Silo Pharma, Inc. - Quarter Report: 2015 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarter ended March 31, 2015

o           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 x     No o 

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 o    No o 

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 May 15, 2015, 50,582,441 shares of common stock, par value $0.0001 per share, were outstanding.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1.          Financial Statements.

CONTENTS

See accompanying notes to financial statements.

See accompanying notes to financial statements.

See accompanying notes to financial statements.

See accompanying notes to financial statements.

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

(2) Securities are not income producing.

(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.

The following table shows the portfolio composition by industry grouping based on fair value at March 31, 2015 and December 31, 2014:

See accompanying notes to the financial statements

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Point Capital, Inc. (the “Company”), was incorporated in the State of New York on July 13, 2010.

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 meets the definition of an investment company in accordance with the guidance under 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.

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.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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.

On a quarterly basis, The Board of Directors (the “Board”) of the Company, in good faith, determines the fair value of investments in the following manner:

Equity securities which are listed on a recognized stock exchange are valued at the closing trade price on the last trading day of the valuation period. For equity securities that carry a restriction inherent to the security, a restriction discount is applied, as appropriate. Investments in warrants are valued at fair value using the Black-Scholes option pricing model. Investments in securities which are convertible at a date in the future are valued assuming a full conversion into common shares and valued based on the methodology for equity securities described above.  Investments in unlisted securities are valued using a market approach net of the appropriate discount for lack of marketability.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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 March 31, 2015:

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

(unaudited)

The following additional disclosures relate to the changes in fair value of the Company’s Level 3 investments during the three months ended March 31, 2015:

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

The following additional disclosures relate to the changes in fair value of the Company’s Level 3 investments as of March 31, 2014:

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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

Portfolio Company Investment Classification

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

At March 31, 2015 and December 31, 2014, the Company did not have any Controlled or Affiliated investments.

Offering and Related Offering Costs

During the three months ended March 31, 2014, the Company issued 1,650,000 shares of common stock for gross proceeds of $330,000 through a private capital raise.

Offering costs include any costs associated with the offering of the Company’s shares.

During the three months ended March 31, 2014, the Company incurred $33,140 in offering expenses to a third party placement agent (“Agent”) associated with capital raising activities with gross proceeds of $330,000. The offering costs were paid to the Agent based upon a 7% fixed amount 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 March 31, 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.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The Company incurred $1,258,388 in offering expenses for the three months ended March 31, 2014.

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.

Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s) to value share options and similar instruments.

Stock-Based Compensation for Obtaining Employee Services

The Company records compensation expense associated with stock options and other forms of equity compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of FASB ASC Topic 718, stock based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model.

In January 2015, the Company created an Option Agreement in an effort to provide incentive to its independent directors. Under the provisions of the Option Agreement, if the Company’s common shares are traded in one of the national exchanges, the grant-date share price of the Company’s common stock will be used to measure the fair market value of the common shares issued. However, if the Company’s common shares are thinly traded, the use of share prices established in its most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The Company estimates the fair value of share options and similar instruments on the date of grant using a Black-Scholes option-pricing valuation model.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The compensation cost for an award of share-based employee compensation is classified as equity recognized over the requisite service period, with a corresponding credit to equity (generally, paid-in capital).

The Company made a policy decision to recognize compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Income Taxes

For 2014, the Company intends to elect to be treated for federal income tax purposes, and intends to qualify thereafter, as a RIC under Subchapter M of the Code. Generally, a RIC is exempt from federal income taxes if it distributes at least 90% of ‘‘Investment Company Taxable Income,’’ as defined in the Code, each year. Dividends paid up to one year after the current tax year can be carried back to the prior tax year for determining the dividends paid in such tax year. The Company intends to distribute sufficient dividends to maintain its RIC status each year. The Company is also subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income each calendar year, 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. The Company will generally endeavor each year to avoid any federal excise taxes.

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

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

As of March 31, 2015 and December 31, 2014, 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.  

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.

On January 1, 2015, each independent director of the Company’s board was issued 112,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30. The directors entered into an agreement to issue each independent director of the board 112,500 options for the first quarter of 2015 and 37,500 on the first day of each quarter going forward at a strike price equal to the then fair market value. Each option issuance vests over a 3-month period. As of March 31, 2015 there are 337,500 options exercisable.

