Item 1.
|
Financial Statements
|
FULL CIRCLE CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES
|
|
|
|
|
December 31,
2012
|
|
|
June 30, 2012
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments
at Fair Value (Cost of $18,137,713 and $6,639,648, respectively)
|
|
|
(NOTE
2, 9)
|
|
|
$
|
18,570,697
|
|
|
$
|
6,777,511
|
|
Affiliate Investments at Fair
Value (Cost of $11,296,481 and $6,802,017, respectively)
|
|
|
(NOTE 2,
9)
|
|
|
|
9,282,442
|
|
|
|
5,112,142
|
|
Non-Control/Non-Affiliate
Investments at Fair Value (Cost of $72,151,382 and $85,181,617, respectively)
|
|
|
(NOTE
2, 9)
|
|
|
|
71,765,827
|
|
|
|
82,957,117
|
|
Total Investments at Fair
Value (Cost of $101,585,576 and $98,623,282, respectively)
|
|
|
|
|
|
|
99,618,966
|
|
|
|
94,846,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
304,077
|
|
|
|
639,149
|
|
Deposit with Broker
|
|
|
|
|
|
|
2,250,000
|
|
|
|
2,350,000
|
|
Interest Receivable
|
|
|
(NOTE 2)
|
|
|
|
848,630
|
|
|
|
902,711
|
|
Principal Receivable
|
|
|
|
|
|
|
251,751
|
|
|
|
513,372
|
|
Dividends Receivable
|
|
|
|
|
|
|
72,493
|
|
|
|
-
|
|
Due from Portfolio Investment
|
|
|
|
|
|
|
364,535
|
|
|
|
11,140
|
|
Receivable for Investments Sold
|
|
|
|
|
|
|
1,126,196
|
|
|
|
-
|
|
Prepaid Expenses
|
|
|
|
|
|
|
107,717
|
|
|
|
43,053
|
|
Other Assets
|
|
|
|
|
|
|
10,550
|
|
|
|
25,499
|
|
Deferred Offering Expenses
|
|
|
|
|
|
|
-
|
|
|
|
67,685
|
|
Deferred Credit Facility Fees
|
|
|
|
|
|
|
100,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
105,054,915
|
|
|
|
99,449,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Affiliate
|
|
|
(NOTE 5)
|
|
|
|
710,556
|
|
|
|
580,353
|
|
Accounts Payable
|
|
|
|
|
|
|
19,337
|
|
|
|
115,741
|
|
Accrued Liabilities
|
|
|
|
|
|
|
47,455
|
|
|
|
79,651
|
|
Due to Broker
|
|
|
|
|
|
|
22,000,733
|
|
|
|
22,500,041
|
|
Dividends Payable
|
|
|
|
|
|
|
582,842
|
|
|
|
478,892
|
|
Interest Payable
|
|
|
|
|
|
|
100,479
|
|
|
|
142,518
|
|
Other Liabilities
|
|
|
|
|
|
|
759,692
|
|
|
|
140,458
|
|
Accrued Offering Expenses
|
|
|
|
|
|
|
-
|
|
|
|
19,697
|
|
Line of Credit
|
|
|
|
|
|
|
16,622,598
|
|
|
|
18,544,660
|
|
Distribution Notes
|
|
|
(NOTE
8)
|
|
|
|
3,404,583
|
|
|
|
3,404,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
|
|
|
|
44,248,275
|
|
|
|
46,006,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Assets
|
|
|
|
|
|
$
|
60,806,640
|
|
|
$
|
53,442,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share (100,000,000 authorized; 7,569,382 and 6,219,382 issued and outstanding, respectively)
|
|
|
|
|
|
$
|
75,694
|
|
|
$
|
62,194
|
|
Paid-in Capital in Excess of Par
|
|
|
|
|
|
|
67,420,152
|
|
|
|
57,455,232
|
|
Distributions in Excess of Net Investment Income
|
|
|
|
|
|
|
(500,122
|
)
|
|
|
(122,763
|
)
|
Accumulated Net Realized Losses
|
|
|
|
|
|
|
(4,222,474
|
)
|
|
|
(175,366
|
)
|
Accumulated Net Unrealized Losses
|
|
|
|
|
|
|
(1,966,610
|
)
|
|
|
(3,776,512
|
)
|
Net Assets
|
|
|
|
|
|
$
|
60,806,640
|
|
|
$
|
53,442,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value Per Share
|
|
|
|
|
|
$
|
8.03
|
|
|
$
|
8.59
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income from Non-Control/Non-Affiliate Investments
|
|
|
|
|
|
$
|
1,974,071
|
|
|
$
|
2,104,779
|
|
|
$
|
3,994,055
|
|
|
$
|
3,930,042
|
|
Interest Income from Affiliate Investments
|
|
|
|
|
|
|
280,567
|
|
|
|
-
|
|
|
|
560,508
|
|
|
|
234,864
|
|
Interest Income from Control Investments
|
|
|
|
|
|
|
319,411
|
|
|
|
227,071
|
|
|
|
598,584
|
|
|
|
254,644
|
|
Dividend Income from Control Investments
|
|
|
|
|
|
|
72,493
|
|
|
|
1,823
|
|
|
|
106,590
|
|
|
|
1,823
|
|
Other Income from Non-Control/Non-Affiliate Investments
|
|
|
(NOTE 2)
|
|
|
|
384,553
|
|
|
|
64,992
|
|
|
|
528,580
|
|
|
|
376,449
|
|
Other Income from Affiliate Investments
|
|
|
(NOTE 2)
|
|
|
|
56,004
|
|
|
|
-
|
|
|
|
59,585
|
|
|
|
54,086
|
|
Other Income from Control Investments
|
|
|
(NOTE 2)
|
|
|
|
12,500
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
105,000
|
|
Total Investment Income
|
|
|
|
|
|
|
3,099,599
|
|
|
|
2,398,665
|
|
|
|
5,872,902
|
|
|
|
4,956,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee
|
|
|
(NOTE 5)
|
|
|
|
345,126
|
|
|
|
300,690
|
|
|
|
679,162
|
|
|
|
586,650
|
|
Incentive Fee
|
|
|
(NOTE 5)
|
|
|
|
365,430
|
|
|
|
274,674
|
|
|
|
673,362
|
|
|
|
646,276
|
|
Total Advisory Fees
|
|
|
|
|
|
|
710,556
|
|
|
|
575,364
|
|
|
|
1,352,524
|
|
|
|
1,232,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Overhead Expenses
|
|
|
(NOTE 5)
|
|
|
|
84,552
|
|
|
|
89,207
|
|
|
|
141,308
|
|
|
|
174,892
|
|
Sub-Administration Fees
|
|
|
(NOTE 5)
|
|
|
|
50,000
|
|
|
|
78,115
|
|
|
|
123,429
|
|
|
|
156,229
|
|
Officers’ Compensation
|
|
|
(NOTE 5)
|
|
|
|
75,160
|
|
|
|
71,629
|
|
|
|
150,354
|
|
|
|
117,553
|
|
Total Costs Incurred Under Administration Agreement
|
|
|
|
|
|
|
209,712
|
|
|
|
238,951
|
|
|
|
415,091
|
|
|
|
448,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors’ Fees
|
|
|
|
|
|
|
33,125
|
|
|
|
26,125
|
|
|
|
61,750
|
|
|
|
54,250
|
|
Interest Expense
|
|
|
(NOTE 8)
|
|
|
|
438,587
|
|
|
|
244,405
|
|
|
|
835,082
|
|
|
|
366,965
|
|
Professional Services Expense
|
|
|
|
|
|
|
109,902
|
|
|
|
93,806
|
|
|
|
275,063
|
|
|
|
314,679
|
|
Bank Fees
|
|
|
|
|
|
|
5,230
|
|
|
|
3,285
|
|
|
|
8,320
|
|
|
|
6,966
|
|
Other
|
|
|
|
|
|
|
126,837
|
|
|
|
118,089
|
|
|
|
221,177
|
|
|
|
203,258
|
|
Total Gross Operating Expenses
|
|
|
|
|
|
|
1,633,949
|
|
|
|
1,300,025
|
|
|
|
3,169,007
|
|
|
|
2,627,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee Waiver and Expense Reimbursement
|
|
|
(NOTE 5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(313,792
|
)
|
Total Net Operating Expenses
|
|
|
|
|
|
|
1,633,949
|
|
|
|
1,300,025
|
|
|
|
3,169,007
|
|
|
|
2,313,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
|
|
|
|
1,465,650
|
|
|
|
1,098,640
|
|
|
|
2,703,895
|
|
|
|
2,642,982
|
|
Net Change in Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
|
1,292,589
