase Agreement (“APA”) with Blind Faith Concepts Holdings, Inc. a Nevada corporation (the “Seller”)
whereby the Company completed the acquisition of 100% of the assets of “NFID” from the Seller. The Company plans
to develop NFID as an exclusive brand of apparel consisting initially of sweatshirts, hoodies, pants, t-shirts, and hats.
On
October 4, 2013, the Company filed a Form N-54A and elected to become a business development company (“BDC”) under
the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company previously elected to be
treated for federal income tax purpose as a regulated investment company, or (“RIC”), under Subchapter M of the Internal
Revenue Code of 1986, as amended, or (the “Code”). At March 31, 2017, the Company determined that it failed the RIC
diversification test since one of the Company’s investments accounted for approximately 78% of the Company’s total
assets. The Company did not cure its failure to retain its status as a RIC and the Company will not seek to obtain RIC status
again. Accordingly, the Company is subject to income taxes at corporate tax rates.
Through
September 29, 2018, the Company met the definition of an investment company in accordance with the guidance under Accounting Standards
Codification Topic 946 “
Financial Services – Investment Companies
”. On September 29, 2018, the Company
filed Form N-54C, Notification of Withdrawal of election to be Subject to Section 55 through 65 of the Investment Company Act
of 1940, whereas the Company has changed the nature of its business so as to cease to be a business development company (See Note
2 – Basis of Presentation). As a BDC, the Company’s investment activities were managed by Eric Weisblum, the Company’s
Chief Executive Officer.
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation and principles of consolidation
Effective
September 29, 2018, following authorization by its shareholders, the Company withdrew its previous election to be regulated as
a BDC under the Investment Company Act of 1940, as amended, or the 1940 Act. Prior to such time, the Company was a closed-end, non-diversified management
investment company that had elected to be treated as a BDC under the 1940 Act.
The
Company discontinued applying the guidance in FASB Accounting Standards Codification (ASC) Topic 946 - Financial Services –
Investment Company and shall account for the change in its status prospectively by accounting for its equity investments in accordance
with ASC Topics 320 - Investments—Debt and Equity Securities as of the date of the change in status. Additionally, the presentation
of the financial statements will be that of a commercial company rather than that of an investment company.
In
accordance with ASC 946, the Company is making this change to it financial reporting prospectively, and not restating periods
prior to the Company’s change in status to a non-investment company effective September 29, 2018. Accordingly, in this report,
the Company refers to both accounting in accordance with U.S. generally accepted accounting principles (GAAP) applicable to corporations
(Corporation Accounting), which applies commencing September 29, 2018 and to that applicable to investment companies under the
1940 Act (Investment Company Accounting) which applies to prior periods. However, pursuant to ASC 205 – Presentation of
Financial Statements, Section 205-10-50-1, “Changes Affecting Comparability”, certain amounts in the 2018 financial
statements have been reclassified to conform to the 2019 presentation. These reclassifications primarily effect the presentation
of revenues and expenses in the statements of operations. The schedules of investments are not presented for the three months
ended March 31, 2018. The Company determined that there is no cumulative effect of the change from Investment Company Accounting
to Corporation Accounting on periods prior to those presented and that there is no effect on the Company’s financial position
or results of operations as a result of this change.
In
order to maintain its status as a non-investment company, the Company will now operate so as to fall outside the definition of
an “investment company” or within an applicable exception. The Company expects to continue to operate outside the
definition of an “investment company” as a company primarily engaged in the business of developing and selling apparel
products.
All
adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of March
31, 2019, and the results of operations and cash flows for the periods ended March 31, 2019 and 2018 have been included. The results
of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full
year. The accounting policies and procedures employed in the preparation of these condensed consolidated financial statements
have been derived from the audited financial statements of the Company for the fiscal year ended December 31, 2018, which
are contained in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on
April 4, 2019.
POINT CAPITAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Unaudited)
Going
Concern
These
unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited
condensed financial statements, the Company had a net loss and cash used in operations of $123,523 and $149,524 for the three
months ended March 31, 2019, respectively. Additionally, the Company had an accumulated deficit of $1,766,033 at March 31,
2019 and has not generated any revenues under its new business plan. These factors raise substantial doubt about the Company’s
ability to continue as a going concern for a period of twelve months from the issuance date of this report. Management cannot
provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. The Company is seeking to raise capital through additional debt and/or equity financings to fund its
operations in the future. If the Company is unable to raise additional capital or secure additional lending in the near future
to fund its business plan, management expects that the Company will need to curtail its operations. These unaudited condensed
financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts
and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use
of Estimates
The
preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the 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 unaudited
condensed financial statements, which management considered in formulating its estimate could change in the near term due to one
or more future confirming events. Accordingly, the actual results could differ significantly from estimates. Significant estimates
during the three months ended March 31, 2019 include the collectability of notes receivable, the valuation of the Company’s
equity investments, amortization period and valuation of intangibles, the estimates for obsolete inventory, assumptions used in
assessing impairment of long-term assets, valuation allowances for deferred tax assets and the fair value of shares issued services.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents.
The Company places its cash with high credit quality financial institutions. The Company’s accounts at these institutions
are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 or by the Securities Investor Protection
Corporation (“SIPC”) up to $250,000. During 2019 and 2018, the Company had cash balances exceeding the FDIC and SIPC
insurance limit on interest bearing accounts. To reduce its risk associated with the failure of such financial institutions, the
Company evaluates at least annually the rating of the financial institutions in which it holds deposits. At March 31, 2019 and
December 31, 2018, the Company had approximately $0 and $86,700, respectively, of cash in excess of FDIC limits.
Notes
Receivable
The
Company recognizes an allowance for losses on notes receivable in an amount equal to the estimated probable losses net of recoveries.
The allowance is based on an analysis of historical bad debt experience, current note receivable aging, and expected future write-offs,
as well as an assessment of specific identifiable accounts considered at risk or uncollectible. The expense associated with the
allowance for doubtful accounts is recognized as general and administrative expense.
