Item 1.
|
Financial Statements
|
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES
|
|
|
|
December 31, 2013
|
|
|
June 30, 2013
|
|
|
|
|
|
Unaudited
|
|
|
Audited
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Control Investments at Fair Value (Cost of $19,682,970 and $18,139,543, respectively)
|
|
(NOTE 2, 9)
|
|
$
|
20,913,955
|
|
|
$
|
19,115,440
|
|
Affiliate Investments at Fair Value (Cost of $18,178,195 and $17,954,622, respectively)
|
|
(NOTE 2, 9)
|
|
|
13,355,664
|
|
|
|
16,547,903
|
|
Non-Control/Non-Affiliate Investments at Fair Value (Cost of $65,612,198 and $53,220,538, respectively)
|
|
(NOTE 2, 9)
|
|
|
62,613,339
|
|
|
|
52,511,158
|
|
Total Investments at Fair Value (Cost of $103,473,363 and $89,314,703, respectively)
|
|
|
|
|
96,882,958
|
|
|
|
88,174,501
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
907,361
|
|
|
|
18,029,115
|
|
Deposit with Broker
|
|
|
|
|
2,150,000
|
|
|
|
-
|
|
Interest Receivable
|
|
(NOTE 2)
|
|
|
905,939
|
|
|
|
1,097,970
|
|
Principal Receivable
|
|
|
|
|
487,641
|
|
|
|
104,768
|
|
Dividends Receivable
|
|
|
|
|
-
|
|
|
|
36,705
|
|
Due from Portfolio Investment
|
|
|
|
|
160,158
|
|
|
|
105,030
|
|
Receivable from Notes Offering
|
|
|
|
|
-
|
|
|
|
2,299,704
|
|
Prepaid Expenses
|
|
|
|
|
127,564
|
|
|
|
61,198
|
|
Other Assets
|
|
|
|
|
752,487
|
|
|
|
1,437,273
|
|
Deferred Offering Expenses
|
|
|
|
|
171,299
|
|
|
|
86,834
|
|
Deferred Debt Issuance Costs
|
|
(NOTE 8)
|
|
|
1,026,318
|
|
|
|
1,086,895
|
|
Deferred Credit Facility Fees
|
|
(NOTE 8)
|
|
|
597,048
|
|
|
|
543,846
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
104,168,773
|
|
|
|
113,063,839
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Due to Affiliates
|
|
(NOTE 5)
|
|
|
882,235
|
|
|
|
728,371
|
|
Accounts Payable
|
|
|
|
|
50,964
|
|
|
|
471,297
|
|
Accrued Liabilities
|
|
|
|
|
9,000
|
|
|
|
10,172
|
|
Due to Broker
|
|
|
|
|
21,000,256
|
|
|
|
-
|
|
Dividends Payable
|
|
|
|
|
582,842
|
|
|
|
582,842
|
|
Interest Payable
|
|
|
|
|
52,150
|
|
|
|
134,167
|
|
Other Liabilities
|
|
|
|
|
334,961
|
|
|
|
358,696
|
|
Line of Credit
|
|
(NOTE 8)
|
|
|
6,440,944
|
|
|
|
25,584,147
|
|
Notes Payable 8.25% due June 30, 2020
|
|
(NOTE 8)
|
|
|
21,145,525
|
|
|
|
21,145,525
|
|
Distribution Notes
|
|
(NOTE 8)
|
|
|
-
|
|
|
|
3,404,583
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
50,498,877
|
|
|
|
52,419,800
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets
|
|
|
|
$
|
53,669,896
|
|
|
$
|
60,644,039
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Assets
|
|
|
|
|
|
|
|
|
|
|
Common Stock, par value $0.01 per share (100,000,000 authorized; 7,569,382 issued and outstanding)
|
|
|
|
$
|
75,694
|
|
|
$
|
75,694
|
|
Paid-in Capital in Excess of Par
|
|
|
|
|
66,319,579
|
|
|
|
66,319,579
|
|
Distributions in Excess of Net Investment Income
|
|
|
|
|
(553,439
|
)
|
|
|
(200,200
|
)
|
Accumulated Net Realized Losses
|
|
|
|
|
(5,581,533
|
)
|
|
|
(4,410,832
|
)
|
Accumulated Net Unrealized Losses
|
|
|
|
|
(6,590,405
|
)
|
|
|
(1,140,202
|
)
|
Net Assets
|
|
|
|
$
|
53,669,896
|
|
|
$
|
60,644,039
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value Per Share
|
|
|
|
$
|
7.09
|
|
|
$
|
8.01
|
|
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,
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income from Non-Control/Non-Affiliate Investments
|
|
|
|
$
|
1,649,533
|
|
|
$
|
1,974,071
|
|
|
$
|
3,530,671
|
|
|
$
|
3,994,055
|
|
Interest Income from Affiliate Investments
|
|
|
|
|
656,935
|
|
|
|
280,567
|
|
|
|
1,310,653
|
|
|
|
560,508
|
|
Interest Income from Control Investments
|
|
|
|
|
484,207
|
|
|
|
319,411
|
|
|
|
942,111
|
|
|
|
598,584
|
|
Dividend Income from Control Investments
|
|
|
|
|
-
|
|
|
|
72,493
|
|
|
|
34,411
|
|
|
|
106,590
|
|
Other Income from Non-Control/Non-Affiliate Investments
|
|
(NOTE 2)
|
|
|
1,189,891
|
|
|
|
384,553
|
|
|
|
1,363,362
|
|
|
|
528,580
|
|
Other Income from Affiliate Investments
|
|
(NOTE 2)
|
|
|
3,837
|
|
|
|
56,004
|
|
|
|
8,881
|
|
|
|
59,585
|
|
Other Income from Control Investments
|
|
(NOTE 2)
|
|
|
12,500
|
|
|
|
12,500
|
|
|
|
25,000
|
|
|
|
25,000
|
|
Total Investment Income
|
|
|
|
|
3,996,903
|
|
|
|
3,099,599
|
|
|
|
7,215,089
|
|
|
|
5,872,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee
|
|
(NOTE 5)
|
|
|
382,489
|
|
|
|
345,126
|
|
|
|
791,747
|
|
|
|
679,162
|
|
Incentive Fee
|
|
(NOTE 5)
|
|
|
474,897
|
|
|
|
365,430
|
|
|
|
789,636
|
|
|
|
673,362
|
|
Total Advisory Fees
|
|
|
|
|
857,386
|
|
|
|
710,556
|
|
|
|
1,581,383
|
|
|
|
1,352,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Overhead Expenses
|
|
(NOTE 5)
|
|
|
34,881
|
|
|
|
84,552
|
|
|
|
98,711
|
|
|
|
141,308
|
|
Sub-Administration Fees
|
|
(NOTE 5)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
100,000
|
|
|
|
123,429
|
|
Officers’ Compensation
|
|
(NOTE 5)
|
|
|
75,529
|
|
|
|
75,160
|
|
|
|
150,867
|
|
|
|
150,354
|
|
Total Costs Incurred Under Administration Agreement
|
|
|
|
|
160,410
|
|
|
|
209,712
|
|
|
|
349,578
|
|
|
|
415,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors’ Fees
|
|
|
|
|
31,625
|
|
|
|
33,125
|
|
|
|
60,250
|
|
|
|
61,750
|
|
Interest Expense
|
|
(NOTE 8)
|
|
|
718,502
|
|
|
|
438,587
|
|
|
|
1,439,479
|
|
|
|
835,082
|
|
Professional Services Expense
|
|
|
|
|
158,620
|
|
|
|
109,902
|
|
|
|
354,481
|
|
|
|
275,063
|
|
Bank Fees
|
|
|
|
|
21,622
|
|
|
|
5,230
|
|
|
|
35,468
|
|
|
|
8,320
|
|
Other
|
|
|
|
|
149,150
|
|
|
|
126,837
|
|
|
|
250,635
|
|
|
|
221,177
|
|
Total Operating Expenses
|
|
|
|
|
2,097,315
|
|
|
|
1,633,949
|
|
|
|
4,071,274
|
|
|
|
3,169,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
|
|
1,899,588
|
|
|
|
1,465,650
|
|
|
|
3,143,815
|
|
|
|
2,703,895
|
|
Net Change in Unrealized Gain (Loss) on Investments
|
|
|
|
|
(2,627,312
|
)
|
|
|
1,292,589
|
|
|
|
(5,450,203
|
)
|
|
|
1,809,902
|
|
Net Realized Gain (Loss) on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
(492,216
|
)
|
|
|
(3,186,441
|
)
|
|
|
(1,170,769
|
)
|
|
|
(4,047,108
|
)
|
Foreign Currency Transactions
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
Net Realized Gain (Loss)
|
|
|
|
|
(492,216
|
)
|
|
|
(3,186,441
|
)
|
|
|
(1,170,701
|
)
|
|
|
(4,047,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
|
|
$
|
(1,219,940
|
)
|
|
$
|
(428,202
|
)
|
|
$
|
(3,477,089
|
)
|
|
$
|
466,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share Basic and Diluted
|
|
(NOTE 4)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
0.07
|
|
Net Investment Income per Common Share Basic and Diluted
|
|
|
|
$
|
0.25
|
|
|
$
|
0.22
|
|
|
$
|
0.42
|
|
|
$
|
0.42
|
|
Weighted Average Shares of Common Share Outstanding Basic and Diluted
|
|
|
|
|
7,569,382
|
|
|
|
6,732,969
|
|
|
|
7,569,382
|
|
|
|
6,476,175
|
|
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, 2013
|
|
|
Six Months
Ended December
31, 2012
|
|
Increase (Decrease) in Net Assets Resulting from Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
|
|
|
$
|
3,143,815
|
|
|
$
|
2,703,895
|
|
Net Change in Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
|
(5,450,203
|
)
|
|
|
1,809,902
|
|
Net Realized Gain (Loss) on:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
(1,170,769
|
)
|
|
|
(4,047,108
|
)
|
Foreign Currency Transactions
|
|
|
|
|
|
|
68
|
|
|
|
-
|
|
Net Realized Gain (Loss)
|
|
|
|
|
|
|
(1,170,701
|
)
|
|
|
(4,047,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
|
|
|
|
|
(3,477,089
|
)
|
|
|
466,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to Shareholders
|
|
|
|
|
|
|
(3,497,054
|
)
|
|
|
(3,081,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
(6,974,143
|
)
|
|
|
7,363,855
|
|
Net Assets at Beginning of Period
|
|
|
|
|
|
|
60,644,039
|
|
|
|
53,442,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets at End of Period
|
|
|
|
|
|
$
|
53,669,896
|
|
|
$
|
60,806,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Share Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued
|
|
|
|
|
|
|
-
|
|
|
|
1,350,000
|
|
Shares Outstanding at Beginning of Period
|
|
|
|
|
|
|
7,569,382
|
|
|
|
6,219,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding at End of Period
|
|
|
|
|
|
|
7,569,382
|
|
|
|
7,569,382
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six months ended