|
|
|
|
(846,865
|
)
|
|
|
1,809,902
|
|
|
|
(917,680
|
)
|
Net Realized Gain (Loss) on Investments
|
|
|
|
|
|
|
(3,186,441
|
)
|
|
|
766
|
|
|
|
(4,047,108
|
)
|
|
|
126,572
|
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
|
|
|
|
$
|
(428,202
|
)
|
|
$
|
252,541
|
|
|
$
|
466,689
|
|
|
$
|
1,851,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Common Share Basic and
Diluted
|
|
|
(NOTE 4)
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
|
$
|
0.30
|
|
Net Investment Income per Common Share Basic and Diluted
|
|
|
|
|
|
$
|
0.22
|
|
|
$
|
0.18
|
|
|
$
|
0.42
|
|
|
$
|
0.43
|
|
Weighted Average Shares of Common Share Outstanding
Basic and Diluted
|
|
|
|
|
|
|
6,732,969
|
|
|
|
6,219,382
|
|
|
|
6,476,175
|
|
|
|
6,219,382
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
NET ASSETS (Unaudited)
|
|
Six months ended
December 31, 2012
|
|
|
Six months ended
December 31, 2011
|
|
Increase (Decrease) in Net Assets Resulting from Operations:
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
$
|
2,703,895
|
|
|
$
|
2,642,982
|
|
Net Change in Unrealized Gain (Loss) on Investments
|
|
|
1,809,902
|
|
|
|
(917,680
|
)
|
Realized Gain (Loss) on Investments
|
|
|
(4,047,108
|
)
|
|
|
126,572
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
466,689
|
|
|
|
1,851,874
|
|
|
|
|
|
|
|
|
|
|
Dividends to Shareholders
|
|
|
(3,081,254
|
)
|
|
|
(2,836,038
|
)
|
|
|
|
|
|
|
|
|
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
Issuance of Common Stock
|
|
|
10,665,000
|
|
|
|
-
|
|
Less Offering Costs and Underwriting Fees
|
|
|
(686,580
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Capital Share Transactions
|
|
|
9,978,420
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Increase (Decrease) in Net Assets
|
|
|
7,363,855
|
|
|
|
(984,164
|
)
|
Net Assets at Beginning of Period
|
|
|
53,442,785
|
|
|
|
56,474,006
|
|
|
|
|
|
|
|
|
|
|
Net Assets at End of Period
|
|
$
|
60,806,640
|
|
|
$
|
55,489,842
|
|
|
|
|
|
|
|
|
|
|
Capital Share Activity:
|
|
|
|
|
|
|
|
|
Shares Issued
|
|
|
1,350,000
|
|
|
|
-
|
|
Shares Outstanding at Beginning of Period
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding at End of Period
|
|
|
7,569,382
|
|
|
|
6,219,382
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six months ended
December 31, 2012
|
|
|
Six months ended
December 31, 2011
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
$
|
466,689
|
|
|
$
|
1,851,874
|
|
Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to Net Cash Used in Operating Activities
|
|
|
|
|
|
|
|
|
Purchases of Investments
|
|
|
(87,577,200
|
)
|
|
|
(101,127,615
|
)
|
Proceeds from Sale or Refinancing of Investments
|
|
|
80,727,443
|
|
|
|
86,287,467
|
|
Realized (Gain) Loss on Investments
|
|
|
4,047,108
|
|
|
|
(126,572
|
)
|
Net change in Unrealized (Gain) Loss on Investments
|
|
|
(1,809,902
|
)
|
|
|
917,680
|
|
Amortization of Discount
|
|
|
(159,645
|
)
|
|
|
(291,351
|
)
|
Change in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
|
Deposit with Broker
|
|
|
100,000
|
|
|
|
(642,141
|
)
|
Interest Receivable
|
|
|
54,081
|
|
|
|
(243,793
|
)
|
Principal Receivable
|
|
|
261,621
|
|
|
|
(709,008
|
)
|
Dividend Receivable
|
|
|
(72,493
|
)
|
|
|
-
|
|
Due from Portfolio Investment
|
|
|
(353,395
|
)
|
|
|
-
|
|
Receivable for Investments Sold
|
|
|
(1,126,196
|
)
|
|
|
-
|
|
Prepaid Expenses
|
|
|
(64,664
|
)
|
|
|
(71,782
|
)
|
Other Assets
|
|
|
14,949
|
|
|
|
200,797
|
|
Due to Affiliate
|
|
|
130,203
|
|
|
|
(17,055
|
)
|
Accounts Payable
|
|
|
(96,404
|
)
|
|
|
(110,057
|
)
|
Accrued Liabilities
|
|
|
(32,196
|
)
|
|
|
40,692
|
|
Due to Broker
|
|
|
(499,308
|
)
|
|
|
6,500,531
|
|
Interest Payable
|
|
|
(42,039
|
)
|
|
|
84,504
|
|
Other Liabilities
|
|
|
619,234
|
|
|
|
(255,512
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(5,412,114
|
)
|
|
|
(7,711,341
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Borrowings Under Credit Facility
|
|
|
31,479,326
|
|
|
|
43,940,969
|
|
Payments Under Credit Facility
|
|
|
(33,451,388
|
)
|
|
|
(33,243,367
|
)
|
Dividends Paid to Shareholders
|
|
|
(2,977,304
|
)
|
|
|
(3,756,507
|
)
|
Payment of Offering Costs and Underwriting Fees
|
|
|
(638,592
|
)
|
|
|
-
|
|
Proceeds from Issuance of Common Stock
|
|
|
10,665,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
5,077,042
|
|
|
|
6,941,095
|
|
|
|
|
|
|
|
|
|
|
Total Decrease in Cash
|
|
|
(335,072
|
)
|
|
|
(770,246
|
)
|
Cash Balance at Beginning of Period
|
|
|
639,149
|
|
|
|
2,065,943
|
|
Cash Balance at End of Period
|
|
$
|
304,077
|
|
|
$
|
1,295,697
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Financing Activity:
|
|
|
|
|
|
|
|
|
Dividends Declared, Not Yet Paid
|
|
$
|
582,842
|
|
|
$
|
478,892
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for Interest
|
|
$
|
877,121
|
|
|
$
|
282,461
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 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%, 05/01/2013
|
|
Advertising Services
|
|
$
|
2,321,626
|
|
|
$
|
2,321,626
|
|
|
$
|
2,097,124
|
|
|
|
3.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background Images, Inc.
|
|
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 14.71%, 6/28/2014
|
|
Rental
Services
|
|
$
|
1,667,500
|
|
|
|
1,650,799
|
|
|
|
1,714,246
|
|
|
|
2.82
|
%
|
Senior Secured Loan –
Term B, 16.46%, 6/28/2014
|
|
|
|
$
|
942,500
|
|
|
|
932,909
|
|
|
|
971,749
|
|
|
|
1.60
|
%
|
Total
|
|
|
|
|
|
|
|
|
2,583,708
|
|
|
|
2,685,995
|
|
|
|
4.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blackstrap Broadcasting, LLC
|
|
Radio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 5.00%, 6/25/2013
|
|
Broadcasting
|
|
$
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
2,764,100
|
|
|
|
4.54
|
%
|
Subordinated Secured Loan, 16.00%, 6/25/2013
|
|
|
|
$
|
3,500,000
|
|
|
|
3,500,000
|
|
|
|
3,358,950
|
|
|
|
5.52
|
%
|
Total
|
|
|
|
|
|
|
|
|
6,500,000
|
|
|
|
6,123,050
|
|
|
|
10.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coast Plating, Inc.
