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 $2,000 to $50,000, 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.



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. Throughout 2022, we have obtained
licenses in eleven additional states: Virginia, Arkansas, Nebraska, Mississippi,
Maryland, Colorado, Ohio, Louisiana, Massachusetts, Minnesota, and Alabama. 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
and lesser amounts of principal repayment during the first months of the loan,
while decreasing interest income and increasing principal repayment 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 bank collateralized by our loan receivables and our other assets. 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.



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The Company's main source of funding is its line of credit, which represented
approximately 64% ($32,713,625) of its capital and total liabilities as of
December 31, 2022. As of December 31, 2022, the Company's subordinated notes
payable and PPP loan represented approximately 18% ($9,427,697) of the Company's
capital and total liabilities, operating liabilities provide approximately 7%
($3,395,043) of the Company's capital and total liabilities, preferred equity
provides approximately 3% ($1,660,000) of the Company's capital and total
liabilities, and equity in retained earnings and common paid-in capital
represents the remaining 8% ($4,292,442) of the Company's capital and total
liabilities.

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,
                                    2022                        2021
Gross Revenue               $           8,156,537       $           7,664,743
Originations                $         115,814,579       $         109,803,362
Interest Earned Rate                         15.3 %                      15.4 %
Cost of Funds Rate, Gross                    5.66 %                      4.66 %
Cost of Funds Rate, Net                      4.25 %                      3.50 %
Reserve Ratio                                2.01 %                      2.13 %
Provision Rate                               0.63 %                      0.77 %
Return on Assets                             1.43 %                      1.81 %
Return on Equity                            18.30 %                     25.87 %




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, Gross

Cost of Funds Rate, Gross is calculated as interest expense divided by average debt outstanding for the period.





Cost of Funds Rate, Net

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





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.



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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, 2022 Compared to the Year ended December 31. 2021





Revenue



Revenue increased by 6.4% overall or $491,794 to $8,156,537 for the year ended
December 31, 2022 from $7,664,743 for the year ended December 31, 2021. The
increase in revenue was due to a 7.2% or $454,638 increase in finance charges, a
6.8% or $66,170 increase in revenue from late charges, partially offset by a
7.5% or $29,014 decrease in origination charges. Revenue from finance charges
comprised 82.9% of overall revenue for the year ended December 31, 2022.



During the year ended December 31, 2022 compared to the year ended December 31,
2021, the company financed an additional $6,011,217 in new loan originations.
This increase was due largely to increased marketing efforts throughout our
established states. Although the Company increased amounts financed, the Company
noted a 2,090 decrease in the quantity of loan originations to 23,284 new loans
for the year ended December 31, 2022 as compared to 25,374 for the year ended
December 31, 2021. The quantity of loan originations is directly correlated to
the decrease in 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 sales, the company has greater borrowing power, giving it the
opportunity to generate additional sales. In February 2021, the Company executed
a $35,000,000 line of credit with a new lender, terminating the previous line of
credit. 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. In November 2022,
the Company extended the maturity of this line of credit until November 30,
2025. The additional availability on our line of credit was an essential driver
to our increased financed amount of new loan originations during the year ended
December 31, 2022 as compared to the year ended December 31, 2021. See Future
Cash Requirements for the Company's strategy regarding its line of credit.




Expenses

Expenses increased by 10.3% or $665,803 to $7,144,216 for the year ended December 31, 2022 from $6,478,413 for the year ended December 31, 2021.

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

· $602,259 increase in interest expense as a result of increases in the line of

credit interest rate. Due to benchmark interest rate increases adopted by the

Federal Reserve Board throughout 2022, interest rates throughout the

marketplace have increased accordingly. Our line of credit features a variable

interest rate based on one-month SOFR with a minimum rate of 3.35%. As of

December 31, 2022 and 2021, our line of credit's interest rate was quoted at

6.87% and 3.35%, respectively. Furthermore, as of December 31, 2022, our net

borrowings on the line of credit have increased by $2,237,250 to $32,713,625

from $30,476,375 at December 31, 2021. This increase in borrowings is due to

increased loan originations.

· $85,676 increase in salaries and wages expense as a result of increased base

salaries and wages for our office staff and executives. Furthermore, in June

2022, the Company executed employment contracts with its CEO and CFO,

increasing their base salaries.