December 31, 2013
|
|
|
Six months ended
December 31, 2012
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
(3,477,089
|
)
|
|
$
|
466,689
|
|
Adjustments to Reconcile Net Increase (Decrease) in Net Assets Resulting from Operations to Net Cash Provided by (Used in) Operating Activities
|
|
|
|
|
|
|
|
|
Purchases of Investments
|
|
|
(78,382,365
|
)
|
|
|
(87,577,200
|
)
|
Proceeds from Sale or Refinancing of Investments
|
|
|
63,246,408
|
|
|
|
80,727,443
|
|
Realized (Gain) Loss on:
|
|
|
|
|
|
|
|
|
Investments
|
|
|
1,170,769
|
|
|
|
4,047,108
|
|
Foreign Currency Transactions
|
|
|
(68
|
)
|
|
|
-
|
|
Net Change in Unrealized (Gain) Loss on Investments
|
|
|
5,450,203
|
|
|
|
(1,809,902
|
)
|
Amortization and Accretion of Fixed Income Premiums and Discounts
|
|
|
(193,403
|
)
|
|
|
(159,645
|
)
|
Amortization of Deferred Debt Issuance Costs
|
|
|
79,680
|
|
|
|
-
|
|
Amortization of Deferred Credit Facility Fees
|
|
|
131,863
|
|
|
|
-
|
|
Change in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
|
Deposit with Broker
|
|
|
(2,150,000
|
)
|
|
|
100,000
|
|
Interest Receivable
|
|
|
192,031
|
|
|
|
54,081
|
|
Principal Receivable
|
|
|
(382,873
|
)
|
|
|
261,621
|
|
Dividend Receivable
|
|
|
36,705
|
|
|
|
(72,493
|
)
|
Due from Portfolio Investment
|
|
|
(55,128
|
)
|
|
|
(353,395
|
)
|
Receivable for Investments Sold
|
|
|
-
|
|
|
|
(1,126,196
|
)
|
Prepaid Expenses
|
|
|
(66,366
|
)
|
|
|
(64,664
|
)
|
Other Assets
|
|
|
684,786
|
|
|
|
14,949
|
|
Due to Affiliate
|
|
|
153,864
|
|
|
|
130,203
|
|
Accounts Payable
|
|
|
(420,333
|
)
|
|
|
(96,404
|
)
|
Accrued Liabilities
|
|
|
(1,172
|
)
|
|
|
(32,196
|
)
|
Due to Broker
|
|
|
21,000,256
|
|
|
|
(499,308
|
)
|
Interest Payable
|
|
|
(82,017
|
)
|
|
|
(42,039
|
)
|
Other Liabilities
|
|
|
(23,735
|
)
|
|
|
619,234
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
|
6,912,016
|
|
|
|
(5,412,114
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Borrowings Under Credit Facility
|
|
|
86,657,552
|
|
|
|
31,479,326
|
|
Payments Under Credit Facility
|
|
|
(105,800,756
|
)
|
|
|
(33,451,388
|
)
|
Dividends Paid to Shareholders
|
|
|
(3,497,054
|
)
|
|
|
(2,977,304
|
)
|
Proceeds from Notes Payable
|
|
|
2,299,704
|
|
|
|
-
|
|
Deferred Credit Facility Fees
|
|
|
(185,065
|
)
|
|
|
-
|
|
Deferred Debt Issuance Costs
|
|
|
(19,103
|
)
|
|
|
-
|
|
Payment of Distribution Notes
|
|
|
(3,404,583
|
)
|
|
|
-
|
|
Payment of Offering Expenses and Underwriting Fees
|
|
|
(84,465
|
)
|
|
|
(638,592
|
)
|
Proceeds from Issuance of Common Stock
|
|
|
-
|
|
|
|
10,665,000
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(24,033,770
|
)
|
|
|
5,077,042
|
|
|
|
|
|
|
|
|
|
|
Total Decrease in Cash
|
|
|
(17,121,754
|
)
|
|
|
(335,072
|
)
|
Cash Balance at Beginning of Period
|
|
|
18,029,115
|
|
|
|
639,149
|
|
Cash Balance at End of Period
|
|
$
|
907,361
|
|
|
$
|
304,077
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Financing Activity:
|
|
|
|
|
|
|
|
|
Dividends Declared, Not Yet Paid
|
|
$
|
582,842
|
|
|
$
|
582,842
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for Interest
|
|
$
|
1,309,953
|
|
|
$
|
877,121
|
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount /
Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
Investments
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Media West, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable TV
|
|
Senior Secured Term Loan, 9.00%, 12/31/2017
|
|
$
|
5,079,679
|
|
|
$
|
5,079,679
|
|
|
$
|
5,059,530
|
|
|
|
9.43
|
%
|
|
|
Broadband Services
|
|
Limited Liability
Company Interests
^,5
|
|
|
720
|
|
|
|
3,600,000
|
|
|
|
3,504,696
|
|
|
|
6.53
|
%
|
New Media West, LLC Total
|
|
|
|
|
|
|
|
|
|
|
8,679,679
|
|
|
|
8,564,226
|
|
|
|
15.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Takoda Resources
Inc.
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geophysical Surveying
|
|
Senior Secured Term Loan,
16.00%, 4/1/2016
|
|
$
|
2,200,000
|
|
|
|
2,200,000
|
|
|
|
2,194,060
|
|
|
|
4.09
|
%
|
|
|
and Mapping Services
|
|
Common Stock
^,6
|
|
|
673
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Takoda Resources Inc.
Total
|
|
|
|
|
|
|
|
|
|
|
2,200,000
|
|
|
|
2,194,060
|
|
|
|
4.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Westchester Financial, LLC
|
|
Consumer Finance
|
|
Limited Liability Company Interests
^
|
|
|
9,278
|
|
|
|
905,819
|
|
|
|
537,792
|
|
|
|
1.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Finance Company, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance
|
|
Senior Secured Term Loan, 15.00% (LIBOR plus 14.25%, 15.00% floor),
9/30/2015
|
|
$
|
5,163,547
|
|
|
|
5,097,696
|
|
|
|
5,258,384
|
|
|
|
9.80
|
%
|
|
|
|
|
Limited Liability Company Interests
|
|
|
50
|
|
|
|
140,414
|
|
|
|
1,811,973
|
|
|
|
3.37
|
%
|
The Finance Company, LLC
Total
|
|
|
|
|
|
|
|
|
|
|
5,238,110
|
|
|
|
7,070,357
|
|
|
|
13.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransAmerican Asset Servicing Group, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Recovery
|
|
Senior Secured Term Loan, 14.25%, 7/25/2016
|
|
$
|
2,700,000
|
|
|
|
2,659,362
|
|
|
|
2,547,520
|
|
|
|
4.75
|
%
|
|
|
Services
|
|
Limited Liability
Company Interests
^,7
|
|
|
75
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
TransAmerican
Asset Servicing Group, LLC Total
|
|
|
|
|
|
|
|
|
|
|
2,659,362
|
|
|
|
2,547,520
|
|
|
|
4.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Control Investments
|
|
|
|
|
|
|
|
|
|
|
19,682,970
|
|
|
|
20,913,955
|
|
|
|
38.97
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount /
Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
Investments
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modular Process Control, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Efficiency
|
|
Senior Secured Revolving Loan, 14.50%
(LIBOR plus 13.50%, 14.50% floor), 3/28/17
|
|
$
|
1,000,000
|
|
|
$
|
950,998
|
|
|
$
|
1,000,000
|
|
|
|
1.86
|
%
|
|
|
Services
|
|
Senior Secured Term Loan, 15.50% (LIBOR plus 14.50%,
15.50% floor), 3/28/17
|
|
$
|
5,000,000
|
|
|
|
4,734,660
|
|
|
|
3,574,500
|
|
|
|
6.66
|
%
|
|
|
|
|
Modular Process Control,
LLC - Warrants for 8.33% of the outstanding Class B LLC Interests (at a $0.01 strike price), expire 3/28/23
^
|
|
|
1
|
|
|
|
288,000
|
|
|
|
-
|
|
|
|
-
|
%
|
Modular Process Control,
LLC Total
|
|
|
|
|
|
|
|
|
|
|
5,973,658
|
|
|
|
4,574,500
|
|
|
|
8.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ProGrade Ammo Group, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Munitions
|
|
Senior Secured Revolving Loan, 9.19% (LIBOR plus 9.00%, 9.19% floor),
8/1/2014
|
|
$
|
2,758,989
|
|
|
|
2,758,989
|
|
|
|
2,758,989
|
|
|
|
5.14
|
%
|
|
|
|
|
Senior Secured Term Loan, 16.19% (LIBOR plus 16.00%, 16.19% floor),
8/1/2014
|
|
$
|
4,718,750
|
|
|
|
4,678,279
|
|
|
|
1,978,415
|
|
|
|
3.69
|
%
|
|
|
|
|
Warrants for 9.5%
of the outstanding LLC interests (at a $10.00 strike price), expire 8/1/2018
^
|
|
|
181,240
|
|
|
|
176,770
|
|
|
|
-
|
|
|
|
-
|
%
|
ProGrade Ammo Group, LLC
Total
|
|
|
|
|
|
|
|
|
|
|
7,614,038
|
|
|
|
4,737,404
|
|
|
|
8.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOLEX Fine Foods, LLC; Catsmo, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
|
|
Senior Secured Term Loan, 12.31% (LIBOR plus 12.14%), 12/28/2016
|
|
$
|
3,900,000
|
|
|
|
3,811,660
|
|
|
|
3,725,279
|
|
|
|
6.94
|
%
|
|
|
Distributors &
|
|
Limited Liability Company Interests
^,8
|
|
|
1
|
|
|
|
290,284
|
|
|
|
67,830
|
|
|
|
0.13
|
%
|
|
|
Wholesalers
|
|
Warrants for 1.6%
of the outstanding LLC interests (strike price $0.01), expire 12/31/2022
^,8
|
|
|
1
|
|
|
|
58,055
|
|
|
|
15,200
|
|
|
|
0.03
|
%
|
SOLEX Fine Foods, LLC; Catsmo,
LLC Total
|
|
|
|
|
|
|
|
|
|
|
4,159,999
|
|
|
|
3,808,309
|
|
|
|
7.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West World Media,
LLC
9
|
|
Information and Data Services
|
|
Limited Liability Company Interests
^
|
|
|
85,210
|
|
|
|
430,500
|
|
|
|
235,451
|
|
|
|
0.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Affiliate Investments
|
|
|
|
|
|
|
|
|
|
|
18,178,195
|
|
|
|
13,355,664
|
|
|
|
24.89
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount /
Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attention Transit
Advertising Systems, LLC