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 11.71%, 9/13/2014
|
|
Parts Plating and Finishing
|
|
$
|
1,450,000
|
|
|
|
1,453,858
|
|
|
|
1,441,590
|
|
|
|
2.37
|
%
|
Senior Secured Loan – Term B, 13.21%,
9/13/2014
|
|
|
|
$
|
3,550,000
|
|
|
|
3,546,938
|
|
|
|
3,537,220
|
|
|
|
5.82
|
%
|
Total
|
|
|
|
|
|
|
|
|
5,000,796
|
|
|
|
4,978,810
|
|
|
|
8.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSL Operating, LLC
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan – Term A, 11.71%, 5/11/2014
|
|
Metal Treatings
|
|
$
|
1,966,680
|
|
|
|
1,961,767
|
|
|
|
1,940,130
|
|
|
|
3.19
|
%
|
Senior Secured Loan –
Term B, 11.71%, 5/11/2014
|
|
|
|
$
|
1,966,680
|
|
|
|
1,961,767
|
|
|
|
1,930,100
|
|
|
|
3.17
|
%
|
Total
|
|
|
|
|
|
|
|
|
3,923,534
|
|
|
|
3,870,230
|
|
|
|
6.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment Plus, Inc.
|
|
Staffing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.00%, 10/24/2013
|
|
Services
|
|
$
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
8.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European Evaluators, LLC
3
|
|
Art
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.00%, 2/28/2013
|
|
Dealers
|
|
$
|
615,000
|
|
|
|
615,000
|
|
|
|
615,000
|
|
|
|
1.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Energy Efficiency Holdings, Inc.
|
|
Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Revolving Loan, 12.46%, 9/7/2015
|
|
Efficiency Services
|
|
$
|
3,177,356
|
|
|
|
3,154,067
|
|
|
|
3,177,356
|
|
|
|
5.22
|
%
|
Senior Secured Loan, 12.46%,
9/7/2015
|
|
|
|
$
|
1,000,000
|
|
|
|
987,637
|
|
|
|
1,003,900
|
|
|
|
1.65
|
%
|
Total
|
|
|
|
|
|
|
|
|
4,141,704
|
|
|
|
4,181,256
|
|
|
|
6.87
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Continued)
December 31, 2012 (Unaudited)
Description
1,2
|
|
Industry
|
|
Par Amount/
Quantity
|
|
|
Cost
|
|
|
Fair Value
|
|
|
% of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iMedX,
Inc.
|
|
Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Revolving Loan, 10.06%, 09/19/2014
|
|
Transcription
Services
|
|
$
|
1,282,230
|
|
|
$
|
1,282,211
|
|
|
$
|
1,282,230
|
|
|
|
2.11
|
%
|
Senior
Secured Loan – Term A, 15.96%, 09/19/2014
|
|
|
|
$
|
2,513,720
|
|
|
|
2,493,351
|
|
|
|
2,618,123
|
|
|
|
4.31
|
%
|
Senior
Secured Loan – Term B, 15.96%, 09/19/2014
|
|
|
|
$
|
591,000
|
|
|
|
591,000
|
|
|
|
615,546
|
|
|
|
1.01
|
%
|
Total
|
|
|
|
|
|
|
|
|
4,366,562
|
|
|
|
4,515,899
|
|
|
|
7.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matt Martin
Real Estate
Management, LLC
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Loan, 12.99%, 4/30/2015
|
|
Management Services
|
|
$
|
3,473,000
|
|
|
|
3,446,962
|
|
|
|
3,531,346
|
|
|
|
5.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
8.18
|
%
|
Senior
Secured Loan - Tranche C, 9.75%, 6/30/2013
|
|
|
|
$
|
250,000
|
|
|
|
250,000
|
|
|
|
245,575
|
|
|
|
0.40
|
%
|
Senior
Secured Loan - Tranche D, 8.75%, 6/30/2013
|
|
|
|
$
|
1,480,000
|
|
|
|
1,480,000
|
|
|
|
1,439,892
|
|
|
|
2.37
|
%
|
Warrants
for 37,500 shares (at a $6.00 strike price), expire 6/30/2013
^
|
|
|
|
|
37,500
|
|
|
|
298
|
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
|
|
|
|
|
|
|
6,730,298
|
|
|
|
6,657,467
|
|
|
|
10.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Media
West, LLC
4
|
|
Cable TV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Term Loan, 9.00%, 12/31/2017
|
|
Broadband Services
|
|
$
|
5,800,000
|
|
|
|
5,800,000
|
|
|
|
5,771,387
|
|
|
|
9.49
|
%
|
Limited
Liability Company Interests
^,7
|
|
|
|
|
720
|
|
|
|
3,600,000
|
|
|
|
3,600,000
|
|
|
|
5.92
|
%
|
Total
|
|
|
|
|
|
|
|
|
9,400,000
|
|
|
|
9,371,387
|
|
|
|
15.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ProGrade
Ammo Group, LLC
6
|
|
Munitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Revolving Loan, 9.21%, 8/1/2014
|
|
|
|
$
|
994,489
|
|
|
|
994,489
|
|
|
|
994,489
|
|
|
|
1.64
|
%
|
Senior
Secured Term Loan, 15.21%, 8/1/2014
|
|
|
|
$
|
5,718,750
|
|
|
|
5,597,692
|
|
|
|
3,973,959
|
|
|
|
6.54
|
%
|
Warrants
for 9.5% of the outstanding LLC interests (at a $10.00 strike price), expire 8/2/2018
^
|
|
|
|
|
181,240
|
|
|
|
176,770
|
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
|
|
|
|
|
|
|
6,768,951
|
|
|
|
4,968,448
|
|
|
|
8.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOLEX
Fine Foods, LLC; Catsmo, LLC
6
|
|
Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Term Loan , 12.46%,
|
|
Distributors &
|
|
$
|
3,900,000
|
|
|
|
3,788,975
|
|
|
|
3,788,975
|
|
|
|
6.23
|
%
|
12/28/2016
|
|
Wholesalers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
Liability Company Interests
^,8
|
|
|
|
|
6.89
|
%
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0.41
|
%
|
Warrants
for 1.6% of the outstanding LLC interests (strike price 0.01), expire 12/28/2022
^,8
|
|
|
|
|
1
|
|
|
|
58,055
|
|
|
|
58,055
|
|
|
|
0.10
|
%
|
Total
|
|
|
|
|
|
|
|
|
4,097,030
|
|
|
|
4,097,030
|
|
|
|
6.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
Westchester Financial, LLC
4
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
Liability Company Interests
^
|
|
Financing
|
|
|
9,278
|
|
|
|
905,819
|
|
|
|
555,325
|
|
|
|
0.91
|
%
|
See notes to consolidated financial statements
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Continued)
December 31, 2012 (Unaudited)
Description
1,2
|
|
Industry
|
|
Par Amount/
Quantity
|
|
|
Cost
|
|
|
Fair Value
|
|
|
% of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Finance Company, LLC
4
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 15.00%, 9/30/2015
|
|
Financing
|
|
$
|
5,724,261
|
|
|
$
|
5,607,118
|
|
|
$
|
5,684,001
|
|
|
|
9.35
|
%
|
Limited Liability Company Interests
|
|
|
|
|
50
|
|
|
|
140,414
|
|
|
|
1,359,859
|
|
|
|
2.24
|
%
|
Total
|
|
|
|
|
|
|
|
|
5,747,532
|
|
|
|
7,043,860
|
|
|
|
11.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Selling Source, LLC
|
|
Information and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 12.00%, 1/31/2013
|
|
Data Services
|
|
$
|
2,017,700
|
|
|
|
2,017,700
|
|
|
|
2,017,700
|
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransAmerican
Asset Servicing
Group,
LLC
5
|
|
Asset Recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan, 14.25%, 7/25/2016
|
|
Services
|
|
$
|
2,125,000
|
|
|
|
2,084,362
|
|
|
|
1,600,125
|
|
|
|
2.63
|
%
|
Limited Liability Company Interests
^,4
|
|
|
|
|
75
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
|
|
|
|
|
|
|
2,084,362
|
|
|
|
1,600,125
|
|
|
|
2.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Path Labs, LLC
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Loan , 13.00%, 3/30/2014
|
|
Services
|
|
$
|
3,500,000
|
|
|
|
3,446,856
|
|
|
|
3,491,950
|
|
|
|
5.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
6,9
|
|
Information and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Liability Company Interests
^
|
|
Data Services
|
|
|
146,400
|
|
|
|
430,500
|
|
|
|
216,964
|
|
|
|
0.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury Bill** (0.40)%, 1/3/2013
|
|
|
|
$
|
22,000,000
|
|
|
|
22,000,489
|
|
|
|
22,000,000
|
|
|
|
36.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
|
|
|
|
|
|
$
|
101,585,576
|
|
|
$
|
99,618,966
|
|
|
|
163.83
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Continued)
December 31, 2012 (Unaudited)
The following table shows the fair value
of our portfolio of investments by industry, as of December 31, 2012, excluding United States Treasury Bills of approximately $22.0
million.