· $72,316 increase in other operating expenses as a result of software

programming fees and marketing related expenses. The Company has begun

development of the web-based portion of its proprietary software, which should

lead to cost savings as well as synergistic effects with any mergers or

acquisitions. The Company also experienced costs related to participation in

four additional conventions, in line with our goals to expand into new states.

Further, the Company experienced general price increases due to macroeconomic


   inflationary conditions.






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These increases in expenses were partially offset by a decrease in the following category:

· $107,979 decrease in bad debt expense as a result of maintaining the allowance

for doubtful accounts in line with the balance in premium finance contracts

receivable from increased new loan originations. In 2021, our allowance grew

rapidly to keep up with the explosive growth in receivables due to the

availability on our new line of credit. Thus, the Company increased allowances

to coincide with risks associated with the risks of a rapidly growing

portfolio. We maintained consistent allowance practices in 2022, which kept the


   reserves adequate.




Income before Taxes

Income before taxes decreased by $174,009 to $1,012,321 for the year ended December 31, 2022 from $1,186,330 for the year ended December 31, 2021. This decrease was attributable to the net increases and decreases as discussed above.





Income Tax Provision



Income tax provision decreased $103,817 to $206,190 for the year ended December
31, 2022 from $310,007 for the year ended December 31, 2021. This decrease was
primarily attributable to the decrease in taxable income.



Net Income




Net income decreased by $70,192 to $806,131 for the year ended December 31, 2022
from $876,323 for the year ended December 31, 2021. This decrease was
attributable to the $174,009 decrease in income before taxes, partially offset
by the $103,817 decrease in the provision for income taxes.

LIQUIDITY and CAPITAL RESOURCES as of December 31, 2022





We had $421,211 cash and a working capital surplus of $12,709,204 at December
31, 2022. 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 further increased its borrowing power on
its line of credit to $45,000,000, an increase of $10,000,000. In November 2022,
the Company extended the maturity of this line of credit until November 30, 2025
and replaced the benchmark rate of the loan from 30-day LIBOR to 30-day SOFR
(Secured Overnight Financing Rate). LIBOR will cease to be published after June
30, 2023. The terms of the amended line of include an interest rate based on the
30-day SOFR rate plus an applicable margin of 2.55% - 2.96%, with a minimum rate
of 3.35%. The applicable margin is based on the Company's ratio of total
liabilities to tangible net worth. As of December 31, 2022, the Company's
applicable margin was 2.75%. We anticipate that the interest rate we pay on our
revolving credit agreement may rise due to the recently adopted benchmark
interest rate increases by the Federal Reserve Board. We believe that we will be
able to pass along any interest rate increase on loans funded after the interest
rate increase so that our net interest spread will not be materially affected.
Furthermore, because of the short-term nature of our loans, we are not bound to
any particular loan and its fixed interest rate for a long period of time. 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 business and repay our obligations as they become due in the next 12 months.



During the year ended December 31, 2022, the Company raised an additional
$35,000 in subordinated notes payable - related parties and $575,511 in
subordinated notes payable. The Company repaid $181,302 of notes payable -
related parties and $288,400 or notes payable. The Company utilizes its inflows
from subordinated debt as a financing source before drawing additionally from
the line of credit.




During the year ended December 31, 2022, the Company sold 67,000 shares of
Series A Convertible Preferred Stock ("Preferred Stock") for $400,000 in cash
and exchanging $270,000 of its subordinated notes at a price of $10.00 per
share. The additional Preferred Stock bolsters shareholder's equity, which, in
turn, increases leveraging ability on our line of credit.



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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. In November 2022, the Company extended its maturity on its line of
credit facility until November 30, 2025. The extended maturity provides
stability for the Company's future cash requirements.

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.



Contractual Obligations



As of December 31, 2022, 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                  $ 32,713,625     $       32,713,625     $          -     $          -     $           -
Subordinated notes payable         9,211,921              1,449,597        2,632,400        5,129,924                 -
Capital lease obligations             53,053                 12,494           40,559                -                 -
Operating lease obligations          196,407                115,567           80,840                -                 -
Purchase obligations                       -                      -                -                -                 -
Other long-term obligations          215,776                 91,852          123,924                -                 -

Total contractual obligations $ 42,390,782 $ 34,383,135 $ 2,877,723 $ 5,129,924 $

           -

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 doubtful accounts


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.



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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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