UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment
No. 1)
(Mark One)
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED September
30, 2012
|
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER: 814-00809
FULL CIRCLE CAPITAL CORPORATION
(Exact name of registrant as specified
in its charter)
MARYLAND
|
|
27-2411476
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(State or other jurisdiction of
|
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(I.R.S. Employer
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incorporation or organization)
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|
Identification No.)
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800 Westchester Ave., Suite S-620
Rye Brook, NY 10573
(Address of principal executive office)
(914) 220-6300
(Registrant’s telephone number,
including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
¨
No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
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¨
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Accelerated filer
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¨
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|
|
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|
Non-accelerated filer
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x
(do not check if a smaller reporting company)
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Smaller reporting company
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¨
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
The number of shares of the issuer’s
Common Stock, $0.01 par value, outstanding as of November 8, 2012 was 6,219,382.
EXPLANATORY NOTE
The purpose of this Amendment No. 1 on Form 10-Q/A to our quarterly report on Form 10-Q for the
fiscal quarter ended September 30, 2012 (the “Original Filing”), which was filed with the Securities and Exchange
Commission on the date hereof, is to correct misstated maturity dates of certain of our portfolio investments in our
Consolidated Schedule of Investments as of September 30, 2012. No other items of the Original Filing are being amended
hereby.
FULL CIRCLE CAPITAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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|
Item 1.
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Financial Statements
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2
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Consolidated Statements of Assets and Liabilities as of
September 30, 2012 and June 30, 2012 (audited)
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2
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Consolidated Statements of Operations for the three months ended September 30, 2012 and September 30, 2011
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3
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Consolidated Statements of Changes in Net Assets for the three months ended September 30, 2012 and September 30, 2011
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4
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Consolidated Statements of Cash Flows for the three months ended September 30, 2012 and September 30, 2011
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5
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Consolidated Schedule of Investments as of September 30, 2012
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6
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Consolidated Schedule of Investments as of June 30, 2012 (audited)
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10
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Notes to Consolidated Financial Statements as of September 30, 2012
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14
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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27
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Forward-Looking Statements
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27
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Overview
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27
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Critical Accounting Policies
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28
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Current Market Conditions and Market Opportunity
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31
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Portfolio Composition and Investment Activity
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31
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Results of Operations
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34
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Liquidity and Capital Resources
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36
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Recent Developments
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39
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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40
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Item 4.
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Controls and Procedures
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40
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PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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41
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Item 1A.
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Risk Factors
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41
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Item 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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41
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Item 3.
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Defaults Upon Senior Securities
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41
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Item 4.
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Mine Safety Disclosures
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41
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Item 5.
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Other Information
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41
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Item 6.
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Exhibits
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42
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SIGNATURES
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43
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PART I—FINANCIAL INFORMATION
Item 1.
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Financial Statements
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FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES
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September 30, 2012
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June 30, 2012
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(Unaudited)
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(Audited)
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Assets
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Control Investments at Fair Value (Cost of $8,605,711 and $6,639,648, respectively)
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(NOTE 2, 9)
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$
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8,502,142
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$
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6,777,511
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Affiliate Investments at Fair Value (Cost of $7,914,999 and $6,802,017, respectively)
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(NOTE 2, 9)
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5,988,684
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5,112,142
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Investments at Fair Value (Cost of $87,201,156 and $85,181,617, respectively)
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(NOTE 2, 9)
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85,971,841
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82,957,117
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Total Investments at Fair Value (Cost of $103,721,866 and $98,623,282, respectively)
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100,462,667
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94,846,770
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Cash
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66,504
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639,149
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Deposit with Broker
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2,752,519
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2,350,000
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Interest Receivable
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(NOTE 2)
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965,440
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902,711
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Dividends Receivable
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34,097
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-
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Principal Receivable
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1,231,808
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513,372
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Due from Portfolio Investment
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-
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11,140
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Due from Affiliate
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37,335
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-
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Prepaid Expenses
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160,015
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43,053
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Other Assets
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27,554
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25,499
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Deferred Offering Expenses
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71,781
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67,685
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Deferred Credit Facility Fees
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100,000
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50,000
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|
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|
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|
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Total Assets
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|
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105,909,720
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99,449,379
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Liabilities
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Due to Affiliate
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(NOTE 5)
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643,272
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580,353
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Accounts Payable
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192,990
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115,741
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Accrued Liabilities
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23,210
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79,651
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Due to Broker
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25,000,604
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22,500,041
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Dividends Payable
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478,892
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478,892
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Interest Payable
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159,666
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142,518
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Other Liabilities
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6,927
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140,458
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Accrued Offering Expenses
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-
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19,697
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|
Line of Credit
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23,098,577
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18,544,660
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Distribution Notes
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(NOTE 8)
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3,404,583
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|
|
|
3,404,583
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|
|
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|
|
|
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Total Liabilities
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|
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53,008,721
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46,006,594
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|
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|
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Net Assets
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|
|
|
|
|
$
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52,900,999
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$
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53,442,785
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Components of Net Assets
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|
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Common Stock, par value $0.01 per share
|
|
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(100,000,000 authorized; 6,219,382 issued
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and outstanding)
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|
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$
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62,194
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|
|
$
|
62,194
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Paid-in capital in excess of par
|
|
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|
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|
57,455,232
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|
|
|
57,455,232
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Distributions in excess of Net Investment Income
|
|
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|
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(321,195
|
)
|
|
|
(122,763
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)
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Accumulated Net Realized Losses
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|
|
|
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|
(1,036,033
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)
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|
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(175,366
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)
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Accumulated Net Unrealized Losses
|
|
|
|
|
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|
(3,259,199
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)
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|
(3,776,512
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)
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Net Assets
|
|
|
|
|
|
$
|
52,900,999
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|
|
$
|
53,442,785
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Net Asset Value Per Share
|
|
|
|
|
|
$
|
8.51
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|
|
$
|
8.59
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
Three months ended
September 30, 2012
|
|
|
Three months ended
September 30, 2011
|
|
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
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Interest Income
|
|
|
|
|
|
$
|
2,019,984
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|
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$
|
1,825,263
|
|
Interest Income from Affiliate Investments
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|
|
|
|
|
|
279,941
|
|
|
|
234,864
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|
Interest Income from Control Investments
|
|
|
|
|
|
|
279,173
|
|
|
|
27,573
|
|
Dividend Income from Control Investments
|
|
|
|
|
|
|
34,097
|
|
|
|
-
|
|
Other Income
|
|
|
(NOTE 2)
|
|
|
|
144,027
|
|
|
|
311,457
|
|
Other Income from Affiliate Investments
|
|
|
(NOTE 2)
|
|
|
|
3,581
|
|
|
|
54,086
|
|
Other Income from Control Investments
|
|
|
(NOTE 2)
|
|
|
|
12,500
|
|
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income
|
|
|
|
|
|
|
2,773,303
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|
|
|
2,558,243
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee
|
|
|
(NOTE 5)
|
|
|
|
334,036
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|
|
|
285,960
|
|
Incentive Fee
|
|
|
(NOTE 5)
|
|
|
|
307,932
|
|
|
|
371,602
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|
Total Advisory Fees
|
|
|
|
|
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|
641,968
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|
|
|
657,562
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|
|
|
|
|
|
|
|
|
|
|
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|
Allocation of Overhead Expenses
|
|
|
(NOTE 5)
|
|
|
|
56,756
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|
|
|
85,685
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|
Sub-Administration Fees
|
|
|
(NOTE 5)
|
|
|
|
73,429
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|
|
|
78,114
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|
Officers’ Compensation
|
|
|
(NOTE 5)
|
|
|
|
75,194
|
|
|
|
45,924
|
|
Total Administration Fees
|
|
|
|
|
|
|
205,379
|
|
|
|
209,723
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Directors’ Fees
|
|
|
|
|
|
|
28,625
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|
|
|
28,125
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|
Interest Expenses
|
|
|
(NOTE 8)
|
|
|
|
396,495
|
|
|
|
122,560
|
|
Professional Services Expense
|
|
|
|
|
|
|
165,161
|
|
|
|
220,873
|
|
Bank Fees
|
|
|
|
|
|
|
3,090
|
|
|
|
3,681
|
|
Other
|
|
|
|
|
|
|
94,340
|
|
|
|
85,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Operating Expenses
|
|
|
|
|
|
|
1,535,058
|
|
|
|
1,327,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee Waiver and Expense Reimbursement
|
|
|
|
|
|
|
-
|
|
|
|
(313,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Operating Expenses
|
|
|
|
|
|
|
1,535,058
|
|
|
|
1,013,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
|
|
|
|
1,238,245
|
|
|
|
1,544,342
|
|
Net Change in Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
|
517,313
|
|
|
|
(70,815
|
)
|
Net Realized Gain (Loss) on Investments
|
|
|
|
|
|
|
(860,667
|
)
|
|
|
125,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
|
|
|
$
|
894,891
|
|
|
$
|
1,599,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share Basic and Diluted
|
|
|
(NOTE 4)
|
|
|
$
|
0.14
|
|
|
$
|
0.26
|
|
Net Investment Income per Common Share Basic and Diluted
|
|
|
|
|
|
$
|
0.20
|
|
|
$
|
0.25
|
|
Weighted Average Shares of Common Stock Outstanding Basic and Diluted
|
|
|
|
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
NET ASSETS (Unaudited)
|
|
Three months ended
September 30, 2012
|
|
|
Three months ended
September 30, 2011
|
|
Increase (Decrease) in Net Assets Resulting from Operations:
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
$
|
1,238,245
|
|
|
$
|
1,544,342
|
|
Net Change in Unrealized Gain (Loss) on Investments
|
|
|
517,313
|
|
|
|
(70,815
|
)
|
Net Realized Gain (Loss) on Investments
|
|
|
(860,667
|
)
|
|
|
125,806
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
894,891
|
|
|
|
1,599,333
|
|
|
|
|
|
|
|
|
|
|
Dividends to Shareholders
|
|
|
(1,436,677
|
)
|
|
|
(1,399,361
|
)
|
|
|
|
|
|
|
|
|
|
Total Increase (Decrease) in Net Assets
|
|
|
(541,786
|
)
|
|
|
199,972
|
|
Net Assets at Beginning of Period
|
|
|
53,442,785
|
|
|
|
56,474,006
|
|
|
|
|
|
|
|
|
|
|
Net Assets at End of Period
|
|
$
|
52,900,999
|
|
|
$
|
56,673,978
|
|
|
|
|
|
|
|
|
|
|
Capital Share Activity:
|
|
|
|
|
|
|
|
|
Shares issued
|
|
|
-
|
|
|
|
-
|
|
Shares Outstanding at Beginning of Period
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding at End of Period
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three months ended
September 30, 2012
|
|
|
Three months ended
September 30, 2011
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
894,891
|
|
|
$
|
1,599,333
|
|
Adjustments to reconcile Net Increase (Decrease) in Net Assets Resulting from Operations to Net Cash Provided by (Used in) Operating Activities
|
|
|
|
|
|
|
|
|
Purchases of Investments
|
|
|
(36,438,364
|
)
|
|
|
(62,735,071
|
)
|
Proceeds from Sale or Refinancing of Investments
|
|
|
30,591,557
|
|
|
|
41,884,104
|
|
Net Realized (Gain) Loss on Investments
|
|
|
860,667
|
|
|
|
(125,806
|
)
|
Net Change in Unrealized (Gain) Loss on Investments
|
|
|
(517,313
|
)
|
|
|
70,815
|
|
Amortization of Discount
|
|
|
(112,444
|
)
|
|
|
(187,337
|
)
|
Change in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
|
Deposit with Broker
|
|
|
(402,519
|
)
|
|
|
(842,141
|
)
|
Interest Receivable
|
|
|
(62,729
|
)
|
|
|
(69,863
|
)
|
Dividends Receivable
|
|
|
(34,097
|
)
|
|
|
-
|
|
Principal Receivable
|
|
|
(718,436
|
)
|
|
|
-
|
|
Due from Portfolio Investment
|
|
|
11,140
|
|
|
|
-
|
|
Due from Affiliates
|
|
|
(37,335
|
)
|
|
|
(289,757
|
)
|
Prepaid Expenses
|
|
|
(116,962
|
)
|
|
|
(101,828
|
)
|
Other Assets
|
|
|
(2,055
|
)
|
|
|
(226,230
|
)
|
Due to Affiliates
|
|
|
62,919
|
|
|
|
52,542
|
|
Accounts Payable
|
|
|
77,249
|
|
|
|
354,400
|
|
Accrued Liabilities
|
|
|
(56,441
|
)
|
|
|
68,777
|
|
Due to Broker
|
|
|
2,500,563
|
|
|
|
9,000,770
|
|
Interest Payable
|
|
|
17,148
|
|
|
|
26,114
|
|
Other Liabilities
|
|
|
(133,531
|
)
|
|
|
(46,861
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(3,616,092
|
)
|
|
|
(11,568,039
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Borrowings Under Credit Facility
|
|
|
14,182,849
|
|
|
|
31,827,093
|
|
Payments Under Credit Facility
|
|
|
(9,678,932
|
)
|
|
|
(19,104,831
|
)
|
Dividends Paid to Shareholders
|
|
|
(1,436,677
|
)
|
|
|
(2,332,268
|
)
|
Payment of Offering Expenses
|
|
|
(23,793
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
3,043,447
|
|
|
|
10,389,994
|
|
|
|
|
|
|
|
|
|
|
Total Decrease in Cash
|
|
|
(572,645
|
)
|
|
|
(1,178,045
|
)
|
Cash Balance at Beginning of Period
|
|
|
639,149
|
|
|
|
2,065,943
|
|
Cash Balance at End of Period
|
|
$
|
66,504
|
|
|
$
|
887,898
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Financing Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared, not yet Paid
|
|
$
|
478,892
|
|
|
$
|
466,454
|
|
Accrued Offering Expenses
|
|
$
|
(19,697
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for Interest
|
|
$
|
379,347
|
|
|
$
|
96,446
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2012 (Unaudited)
Description
1,2
|
|
Industry
|
|
Par Amount/
Quantity
|
|
|
Cost
|
|
|
Fair Value
|
|
|
% of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attention Transit Advertising Systems, LLC
|
|
Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 14.50%, 11/1/2012
|
|
Advertising Services
|
|
$
|
2,019,637
|
|
|
$
|
2,017,010
|
|
|
$
|
1,808,787
|
|
|
|
3.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background Images, Inc.
|
|
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 14.74%, 6/28/2014
|
|
Rental Services
|
|
$
|
1,840,000
|
|
|
|
1,818,784
|
|
|
|
1,897,040
|
|
|
|
3.59
|
%
|
Senior Secured Loan – Term B, 16.49%, 6/28/2014
|
|
|
|
$
|
1,040,000
|
|
|
|
1,027,846
|
|
|
|
1,076,920
|
|
|
|
2.04
|
%
|
Totals
|
|
|
|
|
|
|
|
|
2,846,630
|
|
|
|
2,973,960
|
|
|
|
5.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blackstrap Broadcasting, LLC
|
|
Radio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 5.00%, 6/25/2013
|
|
Broadcasting
|
|
$
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
2,878,800
|
|
|
|
5.44
|
%
|
Subordinated Secured Loan, 16.00%, 6/25/2013
|
|
|
|
$
|
3,500,000
|
|
|
|
3,500,000
|
|
|
|
3,465,700
|
|
|
|
6.55
|
%
|
Totals
|
|
|
|
|
|
|
|
|
6,500,000
|
|
|
|
6,344,500
|
|
|
|
11.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coast Plating, Inc.
