Silo Pharma, Inc. - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarter ended September 30, 2014

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

Commission File Number: 333-173163

POINT CAPITAL, INC.

(Exact name of small business issuer as specified in its charter)

285 Grand Avenue
Building 5
Englewood, New Jersey 07631

(Address of principal executive offices)

(201) 408-5126

(Issuer's telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit and post such files).    Yes ☐ No ☐

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

(Do not check if a smaller reporting company)

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

As of November 14, 2014, 50,582,441 shares of common stock, par value $0.0001 per share, were outstanding.

TABLE OF CONTENTS

CONTENTS

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

Point Capital, Inc.

Consolidated Statements of Assets and Liabilities

See accompanying notes to financial statements

Point Capital, Inc.

Consolidated Statements of Operations

(Unaudited)

(1) Not presented for 2014 as presentation of earnings per share is not required for investment companies.

See accompanying notes to financial statements

Point Capital, Inc.

Consolidated Statements of Changes in Net Assets

(Unaudited)

See accompanying notes to financial statements

Point Capital, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to financial statements

POINT CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2014

(Unaudited)

(1) Securities are exempt from registration under Rule 144A promulgated under the Securities Act.

(2) Securities are not income producing.

(3) Converted $112,000 in principal and interest into common shares.

(4) Security is subject to an 8 month (12.5%/month) bleed-out agreement. No more than 1,250 shares can be sold per month.

 POINT CAPITAL, INC.

SCHEDULE OF INVESTMENTS

As of December 31, 2013

(1) Securities are exempt from registration under Rule 144A promulgated under the Securities Act.

(2) Securities are not income producing.

*Certain prior year investment industry disclosures have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. In the quarter ended June 30, 2014, the Company concluded that it was appropriate to classify its investments in accordance with Global Industry Classification Standards ("GICS"). Accordingly, the Company has revised the investment classifications. Corresponding reclassifications have also been made to the reported investment industry classifications on the December 31, 2013 Schedule of Investments.  This change in classification does not materially affect previously reported financial statement information.

The following table shows the portfolio composition by industry grouping based on fair value at September 30, 2014 and December 31, 2013:

See accompanying notes to the financial statements

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Point Capital, Inc. (formerly known as Gold Swap 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.”

Effective January 28, 2013, in connection with the merger and name change of Gold Swap, Inc. (the "Company") described above, (i) Melvin Schlossberg resigned from his position as president, chief executive officer, secretary and a director of the Company, (ii) Donald Ptalis resigned from his position as chief financial officer and a director, and (iii) Vadim Mats resigned from his position as Vice President - Business Development. The Board of Directors of the Company (i) elected Richard A. Brand as Chairman, Chief Executive Officer and a director of the Company; (ii) Eric Weisblum was appointed President of the Company; (iii) Vadim Mats was appointed as Chief Financial Officer and (iv) Richard A. Brand, Eric Weisblum and Van E. Parker became directors of the Company.

The Company was formerly a development stage company. 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”), and no longer considers itself to be a development stage company.

The Company’s investment objective is to provide current income and capital appreciation. The Company intends to accomplish its objective by investing in the common stock, preferred stock, warrants and convertible notes of small and mid-cap companies. The Company’s investments are made principally through direct investments in prospective portfolio companies.  However, the Company may also purchase securities in private secondary transactions. The Company to a lesser extent will also invest in private companies that meet its investment objectives. The Company meets the definition of an investment company in accordance with the guidance under Accounting Standards Codification Topic 946 “Financial Services – Investment Companies.”

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, ("U.S. GAAP").  The Company formed a wholly-owned subsidiary, Hemp Funding, Inc., to invest in companies that are positioned for growth in the legal cannabis industry. The subsidiary has not made investments to date. The Company consolidates the subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents.

Securities Transactions

Securities transactions are recorded on a trade date basis. Securities transactions outside conventional channels, such as private transactions, are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale, and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively. The Company records interest and dividend income on an accrual basis beginning on the trade settlement date or the ex-dividend date, respectively, to the extent that the Company expects to collect such amounts. Commissions and other costs associated with transactions involving securities, including legal costs, are included in the cost basis of purchases and deducted from the proceeds of sales.

Realized Gain or Loss and Net Change in Unrealized Appreciation or Depreciation of Portfolio Investments

Realized gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company's cost basis and the net proceeds received from such disposition without regard to unrealized appreciation or depreciation previously recognized.  Realized gains and losses on investment transactions are determined by specific identification. Net change in unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment, including any reversal of previously recorded unrealized appreciation/depreciation when gains or losses are realized.