|
|
December 31, 2012
|
|
|
|
Investment at
Fair Value
(dollars
in millions)
|
|
|
Percentage of
Net Assets
|
|
Cable TV/Broadband Services
|
|
$
|
16.0
|
|
|
|
26.36
|
%
|
Consumer Financing
|
|
|
7.6
|
|
|
|
12.50
|
|
Radio Broadcasting
|
|
|
6.1
|
|
|
|
10.07
|
|
Staffing Services
|
|
|
5.0
|
|
|
|
8.22
|
|
Aerospace Parts Plating and Finishing
|
|
|
5.0
|
|
|
|
8.19
|
|
Munitions
|
|
|
5.0
|
|
|
|
8.17
|
|
Medical Transcription Services
|
|
|
4.5
|
|
|
|
7.43
|
|
Energy Efficiency Services
|
|
|
4.2
|
|
|
|
6.88
|
|
Food Distributors and Wholesalers
|
|
|
4.1
|
|
|
|
6.74
|
|
Industrial Metal Treatings
|
|
|
3.9
|
|
|
|
6.36
|
|
Real Estate Management Services
|
|
|
3.5
|
|
|
|
5.81
|
|
Healthcare Services
|
|
|
3.5
|
|
|
|
5.74
|
|
Equipment Rental Services
|
|
|
2.7
|
|
|
|
4.42
|
|
Information and Data Services
|
|
|
2.2
|
|
|
|
3.67
|
|
Outdoor Advertising Services
|
|
|
2.1
|
|
|
|
3.45
|
|
Asset Recovery Services
|
|
|
1.6
|
|
|
|
2.63
|
|
Art Dealers
|
|
|
0.6
|
|
|
|
1.01
|
|
Total
|
|
$
|
77.6
|
|
|
|
127.65
|
%
|
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 interest rate in
effect as of December 31, 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 equity
investment in TransAmerican Asset Servicing Group, LLC is 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
Full Circle Capital Corporation’s equity
investment in New Media West, LLC is held through its wholly-owned subsidiary FC New Media, Inc.
8
Full Circle Capital Corporation’s equity
investments in SOLEX Fine Foods, LLC; Catsmo, LCC are held through its wholly-owned subsidiary FC New Specialty Foods, Inc.
9
A
portion of Full Circle Capital Corporation’s investment 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
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
%
|
Total
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Liability Company Interests
^
|
|
Data Services
|
|
|
85,210
|
|
|
|
430,500
|
|
|
|
216,964
|
|
|
|
0.41
|
%
|
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
December 31, 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 annually 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 generally 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., FC New Specialty Foods, Inc., FC New Media, 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 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 such an account 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 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, excess deal deposits,
prepayment fees and similar fees are recognized as Other Income as earned, usually when received. Other fee income, including administrative
fees and unused line fees, is included in Other Income. Income from such sources was $453,057 and $64,992 for the three
months ended December 31, 2012 and 2011, respectively, and $613,165 and $535,535 and for the six months ended December 31, 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 gains 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 which 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, of our monthly dividends are approved by our Board each quarter and are
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 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 during the six months ended December 31, 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 completed. Offering expenses related to the Company’s
November 27, 2012 offering were $153,330.
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
potentially provide the Company with financing. Management believes that such other financial institutions would likely be able
to provide similar financing with generally comparable terms. However, a change in financial institutions at the present time could
cause a delay in service provisioning or result in potential lost opportunities, which could adversely affect operating results.
As of December 31, 2012, we had approximately
$6.0 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 earnings (loss) per common share for the three and six months ended December 31, 2011,
and 2012 (unaudited):
|
|
Three months ended December 31,
|
|
|
Six months ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets
Resulting from Operations
|
|
$
|
(428,202
|
)
|
|
$
|
252,541
|
|
|
$
|
466,689
|
|
|
$
|
1,851,874
|
|
Weighted average shares outstanding for period
|
|
|
6,732,969
|
|
|
|
6,219,382
|
|
|
|
6,476,175
|
|
|
|
6,219,382
|
|
Basic and diluted earnings (loss) per common share
|
|
$
|
(0.06
|
)
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
|
$
|
0.30
|
|
|
(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 and six months ended December 31, 2012, were $345,126 and $679,162, respectively. The total base management
fee payable to the Adviser at December 31, 2012 was $345,126, after reflecting payment of $642,307 during the six months ended
December 31, 2012, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliate. The total base
management fees earned by the Adviser for the three and six months ended December 31, 2011, were $300,690 and $586,650, respectively,
after adjusting for the waivers of $0 and $28,124, respectively.
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 capital gains for
the six months ended December 31, 2012 and 2011.
Income incentive fees of $365,430 and $673,362
were earned by the Adviser for the three and six months ended December 31, 2012, and the total income incentive fee payable to
the Adviser at December 31, 2012 was $365,430, after reflecting payment of $580,014 during the six months ended December 31, 2012,
and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliate. The income incentive fee of $274,674
and $646,276 were earned by the Adviser for the three and six months ended December 31, 2011.
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 and six months ended December 31,
2011, respectively. There was no offset for the six months ended December 31, 2012.
Administration Agreement
On July 8, 2010, we also entered into an
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 Vastardis are now performed by the Administrator for an annual fee of $112,457
paid quarterly in advance. Such services had been provided by Vastardis prior 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 and six months ended December
31, 2012, the Company incurred $209,712 and $415,091, respectively, of expenses under the Administration Agreement, $50,000 and
$123,429, respectively, of which were earned by the Sub-Administrator and $75,160 and $150,354, respectively, were paid for officers’
compensation. The remaining $84,552 and $141,308, respectively, were recorded as an Allocation of Overhead Expenses to the Administrator
in the Consolidated Statement of Operations.
For the three and six months ended December
31, 2011, the Company incurred $238,951 and $448,674, respectively, of expenses under the Administration Agreement, $78,115 and
$156,229, respectively, of which were earned by the Sub-Administrator and $71,629 and $117,553, respectively, of which were paid
for officers’ compensation. The remaining $89,207 and $174,892, 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, New Media West, 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 and New Media West, LLC.
As of December 31, 2012, none of the other portfolio companies had accepted our offer for such services.