|
|
Outdoor Advertising Services
|
|
Senior Secured Term Loan, 11.50%, 9/30/2016
|
|
$
|
2,263,585
|
|
|
$
|
2,263,585
|
|
|
$
|
2,248,193
|
|
|
|
4.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background Images, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
Senior Secured Term Loan – Term A, 14.67% (LIBOR plus 14.50%),
6/28/2014
|
|
$
|
1,293,750
|
|
|
|
1,288,975
|
|
|
|
1,301,254
|
|
|
|
2.42
|
%
|
|
|
Rental Services
|
|
Senior Secured Term Loan – Term B,
16.42% (LIBOR plus 16.25%), 6/28/2014
|
|
$
|
731,250
|
|
|
|
728,476
|
|
|
|
735,126
|
|
|
|
1.37
|
%
|
Background
Images, Inc. Total
|
|
|
|
|
|
|
|
|
|
|
2,017,451
|
|
|
|
2,036,380
|
|
|
|
3.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blackstrap Broadcasting, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio
|
|
Senior Secured Term Loan, 6.17% (LIBOR plus 6.00%), 7/31/2014
|
|
$
|
3,080,000
|
|
|
|
3,080,000
|
|
|
|
2,411,743
|
|
|
|
4.49
|
%
|
|
|
Broadcasting
|
|
Subordinated Secured Term Loan, 16.00% (PRIME
plus 7.75%, 16.00% floor), 7/31/2014
|
|
$
|
3,500,000
|
|
|
|
3,500,000
|
|
|
|
1,276,333
|
|
|
|
2.38
|
%
|
Blackstrap
Broadcasting, LLC Total
|
|
|
|
|
|
|
|
|
|
|
6,580,000
|
|
|
|
3,688,076
|
|
|
|
6.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPX, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
Senior Secured Revolving Loan, 14.19% (LIBOR plus 14.00%, 14.19%
floor), 9/30/2016
|
|
$
|
1,550,000
|
|
|
|
1,530,647
|
|
|
|
1,550,000
|
|
|
|
2.89
|
%
|
|
|
Molded Products
|
|
Senior Secured Term Loan, 14.69%
(LIBOR plus 14.50%, 14.69% floor), 9/30/2016
|
|
$
|
1,250,000
|
|
|
|
1,230,684
|
|
|
|
1,188,750
|
|
|
|
2.21
|
%
|
CPX,
Inc. Total
|
|
|
|
|
|
|
|
|
|
|
2,761,331
|
|
|
|
2,738,750
|
|
|
|
5.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Esselte Holdings Inc., Esselte
AB
|
|
Stationery, Tablets, and Related Products
|
|
Senior Secured Term Loan, 10.75% (LIBOR plus 8.75%, 10.75% floor),
2/29/2016
|
|
$
|
4,826,389
|
|
|
|
4,827,946
|
|
|
|
4,827,946
|
|
|
|
9.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Energy Efficiency Holdings,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
Senior Secured Revolving Loan, 13.17% (LIBOR plus 13.00%) 9/7/2015
|
|
$
|
5,798,087
|
|
|
|
5,796,271
|
|
|
|
6,145,972
|
|
|
|
11.45
|
%
|
|
|
Efficiency Services
|
|
Senior Secured Term Loan, 13.17% (LIBOR plus
13.00%) 9/7/2015
|
|
$
|
1,300,000
|
|
|
|
1,293,373
|
|
|
|
1,378,000
|
|
|
|
2.57
|
%
|
Global
Energy Efficiency Holdings, Inc. Total
|
|
|
|
|
|
|
|
|
|
|
7,089,644
|
|
|
|
7,523,972
|
|
|
|
14.02
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount /
Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infinite Aegis Group, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
Senior Secured Revolving Loan, 12.19% (LIBOR
plus 12.00%, 12.19% floor), 7/31/2017
|
|
$
|
1,000,000
|
|
|
$
|
984,198
|
|
|
$
|
1,000,000
|
|
|
|
1.86
|
%
|
|
|
Billing and Collections
|
|
Senior Secured Term Loan, 12.19% (LIBOR plus 12.00%, 12.19%
floor), 7/31/2017
|
|
$
|
4,000,000
|
|
|
|
3,874,357
|
|
|
|
3,747,600
|
|
|
|
6.98
|
%
|
|
|
|
|
Warrants for 2.0%
of the outstanding LLC interests (at a $0.01 strike price), expire 8/1/2023
^
|
|
|
1
|
|
|
|
107,349
|
|
|
|
28,123
|
|
|
|
0.06
|
%
|
Infinite Aegis Group, LLC
Total
|
|
|
|
|
|
|
|
|
|
|
4,965,904
|
|
|
|
4,775,723
|
|
|
|
8.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MDU Communications (USA) Inc.
|
|
Cable TV
|
|
Senior Secured Term Loan - Tranche A, 2.00%,
3/31/2014
10
|
|
$
|
2,858,370
|
|
|
|
2,858,370
|
|
|
|
2,446,193
|
|
|
|
4.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pristine Environments, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Cleaning and
|
|
Senior Secured Revolving Loan, 12.70% (LIBOR plus 12.50%,
12.70% floor), 3/31/2017
|
|
$
|
3,114,542
|
|
|
|
3,106,881
|
|
|
|
3,217,633
|
|
|
|
5.99
|
%
|
|
|
Maintenance Services
|
|
Senior Secured Term Loan, 12.70% (LIBOR
plus 12.50%, 12.70% floor), 3/31/2017
|
|
$
|
1,106,625
|
|
|
|
1,096,331
|
|
|
|
1,196,151
|
|
|
|
2.23
|
%
|
Pristine Environments, Inc.
Total
|
|
|
|
|
|
|
|
|
|
|
4,203,212
|
|
|
|
4,413,784
|
|
|
|
8.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Selling Source, LLC
|
|
Information and Data Services
|
|
Senior Secured Term Loan, 12.54%, 1/31/2017
|
|
$
|
3,637,572
|
|
|
|
3,607,824
|
|
|
|
3,504,194
|
|
|
|
6.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Path Labs, LLC
|
|
Healthcare Services
|
|
Senior Secured Term Loan, 14.00% (LIBOR plus 13.25%, 14.00% floor),
3/31/2014
|
|
$
|
3,410,000
|
|
|
|
3,380,656
|
|
|
|
3,410,000
|
|
|
|
6.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VaultLogix, LLC
|
|
Information Retrieval Services
|
|
Warrants for Variable % Ownership, (at
a $307.855 strike price), expire 1/14/2019
^
|
|
|
3,349
|
|
|
|
56,147
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Treasury
|
|
|
|
United States Treasury Bill** (0.22)%, 1/2/2014
|
|
$
|
21,000,000
|
|
|
|
21,000,128
|
|
|
|
21,000,128
|
|
|
|
39.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Investments
|
|
|
|
|
|
|
|
|
|
|
65,612,198
|
|
|
|
62,613,339
|
|
|
|
116.66
|
%
|
Total
Investments
|
|
|
|
|
|
|
|
|
|
$
|
103,473,363
|
|
|
$
|
96,882,958
|
|
|
|
180.52
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2013
|
|
December 31, 2013
|
|
|
|
Investment at
Fair Value
(in millions)
|
|
|
Percentage of
Net Assets
|
|
Energy Efficiency Services
|
|
$
|
12.1
|
|
|
|
22.54
|
%
|
CableTV / Broadband Services
|
|
|
11.0
|
|
|
|
20.52
|
|
Consumer Finance
|
|
|
7.6
|
|
|
|
14.18
|
|
Stationery, Tablets, and Related Products
|
|
|
4.8
|
|
|
|
9.00
|
|
Healthcare Billing and Collections
|
|
|
4.8
|
|
|
|
8.90
|
|
Munitions
|
|
|
4.7
|
|
|
|
8.83
|
|
Building Cleaning and Maintenance Services
|
|
|
4.4
|
|
|
|
8.22
|
|
Food Distributors and Wholesalers
|
|
|
3.8
|
|
|
|
7.10
|
|
Information and Data Services
|
|
|
3.8
|
|
|
|
6.97
|
|
Radio Broadcasting
|
|
|
3.7
|
|
|
|
6.87
|
|
Healthcare Services
|
|
|
3.4
|
|
|
|
6.34
|
|
Industrial Molded Products
|
|
|
2.7
|
|
|
|
5.10
|
|
Asset Recovery Services
|
|
|
2.6
|
|
|
|
4.75
|
|
Outdoor Advertising Services
|
|
|
2.3
|
|
|
|
4.19
|
|
Geophysical Surveying and Mapping Services
|
|
|
2.2
|
|
|
|
4.09
|
|
Equipment Rental Services
|
|
|
2.0
|
|
|
|
3.79
|
|
Total
|
|
$
|
75.9
|
|
|
|
141.39
|
%
|
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 Company’s variable rate debt investments bear interest at a rate that is determined by reference to LIBOR
or the U.S. prime rate, and which is reset daily, monthly, quarterly or semi-annually. For each debt investment, the Company has
provided the interest rate in effect as of December 31, 2013. If no reference to LIBOR or the U.S. prime rate is made, the rate
is fixed.
3
“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.
4
“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 New Media West, LLC is held through its wholly-owned subsidiary FC New
Media, Inc.
6
Full
Circle Capital Corporation’s equity investment in Takoda Resources Inc. is held through its wholly-owned subsidiary FC
Takoda Holdings, LLC.
7
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.
8
Full
Circle Capital Corporation’s equity investments in SOLEX Fine Foods, LLC; Catsmo, LLC 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.
10
MDU
Communications (USA) Inc. was on non-accrual status as of December 31, 2013.
|
*
|
Investment is not a qualifying asset under Section
55(a) of the 1940 Act.
|
|
**
|
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
(Audited)
June 30, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount
/ Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of Net
Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
Investments
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Media West, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable TV
|
|
Senior Secured Term Loan, 9.00%, 12/31/2017
|
|
$
|
5,079,679
|
|
|
$
|
5,079,679
|
|
|
$
|
5,079,679
|
|
|
|
8.38
|
%
|
|
|
Broadband Services
|
|
Limited Liability
Company Interests
^,5
|
|
|
720
|
|
|
|
3,600,000
|
|
|
|
4,203,006
|
|
|
|
6.93
|
%
|
New Media West, LLC Total
|
|
|
|
|
|
|
|
|
|
|
8,679,679
|
|
|
|
9,282,685
|
|
|
|
15.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Takoda Resources
Inc.