Valuation of Investments

The Company applies the accounting guidance of Accounting Standards Codification Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”). This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

The guidance also establishes a fair value hierarchy for measurements of fair value as follows:

● Level 1 - quoted market prices in active markets for identical assets or liabilities.

● Level 2 - inputs other than quoted market prices that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3 – unobservable inputs for which little or no market activity exists, therefore requiring an entity to develop its own assumptions.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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.

The following are the Company’s investments owned by levels within the fair value hierarchy at September 30, 2014:

The following are the Company’s investments owned by levels within the fair value hierarchy at December 31, 2013:

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The following additional disclosures relate to the changes in fair value of the Company’s Level 3 investments during the nine months ended September 30, 2014:

⁽¹⁾Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.

⁽²⁾ Transfers occurred due to the expiration of the restriction under Rule 144A of the Securities Act.

If the multiple, DLOM, or restriction discount were to increase or decrease, the fair value of the investments would decrease or increase, respectively.

Portfolio Company Investment Classification

The Company classifies its portfolio company investments in accordance with the requirements of the 1940 Act.  Under the 1940 Act, “Controlled Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to nominate greater than 50% of the board representation.  Under the 1940 Act, “Affiliated Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities.  Under the 1940 Act, “Non-Controlled/Non-Affiliated Investments” are defined as investments that are neither Controlled Investments nor Affiliated Investments.

At September 30, 2014 and December 31, 2013, the Company did not have any Controlled or Affiliated investments.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Offering and Related Offering Costs

During the nine months ended September 30, 2014, the Company issued 3,350,001 shares of common stock for gross proceeds of $840,000 through a private capital raise.

Offering costs include any costs associated with the offering of the Company’s shares. These costs are recorded as a reduction to additional paid-in capital.

During the nine months ended September 30, 2014, the Company incurred $33,140 in offering costs to a third party placement agent (“Agent”) associated with capital raising activities with gross proceeds of $330,000. The offering costs were paid to the Agent based upon a 7% fixed amount related to gross proceeds raised. The Agent is also entitled to receive an additional amount up to 3% in a non-accountable expense allowance.

In addition to the above offering costs, the Agent was issued 6,126,240 shares of common stock as additional compensation for a maximum raise of $2,000,000. As of June 30, 2014, the agent raised $2,305,000 and was entitled to 6,126,240 shares which have a fair value (based on $0.20/share price of the private placement transactions) of $1,225,248 upon final closing. The fair value of these shares was recorded as a reduction of offering proceeds upon issuance of the shares in March 2014.

The Company incurred $1,258,388 and $0 in offering costs for the nine months ended September 30, 2014 and 2013, respectively.

On July 16^th, 2014, the Company entered into a consulting agreement with a consultant in exchange for services. These services include bringing to the Company’s attention opportunities which meet the Company’s objectives, introducing the Company to new or emerging potential investments, and assisting the Company as reasonably requested in exchange for 500,000 shares of the Company’s common stock and $6,000 per month for four months. The fair value of the common stock is $150,000 based upon the fair value of the Company’s most recent offering price ($0.30/share).

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Income Taxes

The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC Topic 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.  Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the applicable period.  Although the Company files federal and state tax returns, its major tax jurisdiction is federal.  The 2010, 2011, 2012 and 2013 federal tax years for the Company remain subject to examination by tax authorities.

As of September 30, 2014 and December 31, 2013, the Company had not recorded a liability for any unrecognized tax positions.  Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.  The Company’s policy is to include interest and penalties related to income taxes, if applicable, in general and administrative expenses.  There were no such expenses for the nine months ended September 30, 2014 and 2013.

The Company intends to elect to be taxed as a Regulated Investment Company (“RIC”) for the year ending December 31, 2014.

Recent Accounting Pronouncements

In June 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2013-08, Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements ("ASU 2013-08"). ASU 2013-08 amends the criteria that define an investment company, clarifies the measurement guidance and requires certain additional disclosures. Public companies are required to apply ASU 2013-08 prospectively for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU 2013-08 did not have a material effect on our financial condition or results of operations.