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 11.74%, 9/13/2014
|
|
Parts Plating
and Finishing
|
|
$
|
1,450,000
|
|
|
|
1,451,358
|
|
|
|
1,462,132
|
|
|
|
2.76
|
%
|
Senior Secured Loan – Term B, 12.49%, 9/13/2014
|
|
|
|
$
|
3,550,000
|
|
|
|
3,543,399
|
|
|
|
3,494,620
|
|
|
|
6.61
|
%
|
Totals
|
|
|
|
|
|
|
|
|
4,994,757
|
|
|
|
4,956,752
|
|
|
|
9.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSL Operating, LLC
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 11.74%, 5/11/2014
|
|
Metal
Treatings
|
|
$
|
2,000,000
|
|
|
|
1,994,167
|
|
|
|
1,977,000
|
|
|
|
3.74
|
%
|
Senior Secured Loan – Term B, 11.74%, 5/11/2014
|
|
|
|
$
|
2,000,000
|
|
|
|
1,994,167
|
|
|
|
1,964,200
|
|
|
|
3.71
|
%
|
Totals
|
|
|
|
|
|
|
|
|
3,988,334
|
|
|
|
3,941,200
|
|
|
|
7.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment Plus, Inc.
|
|
Staffing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.00%, 10/24/2013
|
|
Services
|
|
$
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
9.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European Evaluators, LLC
3
|
|
Art
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.00%, 2/28/2013
|
|
Dealers
|
|
$
|
615,000
|
|
|
|
615,000
|
|
|
|
615,000
|
|
|
|
1.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Energy Efficiency Holdings
|
|
Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Revolving Loan, 12.48%, 9/7/2015
|
|
Efficiency
Services
|
|
$
|
2,000,000
|
|
|
|
1,973,957
|
|
|
|
1,973,957
|
|
|
|
3.73
|
%
|
Senior Secured Loan, 12.48%, 9/7/2015
|
|
|
|
$
|
1,000,000
|
|
|
|
986,830
|
|
|
|
986,830
|
|
|
|
1.87
|
%
|
Totals
|
|
|
|
|
|
|
|
|
2,960,787
|
|
|
|
2,960,787
|
|
|
|
5.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iMedX, Inc.
|
|
Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Revolving Loan, 10.09%, 9/19/2014
|
|
Transcription Services
|
|
$
|
547,568
|
|
|
|
547,303
|
|
|
|
547,568
|
|
|
|
1.04
|
|
Senior Secured Loan – Term A, 15.99%, 9/19/2014
|
|
|
|
$
|
2,552,000
|
|
|
|
2,528,729
|
|
|
|
2,609,505
|
|
|
|
4.93
|
|
Senior Secured Loan – Term B, 15.99%, 9/19/2014
|
|
|
|
$
|
600,000
|
|
|
|
600,000
|
|
|
|
613,520
|
|
|
|
1.16
|
|
Totals
|
|
|
|
|
|
|
|
|
3,676,032
|
|
|
|
3,770,593
|
|
|
|
7.13
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Continued)
September 30, 2012 (Unaudited)
Description
1,2
|
|
Industry
|
|
Par Amount/
Quantity
|
|
|
Cost
|
|
|
Fair Value
|
|
|
% of Net
Asset Value
|
|
Matt Martin Real Estate Management, LLC
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.99%, 4/30/2015
|
|
Management
Services
|
|
$
|
3,806,000
|
|
|
$
|
3,775,796
|
|
|
$
|
3,807,776
|
|
|
|
7.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MDU Communications (USA) Inc.
|
|
Cable TV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan - Tranche A, 11.85%, 6/30/2013
|
|
Broadband
Services
|
|
$
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
4,972,000
|
|
|
|
9.40
|
%
|
Senior Secured Loan - Tranche C, 9.75%, 6/30/2013
|
|
|
|
$
|
250,000
|
|
|
|
250,000
|
|
|
|
245,575
|
|
|
|
0.46
|
%
|
Senior Secured Loan - Tranche D, 8.75%, 6/30/2013
|
|
|
|
$
|
1,480,000
|
|
|
|
1,480,000
|
|
|
|
1,439,892
|
|
|
|
2.72
|
%
|
Warrants for 37,500 shares (at a $6.00 strike price), expire 6/30/2013
^
|
|
|
|
|
37,500
|
|
|
|
298
|
|
|
|
-
|
|
|
|
-
|
%
|
Totals
|
|
|
|
|
|
|
|
|
6,730,298
|
|
|
|
6,657,467
|
|
|
|
12.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ProGrade Ammo Group LLC
6
|
|
Munitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Revolving Loan, 9.24%, 8/1/2014
|
|
|
|
$
|
1,603,373
|
|
|
|
1,603,373
|
|
|
|
1,603,373
|
|
|
|
3.03
|
%
|
Senior Secured Term Loan, 15.24%, 8/1/2014
|
|
|
|
$
|
5,843,750
|
|
|
|
5,704,357
|
|
|
|
4,168,347
|
|
|
|
7.88
|
%
|
Warrants for 9.5% of the outstanding LLC interests (at a $10.00 strike price), expire 8/2/2018
^
|
|
|
|
|
1
|
|
|
|
176,770
|
|
|
|
-
|
|
|
|
-
|
%
|
Totals
|
|
|
|
|
|
|
|
|
7,484,500
|
|
|
|
5,771,720
|
|
|
|
10.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Westchester Financial, LLC
4
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Liability Company Interests
^
|
|
Financing
|
|
|
9,278
|
|
|
|
905,819
|
|
|
|
592,206
|
|
|
|
1.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Finance Company, LLC
4
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Term Loan, 15.00%, 9/30/2015
|
|
Financing
|
|
$
|
5,724,261
|
|
|
|
5,600,116
|
|
|
|
5,667,210
|
|
|
|
10.71
|
%
|
Limited Liability Company Interests
|
|
|
|
|
50
|
|
|
|
140,414
|
|
|
|
726,246
|
|
|
|
1.37
|
%
|
Totals
|
|
|
|
|
|
|
|
|
5,740,530
|
|
|
|
6,393,456
|
|
|
|
12.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Selling Source, LLC
|
|
Information and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.00%, 12/21/2012
|
|
Data Services
|
|
$
|
3,158,196
|
|
|
|
3,158,196
|
|
|
|
3,158,196
|
|
|
|
5.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransAmerican Asset Servicing Group, LLC
4,5
|
|
Asset Recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Term Loan, 14.25%, 7/25/2016
|
|
Services
|
|
$
|
2,000,000
|
|
|
|
1,959,362
|
|
|
|
1,516,480
|
|
|
|
2.87
|
|
Limited
Liability Company Interests
^
|
|
|
|
|
75
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Totals
|
|
|
|
|
|
|
|
|
1,959,362
|
|
|
|
1,516,480
|
|
|
|
2.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Path Labs, LLC
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan , 13.00%, 3/30/2014
|
|
Services
|
|
$
|
3,500,000
|
|
|
|
3,442,096
|
|
|
|
3,490,900
|
|
|
|
6.60
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Continued)
September 30, 2012 (Unaudited)
Description
1,2
|
|
Industry
|
|
Par Amount/
Quantity
|
|
|
Cost
|
|
|
Fair Value
|
|
|
% of Net
Asset Value
|
|
VaultLogix, LLC
|
|
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants for Variable % Ownership, (at a $307.855 strike price), expire 9/4/2013
^
|
|
Retrieval
Services
|
|
|
3,439
|
|
|
$
|
56,147
|
|
|
$
|
-
|
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West World Media, LLC
6,7
|
|
Information and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Liability Company Interests
^
|
|
Data Services
|
|
|
146,400
|
|
|
|
430,500
|
|
|
|
216,964
|
|
|
|
0.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ygnition Networks, Inc.
|
|
Cable TV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.73%, 10/31/2012
|
|
Broadband
Services
|
|
$
|
12,439,770
|
|
|
|
12,439,770
|
|
|
|
11,486,055
|
|
|
|
21.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury Bill** (0.14)%, 10/4/2012
|
|
|
|
$
|
22,500,000
|
|
|
|
25,000,302
|
|
|
|
24,999,868
|
|
|
|
47.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
|
|
|
|
|
|
$
|
103,721,866
|
|
|
$
|
100,462,667
|
|
|
|
189.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial
statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2012 (Unaudited)
The following table shows the fair value
of our portfolio of investments by industry, as of September 30, 2012, excluding United States Treasury Bills of approximately
$25.0 million.
|
|
September 30, 2012
|
|
|
|
Investment at
|
|
|
|
|
|
|
Fair Value
(dollars in millions)
|
|
|
Percentage of
Net Assets
|
|
Cable TV/Broadband Services
|
|
$
|
18.1
|
|
|
|
34.29
|
%
|
Consumer Financing
|
|
|
7.0
|
|
|
|
13.20
|
|
Radio Broadcasting
|
|
|
6.3
|
|
|
|
11.99
|
|
Munitions
|
|
|
5.8
|
|
|
|
10.91
|
|
Staffing Services
|
|
|
5.0
|
|
|
|
9.45
|
|
Aerospace Parts Plating and Finishing
|
|
|
5.0
|
|
|
|
9.37
|
|
Industrial Metal Treatings
|
|
|
3.9
|
|
|
|
7.45
|
|
Real Estate Management Services
|
|
|
3.8
|
|
|
|
7.20
|
|
Medical Transcription Services
|
|
|
3.8
|
|
|
|
7.13
|
|
Healthcare Services
|
|
|
3.5
|
|
|
|
6.60
|
|
Information and Data Services
|
|
|
3.4
|
|
|
|
6.38
|
|
Equipment Rental Services
|
|
|
3.0
|
|
|
|
5.63
|
|
Energy Efficiency Services
|
|
|
3.0
|
|
|
|
5.60
|
|
Outdoor Advertising Services
|
|
|
1.8
|
|
|
|
3.42
|
|
Asset Recovery Services
|
|
|
1.5
|
|
|
|
2.87
|
|
Art Dealers
|
|
|
0.6
|
|
|
|
1.16
|
|
Total
|
|
$
|
75.5
|
|
|
|
142.65
|
%
|
1
Our
investments are acquired in private transactions exempt from registration under the Securities Act of 1933, therefore are generally
subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act
of 1933.
2
A
majority of the variable rate debt investments bear interest at a rate that may be determined by reference to LIBOR or the U.S.
prime rate, and which is reset daily, quarterly or semi-annually. For each debt investment we have provided the current interest
rate in effect as of September 30, 2012.
3
Full
Circle Capital Corporation’s loan to European Evaluators, LLC is held through its wholly-owned subsidiary Art Credit Company,
LLC.
4
Denotes a Control Investment. “Control Investments”
are investments in those companies that are “Control Investments” of the Company, as defined in the Investment Company
Act of 1940. A company is deemed to be a “Control Investment” of Full Circle Capital Corporation if Full Circle Capital
Corporation owns more than 25% of the voting securities of such company.
5
Full Circle Capital Corporation’s investments
in TransAmerican Asset Servicing Group, LLC are held through its wholly-owned subsidiary TransAmerican Asset Servicing Group, Inc.
6
Denotes
an Affiliate Investment. “Affiliate Investments” are investments in those companies that are “Affiliated Companies”
of the Company, as defined in the Investment Company Act of 1940, which are not “Control Investments.” A
company is deemed to be an “Affiliate” of Full Circle Capital Corporation if Full Circle Capital Corporation owns 5%
or more but less than 25% of the voting securities of such company.
7
A
portion of Full Circle Capital Corporation’s investments in West World Media, LLC is held through its wholly-owned subsidiary
Full Circle West, Inc. The remainder of the LLC interests are held directly by Full Circle Capital Corporation.
|
**
|
Interest rate shown reflects yield to maturity at time of purchase.
|
|
^
|
Security is a non-income producing security.
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
June 30, 2012 (Audited)
Description
1,2
|
|
Industry
|
|
Par Amount/
Quantity
|
|
|
Cost
|
|
|
Fair Value
|
|
|
% of Net
Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attention Transit Advertising Systems, LLC
|
|
Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 14.50%, 11/1/2012
|
|
Advertising Services
|
|
$
|
2,060,150
|
|
|
$
|
2,048,859
|
|
|
$
|
1,900,282
|
|
|
|
3.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background Images, Inc.
|
|
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 14.74%, 6/28/2014
|
|
Rental
Services
|
|
$
|
2,012,500
|
|
|
|
1,986,949
|
|
|
|
2,027,594
|
|
|
|
3.79
|
%
|
Senior Secured Loan – Term B, 16.49%, 6/28/2014
|
|
|
|
$
|
1,137,500
|
|
|
|
1,122,922
|
|
|
|
1,123,433
|
|
|
|
2.10
|
%
|
Totals
|
|
|
|
|
|
|
|
|
3,109,871
|
|
|
|
3,151,027
|
|
|
|
5.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blackstrap Broadcasting, LLC
|
|
Radio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 5.00%, 9/25/2012
|
|
Broadcasting
|
|
$
|
3,000,000
|
|
|
|
2,959,844
|
|
|
|
2,850,600
|
|
|
|
5.33
|
%
|
Subordinated Secured Loan, 16.00%, 9/25/2012
|
|
|
|
$
|
3,500,000
|
|
|
|
3,495,844
|
|
|
|
3,465,700
|
|
|
|
6.48
|
%
|
Totals
|
|
|
|
|
|
|
|
|
6,455,688
|
|
|
|
6,316,300
|
|
|
|
11.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coast Plating, Inc.
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 11.74%, 9/13/2014
|
|
Parts Plating
and Finishing
|
|
$
|
1,450,000
|
|
|
|
1,449,081
|
|
|
|
1,464,790
|
|
|
|
2.74
|
%
|
Senior Secured Loan – Term B, 12.49%, 9/13/2014
|
|
|
|
$
|
3,550,000
|
|
|
|
3,540,361
|
|
|
|
3,484,325
|
|
|
|
6.52
|
%
|
Totals
|
|
|
|
|
|
|
|
|
4,989,442
|
|
|
|
4,949,115
|
|
|
|
9.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSL Operating, LLC
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 11.74%, 5/11/2014
|
|
Metal
Treatings
|
|
$
|
2,000,000
|
|
|
|
1,993,354
|
|
|
|
1,957,933
|
|
|
|
3.66
|
%
|
Senior Secured Loan – Term B, 11.74%, 5/11/2014
|
|
|
|
$
|
2,000,000
|
|
|
|
1,993,354
|
|
|
|
1,944,400
|
|
|
|
3.64
|
%
|
Totals
|
|
|
|
|
|
|
|
|
3,986,708
|
|
|
|
3,902,333
|
|
|
|
7.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment Plus, Inc.
|
|
Staffing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.00%, 10/24/2013
|
|
Services
|
|
$
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
9.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equisearch Acquisition, Inc.
|
|
Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 14.00%, 5/31/2012
^
|
|
Recovery
Services
|
|
$
|
2,580,201
|
|
|
|
2,580,201
|
|
|
|
1,959,363
|
|
|
|
3.67
|
%
|
Warrants for 47.9056 shares (at a $0.01 strike price), expire 1/31/2016
^
|
|
|
|
|
48
|
|
|
|
225,000
|
|
|
|
-
|
|
|
|
-
|
%
|
Totals
|
|
|
|
|
|
|
|
|
2,805,201
|
|
|
|
1,959,363
|
|
|
|
3.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European Evaluators, LLC
3
|
|
Art
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 11.99%, 8/29/2012
|
|
Dealers
|
|
$
|
615,000
|
|
|
|
614,240
|
|
|
|
614,240
|
|
|
|
1.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iMedX, Inc.
|
|
Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Revolving Loan, 10.09%, 9/19/2014
|
|
Transcription Services
|
|
$
|
1,298,517
|
|
|
|
1,295,589
|
|
|
|
1,298,517
|
|
|
|
2.43
|
%
|
Senior Secured Loan – Term A, 15.99%, 9/19/2014
|
|
|
|
$
|
2,755,000
|
|
|
|
2,727,654
|
|
|
|
2,772,448
|
|
|
|
5.19
|
%
|
Totals
|
|
|
|
|
|
|
|
|
4,023,243
|
|
|
|
4,070,965
|
|
|
|
7.62
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Continued)
June 30, 2012 (Audited)
Description
1,2
|
|
Industry
|
|
Par Amount/
Quantity
|
|
|
Cost
|
|
|
Fair Value
|
|
|
% of Net
Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matt Martin Real Estate Management, LLC
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.99%, 4/30/2015
|
|
Management
Services
|
|
$
|
4,139,000
|
|
|
$
|
4,104,413
|
|
|
$
|
4,104,413
|
|
|
|
7.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MDU Communications (USA) Inc.