Note 6. Equity Offerings, Related Expenses
and Other Stock Issuances
During the year ended June 30, 2011, we
issued 6,219,282 shares of our common stock through an initial public offering, a private placement and our dividend reinvestment
plan. On November 27, 2012, we issued 1,350,000 shares of our common stock through a follow on offering. Offering expenses were
charged against paid-in capital in excess of par. All underwriting fees and offering expenses were borne by us. The
proceeds raised, the related underwriting fees, the offering expenses, and the price at which common stock was issued, since inception,
are detailed in the following table:
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
|
|
November 27, 2012
|
|
|
1,350,000
|
|
|
$
|
10,665,000
|
|
|
$
|
533,250
|
|
|
$
|
153,330
|
|
|
$
|
7.90 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
December 31, 2012
|
|
|
Three months ended
December 31, 2011
|
|
|
|
|
|
|
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
8.51
|
|
|
$
|
9.11
|
|
Dilution from offering
|
|
|
(0.17
|
)
(2)
|
|
|
-
|
|
Offering costs
|
|
|
(0.01
|
)
|
|
|
-
|
|
Net investment income (loss)
|
|
|
0.22
|
|
|
|
0.18
|
|
Change in unrealized gain (loss)
|
|
|
0.20
|
|
|
|
(0.14
|
)
|
Realized gain (loss)
|
|
|
(0.49
|
)
|
|
|
-
|
|
Dividends declared
|
|
|
(0.23
|
)
|
|
|
(0.23
|
)
|
Net asset value at end of period
|
|
$
|
8.03
|
|
|
$
|
8.92
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period
|
|
$
|
7.43
|
|
|
$
|
6.99
|
|
Total return based on market value
|
|
|
(5.48
|
)%
(5)
|
|
|
1.85
|
%
(5)
|
Total return based on net asset value
|
|
|
(2.65
|
)%
(5)
|
|
|
1.15
|
%
(5)
|
Shares outstanding at end of period
|
|
|
7,569,382
|
|
|
|
6,219,382
|
|
Weighted average shares outstanding for period
|
|
|
6,732,969
|
|
|
|
6,219,382
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
60,806,640
|
|
|
$
|
55,489,842
|
|
Average net assets
|
|
$
|
56,690,087
|
|
|
$
|
56,081,911
|
|
Annualized ratio of gross operating expenses to average net assets
(6)
|
|
|
11.44
|
%
|
|
|
9.20
|
%
|
Annualized ratio of net operating expenses to average net assets
(6)
|
|
|
11.44
|
%
|
|
|
9.20
|
%
|
Annualized ratio of net investment income to average net assets
(6)
|
|
|
10.26
|
%
|
|
|
7.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
December 31, 2012
|
|
|
Six months ended
December 31, 2011
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
8.59
|
|
|
$
|
9.08
|
|
Dilution from offering
|
|
|
(0.17
|
)
(2)
|
|
|
-
|
|
Offering costs
|
|
|
(0.01
|
)
|
|
|
-
|
|
Net investment income (loss)
|
|
|
0.42
|
|
|
|
0.43
|
|
Change in unrealized gain (loss)
|
|
|
0.28
|
|
|
|
(0.15
|
)
|
Realized gain (loss)
|
|
|
(0.62
|
)
|
|
|
0.02
|
|
Dividends declared
|
|
|
(0.46
|
)
|
|
|
(0.46
|
)
|
Net asset value at end of period
|
|
$
|
8.03
|
|
|
$
|
8.92
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period
|
|
$
|
7.43
|
|
|
$
|
6.99
|
|
Total return based on market value
|
|
|
3.10
|
%
(5)
|
|
|
(5.57
|
)%
(5)
|
Total return based on net asset value
|
|
|
(0.76
|
)%
(5)
|
|
|
4.85
|
%
(5)
|
Shares outstanding at end of period
|
|
|
7,569,382
|
|
|
|
6,219,382
|
|
Weighted average shares outstanding for period
|
|
|
6,476,175
|
|
|
|
6,219,382
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
60,806,640
|
|
|
$
|
55,489,842
|
|
Average net assets
|
|
$
|
55,075,212
|
|
|
$
|
56,212,609
|
|
Annualized ratio of gross operating expenses to average net assets
(6)
|
|
|
11.41
|
%
|
|
|
9.37
|
%
|
Annualized ratio of net operating expenses to average net assets
(6)
|
|
|
11.41
|
%
|
|
|
8.82
|
%
|
Annualized ratio of net investment income to average net assets
(6)
|
|
|
9.74
|
%
|
|
|
7.62
|
%
|
|
|
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
|
(3)
|
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
|
%
(5)
|
|
|
(4.03
|
)%
(4)
|
|
|
(836.33
|
)%
(5)
|
Total return based on net asset value
|
|
|
6.20
|
%
(5)
|
|
|
5.62
|
%
(4)
|
|
|
(836.33
|
)%
(5)
|
Shares outstanding at end of period
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
|
|
100
|
|
Weighted average 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
(6)
|
|
|
9.56
|
%
|
|
|
8.49
|
%
|
|
|
1,279.28
|
%
|
Annualized ratio of net operating expenses to average net assets
(6)
|
|
|
8.99
|
%
|
|
|
7.34
|
%
|
|
|
1,279.28
|
%
|
Annualized ratio of net investment income to average net assets
(6)
|
|
|
8.70
|
%
|
|
|
9.29
|
%
|
|
|
(1,279.28
|
)%
|
(1)
|
Financial highlights are based on weighted average
shares outstanding.
|
(2)
|
Dilution from offering is based on the change in net asset value from the follow on offering on November 27, 2012.
|
(3)
|
For the period from April 16, 2010 (date of inception) to June 30, 2010, the net asset value at issuance was $15.00.
|
(4)
|
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.
|
(5)
|
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.
|
(6)
|
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. On October 31, 2012, the Company
extended the Credit Facility through December 31, 2013. Under the Credit Facility, base rate borrowings bear interest at
LIBOR (0.209% at December 31, 2012, and 0.246% at June 30, 2012) plus 5.50%, subject to a floor. The Company incurs unused
line, average usage and other fees related to the Credit Facility. 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 December 31, 2012 and June 30, 2012, the Company had a
balance of $16,622,598 and $18,544,600, respectively, 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 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. At December 31, 2012 and June
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 December 31, 2012 and June 30, 2012, respectively:
As of December 31, 2012 (Unaudited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
71,578,763
|
|
|
$
|
71,578,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Securities, at fair value
(1)
|
|
|
22,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
5,982,148
|
|
|
|
5,982,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
58,055
|
|
|
|
58,055
|
|
|
|
$
|
22,000,000
|
|
|
$
|
-
|
|
|
$
|
77,618,966
|
|
|
$
|
99,618,966
|
|
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 compliance with RIC diversification requirements under
Subchapter M of the Code.
During the six months ended December 31,
2012 and 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 six months ended December 31, 2012 and for the year ended June 30, 2012 are as follows:
|
|
Six
months ended December 31, 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
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
Discount
|
|
|
Gains
(Losses)
|
|
|
Purchases
|
|
|
Settlements
|
|
|
2012
|
|
|
2012
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
70,970,152
|
|
|
$
|
160,519
|
|
|
$
|
(2,992,274
|
)
|
|
$
|
36,667,808
|
|
|
$
|
(33,227,442
|
)
|
|
$
|
71,578,763
|
|
|
$
|
(619,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in private companies, at fair value
|
|
|
1,376,737
|
|
|
|
-
|
|
|
|
755,411
|
|
|
|
3,850,000
|
|
|
|
-
|
|
|
|
5,982,148
|
|
|
|
755,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58,055
|
|
|
|
-
|
|
|
|
58,055
|
|
|
|
-
|
|
|
|
$
|
72,346,889
|
|
|
$
|
160,519
|
|
|
$
|
(2,236,863
|
)
|
|
$
|
40,575,863
|
|
|
$
|
(33,227,442
|
)
|
|
$
|
77,618,966
|
|
|
$
|
136,387
|
|
|
|
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 net realized gain (loss) 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 December 31, 2012 of
$150,632 is included in net change in net unrealized loss on investments in the consolidated statement of operations for the six
months ended December 31, 2012.