Inventory
Inventory,
consisting of finished goods, are stated at the lower of cost and net realizable value utilizing the first-in, first-out (FIFO)
method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed
expected net realizable value due to obsolescence or quantities in excess of expected demand, the Company will record reserves
for the difference between the cost and the net realizable value. These reserves shall be recorded based on estimates and included
in cost of sales.
POINT CAPITAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Unaudited)
Securities
Transactions
Securities
transactions are recorded on a trade date basis. Securities transactions outside conventional channels, such as private transactions,
are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a
sale, and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively. The Company records
interest and dividend income on an accrual basis to the extent that the Company expects to collect such amounts. Commissions and
other costs associated with transactions involving securities, including legal costs, are included in the cost basis of purchases
and deducted from the proceeds of sales.
Equity
Investments, at Cost
Equity
investments, at cost of $12,766 at March 31, 2019 and December 31, 2018, comprised mainly of non-marketable capital stock and
stock warrants, are recorded at cost, as adjusted for other than temporary impairment write-downs and are evaluated for impairment
periodically. Prior to September 29, 2018, equity investments, at cost were recorded at fair value, represented as cost, plus
or minus unrealized appreciation or depreciation. The fair value of equity investments, at cost that had no ready market were
determined in good faith by the Board of Directors, based upon the financial condition and operating performance of the underlying
investee companies as well as general market trends for businesses in the same industry.
Equity
Investments, at Fair Value
Through
September 29, 2018, on a quarterly basis, the Board of Directors of the Company (the “Board”), in good faith, determined
the fair value of equity investments, at fair value in the following manner:
Equity
securities which are listed on a recognized stock exchange are valued at the adjusted closing trade price on the last trading
day of the valuation period. For equity securities that carry a restriction inherent to the security, a restriction discount is
applied, as appropriate. Investments in warrants are valued at fair value using the Black-Scholes option pricing model. Investments
in securities which are convertible at a date in the future are valued assuming a full conversion into common shares and valued
based on the methodology for equity securities described above, or at the respective investment’s face value, whichever
is a better indicator of fair value. Investments in unlisted securities are valued using a market approach net of the appropriate
discount for lack of marketability.
Investments
without a readily determined market value were 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 valued certain of its
portfolio investments at fair value as determined in good faith by the Board, 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 differed significantly
from the values that would have been used had a readily available market existed for such investments and may differ materially
from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions
on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment
in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded
it.
Subsequent
to September 29, 2018, pursuant to ASC 320 – Investments – Debt and Equity Securities, the Company categorizes its
equity investments, fair value as an available for sale security since there is an active market in such equity investment. Available
for sale securities are carried at fair value with unrealized gains or losses included in income (expense). Realized gains
and losses are determined on a specific identification basis and are included in other income (expense). The Company reviews equity
investments for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts
may not be recovered.
POINT CAPITAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Unaudited)
Net
Realized Gain or Loss and Net Change in Unrealized Appreciation or Depreciation of Equity Investments, at Fair Value
Realized
gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company’s cost
basis and the net proceeds received from such disposition. Realized gains and losses on investment transactions are
determined by specific identification. Net change in unrealized appreciation or depreciation is computed as the difference between
the fair value of the investment and the cost basis of such investment, including any reversal of previously recorded unrealized
appreciation/depreciation when gains or losses are realized.
Revenue
Recognition
The
Company applies Accounting Standards Update (“ASU”) 2014-09 and ASC Topic 606,
Revenue from Contracts with Customers
(“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue
recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services and also requires certain additional disclosures. The Company adopted this standard using the modified retrospective
approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording
a cumulative-effect adjustment to retained earnings as of the date of adoption. The adoption of ASU 2014-09 did not have any impact
on the process for, timing of, and presentation and disclosure of revenue recognition from contracts and there was no cumulative
effect adjustment.
The
Company records interest and dividend income on an accrual basis to the extent that the Company expects to collect such amounts.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of ASC 718 –
“Compensation–Stock Compensation
”,
which requires recognition in the financial statements of the cost of employee and director services received in exchange for
an award of equity instruments over the period the employee or director is required to perform the services in exchange for the
award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received
in exchange for an award based on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing
model and uses the simplified method to determine expected term because of lack of sufficient exercise history.
The
Company adopted Accounting Standards Update No. 2016-09 (“ASU 2016-09
”), Improvements to Employee Share-Based Payment
Accounting
. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either
to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to
recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s financial
statements and related disclosures.
In
June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several
aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation
guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07
is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early
adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company
adopted ASU No. 2018-07 on January 1, 2019 and there was no cumulative effect of adoption.
Upon
exercise of the stock options by the holder using the exercise methods delineated in the option contract, the Company issues new
shares from its unissued authorized shares.
Income
Taxes
Deferred
income tax assets and liabilities arise from temporary differences between the financial statements and tax basis of assets and
liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred
tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities
to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
POINT CAPITAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Unaudited)
The
Company follows the provisions of FASB ASC 740-10, “Uncertainty in Income Taxes”. Certain recognition thresholds must
be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize
tax positions that meet a “more-likely-than-not” threshold.
The Company does not believe it has
any uncertain tax positions as of March 31, 2019 and December 31, 2018 that would require either recognition or disclosure in
the accompanying consolidated financial statements.
Net
(Loss) Income per Common Share
Basic
(loss) income per share is computed by dividing net (loss) income available to common shareholders by the weighted average number
of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income available
to common shareholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during the period using the as-if converted method. Potentially dilutive securities which included convertible
preferred shares are excluded from the computation of diluted shares outstanding if they would have an anti-dilutive impact on
the Company’s net losses. The following table presents a reconciliation of basic and diluted net (loss) income per share:
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
(Loss) Income per common share - basic:
|
|
|
|
|
|
|
Net (loss) income allocated to common stockholders
|
|
$
|
(123,523
|
)
|
|
$
|
17,549
|
|
Weighted average common shares outstanding - basic
|
|
|
23,417,818
|
|
|
|
50,082,441
|
|
Net (loss) income per common share - basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income per common share - diluted:
|
|
|
|
|
|
|
|
|
Net (loss) income allocated to common shareholders - diluted
|
|
$
|
(123,523
|
)
|
|
$
|
17,549
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
23,417,818
|
|
|
|
50,082,441
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
-
|
|
|
|
2,000,000
|
|
Weighted average common shares outstanding – diluted
|
|
|
23,417,818
|
|
|
|
52,082,441
|
|
Net (loss) income per common share - diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
The
following potentially dilutive shares have been excluded from the calculation of diluted net loss per share as their effect would
be anti-dilutive for the three months ended March 31, 2019 and 2018:
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Convertible preferred stock
|
|
|
2,000,000
|
|
|
|
-
|
|
New
Accounting Pronouncements
Accounting
standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated
to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE
3 –
FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The
Company uses the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as
follows:
Level
1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level
2- Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data.