|
|
Cable TV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan - Tranche A, 11.85%, 6/30/2013
|
|
Broadband
Services
|
|
$
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
4,889,000
|
|
|
|
9.15
|
%
|
Senior Secured Loan - Tranche C, 9.75%, 6/30/2013
|
|
|
|
$
|
250,000
|
|
|
|
250,000
|
|
|
|
240,275
|
|
|
|
0.45
|
%
|
Senior Secured Loan - Tranche D, 8.75%, 6/30/2013
|
|
|
|
$
|
1,480,000
|
|
|
|
1,480,000
|
|
|
|
1,399,537
|
|
|
|
2.62
|
%
|
Warrants for 37,500 shares (at a $6.00 strike price), expire 6/30/2013
^
|
|
|
|
|
37,500
|
|
|
|
298
|
|
|
|
-
|
|
|
|
-
|
%
|
Totals
|
|
|
|
|
|
|
|
|
6,730,298
|
|
|
|
6,528,812
|
|
|
|
12.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ProGrade Ammo Group LLC
5
|
|
Munitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Revolving Loan, 9.24%, 8/1/2014
|
|
|
|
$
|
383,798
|
|
|
|
383,798
|
|
|
|
383,798
|
|
|
|
0.72
|
%
|
Senior Secured Term Loan, 15.24%, 8/1/2014
|
|
|
|
$
|
5,968,750
|
|
|
|
5,810,949
|
|
|
|
4,511,380
|
|
|
|
8.44
|
%
|
Warrants for 9.5% of the outstanding LLC interests (at a $10.00 strike price), expire 8/2/2018
^
|
|
|
|
|
181,240
|
|
|
|
176,770
|
|
|
|
-
|
|
|
|
-
|
%
|
Totals
|
|
|
|
|
|
|
|
|
6,371,517
|
|
|
|
4,895,178
|
|
|
|
9.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Westchester Financial, LLC
4
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Liability Company Interests
^
|
|
Financing
|
|
|
9,278
|
|
|
|
905,819
|
|
|
|
549,360
|
|
|
|
1.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Finance Company, LLC
4
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Term Loan, 15.00%, 9/30/2015
|
|
Financing
|
|
$
|
5,724,261
|
|
|
|
5,593,415
|
|
|
|
5,617,738
|
|
|
|
10.51
|
%
|
Limited Liability Company Interests
|
|
|
|
|
50
|
|
|
|
140,414
|
|
|
|
610,413
|
|
|
|
1.14
|
%
|
Totals
|
|
|
|
|
|
|
|
|
5,733,829
|
|
|
|
6,228,151
|
|
|
|
11.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Selling Source, LLC
|
|
Information and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.00%, 12/21/2012
|
|
Data Services
|
|
$
|
3,323,508
|
|
|
|
3,323,508
|
|
|
|
3,323,508
|
|
|
|
6.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Path Labs, LLC
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 13.00%, 3/30/2014
|
|
Services
|
|
$
|
3,500,000
|
|
|
|
3,434,191
|
|
|
|
3,465,117
|
|
|
|
6.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VaultLogix, LLC
|
|
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants for Variable % Ownership, (at a $307.855 strike price), expire 1/14/2019
^
|
|
Retrieval
Services
|
|
|
3,439
|
|
|
|
56,147
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West World Media, LLC
5,6
|
|
Information and
|
|
|
85,210
|
|
|
|
430,500
|
|
|
|
216,964
|
|
|
|
0.41
|
%
|
Limited Liability Company Interests
^
|
|
Data Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Continued)
June 30, 2012 (Audited)
Description
1,2
|
|
Industry
|
|
Par Amount/
Quantity
|
|
|
Cost
|
|
|
Fair Value
|
|
|
% of Net
Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ygnition Networks, Inc.
|
|
Cable TV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.74%, 9/6/2012
|
|
Broadband
Services
|
|
$
|
11,999,743
|
|
|
$
|
11,999,781
|
|
|
$
|
11,171,761
|
|
|
|
20.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury Bill** (0.01)%, 7/5/2012
|
|
|
|
$
|
22,500,000
|
|
|
|
22,500,027
|
|
|
|
22,499,881
|
|
|
|
42.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
|
|
|
|
|
|
$
|
98,623,282
|
|
|
$
|
94,846,770
|
|
|
|
177.47
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
June 30, 2012 (Audited)
The following table shows the fair value
of our portfolio of investments by industry, as of June 30, 2012, excluding United States Treasury Bills of approximately $22.5
million.
|
|
June 30, 2012
|
|
|
|
Investment at
|
|
|
|
|
|
|
Fair Value
(dollars in millions)
|
|
|
Percentage of
Net Assets
|
|
Cable TV/Broadband Services
|
|
$
|
17.7
|
|
|
|
33.12
|
%
|
Consumer Financing
|
|
|
6.8
|
|
|
|
12.68
|
|
Radio Broadcasting
|
|
|
6.3
|
|
|
|
11.81
|
|
Staffing Services
|
|
|
5.0
|
|
|
|
9.36
|
|
Aerospace Parts Plating and Finishing
|
|
|
4.9
|
|
|
|
9.26
|
|
Munitions
|
|
|
4.9
|
|
|
|
9.16
|
|
Real Estate Management Services
|
|
|
4.1
|
|
|
|
7.68
|
|
Medical Transcription Services
|
|
|
4.1
|
|
|
|
7.62
|
|
Industrial Metal Treatings
|
|
|
3.9
|
|
|
|
7.30
|
|
Information and Data Services
|
|
|
3.5
|
|
|
|
6.63
|
|
Healthcare Services
|
|
|
3.5
|
|
|
|
6.48
|
|
Equipment Rental Services
|
|
|
3.1
|
|
|
|
5.89
|
|
Asset Recovery Services
|
|
|
2.0
|
|
|
|
3.67
|
|
Outdoor Advertising Services
|
|
|
1.9
|
|
|
|
3.56
|
|
Art Dealers
|
|
|
0.6
|
|
|
|
1.15
|
|
Total
|
|
$
|
72.3
|
|
|
|
135.37
|
%
|
1
Our
investments are acquired in private transactions exempt from registration under the Securities Act of 1933, therefore are generally
subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act
of 1933.
2
A
majority of the variable rate debt investments bear interest at a rate that may be determined by reference to LIBOR or the U.S.
prime rate, and which is reset daily, quarterly or semi-annually. For each debt investment we have provided the current interest
rate in effect as of June 30, 2012.
3
Full
Circle Capital Corporation’s loan to European Evaluators, LLC is held through its wholly-owned subsidiary Art Credit Company,
LLC.
4
Denotes a Control Investment. “Control Investments”
are investments in those companies that are “Control Investments” of the Company, as defined in the Investment Company
Act of 1940. A company is deemed to be a “Control Investment” of Full Circle Capital Corporation if Full Circle Capital
Corporation owns more than 25% of the voting securities of such company.
5
Denotes
an Affiliate Investment. “Affiliate Investments” are investments in those companies that are “Affiliated Companies”
of the Company, as defined in the Investment Company Act of 1940, which are not “Control Investments.” A
company is deemed to be an “Affiliate” of Full Circle Capital Corporation if Full Circle Capital Corporation owns 5%
or more but less than 25% of the voting securities of such company.
6
A
portion of Full Circle Capital Corporation’s investments in West World Media, LLC is held through its wholly-owned subsidiary
Full Circle West, Inc. The remainder of the LLC interests are held directly by Full Circle Capital Corporation.
|
**
|
Interest rate shown reflects yield to maturity at time of purchase.
|
|
^
|
Security is a non-income producing security.
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
Note 1. Organization
References herein to “we”,
“us” or “our” refer to Full Circle Capital Corporation and Subsidiaries (“Full Circle Capital”
or “Company”) unless the context specifically requires otherwise.
We were formed as Full Circle Capital Corporation,
a Maryland corporation. We were organized on April 16, 2010 and were funded in an initial public offering, or “IPO,”
completed on August 31, 2010. We are a non-diversified, closed-end investment company that has filed an election to
be treated as a business development company, or “BDC,” under the Investment Company Act of 1940 (the “1940 Act”). As
a BDC, we expect to qualify and elect to be treated as a regulated investment company, or “RIC,” under Subchapter M
of the Internal Revenue Code. We invest primarily in senior secured term debt issued by smaller and lower middle-market
companies. Our investment objective is to generate both current income and capital appreciation through debt and equity
investments.
Note 2. Significant Accounting Policies
Use of Estimates and Basis of Presentation
The preparation of the accompanying consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date
of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Changes in
the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used in determining
these estimates could cause actual results to differ.
Interim financial statements are prepared
in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation
S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the
opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation
of financial statements for the interim period, have been included. The current period’s results of operations will not necessarily
be indicative of results that ultimately may be achieved for the fiscal year ending June 30, 2013.
Investment Classification
We are a non-diversified company within
the meaning of the 1940 Act. We classify our investments by level of control. As defined in the 1940 Act, control investments are
those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control
is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial
ownership of 25% or more of the voting securities of an investee company. Affiliated Investments and affiliated companies are defined
by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days
or less, beneficial ownership of 5% or more of the outstanding voting securities of another company or person.
Investments are recognized when we assume
an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments
are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to
that instrument. Specifically, we record all security transactions on a trade date basis. Investments in other, non-security financial
instruments, such as a limited partnership or private company, are recorded on the basis of subscription date or redemption date,
as applicable. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments
sold and payables for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.
Basis of Consolidation
Under the 1940 Act rules, the regulations
pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ Audit and Accounting
Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company or an operating
company which provides substantially all of its services and benefits to us. Our financial statements include our accounts and
the accounts of Full Circle West, Inc., TransAmerican Asset Servicing Group, Inc. and Art Credit Company, LLC, our only wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Valuation of Investments
In accordance with GAAP, fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date.
In determining fair value, Full Circle
Capital’s Board of Directors (the “Board”) uses various valuation approaches. In accordance with GAAP, a fair
value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are those that market
participants would use in pricing the asset or liability based on market data obtained from sources independent of the Board. Unobservable
inputs reflect the Board’s assumptions about the inputs market participants would use in pricing the asset or liability developed
based on the best information available in the circumstances.
Securities for which reliable market quotations
are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or
methodology that, in the judgment of the Board or the Audit Committee of the Board (the “Audit Committee”), does not
represent fair value, shall each be valued as follows:
|
1.
|
The quarterly valuation process begins with each portfolio company or investment being initially
valued by the investment professionals responsible for the portfolio investment;
|
|
2.
|
Preliminary valuation conclusions are then documented and discussed with the Company’s senior
management. An independent third-party valuation firm is engaged by, or on behalf of, the Audit Committee to conduct independent
appraisals and review management’s preliminary valuations and make their own independent assessment, for certain assets;
|
|
3.
|
The Audit Committee discusses valuations and recommends the fair value of each investment in the
portfolio in good faith based on the input of the Company and, where appropriate, the independent third-party valuation firm; and
|
|
4.
|
The Board then discusses the valuations and determines in good faith the fair value of each investment
in the portfolio based upon any applicable independent pricing service, input from the Company, estimates from the independent
valuation firm and the recommendations of the Audit Committee of the Board.
|
GAAP establishes a framework for measuring
fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs
to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair
value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels
of the fair value hierarchy are as follows:
Level 1 — Valuations
based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that
are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of
judgment.
Level 2 — Valuations
based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations
based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques
and observable inputs can vary from investment to investment and is affected by a wide variety of factors including, the type of
investment, whether the investment is new and not yet established in the marketplace, and other characteristics particular to the
transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may
be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent
uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had
a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Board in determining fair value
is greatest for investments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which
the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair
value measurement.
Fair value is a market-based measure considered
from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are
not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing
the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date,
including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced
for many securities. This condition could cause an investment to be reclassified to a lower level within the fair value hierarchy.
Valuation Techniques
Senior and Subordinated Secured Loans
Our portfolio consists primarily of private
debt instruments (“Level 3 debt”). The Company considers its Level 3 debt to be performing if the borrower is not in
default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is otherwise not deemed to
be impaired. In determining the fair value of the performing Level 3 debt, the Board considers fluctuations in current interest
rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions
and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as
defined above, the Board will evaluate the value of the collateral utilizing the same framework described above for a performing
loan to determine the value of the Level 3 debt instrument.
This evaluation will be updated no less
than quarterly for Level 3 debt instruments that are not performing, and more frequently for time periods where there are significant
changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will
be analyzed on an ongoing basis using internal metrics, appraisals, third party valuation agents and other data as may be acquired
and analyzed by management and the Board.
Investments in Private Companies
The Board determines the fair value of
its investments in private companies by incorporating valuations that consider the evaluation of financing and sale transactions
with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples,
among other factors, including third party valuation agents. These nonpublic investments are included in Level 3 of the fair value
hierarchy.
Warrants
The Board will ascribe value to warrants
based on fair value analyses that can include discounted cash flow analyses, option pricing models, comparable analyses and other
techniques as deemed appropriate.
Cash
The Company places its cash with J.P. Morgan
Chase Bank, N.A., and at times, cash held in these accounts may exceed the Federal Deposit Insurance Corporation insured limit.
The Company may invest a portion of its cash in money market funds, within the limitations of the 1940 Act.
Revenue Recognition
Realized gains or losses on the sale of
investments are calculated using the specific identification method.
Interest income, adjusted for amortization
of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with
senior and subordinated secured loans are accreted into interest income over the respective terms of the applicable loans. Upon
the prepayment of a senior or subordinated secured loan, any unamortized loan origination, closing and commitment fees are recorded
as interest income.
Dividend income is recorded on the ex-dividend
date.
Structuring fees, board fees, excess deal
deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when paid. Other fee income, including
administrative fees and unused line fees, is included in Other Income. Income from such sources was $160,108, and $470,543
for the three months ended September 30, 2012 and 2011, respectively.
Federal and State Income Taxes
We have elected
to be treated as a regulated investment company and intend to continue to comply with the requirements of the Internal Revenue
Code of 1986 (the “Code”), applicable to regulated investment companies. We will be required to distribute at
least 90% of our investment company taxable income and intend to distribute (or retain through a
deemed distribution) all of our investment company taxable income and net capital gain to stockholders; therefore, we have made
no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income
tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and
other permanent book and tax differences are reclassified to paid-in capital.
If we do not distribute (or are not deemed
to have distributed) each calendar year sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital
gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed,
in preceding years (the “Minimum Distribution Amount”), we will generally be required to pay an excise tax equal to
4% of the amount by the Minimum Distribution Amount exceeds the distributions for the year. To the extent that we determine that
our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable
income, we accrue excise taxes, if any, on estimated excess taxable income as taxable income is earned using an annual effective
excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated
annual taxable income.
Dividends and Distributions
Dividends and distributions to common stockholders
are recorded on the ex-dividend date. The amount, if any, to be paid as a dividend is approved by our Board each quarter and is
generally based upon our management’s estimate of our earnings for the quarter. Net realized capital gains, if
any, are distributed at least annually.
Guarantees and Indemnification Agreements
We follow Accounting Standards Codification
(“ASC”) Topic 460, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others”. ASC Topic 460 elaborates on the disclosure requirements of a guarantor
in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires
a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC Topic 460, the fair value
of the obligation undertaken in issuing certain guarantees. ASC Topic 460 did not have a material effect on the consolidated financial
statements. Refer to Note 5 and Note 8 for further discussion of guarantees and indemnification agreements.
Per Share Information
Basic and diluted earnings (loss) per common
share is calculated using the weighted average number of common shares outstanding for the period presented. Basic and diluted
earnings (loss) per share are the same since there are no potentially dilutive securities outstanding.