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geophysical Surveying
|
|
Senior Secured Term Loan, 16.00%, 4/1/2016
|
|
$
|
1,469,063
|
|
|
|
1,469,063
|
|
|
|
1,469,063
|
|
|
|
2.42
|
%
|
|
|
and Mapping Services
|
|
Common Stock
^,6
|
|
|
520
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Takoda
Resources Inc. Total
|
|
|
|
|
|
|
|
|
|
|
1,469,063
|
|
|
|
1,469,063
|
|
|
|
2.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Westchester Financial, LLC
|
|
Consumer Finance
|
|
Limited Liability Company Interests
^
|
|
|
9,278
|
|
|
|
905,819
|
|
|
|
602,154
|
|
|
|
0.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Finance Company, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance
|
|
Senior Secured Term Loan, 15.00% (LIBOR plus 14.25%, 15.00% floor),
9/30/2015
|
|
$
|
5,163,547
|
|
|
|
4,585,205
|
|
|
|
4,698,524
|
|
|
|
7.75
|
%
|
|
|
|
|
Limited Liability Company Interests
|
|
|
50
|
|
|
|
140,414
|
|
|
|
1,604,577
|
|
|
|
2.65
|
%
|
The Finance Company, LLC
Total
|
|
|
|
|
|
|
|
|
|
|
4,725,619
|
|
|
|
6,303,101
|
|
|
|
10.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransAmerican Asset Servicing Group, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Recovery
|
|
Senior Secured Term Loan, 14.25%, 7/25/2016
|
|
$
|
2,400,000
|
|
|
|
2,359,362
|
|
|
|
1,458,437
|
|
|
|
2.40
|
%
|
|
|
Services
|
|
Limited Liability
Company Interests
^,7
|
|
|
75
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
TransAmerican
Asset Servicing Group, LLC Total
|
|
|
|
|
|
|
|
|
|
|
2,359,362
|
|
|
|
1,458,437
|
|
|
|
2.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Control Investments
|
|
|
|
|
|
|
|
|
|
|
18,139,543
|
|
|
|
19,115,440
|
|
|
|
31.52
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Audited)
June 30, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount /
Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
Investments
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modular Process Control, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
Senior Secured Revolving Loan, 15.00% (LIBOR
plus 14.00%, 15.00% floor), 3/28/17
|
|
$
|
3,500,000
|
|
|
$
|
3,310,894
|
|
|
$
|
3,500,000
|
|
|
|
5.77
|
%
|
|
|
Efficiency
|
|
Senior Secured Term Loan, 15.00% (LIBOR plus 14.00%, 15.00%
floor), 3/28/17
|
|
$
|
2,500,000
|
|
|
|
2,342,415
|
|
|
|
2,407,833
|
|
|
|
3.97
|
%
|
|
|
Services
|
|
Warrants for 8% of the outstanding Class B LLC Interests (at a $0.01 strike price), expire 3/28/23
^
|
|
|
1
|
|
|
|
288,000
|
|
|
|
161,413
|
|
|
|
0.27
|
%
|
Modular Process Control,
LLC Total
|
|
|
|
|
|
|
|
|
|
|
5,941,309
|
|
|
|
6,069,246
|
|
|
|
10.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ProGrade Ammo Group, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Munitions
|
|
Senior Secured Revolving Loan, 9.20% (LIBOR plus 9.00%, 9.20% floor),
8/1/2014
|
|
$
|
1,907,735
|
|
|
|
1,907,735
|
|
|
|
1,907,735
|
|
|
|
3.14
|
%
|
|
|
|
|
Senior Secured Term Loan, 15.20% (LIBOR plus 15.00%, 15.20% floor),
8/1/2014
|
|
$
|
5,468,750
|
|
|
|
5,389,137
|
|
|
|
4,304,089
|
|
|
|
7.10
|
%
|
|
|
|
|
Warrants for 9.5%
of the outstanding LLC interests (at a $10.00 strike price), expire 8/1/2018
^
|
|
|
181,240
|
|
|
|
176,770
|
|
|
|
-
|
|
|
|
0.00
|
%
|
ProGrade Ammo Group, LLC
Total
|
|
|
|
|
|
|
|
|
|
|
7,473,642
|
|
|
|
6,211,824
|
|
|
|
10.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOLEX Fine Foods, LLC; Catsmo, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
|
|
Senior Secured Term Loan, 12.31% (LIBOR plus 12.14%), 12/28/2016
|
|
$
|
3,900,000
|
|
|
|
3,801,116
|
|
|
|
3,859,440
|
|
|
|
6.37
|
%
|
|
|
Distributors &
|
|
Limited Liability Company Interests
^,8
|
|
|
1
|
|
|
|
250,000
|
|
|
|
139,247
|
|
|
|
0.23
|
%
|
|
|
Wholesalers
|
|
Warrants for 1.6%
of the outstanding LLC interests (strike price $0.01), expire 12/28/2022
^,8
|
|
|
1
|
|
|
|
58,055
|
|
|
|
32,695
|
|
|
|
0.05
|
%
|
SOLEX Fine Foods, LLC; Catsmo,
LLC Total
|
|
|
|
|
|
|
|
|
|
|
4,109,171
|
|
|
|
4,031,382
|
|
|
|
6.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West World Media, LLC
|
|
Information and Data Services
|
|
Limited Liability Company Interests
^,9
|
|
|
85,210
|
|
|
|
430,500
|
|
|
|
235,451
|
|
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Affiliate Investments
|
|
|
|
|
|
|
|
|
|
|
17,954,622
|
|
|
|
16,547,903
|
|
|
|
27.29
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Audited)
June 30, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount /
Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of
Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attention Transit
Advertising Systems, LLC
|
|
Outdoor Advertising Services
|
|
Senior Secured Term Loan, 14.50%, 9/30/2016
|
|
$
|
2,321,626
|
|
|
$
|
2,321,626
|
|
|
$
|
2,321,626
|
|
|
|
3.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Background Images, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
Senior Secured Term Loan – Term A, 14.70% (LIBOR plus
14.50%), 6/28/2015
|
|
$
|
1,466,250
|
|
|
|
1,456,440
|
|
|
|
1,465,419
|
|
|
|
2.42
|
%
|
|
|
Rental Services
|
|
Senior Secured Term Loan – Term B,
16.45% (LIBOR plus 16.25%), 6/28/2015
|
|
$
|
828,750
|
|
|
|
823,118
|
|
|
|
783,058
|
|
|
|
1.29
|
%
|
Background
Images, Inc. Total
|
|
|
|
|
|
|
|
|
|
|
2,279,558
|
|
|
|
2,248,477
|
|
|
|
3.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blackstrap Broadcasting, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio
|
|
Senior Secured Term Loan, 5.00%, 7/31/2014
|
|
$
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
2,588,600
|
|
|
|
4.27
|
%
|
|
|
Broadcasting
|
|
Subordinated Secured Term Loan, 16.00% (PRIME
plus 7.75%, 16.00% floor), 7/31/2014
|
|
$
|
3,500,000
|
|
|
|
3,500,000
|
|
|
|
3,034,383
|
|
|
|
5.00
|
%
|
Blackstrap
Broadcasting, LLC Total
|
|
|
|
|
|
|
|
|
|
|
6,500,000
|
|
|
|
5,622,983
|
|
|
|
9.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coast Plating, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Parts Plating
|
|
Senior Secured Term Loan – Term A, 11.70% (LIBOR plus 11.50%,
11.70% floor), 9/13/2014
|
|
$
|
1,401,686
|
|
|
|
1,401,687
|
|
|
|
1,412,666
|
|
|
|
2.33
|
%
|
|
|
and Finishing
|
|
Senior Secured Term Loan – Term B,
12.45% (LIBOR plus 12.25%, 12.45% floor), 9/13/2014
|
|
$
|
3,431,714
|
|
|
|
3,431,714
|
|
|
|
3,412,268
|
|
|
|
5.63
|
%
|
Coast
Plating, Inc. Total
|
|
|
|
|
|
|
|
|
|
|
4,833,401
|
|
|
|
4,824,934
|
|
|
|
7.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSL Operating, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
Senior Secured Term Loan – Term A, 11.70% (LIBOR plus 11.50%,
11.70% floor), 5/11/2014
|
|
$
|
1,866,720
|
|
|
|
1,863,691
|
|
|
|
1,860,435
|
|
|
|
3.07
|
%
|
|
|
Metal Treatings
|
|
Senior Secured Term Loan – Term B,
11.70% (LIBOR plus 11.50%, 11.70% floor), 5/11/2014
|
|
$
|
1,866,720
|
|
|
|
1,863,691
|
|
|
|
1,856,142
|
|
|
|
3.06
|
%
|
CSL Operating,
LLC Total
|
|
|
|
|
|
|
|
|
|
|
3,727,382
|
|
|
|
3,716,577
|
|
|
|
6.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment Plus, Inc.
|
|
Staffing Services
|
|
Senior Secured Term Loan, 12.00% (LIBOR plus 11.76%, 12.00% floor),
10/24/2013
|
|
$
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
8.24
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Audited)
June 30, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount /
Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Energy Efficiency Holdings,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
Senior Secured Revolving Loan, 13.20% (LIBOR plus 13.00%),
9/7/2015
|
|
$
|
4,444,961
|
|
|
$
|
4,439,802
|
|
|
$
|
4,523,933
|
|
|
|
7.46
|
%
|
|
|
Efficiency Services
|
|
Senior Secured Term Loan, 13.20% (LIBOR plus
13.00%), 9/7/2015
|
|
$
|
1,000,000
|
|
|
|
990,088
|
|
|
|
1,036,900
|
|
|
|
1.71
|
%
|
Global
Energy Efficiency Holdings, Inc. Total
|
|
|
|
|
|
|
|
|
|
|
5,429,890
|
|
|
|
5,560,833
|
|
|
|
9.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iMedX, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
Senior Secured Revolving Loan, 13.75% (LIBOR plus 13.50%, 13.75%
floor), 09/19/2014
|
|
$
|
1,578,962
|
|
|
|
1,578,962
|
|
|
|
1,685,752
|
|
|
|
2.78
|
%
|
|
|
Transcription Services
|
|
Senior Secured Term Loan – Term A, 13.75% (LIBOR plus 13.50%, 13.75%
floor), 09/19/2014
|
|
$
|
2,450,686
|
|
|
|
2,437,028
|
|
|
|
2,482,790
|
|
|
|
4.09
|
%
|
|
|
|
|
Senior Secured Term Loan – Term B,
13.75% (LIBOR plus 13.50%, 13.75% floor), 09/19/2014
|
|
$
|
1,071,180
|
|
|
|
1,071,180
|
|
|
|
1,073,679
|
|
|
|
1.77
|
%
|
iMedX,
Inc. Total
|
|
|
|
|
|
|
|
|
|
|
5,087,170
|
|
|
|
5,242,221
|
|
|
|
8.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MDU Communications (USA) Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable TV
|
|
Senior Secured Term Loan - Tranche A, 12.85% (PRIME plus 4.10%,
12.85% floor), 12/31/2013
|
|
$
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
4,914,000
|
|
|
|
8.10
|
%
|
|
|
Broadband Services
|
|
Senior Secured Term Loan - Tranche C, 10.75% (PRIME plus 2.00%, 10.75%
floor), 12/31/2013
|
|
$
|
250,000
|
|
|
|
250,000
|
|
|
|
242,642
|
|
|
|
0.40
|
%
|
MDU Communications
(USA) Inc. Total
|
|
|
|
Senior Secured Term Loan - Tranche D, 9.75% (PRIME
plus 1.00%, 9.75% floor), 12/31/2013
|
|
$
|
1,480,000
|
|
|
|
1,480,000
|
|
|
|
1,427,213
|
|
|
|
2.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
6,730,000
|
|
|
|
6,583,855
|
|
|
|
10.85
|
%
|
Pristine Environments, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Cleaning and
|
|
Senior Secured Revolving Loan, 12.70%, (LIBOR plus
12.50%, 12.70% floor), 3/31/2017
|
|
$
|
2,764,801
|
|
|
|
2,737,585
|
|
|
|
2,774,017
|
|
|
|
4.57
|
%
|
|
|
Maintenance Services
|
|
Senior Secured Term Loan, 12.70%, (LIBOR
plus 12.50%, 12.70% floor), 3/31/2017
|
|
$
|
1,135,000
|
|
|
|
1,123,828
|
|
|
|
1,143,437
|
|
|
|
1.89
|
%
|
Pristine
Environments, Inc. Total
|
|
|
|
|
|
|
|
|
|
|
3,861,413
|
|
|
|
3,917,454
|
|
|
|
6.46
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Audited)
June 30, 2013
Description
1
|
|
Industry
|
|
Type
of Investment
2
|
|
Par
Amount /
Quantity
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
%
of Net
Asset
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Selling Source,
LLC
|
|
Information and Data Services
|
|
Senior Secured Term Loan, 12.54%, 1/31/2017
|
|
$
|
4,000,000
|
|
|
$
|
3,964,978
|
|
|
$
|
4,000,000
|
|
|
|
6.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Path Labs, LLC
|
|
Healthcare Services
|
|
Senior Secured Term Loan, 14.00%, (LIBOR plus 13.25%, 14.00%
floor), 3/31/2014
|
|
$
|
3,470,000
|
|
|
|
3,428,973
|
|
|
|
3,472,198
|
|
|
|
5.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VaultLogix, LLC
|
|
Information Retrieval Services
|
|
Warrants for Variable % Ownership, (at
a $307.855 strike price), expire 1/14/2019
^
|
|
|
3,439
|
|
|
|
56,147
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Investments
|
|
|
|
|
|
|
|
|
|
|
53,220,538
|
|
|
|
52,511,158
|
|
|
|
86.59
|
%
|
Total
Investments
|
|
|
|
|
|
|
|
|
|
$
|
89,314,703
|
|
|
$
|
88,174,501
|
|
|
|
145.40
|
%
|
See notes to consolidated financial statements.
FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Audited)
June 30, 2013
|
|
June 30, 2013
|
|
|
|
Investment at
Fair Value
(in millions)
|
|
|
Percentage of
Net Assets
|
|
Cable TV / Broadband Services
|
|
$
|
15.9
|
|
|
|
26.16
|
%
|
Energy Efficiency Services
|
|
|
11.6
|
|
|
|
19.18
|
|
Consumer Finance
|
|
|
6.9
|
|
|
|
11.39
|
|
Munitions
|
|
|
6.2
|
|
|
|
10.24
|
|
Radio Broadcasting
|
|
|
5.6
|
|
|
|
9.28
|
|
Medical Transcription Services
|
|
|
5.2
|
|
|
|
8.64
|
|
Staffing Services
|
|
|
5.0
|
|
|
|
8.24
|
|
Aerospace Parts Plating and Finishing
|
|
|
4.8
|
|
|
|
7.96
|
|
Information and Data Services
|
|
|
4.2
|
|
|
|
6.98
|
|
Food Distributors and Wholesalers
|
|
|
4.0
|
|
|
|
6.65
|
|
Building Cleaning and Maintenance Services
|
|
|
3.9
|
|
|
|
6.46
|
|
Industrial Metal Treatings
|
|
|
3.8
|
|
|
|
6.13
|
|
Healthcare Services
|
|
|
3.6
|
|
|
|
5.73
|
|
Outdoor Advertising Services
|
|
|
2.3
|
|
|
|
3.83
|
|
Equipment Rental Services
|
|
|
2.2
|
|
|
|
3.71
|
|
Geophysical Surveying and Mapping Services
|
|
|
1.5
|
|
|
|
2.42
|
|
Asset Recovery Services
|
|
|
1.5
|
|
|
|
2.40
|
|
Total
|
|
$
|
88.2
|
|
|
|
145.40
|
%
|
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 Company’s variable rate debt investments bear interest at a rate that is determined by reference to LIBOR
or the U.S. prime rate, and which is reset daily, monthly, quarterly or semi-annually. For each debt investment, the Company has
provided the interest rate in effect as of June 30, 2013. If no reference to LIBOR or the U.S. prime rate is made, the rate is
fixed.
3
“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.
4
“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 New Media West, LLC is held through its wholly-owned subsidiary FC New
Media, Inc.
6
Full
Circle Capital Corporation’s equity investment in Takoda Resources Inc. is held through its wholly-owned subsidiary FC
Takoda Holdings, LLC.
7
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.
8
Full
Circle Capital Corporation’s equity investments in SOLEX Fine Foods, LLC; Catsmo, LLC 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.
|
*
|
Investment is not a qualifying asset under Section
55(a) of the 1940 Act.
|
|
**
|
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 (Unaudited)
December 31, 2013
Note 1. Organization
References herein to “we”,
“us” or “our” refer to Full Circle Capital Corporation and Subsidiaries (“Full Circle Capital”
or the “Company”) unless the context specifically requires otherwise.
We were formed as Full Circle Capital Corporation,
a Maryland corporation, 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, 2014.
The June 30, 2013 and December 31, 2012
Consolidated Financial Statements were reclassified in order to be consistent with the format used for the December 31, 2013
Consolidated Financial Statements.
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 acquired, 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 Media, Inc., TransAmerican Asset Servicing Group, Inc., FC New Specialty
Foods, Inc., and FC Takoda Holdings, LLC, our 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, are 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. Independent third-party valuation firms are engaged by, or on behalf of, the Audit Committee to conduct independent
appraisals or review management’s preliminary valuations or 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 valuation firms; 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 firms and the recommendations of the
Audit Committee.
|
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
The Company’s 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, the
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 may 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 work performed by third party valuation agents, if applicable. 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 Santander Bank, N.A. f/k/a Sovereign Bank, N.A. (“Santander Bank”), and at times, cash held in
such accounts may exceed the Federal Deposit Insurance Corporation insured limit. The Company may invest a portion of its cash
in money market funds, within the limitations of the 1940 Act.
Revenue Recognition
Realized gain (loss) on the sale of investments
is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. Realized gains
or losses on the sale of investments are calculated using the specific identification method.
Interest income, adjusted for amortization
of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with
senior and subordinated secured loans are accreted into interest income over the respective terms of the applicable loans. Upon
the prepayment of a senior or subordinated secured loan, any unamortized loan origination, closing and/or 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
and unused line fees, is included in Other Income. Income from such sources was $1,206,228 and $453,057 for the three
months ended December 31, 2013, and 2012, respectively and $1,397,243 and $613,165 for the six months ended December 31, 2013,
and 2012, respectively.
Change in unrealized gain (loss) on investments
Net unrealized appreciation or depreciation
recorded 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.
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.
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 is
generally based upon our management’s estimate of our earnings for the quarter. Net realized capital gains, if
any, are distributed at least annually.
Guarantees and Indemnification Agreements
We follow 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 for the three and six months ended December 31, 2013, and 2012, respectively, were the same since there
were no potentially dilutive securities outstanding.
Organizational Expenses and Offering
Costs
The Company did not incur organizational
expenses for the three or six months ended December 31, 2013, and 2012. 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.
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.
Recent Accounting Pronouncements
In January 2013, the Financial Accounting
Standards Board issued Accounting Standards Update (“ASU”) 2013-01, Balance Sheet (Topic 210): Clarifying the Scope
of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”). ASU 2013-01 limits the scope of the new balance
sheet offsetting disclosure requirements to derivatives (including bifurcated embedded derivatives), repurchase agreements and
reverse repurchase agreements, and certain securities borrowing and lending arrangements. Public companies are required to apply
ASU 2013-01 prospectively for interim and annual reporting periods beginning after January 1, 2013.
In June 2013, the Financial Accounting
Standards Board issued Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment Companies (Topic
946): Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”). ASU 2013-08 amends the criteria
that define an investment company, clarifies the measurement guidance and requires certain additional disclosures. Public companies
are required to apply ASU 2013-08 prospectively for interim and annual reporting periods beginning after December 15, 2013.
In February 2013, the Financial Accounting
Standards Board issued Accounting Standards Update (“ASU”) 2013-04, Liabilities (Topic 405): Obligations Resulting
from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU
2013-04”). ASU 2013-04 provides additional guidance for the recognition, measurement, and disclosure of obligations resulting
from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is
fixed at the reporting date. Public companies are required to apply ASU 2013-04 prospectively for interim and annual reporting
periods beginning after December 15, 2013.
The Company does not believe that the adoption
of any recently issued accounting standards had or will have a material impact on its current financial position and results of
operations.
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, 2013, we had approximately
$2.6 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, 2013, and December
31, 2012:
|
|
Three months ended December 31,
|
|
|
Six months ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
(1,219,940
|
)
|
|
$
|
(428,202
|
)
|
|
$
|
(3,477,089
|
)
|
|
$
|
466,689
|
|
Weighted average shares outstanding for period
|
|
|
7,569,382
|
|
|
|
6,732,969
|
|
|
|
7,569,382
|
|
|
|
6,476,175
|
|
Basic and diluted earnings (loss) per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
0.07
|
|
|
(1)
|
Per share data is based on weighted average shares outstanding.
|
Note 5. Related Party Agreements and Transactions
Investment Advisory Agreement
On June 24, 2013, the Board 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.
The total base management fees earned by
the Adviser for the three and six months ended December 31, 2013, were $382,489 and $791,747, respectively. The total base management
fee payable to the Adviser as of December 31, 2013 was $382,489, after reflecting payment of $717,529, for the six months ended
December 31, 2013, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliates. 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 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 earned on realized capital gains for
the three and six months ended December 31, 2013, and 2012.
Income incentive fees of $474,897 and $789,636
were earned by the Adviser for the three and six months ended December 31, 2013, respectively, and the total income incentive fee
payable to the Adviser as of December 31, 2013, was $474,897, after reflecting payment of $586,821, during the six months ended
December 31, 2013, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliate. Income incentive
fees of $365,430 and $673,362 were earned by the Adviser for the three and six months ended December 31, 2012.
The Adviser had agreed to reimburse the
Company for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and
offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public
offering, which occurred on August 31, 2010.
Administration Agreement
On June 24, 2013, the Board re-approved
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
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%)
|
Additionally,
prior to September 30, 2013, we reimbursed the Administrator for the fees charged for the services of William E. Vastardis, our
Chief Financial Officer, Treasurer and Secretary, at an annual rate of up to $250,000. On
September
9, 2013, the Company’s Board of Directors appointed Michael J. Sell to succeed William E. Vastardis as our Chief Financial
Officer, Treasurer and Secretary effective as of September 30, 2013. Mr.Vastardis is the President of Vastardis.