Level
3- Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants
would use in pricing the asset or liability based on the best available information.
POINT CAPITAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Unaudited)
The
carrying amounts reported in the balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued
expenses, and insurance finance loan approximate their fair market value based on the short-term maturity of these instruments.
Equity
investments, at fair value
The
Company accounted for certain equity investments at fair value using level 1, level 2 and level 3 valuations. Assets and liabilities
measured at fair value on a recurring basis are as follows at March 31, 2019 and December 31, 2018:
|
|
At March 31, 2019
|
|
|
At December 31, 2018
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Equity investments, at fair value
|
|
$
|
264,021
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
215,528
|
|
|
|
—
|
|
|
|
—
|
|
ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value
option to any outstanding instruments.
At
March 31, 2019 and December 31, 2018, equity investments, at fair value consisted of common equity securities of one entity.
Equity
investments, at fair value are treated as available for sale securities and are carried at fair value with unrealized gains or
losses included in income (expense). Realized gains and losses are determined on a specific identification basis and are
included in other income (expense). The Company reviews equity investments, at fair value for impairment whenever circumstances
and situations change such that there is an indication that the carrying amounts may not be recovered.
The
following are the Company’s equity investments, at fair value owned by levels within the fair value hierarchy at March 31,
2019:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common Stock
|
|
$
|
264,021
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
264,021
|
|
Total Investments
|
|
$
|
264,021
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
264,021
|
|
The
following are the Company’s equity investments, at fair value owned by levels within the fair value hierarchy at December
31, 2018:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common Stock
|
|
$
|
215,528
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
215,528
|
|
Total Investments
|
|
$
|
215,528
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
215,528
|
|
At
March 31, 2019 and December 31, 2018, equity investments, at fair value consisted of the following components:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Equity investments, at original cost
|
|
$
|
45,336
|
|
|
$
|
45,336
|
|
Gross unrealized appreciation
|
|
|
218,685
|
|
|
|
170,192
|
|
Equity investments, at fair market value
|
|
$
|
264,021
|
|
|
$
|
215,528
|
|
Equity
investments, at cost
At
March 31, 2019 and December 31, 2018, equity investments, at cost of $12,766 and $12,766, respectively, comprised mainly of non-marketable
capital stock and stock warrants, are recorded at cost, as adjusted for other than temporary impairment write-downs and are evaluated
for impairment periodically.
NOTE
4 –
INVENTORY
At
March 31, 2019 and December 31, 2018, inventory consisted of leather footwear finished goods amounting to $26,973 and $26,973,
respectively.
POINT CAPITAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Unaudited)
NOTE
5 –
NOTES RECEIVABLE
On
September 28, 2018, the Company and the Seller executed a two year promissory note receivable agreement with a principal balance
of $200,000 of which $100,000 was funded to the Seller in September 2018 and the remaining $100,000 was funded in October 2018.
The terms of the promissory note include an interest rate of 6% and the Company shall be repaid in interest only payments on a
quarterly basis, until the maturity date of September 27, 2020, at which time the full principal and any interest payments will
be due to the Company. At the time the promissory note receivable agreement was executed, the Company also executed a Security
Interest and Pledge Agreement with the borrower. Pursuant to the Security Interest and Pledge Agreement, the borrower has pledged
all of the assets of its company as security for the performance of the note obligations.
On
November 2, 2018, the Company and Seller entered into a Promissory Note Agreement with a principal balance of $50,000. Pursuant
to the Promissory Note, the $50,000 note was a deposit and credit towards the acquisition of the assets of Lust for Life Group
such as inventory, trademarks and logos. Pursuant to this promissory note agreement, since the purchase did not close within 30
days from the note date, the note receivable became immediately due. Through the date of default, the outstanding principal balance
bore interest at an annual interest rate of 10% payable on a monthly basis. Upon default, the interest rate increased to 18% per
annum. As of December 31, 2018, the Company determined that this note receivable was doubtful and accordingly, recorded an allowance
for doubtful account and bad debt expense of $50,000.
At
March 31, 2019 and December 31, 2018, notes receivable, net consisted of the following:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Principal amounts of note receivable
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Less: allowance for doubtful accounts
|
|
|
(50,000
|
)
|
|
|
(50,000
|
)
|
Notes receivable, net
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
NOTE
6 –
INTANGIBLE ASSETS
At
March 31, 2019 and December 31, 2018, intangible assets consisted of the following:
|
|
Useful life
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Trademarks
|
|
N/A
|
|
$
|
29,440
|
|
|
$
|
29,440
|
|
NOTE
7 –
REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK
In
April 2013, pursuant to a Series A Preferred Stock Purchase Agreement (the “Preferred Stock Agreement”), the Company
issued 4,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”) for $400,000. Holders of Preferred
Stock vote together with holders of Common Stock on an as-converted basis. Each share of Preferred Stock 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 accompanying balance sheets.
POINT CAPITAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Unaudited)
Pursuant
to the Preferred Stock Agreement, the Company agreed that as long as the purchasers of its Series A Preferred Stock are holding
said shares, the Company would comply in all respects with its reporting and filing obligations under the Exchange Act. The Company
did not file its annual report for the year ended December 31, 2015 and its quarterly reports for the period ended March 31, 2016
and June 30, 2016, in a timely manner. The Company is currently not in breach of its agreement to remain current. The purchase
agreement does not provide for any immediate consequence or default provision such as a reduction in the conversion price of the
Series A Preferred, immediate redemption or the like.