During February 2012, the Company executed notes payable for $15,000. The notes bear interest at 6%, default interest at 12% and are unsecured. The notes were amended in April 2012 to provide that all the notes are due and payable in February 2014. These notes were repaid in January 2014.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

In April 2013, the Company issued 4,000 shares of Series A, Convertible Preferred Stock (the “Preferred Stock”) for $400,000. Holders of Preferred Stock vote together with holders of Common Stock on an as-converted basis. Each share is currently convertible into 500 shares of common stock at the option of the holder (subject to a 9.99% beneficial ownership limitation) based on a conversion formula (the Stated Value, currently $100, divided by the Conversion Rate, currently $0.20.) The Conversion Rate may be adjusted upon the occurrence of stock dividends or stock splits or subsequent equity sales at a price lower than the current conversion rate. Each share has a $100 liquidation value. The holders of Preferred Stock are entitled to receive dividends on an as-converted basis if paid on Common Stock.

The Series A, Convertible Preferred Stock is redeemable at the option of the holder upon the occurrence of certain “triggering events.” In case of a triggering event, the holder has the right to redeem each share held for cash (currently $100/share) or impose a dividend rate on all of the outstanding Preferred Stock at 6% per annum thereafter. A triggering event occurs if the Company fails to deliver certificates representing conversion shares, fails to pay the amount due pursuant to a Buy-In, fails to have available a sufficient number of authorized shares, fails to observe any covenant in the Certificate of Designation unless cured within 30 calendar days, shall be party to a Change in Control Transaction, sustains a bankruptcy event, fails to list or quote its common stock for more than 20 trading days in a twelve month period, sustains any monetary judgment, writ or similar final process filed against the Company for more than $100,000 and such judgment writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days, or fails to comply with the Asset Coverage requirement. Because certain of these “triggering events” are outside the control of the company, the Preferred Stock is classified within the temporary equity section of the statement of assets and liabilities.

The Preferred Stock has forced conversion rights where the Company may force the conversion of the Preferred Stock if certain conditions are met.

The Company may elect to redeem some or all of the outstanding Preferred Stock for the Stated Value (currently $100/share) provided that proper notice is provided to the holders and that a number of conditions (the “Equity Conditions”) have been met.

If any shares of Preferred Stock are outstanding and the Company is a Business Development Company, the Company shall have asset coverage of at least 200% as of the close of business on the last business day of a calendar quarter. If the Company fails to comply with this requirement and it is not cured on a timely basis, the Company shall, to the extent permitted by the 1940 Act and Delaware law, proceed to redeem a sufficient number of shares of Preferred Stock (at $100/share plus any unpaid dividends and distributions) to meet is asset coverage requirement.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The following is a schedule of financial highlights for the nine months ended September 30, 2014 (1):

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

On October 15, 2014, the Company purchased 25,000 shares of Clutterbug Move Management, Inc. (symbol: CTBM) common stock for $795.

On October 10, 2014, the Company invested $150,000 in 300,000 shares of Great West Resources, Inc. (symbol: GWST) convertible preferred stock. 200,000 shares of the convertible preferred stock is convertible into 2,000,000 shares of common stock and 100,000 of the convertible preferred stock is convertible into 500,000 shares of common stock.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this Form 10-Q, references to “Point Capital,” Company,” “we,” “our” or “us” refer to Point Capital, Inc. unless the context otherwise indicates.

Forward-Looking Statements

The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”). This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Overview

We are a closed-end, non-diversified investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”).  As a business development company, we are required to comply with certain regulatory requirements.  For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. 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”).  

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 September 30, 2014, we held eleven portfolio companies, Arista Power, Inc. (symbol: ASPW), Ruthigen, Inc. (symbol: RTGN), Be Active Holdings, Inc. (symbol: JALA), Intercloud Systems, Inc. (symbol: ICLD), CombiMatrix Corp. (symbol: CBMX), Cesca Therapeutics, Inc. (symbol: KOOL), Musclepharm Corp. (symbol: MSLP), PishPosh, Inc., Bacterin International Holdings, Inc. (symbol: BONE), Dejour Energy, Inc. (symbol: DEJ), and NXT-ID, Inc. (symbol: NXTD). All are non-controlled and non-affiliated investments.

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 currently hold 32,863 warrants.

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 in advance 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 5,000 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 $150,002 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 currently hold 4,068,421 shares of common stock.

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 three and nine months ended September 30, 2014, 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 three months ended September 30, 2014 and 2013, the cost basis in our portfolio companies was $938,928 and $0 with a fair market value of $775,850 and $0, respectively. The net change in unrealized depreciation for the three months ended September 30, 2014 and 2013 was ($293,023) and $0, respectively.