For the three and six months ended December
31, 2013, the Company incurred $160,410 and $349,578, respectively, of expenses under the Administration Agreement, $50,000 and
$100,000, respectively, of which were earned by the Sub-Administrator and $75,529, and $150,867, respectively, were paid for officers’
compensation. The remaining $34,881 and $98,711, respectively, was 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, 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, was 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 Co-Chief
Executive Officer and Chairman, John Stuart, currently serves as a director of The Finance Company, LLC, New Media West, LLC and
Takoda Resources Inc. Lawrence Chua, a Vice President of Full Circle Advisors, serves on the board of Takoda Resources Inc. As
of December 31, 2013, only Background Images, Inc., Modular Process Control, LLC, and Solex Fine Foods, LLC; Catsmo, LLC had accepted
our offer for such services. No fees were charged to Background Images, Inc., Modular Process Control, LLC or Solex Fine Foods,
LLC; Catsmo, LLC for such services.
Note 6. Equity Offerings, Related Expenses
and Other Stock Issuances
Offering expenses are generally charged
against paid-in capital in excess of par. 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
|
|
|
Gross
Offering
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
|
|
|
$
|
9.00 per/share
|
|
January 14, 2011
|
|
|
27,867
|
(3)
|
|
$
|
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)
Issued
pursuant to the Company’s dividend reinvestment plan.
Note 7. Financial Highlights
|
|
Three months
ended
December 31, 2013
|
|
|
Three months
ended
December 31, 2012
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
7.48
|
|
|
$
|
8.51
|
|
Dilution from offering
(2)
|
|
|
-
|
|
|
|
(0.17
|
)
|
Offering costs
|
|
|
-
|
|
|
|
(0.01
|
)
|
Net investment income
|
|
|
0.25
|
|
|
|
0.22
|
|
Change in unrealized gain (loss)
|
|
|
(0.34
|
)
|
|
|
0.20
|
|
Realized gain (loss)
|
|
|
(0.07
|
)
|
|
|
(0.49
|
)
|
Dividends declared
|
|
|
(0.23
|
)
|
|
|
(0.23
|
)
|
Net asset value at end of period
|
|
$
|
7.09
|
|
|
$
|
8.03
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period
|
|
$
|
7.04
|
|
|
$
|
7.43
|
|
Total return based on market value
(4)
|
|
|
(15.03
|
)%
|
|
|
(5.48
|
)%
|
Total return based on net asset value
(4)
|
|
|
(2.19
|
)%
|
|
|
(2.65
|
)%
|
Shares outstanding at end of period
|
|
|
7,569,382
|
|
|
|
7,569,382
|
|
Weighted average shares outstanding for period
|
|
|
7,569,382
|
|
|
|
6,732,969
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
53,669,896
|
|
|
$
|
60,806,640
|
|
Average net assets
|
|
$
|
55,154,130
|
|
|
$
|
56,690,087
|
|
Annualized ratio of gross operating expenses to average net assets
(5)
|
|
|
15.09
|
%
|
|
|
11.44
|
%
|
Annualized ratio of net operating expenses to average net assets
(5)
|
|
|
15.09
|
%
|
|
|
11.44
|
%
|
Annualized ratio of net investment income to average net assets
(5)
|
|
|
13.66
|
%
|
|
|
10.26
|
%
|
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets
(5)
|
|
|
3.75
|
%
|
|
|
3.39
|
%
|
|
|
Six months ended
December 31, 2013
|
|
|
Six months ended
December 31, 2012
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
8.01
|
|
|
$
|
8.59
|
|
Dilution from offering
(2)
|
|
|
-
|
|
|
|
(0.17
|
)
|
Offering costs
|
|
|
-
|
|
|
|
(0.01
|
)
|
Net investment income
|
|
|
0.42
|
|
|
|
0.42
|
|
Change in unrealized gain (loss)
|
|
|
(0.73
|
)
|
|
|
0.28
|
|
Realized gain (loss)
|
|
|
(0.15
|
)
|
|
|
(0.62
|
)
|
Dividends declared
|
|
|
(0.46
|
)
|
|
|
(0.46
|
)
|
Net asset value at end of period
|
|
$
|
7.09
|
|
|
$
|
8.03
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period
|
|
$
|
7.04
|
|
|
$
|
7.43
|
|
Total return based on market value
(4)
|
|
|
(4.47
|
)%
|
|
|
3.10
|
%
|
Total return based on net asset value
(4)
|
|
|
(6.01
|
)%
|
|
|
(0.76
|
)%
|
Shares outstanding at end of period
|
|
|
7,569,382
|
|
|
|
7,569,382
|
|
Weighted average shares outstanding for period
|
|
|
7,569,382
|
|
|
|
6,476,175
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
53,669,896
|
|
|
$
|
60,806,640
|
|
Average net assets
|
|
$
|
58,614,329
|
|
|
$
|
55,075,212
|
|
Annualized ratio of gross operating expenses to average net assets
(5)
|
|
|
13.78
|
%
|
|
|
11.41
|
%
|
Annualized ratio of net operating expenses to average net assets
(5)
|
|
|
13.78
|
%
|
|
|
11.41
|
%
|
Annualized ratio of net investment income to average net assets
(5)
|
|
|
10.64
|
%
|
|
|
9.74
|
%
|
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets
(5)
|
|
|
3.55
|
%
|
|
|
3.53
|
%
|
|
|
Year
Ended
June 30, 2013
|
|
|
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
|
|
|
|
(audited)
|
|
|
(audited)
|
|
|
(audited)
|
|
|
(audited)
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
8.59
|
|
|
$
|
9.08
|
|
|
$
|
9.40
|
|
|
$
|
15.00
|
(6)
|
Dilution from offering
|
|
|
(0.18)
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Offering costs
|
|
|
(0.02
|
)
|
|
|
-
|
|
|
|
(0.04
|
)
|
|
|
-
|
|
Net investment income (loss)
|
|
|
0.77
|
|
|
|
0.78
|
|
|
|
0.70
|
|
|
|
(125.45
|
)
|
Change in unrealized gain (loss)
|
|
|
0.37
|
|
|
|
(0.32
|
)
|
|
|
(0.29
|
)
|
|
|
-
|
|
Realized gain (loss)
|
|
|
(0.60
|
)
|
|
|
(0.03
|
)
|
|
|
0.06
|
|
|
|
-
|
|
Dividends declared
|
|
|
(0.92
|
)
|
|
|
(0.92
|
)
|
|
|
(0.75
|
)
|
|
|
-
|
|
Net asset value at end of period
|
|
$
|
8.01
|
|
|
$
|
8.59
|
|
|
$
|
9.08
|
|
|
$
|
(110.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period
|
|
$
|
7.83
|
|
|
$
|
7.65
|
|
|
$
|
7.90
|
|
|
$
|
(110.45
|
)
|
Total return based on market value
|
|
|
15.12
|
%
(4)
|
|
|
8.71
|
%
(4)
|
|
|
(4.03
|
)%
(3)
|
|
|
(836.33
|
)%
(7)
|
Total return based on net asset value
|
|
|
4.94
|
%
(4)
|
|
|
6.20
|
%
(4)
|
|
|
5.62
|
%
(3)
|
|
|
(836.33
|
)%
(7)
|
Shares outstanding at end of period
|
|
|
7,569,382
|
|
|
|
6,219,382
|
|
|
|
6,219,382
|
|
|
|
100
|
|
Weighted average shares outstanding for period
|
|
|
7,018,286
|
|
|
|
6,219,382
|
|
|
|
6,206,824
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
60,644,039
|
|
|
$
|
53,442,785
|
|
|
$
|
56,474,006
|
|
|
$
|
(11,045
|
)
|
Average net assets
|
|
$
|
57,842,601
|
|
|
$
|
55,531,518
|
|
|
$
|
57,455,987
|
|
|
$
|
(4,773
|
)
|
Annualized ratio of gross operating expenses
to average net assets
(5)
|
|
|
11.52
|
%
|
|
|
9.56
|
%
|
|
|
8.49
|
%
|
|
|
1,279.28
|
%
|
Annualized ratio of net operating expenses
to average net assets
(5)
|
|
|
11.52
|
%
|
|
|
8.99
|
%
|
|
|
7.34
|
%
|
|
|
1,279.28
|
%
|
Annualized ratio of net investment
income (loss) to average net assets
(5)
|
|
|
9.30
|
%
|
|
|
8.70
|
%
|
|
|
9.29
|
%
|
|
|
(1,279.28
|
)%
|
Annualized ratio of net operating
expenses excluding management fees, incentive fees, and interest expense to average net assets
(5)
|
|
|
3.53
|
%
|
|
|
3.15
|
%
|
|
|
2.00
|
%
|
|
|
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 a follow on offering on November
27, 2012.
|
|
(3)
|
Total return based on market value is based on the change in market price per share assuming an
investment at the initial public offering price of $9.00 per share and assumes that dividends are reinvested in accordance with
our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between
the opening and ending net asset values per share in the period and assumes that dividends are reinvested in accordance with our
dividend reinvestment plan. The total returns are not annualized.
|
|
(4)
|
Total return based on market value is based on the change in market price 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)
|
Financial Highlights for periods of less than one year are annualized and the ratios of gross and
net 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
to June 30, 2010, the Company incurred $12,500 of Organizational Expenses, which were deemed to be non-recurring.
|
|
(6)
|
For the period from April 16, 2010 (date of inception) to June 30, 2010, the net asset value of
the Company’s common stock at issuance was $15.00.
|
|
(7)
|
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. Total return based on market value is the same as total return based on net asset value as our shares
were not publicly traded from inception through June 30, 2010. The total returns are not annualized.
|
Note 8. Long Term Liabilities
Line of Credit
On August 31, 2010, the Company entered
into the “First Capital Credit Facility” with FCC, LLC d/b/a First Capital. The facility size was $35 million and was
initially scheduled to expire in January 2012. The Company extended the First Capital Credit Facility various times through December
31, 2013. The Company incurred unused line, average usage and other fees related to the First Capital Credit Facility. The First
Capital Credit Facility was secured by all of the assets of the Company. Under the First Capital Credit Facility, the Company was
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. In addition, the Company was required to comply with other general covenants,
including with respect to indebtedness, liens, restricted payments and mergers and consolidations.
On June 3, 2013, the Company entered into
the “Credit Facility” with Santander Bank. The facility size was originally $32.5 million and replaced the Company’s
First Capital Credit Facility. The facility was subsequently increased to $45.0 million on November 5, 2013.
The Credit Facility matures on June 3,
2016 and bears interest based on a tiered rate structure, depending upon utilization, ranging from 1-month LIBOR to 3-month LIBOR
plus 3.25% to 4.00% per annum, or from Santander Bank’s prime rate plus 1.25% to 2.00% per annum, based on the Company’s
election. As of December 31, 2013, the 1-month LIBOR to 3-month LIBOR rates respectively were: 0.17%, 0.21%, and 0.25%. As of December
31, 2013, the prime rate was 3.25%. In addition, a fee of 0.50% per annum is charged on unused amounts under the Credit Facility.