The
Preferred Stock has forced conversion rights where the Company may force the conversion of the Preferred Stock if certain conditions
are met. The Company may elect to redeem some or all of the outstanding Preferred Stock for the Stated Value (currently $100/share)
provided that proper notice is provided to the holders and that a number of conditions (the “Equity Conditions”) have
been met.
The
Company believes the carrying amount reported in the balance sheets for the Preferred Stock of $400,000 approximates the fair
market value of such Preferred Stock based on the short-term maturity of these instruments which also equals the redemption value
reflected as on the balance sheets.
On
March 31, 2017, the Board approved the amendment and restatement of the original Certificate of Designation in order to expressly
ensure that holders of the Company’s Preferred Stock have the right to elect at least two directors at all times, have complete
priority over any other class as to distribution of assets and payments of dividends, and have equal voting rights with every
other outstanding voting stock. On May 11, 2017, the Company filed the amendment and restatement with the State of Delaware.
NOTE
8 –
STOCKHOLDERS’ EQUITY
Preferred
stock
The
Company has authorized the issuance of 5,000,000 shares of preferred stock, $0.0001 par value. The Company’s board of directors
is authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series,
and to determine the designations, preferences, limitations and relative or other rights of the Preferred Stock or any series
thereof. In April 2013, 1,000,000 shares were designated as Series A Convertible Preferred Stock (See Note 7).
Common
stock issued for services
On
January 22, 2019, the Company entered into a consulting agreement with a consultant in connection with the Company’s marketing
and branding of its NFID products. The agreement ends on December 31, 2019 and may be cancelled by either party at any time with
thirty day’s written notice. For services rendered the Company shall pay the consultant an initial payment of $25,000. Additionally,
beginning on April 1, 2019, the Company shall pay the consultant $5,000 per month through December 2019. Additionally, the Company
shall issue 100,000 shares of common stock of the Company to the consultant on a quarterly basis in tranches of 25,000 shares
per quarter, commencing on March 31, 2019, and continuing on to the last day of each subsequent quarter in the year 2019. These
shares were valued on the January 22, 2019 grant date at $35,000, or $0.35 per common share, based on recent common share sales
which shall be amortized over the vesting period. For the three months ended March 31, 2019, the Company recorded stock-based
professional fees of $8,750. On March 31, 2019, the Company issued the first tranche of 25,000 shares of its common stock to the
consultant.
NOTE
9 –
CONCENTRATIONS AND CREDIT RISKS
Financial
instruments that subjected the Company to concentrations of market risk consisted principally of equity investments, at fair value,
which collectively represented approximately 35.2% and 25.2% of the Company’s total assets at March 31, 2019 and December
31, 2018, respectively. These investments are valued in accordance with the Company’s fair value policies and procedures. At
March 31, 2019 and December 31, 2018, all of the fair value of the Company’s equity investments, at fair value is concentrated
in one entity in the biometric technology industry, which gives rise to a risk of significant loss should the performance or financial
condition of this industry or the portfolio company deteriorates.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As
used in this Form 10-Q, references to “Point Capital”, “Company”, “we”, “our”
or “us” refer to Point Capital, Inc. unless the context otherwise indicates.
Forward-Looking
Statements
The
following discussion should be read in conjunction with our condensed financial statements, which are included elsewhere in this
Form 10-Q (the “Report”). This Report contains forward-looking statements which relate to future events or our future
financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”,
“expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”,
“potential”, or “continue” or the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these forward-looking statements.
While
these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including
the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements
to actual results.
Overview
Through
September 28, 2018, we were a closed-end, non-diversified investment company that had 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 were required to comply with certain regulatory requirements. For instance, we generally had 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.
On
September 29, 2018, we entered into an Asset Purchase Agreement (“APA”) with Blind Faith Concepts Holdings, Inc. a
Nevada corporation (the “Seller”) whereby we completed the acquisition of 100% of the assets of “NFID”
from the Seller which consisted of three trademarks related to the NFID brand, the NFID website, shoe designs and samples, and
the assumption of a one-year Brand Ambassador Agreement in exchange for 2,000,000 shares of common capital stock of the Company.
NFID is a recently developed unisex footwear brand. We plan on continuing product development to fully launch the product. Our
acquisition of the NFID assets gives us access to the growing market for unisex products.
Pursuant
to the terms of the APA, the Company agreed to issue 2,000,000 shares of common capital stock of the Company in exchange for 100%
of the NFID assets. The shares were valued at $152,235, or $0.08 per share, the fair value of the Company’s common stock
based on the fair value of assets acquired. There was no goodwill recorded since the APA was accounting for as an asset purchase.
As
a result of the APA, the Company has elected to no longer be deemed a “Business Development Company” as defined by
the Investment Company Act of 1940, as amended from time to time (the “Act”). The withdrawal was generally approved
by the shareholders of the Company on April 11, 2017, as evidenced on the Definitive Information Statement pursuant to Section
14(c) of the Securities Exchange Act of 1934 filed on June 5, 2017. The Board, under authority granted by the shareholders, approved
the withdrawal on September 27, 2018. On September 28, 2018, we filed Form N-54C, officially withdrawing our election to be subject
to sections 55 through 65 of the Act, whereas we have changed the nature of our business so as to cease to be a business development
company. Accordingly, as of March 31, 2019 and December 31, 2018, the financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”).
We
discontinued applying the guidance in FASB Accounting Standards Codification (ASC) Topic 946 - Financial Services – Investment
Company and shall account for the change in our status prospectively by accounting for our equity investments in accordance with
ASC Topics 320 - Investments—Debt and Equity Securities as of the date of the change in status. Additionally, the presentation
of the financial statements will be that of a commercial company rather than that of an investment company.