Organizational Expenses and Offering
Costs
The Company did not incur organizational
expenses or offering costs for the three months ended September 30, 2012, and 2011. The Company complies with the requirements
of ASC 340-10-S99-1, “Expenses of Offering”. Deferred offering costs consist principally of legal and audit costs incurred
through the balance sheet date that are related to an offering of equity securities. Such costs are charged against the gross proceeds
of the offering or will be charged to the Company’s operations if the offering is not competed. As of September 30, 2012,
the Company has deferred $71,781 of offering costs related to its form N-2 registration statement filed with the Securities and
Exchange Commission or “SEC” on March 23, 2012.
Capital Accounts
Certain capital accounts including undistributed
net investment income, accumulated net realized gain or loss, net unrealized appreciation or depreciation, and paid in capital
in excess of par, are adjusted, at least annually, for permanent differences between book and tax. In addition, the character of
income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.
Note 3. Concentration of Credit Risk
and Liquidity Risk
In the normal course of business, the Company
maintains its cash balances in financial institutions, which at times may exceed federally insured limits. The Company
is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual
obligations on its behalf. Management monitors the financial condition of such financial institutions and does not anticipate
any losses from these counterparties.
The Company utilizes one financial institution
to provide financing, which is essential to its business. There are a number of other financial institutions available that could
provide the Company with financing. Management believes that other financial institutions would be able to provide similar financing
with comparable terms. However, a change in financial institutions could cause a delay in service provisioning or result in potential
lost opportunities, which could adversely affect operating results.
As of September 30, 2012, we had approximately
$6.3 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of
our portfolio companies.
Note 4. Earnings (Loss) per Common Share
The following information sets forth the
computation of basic and diluted income per common share for the three months ended September 30, 2012 and 2011.
|
|
Three months ended
September 30, 2012
|
|
|
Three months ended
September 30, 2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
$
|
894,891
|
|
|
$
|
1,599,333
|
|
Average weighted shares outstanding for period
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
Basic and diluted earnings per common share
|
|
$
|
0.14
|
|
|
$
|
0.26
|
|
|
(1)
|
Per share data based on weighted average shares outstanding.
|
Note 5. Related Party Agreements and Transactions
Investment Advisory Agreement
On June 27, 2012, our Board of Directors
re-approved an investment advisory agreement (the “Investment Advisory Agreement”) with Full Circle Advisors, LLC (the
“Adviser”) under which the Adviser, subject to the overall supervision of our Board, manages the day-to-day operations
of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, our Adviser: (i) determines
the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes,
(ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective
portfolio companies); and (iii) closes and monitors investments we make.
The Adviser’s services under the
Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services
to us are not impaired. For providing these services the Adviser receives a fee from us, consisting of two components, a base management
fee and an incentive fee.
The base management fee is calculated at
an annual rate of 1.75% of our gross assets, as adjusted. For services rendered under the Investment Advisory Agreement, the base
management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of
our gross assets, as adjusted, at the end of the two most recently completed calendar quarters, and appropriately adjusted for
any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter will
be appropriately pro-rated. In addition, our investment adviser agreed to waive any portion of the base management fee that exceeded
1.50% of Full Circle Capital’s gross assets, as adjusted, until August 31, 2011 when such waiver expired.
The total base management fees earned by
the Adviser for the three months ended September 30, 2012 and 2011, were $334,036 and $285,960, respectively, after adjusting for
the waivers of $0 and $28,124, respectively. The total base management fee payable to the Adviser at September 30, 2012 was $334,036,
after reflecting payment of $308,271 during the period, and is included in the Consolidated Statement of Assets and Liabilities
in Due to Affiliate at September 30, 2012.
The incentive
fee has two parts. The first part of the incentive fee (the “Income incentive fee”) is calculated and payable quarterly
in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose,
pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other
than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or
other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the
quarter (including the base management fee, expenses payable under the Administration Agreement to
Full Circle Service Company (the “Administrator”), and any interest expenses and dividends paid on any issued and outstanding
preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments
with a deferred interest feature (such as original issue discount, debt instruments with pay in kind interest and zero coupon securities),
accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include organizational costs
or any realized capital gains, computed net of all realized capital losses or unrealized capital appreciation or depreciation.
Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately
preceding calendar quarter, is compared to a hurdle of 1.75% per quarter (7.00% annualized). Our net investment income used to
calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 1.75% base management
fee. We pay the Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as
follows:
|
•
|
no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle of 1.75%;
|
|
•
|
100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 2.1875% in any calendar quarter (8.75% annualized). We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle but is less than 2.1875%) as the “catch-up.” The “catch-up” is meant to provide our investment adviser with 20% of our pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 2.1875% in any calendar quarter; and
|
|
•
|
20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to the Adviser (once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to the Adviser).
|
These calculations are appropriately prorated
for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.
The second part of the incentive fee is
determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement,
as of the termination date) and will equal 20% of our realized capital gains, if any, on a cumulative basis from inception through
the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative
basis, less the aggregate amount of any previously paid capital gain incentive fees with respect to each of the investments in
our portfolio, provided that, the incentive fee determined as of December 31, 2010 was calculated for a period of shorter than
twelve calendar months to take into account any realized capital gains computed net of all realized capital losses and unrealized
capital depreciation from the inception of Full Circle Capital. There were no incentive fees paid on realized gains for the three
months ended September 30, 2012 and 2011.
Income incentive fees of $307,932 and $371,602
were earned by the Adviser for the three months ended September 30, 2012 and 2011, and the total income incentive fee payable to
the Adviser at September 30, 2012 was $309,236, after reflecting payment of $270,778 during the period, and is included in the
Consolidated Statement of Assets and Liabilities in Due to Affiliate at September 30, 2012.
The Adviser had agreed to reimburse the
Company for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and
offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public
offering, which occurred on August 31, 2010. This agreement was extended through September 30, 2011, and equates to
an accrual offset against the Advisor’s management fee of $0 and $285,668 for the three months ended September 30, 2012 and
2011, respectively.
The Investment Advisory Agreement may be
terminated by either party upon 60 days written notice to the other party.
Administration Agreement
We have also entered into an administration
agreement (the “Administration Agreement”) with the Administrator under which the Administrator, among other things,
furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Under
the Administration Agreement, the Administrator also performs, or oversees the performance of, our required administrative services,
which include, among other things, being responsible for the financial records which we are required to maintain and preparing
reports to our stockholders. In addition, the Administrator assists us in determining and publishing our net asset value, oversees
the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally
oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others.
Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Full Circle Service Company’s
overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with
performing compliance functions and our allocable portion of the compensation of our chief financial officer and our allocable
portion of the compensation of any administrative support staff employed by the Administrator, directly or indirectly. Under the
Administration Agreement, the Administrator will also provide on our behalf managerial assistance to those portfolio companies
that request such assistance. The Administration Agreement may be terminated by either party without penalty upon 60 days’
written notice to the other party.
The Administrator, and Vastardis Fund Services
LLC (“Vastardis” or the “Sub-Administrator”), may also provide administrative services to the Adviser.
As a result, the Adviser also reimburses the Administrator and/or the Sub-Administrator for its allocable portion of the Administrator’s
and/or Sub-Administrator’s overhead, including rent, the fees and expenses associated with performing compliance functions
for Full Circle Advisors, and its allocable portion of the compensation of any administrative support staff. To the extent the
Adviser or any of its affiliates manage other investment vehicles in the future, no portion of any administrative services provided
by the Administrator to such other investment vehicles will be charged to us.
The Administration Agreement provides that,
absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of
its duties and obligations, the Administrator and its officers, managers, partners, agents, employees, controlling persons, members
and any other person or entity affiliated with it are entitled to indemnification from Full Circle Capital for any damages, liabilities,
costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering
of the Administrator’s services under the Administration Agreement or otherwise as administrator for Full Circle Capital.
Sub-Administration Agreement
Our Chief Financial Officer, William E.
Vastardis, is the President of Vastardis. The Administrator has engaged Vastardis to provide certain administrative services to
us. In exchange for providing such services, the Administrator pays Vastardis an asset-based fee with a $200,000 annual minimum
as adjusted for any reimbursement of expenses. This asset-based fee will vary depending upon our gross assets, as adjusted, as
follows:
Gross Assets Fee
|
|
|
|
first $150 million of gross assets
|
|
20 basis points (0.20%)
|
|
next $150 million of gross assets
|
|
15 basis points (0.15%)
|
|
next $200 million of gross assets
|
|
10 basis points (0.10%)
|
|
in excess of $500 million of gross assets
|
|
5 basis points (0.05%)
|
|
In addition to the above fees, certain
administrative services previously provided by the Administrator were performed by Vastardis for the Administrator for an annual
fee of $112,457, paid quarterly in advance. Such services have been provided by the Administrator, rather than Vastardis, subsequent
to September 15, 2012.
Additionally, we reimburse the Administrator
for the fees charged for the service of Mr. Vastardis as our Chief Financial Officer, Treasurer and Secretary at an annual rate
of $250,000. Vastardis agreed to cap its first year fees at $200,000, plus any reimbursement of expenses, for administrative services
to us, and at $100,000 for the service of Mr. Vastardis as our Chief Financial Officer, Treasurer and Secretary. Those caps expired
on August 31, 2011.
For the three months ended September 30,
2012 and 2011, the Company incurred $205,379 and $209,723, respectively, of expenses under the Administration Agreement, $73,429
and $78,114, respectively, of which were earned by the Sub-Administrator and $75,194 and $45,924, respectively, of which were paid
for officers’ compensation. The remaining $56,756 and $85,685, respectively, were recorded as an Allocation of
Overhead Expenses to the Administrator in the Consolidated Statement of Operations.
Managerial Assistance
As a business development company, we offer,
and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among
other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting
with and advising officers of portfolio companies and providing other organizational and financial guidance. With regard to the
Control Investments in Texas Westchester Financial, LLC, TransAmerican Asset Servicing Group, LLC and The Finance Company, LLC,
the Company has provided managerial assistance during the period for which no fees were charged. Our Chief Executive Officer and
President, John Stuart, currently serves as a director of The Finance Company, LLC. As of September 30, 2012, none of the other
portfolio companies had accepted our offer for such services.
Note 6. Equity Offerings and Related
Expenses and Other Stock Issuances
The proceeds raised, the related underwriting
fees, the offering expenses, and the price at which common stock has been issued since inception are detailed in the following
table.
Offering expenses are charged against paid-in
capital in excess of par. All underwriting fees and offering expenses were borne by the Company.
Issuances of
Common Stock
|
|
Number of
Shares Issued
|
|
|
Gross
Proceeds Raised,
Net
Assets Acquired and
Dividends Reinvested
|
|
|
Underwriting Fees
|
|
|
Offering
Expenses
|
|
|
Price
|
|
April 16, 2010
|
|
|
100
|
|
|
$
|
1,500
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
15.00 per/share
|
|
August 31, 2010
|
|
|
4,191,415
|
(1)
|
|
$
|
42,425,564
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
10.13 per/share
|
(2)
|
August 31, 2010
|
|
|
2,000,000
|
|
|
$
|
18,000,000
|
|
|
$
|
1,350,000
|
|
|
$
|
1,052,067
|
(3)
|
|
$
|
9.00 per/share
|
|
January 14, 2011
|
|
|
27,867
|
(4)
|
|
$
|
241,608
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
8.67 per/share
|
(1)
Includes
403,662 shares that were issued on September 30, 2010 upon the expiration of the overallotment option granted to the underwriters
in connection with our initial public offering. Such shares were deemed to be outstanding at August 31, 2010.
(2)
Based
on weighted average price assigned to shares.
(3)
Includes
$190,894 of offering expenses that were accrued as of December 31, 2010.
(4)
Issued
pursuant to the Company’s dividend reinvestment plan.
Note 7. Financial Highlights
|
|
Three months ended
September 30, 2012
|
|
|
Three months ended
September 30, 2011
|
|
|
|
|
|
|
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
8.59
|
|
|
$
|
9.08
|
|
Offering costs
|
|
|
-
|
|
|
|
-
|
|
Net investment income (loss)
|
|
|
0.20
|
|
|
|
0.25
|
|
Change in unrealized gain (loss)
|
|
|
0.08
|
|
|
|
(0.01
|
)
|
Realized gain (loss)
|
|
|
(0.13
|
)
|
|
|
0.02
|
|
Dividends declared
|
|
|
(0.23
|
)
|
|
|
(0.23
|
)
|
Net asset value at end of period
|
|
$
|
8.51
|
|
|
$
|
9.11
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period
|
|
$
|
8.11
|
|
|
$
|
7.09
|
|
Total return based on market value
|
|
|
9.08
|
%
(4)
|
|
|
(7.28)
|
%
(4)
|
Total return based on net asset value
|
|
|
1.94
|
%
(4)
|
|
|
3.65
|
%
(4)
|
Shares outstanding at end of period
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
Average weighted shares outstanding for period
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
52,900,999
|
|
|
$
|
56,673,978
|
|
Average net assets
|
|
$
|
53,171,892
|
|
|
$
|
56,573,993
|
|
Annualized ratio of gross operating expenses to average net assets
(5)
|
|
|
11.58
|
%
|
|
|
9.31
|
%
|
Annualized ratio of net operating expenses to average net assets
(5)
|
|
|
11.58
|
%
|
|
|
8.76
|
%
|
Annualized ratio of net investment income to average net assets
(5)
|
|
|
9.34
|
%
|
|
|
9.18
|
%
|
|
|
Year ended
June 30, 2012
|
|
|
For the period from
August 31, 2010
(commencement of
operations) to
June 30, 2011
|
|
|
For the period from
April 16, 2010 (date
of inception) to
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
9.08
|
|
|
$
|
9.40
|
|
|
$
|
15.00
|
(2)
|
Offering costs
|
|
|
-
|
|
|
|
(0.04
|
)
|
|
|
-
|
|
Net investment income (loss)
|
|
|
0.78
|
|
|
|
0.70
|
|
|
|
(125.45
|
)
|
Change in unrealized gain (loss)
|
|
|
(0.32
|
)
|
|
|
(0.29
|
)
|
|
|
-
|
|
Realized gain (loss)
|
|
|
(0.03
|
)
|
|
|
0.06
|
|
|
|
-
|
|
Dividends declared
|
|
|
(0.92
|
)
|
|
|
(0.75
|
)
|
|
|
-
|
|
Net asset value at end of period
|
|
$
|
8.59
|
|
|
$
|
9.08
|
|
|
$
|
(110.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period
|
|
$
|
7.65
|
|
|
$
|
7.90
|
|
|
$
|
(110.45
|
)
|
Total return based on market value
|
|
|
8.71
|
%
(4)
|
|
|
(4.03
|
)%
(3)
|
|
|
(836.33
|
)%
(4)
|
Total return based on net asset value
|
|
|
6.20
|
%
(4)
|
|
|
5.62
|
%
(3)
|
|
|
(836.33
|
)%
(4)
|
Shares outstanding at end of period
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
|
|
100
|
|
Average weighted shares outstanding for period
|
|
|
6,219,382
|
|
|
|
6,206,824
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
53,442,785
|
|
|
$
|
56,474,006
|
|
|
$
|
(11,045
|
)
|
Average net assets
|
|
$
|
55,531,518
|
|
|
$
|
57,455,987
|
|
|
$
|
(4,773
|
)
|
Annualized ratio of gross operating expenses to average net assets
(5)
|
|
|
9.56
|
%
|
|
|
8.49
|
%
|
|
|
1,279.28
|
%
|
Annualized ratio of net operating expenses to average net assets
(5)
|
|
|
8.99
|
%
|
|
|
7.34
|
%
|
|
|
1,279.28
|
%
|
Annualized ratio of net investment income to average net assets
(5)
|
|
|
8.70
|
%
|
|
|
9.29
|
%
|
|
|
(1,279.28
|
)%
|
(1)
|
Financial highlights are based on average weighted shares outstanding.
|
(2)
|
For the period from April 16, 2010 (date of inception) to June 30, 2010, the net asset value at issuance was $15.00.
|
(3)
|
Total return based on market value is based on the change in market price per share assuming an investment at the initial public offering price of $9.00 per share and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in the period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized.
|
(4)
|
Total return based on market value is based upon the change in market price per share
between the opening and ending net price per share in each period and assumes that dividends are reinvested in
accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in
net asset value per share between the opening and ending net asset values per share in each period and assumes
that dividends are reinvested in accordance with our dividend reinvestment plan. For the period from inception
through June 30, 2010 total return based on market value is the same as total return based on net asset value as
our shares were not publicly traded. The total
returns are not annualized.
|
(5)
|
Financial Highlights for periods of less than one year are annualized and the ratios of operating expenses to average net assets and net investment income (loss) to average net assets are adjusted accordingly. Non-recurring expenses were not annualized. For the period from August 31, 2010 (commencement of operations) to June 30, 2011 the Company incurred $102,609 of organizational expenses, which were deemed to be non-recurring. For the period from April 16, 2010 (date of inception) to June 30, 2010, the Company incurred $12,500 of organizational expenses, which were deemed to be non-recurring.
|
Note 8. Long Term Liabilities
Line of Credit
On August 31, 2010, the Company entered
into the “Credit Facility” with First Capital. The facility size is $35 million and was initially scheduled to expire
in January 2012. On January 27, 2012, the Company extended the Credit Facility through July 31, 2012. On July 31, 2012, the Company
extended the Credit Facility though October 31, 2012. Under the Credit Facility, base rate borrowings bear interest at LIBOR (0.214%
at September 30, 2012, and 0.246% at June 30, 2012) plus 5.50%. The Credit Facility is secured by all of the assets of the Company.
