Overview





We are an insurance premium financing company, specializing primarily in
commercial policies. We make it efficient for companies to access financing for
insurance premiums. Enabled by our network of marketing representatives and
relationships with insurance agents, we provide a value-driven, customer-focused
lending service.



We have offered premium financing since 1991 through our wholly owned
subsidiary, Standard Premium Finance Management Corporation. We are generally
targeting premium financing loans from $1,000 to $15,000, with repayment terms
ranging from 6 to 10 months, although we may offer larger loans in cases we deem
appropriate. Qualified customers may have multiple financings with us
concurrently, which we believe provides opportunities for repeat business, as
well as increased value to our customers.



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We originate loans primarily in Florida, although we operate in several states.
Over the past three years, the Company has expanded its operations, and
currently is financing insurance premiums in Florida, Georgia, South Carolina,
North Carolina, Texas, Tennessee and Arizona. We intend to continue to expand
our market into new states as part of our organic growth trend. Loans are
originated primarily through a network of insurance agents solicited by our
in-house sales team and marketing representatives.



We generate the majority of our revenue through interest income and the
associated fees earned from our loan products. We earn interest based on the
"rule of 78" and earn other associated fees as applicable to each loan. These
fees include, but are not limited to, a one-time finance charge, late fees, and
NSF fees. Our company charges interest to its customers solely by the Rule of
78. Charging interest per the Rule of 78 is the industry standard among premium
finance loans. The Rule of 78 is a method to calculate the amount of principal
and interest paid by each payment on a loan with equal monthly payments. The
Rule of 78 is a permissible method of calculating interest in the states in
which we operate. The Rule of 78 recognizes greater amounts of interest income
during the first months of the loan, while decreasing interest income during the
final months of the loan. Whenever a loan is repaid prior to full maturity, the
Rule of 78 methodology is applied and the borrower is refunded accordingly.



We rely on a diversified set of funding sources for the loans we make to our
customers. Our primary source of financing has historically been a line of
credit at a financial institution collateralized by our loan receivables. We
receive additional funding from unsecured subordinate noteholders that pays
monthly interest to the investors. We have also used proceeds from operating
cash flow to fund loans in the past and continue to finance a portion of our
outstanding loans with these funds. See Liquidity and Capital Resources for
additional information regarding our financing strategy.



The Company's main source of funding is its line of credit, which represented
approximately 63% ($30,476,375) of its capital as of December 31, 2021. This
line of credit was replaced with a new lender, First Horizon Bank, on February
3, 2021. As of December 31, 2021, the Company's subordinated notes payable
represented approximately 19% ($9,341,112) of the Company's capital, operating
liabilities provide approximately 8% ($3,894,934) of the Company's capital,
preferred equity provides approximately 2% ($990,000) of the Company's capital,
the PPP loan represents approximately 1% ($271,000) of the Company's capital,
and equity in retained earnings and common paid-in capital represents the
remaining 7% ($3,544,779) of the Company's capital structure.

Key Financial and Operating Metrics





We regularly monitor a series of metrics in order to measure our current
performance and project our future performance. These metrics aid us in
developing and refining our growth strategies and making strategic decisions.



                           As of or for the Years Ended December 31,
                                2021                        2020
Gross Revenue          $            7,664,743       $          6,434,182
Originations           $          109,803,362       $         91,412,909
Interest Earned Rate                     15.4 %                     15.5 %
Cost of Funds Rate                       3.50 %                     3.71 %
Reserve Ratio                            2.13 %                     1.67 %
Provision Rate                           0.77 %                     0.43 %
Return on Assets                         1.81 %                     1.56 %
Return on Equity                        25.87 %                    24.42 %





Gross Revenue

Gross Revenue represents the sum of interest and finance income, associated fees and other revenue.





Originations

Originations represent the total principal amount of Loans made during the period.





Interest Earned Rate

The Interest Earned Rate is the average annual percentage interest rate earned on new loans.





Cost of Funds Rate

Cost of Funds Rate is calculated as interest expense divided by average debt outstanding for the period, net of the interest related tax benefit.





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Reserve Ratio

Reserve Ratio is our allowance for credit losses at the end of the period divided by the total amount of principal outstanding on Loans at the end of the period. It excludes net deferred origination costs and associated fees.





Provision Rate



Provision Rate equals the provision for credit losses for the period divided by
originations for the period. Because we reserve for probable credit losses
inherent in the portfolio upon origination, this rate is significantly impacted
by the expectation of credit losses for the period's originations volume. This
rate is also impacted by changes in loss expectations for contract receivables
originated prior to the commencement of the period.



Return on Assets

Return on Assets is calculated as annualized net income (loss) attributable to common stockholders for the period divided by average total assets for the period.