The following table provides quantitative information regarding
Level 3 fair value measurements as of December 31, 2012:
Description:
|
|
Fair
Value
|
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range (Average)
(1)
|
|
|
|
|
|
|
|
|
|
|
Secured
debt
|
|
$
|
65,010,190
|
|
|
Discounted
cash flows (income approach)
|
|
Discount Rate
|
|
2.25% - 30.00% (13.98%)
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
5,484,878
|
|
|
Market
comparable companies (market approach)
|
|
EBITDA multiple
|
|
3.30 - 7.50 (5.95)
|
|
|
|
|
|
|
|
|
|
|
|
Debt
or Equity subject to liquidation
|
|
|
7,123,898
|
|
|
Liquidation
Value
|
|
Asset Value
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments
|
|
$
|
77,618,966
|
|
|
|
|
|
|
|
(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 or depreciation of the portfolio company’s equity value.
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.
The Company has written a warrant to sell
within a limited time, a financial instrument at a contracted price based on differentials between specified prices. Written warrants
may expose the Company to market risk of an unfavorable change in the financial instrument underlying the written warrant.
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 December 31, 2012, the notional amounts
and number of warrants, categorized by primary underlying risk, are as follows:
|
|
Long Exposure
|
|
|
Short Exposure
|
|
|
|
Notional
|
|
|
Number of
|
|
|
Notional
|
|
|
Number of
|
|
|
|
Amounts
|
|
|
Warrants
|
|
|
Amounts
|
|
|
Warrants
|
|
Primary Underlying Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Price Warrants
(a)
|
|
$
|
105,680
|
|
|
|
222,180
|
|
|
$
|
1,800,000
|
|
|
|
1
|
(b)
|
|
(a)
|
Notional amounts presented for warrants are based on the fair value of the underlying shares as if the warrants were exercised at December 31, 2012.
|
|
(b)
|
The written warrant is on 360 of the Company’s 720 limited liability company interests in New Media West, LLC and has a strike price of $3,000,000, which increases over time to $3,500,000. This warrant expires on December 18, 2019.
|
Note 11. Subsequent Events
Dividend
On February 5, 2013,
the Board of Directors declared monthly dividends of $0.077, $0.077 and $0.077 per share payable on May 15, 2013 for holders of
record at April 30, 2013, June 14, 2013 for holders of record at May 31, 2013 and July 15, 2013 for holders of record at June 28,
2013.
Recent Portfolio
Activity
On
January 31, 2013 the Company received a full payoff of its senior secured term loan to The Selling Source, LLC, receiving $2,362,650
in principal, interest and fees. The senior secured term loan was paid off at par value of $2,017,700.
On February 1,
2013, the Company invested $4,000,000 in a new senior secured term loan to The Selling Source, LLC, bearing interest at 12.50%
and maturing February 1, 2017.
Note 12. 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
|
|
December 31, 2012
|
|
|
3,099,599
|
|
|
|
0.46
|
|
|
|
1,465,650
|
|
|
|
0.22
|
|
|
|
(1,893,852
|
)
|
|
|
(0.28
|
)
|
|
|
(428,202
|
)
|
|
|
(0.06
|
)
|
(1)
|
|
Per share amounts are calculated using weighted average shares outstanding 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. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including
statements as to:
|
•
|
our future operating results;
|
|
•
|
our business prospects and the prospects of our portfolio companies;
|
|
•
|
the impact of investments that we expect to make;
|
|
•
|
our contractual arrangements and relationships with third parties;
|
|
•
|
the dependence of our future success on the general economy and its impact on the industries in which we invest;
|
|
•
|
the ability of our portfolio companies to achieve their objectives;
|
|
•
|
our expected financings and investments;
|
|
•
|
the adequacy of our cash resources and working capital; and
|
|
•
|
the timing of cash flows, if any, from the operations of our portfolio companies.
|
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 when 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. Important assumptions
include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of
additional capital. 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.
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. 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.
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”). On November 27, 2012, we completed
a follow-on public offering of 1,350,000 shares of our common stock for gross proceeds of approximately $10.7 million.
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., FC New Media Inc., FC New Specialty Foods, 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 December 31, 2012 and June 30,
2012, were as follows:
As of December 31, 2012 (Unaudited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
71,578,763
|
|
|
$
|
71,578,763
|
|
US Treasury Securities, at fair value
(1)
|
|
|
22,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000,000
|
|
Investments in private companies, at fair value
|
|
|
|
|
|
|
|
|
|
|
5,982,148
|
|
|
|
5,982,148
|
|
Investments in securities, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
58,055
|
|
|
|
58,055
|
|
|
|
$
|
22,000,000
|
|
|
$
|
-
|
|
|
$
|
77,618,966
|
|
|
$
|
99,618,966
|
|
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 compliance with RIC diversification requirements under Subchapter M of the
Code.
During the six months ended December 31,
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 received. 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.
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 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
|
%
|
October 1, 2012 through December 31, 2012
|
|
|
29.1
|
|
|
|
25.1
|
|
|
|
12.55
|
%
|
Since inception
|
|
$
|
185.8
|
|
|
$
|
103.9
|
|
|
|
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 Six Months Ended December 31, 2012
The primary investment
activities for the six months ended December 31, 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.
|
|
·
|
On December 19, 2012, Ygnition Networks, Inc.
(“Ygnition”) entered into transactions which involved the sale of substantially all of its assets to Access
Media 3, Inc. (“Access Media 3”) and to New Media West, LLC (“New Media West”), an affiliate of the
Company and of Access Media 3. Pursuant to this transaction the Company, in exchange for its secured interest in the
Ygnition assets, received: (i) an equity interest in New Media West, valued at $3.60 million, (ii) a $5.80 million
five year note due from New Media West bearing interest at 9%, and (iii) cash consideration from Access Media 3 valued at
$0.40 million. Such amounts are subject to final purchase price adjustments. At December 19, 2012, immediately prior to
these transactions, the Company had $13.00 million of debt outstanding to Ygnition, held at approximately $12.05 million. As
a result of the transaction, the Company recognized a loss of $2.25 million, comprised of a realized loss of $3.20 million on
the disposition of the Ygnition debt and the reversal of a previously unrealized loss of $0.95 million.
|
|
·
|
On December 28, 2012, the Company
funded $3,900,000 to SOLEX Fine Foods, LLC; Catsmo, LLC as a first out participation under a $5,600,000 senior secured term loan
bearing interest of LIBOR plus 12.25% and maturing December 28, 2016. The Company also purchased $250,000 of common equity units
as part of the transaction. SOLEX Fine Foods, LLC; Catsmo, LLC is a provider of specialty foods in New York City and the surrounding
areas.