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

As of March 31, 2015, there was no unvested stock-based compensation expense to recognize. Total share-based compensation expense recognized was $37,650 for the three months ended March 31, 2015. The aggregate intrinsic value at March 31, 2015 was $0 and was calculated based on the difference between the Company’s share price established in its most recent PPM and the exercise price of the underlying options.

To calculate the option-based compensation, the Company used the Black-Scholes option-pricing model. The Company’s determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, risk-free interest rate, and the expected life of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The expected volatility, holding period, and forfeitures of options are based on historical experience. To determine the fair value of the stock options, the Company utilized a 1.61% risk-free rate and 40% volatility.

The following is a schedule of financial highlights for the three months ended March 31, 2015 and 2014:

Point Capital, Inc.

Notes to Consolidated Financial Statements

(unaudited)

On April 10, 2015, the Company closed on a $100,000 investment in Pershing Gold Corp. (symbol: PGLC) common stock and warrants.

On April 3, 2015, the Company closed on a $100,000 investment in MabVax Therapeutics Holdings Inc. (symbol: MBVX) common stock and warrants.

On April 2, 2015, the Company purchased 1,500,000 shares of DatChat Inc. (private company) common stock for $150.

On April 1, 2015, each independent director of the Company’s board was issued 37,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30.

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 the 2015 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 March 31, 2015, we held sixteen portfolio companies of which two were investments made in advance. All are non-controlled and non-affiliated investments.

Pershing Gold Corp. (PGLC) On March 31, 2015, we made an investment in advance of $100,000 in 307,692 shares of common stock and 307,692 warrants. The effective date of the investment is April 10, 2015. Each warrant is exercisable into 0.4 shares of common stock at an exercise price of $0.44. Pershing Gold Corp., an OTC BB listed company, operates as a gold exploration company. The company seeks out and develops significant gold exploration and development properties in the state of Nevada.

MabVax Therapeutics Holdings Inc. (MBVX) On March 31, 2015, we made an investment in advance of $100,000 in 133,333 shares of common stock and 66,667 warrants. The effective date of the investment is April 6, 2015. Each warrant is exercisable at $1.50. MabVax Therapeutics Holdings Inc., an OTC BB listed company, is a biopharmaceutical company that discovers, develops, and commercializes small molecule drugs to treat serious diseases. The Company's most advanced product development programs are for the treatment of cancer and diabetes.

Pulmatrix Inc. On February 13, 2015, we completed a $100,000 investment in 5% Convertible Preferred Stock. Pulmatrix Inc. is a private company that develops biopharmaceutical products. The company produces inhaled cationic airway lining modulators for the treatment of influenza, rhinovirus, and chronic pulmonary diseases. Pulmatrix serves patients throughout the United States.

DatChat Inc. On February 6, 2015, we completed a $100,000 investment in 500,000 shares of common stock. DatChat Inc. is a private company that develops mobile messaging applications as well as other intellectual property.

Actinium Pharmaceuticals Inc. (ATNM) On February 6, 2015, we completed a $175,500 investment in 39,000 shares of common stock 29,250 warrants. Actinium Pharmaceuticals Inc., a NYSE listed company, operates as a biopharmaceutical company. The company develops alpha particle immunotherapeutic and other radiopharmaceuticals for select applications. The warrants are exercisable at $6.50. In addition, we purchased 4,000 shares of common stock for $14,600.

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. On March 26, 2015, $100,000 of principle and $4,433 of interest converted into 64.10 shares of Series B Convertible Preferred Stock.

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. is an OTC BB listed 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.

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. We currently hold 11,513 warrants.

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.

Cesca Therapeutics, Inc. On June 13, 2014, we completed an $82,500 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 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.

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.

Results of Operations

For the three months ended March 31, 2015, 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 March 31, 2015 and 2014, the cost basis in our portfolio companies was $1,326,932 and $481,023 with a fair market value of $1,358,156 and $1,012,311, respectively. The net change in unrealized appreciation for the three months ended March 31, 2015 and 2014 was $186,037 and $466,145, respectively.

