Silo Pharma, Inc. - Annual Report: 2014 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☐      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014 or

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

For the transition period from [   ] to [   ]

Commission file number 333-173163

Registrant's telephone number, including area code (201) 408-5126

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Shares, $0.0001 value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

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

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

The aggregate market value of the registrant’s common stock held by non-affiliates based upon the closing price of $2.50 per share of common stock as of June 30, 2014 was $60,893,550.

As of March 31, 2015, there were 50,582,441 shares of common stock, par value $0.0001 per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements that involve risks and uncertainties. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Forward-looking statements are only predictions based on our current expectations and projections, or those of third parties, about future events and involve risks and uncertainties. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law. All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements included in this Annual Report.

PART I

Unless the context provides otherwise, when we refer to the “Company,” “we,” “our,” or “us” in this Form 10-K, we are referring to Point Capital, Inc. (formerly known as Gold Swap Inc.)

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.       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:

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.

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.       Unresolved Staff Comments

Not Applicable.

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.         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.         Mine Safety Disclosures

Not applicable.

PART II

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.          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.          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:

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:

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.      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.          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

See accompanying notes to financial statements

*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

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.”

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