Under the Credit Facility, the Company is required to satisfy several financial covenants, including maintaining a minimum level
of stockholders’ equity, a maximum level of leverage and minimum asset coverage and earnings ratios. In addition, the Company
is required to comply with other general covenants, including with respect to indebtedness, liens, restricted payments and mergers
and consolidations. At September 30, 2012, the Company had a balance of $23,098,577 on the Credit Facility, which is
included in the Consolidated Statement of Assets and Liabilities.
Distribution Notes
On August 31, 2010, the Company entered
into multiple senior unsecured notes (the “Distribution Notes”). The Distribution Notes consist of $3,404,583
in senior unsecured notes, which bear interest at a rate of 8% per annum, payable quarterly in cash, and will mature in February
2014. The Distribution Notes are callable by the Company at any time, in whole or in part, at a price of 100% of their principal
amount, plus accrued and unpaid interest. The Distribution Notes subject the Company to customary covenants, including, among other
things, a restriction on incurring any debt on a junior lien basis, or any debt that is contractually subordinated in right of
payment to any other debt unless it is also subordinated to the Distribution Notes on substantially identical terms. The agreement
under which the Distribution Notes were issued contains customary events of default. At September 30, 2012, the Company had a balance
of $3,404,583 on the Distribution Notes, which is included in the Consolidated Statement of Assets and Liabilities.
Note 9. Fair Value Measurements
The Company’s assets recorded at
fair value have been categorized based upon a fair value hierarchy in accordance with ASC Topic 820. See Note 2 for a
discussion of the Company’s policies.
The following table presents information
about the Company’s assets measured at fair value as of September 30, 2012 and June 30, 2012, respectively:
As of September 30, 2012 (Unaudited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
73,927,383
|
|
|
$
|
73,927,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Securities, at fair value
(1)
|
|
|
24,999,868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,999,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
1,535,416
|
|
|
|
1,535,416
|
|
|
|
$
|
24,999,868
|
|
|
$
|
-
|
|
|
$
|
75,462,799
|
|
|
$
|
100,462,667
|
|
As of June 30, 2012
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
70,970,152
|
|
|
$
|
70,970,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Securities, at fair value
(1)
|
|
|
22,499,881
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,499,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
1,376,737
|
|
|
|
1,376,737
|
|
|
|
$
|
22,499,881
|
|
|
$
|
-
|
|
|
$
|
72,346,889
|
|
|
$
|
94,846,770
|
|
During the three months ended September
30, 2012 and for the year ended June 30, 2012, there were no transfers in or out of levels.
The following table presents additional
information about Level 3 assets measured at fair value. Both observable and unobservable inputs may be used to determine
the fair value of positions that the Company has classified within the Level 3 category. As a result, the net
unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable
to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities)
inputs.
Changes in Level 3 assets measured at fair
value for the three months ended September 30, 2012 and for the year ended June 30, 2012, are as follows:
|
|
Three
months ended September 30, 2012 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Beginning
|
|
|
Accretion of
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
|
Gains
(Losses) for
Investments
|
|
|
|
Balance
|
|
|
Original
|
|
|
Realized &
|
|
|
|
|
|
Sales
|
|
|
Balance
|
|
|
still held at
|
|
|
|
July 1,
|
|
|
Issue
|
|
|
Unrealized
|
|
|
|
|
|
And
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
Discount
|
|
|
Gains
(Losses)
|
|
|
Purchases
|
|
|
Settlements
|
|
|
2012
|
|
|
2012
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
70,970,152
|
|
|
$
|
112,773
|
|
|
|
(501,745
|
)
|
|
$
|
11,437,760
|
|
|
$
|
(8,091,557
|
)
|
|
$
|
73,927,383
|
|
|
$
|
(501,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in private companies, at fair value
|
|
|
1,376,737
|
|
|
|
-
|
|
|
|
158,679
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,535,416
|
|
|
|
158,679
|
|
|
|
$
|
72,346,889
|
|
|
$
|
112,773
|
|
|
|
(343,066
|
)
|
|
$
|
11,437,760
|
|
|
$
|
(8,091,557
|
)
|
|
$
|
75,462,799
|
|
|
$
|
(343,237
|
)
|
|
|
Year
ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Beginning
|
|
|
Accretion of
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
|
Gains
(Losses) for
Investments
|
|
|
|
Balance
|
|
|
Original
|
|
|
Realized &
|
|
|
|
|
|
Sales
|
|
|
Balance
|
|
|
still held at
|
|
|
|
July 1,
|
|
|
Issue
|
|
|
Unrealized
|
|
|
|
|
|
And
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
Discount
|
|
|
Gains
(Losses)
|
|
|
Purchases
|
|
|
Settlements
|
|
|
2012
|
|
|
2012
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
55,537,458
|
|
|
$
|
523,307
|
|
|
$
|
(2,407,353
|
)
|
|
$
|
55,031,538
|
|
|
$
|
(37,714,798
|
)
|
|
$
|
70,970,152
|
|
|
$
|
(2,976,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in private companies, at fair value
|
|
|
1,197,384
|
|
|
|
-
|
|
|
|
488,939
|
|
|
|
140,414
|
|
|
|
(450,000
|
)
|
|
|
1,376,737
|
|
|
|
791,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities, at fair value
|
|
|
59,561
|
|
|
|
-
|
|
|
|
(236,331
|
)
|
|
|
176,770
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(236,331
|
)
|
|
|
$
|
56,794,403
|
|
|
$
|
523,307
|
|
|
$
|
(2,154,745
|
)
|
|
$
|
55,348,722
|
|
|
$
|
(38,164,798
|
)
|
|
$
|
72,346,889
|
|
|
$
|
(2,421,650
|
)
|
Realized and unrealized gains and losses are included in realized
gain on investments and net change in unrealized gain (loss) on investments in the consolidated statements of operations. The change
in unrealized losses for Level 3 investments still held at September 30, 2012 of ($343,237) is included in change in net unrealized
gain (loss) on investments in the consolidated statement of operations for the three months ended September 30, 2012.
The following table provides quantitative information regarding
Level 3 fair value measurements as of September 30, 2012:
Description:
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range (Average)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured debt
|
|
$
|
66,639,183
|
|
|
Discounted cash flows (income approach)
|
|
Discount Rate
|
|
|
6% - 30% (15%)
|
|
Equity
|
|
|
943,210
|
|
|
Market comparable companies (market approach)
|
|
EBITDA multiple
|
|
|
3.0 – 7.5 (4.25)
|
|
Debt or Equity subject to liquidation
|
|
|
7,880,406
|
|
|
Liquidation Value
|
|
Asset Value
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
75,462,799
|
|
|
|
|
|
|
|
|
|
(1)
|
The average values were determined using the weighted average of the fair value of the investments in each investment category.
|
The primary significant unobservable input
used in the fair value measurement of the Company’s debt securities (first lien debt, second lien debt and subordinated debt),
including income-producing investments in funds, is the discount rate. Significant increases (decreases) in the discount rate in
isolation would result in a significantly lower (higher) fair value measurement. In determining the discount rate, for the income,
or yield, approach, the Company considers current market yields and multiples, portfolio company performance, leverage levels and
credit quality, among other factors in its analysis. Changes in one or more of these factors can have a similar directional change
on other factors in determining the appropriate discount rate to use in the income approach.
The primary significant unobservable input
used in the fair value measurement of the Company’s equity investments is the EBITDA multiple, or the “Enterprise Value”.
Significant increases (decreases) in the Enterprise Value in isolation would result in a significantly higher (lower) fair value
measurement. To determine the Enterprise Value for the market approach, the Company considers current market trading and/or transaction
multiples, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels,
among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining
the appropriate multiple to use in the market approach.
Note 10. Derivative Contracts
In the normal course of business, the Company
may utilize derivative contracts in connection with its investment activities. Investments in derivative contracts are
subject to additional risks that can result in a loss of all or part of an investment. The derivative activities and
exposure to derivative contracts primarily involve equity price risks. In addition to the primary underlying risk, additional
counterparty risk exists due to the potential inability of counterparties to meet the terms of their contracts.
Warrants
The warrants provide exposure and potential
gains upon equity appreciation of the investment company’s share price.
The value of a warrant has two components:
time value and intrinsic value. A warrant has a limited life and expires on a certain date. As time to the
expiration date of a warrant approaches, the time value of a warrant will decline. In addition, if the stock underlying
the warrant declines in price, the intrinsic value of an “in the money” warrant will decline. Further, if
the price of the stock underlying the warrant does not exceed the strike price of the warrant on the expiration date, the warrant
will expire worthless. As a result, there is the potential for the entire value of an investment in a warrant to be
lost.
Counterparty risk exists from the potential
failure of an issuer of warrants to settle its exercised warrants. The maximum risk of loss from counterparty risk is
the fair value of the contracts and the purchase price of the warrants. The Company’s Board of Directors considers
the effects of counterparty risk when determining the fair value of its investments in warrants.
Volume of Derivative Activities
At September 30, 2012, the notional amounts
and number of warrants, categorized by primary underlying risk, are as follows:
|
|
Long Exposure
|
|
|
|
|
|
|
Notional
|
|
|
Number of
|
|
|
|
Amounts
|
|
|
Warrants
|
|
Primary Underlying Risk
|
|
|
|
|
|
|
|
|
Equity Price
|
|
|
|
|
|
|
|
|
Warrants
(a)
|
|
$
|
-
|
|
|
|
222,179
|
|
|
(a)
|
Notional amounts presented for warrants are based on the fair value of the underlying shares as if the warrants were exercised at September 30, 2012.
|
Note 11. Recently Adopted Accounting
Standards
In May 2011, the FASB issued Accounting
Standards Update (“ASU”) 2011-04, Fair Value Measurements (Topic 820),
Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and IFRSs
(“ASU 2011-04”). ASU 2011-04 results in common fair value measurement
and disclosure requirements in U.S. GAAP and IFRSs. ASU 2011-04 is effective for interim and annual reporting periods beginning
after December 15, 2011. The adoption of ASU 2011-04 did not have a significant impact on our financial condition and results of
operations.
In February 2011, the FASB issued ASU 2011-02,
Receivables (Topic 310):
A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring
(“ASU
2011-02”). ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist
creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating
whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following
exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 provides
guidance to clarify whether the creditor has granted a concession and whether a debtor is experiencing financial difficulties.
The new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal year of adoption. The adoption of ASU 2011-02 did not have a significant
impact on our financial condition and results of operations.
Note 12. Subsequent Events
Dividend
On November 5, 2012,
the Board of Directors declared monthly dividends of $0.077, $0.077 and $0.077 per share payable on February 15, 2013 for holders
of record at January 31, 2013, March 15, 2013 for holders of record at February 28, 2013 and April 15, 2013 for holders of record
at March 29, 2013.
Recent Portfolio
Activity
On October 31, 2012,
the Company extended the loan to Ygnition Networks, Inc. through December 31, 2012.
On November 1, 2012,
the Company extended the loan to Attention Transit Advertising Systems, LLC through May 31, 2013.
Subsequent to September
30, 2012, the Company increased the availability under the Global Energy Efficiency Holdings, Inc. revolving loan facility to $3,250,000
from $2,250,000.
On November 2, 2012,
The Selling Source, LLC pre-paid, at par, $1,140,496 of its loan from the Company.
Credit Facility
On October 31, 2013,
the Company re-extended the maturity of the Credit Facility through December 31, 2013.
Note 13. Selected Quarterly Financial
Data (Unaudited)
|
|
Total Investment
Income
|
|
|
Net Investment Income
|
|
|
Net Realized and
Unrealized Gains (Losses)
|
|
|
Net Increase
(Decrease) in Net
Assets from Operations
|
|
Quarter Ended
|
|
Total
|
|
|
Per
Share
(1)
|
|
|
Total
|
|
|
Per
Share
(1)
|
|
|
Total
|
|
|
Per
Share
(1)
|
|
|
Total
|
|
|
Per
Share
(1)
|
|
September 30, 2010
|
|
$
|
867,582
|
|
|
$
|
0.42
|
|
|
$
|
306,783
|
|
|
$
|
0.15
|
|
|
$
|
(99,791
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
206,992
|
|
|
$
|
0.10
|
|
December 31, 2010
|
|
|
2,678,197
|
|
|
|
0.43
|
|
|
|
1,495,125
|
|
|
|
0.24
|
|
|
|
(137,707
|
)
|
|
|
(0.02
|
)
|
|
|
1,357,418
|
|
|
|
0.22
|
|
March 31, 2011
|
|
|
2,305,423
|
|
|
|
0.37
|
|
|
|
1,361,635
|
|
|
|
0.22
|
|
|
|
(799,361
|
)
|
|
|
(0.13
|
)
|
|
|
562,274
|
|
|
|
0.09
|
|
June 30, 2011
|
|
|
2,108,426
|
|
|
|
0.34
|
|
|
|
1,170,836
|
|
|
|
0.19
|
|
|
|
(415,206
|
)
|
|
|
(0.07
|
)
|
|
|
755,630
|
|
|
|
0.12
|
|
September 30, 2011
|
|
|
2,558,243
|
|
|
|
0.41
|
|
|
|
1,544,342
|
|
|
|
0.25
|
|
|
|
54,991
|
|
|
|
0.01
|
|
|
|
1,599,333
|
|
|
|
0.26
|
|
December 31, 2011
|
|
|
2,398,665
|
|
|
|
0.39
|
|
|
|
1,098,640
|
|
|
|
0.18
|
|
|
|
(846,099
|
)
|
|
|
(0.14
|
)
|
|
|
252,541
|
|
|
|
0.04
|
|
March 31, 2012
|
|
|
2,388,960
|
|
|
|
0.38
|
|
|
|
1,118,574
|
|
|
|
0.18
|
|
|
|
405,240
|
|
|
|
0.07
|
|
|
|
1,523,814
|
|
|
|
0.25
|
|
June 30, 2012
|
|
|
2,481,143
|
|
|
|
0.40
|
|
|
|
1,071,947
|
|
|
|
0.17
|
|
|
|
(1,769,463
|
)
|
|
|
(0.28
|
)
|
|
|
(697,516
|
)
|
|
|
(0.11
|
)
|
September 30, 2012
|
|
|
2,773,303
|
|
|
|
0.45
|
|
|
|
1,238,245
|
|
|
|
0.20
|
|
|
|
(343,354
|
)
|
|
|
(0.06
|
)
|
|
|
894,891
|
|
|
|
0.14
|
|
(1)
|
|
Per share amounts are calculated using weighted average shares during the period.
