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.

We originate loans primarily in Florida, although we operate in several states. The Company has expanded its operations, and currently is licensed to finance insurance premiums in Florida, Georgia, South Carolina, North Carolina, Texas, Virginia, Maryland, Mississippi, Colorado, 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 several funding sources for the loans we make to our customers. Our primary source of financing has historically been a line of credit from a bank collateralized by our loan receivables and 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.

The Company's main source of funding is its line of credit, which represented approximately 64% ($32,225,547) of its capital as of March 31, 2022. This line of credit was replaced with a new lender, First Horizon Bank, on February 3, 2021. As of March 31, 2022, the Company's subordinated notes payable represented approximately 18% ($9,124,810) of the Company's capital, operating liabilities provide approximately 8% ($4,294,826) of the Company's capital, preferred equity provides approximately 2% ($1,010,000) 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% ($3,758,297) 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 Three Months Ended March 31,
                                2022                         2021
                            (unaudited)                  (unaudited)
Gross Revenue          $            1,822,596       $            1,711,904
Originations           $           29,571,428       $           27,429,500
Interest Earned Rate                     14.8 %                       15.2 %
Cost of Funds Rate                       3.22 %                       3.21 %
Reserve Ratio                            2.03 %                       1.77 %
Provision Rate                           0.57 %                       0.65 %
Return on Assets                         1.68 %                       1.51 %
Return on Equity                        22.76 %                      23.45 %





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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.





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 Three Months ended March 31, 2022 Compared to the Three Months ended March 31. 2021





Revenue

Revenue increased by 10.0% overall or $170,692 to $1,882,596 for the three months ended March 31, 2022 from $1,711,904 for the three months ended March 31, 2021. The increase in revenue was primarily due to a 11.8% or $164,009 increase in finance charges. Revenue from finance charges comprised 82.8% and 81.5% of overall revenue for the three months ended March 31, 2022 and 2021, respectively.





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During the three months ended March 31, 2022 compared to the three months ended March 31, 2021, the company financed an additional $2,141,928 in new loan originations. This increase was due largely to increased marketing efforts throughout our established states. Although the Company increased amounts financed, the total quantity of loan originations remained stable for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. 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 sales, the company has greater borrowing power, giving it the opportunity 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. The additional availability on our line of credit was an essential driver to our increased originations during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. See Future Cash Requirements for the Company's strategy regarding its line of credit.





Expense

Expenses increased by 8.7% or $127,201 to $1,581,908 for the three months ended March 31, 2022 from $1,454,707 for the three months ended March 31, 2021.

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





  ·  $54,205 increase in professional fees primarily because of audit fees
    expensed as incurred, fees related to the trading of our common stock, and
    programming fees related to our software.
  ·  $33,841 increase in other operating expenses as a result of general business
    growth. The primary cost increases were convention expenses, office repairs
    and maintenance, business travel, and licensing costs.
  ·  $31,666 increase in interest expense as a result of increased borrowings on
    our line of credit. Although the Company increased borrowings on the line of
    credit of $3,142,389, an increase of 10.8%, for the three months ended March
    31, 2022 over the three months ended March 31, 2021, interest expense
    increased by only 8.0% over the same period. The Company's new line of credit
    with First Horizon Bank has a lower minimum rate, which the Company has
    benefited from during the three months ended March 31, 2022 as compared to
    partially for the three months ended March 31, 2021. See Liquidity and Capital
    Resources for more information on the new line of credit.




Income before Taxes

Income before taxes increased by $43,491 to $300,688 for the three months ended March 31, 2022 from $257,197 for the three months ended March 31, 2021. This increase was attributable to the net increases and decreases as discussed above.





Income Tax Provision

Income tax provision decreased $1,320 to $75,623 for the three months ended March 31, 2022 from $76,943 for the three months ended March 31, 2021. This decrease was primarily attributable to temporary differences related to the allowance for doubtful accounts.





Net Income

Net Income increased by $44,811 to $225,065 for the three months ended March 31, 2022 from $180,254 for the three months ended March 31, 2021. This increase was attributable to the $43,491 increase in income before taxes related to increased business activity, and the $1,320 decrease in the provision for income taxes.

Comparison of Cash Flows for the Three Months Ended March 31, 2022 and March 31, 2021

Cash Flows from Operating Activities

We used $1,243,731 of cash in our operating activities in 2022 compared to $4,007,500 used in our operating activities in 2021. The decrease in cash used of $2,763,769 was primarily due to a $2,734,595 decrease of cash used to support working capital components partially offset by a $29,174 increase of net income as adjusted for noncash items.





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The $2,734,595 decrease of cash used to support working capital components was primarily due to a $2,148,997 decrease in the change in premium finance contracts, a $802,377 decrease in the change in drafts payable, and a $310,191 increase in the change in prepaid expenses and other current assets, partially offset by a $541,174 increase in the change in accounts payable and accrued expenses. These are natural fluctuations in operating accounts that occur during the normal course of business. The Company expects net cash outflows from operations during periods of growth, which we experienced during the three months ended March 31, 2022 as well as the three months ended March 31, 2021. During both 2022 and 2021, the Company has utilized its increased availability on its line of credit leading to the increases in premium finance contracts receivable.

The $29,174 increase of cash from net earnings as adjusted by noncash items resulted primarily from an $44,811 increase in net income partially offset by a $8,948 decrease in bad debt expense. As the Company grew its receivables portfolio in 2021, bad debt expense increased to adjust the allowance accordingly.

Cash Flows from Investing Activities

We used $27,887 of cash in our investing activities in 2022 compared to $32,977 in cash used in 2021. The decrease in cash used of $5,090 is due primarily to the sale of property and equipment in 2022.

Cash Flows from Financing Activities

We received $1,357,517 of cash provided by our financing activities in 2022 compared to $3,969,087 provided by financing activities in 2021. The decrease in funds provided of $2,611,570 is due primarily to an decrease in proceeds from the line of credit of $1,677,133, a decrease in proceeds from notes payable - others of $331,965, an increase in repayments of notes payable - others of $215,000, and an increase in repayments of notes payable - stockholders and related parties of $181,302. In 2021, the Company began utilizing 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 - related parties and notes payable - others, leading to a substantial increase of cash provided by financing activities in 2021.

LIQUIDITY and CAPITAL RESOURCES as of March 31, 2022

We had $106,886 cash and a working capital surplus of $10,783,990 at March 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. 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%. We anticipate that the interest rate we pay on our revolving credit agreement may rise due to the recently adopted benchmark interest rate increase by the Federal Reserve Board. We believe that we will be able to pass along any interest rate increase to our borrowers so that our net interest spread will not be adversely 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 for at least the next 12 months.

During the three months ended March 31, 2022, the Company raised an additional $200,000 in subordinated notes payable - others, repaid $215,000 of subordinated notes payable - others, and repaid $181,302 in subordinated notes payable - stockholders and related parties. The Company utilizes its inflows from subordinated debt as a financing source before drawing additionally from the line of credit.





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. 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.





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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.

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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