Mongolia Growth : Q2 2022 Letter to Shareholders-MD&A ›

Q2 2022 Letter to Shareholders – MD&A

Pricey Shareholders

The second quarter of 2022 continued upon our success achieved through the first quarter. Our subscription information enterprise (KEDM) continues to develop and has continued to exceed our modest preliminary expectations for it. We nonetheless keep a really wholesome capital base from which to reinvest for the longer term. Extra importantly, for the primary time since our firm was launched, working revenue exceeded working bills for the second consecutive quarter, regardless of substantial investments to develop and enhance KEDM. Based mostly on present subscriber developments at KEDM, and our first have a look at renewal charges from our preliminary cohort of subscribers, we consider that our firm will present constructive working revenue going ahead (excluding one-time bills).

Our aim is to proceed to develop working revenue, whereas staying disciplined on the expense line. Throughout 2022, we intend to deal with launching and buying new providers to broaden our subscription information enterprise, whereas searching for different companies that we will purchase all or a part of as we pivot into our Service provider Banking enterprise.

Given our progress plans, our expectation is that our expense line will develop considerably throughout 2022. That is essential to put money into future progress. Moreover, we anticipate that elevated authorized, tax and company structuring bills will proceed throughout 2022 as we deal with optimizing our company structure-which might sadly be inconceivable to perform. On condition that insiders personal roughly 30% of the shares of this firm, we intend to be frugal in our spending, however we should enhance spending to be able to reinvest and develop.

We now segregate our enterprise traces into three classes (Funding Properties, Subscription Enterprise Merchandise, and Company Division (which incorporates our funding portfolio).

Funding Properties:

The second quarter of 2022 continued to be troublesome for our Mongolian property operations. Throughout the quarter we reported $201,015 (2021- $144,581) of leasing income and $54,939 (2021 – $34,835) of different income (primarily third get together), offset by $217,803 (2021- $245,947) of bills in Mongolia. Sadly, we have now zero visibility into the longer term trajectory of the financial disaster in Mongolia.

Throughout 2021, we bought a mixed-use property in Puerto Rico that we’re within the means of renovating. We intend to make use of this property primarily for inside functions, although we consider we will hire parts of the property to earn rental revenue.

Subscription Enterprise Merchandise:

KEDM, our subscription information enterprise, which tracks numerous Occasion-Pushed methods, acknowledged $790,803 of income at a really wholesome margin whereas taking in $1,682,752 of gross subscription receipts, which represents income progress of 31% when in comparison with the primary quarter. Subsequent to quarter finish, we bought our first look into subscriber churn as our preliminary cohort of 572 annual subscribers who initiated their subscriptions through the first subscription window noticed their subscriptions expire. In complete, 450 of those subscribers selected to resume. This churn fee is in-line with our expectations for preliminary cohort churn and we’re greater than content material with these outcomes. Whereas we count on larger charges of churn for subscribers who’re outdoors of our preliminary cohort of subscribers, we more and more consider that these subscribers who use KEDM recurrently will stay long-termsubscribers-especially as we proceed to extend the worth proposition for subscribers.

Throughout the second quarter, acknowledged income and subscriber rely continued to extend every month sequentially and has continued to extend into the third quarter, although this information is considerably altered by a promotion that we supplied, which introduced ahead future renewals. As of the date of this letter, we have now taken in over USD $4 million in gross subscription proceeds. We intend to aggressively make investments assets to enhance KEDM and enhance the general worth proposition for subscribers. Moreover, given the reception to KEDM amongst readers, we intend to extend our advertising to develop the subscriber base. We consider that these two initiatives might cut back the short-term profitability of the subscription enterprise; nonetheless we intend to maintain spending at a tempo in order that the enterprise stays worthwhile, whereas protecting in thoughts that the lifetime worth of a KEDM subscriber dramatically exceeds the price of buying a subscriber; justifying an elevated degree of spend-especially as we have now quite a few fastened prices of manufacturing KEDM.

Given the success up to now of KEDM, we consider that there are ancillary providers that we will launch and monetize, offering additional worth to KEDM subscribers. It’s probably that these providers can be a price heart as they’re conceived and grown earlier than eventual monetization. To be taught extra about KEDM, go to www.KEDM.COM. Moreover, the corporate is contemplating buying different subscription merchandise that may be complementary to KEDM.

Company Division:

Throughout the second quarter, our company bills elevated primarily because of a rise in authorized, tax and company structuring bills. We count on this elevated degree of bills to proceed throughout a lot of 2022, however might path off within the fourth quarter. Advert- ditionally, we anticipate that company bills will enhance in future quarters as we add employees to assist develop our business-par- ticularly associated to enterprise improvement actions and the advertising of KEDM.

Our public securities portfolio produced a $4,543,820 unrealized loss and a $1,766,135 realized achieve. I want to warning you strongly that returns like we have now just lately skilled, are extremely unlikely to be repeated in future quarters and are prone to be relatively unstable given our elevated publicity to grease futures name spreads, which have appreciated considerably since we acquired them. Our portfolio is presently concentrated in investments in oil futures and futures choices (together with totally offsetting futures name possibility spreads) vitality providers corporations, uranium, and the housing sector. We view these investments as extremely liquid, inflation protected, alternate options to holding money and we intend to liquidate numerous investments ought to we discover further companies to launch or purchase stakes in.

I want to reemphasize that there are tax and regulatory causes that our public securities portfolio can not proceed to in- crease, and as a public firm, we’re required to have a considerable portion of our property invested in working companies that we maintain substantial parts of and exert management over. Sadly, we have now been unable to search out any such working enterprise that pursuits us-particularly as valuations seem extreme when in comparison with many bigger and dramatically extra established public corporations that commerce at low single digit earnings multiples. We’re not going to undertake an inferior funding simply to adjust to tax and regulatory statutes. We have now invested substantial time and expense to find a viable construction and path ahead (therefore the elevated spend on authorized) and proceed to discover numerous choices.

Conclusion

The second quarter of 2022 continued the prior yr’s successes. We have now now incubated and launched KEDM with nice success. KEDM has handed by the primary renewal interval and has confirmed that subscribers discover dramatic worth in it. As we transition right into a Service provider Financial institution, we intend to scale up our staffing, goal distinctive alternatives and proceed to profitably diversify our firm.

Whereas we stay optimistic about Mongolia’s long-term future, it stays mired in financial disaster. Consequently, we stay centered on promoting non-core property property (notably in workplace and re-development) to be able to diversify the corporate, whereas protecting our core portfolio and administration workforce, in order that we will pivot again to Mongolia if the economic system ever recovers.

Throughout the quarter, the corporate repurchased 19,200 shares underneath its Regular Course Issuer Bid. At quarter finish, our share rely was 27,759,299 or 22% fewer than throughout our peak share-count in 2016. To this point, the corporate has repurchased a complete of seven,773,300 shares.

We’re excited for the longer term.

Sincerely,

Harris Kupperman

CEO