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Forward-Looking Statements
The information contained
in this section should be read in conjunction with our consolidated financial statements and related notes and schedules thereto
appearing elsewhere in this quarterly report on Form 10-Q, as well as the sections entitled “Selected Financial Data”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated
financial statements and related notes and schedules thereto included in our Annual Report on Form 10-K for the period ended June
30, 2012.
This quarterly report
on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements
are not historical facts, but rather are based on current expectations, estimates and projections about Full Circle Capital Corporation,
our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,”
“expects,” “intends,” “plans,” “will,” “may,” “continue,”
“believes,” “seeks,” “estimates,” “would,” “could,” “should,”
“targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors,
some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements, including without limitation:
|
•
|
an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;
|
|
•
|
An expiration or contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;
|
|
•
|
interest rate volatility could adversely affect our results, particularly if we elect to use leverage as part of our investment strategy;
|
|
•
|
currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and
|
|
•
|
the risks, uncertainties and other factors we identify in “Risk Factors” in our Annual Report on Form 10-K for the period ended June 30, 2012 and elsewhere in this quarterly report on Form 10-Q and in our filings with the SEC.
|
Although we believe
that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to
be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of
these and other uncertainties, the inclusion of a projection or forward-looking statement in this quarterly report on Form 10-Q
should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties
include those described or identified in “Risk Factors” in our Annual Report on Form 10-K for the period ended June
30, 2012 and elsewhere in this quarterly report on Form 10-Q. You should not place undue reliance on these forward-looking statements,
which apply only as of the date of this quarterly report on Form 10-Q.
Except as otherwise
specified, references to “Full Circle Capital,” “the Company,” “we,” “us” and “our”
refer to Full Circle Capital Corporation.
The following analysis
of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and
the related notes thereto contained elsewhere in this quarterly report on Form 10-Q.
Overview
We are an externally
managed non-diversified closed-end management investment company formed in April 2010, and have elected to be treated as a business
development company under the 1940 Act. Our investment objective is to generate both current income and capital appreciation through
debt and equity investments. We are managed by Full Circle Advisors, and Full Circle Service Company provides the administrative
services necessary for us to operate.
We were formed to continue
and expand the business of Full Circle Partners, LP and Full Circle Fund, Ltd. (collectively, the “Legacy Funds”),
which were formed in 2005 and 2007, respectively. In connection with our initial public offering in August 2010, we acquired a
portfolio of investments (the “Legacy Portfolio”), valued at approximately $72 million, from the Legacy Funds in exchange
for shares of our common stock and senior unsecured notes (the “Distribution Notes”). We invest primarily in senior
secured loans and, to a lesser extent, mezzanine loans and equity securities issued by smaller and lower middle-market companies
that operate in a diverse range of industries. In our lending activities, we focus primarily on portfolio companies with both (i)
tangible and intangible assets available as collateral and security against our loan to help mitigate our risk of loss, and (ii)
cash flow to cover debt service. We believe this provides us with a more attractive risk adjusted return profile, with greater
principal protection and likelihood of repayment.
Our investments generally
range in size from $3 million to $10 million; however, we may make larger or smaller investments from time to time on an opportunistic
basis. We focus primarily on senior secured loans and “stretch” senior secured loans, also referred to as
“unitranche” loans, which combine characteristics of traditional first-lien senior secured loans and second-lien or
subordinated loans. We believe that having a first lien, senior secured position provides us with greater control and security
in the primary collateral of a borrower and helps to mitigate risk against loss of principal should a borrower default. Our stretch
senior secured loans typically possess a greater advance rate against the borrower’s assets and cash flow, and accordingly
carry a higher interest rate and/or greater equity participation, than traditional senior secured loans. This stretch senior secured
loan instrument can provide borrowers with a more efficient and desirable solution than a senior bank line combined with a separate
second lien or mezzanine loan obtained from another source. We also invest in mezzanine, subordinated or unsecured loans. In addition,
we may acquire equity or equity related interests from a borrower along with our debt investment. We attempt to protect against
risk of loss on our debt investments by securing our loans against a significant level of tangible or intangible assets of our
borrowers, which may include accounts receivable and contracts for services, and obtaining a favorable loan-to-value ratio, and
in many cases, securing other financial protections or credit enhancements, such as personal guarantees from the principals of
our borrowers, make well agreements and other forms of collateral, rather than lending predominantly against anticipated cash flows
of our borrowers. We believe this allows us more options and greater likelihood of repayment from refinancing, asset sales of our
borrowers and/or amortization.
We generally seek to
invest in smaller and lower middle-market companies in areas that we believe have been historically under-serviced, especially
during and after the 2008/2009 credit crisis. These areas include industries that are outside the focus of mainstream institutions
or investors due to required industry-specific knowledge or are too small to attract interest from larger investment funds or other
financial institutions. Because we believe there are fewer banks and specialty finance companies focused on lending to these smaller
and lower middle-market companies, we believe we can negotiate more favorable terms on our debt investments in these companies
than those that would be available for debt investments in comparable larger, more mainstream borrowers. Such favorable terms may
include higher debt yields, lower leverage levels, more significant covenant protection or greater equity grants than typical of
other transactions. We generally seek to avoid competing directly with other capital providers with respect to specific transactions
in order to avoid the less favorable terms we believe are typically associated with such competitive bidding processes.
Critical Accounting Policies
The preparation of
financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
Basis of Consolidation
Under the 1940 Act
rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’
Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment
company or an operating company which provides substantially all of its services and benefits to us. Our financial statements include
our accounts and the accounts of Full Circle West, Inc. and Art Credit Company, LLC, our only wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Valuation of
Investments in Securities at Fair Value — Definition and Hierarchy
In accordance with
GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit
price”) in an orderly transaction between market participants at the measurement date.
In determining fair
value, Full Circle Capital’s Board of Directors uses various valuation approaches. In accordance with GAAP, a fair value
hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available.
Observable inputs are
those that market participants would use in pricing the asset or liability based on market data obtained from sources independent
of the Board of Directors. Unobservable inputs reflect the Board of Directors’ assumptions about the inputs market participants
would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value
hierarchy is categorized into three levels based on the inputs as follows:
Level 1 — Valuations
based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that
are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of
judgment.
Level 2 — Valuations
based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations
based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of
valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including,
the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular
to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may
be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent
uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had
a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Board of Directors in determining
fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall
into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy
within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant
to the fair value measurement.
Fair value is a market-based
measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market
assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement
date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be
reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
Valuation Techniques
Senior and Subordinated
Secured Loans
Our portfolio consists
primarily of private debt instruments (“Level 3 debt”). The Company considers its Level 3 debt to be performing if
the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is
otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Company’s Board of
Directors considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings,
financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the
event that a Level 3 debt instrument is not performing, as defined above, the Company’s Board of Directors will evaluate
the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level
3 debt instrument.
This evaluation will be updated
no less than quarterly for Level 3 debt instruments, and more frequently for time periods where there are significant changes in
the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed
on an ongoing basis using internal metrics, appraisals, third party valuation agents and other data as may be acquired and analyzed
by Management and the Company’s Board of Directors.
Investments in
Private Companies
The Company’s
Board of Directors determines the fair value of its investments in private companies by incorporating valuations that consider
the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including
comparable transactions, and performance multiples, among other factors, including third party valuation agents. These nonpublic
investments are included in Level 3 of the fair value hierarchy.
Warrants
The Company’s
Board of Directors ascribes value to warrants based on fair value analyses that may include discounted cash flow analyses, option
pricing models, comparable analyses and other techniques as deemed appropriate.
Fair Value
The Company’s
assets measured at fair value on a recurring basis subject to the requirement of ASC Topic 820 at September 30, 2012 and June 30,
2012, were as follows:
As of September 30, 2012 (Unaudited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
73,927,383
|
|
|
$
|
73,927,383
|
|
US Treasury Securities, at fair value
(1)
|
|
|
24,999,868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,999,868
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
1,535,416
|
|
|
|
1,535,416
|
|
|
|
$
|
24,999,868
|
|
|
$
|
-
|
|
|
$
|
75,462,799
|
|
|
$
|
100,462,667
|
|
As of June 30, 2012
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
70,970,152
|
|
|
$
|
70,970,152
|
|
US Treasury Securities, at fair value
(1)
|
|
|
22,499,881
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,499,881
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
1,376,737
|
|
|
|
1,376,737
|
|
|
|
$
|
22,499,881
|
|
|
$
|
-
|
|
|
$
|
72,346,889
|
|
|
$
|
94,846,770
|
|
(1)
U.S. Treasury Securities
were purchased and temporarily held in connection with complying with RIC diversification requirements under Subchapter M of the
Code.
During the three months ended September
30, 2012 and the year ended June 30, 2012, there were no transfers in or out of levels.
Revenue Recognition
Realized gains or losses
on the sale of investments are calculated using the specific identification method.
Interest income, adjusted
for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment
fees associated with senior and subordinated secured loans are accreted into interest income over the respective terms of the applicable
loans. Upon the prepayment of a senior or subordinated secured loan, any prepayment penalties and unamortized loan origination,
closing and commitment fees are recorded as interest income.
Dividend income is
recorded on the ex-dividend date.
Structuring fees, board
fees, excess deal deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when paid. Other
fee income, including annual fees and monitoring fees are included in Other Income.
Use of Estimates
The preparation of
the financial statements of Full Circle Capital in conformity with GAAP requires the Company to make estimates and assumptions
that affect the amounts disclosed in the financial statements of Full Circle Capital. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In May 2011, the FASB
issued Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurements (Topic 820),
Amendments to Achieve Common
Fair Value Measurement and Disclosure
Requirements
in U.S. GAAP and IFRSs
(“ASU 2011-04”). ASU 2011-04 results
in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. ASU 2011-04 is effective for interim and annual
reporting periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a significant impact on our financial
condition and results of operations.
In February 2011, the
FASB issued ASU 2011-02, Receivables (Topic 310):
A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring
(“ASU 2011-02”). ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings. It is intended
to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled
debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating
whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following
exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 provides
guidance to clarify whether the creditor has granted a concession and whether a debtor is experiencing financial difficulties.
The new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal year of adoption. The adoption of ASU 2011-02 did not have a significant
impact on our financial condition and results of operations.
Current Market Conditions and Market
Opportunity
We believe that
the current credit environment provides favorable opportunities to achieve attractive risk-adjusted returns on the types of senior
secured loans and other investments we may target. In particular, we believe that, despite an overall fall off in loan demand due
to the depressed economic conditions, demand for financing from smaller to lower middle-market companies is largely outpacing the
availability of lenders that have traditionally served this market. We believe that bank consolidations, the failure of a number
of alternative lending vehicles due to poor underwriting practices and an overall tightening of underwriting standards has significantly
reduced the number and activity level of potential lenders.
We believe there has
long been a combination of demand for capital and an underserved market for capital addressing smaller and lower middle-market
borrowers. We believe there is robust demand for continued growth capital as well as demand from very significant refinancing requirements
of many borrowers as debt facilities come due, given the lack of willing and qualified capital providers. We believe
these market conditions have been further exacerbated in the current environment due to:
|
o
|
larger lenders exiting this market to focus on larger investment opportunities which are more appropriate for their operating cost structures;
|
|
o
|
the elimination of many specialized lenders from the market due to lack of capital as a result of, for instance, the closing off of the securitization market or their own poor performance, and
|
|
o
|
the need for certain capital providers to reduce lending activities due to their reduced access to capital and the overall deleveraging of the financial market.
|
With the decreased
availability of debt capital for smaller to lower middle-market borrowers, combined with the significant demand for refinancing,
we believe there are increased lending opportunities for us. As always, we remain cautious in selecting new investment opportunities,
and will only deploy capital in deals which are consistent with our disciplined philosophy of pursuing superior risk-adjusted returns.
Waiver and Expense Reimbursement
Our
investment adviser agreed to waive the portion of the base management fee that exceeded 1.50% of Full Circle Capital’s gross
assets, as adjusted, until August 31, 2011 when such waiver expired. In addition, our investment adviser agreed to reimburse the
Company for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and
offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public
offering, which occurred on August 31, 2010 (the “Expense Reimbursement Agreement”). This agreement was extended through
September 30, 2011 and expired on such date.
Portfolio Composition and Investment
Activity
Our portfolio of investments
consists primarily of senior secured loans and, to a lesser extent, mezzanine loans and equity securities issued by smaller and
lower middle-market companies. Our investment objective is to generate both current income and capital appreciation
through debt and equity investments.
The following is a summary
of our quarterly investment activity since the completion of our initial public offering. Such amounts are not inclusive of our
holdings of United States Treasury Bills.
Time Period
|
|
Acquisitions
(1)
(dollars in millions)
|
|
|
Dispositions
(2)
(dollars in millions)
|
|
|
Weighted
Average Interest
Rate of Portfolio
at End of Period
|
|
Legacy Portfolio Acquisition (August 31, 2010)
|
|
$
|
72.3
|
|
|
$
|
N/A
|
|
|
|
12.10
|
%
|
August 31, 2010 through September 30, 2010
|
|
|
0.4
|
|
|
|
1.4
|
|
|
|
12.16
|
%
|
October 1, 2010 through December 31, 2010
|
|
|
3.7
|
|
|
|
10.1
|
|
|
|
12.09
|
%
|
January 1, 2011 through March 31, 2011
|
|
|
4.0
|
|
|
|
19.9
|
|
|
|
12.39
|
%
|
April 1, 2011 through June 30, 2011
|
|
|
9.6
|
|
|
|
1.2
|
|
|
|
12.68
|
%
|
July 1, 2011 through September 30, 2011
|
|
|
27.7
|
|
|
|
15.9
|
|
|
|
12.89
|
%
|
October 1, 2011 through December 31, 2011
|
|
|
5.9
|
|
|
|
9.4
|
|
|
|
13.04
|
%
|
January 1, 2012 through March 31, 2012
|
|
|
6.7
|
|
|
|
5.7
|
|
|
|
12.98
|
%
|
April 1, 2012 through June 30, 2012
|
|
|
15.0
|
|
|
|
7.1
|
|
|
|
12.93
|
%
|
July 1, 2012 through September 30, 2012
|
|
|
11.4
|
|
|
|
8.1
|
|
|
|
12.84
|
%
|
Since inception
|
|
$
|
156.7
|
|
|
$
|
78.8
|
|
|
|
N/A
|
|
|
(1)
|
Includes new deals, additional fundings, refinancings (inclusive of those on revolving credit facilities) and payment in kind “PIK” interest
|
|
(2)
|
Includes scheduled principal payments, prepayments, sales and repayments (inclusive of those on revolving credit facilities)
|
Portfolio Activity
for the Quarter Ended September 30, 2012
The primary investment
activities for the three months ended September 30, 2012, were fundings and repayments under the revolving credit facilities and
the funding of the following loan facilities:
|
·
|
On September 7, 2012 the Company originated a $3,250,000 credit facility, comprised of a $1,000,000
senior secured term loan and a $2,250,000 senior secured revolving credit facility, both bearing interest at LIBOR plus 12.25%
to Global Energy Efficiency Holdings Inc. (“GEE”). GEE provides energy efficiency products, installation and maintenance
services to small and medium sized businesses in multiple food sales and service industries.
|
|
·
|
On September 27, 2012, the Company funded an additional $600,000 to iMedX, Inc. as part of the
Company’s existing senior secured term loan.
|
The following is a reconciliation of the
investment portfolio for the three months ended September 30, 2012, and for the year ended June 30, 2012:
|
|
Three Months Ended
September 30, 2012
|
|
|
Year Ended June 30, 2012
|
|
Beginning Investment Portfolio
|
|
$
|
94,846,770
|
|
|
$
|
82,794,117
|
|
Portfolio Investments Acquired
|
|
|
11,437,760
|
|
|
|
55,279,880
|
|
Treasury and Money Market Purchases
(1)
|
|
|
25,000,604
|
|
|
|
120,000,601
|
|
Amortization of fixed income premiums and discounts
|
|
|
112,444
|
|
|
|
522,732
|
|
Portfolio Investments Repaid
|
|
|
(8,091,557
|
)
|
|
|
(38,164,798
|
)
|
Sales of Treasury and Money Market securities
(1)
|
|
|
(22,500,000
|
)
|
|
|
(123,499,273
|
)
|
Payment in Kind
|
|
|
-
|
|
|
|
68,842
|
|
Net Unrealized Appreciation (Depreciation)
|
|
|
517,313
|
|
|
|
(1,979,965
|
)
|
Net Realized Gains (Losses)
|
|
|
(860,667
|
)
|
|
|
(175,366
|
)
|
Ending Investment Portfolio
|
|
$
|
100,462,667
|
|
|
$
|
94,846,770
|
|
(1)
U.S. Treasury Securities
were purchased and temporarily held in connection with complying with RIC diversification requirements under Subchapter M of the
Code.