The Credit Facility is secured by all of the Company’s assets. Under the Credit Facility, the Company has made certain customary
representations and warranties, and is required to comply with various covenants, reporting requirements and other customary requirements,
including a minimum balance sheet leverage ratio, for similar credit facilities. The Credit Facility includes usual and customary
events of default for credit facilities of this nature.
The expenses associated with opening and
expanding the Credit Facility are being amortized over the term of the Credit Facility in accordance with ASC 470
Debt.
As
of December 31, 2013, of the total
$728,911 incurred,
$597,048 remains to be amortized and is included within Deferred
Credit Facility Fees on the Consolidated Statement of Assets and Liabilities.
At December 31, 2013 and June 30, 2013,
the Company had outstanding borrowings of $6,440,944 and $25,584,147 under the Credit Facility, respectively, which amounts are
included in the Consolidated Statements of Assets and Liabilities.
Distribution Notes
On August 31, 2010, the Company entered
into multiple senior unsecured notes (the “Distribution Notes”). The Distribution Notes consisted of $3,404,583
in senior unsecured notes, which bore interest at a fixed rate of 8% per annum, payable quarterly in cash, and were scheduled to
mature on February 28, 2014. The Distribution Notes were paid off at par plus accrued interest on July 3, 2013. At December 31,
2013 and June 30, 2013, the Company had a balance of $0 and $3,404,583 on the Distribution Notes, which is included in the Consolidated
Statements of Assets and Liabilities.
Notes Payable
On June 28, 2013, the Company issued $21,145,525
in aggregate principal amount of 8.25% Notes due June 30, 2020, the “Notes”, (including a partial exercise of the underwriters’
overallotment option in July 2013) for net proceeds of $20,038,250 after deducting underwriting commissions of approximately $860,822
and offering expenses of $246,453. The offering expenses and underwriting commissions are being amortized over the term of the
notes in accordance with ASC 470
Debt.
As of December 31, 2013, of the total
$1,107,275 incurred,
$1,026,318
remains to be amortized and is included within Deferred Debt Issuance Costs on the Consolidated Statement of Assets and Liabilities
.
The Notes were issued pursuant to an indenture,
dated June 3, 2013, as supplemented by the first supplemental indenture, dated June 28, 2013 (collectively, the “Indenture”),
between the Company and U.S. Bank National Association (the “Trustee”). The Notes are unsecured obligations of the
Company and rank senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated
in right of payment to the Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that
is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including existing
unsecured indebtedness that is later secured) to the extent of the value of the assets securing such indebtedness; and structurally
junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries or financing
vehicles. Interest on the Notes is paid quarterly in arrears on March 30, June 30, September 30 and December 30, at a fixed rate
of 8.25% per annum, beginning September 30, 2013. The Notes mature on June 30, 2020 and may be redeemed in whole or in part at
any time or from time to time at the Company’s option on or after June 30, 2016. The Notes are listed on the Nasdaq Global
Market under the trading symbol “FULLL” with a par value of $25.00 per share.
The Indenture contains certain covenants,
including covenants requiring compliance with (regardless of whether the Company is subject to) the asset coverage requirements
set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring the Company to
provide financial information to the holders of the Notes and the Trustee if the Company ceases to be subject to the reporting
requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described
in the Indenture. The Company may repurchase the Notes in accordance with the 1940 Act and the rules promulgated thereunder. Any
Notes repurchased by the Company may, at the Company’s option, be surrendered to the Trustee for cancellation, but may not
be reissued or resold by the Company. Any Notes surrendered for cancellation will be promptly cancelled and no longer outstanding
under the Indenture. As of December 31, 2013, the Company had not repurchased any of the Notes in the open market. At December
31, 2013 and June 30, 2013, the Company had a balance of $21,145,525 on the Notes, which is included in the Consolidated Statements
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 Accounting Standards Codification (“ASC”)
Topic 820 Fair Value Measurements and Disclosures (“ASC 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, 2013 and June 30, 2013, respectively:
As of December 31, 2013 (unaudited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
69,681,765
|
|
|
$
|
69,681,765
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
6,157,742
|
|
|
|
6,157,742
|
|
Investments in securities, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
43,323
|
|
|
|
43,323
|
|
U.S. Treasury securities, at fair value
(1)
|
|
|
21,000,128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,000,128
|
|
|
|
$
|
21,000,128
|
|
|
$
|
-
|
|
|
$
|
75,882,830
|
|
|
$
|
96,882,958
|
|
As of June 30, 2013 (audited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
81,195,958
|
|
|
$
|
81,195,958
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
6,784,435
|
|
|
|
6,784,435
|
|
Investments in securities, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
194,108
|
|
|
|
194,108
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
88,174,501
|
|
|
$
|
88,174,501
|
|
(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,
2013 and for the year ended June 30, 2013, 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, 2013 and for the year ended June 30, 2013 are as follows:
|
|
Six
months ended December 31, 2013 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Beginning
|
|
|
Amortization
and Accretion
of
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
|
Gains
(Losses) for
Investments
|
|
|
|
Balance
|
|
|
Fixed Income
|
|
|
Realized &
|
|
|
|
|
|
Sales
|
|
|
Balance
|
|
|
still held at
|
|
|
|
July 1,
|
|
|
Premiums
|
|
|
Unrealized
|
|
|
|
|
|
And
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
and
Discounts
|
|
|
Gains
(Losses)
|
|
|
Purchases
|
|
|
Settlements
|
|
|
2013
|
|
|
2013
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
81,195,958
|
|
|
$
|
193,712
|
|
|
$
|
(5,695,862
|
)
|
|
$
|
42,234,365
|
|
|
$
|
(48,246,408
|
)
|
|
$
|
69,681,765
|
|
|
$
|
(4,449,459
|
)
|
Investments in private companies, at fair value
|
|
|
6,784,435
|
|
|
|
-
|
|
|
|
(666,977
|
)
|
|
|
40,284
|
|
|
|
-
|
|
|
|
6,157,742
|
|
|
|
(666,976
|
)
|
Investments in securities, at fair value
|
|
|
194,108
|
|
|
|
-
|
|
|
|
(258,134
|
)
|
|
|
107,349
|
|
|
|
-
|
|
|
|
43,323
|
|
|
|
(258,134
|
)
|
|
|
$
|
88,174,501
|
|
|
$
|
193,712
|
|
|
$
|
(6,620,973
|
)
|
|
$
|
42,381,998
|
|
|
$
|
(48,246,408
|
)
|
|
$
|
75,882,830
|
|
|
$
|
(5,374,569
|
)
|
|
|
Year
ended June 30, 2013 (audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Beginning
|
|
|
Amortization
and Accretion of
|
|
|
Realized &
|
|
|
|
|
|
|
|
|
Ending
|
|
|
Gains
(Losses) for
Investments
|
|
|
|
Balance
|
|
|
Fixed Income
|
|
|
Unrealized
|
|
|
|
|
|
Sales
|
|
|
Balance
|
|
|
still held at
|
|
|
|
July 1,
|
|
|
Premiums
|
|
|
Gains
|
|
|
|
|
|
And
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
and
Discounts
|
|
|
(Losses)
|
|
|
Purchases
|
|
|
Settlements
|
|
|
2013
|
|
|
2013
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
70,970,152
|
|
|
$
|
358,947
|
|
|
$
|
(2,974,512
|
)
|
|
$
|
70,949,232
|
|
|
$
|
(58,107,861
|
)
|
|
$
|
81,195,958
|
|
|
$
|
(443,443
|
)
|
Investments in private companies, at fair value
|
|
|
1,376,737
|
|
|
|
-
|
|
|
|
1,557,697
|
|
|
|
3,850,001
|
|
|
|
-
|
|
|
|
6,784,435
|
|
|
|
1,557,697
|
|
Investments in securities, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
(151,948
|
)
|
|
|
346,056
|
|
|
|
-
|
|
|
|
194,108
|
|
|
|
(151,947
|
)
|
|
|
$
|
72,346,889
|
|
|
$
|
358,947
|
|
|
$
|
(1,568,763
|
)
|
|
$
|
75,145,289
|
|
|
$
|
(58,107,861
|
)
|
|
$
|
88,174,501
|
|
|
$
|
962,307
|
|
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
Statement of Operations. The change in unrealized losses for Level 3 investments still held at December 31, 2013 of
$5,374,569 is included in net change in net unrealized gain (loss) on investments in the Consolidated Statement of Operations for
the six months ended December 31, 2013.
The following table provides quantitative
information regarding Level 3 fair value measurements as of December 31, 2013:
Description:
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range (Average)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured debt
|
|
$
|
58,840,082
|
|
|
Discounted cash flows (income approach)
|
|
Discount Rate
|
|
|
3.10% - 50.50% (19.55%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
5,663,273
|
|
|
Market comparable companies (market approach)
|
|
EBITDA multiple
|
|
|
2.90 – 7.50 (5.15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt or Equity subject to liquidation
|
|
|
6,551,529
|
|
|
Liquidation Value
|
|
Asset Value
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Debt
|
|
|
4,827,946
|
|
|
Precedent Transactions
|
|
Cost Basis
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
75,882,830
|
|
|
|
|
|
|
|
|
|
|
(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.
As described in the chart below, 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 a warrant’s expiration date approaches, the time value of the 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, 2013, 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),(b)
|
|
$
|
43,323
|
|
|
|
184,682
|
|
|
$
|
1,752,348
|
|
|
|
1
|
|
|
(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, 2013.
|
|
(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 $3,125,000,
which increases over time to $3,500,000. This warrant expires on December 18, 2019.
|
Note 11. Subsequent Events
Dividend
On February 5, 2014,
the Board of Directors declared monthly dividends of $0.067, $0.067 and $0.067 per share payable on May 15, 2014 for holders of
record at April 30, 2014, June 13, 2014 for holders of record at May 30, 2014 and July 15, 2014 for holders of record at June 30,
2014.
Recent Portfolio
Activity
On January 15, 2014,
the Company received gross proceeds of $7,664,074 relating to the full repayment of its senior secured credit facility and the
senior secured revolving loan with Global Energy Efficiency Holdings, Inc. Of the $7,664,074 million in gross proceeds, $7,226,737
represented repayment of expenses, interest, and principal, at par, and $437,337 represented prepayment fees and success fees.
On January 21,
2014, the Company invested $500,000 in warrants as part of a $30 million dollar senior secured convertible note purchase
agreement with Advanced Cannabis Solutions, Inc. (ACS), a non-residential property owner and provider of consulting services.
The agreement to purchase convertible notes is contingent upon ACS’ satisfaction of certain requirements. The
convertible notes, when funded, will bear interest at a fixed rate of 12.00% per annum and have a final maturity of January
21, 2020. As of February 7, 2014, ACS’ common stock’s last sale on the OTC bulletin board was $12.32 per
share.