Return on Equity

Return on Equity is calculated as annualized net income (loss) attributable to common stockholders for the period divided by average stockholders' equity attributable to common stockholders for the period.





RESULTS of OPERATIONS

Results of Operations for the Year ended December 31, 2021 Compared to the Year ended December 31. 2020





Revenue




Revenue increased by 19.1% overall or $1,230,561 to $7,664,743 for the year
ended December 31, 2021 from $6,434,182 for the year ended December 31, 2020.
The increase in revenue was due to a 19.7% or $1,039,530 increase in finance
charges, a 12.5% or $108,334 increase in revenue from late charges, and a 27.0%
or $82,697 increase in origination charges. Revenue from finance charges
comprised 82.2% of overall revenue for the year ended December 31, 2021.



During the year ended December 31, 2021 compared to the year ended December 31,
2020, the company financed an additional $18,390,453 in new loan originations.
This increase was due largely to increased marketing efforts throughout our
established states. In conjunction with the increased amounts financed, the
Company also increased the quantity of loan originations by 4,915 new loans for
the year ended December 31, 2021 as compared to the year ended December 31,
2020. The quantity of loan originations is directly correlated to the
origination charge revenue, as the Company immediately recognizes an origination
fee on substantially all new loans.



Under the terms of the line of credit agreement, the loan receivables and our
other assets provide the collateral for the loan. As the receivables increase,
driven by new originations, the company has greater borrowing power, giving it
the opportunity generate additional revenues. Throughout 2020, the Company
experienced a constraint on loan originations as it pushed near the limit of its
previous $27,500,000 line of credit. In February 2021, the Company executed a
$35,000,000 line of credit with a new lender, terminating the previous line of
credit. The additional availability on our line of credit was an essential
driver to our increased originations during the year ended December 31, 2021 as
compared to the year ended December 31, 2020. In October 2021, the Company
further increased its borrowing power on its line of credit to $45,000,000, an
increase of $10,000,000. See Future Cash Requirements for the Company's strategy
regarding its line of credit.



Expenses

Expenses increased by 18.7% or $1,021,925 to $6,478,413 for the year ended December 31, 2021 from $5,456,488 for the year ended December 31, 2020.

The increase in expenses was primarily due to increases in the following categories:

· $444,986 increase in bad debt expense as a result of the significant growth the

Company experienced during 2021. The Company maintains a bad debt reserve based

on the gross value of its premium finance contracts and related receivable.

These receivables grew 19.7% or $7,674,347 as of December 31, 2021 as compared

to December 31, 2020. Management also increased its target reserve balance


   monthly to mitigate any unlikely uncertainties related to growth in the
   Company's receivables.



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· $169,593 increase in professional fees as a result of increased consulting

services for technological, legal, and SEC activities. During 2021, the Company

employed the services of technological consultants to help expand and improve

the Company's proprietary software. The Company also had increased legal and

consulting fees related to the new line of credit and SEC-related activities in

anticipation of getting its common stock trading.

· $159,041 increase in commission expense as a result of increased originations

in 2021. Commission expense is directly tied to loan originations, thus an

increase in commission expense is expected during periods of growth, such as

the Company experienced during the year ended December 31, 2021.

· $103,567 increase in salaries and wages expense as a result of hiring a new

marketing representative to service our North Carolina and South Carolina

region as well as increases in salary and hourly rates for our office staff.

· $22,947 increase in interest expense as a result of the new line of credit.

Despite the increase in borrowings on the line of credit of $4,822,902, an

increase of 18.8% for the year ended December 31, 2021 compared to the December

31, 2020, interest expense increased by $22,947 or 1.3% over the same period.

This is a result of a significant reduction in the 30-day LIBOR rate used in

calculating the Company's interest on the line of credit during the year ended

December 31, 2021 as compared to December 31, 2020, thus greatly reducing the

cost of funds. Furthermore, the Company's new line of credit, effective in

February 2021, has a lower minimum rate, which was employed throughout 2021.


   See Liquidity and Capital Resources for more information regarding the
   Company's new line of credit.




Income before Taxes

Net Income before taxes increased by $208,636 to $1,186,330 for the year ended December 31, 2021 from $977,694 for the year ended December 31, 2020. This increase was attributable to the net increases and decreases as discussed above.





Income Tax Provision



Income tax provision increased $19,718 to $310,007 for the year ended December
31, 2021 from $290,289 for the year ended December 31, 2020. This increase was
primarily attributable to the increase in taxable income.



Net Income



Net Income increased by $188,918 to $876,323 for the year ended December 31,
2021 from $687,405 for the year ended December 31, 2020. This increase was
attributable to the $208,636 increase in income before taxes related to
increased business activity, partially offset by the $19,718 increase in the
provision for income taxes related to increased taxable income.