During the three months
ended September 30, 2012, we recorded net unrealized appreciation of $517,313. This consisted of $133,634 of net unrealized appreciation
on debt investments and $383,679 of net unrealized appreciation on equity investments.
Portfolio Classifications
The following table
shows the fair value of our portfolio of investments by asset class as of September 30, 2012, and June 30, 2012, excluding United
States Treasury Bills of approximately $25.0 million and $26.0 million, respectively:
|
|
September 30, 2012 (Unaudited)
|
|
|
June 30, 2012
|
|
|
|
Investments at
|
|
|
|
|
|
Investments at
|
|
|
|
|
|
|
Fair Value
(dollars in millions)
|
|
|
Percentage of
Total Portfolio
|
|
|
Fair Value
(dollars in millions)
|
|
|
Percentage of
Total Portfolio
|
|
Senior Secured Loans
|
|
$
|
70.5
|
|
|
|
93.4
|
%
|
|
$
|
67.5
|
|
|
|
93.3
|
%
|
Subordinated Secured Loans
|
|
|
3.5
|
|
|
|
4.6
|
|
|
|
3.4
|
|
|
|
4.8
|
|
Limited Liability Company Interests
|
|
|
1.5
|
|
|
|
2.0
|
|
|
|
1.4
|
|
|
|
1.9
|
|
Total
|
|
$
|
75.5
|
|
|
|
100.0
|
%
|
|
$
|
72.3
|
|
|
|
100.0
|
%
|
At September 30, 2012,
the seventeen borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately
62% (i.e., each $62 of loan value outstanding is secured by $100 of collateral value).
At June 30, 2012, the
sixteen borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 62% (i.e.,
each $62 of loan value outstanding is secured by $100 of collateral value).
The following table
shows the fair value of our portfolio of investments by industry, as of September 30, 2012, and June 30, 2012, excluding United
States Treasury Bills of approximately $25.0 and $22.5 million, respectively:
|
|
September 30, 2012 (Unaudited)
|
|
|
June 30, 2012 (Audited)
|
|
|
|
Investments at
|
|
|
|
|
|
Investments at
|
|
|
|
|
|
|
Fair Value
(dollars in
millions)
|
|
|
Percentage of
Total Portfolio
|
|
|
Fair Value
(dollars in
millions)
|
|
|
Percentage of
Total Portfolio
|
|
Cable TV/Broadband Services
|
|
$
|
18.1
|
|
|
|
24.0
|
%
|
|
$
|
17.7
|
|
|
|
24.5
|
%
|
Consumer Financing
|
|
|
7.0
|
|
|
|
9.3
|
|
|
|
6.8
|
|
|
|
9.4
|
|
Radio Broadcasting
|
|
|
6.3
|
|
|
|
8.4
|
|
|
|
6.3
|
|
|
|
8.7
|
|
Munitions
|
|
|
5.8
|
|
|
|
7.7
|
|
|
|
4.9
|
|
|
|
6.8
|
|
Staffing Services
|
|
|
5.0
|
|
|
|
6.6
|
|
|
|
5.0
|
|
|
|
6.9
|
|
Aerospace Parts Plating and Finishing
|
|
|
5.0
|
|
|
|
6.6
|
|
|
|
4.9
|
|
|
|
6.8
|
|
Industrial Metal Treatings
|
|
|
3.9
|
|
|
|
5.2
|
|
|
|
3.9
|
|
|
|
5.4
|
|
Real Estate Management Services
|
|
|
3.8
|
|
|
|
5.1
|
|
|
|
4.1
|
|
|
|
5.7
|
|
Medical Transcription Services
|
|
|
3.8
|
|
|
|
5.0
|
|
|
|
4.1
|
|
|
|
5.6
|
|
Healthcare Services
|
|
|
3.5
|
|
|
|
4.6
|
|
|
|
3.5
|
|
|
|
4.8
|
|
Information and Data Services
|
|
|
3.4
|
|
|
|
4.5
|
|
|
|
3.5
|
|
|
|
4.9
|
|
Equipment Rental Services
|
|
|
3.0
|
|
|
|
3.9
|
|
|
|
3.1
|
|
|
|
4.4
|
|
Energy Efficiency Services
|
|
|
3.0
|
|
|
|
3.9
|
|
|
|
-
|
|
|
|
-
|
|
Outdoor Advertising Services
|
|
|
1.8
|
|
|
|
2.4
|
|
|
|
1.9
|
|
|
|
2.6
|
|
Asset Recovery Services
|
|
|
1.5
|
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
2.7
|
|
Art Dealers
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
0.8
|
|
Total
|
|
$
|
75.5
|
|
|
|
100.0
|
%
|
|
$
|
72.3
|
|
|
|
100.0
|
%
|
Portfolio Grading
We have adopted a credit
grading system to monitor the quality of our debt investment portfolio. As of September 30, 2012, our portfolio had a weighted
average grade of 3.15, based upon the fair value of the debt investments in the portfolio, excluding United States Treasury Bills
of approximately $25.0. Equity securities are not graded. This was an improvement of 0.15 from the weighted average grade of 3.30
at June 30, 2012.
At September 30, 2012,
our debt investment portfolio was graded as follows:
|
|
September 30, 2012
|
|
Grade
|
|
Summary Description
|
|
Fair Value
|
|
|
Percentage of
Total Portfolio
|
|
1
|
|
Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit).
|
|
$
|
-
|
|
|
|
-
|
%
|
2
|
|
The portfolio company is performing above expectations and the risk profile is generally favorable.
|
|
|
8,111,228
|
|
|
|
10.75
|
|
3
|
|
Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 3.
|
|
|
46,836,486
|
|
|
|
62.07
|
|
4
|
|
The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable
|
|
|
18,979,669
|
|
|
|
25.15
|
|
5
|
|
The investment is performing well below expectations and the par value is not anticipated to be repaid in full.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
$
|
73,927,383
|
|
|
|
97.97
|
%
|
At June 30, 2012, our
debt investment portfolio was graded as follows:
|
|
June 30, 2012
|
|
Grade
|
|
Summary Description
|
|
Fair Value
|
|
|
Percentage of
Total Portfolio
|
|
1
|
|
Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit).
|
|
$
|
-
|
|
|
|
-
|
%
|
2
|
|
The portfolio company is performing above expectations and the risk profile is generally favorable.
|
|
|
6,788,625
|
|
|
|
9.38
|
|
3
|
|
Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 3.
|
|
|
44,638,741
|
|
|
|
61.70
|
|
4
|
|
The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable
|
|
|
17,583,423
|
|
|
|
24.31
|
|
5
|
|
The investment is performing well below expectations and is not anticipated to be repaid in full.
|
|
|
1,959,363
|
|
|
|
2.71
|
|
|
|
|
|
$
|
70,970,152
|
|
|
|
98.10
|
%
|
We expect that a portion
of our investments will be in grades 4 or 5 from time to time, and, as such, we will be required to work with portfolio companies
to improve their business and protect our investment. The number and amount of investments included in grades 4 or 5 may fluctuate
from period to period.
Results of Operations
Comparison of the three months ended
September 30, 2012 and 2011
Total Investment Income
Total investment income
includes interest and dividend income on our investments and other income, which is comprised entirely of fee income for the three
months ended September 30, 2012. Fee income consists principally of administrative fees, prepayment fees, structuring fees and
unused line fees.
Total investment income
for the three months ended September 30, 2012, was $2,773,303. This amount consisted of $2,579,098 of interest income from portfolio
investments (which included no PIK interest), $34,097 of dividend income and $160,108 of fee income. Dividend income was solely
earned from our investment in The Finance Company, LLC.
Total investment income
for the three months ended September 30, 2011, was $2,558,243. This amount consisted of $2,087,700 of interest income from portfolio
investments (which included $68,842 of PIK interest) and $470,543 of fee income.
The increase in interest
income for the three months ended September 30, 2012 relative to the same time period in 2011 was primarily due to growth in the
size of our portfolio. The decrease in PIK interest for the three months ended September 30, 2012 as compared to the three months
ended September 30, 2011 is primarily attributable to the fact that the Company received a prepayment from West World Media, LLC
and ceased generating PIK interest from any of its portfolio investments. The increase in dividend income for the three months
ended September 30, 2012 as compared to the three months ended September 30, 2011 was primarily due to the Company’s investment
in The Finance Company, LLC in September 2011. The decrease in fee income, which can fluctuate, for the three months ended September
30, 2012 as compared to the three months ended September 30, 2011 was primarily a result of fewer prepayment, administration and
other fees during the quarter ended September 30, 2012.
Expenses
Gross and net operating
expenses for the three months ended September 30, 2012, were $1,535,058.
Gross operating expenses
for the three months ended September 30, 2011, were $1,327,693. Net operating expenses (offset by the waived portion
of the base management fee and the accrual for waiver of operating expenses) for the three months ended September 30, 2011, were
$1,013,799.
The increase in our
net operating expenses for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 is
primarily due to the increase in the Company’s borrowings to fund additional portfolio investments, which resulted in increased
interest expense. Additionally, the expiration of the Expense Reimbursement Agreement and Management Fee waiver resulted in increased
net operating expenses.
Net Investment Income (Loss)
Net investment income
for the three months ended September 30, 2012, was $1,238,245. Net investment income per share was $0.20 for the period.
Net investment income
for the three months ended September 30, 2011, was $1,544,342. Net investment income per share was $0.25 for the period.
The decrease in net
investment income for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 was primarily
due to the increase in net operating expenses due to the expiration of the Expense Reimbursement Agreement and Management Fee waiver
and an increase in interest expenses due to the Company’s greater debt usage in the three months ended September 30, 2012
as compared to the same period in 2011 to fund portfolio growth. Additionally, the decrease in other income was due to lower fee
income, which can fluctuate, as the Company received fewer prepayment fees during the three months ended September 30, 2012 as
compared to the same period in 2011.
Realized Gain (Loss) on Investments
Realized gain (loss)
on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their
stated costs. During the three months ended September 30, 2012, we recorded a realized loss of $860,667, primarily from the conversion
of our senior secured loan in Equisearch Acquisition, Inc. to a senior secured term loan in TransAmerican Asset Servicing Group,
LLC upon to the finalization of the Equisearch Acquisition, Inc.’s bankruptcy proceedings. Realized loss per share was $0.14
for the period.
During the three months
ended September 30, 2011, we recorded a realized gain of $125,806 primarily in connection with the repayment of a portion of our
equity interests in West World Media, LLC. Realized gain per share was $0.02 for the period.
The decrease in realized
gains for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 was due to the items
discussed above.
From time to time the
Company may enter into a new transaction with a portfolio investment as a result of the sale, merger, foreclosure, bankruptcy
or other corporate event involving the portfolio company. In such cases, the Company may receive newly-issued notes, securities
and/or other consideration in exchange for, or resulting from, the cancellation of the instruments previously held by the
Company with regard to that portfolio company. In such cases, the Company may experience a realized loss on the instrument being
sold or cancelled, and, concurrently, an elimination of any previously recognized unrealized losses on the portfolio investment.
Such elimination of unrealized loss is included on the Statements of Operations as an increase in the Change in Unrealized Gain
(Loss) on Investments.
Change in Unrealized Gain (Loss) on
Investments
Change in unrealized
gain (loss) on investments is the net change in the fair value of our investment portfolio during the reporting period, including
the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
Change in unrealized
gain (loss) on investments per share was $0.08 for the three months ended September 30, 2012. During the three months ended September
30, 2012, we recorded net unrealized appreciation of $517,313, primarily from the conversion of our senior secured loan in Equisearch
Acquisition, Inc. to a senior secured term loan in TransAmerican Asset Servicing Group, LLC upon the finalization of Equisearch
Acquisition, Inc.’s bankruptcy proceedings. This consisted of $133,634 of net unrealized appreciation on debt investments
and $383,679 of net unrealized appreciation on equity investments. See related information in the Realized Gain (Loss) on Investments
section.
Change in unrealized
gain (loss) on investments per share was ($0.02) for the three months ended September 30, 2011. During the three months ended September
30, 2011, we recorded net unrealized depreciation of $70,815. This consisted of $263,304 of net unrealized depreciation on debt
investments and $192,489 of net unrealized appreciation on equity investments.
The increase in change in unrealized gain
(loss) on investments for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 was
due to the items discussed above.
Liquidity and Capital Resources
At September 30, 2012,
we had investments in debt securities of seventeen companies, totaling approximately $73.9 million in fair value, and equity investments
in seven companies, totaling approximately $1.5 million in fair value.
Cash used in operating
activities for the three months ended September 30, 2012, consisting primarily of purchases, sales and repayments of investments
and the items described in "Results of Operations," was approximately $3.6 million, reflecting the purchases and repayments
of investments, income resulting from operations, offset by non-cash income related to OID income, changes in working capital and
accrued interest receivable. Net cash used in purchases and sales of investments was approximately $3.3, reflecting net additional
investments in existing securities of $11.4 million, offset by principal repayments of $8.1. Such amounts are not inclusive
of our purchase of United States Treasury Bills or Money Market Funds.
Immediately prior to
the Full Circle Portfolio Acquisition, Full Circle Capital entered into the Credit Facility, a secured revolving credit facility
with First Capital. The facility size is $35 million and, as amended, expires on December 31, 2013. Under the agreement, base rate
borrowings bear interest at LIBOR plus 5.50%. As of September 30, 2012, we had $23.1 million outstanding borrowings under the Credit
Facility.
As of September 30,
2012, we had Distribution Notes outstanding of approximately $3.4 million. These senior unsecured notes bear interest at a rate
of 8.0% per annum, payable quarterly in cash, and mature on February 28, 2014.
As of September 30,
2012, we held approximately $66,504 in cash and did not have any cash equivalents in our investment portfolio.
As a business development
company, we generally have an ongoing need to raise additional capital for investment purposes. As a result, we expect, from time
to time, to access the debt and equity markets when we believe it is necessary and appropriate to do so. In this regard, we are
currently exploring various options for obtaining additional debt or equity capital for investments. This may include replacing
or further extending our Credit Facility, or the issuance of additional shares of our common stock, possibly at prices below our
then current net asset value per share pursuant to a proposal, approved by our stockholders at our December 2011 annual meeting
of stockholders, authorizing us to sell shares of our common stock below its then current net asset value per share in one or more
offerings for a period of one year ending on December 20, 2012. We would need similar future approval from our stockholders to
issue shares below the then current net asset value per share any time after the expiration of the current approval. If we are
unable to obtain leverage or raise equity capital on terms that are acceptable to us, our ability to grow our portfolio will be
substantially impacted.