In
accordance with ASC 946, we are making this change to our financial reporting prospectively, and not restating periods prior to
our change in status to a non-investment company effective September 29, 2018, Accordingly, in this report, we may refer to both
accounting in accordance with U.S. generally accepted accounting principles (GAAP) applicable to corporations (Corporation Accounting),
which applies commencing September 29, 2018 and to that applicable to investment companies under the 1940 Act (Investment Company
Accounting) which applies to prior periods. However, pursuant to ASC 205 – Presentation of Financial Statements, Section
205-10-50-1, “Changes Affecting Comparability”, certain amounts in the 2018 financial statements have been reclassified
to conform to the 2019 presentation. These reclassifications primarily effect the presentation of revenues and expenses in the
statements of operations. The schedules of investments are not presented for 2018. We determined that there is no cumulative effect
of the change from Investment Company Accounting to Corporation Accounting on periods prior to those presented and that there
is no effect on our financial position or results of operations as a result of this change.
In
order to maintain its status as a non-investment company, we will now operate so as to fall outside the definition of an “investment
company” or within an applicable exception. We expect to continue to operate outside the definition of an “investment
company” as a company primarily engaged in the business of developing and selling footwear and apparel products.
Currently,
we are not making any new equity investments.
We
plan to develop NFID as an exclusive brand of clothing consisting initially of sweatshirts, hoodies, pants, t-shirts, and hats.
Our clothing brand will feature non-binary work wear-inspired clothing for the revolutionarily-spirited person.
Going
concern
Our
condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements,
we had a net loss and cash used in operations of $123,523 and $149,524 for the three months ended March 31, 2019, respectively. Additionally,
we had an accumulated deficit of $1,766,033 at March 31, 2019 and have not generated any revenues under our new business plan.
These factors raise substantial doubt about our ability to continue as a going concern for a period of twelve months from the
issuance date of this report. Management cannot provide assurance that we will ultimately achieve profitable operations or become
cash flow positive, or raise additional debt and/or equity capital. We are seeking to raise capital through additional debt and/or
equity financings to fund our operations in the future. If we are unable to raise additional capital or secure additional lending
in the near future to fund our business plan, management expects that we will need to curtail our operations. Our condensed financial
statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification
of liabilities that might be necessary should we be unable to continue as a going concern.
Strategy
The
Company is developing the streetwear apparel brand, NFID, which stands for “No Found Identification.” The streetwear
collection is inspired by music, fashion and captures the social consciousness of popular culture. The brand unapologetically
celebrates the freedom of choice and expression. Generational political shifts have changed the way younger generations express
and interpret gender, particularly in youth subculture and countercultural movements. While today’s youth culture rebellion
is gender neutral, there is no single brand providing a uniform for the expression of that rebellion.
Branded
hooded sweatshirts, shirts, and hats will be the initial product launch while options for footwear are developed. The business model
is uses concepts of “Less is More” and utilizes social media and the “Have to Have” market. This is achieved
through limited quantities and styles released strategically to generate maximum trending on social media platforms.
Our
strategy involves developing the NFID brand through a direct to consumer (“DTC”) sales model, fed into by parallel
digital marketing strategies, including collaboration with established brands throughout industry categories as well as seeding
to celebrities/social media influencer sponsorships and viral product placement.
Parallel
to this strategy is a series of targeted influencer events rather than mass marketing. These events are individually planned intimate
cultural events in New York City which touch on niche themes such as political dissent, free speech, gender expression, cult film
screenings, and culinary pop-ups.
We
are developing plans to create a database of each customer of consumer information of a very loyal cult like following.
Combining
the right product with a branding message around unisex, the MeToo Movement, Times Up, and various current issues, the company
is investigating possible alignments with a notable charity organization to further leverage is recognition as a socially relevant
new brand
NFID
initial plan and launch is to sell its products using the DTC model while utilizing digital marketing campaigns selected influencers,
brand ambassadors, and social media.
NFID.com
is expected to launch its apparel in the second quarter this year and begin generating revenues.
Equity
Investments
At
March 31, 2019 and December 31, 2018, equity investments, at cost of $12,766 and $12,766, respectively, comprised mainly of nonmarketable
common stock and stock warrants, are recorded at cost, as adjusted for other than temporary impairment write-downs and are evaluated
for impairment periodically.
As
of March 31, 2019, the fair value of equity investments held by us and available for sale amounted to $264,021, which consisted
of one investment, Ipsidy Inc. (“IDTY”), with a fair value of $264,021, or 100% of the total investment portfolio accounted for at fair value.
IDTY
is an international biometrics and payment processing company with a unique technology platform that provides valuable, secure
payment processing for consumers as well as for merchants. At March 31, 2019, we owned 2,155,275 common shares of IDTY with a
fair value of $264,021. We plan on selling these shares and using the proceeds from the sale of IDTY for working capital purposes,
for NFID product development, or future acquisitions.
Results
of Operations
The
following table summarizes the results of operations for the three months ended March 31, 2019 and 2018 were based primarily on
the comparative audited financial statements, footnotes and related information for the periods identified and should be read
in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report.
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
Operating expenses
|
|
|
174,565
|
|
|
|
134,855
|
|
Loss from operations
|
|
$
|
(174,565
|
)
|
|
$
|
(134,855
|
)
|
Other (expense) income, net
|
|
|
51,042
|
|
|
|
152,404
|
|
Net (loss) income
|
|
|
(123,523
|
)
|
|
|
17,549
|
|
Revenues
We
did not generate any revenues from operations for the three months ended March 31, 2019 and 2018.
Operating
Expenses
For
the three months ended March 31, 2019 and 2018, total operating expenses consisted of the following:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Compensation expense
|
|
$
|
30,000
|
|
|
$
|
45,000
|
|
Professional fees
|
|
|
128,102
|
|
|
|
76,200
|
|
Insurance expense
|
|
|
8,174
|
|
|
|
8,798
|
|
Bad debt recovery
|
|
|
(4,000
|
)
|
|
|
(5,000
|
)
|
General and administrative expenses
|
|
|
12,289
|
|
|
|
9,857
|
|
Total operating expenses
|
|
$
|
174,565
|
|
|
$
|
134,855
|
|
For
the three months ended March, 2019 and 2018, we incurred compensation expense of $30,000 consisting of directors’ fees of
$15,000 and $15,000 in fees incurred for services of our chief executive officer (“CEO”). For the three months ended
March 31, 2019 and March, 2018, we incurred compensation expense of $0 and $15,000 incurred for our former chief financial officer,
respectively.