|
The following is a reconciliation of the
investment portfolio for the six months ended December 31, 2012, and for the year ended June 30, 2012:
|
|
Six Months Ended
December 31, 2012
|
|
|
Year Ended
June 30, 2012
|
|
Beginning Investment Portfolio
|
|
$
|
94,846,770
|
|
|
$
|
82,794,117
|
|
Portfolio Investments Acquired
|
|
|
40,575,863
|
|
|
|
55,279,880
|
|
Treasury and Money Market Purchases
(1)
|
|
|
47,001,337
|
|
|
|
120,000,601
|
|
Amortization of fixed income premiums and discounts
|
|
|
159,645
|
|
|
|
522,732
|
|
Portfolio Investments Repaid
|
|
|
(33,227,443
|
)
|
|
|
(38,164,798
|
)
|
Sales of Treasury and Money Market securities
(1)
|
|
|
(47,500,000
|
)
|
|
|
(123,499,273
|
)
|
Payment in Kind
|
|
|
-
|
|
|
|
68,842
|
|
Net Unrealized Appreciation (Depreciation)
|
|
|
1,809,902
|
|
|
|
(1,979,965
|
)
|
Net Realized Losses
|
|
|
(4,047,108
|
)
|
|
|
(175,366
|
)
|
Ending Investment Portfolio
|
|
$
|
99,618,966
|
|
|
$
|
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 six months
ended December 31, 2012, we recorded net unrealized appreciation of $1,809,902. This consisted of $829,491 of net unrealized appreciation
on debt investments and $980,411 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 December 31, 2012, and June 30, 2012, excluding United
States Treasury Bills of approximately $22.0 million and $22.5 million, respectively:
|
|
December 31, 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
|
|
$
|
68.2
|
|
|
|
87.9
|
%
|
|
$
|
67.5
|
|
|
|
93.3
|
%
|
Subordinated Secured Loans
|
|
|
3.3
|
|
|
|
4.3
|
|
|
|
3.4
|
|
|
|
4.8
|
|
Limited Liability Company Interests
|
|
|
6.0
|
|
|
|
7.7
|
|
|
|
1.4
|
|
|
|
1.9
|
|
Warrants
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
77.6
|
|
|
|
100.0
|
%
|
|
$
|
72.3
|
|
|
|
100.0
|
%
|
At December 31, 2012,
the eighteen borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 59%
(i.e., each $59 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 December 31, 2012, and June 30, 2012, excluding United
States Treasury Bills of approximately $22.0 million and $22.5 million, respectively:
|
|
December 31, 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
|
|
$
|
16.0
|
|
|
|
20.6
|
%
|
|
$
|
17.7
|
|
|
|
24.5
|
%
|
Consumer Financing
|
|
|
7.6
|
|
|
|
9.8
|
|
|
|
6.8
|
|
|
|
9.4
|
|
Radio Broadcasting
|
|
|
6.1
|
|
|
|
7.9
|
|
|
|
6.3
|
|
|
|
8.7
|
|
Staffing Services
|
|
|
5.0
|
|
|
|
6.4
|
|
|
|
5.0
|
|
|
|
6.9
|
|
Aerospace Parts Plating and Finishing
|
|
|
5.0
|
|
|
|
6.4
|
|
|
|
4.9
|
|
|
|
6.8
|
|
Munitions
|
|
|
5.0
|
|
|
|
6.4
|
|
|
|
4.9
|
|
|
|
6.8
|
|
Medical Transcription Services
|
|
|
4.5
|
|
|
|
5.8
|
|
|
|
4.1
|
|
|
|
5.6
|
|
Energy Efficiency Services
|
|
|
4.2
|
|
|
|
5.4
|
|
|
|
-
|
|
|
|
-
|
|
Food Distributors and Wholesalers
|
|
|
4.1
|
|
|
|
5.3
|
|
|
|
-
|
|
|
|
-
|
|
Industrial Metal Treatings
|
|
|
3.9
|
|
|
|
5.0
|
|
|
|
3.9
|
|
|
|
5.4
|
|
Real Estate Management Services
|
|
|
3.5
|
|
|
|
4.5
|
|
|
|
4.1
|
|
|
|
5.7
|
|
Healthcare Services
|
|
|
3.5
|
|
|
|
4.5
|
|
|
|
3.5
|
|
|
|
4.8
|
|
Equipment Rental Services
|
|
|
2.7
|
|
|
|
3.5
|
|
|
|
3.1
|
|
|
|
4.4
|
|
Information and Data Services
|
|
|
2.2
|
|
|
|
2.9
|
|
|
|
3.5
|
|
|
|
4.9
|
|
Outdoor Advertising Services
|
|
|
2.1
|
|
|
|
2.7
|
|
|
|
1.9
|
|
|
|
2.6
|
|
Asset Recovery Services
|
|
|
1.6
|
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
2.7
|
|
Art Dealers
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
0.8
|
|
Total
|
|
$
|
77.6
|
|
|
|
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 December 31, 2012, our portfolio had a weighted average
grade of 3.04, based upon the fair value of the debt investments in the portfolio, excluding United States Treasury Bills of approximately
$22.0 million. Equity securities are not graded. This was an improvement of 0.26 from the weighted average grade of 3.30 at June
30, 2012.
At December 31, 2012,
our debt investment portfolio was graded as follows:
|
|
December 31, 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.
|
|
|
10,482,586
|
|
|
|
13.51
|
|
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.
|
|
|
47,653,582
|
|
|
|
61.39
|
|
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.
|
|
|
13,442,595
|
|
|
|
17.32
|
|
5
|
|
The investment is performing well below expectations and the par value is not anticipated to be repaid in full.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
$
|
71,578,763
|
|
|
|
92.22
|
%
|
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
December 31, 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 December 31, 2012. Fee income consists principally of administrative fees, prepayment fees, structuring fees and unused
line fees.
Total investment income
for the three months ended December 31, 2012, was $3,099,599. This amount consisted of $2,574,049 of interest income from portfolio
investments (which included no PIK interest), $72,493 of dividend income and $453,057 of fee income. Dividend income was solely
earned from our investment in The Finance Company, LLC.
Total investment income
for the three months ended December 31, 2011, was $2,398,665. This amount consisted of $2,331,850 of interest income from portfolio
investments (which included no PIK interest), $1,823 of dividend income and $64,992 of fee income. Dividend income was solely earned
from our investment in The Finance Company, LLC.
The increase in interest
income for the three months ended December 31, 2012 relative to the same time period in 2011 was primarily due to growth in the
size of our portfolio. The increase in dividend income for the three months ended December 31, 2012 as compared to the three months
ended December 31, 2011 was primarily due to the Company’s investment in The Finance Company, LLC. The increase in fee income,
which can fluctuate, for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was primarily
a result of higher prepayment, administration and other fees during the quarter ended December 31, 2012, which included a $316,871
exit fee from The Selling Source, LLC.
Expenses
Gross and net operating
expenses for the three months ended December 31, 2012, were $1,633,949.
Gross and net operating
expenses for the three months ended December 31, 2011, were $1,300,025.
The increase in our
net operating expenses for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 is
primarily due to the increase in the Company’s borrowings to fund additional portfolio investments, which resulted in increased
interest expense and management and incentive fees resulting from the Company having a larger portfolio and higher interest and
net investment income during the period.
Net Investment Income (Loss)
Net investment income
for the three months ended December 31, 2012, was $1,465,650. Net investment income per share was $0.22 for the period.
Net investment income
for the three months ended December 31, 2011, was $1,098,640. Net investment income per share was $0.18 for the period.
The increase in net
investment income for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was primarily
due to higher fee income, which can fluctuate, as the Company received greater repayment fees during the three months ended December
31, 2012 as compared to the same period in 2011 and to increased interest income as the Company had greater portfolio assets outstanding
as compared to the same period in 2011. Such amounts were offset by increased interest expense and management and incentive fees
resulting from the Company having a larger portfolio and higher interest and net investment income during the period.
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 December 31, 2012, we recorded a realized loss of $3,186,441, primarily from the disposition
of our senior secured loan in Ygnition Networks, Inc., as described below. Realized loss per share was $0.49 for the period.
The Company recognized
a loss of $2.25 million on Ygnition, comprised of a realized loss of $3.20 million on the disposition of the Ygnition debt and
the reversal of a previously unrealized loss of $0.95 million. See prior discussion in “—Portfolio Activity for the Six
Months Ended December 31, 2012” for further discussion of this transaction.
During the three months
ended December 31, 2011, we recorded a realized gain of $766.
The decrease in realized
gains for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was due to the items
discussed above.
From time to time the
Company may enter into a new transaction with a portfolio company 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 $0.20 for the three months ended December 31, 2012. During the three months ended December
31, 2012, we recorded net unrealized appreciation of $1,292,589, primarily from the disposition of our senior secured loan in Ygnition
and the realization of the prior unrealized loss of $953,715, as described below. The overall change in unrealized gain (loss)
consisted of $695,913 of net unrealized appreciation on debt investments and $596,731 of net unrealized appreciation on equity
investments.