Comparison of Cash Flows for the Year Ended December 31, 2021 and December 31, 2020

Cash Flows from Operating Activities


We used $6,450,444 in cash for our operating activities in 2021 compared to
$1,296,702 provided by our operating activities in 2020. The increase in cash
used of $7,747,146 was primarily due to a $8,452,691 increase of cash used to
support working capital components and offset by a $705,545 increase in net
income as adjusted for noncash items.



The $8,452,691 increase in cash used to support working capital components was
primarily the due to a $7,918,781 increase in the change in premium finance
contracts, and a $518,956 increase in the change in drafts payable. The
Company's premium finance contracts receivable increased significantly
throughout 2021, which requires investments in working capital to support the
larger portfolio. As such, the Company expects these net cash outflows from
operations during periods of growth. As discussed in the Revenues and Future
Cash Requirements section, although the Company was able to grow in 2020, the
Company was effectively constrained by the limit of its previous line of credit
agreement. During 2021, the Company utilized its increased availability on its
new line of credit leading to the large increase in premium finance contracts
receivable.



The $705,545 increase of cash from net earnings as adjusted by noncash items
resulted primarily from an $188,918 increase in net income, a $444,986 increase
in bad debt expense, and $81,331 increase in amortization of loan origination
fees. As discussed in the Expenses section, the Company bolstered its bad debts
reserve for its premium finance contracts receivable in accordance with the
growth experienced during 2021.

Cash Flows from Investing Activities





We used $80,500 of cash in our investing activities in 2021 compared to $62,294
in cash used in 2020. The increase in cash used of $18,206 is due primarily to
an increase in purchases of property and equipment of $15,304. In 2021, the
Company purchased a new vehicle, which is being depreciated over five years.



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Cash Flows from Financing Activities





We were provided $6,074,642 cash in our financing activities in 2021 compared to
$1,102,725 used in financing activities in 2020. The increase in funds provided
of $7,177,367 is due primarily to an increase in proceeds from our line of
credit of $5,911,670, an increase in proceeds from notes payable - others of
$1,076,047, and a decrease in repayments of notes payable - others of $555,600.
These were partially offset by a decrease of $320,000 in proceeds from the sale
of Series A convertible preferred stock and a decrease of $271,000 in proceeds
from the PPP loan. As discussed in the Revenues and Liquidity and Capital
Resources sections, in 2020, the Company was limited in the amounts it could
draw from its line of credit, due to reaching maximum availability throughout
the year. In 2021, the Company utilized its increased line of credit to finance
its increased premium finance contracts receivable. In conjunction with the new
line of credit, the Company was required to increase its subordinated debt,
which accounts for the increases in proceeds from notes payable - others.

LIQUIDITY and CAPITAL RESOURCES as of December 31, 2021


We had $20,987 cash and a working capital surplus of $9,621,194 at December 31,
2021. A significant working capital surplus is generally expected through the
normal course of business due primarily to the difference between the balance in
loan receivables and the related line of credit liability. As discussed in the
Revenues section, the Company's line of credit is currently the primary source
of operating funds. In February 2021, the Company entered into a contract with a
new lender, First Horizon Bank, for a two-year $35,000,000 line of credit. In
October 2021, the Company executed a loan amendment with First Horizon Bank to
increase its line of credit to $45,000,000, an increase of $10,000,000. The
terms of the new line of credit are generally more favorable than the previous
line of credit, including an interest rate based on the 30-day LIBOR rate plus
2.85% with a minimum rate of 3.35%. The previous, terminated line of credit had
an interest rate based on the 30-day LIBOR rate plus 2.75% with a minimum rate
of 3.75%. The Company believes that the interest rate will be based on the
minimum rate for the entire term of the line of credit, which will lead to
savings on interest expense over the term of the deal, though the Company cannot
guarantee the minimum rate will be employed for the term of the loan. Based on
our estimates and taking into account the risks and uncertainties of our plans,
we believe that we will have adequate liquidity to finance and operate our
businesses and repay our obligations as they become due for at least the next 12
months.



During the year ended December 31, 2021, the Company raised an additional
$168,000 in subordinated notes payable - related parties and $1,246,047 in
subordinated notes payable - others. A requirement of the new line of credit was
an increase in our subordinated debt to provide additional collateral to the
bank. The Company utilizes its inflows from subordinated debt as a financing
source before drawing additionally from the line of credit.



In April 2020, the Company received a $271,000 loan through the PPP program with
the Small Business Administration. The Company proudly applied 100% of the
proceeds of the loan to its main purpose of keeping their staff employed at the
same level as before the COVID-19 pandemic. The Company maintained the same
level of employment throughout 2020 with support from the PPP loan. The Company
expects to repay this loan during 2022.