For
the three months ended March 31, 2019, professional fees increased by $51,902, or 68.1%, as compared to the three months ended
March 31, 2018. The increase was attributable to an increase in accounting fees of $15,345 related to outsourced accounting services,
an increase in consulting fee of $59,180, of which $8,750 was stock based compensation, related to marketing and advisory services
related to our new NFID clothing product line, offset by a decrease in auditing fee of $9,683 and a decrease in legal fees of
$12,940.
For
three months ended March 31, 2019, insurance expense decreased by $624, or 7.1%, as compared to the three months ended March 31,
2018.
For
three months ended March 31, 2019 and 2018, we recorded bad debt recovery from the receipt of proceeds of $4,000 and $5,000 from
the collection of a previously written off note receivable deemed uncollectible, respectively.
|
●
|
General
and administrative expenses
:
|
General
and administrative expenses consist of transfer agent fees, custodian fees, bank service charges, and other fees and expenses.
For the three months ended March 31, 2019, general and administrative expenses increased by $2,432, or 24.7%, as compared to the
three months ended March 31, 2018. The increase was primarily attributed to an increase in travel expenses and other expenses
related to our new business operations offset be a decrease in custody fees.
Loss
from Operations:
For
three months ended March 31, 2019 and 2018, loss from operations amounted to $174,565 and $134,855, respectively, an increase
of $39,710, or 29.4%. The increase was primarily a result of the changes in operating expenses discussed above.
Other
(Expenses) Income:
For
the three months ended March 31, 2019 and 2018, we earned interest income of $3,003 and $8, respectively, primarily resulting
from interest earned on notes receivable and on bank deposits. The increase was attributable to an increase in income-earning
notes receivable.
|
●
|
Net
realized gain on investments:
|
For
the three months ended March 31, 2018, we disposed of certain equity investments recognizing a net realized gain of $234,251.
We did not record any realized gains or losses during the three months ended March 31, 2019. For the three months ended March
31, 2018, net realized gain of equity investments was attributed to a gain of $266,981 from the sale of Ipsidy, Inc. offset by
a realized loss of $32,730 from the sale of our investment in Orbital Tracking Corp.
|
●
|
Net
change in unrealized loss on investments
:
|
At
March 31, 2019 and 2018, we had a cost basis in our equity investments, at fair value of $45,336 and $45,336, respectively,
with a fair market value of $264,021 and $215,528, respectively.
For
the three months ended March 31, 2019, we recognized a net unrealized gain on equity investments of $48,493 as compared to a net
unrealized loss on equity investments of $81,855 for the three months ended March 31, 2018, a change of $130,349, or 159.2%, primarily
attributable to our analysis of the fair value of our investment in Ipsidy, Inc. and other equity investments for which we recorded
an net unrealized gain of $48,493 and $168,202 for the three months ended March 31, 2019 and 2018, respectively. Additionally,
during the three months ended March 31, 2018, the change was attributable to the reversal of previously recorded unrealized gains
(losses) upon sales of Ipsidy and other equity investments for which we recorded a net unrealized loss on investments of ($250,057).
Net
(Loss) Income:
For
the three months ended March 31, 2019 and 2018, net (loss) income amounted to $(123,523) or $(0.01) per common share (basic and
diluted), and $17,549 or $0.00 per common share (basic and diluted), respectively, a change of $141,072, or 803.9%. The change
was primarily a result of the changes in operating expenses and other income (expenses) discussed above.
Liquidity
and Capital Resources
Liquidity
is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working
capital of $463,229 and $177,346 in cash and cash equivalents as of March 31, 2019 and working capital of $578,002 and $336,679
in cash and cash equivalents as of December 31, 2018.
|
|
|
|
|
|
|
|
Three Months Ended
March
31, 2019
|
|
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
Change
|
|
|
Percentage Change
|
|
Working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
521,414
|
|
|
$
|
625,977
|
|
|
$
|
(104,563
|
)
|
|
|
(16.7
|
)%
|
Total current liabilities
|
|
|
(58,185
|
)
|
|
|
(47,975
|
)
|
|
|
(10,210
|
)
|
|
|
(21.3
|
)%
|
Working capital:
|
|
$
|
463,229
|
|
|
$
|
578,002
|
|
|
$
|
(114,773
|
)
|
|
|
(19.9
|
)%
|
The
decrease in working capital was primarily attributable to a decrease in current assets of $104,563 primarily attributable to a
decrease in cash of $159,333 offset by an increase in equity investments, at fair value of $48,493 and by an increase in current
liabilities of $10,210.
Cash
Flows
A
summary of cash flow activities is summarized as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash (used in) provided by operating activities
|
|
$
|
(149,524
|
)
|
|
$
|
191,677
|
|
Cash used in financing activities
|
|
|
(9,809
|
)
|
|
|
—
|
|
Net (decrease) increase in cash
|
|
$
|
(159,333
|
)
|
|
$
|
191,677
|
|
Net
Cash Provided by (Used in) Operating Activities:
Net
cash flow provided by (used in) operating activities was $(149,524) for the three months ended March 31, 2019 as compared to $191,677
for the three months ended March 31, 2018, a change of $341,201.
|
●
|
Net
cash flow used in operating activities for the three months ended March 31, 2019 primarily reflected a net loss of $123,523
adjusted for the add-back on non-cash items such as stock-based compensation of $8,750 and net unrealized gain on equity investments
of $48,493, and changes in operating asset and liabilities consisting of an increase in prepaid expenses of $6,277 and an
increase in accounts payable and accrued expenses of $20,019.
|
|
|
|
|
●
|
Net
cash flow provided by operating activities for the three months ended March 31, 2018 primarily reflected net income of $17,549
adjusted for the add-back on non-cash items such as bad debt expense, net of recovery of $(5,000), net realized gain on equity
investments of $234,251, net unrealized loss on equity investments of $81,885 and changes in operating asset and liabilities
consisting of cash proceeds from sale of equity investments of $297,255, a decrease in prepaid expenses of $299 and an increase
in accounts payable and accrued expenses of $34,000.
|
Cash
Provided by Financing Activities
Net
cash used in financing activities was $9,809 for the three months ended March 31, 2019 as compared to $0 for the three months
ended March 31, 2018. During the three months ended March 31, 2019, we repaid $9,809 of an insurance finance loan.