Investment Income For the three months ended March 31, 2015 and 2014, we earned interest income from cash and cash equivalents of $17 and $3, respectively. During the three months ended March 31, 2015 and 2014, we also earned $5,389 and $3,000 of interest from our convertible debenture investments, respectively. In addition, during the three months ended March 31, 2015 and 2014, we also earned $2,250 and $0 of dividend income, respectively, from our convertible debenture investment in Arista Power, Inc.

Net Realized Gain For the three ended March 31, 2015 and 2014, we realized a net loss from the partial sales of our investments of $95,945 and $0, respectively.

Operating Expenses For the three months ended March 31, 2015 and 2014, total operating expenses were $69,295 and $33,520, respectively, which consisted mainly of professional accounting, Edgar fees related to SEC required filings, and the issuance of stock options.

Net Increase in Net Assets Resulting from Operations For the three months ended March 31, 2015 and 2014, the net increase in net assets resulting from operations was $28,453 and 435,628, respectively, primarily related to an increase in unrealized appreciation of portfolio companies.

Liquidity and Capital Resources

As of March 31, 2015, the Company had $1,263,449 in cash and cash equivalents, compared to $1,739,520 as of December 31, 2014, primarily generated from the sale of certain portfolio companies.

The Company believes that our existing available cash will enable the Company to meet the working capital requirements for at least 12 months.

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

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Stock-Based Compensation for Obtaining Employee Services

On January 1, 2015, each independent director of the Company’s board was issued 112,500 five year non-qualified options to purchase shares of the Company’s common stock at $0.30. The directors entered into an agreement to issue each independent director of the board 112,500 options for the first quarter of 2015 and 37,500 on the first day of each quarter going forward at a strike price equal to the then fair market value. Each option issuance vests over a 3-month period. As of March 31, 2015 there are 337,500 options exercisable.

As of March 31, 2015, there was no unvested stock-based compensation expense to recognize. Total share-based compensation expense recognized was $37,650 for the three months ended March 31, 2015. The aggregate intrinsic value at March 31, 2015 was $0 and was calculated based on the difference between the Company’s share price established in its most recent PPM and the exercise price of the underlying options.

To calculate the option-based compensation, the Company used the Black-Scholes option-pricing model. The Company’s determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, risk-free interest rate, and the expected life of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The expected volatility, holding period, and forfeitures of options are based on historical experience. To determine the fair value of the stock options, the Company utilized a 1.61% risk-free rate and 40% volatility.

Item 3.          Quantitative and Qualitative Disclosures about Market Risk.

During the normal course of its business, the Company trades various financial instruments and enters into various financial transactions where the risk of potential loss due to market risk, credit risk and other risks can equal or exceed the related amounts recorded. The success of any investment activity is influenced by general economic conditions that may affect the level and volatility of equity prices, interest rates and the extent and timing of investor participation in the markets for both equity and interest rate sensitive investments. Unexpected volatility or illiquidity in the markets in which the Company directly or indirectly holds positions could impair its ability to carry out its business and could cause losses to be incurred.

Market risk represents the potential loss that can be caused by increases or decreases in the fair value of investments resulting from market fluctuations.

Credit risk represents the potential loss that would occur if counterparties fail to perform pursuant to the terms of their obligations. In addition to its investments, the Company is subject to credit risk to the extent a custodian or broker with whom it conducts business is unable to fulfill contractual obligations.

Item 4.          Controls and Procedures.

Under the supervision and with the participation of our management, our principal executive officer and principal financial officer included, 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, 2015. 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, 2015 as discussed in Item 9A. Controls and Procedures in our most recent 10-K filing (filed on March 31^st, 2015).

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 January 1, 2015, the Board granted each of the three non-employee members of the Board non-qualified stock option to purchase up to one hundred and twelve thousand five hundred (112,500) shares of the Company’s common stock, which shall be at an exercise price per share equal to the fair market value of the Company’s common stock on the date of grant expiring five years from the date of issuance. Such option shall vest in equal amounts over a period of three months at the rate of thirty seven thousand five hundred (37,500) shares per month. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

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: May 15, 2015 

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