Future Cash Requirements




As the Company anticipates its growth patterns to continue, the larger line of
credit is paramount to fueling this growth. By securing its larger line of
credit, the Company can expect to satisfy the cash requirements anticipated by
its future growth. Coinciding with these goals, in February 2021, the Company
entered into a contract with a new lender for a two-year $35,000,000 line of
credit. Furthermore, in October 2021, the Company executed a loan amendment with
this lender to increase its line of credit to $45,000,000, an increase of
$10,000,000.

Uses of Liquidity and Capital Resources





We require cash to fund our operating expenses and working capital requirements,
including costs associated with our premium finance loans, capital expenditures,
debt repayments, acquisitions (if any), pursuing market expansion, supporting
sales and marketing activities, and other general corporate purposes. While we
believe we have sufficient liquidity and capital resources to fund our
operations and repay our debt, we may elect to pursue additional financing
activities such as refinancing or expanding existing debt or pursuing other debt
or equity offerings to provide flexibility with our cash management and provide
capital for potential acquisitions.

Off-balance Sheet Arrangements





None.



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Contractual Obligations



As of December 31, 2021, the Company was contractually obligated as follows:



                                                                 Payments Due by Period
                                                                                                            More than 5
                                   Total          Less than 1 Year      1 - 3 Years       3 - 5 Years          Years
Line of credit                  $ 30,476,375     $       30,476,375     $          -     $           -     $           -
Subordinated notes payable         9,341,112              3,147,023        5,935,105           258,984                 -
Capital lease obligations             64,910                 11,857           39,536            13,517                 -
Operating lease obligations          228,954                 98,249          130,705                 -                 -
Purchase obligations                       -                      -                -                 -                 -
Other long-term obligations          271,000                271,000                -                 -                 -
Total contractual obligations   $ 40,382,351     $       34,004,504     $  6,105,346     $     272,501     $           -




As of December 31, 2020, the Company was contractually obligated as follows:



                                                                 Payments Due by Period
                                                                                                            More than 5
                                   Total          Less than 1 Year      1 - 3 Years       3 - 5 Years          Years
Line of credit                  $ 25,653,473     $       25,653,473     $          -     $           -     $           -
Subordinated notes payable         8,029,465              2,609,122        5,021,484           398,859                 -
Capital lease obligations                  -                      -                -                 -                 -
Operating lease obligations           95,425                 39,344           56,081                 -                 -
Purchase obligations                       -                      -                -                 -                 -
Other long-term obligations          271,000                 15,022          255,978                 -                 -
Total contractual obligations   $ 34,049,363     $       28,316,961     $  5,333,543     $     398,859     $           -

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


We consider the following to be our most critical accounting policy because it
involves critical accounting estimates and a significant degree of management
judgment:

Allowance for premium finance contract receivable losses


We are subject to the risk of loss associated with our borrowers' inability to
fulfill their payment obligations, the risk that we will not collect sufficient
unearned premium refunds on the cancelled policies on the defaulted loans to
fully cover the unpaid loan principal and the risk that payments due us from
insurance agents and brokers will not be paid.



The carrying amount of the Premium Finance Contracts ("Contracts") is reduced by
an allowance for losses that are maintained at a level which, in management's
judgment, is adequate to absorb losses inherent in the Contracts. The amount of
the allowance is based upon management's evaluation of the collectability of the
Contracts, including the nature of the accounts, credit concentration, trends,
and historical data, specific impaired Contracts, economic conditions, and other
risks inherent in the Contracts. The allowance is increased by a provision for
loan losses, which is charged to expense, and reduced by charge-offs, net of
recovery.




In addition, specific allowances are established for accounts past due over 120
days. Individual contracts are written off against the allowance when collection
of the individual contracts appears doubtful. The collectability of outstanding
and cancelled contracts is generally secured by collateral in the form of the
unearned premiums on the underlying policies and accordingly historical losses
are approximately 1% to 1.5% of the principal amount of loans made each year.
The Company considers historical losses in determining the adequacy of the
allowance for doubtful accounts. The collectability of amounts due from agents
is determined by the financial strength of the agency.



Stock-Based Compensation



We account for stock-based compensation by measuring and recognizing as
compensation expense the fair value of all share-based payment awards made to
directors, executives, employees and consultants, including employee stock
options related to our 2019 Equity Incentive Plan and stock warrants based on
estimated grant date fair values. The determination of fair value involves a
number of significant estimates. We use the Black Scholes option pricing model
to estimate the value of employee stock options and stock warrants which
requires a number of assumptions to determine the model inputs. These include
the expected volatility of our stock and employee exercise behavior which are
based expectations of future developments over the term of the option.

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