Cash
Requirements
We
believe that our existing available cash will not be enough to enable us to meet the working capital requirements for at least
12 months from the date of this filing.
Our
primary uses of cash have been for salaries, fees paid to third parties for professional services, and general and administrative
expenses. The following trends are reasonably likely to result in changes in our liquidity over the near to long term:
|
●
|
An
increase in working capital requirements to finance our current business,
|
|
|
|
|
●
|
An
increase in product development and marketing fees related to recently acquired NFID product line;
|
|
|
|
|
●
|
Addition
of administrative and sales personnel as the business grows, and
|
|
|
|
|
●
|
The
cost of being a public company.
|
Since
we believe that our existing available cash will not enable us to meet our working capital requirements for at least 12 months
from the date of this report, we will need to raise additional funds to for the development and marketing of our recently acquitted
NFID product line. If we are unable to raise capital, we may be required to reduce the scope of our product development and marketing
activities, which could harm our business plans, financial condition and operating results, cease our operations entirely, in
which case, you will lose all of your investment.
Management
cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive or raise additional
debt and/or equity capital. We will seek to raise capital through additional debt and/or equity financings to fund operations,
for product development and for marketing in the future. If we are unable to raise capital or secure lending in the near future,
management expects that the Company may need to curtail its operations.
Until
such time as we generate substantial product revenue to offset operational expenses, we expect to finance our cash needs through
a combination of public and private equity offerings and debt financing. We may be unable to raise capital or enter into
such other arrangements when needed or on favorable terms or at all. Our failure to raise capital or enter into such other
arrangements as and when needed would have a negative impact on our financial condition. We have no agreements or arrangements
to raise capital.
We
currently have no material commitments 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”).
Effective
September 29, 2018, following authorization by our shareholders, we withdrew our previous election to be regulated as a BDC under
the Investment Company Act of 1940, as amended, or the 1940 Act. Prior to such time, we were a closed-end, non-diversified management
investment company that had elected to be treated as a BDC under the 1940 Act.
As
a result of this change in status, commencing September 29, 2018, we shall now report as a corporation for accounting purposes
under Regulation S-X.
As
a result of this change in status, we discontinued applying the guidance in FASB Accounting Standards Codification (ASC) Topic
946 - Financial Services – Investment Company and shall account for the change in our status prospectively by accounting
for our equity investments in accordance with ASC Topics 320 - Investments—Debt and Equity Securities as of the date of
the change in status. Additionally, the presentation of the financial statements will be that of a commercial company rather than
that of an investment company.
In
accordance with ASC 946, we are making this change to our financial reporting prospectively, and not restating periods prior to
our change in status to a non-investment company effective September 29, 2018, Accordingly, in this report, we may refer to both
accounting in accordance with U.S. generally accepted accounting principles (GAAP) applicable to corporations (Corporation Accounting),
which applies commencing September 29, 2018 and to that applicable to investment companies under the 1940 Act (Investment Company
Accounting) which applies to prior periods. However, pursuant to ASC 205 – Presentation of Financial Statements, Section
205-10-50-1, “Changes Affecting Comparability”, certain amounts in the 2018 financial statements have been reclassified
to conform to the 2019 presentation. These reclassifications primarily effect the presentation of revenues and expenses in the
statements of operations. The schedules of investments are not presented for 2018. We determined that there is no cumulative effect
of the change from Investment Company Accounting to Corporation Accounting on periods prior to those presented and that there
is no effect on our financial position or results of operations as a result of this change.
In
order to maintain its status as a non-investment company, the Company will now operate so as to fall outside the definition of
an “investment company” or within an applicable exception. The Company expects to continue to operate outside the
definition of an “investment company” as a company primarily engaged in the business of developing and selling apparel
products.
The
accounting policies and procedures employed in the preparation of these financial statements have been derived from the audited
financial statements of the Company for the fiscal year ended December 31, 2018, which are contained in the Company’s
Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on April 4, 2019.
Cash
and Cash Equivalents
We
consider all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to
be cash equivalents.
Inventory
Inventory,
consisting of finished goods, are stated at the lower of cost and net realizable value utilizing the first-in, first-out (FIFO)
method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed
expected net realizable value due to obsolescence or quantities in excess of expected demand, the Company will record reserves
for the difference between the cost and the net realizable value. These reserves shall be recorded based on estimates and included
in cost of sales.
Intangible
Assets
Intangible
assets are carried at cost less accumulated amortization, computed using the straight-line method over the estimated useful lives.
Intangible assets consist of a brand ambassador agreement which was being amortized over a period of one year and trademarks which
are recorded at cost and have an indefinite useful life and are not amortized.
Securities
Transactions
Securities
transactions are recorded on a trade date basis. Securities transactions outside conventional channels, such as private transactions,
are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a
sale and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively. We record interest
and dividend income on an accrual basis beginning on the trade settlement date (the date on which a financial transaction is settled
and monies from the transaction have occurred) or the ex-dividend date, respectively, to the extent that we expect to collect
such amounts. Commissions and other costs associated with transactions involving securities, including legal costs, are included
in the cost basis of purchases and deducted from the proceeds of sales.
Equity
Investments, at Fair Value
Through
September 29, 2018, on a quarterly basis, the Board of Directors of the Company (the “Board”), in good faith, determined
the fair value of equity investments, at fair value in the following manner:
Equity
securities which are listed on a recognized stock exchange are valued at the adjusted closing trade price on the last trading
day of the valuation period. For equity securities that carry a restriction inherent to the security, a restriction discount is
applied, as appropriate. Investments in warrants are valued at fair value using the Black-Scholes option pricing model. Investments
in securities which are convertible at a date in the future are valued assuming a full conversion into common shares and valued
based on the methodology for equity securities described above, or at the respective investment’s face value, whichever
is a better indicator of fair value. Investments in unlisted securities are valued using a market approach net of the appropriate
discount for lack of marketability.