The Company recognized
a loss of $2.25 million on Ygnition, comprised of a realized loss of $3.20 million on the disposition of the Ygnition debt and
the reversal of a previously unrealized loss of $0.95 million. See prior discussion in “—Portfolio Activity for the Six
Months Ended December 31, 2012” for further discussion of this transaction.
Net Change in Unrealized
Loss on Investments per share was $0.14 for the three months ended December 31, 2011. During the three months ended December 31,
2011, we recorded net unrealized depreciation of $846,865. This consisted of $757,404 of net unrealized depreciation on debt investments
and $89,461 of net unrealized depreciation on equity investments.
The increase in change in unrealized gain
(loss) on investments for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was
due to the items discussed above.
Comparison of the six months ended
December 31, 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 six
months ended December 31, 2012. Fee income consists principally of administrative fees, prepayment fees, structuring fees and unused
line fees.
Total investment income
for the six months ended December 31, 2012, was $5,872,902. This amount consisted of $5,153,147 of interest income from portfolio
investments (which included no PIK interest), $106,590 of dividend income and $613,165 of fee income.
Total investment income
for the six months ended December 31, 2011, was $4,956,908. This amount consisted of $4,419,550 of interest income from portfolio
investments (which included $68,482 of PIK interest), $1,823 of dividend income and $535,535 of fee income.
The increase
in dividend income for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011
was primarily due to the Company’s investment in The Finance Company, LLC. The increase in total investment income
for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 was primarily a result of
increased interest income as the Company had greater portfolio assets outstanding as compared to the same period in 2011.
Expenses
Gross and net operating
expenses for the six months ended December 31, 2012, were $3,169,007.
Gross operating expenses
for the six months ended December 31, 2011, were $2,627,718. Net operating expenses (offset by the waived portion
of the base management fee and the accrual for the expense reimbursement) for the six months ended December 31, 2011, were $2,313,926.
The increase in
our net operating expenses for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011
is primarily due to the expiration of the Expense Reimbursement Agreement and Management Fee waiver, which resulted in
increased net operating expenses, increased interest expense and increased management and incentive fees resulting from the
Company having a larger portfolio and higher interest and net investment income during the period.
Net Investment Income (Loss)
Net investment income
for the six months ended December 31, 2012, was $2,703,895. Net investment income per share was $0.42 for the period.
Net investment income
for the six months ended December 31, 2011, was $2,642,982. Net investment income per share was $0.43 for the period.
The increase in net
investment income for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 was primarily
due to the increase in interest income during the six months ended December 31, 2012 as compared to the same period in 2011 offset
by increased interest expense and management and incentive fees resulting from the Company having a larger portfolio and higher
interest and net investment income during the period.
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 six months
ended December 31, 2012, we recorded a realized loss of $4,047,108 primarily in connection with the disposition of our investment in Ygnition,
as described below, and 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 the Equisearch Acquisition, Inc.’s bankruptcy proceedings.
Realized loss per share for the period was $0.62.
The Company recognized
a loss of $2.25 million on Ygnition, comprised of a realized loss of $3.20 million on the disposition of the Ygnition debt and
the reversal of a previously unrealized loss of $0.95 million. See prior discussion in “—Portfolio Activity for the Six
Months Ended December 31, 2012” for further discussion of this transaction.
During the six months
ended December 31, 2011, we recorded a realized gain of $126,572 primarily in connection with the repayment of a portion of our
interests in West World Media, LLC. Realized gain per share for the period was $0.02.
The decrease in realized
gains for the six months ended December 31, 2012 as compared to the six months ended December 31, 2011 was due to the items discussed
above.
From time to time the
Company may enter into a new transaction with a portfolio company 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 $0.28 for the six months ended December 31, 2012.
During the six months
ended December 31, 2012, we recorded net unrealized appreciation of $1,809,902. This consisted of $829,491 of net unrealized appreciation
on debt investments, primarily in connection with the disposition of our investment in Ygnition Networks, Inc., as described below, and
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, and $980,411 of net
unrealized appreciation on equity investments.
The Company recognized
a loss of $2.25 million on Ygnition, comprised of a realized loss of $3.20 million on the disposition of the Ygnition debt and
the reversal of a previously unrealized loss of $0.95 million. See prior discussion in “—Portfolio Activity for the Six
Months Ended December 31, 2012” for further discussion of this transaction.
Change
in unrealized gain (loss) on investments per share was $(0.15) for the six months ended December 31, 2011.
During
the six months ended December 31, 2011, we recorded net unrealized depreciation of $917,680. This consisted of $1,020,707 of net
unrealized depreciation on debt investments offset by $103,027 of net unrealized appreciation on equity investments.
The movement in
Change in unrealized gain (loss) on investments for the six months ended December 31, 2012 as compared to the six months
ended December 31, 2011 was primarily due to the increase in fair value of one of the Company’s equity investments and
the items discussed above.
Liquidity and Capital Resources
At December 31, 2012,
we had investments in debt securities of eighteen companies, totaling approximately $71.6 million in fair value, and equity investments
in nine companies, totaling approximately $6.0 million in fair value.
Cash used in operating
activities for the six months ended December 31, 2012, consisting primarily of purchases, sales and repayments of investments and
the items described in "Results of Operations," was approximately $5.4 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 $7.3 million, reflecting net
additional investments in securities of $40.5 million, offset by principal repayments of $33.2 million. 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 December 31, 2012, we had $16.6 million outstanding borrowings under the Credit
Facility.
As of December 31,
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 December 31,
2012, we held approximately $0.3 million in cash and did not have any cash equivalents in our investment portfolio.
Capital Raises
On November 30, 2012,
we completed a follow-on public offering of 1,350,000 shares of our common stock for gross proceeds of approximately $10.7 million.
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 continue
to explore 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 2012 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 the earlier of our 2013 annual meeting of stockholders or February 1, 2014. 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)
|
|
$
|
16.6
|
|
|
$
|
16.6
|
|
|
$
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Distribution Notes
|
|
|
3.4
|
|
|
|
—
|
|
|
|
3.4
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
20.0
|
|
|
$
|
16.6
|
|
|
$
|
3.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
_____________________
(1)
At December 31, 2012, $18.4
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 $1,352,524 for investment advisory services and $415,091 for administrative
services for the six months ended December 31, 2012.
As of December 31,
2012, we had approximately $6.0 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%,
subject to a floor. We incur unused line, average usage, and other fees related to the Credit Facility. 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, 2013
|
|
|
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
|
|
February 5, 2013
|
|
April 30, 2013
|
|
May 15, 2013
|
|
|
0.077
|
|
February 5, 2013
|
|
May 31, 2012
|
|
June 14, 2013
|
|
|
0.077
|
|
February 5, 2013
|
|
June 28, 2013
|
|
July 15, 2013
|
|
|
0.077
|
|
Total (2013 to date)
|
|
|
|
|
|
$
|
0.924
|
|
(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 six months ended December 31, 2012, Vastardis was paid $123,429 for services provided under the Administration Agreement and $125,000 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 February 5,
2013, the Board of Directors declared monthly dividends of $0.077, $0.077 and $0.077 per share payable on May 15, 2013 for holders
of record at April 30, 2013, June 14, 2013 for holders of record at May 31, 2013 and July 15, 2013 for holders of record at June
28, 2013.
Recent Portfolio
Activity
On
January 31, 2013 the Company received a full payoff of its senior secured term loan to The Selling Source, LLC, receiving $2,362,650
in principal, interest and fees. The senior secured term loan was paid off at par value of $2,017,700.
On February 1,
2013, the Company invested $4,000,000 in a new senior secured term loan to The Selling Source, LLC, bearing interest at 12.50%
and maturing February 1, 2017.