Mongolia Growth : Q4 2021 Letter to Shareholders-Annual Report ›

Q4 2021 Leer to Shareholders - Annual Report

Dear Shareholders

By all accounts, 2021 was a transformave year for our company. We transioned the business to that of a Merchant Bank, grew our cash and marketable securies balance dramacally and launched a business from scratch that has now taken in more than $2 million in subscripon proceeds. More importantly, we have substanal momentum as we connue to pivot the business and seek out acquision opportunies.

As of the end of December, our company has in excess of $28.6 million of cash and net marketable securies with negligible debt (when excluding margin borrowings and short futures call opons related to fully hedged call spreads). Based on current subscriber trends at KEDM, and a reasonable expectaon for renewal rates, we believe that our company will be cash flow posive going forward (excluding one-me expenses). This means we now have a stable base to build upon and reinvest, without having to worry about how to fund operang losses-which is quite different from the first decade of our company's existence. We now have the me to stop, think, and act intelligently to create value-on our terms. While the pathway to today has been difficult, we now have the capital resources to take this business in many excing direcons. The last decade has been painful and frustrang, I am hopeful that the coming decade will be excing and prosperous.

Our Future Direcon:

In conjuncon with Genevieve and our Board, we have looked at various go-forward operang models. I primarily see myself as an allocator of capital and believe that transioning our company into a Merchant Bank makes the most sense in terms of a future business model. Becoming a Merchant Bank will allow us the flexibility to incubate various businesses, while simultaneously fund-ing growth businesses that we own majority or minority stakes in. While my background is in public securies, there are regulatory and tax reasons why we cannot be a publicly traded vehicle composed primarily of non-controlling minority interests in public se-curies. Our expectaon is that the composion of our balance sheet will migrate towards both minority and controlling posions in various businesses-public and private, where we can influence the outcome of events.

I believe we have many advantages as a Merchant Bank, parcularly as I frequently encounter businesses in need of both capital and capital markets perspecve. There are many gaps to arbitrage between public and private valuaons, lowering costs of capital for businesses along the way, and I am excited to put this theory to pracce.

Finally, I believe that a permanent capital vehicle such as our company, where our board and management control approximately 30% of the vong shares, gives us a unique advantage in allocang capital, as we can take a long-term view of our investments. Hopefully, this long-term view will aract unique investment opportunies, those that Private Equity, with their frequent re-selling of equity posions, miss out on. KEDM is our first internally funded business venture. We hope to acquire and grow from here.

We now segregate our business lines into three categories (Investment Properes, Subscripon Business Products, and Corporate Division (which includes our investment porolio).

Investment Properes:

The fourth quarter of 2021 connued to be difficult for our Mongolian property operaons due to recurring periods of COVID-19 lock-downs and the inability of many of our tenants to manage their businesses. As a property company, we are only as success-ful as our tenants and when our tenants' businesses cannot operate, we are unable to collect the rent we are contractually owed. During the year we reported $679,091 (2020 - $756,283) of leasing revenue and $190,850 (2020 - $68,170) of other revenue (primarily 3rd party), offset by $759,100 (2020 - $860,936) of expenses in Mongolia. Unfortunately, we have zero visibility into the future trajectory of the economic crisis in Mongolia. Unl businesses are allowed to operate without interference, we are likely to connue to report depressing returns from our Mongolian operaons.

During the year, we purchased a mixed-use property in Puerto Rico for approximately $820,000 that we are in the process of reno-vang. We intend to use this property primarily for internal purposes, though we believe we can rent porons of the property to earn rental income.

Subscripon Business Products:

KEDM, our subscripon business, which tracks various Event-Driven strategies, successfully transioned into a revenue producing product on July 1st. During the year, we recognized $944,411 of revenue at a very healthy margin. Throughout the year, recognized revenue and subscriber count connued to increase each month sequenally and has connued to increase since year-end. As of the date of this leer, we have taken in over CDN $2 million in subscripon proceeds. We intend to aggressively invest resources to improve KEDM and increase the overall value proposion for subscribers. Addionally, given the recepon to KEDM amongst readers, we intend to increase our markeng spend to grow the subscriber base. We believe that these two iniaves will reduce the short-term profitability of the subscripon business; however, we intend to moderate spending so that the business remains profitable.

Given the recepon to date for KEDM, we believe that there are ancillary services that we can launch and moneze, providing further value to KEDM subscribers. It is likely that these services will be a cost center as they are conceived and grown before mon-ezaon. To learn more about KEDM, go to www.KEDM.COM. Addionally, the company is considering acquiring other financial publicaons that would be complimentary to KEDM.

Corporate Division:

During the year, our corporate expenses increased primarily due to an increase in legal, corporate structuring and tax planning expenses. We expect this heightened level of expenses to connue into 2022. When we didn't expect our company to reach prof-itability, we didn't think much about the efficiency of our corporate and tax structure. Now that we have taxable income, we are reviewing our structure for opmizaon. Addionally, we ancipate that corporate expenses will increase in future quarters as we add staff to help grow our business-parcularly related to business development acvies and the markeng of KEDM.

Our public securies porolio produced a $7,946,088 unrealized gain (2020 - $4,265,403 unrealized gain) and a $10,306,006 real-ized gain (2020 - $3,288,803 realized gain). I would like to cauon you strongly that returns like we have recently experienced, are highly unlikely to be repeated in future quarters. Our porolio is currently concentrated in investments in energy, uranium, and the housing sector. Addionally, we iniated a small posion in a cryptocurrency named Monero. We view these investments as highly liquid alternaves to holding cash and we intend to liquidate various investments should we find addional businesses to launch or acquire stakes in.

Conclusion 2021 was transformave for our company. We have now incubated and launched KEDM with great success and expect it to be-come a rapidly growing revenue stream that we can build upon. Our public securies investments are paying off and we are now in a posion to pivot the business model to a Merchant Bank model. We intend to scale up our staffing, target unique opportunies and connue to profitably diversify our company.

While we remain opmisc about Mongolia's long-term future, it remains mired in economic crisis. As a result, we remain focused on selling non-core property assets (parcularly in office and re-development) so that we can diversify the company, while keeping our core porolio and management team, so that we can pivot back to Mongolia when the economy returns to aracve growth rates.

Finally, I remain of the opinion that our shares are undervalued. During the year, the company used its increased liquidity to ac-celerate the rate of share purchases and re-purchased 3,311,500 shares under our Normal Course Issuer Bid (NCIB) at an average price of $0.65/share. At year end, our share count was 27,778,499 or 22% less than during our peak share-count in 2016. To date, the company has repurchased a total of 7,754,100 shares.

While we didn't always have much in the way of liquidity, we never stopped believing in ourselves and remained aggressive with our NCIB. We knew that eventually we'd find our foong.

We're excited for the future.

Sincerely,

Harris Kupperman CEO