Investments
without a readily determined market value were 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 valued certain of its
portfolio investments at fair value as determined in good faith by the Board, 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 differed significantly
from the values that would have been used had a readily available market existed for such investments and may differ materially
from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions
on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment
in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded
it.
Subsequent
to September 29, 2018, pursuant to ASC 320 – Investments – Debt and Equity Securities, the Company categorizes its
equity investments, fair value as an available for sale security since there is an active market in such equity investment. Available
for sale securities are carried at fair value with unrealized gains or losses included in income (expense). Realized gains
and losses are determined on a specific identification basis and are included in other income (expense). The Company reviews equity
investments for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts
may not be recovered.
Net
Realized Gain or Loss and Net Change in Unrealized Appreciation or Depreciation of Equity Investments, at Fair Value
Realized
gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company’s cost
basis and the net proceeds received from such disposition. Realized gains and losses on investment transactions are
determined by specific identification. Net change in unrealized appreciation or depreciation is computed as the difference between
the fair value of the investment and the cost basis of such investment, including any reversal of previously recorded unrealized
appreciation/depreciation when gains or losses are realized.
Fair
Value of Financial Instruments and Fair Value Measurements
The
Company uses the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as
follows:
Level
1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level
2- Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or
similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and
inputs derived from or corroborated by observable market data.
Level
3- Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market
participants would use in pricing the asset or liability based on the best available information.
The
carrying amounts reported in the balance sheets for cash, prepaid expenses and other current assets, and accounts payable and
accrued expenses approximate their fair market value based on the short-term maturity of these instruments.
Equity
investments, at fair value
The
Company accounted for certain equity investments at fair value using level 1, level 2 and level 3 valuations. Assets and liabilities
measured at fair value on a recurring basis are as follows at March 31, 2019 and December 31, 2018:
|
|
At March 31, 2019
|
|
|
At December 31, 2018
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Equity investments, at fair value
|
|
$
|
264,021
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
215,528
|
|
|
|
—
|
|
|
|
—
|
|
ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value
option to any outstanding instruments.
At
March 31, 2019 and December 31, 2018, equity investments, at fair value consisted of common equity securities of one entity.
Equity
investments, at fair value are treated as available for sale securities and are carried at fair value with unrealized gains or
losses included in income (expense). Realized gains and losses are determined on a specific identification basis and are
included in other income (expense). The Company reviews equity investments, at fair value for impairment whenever circumstances
and situations change such that there is an indication that the carrying amounts may not be recovered.
The
following are the Company’s equity investments, at fair value owned by levels within the fair value hierarchy at March 31,
2019:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common Stock
|
|
$
|
264,021
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
264,021
|
|
Total Investments
|
|
$
|
264,021
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
264,021
|
|
Through
September 29, 2018, on a quarterly basis, the Board of Directors (the “Board”) of the Company, in good faith, determined
the fair value of investments in the following manner:
Equity
securities which are listed on a recognized stock exchange are valued at the closing trade price on the last trading day of the
valuation period. For equity securities that carry a restriction inherent to the security, a restriction discount is applied,
as appropriate. Investments in warrants are valued at fair value using the Black-Scholes option pricing model based on inputs
such as stock volatility, risk-free interest rates, holding period and dividend yield. Investments in securities which are convertible
at a date in the future are valued assuming a full conversion into common shares and valued based on the methodology for equity
securities described above, or at the respective investment’s face value, whichever is a better indicator of fair value.
Investments in unlisted securities are valued using a market approach net of the appropriate discount for lack of marketability.
Investments
without a readily determined market value were primarily valued using a market approach, an income approach, or both approaches,
as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical
or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts
(for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated
by current market expectations about those future amounts. In following these approaches, the types of factors that we may take
into account in fair value pricing our investments include, as relevant: available current market data, including relevant and
applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection
provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make
payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial
ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors.
Because
there is not a readily available market value for some of the investments in its portfolio, we valued substantially all of our
portfolio investments at fair value as determined in good faith by our board of directors, as described herein. Due to the inherent
uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of
our investments may fluctuate from period to period. Additionally, the fair value of our investments differed significantly from
the values that would have been used had a readily available market existed for such investments and may differ materially from
the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on
resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in
a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.
Subsequent
to September 29, 2018, we categorize our investment in marketable equity instruments as a trading security since there is an active
market in such equity investment. Trading securities are carried at fair value with unrealized gains or losses included in income
(expense). Realized gains and losses are determined on a specific identification basis and are included in other income (expense).
We review equity investments for impairment whenever circumstances and situations change such that there is an indication that
the carrying amounts may not be recovered.
Revenue
Recognition
The
Company applies Accounting Standards Update (“ASU”) 2014-09 and ASC Topic 606,
Revenue from Contracts with Customers
(“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue
recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services and also requires certain additional disclosures. The Company adopted this standard using the modified retrospective
approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording
a cumulative-effect adjustment to retained earnings as of the date of adoption. The adoption of ASU 2014-09 did not have any impact
on the process for, timing of, and presentation and disclosure of revenue recognition from contracts and there was no cumulative
effect adjustment.
The
Company records interest and dividend income on an accrual basis to the extent that the Company expects to collect such amounts.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of ASC 718 –
“Compensation–Stock Compensation
”,
which requires recognition in the financial statements of the cost of employee and director services received in exchange for
an award of equity instruments over the period the employee or director is required to perform the services in exchange for the
award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received
in exchange for an award based on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing
model and uses the simplified method to determine expected term because of lack of sufficient exercise history.
The
Company adopted Accounting Standards Update No. 2016-09 (“ASU 2016-09
”), Improvements to Employee Share-Based Payment
Accounting
. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either
to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to
recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s financial
statements and related disclosures.
In
June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several
aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation
guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07
is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early
adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company
adopted ASU No. 2018-07 on January 1, 2019 and there was no cumulative effect of adoption.
Upon
exercise of the stock options by the holder using the exercise methods delineated in the option contract, the Company issues new
shares from its unissued authorized shares.