Contractual Obligations
Payments Due By Period
(dollars in millions)
|
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than 5
years
|
|
Credit Facility
(1)
|
|
$
|
23.1
|
|
|
$
|
—
|
|
|
$
|
23.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Notes
|
|
|
3.4
|
|
|
|
—
|
|
|
|
3.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26.5
|
|
|
$
|
—
|
|
|
$
|
26.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
_____________________
(1)
At September 30, 2012,
$11.9 remained unused under the Credit Facility.
In addition to the
contractual obligations set forth above, we have certain obligations with respect to the investment advisory and administration
services we receive. See “Overview”. We incurred $641,968 for investment advisory services and $205,379 for administrative
services for the three months ended September 30, 2012.
As of September 30,
2012, we had approximately $6.3 million in unfunded loan commitments, subject to our approval in certain instances, to provide
debt financing to certain of our portfolio companies.
Off-Balance Sheet Arrangements
We currently have no
off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.
Borrowings
Secured Revolving
Credit Facility.
Immediately prior to the Full Circle Portfolio Acquisition, Full Circle Capital entered
into the Credit Facility, a secured revolving credit facility with First Capital. The facility size is $35 million and, as amended,
expires on December 31, 2013. Under the agreement, base rate borrowings bear interest at LIBOR plus 5.50%. The Credit Facility
is secured by all of our assets. Under the Credit Facility we are required to satisfy several financial covenants, including maintaining
a minimum level of net assets, a maximum level of leverage and minimum asset coverage and interest coverage ratios. In addition,
we are required to comply with other general covenants, including with respect to indebtedness, liens, restricted payments and
mergers and consolidations.
Distribution
Notes.
The Distribution Notes consist of $3.4 million in senior unsecured notes, which bear interest at a rate of 8.0%
per annum, payable quarterly in cash, and mature on February 28, 2014. The Distribution Notes are callable by us at any time, in
whole or in part, at a price of 100% of their principal amount, plus accrued and unpaid interest. In electing to exercise our call
right with respect to the Distribution Notes, our Board of Directors will consider all of the relevant factors, including alternative
uses of available capital and whether any Distribution Notes have recently been transferred or sold at prices below par value,
and will be required to determine that such a call is in the best interests of Full Circle Capital and our stockholders. The Distribution
Notes subject Full Circle Capital to customary covenants, including, among other things, a restriction on incurring any debt on
a junior lien basis, or any debt that is contractually subordinated in right of payment to any other debt unless it is also subordinated
to the Distribution Notes on substantially identical terms. The agreement under which the Distribution Notes were issued contains
customary events of default.
Distributions
In order to qualify
as a regulated investment company and to avoid corporate level tax on the income we distribute to our stockholders, we are required,
under Subchapter M of the Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders
on an annual basis.
The following table
lists the cash distributions, including dividends and returns of capital, if any, per share that we have declared since our formation
on April 16, 2010. The table is divided by fiscal year according to record date.
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Fiscal 2011:
|
|
|
|
|
|
|
|
|
July 21, 2010
|
|
September 30, 2010
|
|
October 15, 2010
|
|
$
|
0.076
|
(1)
|
November 5, 2010
|
|
December 31, 2010
|
|
January 14, 2011
|
|
|
0.225
|
|
February 4, 2011
|
|
March 31, 2011
|
|
April 15, 2011
|
|
|
0.225
|
|
May 6, 2011
|
|
June 30, 2011
|
|
July 15, 2011
|
|
|
0.225
|
|
Total (2011)
|
|
|
|
|
|
$
|
0.751
|
|
Fiscal 2012:
|
|
|
|
|
|
|
|
|
June 28, 2011
|
|
July 29, 2011
|
|
August 15, 2011
|
|
$
|
0.075
|
(2)
|
June 28, 2011
|
|
August 31, 2011
|
|
September 15, 2011
|
|
|
0.075
|
|
June 28, 2011
|
|
September 30, 2011
|
|
October 14, 2011
|
|
|
0.075
|
|
September 8, 2011
|
|
October 31, 2011
|
|
November 15, 2011
|
|
|
0.077
|
|
September 8, 2011
|
|
November 30, 2011
|
|
December 15, 2011
|
|
|
0.077
|
|
September 8, 2011
|
|
December 30, 2011
|
|
January 13, 2012
|
|
|
0.077
|
|
November 7, 2011
|
|
January 31, 2012
|
|
February 15, 2012
|
|
|
0.077
|
|
November 7, 2011
|
|
February 29, 2012
|
|
March 15, 2012
|
|
|
0.077
|
|
November 7, 2011
|
|
March 30, 2012
|
|
April 13, 2012
|
|
|
0.077
|
|
February 3, 2012
|
|
April 30, 2012
|
|
May 15, 2012
|
|
|
0.077
|
|
February 3, 2012
|
|
May 31, 2012
|
|
June 15, 2012
|
|
|
0.077
|
|
February 3, 2012
|
|
June 29, 2012
|
|
July 13, 2012
|
|
|
0.077
|
|
Total (2012)
|
|
|
|
|
|
$
|
0.918
|
|
Fiscal 2013:
|
|
|
|
|
|
|
|
|
May 7, 2012
|
|
July 31, 2012
|
|
August 15, 2012
|
|
$
|
0.077
|
|
May 7, 2012
|
|
August 31, 2012
|
|
September 14, 2012
|
|
|
0.077
|
|
May 7, 2012
|
|
September 28, 2012
|
|
October 15, 2012
|
|
|
0.077
|
|
September 10, 2012
|
|
October 31, 2012
|
|
November 15, 2012
|
|
|
0.077
|
|
September 10, 2012
|
|
November 30, 2012
|
|
December 14, 2012
|
|
|
0.077
|
|
September 10, 2012
|
|
December 31, 2012
|
|
January 15, 2012
|
|
|
0.077
|
|
November 5, 2012
|
|
January 31, 2013
|
|
February 15, 2013
|
|
|
0.077
|
|
November 5, 2012
|
|
February 28, 2013
|
|
March 15, 2013
|
|
|
0.077
|
|
November 5, 2012
|
|
March 29, 2013
|
|
April 15, 2013
|
|
|
0.077
|
|
Total (2013 to date)
|
|
|
|
|
|
$
|
0.693
|
|
(1)
This quarterly dividend
was prorated for the number of days remaining in the third calendar quarter after our initial public offering. Our initial public
offering was on August 31, 2010, and the gross amount of the prorated dividend was $0.225.
(2)
From
our initial public offering through the fourth fiscal quarter of 2011, we paid quarterly dividends, but in the first fiscal quarter
of 2012 we began paying, and we intend to continue paying, monthly dividends to our stockholders. Our monthly dividends, if any,
are determined by our Board of Directors on a quarterly basis.
Related Parties
We have entered into
a number of business relationships with affiliated or related parties, including the following:
|
•
|
We have entered into the Investment Advisory Agreement with Full Circle Advisors. John E. Stuart, our Chief Executive Officer and President, is the managing member of, and has financial and controlling interests in, Full Circle Advisors.
|
|
•
|
We have entered into the Administration Agreement with Full Circle Service Company. Pursuant to the terms of the Administration Agreement, Full Circle Service Company provides us with the office facilities and administrative services necessary to conduct our day-to-day operations. Mr. Stuart, our Chief Executive Officer and President, is the managing member of, and has financial and controlling interests in, Full Circle Service Company.
|
|
•
|
We have entered into a license agreement with Full Circle Advisors, pursuant to which Full Circle Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name “Full Circle.”
|
|
•
|
Our Chief Financial Officer, Treasurer and Secretary, William E. Vastardis, is the President of Vastardis Fund Services, LLC (“Vastardis”). Full Circle Service Company has engaged Vastardis to provide certain administrative services to us. For the three months ended September 30, 2012, Vastardis was paid $73,429 for services provided under the Administration Agreement and $62,500 for the services of Mr. Vastardis as the Chief Financial Officer.
|
Full Circle Advisors’
investment committee presently manages Full Circle Funding, LP, a specialty lender serving smaller and lower middle-market companies.
Although the existing investment funds managed by Full Circle Funding, LP, which currently consist of the Legacy Funds, are no
longer making investments in new opportunities, any affiliated investment vehicle formed in the future and managed by our investment
adviser or its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with
our own and, accordingly, may invest in asset classes similar to those targeted by us. Full Circle Advisors and its affiliates
may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the
availability of such investment and other appropriate factors, Full Circle Advisors or its affiliates may determine that we should
invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable
law and interpretive positions of the SEC and its staff, and consistent with Full Circle Advisors’ allocation procedures.
In connection with our acquisition of the Legacy Portfolio, we issued an aggregate of 4,191,415 shares of our common stock and
approximately $3.4 million of Distribution Notes to investors in the Legacy Funds.
We have also adopted
a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial
Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors
avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests. Pursuant
to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might
give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code
of Ethics. As required by the NASDAQ corporate governance listing standards, the Audit Committee of our Board of Directors is also
required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K).
Recent Developments
Dividend
On November 5, 2012,
the Board of Directors declared monthly dividends of $0.077, $0.077 and $0.077 per share payable on February 15, 2013 for holders
of record at January 31, 2013, March 15, 2013 for holders of record at February 28, 2013 and April 15, 2013 for holders of record
at March 29, 2013.
Recent Portfolio
Activity
On October 31, 2012,
the Company extended the loan to Ygnition Networks, Inc. through December 31, 2012.
On November 1, 2012,
the Company extended the loan to Attention Transit Advertising Systems, LLC through May 31, 2013.
Subsequent to September
30, 2012, the Company increased the availability under the Global Energy Efficiency Holdings, Inc. revolving loan facility to $3,250,000
from $2,250,000.
On November 2, 2012,
The Selling Source, LLC pre-paid, at par, $1,140,496 of its loan from the Company.
Credit Facility
On October 31, 2013,
the Company re-extended the maturity of the Credit Facility through December 31, 2013.
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
We are subject to financial
market risks, including changes in interest rates. As of September 30, 2012, two debt investments in our portfolio were at a fixed
rate, and the remaining 26 debt investments were at variable rates, representing approximately $5.3 million and $68.6 in fair value
debt, respectively. The majority of our floating rate debt instruments are currently at their floor interest rate. The
variable rates are based upon the Prime rate or LIBOR.
To illustrate the potential
impact of a change in the underlying interest rate on our net investment income, we have assumed a 1% increase in the underlying
Prime rate or LIBOR, and no other change in our portfolio as of September 30, 2012. We have also assumed $23.1 million of outstanding
borrowings bearing a floating rate based upon LIBOR. Under this analysis, net investment income would increase by approximately
$0.3 million annually. If we had instead assumed a 1% decrease in the underlying Prime rate or LIBOR, net investment income would
decrease correspondingly by approximately $0.1 million annually. Although management believes that this analysis is indicative
of our existing interest rate sensitivity at September 30, 2012, it does not adjust for changes in the credit quality, size and
composition of our portfolio, and other business developments, including borrowing under a credit facility, that could affect the
net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ
materially from the results under this hypothetical analysis.
We may in the future
hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts.
While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate
in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.
Item 4.
|
Controls and Procedures
|
As of September 30, 2012, we, including
our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in timely
alerting management, including the Chief Executive Officer and Chief Financial Officer, of material information about us required
to be included in periodic SEC filings.
There have been no changes in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during
the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II—OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
None of us, our investment adviser or administrator,
is currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against
us, or against our investment adviser or administrator. From time to time, we, our investment adviser or administrator, may be
a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our
rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty,
we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
In addition to the other information set
forth in this report, you should carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2012, which could materially affect our business, financial condition and/or
operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely
affect our business, financial condition and/or operating results. There have been no material changes during the three months
ended September 30, 2012 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended June 30, 2012.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
We did not engage in unregistered sales of
equity securities during the three months ended September 30, 2012.
Issuer Purchases of Equity Securities
For the quarter ended September 30, 2012,
as a part of our dividend reinvestment plan for our common stockholders, we purchased 7,902 shares of our common stock for approximately
$62,774 in the open market in order to satisfy the reinvestment portion of our dividends. The following chart outlines repurchases
of our common stock during the quarter ended September 30, 2012.
Month
|
|
Total
Number of
Shares
Purchased
|
|
|
Average
Price Paid
per Share
|
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
|
|
|
Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2012
|
|
|
5,516
|
|
|
$
|
7.91
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2012
|
|
|
300
|
|
|
$
|
7.96
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2012
|
|
|
2,086
|
|
|
$
|
8.03
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,902
|
|
|
$
|
7.94
|
|
|
|
—
|
|
|
|
—
|
|
Item 3.
|
Defaults Upon Senior Securities
|
Not applicable.
Item 4.
|
Mine Safety Disclosures
|
Not applicable.
Item 5.
|
Other Information
|
Not applicable.
The following exhibits are filed as part
of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
Exhibit
Number
|
|
Description
|
3.1
|
|
Articles of Amendment and Restatement
(2)
|
3.2
|
|
Bylaws
(1)
|
4.1
|
|
Form of Common Stock Certificate
(1)
|
4.2
|
|
Form of Note Agreement for Senior Unsecured Notes
(1)
|
4.3
|
|
Form of Senior Unsecured Note
(1)
|
10.1
|
|
Form of Dividend Reinvestment Plan
(1)
|
10.2
|
|
Form of Second Amended and Restated Loan and Security Agreement by and between the Registrant and FCC, LLC d/b/a First Capital
(2)
|
10.3
|
|
Investment Advisory Agreement by and between Registrant and Full Circle Advisors, LLC
(1)
|
10.4
|
|
Administration Agreement by and between Registrant and Full Circle Service Company, LLC
(1)
|
10.5
|
|
Form of Indemnification Agreement by and between Registrant and each of its directors
(1)
|
10.6
|
|
Trademark License Agreement by and between Registrant and Full Circle Advisors, LLC
(1)
|
10.7
|
|
Form of Purchase and Sale Agreement by and between Registrant, Full Circle Partners, LP, Full Circle Fund, Ltd., Full Circle Offshore, LLC, and FCC, LLC d/b/a First Capital
(2)
|
10.8
|
|
First Amendment to the Second Amended and Restated Loan and Security Agreement by and between the Registrant and FCC, LLC d/b/a First Capital
(3)
|
10.9
|
|
Waiver and Second Amendment to Second Amended and Restated Loan and Security Agreement by and between the Registrant and FCC, LLC d/b/a First Capital
(4)
|
10.10
|
|
Third Amendment to Second Amended and Restated Loan and Security Agreement, among Full Circle Capital Corporation and FCC, LLC, d/b/a First Capital
(5)
|
10.11
|
|
Fourth Amendment to Second Amended and Restated Loan and Security Agreement, among Full Circle Capital Corporation and FCC, LLC, d/b/a First Capital
(6)
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
|
|
(1)
|
Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-166302) filed on August 5, 2010.
|
|
(2)
|
Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 3 (File No. 333-166302) filed on August 26, 2010.
|
|
(3)
|
Incorporated by reference to Registrant’s current report on Form 8-K (File No. 814-00809) filed on January 27, 2012.
|
|
(4)
|
Incorporated by reference to Registrant’s quarterly report on Form 10-Q (File No. 814-00809) filed on May 10, 2012.
|
|
(5)
|
Incorporated by reference to Registrant’s current report on Form 8-K (File No. 814-00809) filed on August 1, 2012.
|
|
(6)
|
Incorporated by reference to Registrant’s current report on Form 8-K (File No. 814-00809) filed on November 2, 2012.
|
|
|
|
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
FULL CIRCLE CAPITAL CORPORATION
|
|
|
|
|
Date: November 9, 2012
|
|
By:
|
/s/
John E. Stuart
|
|
|
|
John
E. Stuart, Chief Executive Officer, President and Chairman of the Board of Directors
(Principal
Executive Officer)
|
|
|
|
|
Date: November 9, 2012
|
|
By:
|
/s/ William
E. Vastardis
|
|
|
|
William
E. Vastardis, Chief Financial Officer, Treasurer and Secretary (Principal
Financial
and Accounting Officer)
|
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