For the nine months ended September 30, 2014 and 2013, the cost basis in our portfolio companies was $938,928 and $0 with a fair market value of $775,850 and $0, respectively. The net change in unrealized depreciation for the nine months ended September 30, 2014 and 2013 was ($228,221) and $0, respectively.

Investment Income For the three months ended September 30, 2014 and 2013, we earned interest income from cash and cash equivalents of $10 and $0, respectively.  During the three months ended September 30, 2014, we also earned $4,500 of dividend income from our convertible debenture investment in Arista Power, Inc. We did not earn any investment income for the three months ended September 30, 2013.

For the nine months ended September 30, 2014 and 2013, we earned interest income from cash and cash equivalents of $18 and $0, respectively.  During the nine months ended September 30, 2014, we also earned $11,400 of interest from our convertible debenture investment in Intercloud Systems, Inc. During the nine months ended September 30, 2014, we also earned $4,500 of dividend income from our convertible debenture investment in Arista Power, Inc.  We did not earn any investment income for the nine months ended September 30, 2013.

Net Realized Gain In the three and nine months ended September 30, 2014 and 2013, we realized a net gain from the partial sales of our investments of $104,260 and $0, respectively.

Operating Expenses For the three months ended September 30, 2014 and 2013, total operating expenses were $151,048 and $5,744, respectively, which consisted mainly of consulting fees, professional accounting, legal, insurance, and Edgar fees related to SEC required filings. In the three months ended September 30, 2014, the Company paid $150,000 in consulting fees in the form of the Company’s common stock, of which $37,500 was a prepaid expense.

For the nine months ended September 30, 2014 and 2013, total operating expenses were $221,933 and $51,103, respectively, which consisted mainly of consulting, professional accounting, legal, insurance and Edgar fees related to SEC required filings.

Net Increase in Net Assets Resulting from Operations For the three months ended September 30, 2014, the net decrease in net assets resulting from operations was $335,301 primarily related to an increase in unrealized depreciation of our portfolio companies and increase in operating expenses. For the three months ended September 30, 2013, the net loss was $5,744.

For the nine months ended September 30, 2014, the net decrease in net assets resulting from operations was $329,976. For the nine months ended September 30, 2013, the net loss was $51,103.

Liquidity and Capital Resources

As of September 30, 2014, the Company had $2,003,891 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. In addition, the Company sold 4,000 shares of Series A Convertible Preferred Stock sold in April 2013 to Alpha Capital Anstalt for total gross proceeds of $400,000.

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 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 recent cash offering price of $0.20/share, which represented the best evidence of fair value.

We currently have no commitments with any person for any capital expenditures.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

During the normal course of its business, the Company trades various financial instruments and enters into various financial transactions where the risk of potential loss due to market risk, credit risk and other risks can equal or exceed the related amounts recorded. The success of any investment activity, 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 4. Controls and Procedures.

Under the supervision and with the participation of our management, who is also our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of March 31, 2014. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were ineffective at such time to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls, which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, was inappropriate to allow timely decisions regarding required disclosure. Additionally, based on management’s assessment, the Company determined that there were material weaknesses in its internal control over financial reporting as of March 31, 2014 as discussed in Item 9A. Controls and Procedures in our most recent 10-K filing (filed on March 31^st, 2014).

On August 13, 2014, the Company executed a Custody Agreement with U.S. Bank National Association to hold our assets. The Custodian’s address is One Federal Street, Boston, MA 02110. Telephone number: 312-332-7323.

On July 30, 2014, the Company added two independent members to the Board of Directors and the Audit Committee, Joel Stone and Leonard Schiller. Richard Brand, our CEO, resigned from the Committee so as to have a fully independent Audit Committee. There have been no other changes in the Company's internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

There are no pending legal proceedings to which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficially of more than 5% of any class of voting securities of our company, or security holder is a party adverse to us or has a material interest adverse to us. Our property is not the subject of any pending legal proceedings.

Item 1A.   Risk Factors

There have been no material changes to our risk factors as previously disclosed in our most recent 10-K filing. 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

On September 2, 2014, the Company issued 250,000 shares of the Company’s common stock to various purchasers for $75,000 ($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 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 of $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). The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

Purchases of equity securities by the issuer and affiliated purchasers

None.

Use of Proceeds

The company intends to use the proceeds from the sale of unregistered securities to make additional investments in portfolio companies.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None

Item 6. Exhibits

*Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 14, 2014 

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