On January 31, 2014,
the Company purchased approximately $7.5 million par amount of a $256.3 million senior secured credit facility to PEAKS Trust 2009-1,
a special purpose entity holding student loans, for approximately $6.0 million. The senior secured credit facility is guaranteed
by ITT Educational Services, Inc., and bears interest at LIBOR plus 5.50%, with a minimum LIBOR of 2.00% per annum and has a final
maturity of January 27, 2020.
Equity Offering
On January 14, 2014,
the Company completed a follow-on public offering of 1,650,000 shares of the Company’s common stock for gross proceeds of
approximately $11.8 million. The Company also granted the underwriters a 30-day option to purchase up to 242,300 additional shares.
On January 27, 2014, the underwriters exercised in full their option to purchase additional shares. The exercise of the over-allotment
resulted in the Company receiving an additional $1.7 million in gross proceeds.
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
|
)
|
March 31, 2013
|
|
|
2,843,041
|
|
|
|
0.38
|
|
|
|
1,312,164
|
|
|
|
0.18
|
|
|
|
168,654
|
|
|
|
0.02
|
|
|
|
1,480,818
|
|
|
|
0.20
|
|
June 30, 2013
|
|
|
3,330,080
|
|
|
|
0.44
|
|
|
|
1,364,522
|
|
|
|
0.18
|
|
|
|
489,114
|
|
|
|
0.06
|
|
|
|
1,853,636
|
|
|
|
0.24
|
|
September 30, 2013
|
|
|
3,218,186
|
|
|
|
0.43
|
|
|
|
1,244,227
|
|
|
|
0.16
|
|
|
|
(3,501,376
|
)
|
|
|
(0.46
|
)
|
|
|
(2,257,149
|
)
|
|
|
(0.30
|
)
|
December 31, 2013
|
|
|
3,996,903
|
|
|
|
0.53
|
|
|
|
1,899,588
|
|
|
|
0.25
|
|
|
|
(3,119,528
|
)
|
|
|
(0.41
|
)
|
|
|
(1,219,940
|
)
|
|
|
(0.16
|
)
|
|
(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, 2013.
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, 2013
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 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 may 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 and/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., TransAmerican Asset Servicing Group, Inc., FC New Specialty
Foods, Inc., and FC Takoda Holdings, 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.
Change in realized gain (loss) and
unrealized gain (loss) on investments
Net unrealized appreciation
or depreciation recorded 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. Realized
gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments
and their stated costs.
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.
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, the 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, work performed by third party
valuation agents, if applicable, 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 requirements of ASC Topic 820 at December 31, 2013 and June 30,
2013, were as follows:
As of December 31, 2013 (Unaudited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
69,681,765
|
|
|
$
|
69,681,765
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
6,157,742
|
|
|
|
6,157,742
|
|
Investments in securities, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
43,323
|
|
|
|
43,323
|
|
US Treasury Securities, at fair value
(1)
|
|
|
21,000,128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,000,128
|
|
|
|
$
|
21,000,128
|
|
|
$
|
-
|
|
|
$
|
75,882,830
|
|
|
$
|
96,882,958
|
|
As of June 30, 2013 (Audited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and Subordinated Loans, at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
81,195,958
|
|
|
$
|
81,195,958
|
|
Investments in private companies, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
6,784,435
|
|
|
|
6,784,435
|
|
Investments in other securities, at fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
194,108
|
|
|
|
194,108
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
88,174,501
|
|
|
$
|
88,174,501
|
|
|
(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, 2013 and the year ended June 30, 2013, 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 unamortized loan origination, closing and/or 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 may target. In particular, we believe that, despite an overall fall off in loan demand due
to the depressed economic conditions, demand for financing from smaller to lower middle-market companies is largely outpacing the
availability of lenders that have traditionally served this market. We believe that bank consolidations, the failure of a number
of alternative lending vehicles due to poor underwriting practices and an overall tightening of underwriting standards has significantly
reduced the number and activity level of potential lenders. We believe there has long been a combination of demand for capital
and an underserved market for capital addressing smaller and lower middle-market borrowers. We believe there is robust demand for
continued growth capital as well as demand from very significant refinancing requirements of many borrowers as debt facilities
come due, given the lack of willing and qualified capital providers. We believe these market conditions have been further exacerbated
in the current environment due to:
|
º
|
larger lenders exiting
this market to focus on larger investment opportunities which are more appropriate for their operating cost structures;
|
|
º
|
the elimination of many
specialized lenders from the market due to lack of capital as a result of, for instance, the closing off of the securitization
market or their own poor performance, and
|
|
º
|
the need for certain capital
providers to reduce lending activities due to their reduced access to capital and the overall deleveraging of the financial market.
|
With the decreased availability
of debt capital for smaller to lower middle-market borrowers, combined with the significant demand for refinancing, we believe
there are increased lending opportunities for us. As always, we remain cautious in selecting new investment opportunities, and
will only deploy capital in deals which are consistent with our disciplined philosophy of pursuing superior risk-adjusted returns.
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
|
%
|
Fiscal 2011
|
|
|
90.0
|
|
|
|
32.6
|
|
|
|
|
|
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
|
%
|
Fiscal 2012
|
|
|
55.3
|
|
|
|
38.1
|
|
|
|
|
|
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
|
%
|
January 1, 2013 through March 31, 2013
|
|
|
22.4
|
|
|
|
12.1
|
|
|
|
12.69
|
%
|
April 1, 2013 through June 30, 2013
|
|
|
12.2
|
|
|
|
12.8
|
|
|
|
12.90
|
%
|
Fiscal 2013
|
|
|
75.1
|
|
|
|
58.1
|
|
|
|
|
|
July 1, 2013 through September 30, 2013
|
|
|
20.0
|
|
|
|
10.1
|
|
|
|
12.75
|
%
|
October 1, 2013 through December 31, 2013
|
|
|
22.4
|
|
|
|
38.1
|
|
|
|
12.48
|
%
|
Since inception
|
|
$
|
262.8
|
|
|
$
|
177.0
|
|
|
|
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, 2013
The primary investment
activities for the six months ended December 31, 2013 were fundings and repayments under the revolving credit facilities and the
funding of the following loan facilities:
|
•
|
On August 1, 2013, the
Company funded $4,500,000 of a $9,000,000 senior secured credit facility to Infinite Aegis Group, LLC.
|
|
•
|
On September 4, 2013, the
Company funded $1,500,000 of a $5,000,000 senior secured credit facility to Franklin Place Shops — Red, LLC.
|
|
•
|
On September 30, 2013,
the Company funded $2,500,000 of a $3,250,000 senior secured credit facility to CPX, Inc.
|
|
•
|
On October 17, 2013, the
senior secured credit facility with CSL Operating, LLC, an industrial metal treatings company, was paid off at par value plus
accrued interest and fees of $3,655,118.
|
|
•
|
On October 17, 2013, the
senior secured credit facility with Coast Plating, Inc., an aerospace parts plating and finishing company, was paid off at par
plus accrued interest and fees of $4,740,312.
|
|
•
|
On October 21, 2013, the
senior secured credit facility with Employment Plus, Inc., a staffing services company, was paid off at par value plus accrued
interest of $5,033,333.
|
|
•
|
On October 30, 2013, the
Company purchased $5,000,000 of a $141,700,000 senior secured credit facility to Esselte Holdings, Inc./Esselte AB, a global manufacturer
and distributor of office supplies. The senior secured credit facility bears interest at LIBOR plus 8.75%, with a minimum LIBOR
of 2.00%, per annum and has a final maturity of February 29, 2016.
|
|
•
|
On October 31, 2013, MDU Communications (USA) Inc., a cable
TV/broadband services company entered into an asset purchase agreement to sell substantially all of its assets to a third
party. In conjunction with this sale, the senior secured credit facility has been partially prepaid in an amount of
$3,747,301. As part of this sales process, on October 22, 2013, the Company reduced the interest rate on the outstanding
balance of the loan to 2.00% and realized a partial loss of $492,217 as part of the transaction. Future gains and
losses related to the sales process may occur as the borrower finalizes the sales process.
|
|
•
|
On December 11, 2013, we
received gross proceeds of $6,028,880 relating to the full repayment of our senior secured credit facility to iMedX, Inc. Of the
$6,028,880 in gross proceeds, $5,050,392 million represented the repayment of expenses, interest and principal, at par, and $978,488
represented early termination fees and success fees upon repayment.
|
|
•
|
On December 26, 2013, the
senior secured loan with Franklin Place Shops-Red, LLC, a real estate investment trust, was paid off at par of $1,500,000.
|
The following is a reconciliation
of the investment portfolio for the six months ended December 31, 2013, and for the year ended June 30, 2013:
|
|
Six Months Ended
December 31, 2013
|
|
|
Year Ended
June 30, 2013
|
|
Beginning Investment Portfolio
|
|
$
|
88,174,501
|
|
|
$
|
94,846,770
|
|
Portfolio Investments Acquired
|
|
|
42,381,998
|
|
|
|
75,145,289
|
|
Purchases of Treasury Securities
(1)
|
|
|
36,000,436
|
|
|
|
62,001,462
|
|
Amortization and Accretion of Fixed Income Premiums and Discounts
|
|
|
193,403
|
|
|
|
368,279
|
|
Portfolio Investments Repaid
|
|
|
(48,246,408
|
)
|
|
|
(58,107,861
|
)
|
Sales and Maturities of Treasury Securities
(1)
|
|
|
(15,000,000
|
)
|
|
|
(84,500,000
|
)
|
Net Unrealized Appreciation (Depreciation)
|
|
|
(5,450,203
|
)
|
|
|
2,636,310
|
|
Net Realized Losses
|
|
|
(1,170,769
|
)
|
|
|
(4,215,748
|
)
|
Ending Investment Portfolio
|
|
$
|
96,882,958
|
|
|
$
|
88,174,501
|
|
|
(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, 2013, we recorded net unrealized depreciation of $5,450,203. This consisted of $4,525,093 of net unrealized
depreciation on debt investments and $925,110 of net unrealized depreciation on equity investments.
Portfolio Classifications
The following table
shows the fair value of our portfolio of investments by asset class as of December 31, 2013, and June 30, 2013, excluding United
States Treasury Bills of approximately $21.0 million and $0.0 million, respectively:
|
|
December 31, 2013 (Unaudited)
|
|
|
June 30, 2013 (Audited)
|
|
|
|
Investments at
Fair Value
(dollars in
millions)
|
|
|
Percentage
of
Total
Portfolio
|
|
|
Investments at
Fair Value
(dollars in
millions)
|
|
|
Percentage
of
Total
Portfolio
|
|
Senior Secured Loans
|
|
$
|
68.4
|
|
|
|
90.1
|
%
|
|
$
|
78.2
|
|
|
|
88.7
|
%
|
Subordinated Secured Loans
|
|
|
1.3
|
|
|
|
1.7
|
|
|
|
3.0
|
|
|
|
3.4
|
|
Limited Liability Company Interests
|
|
|
6.2
|
|
|
|
8.1
|
|
|
|
6.8
|
|
|
|
7.7
|
|
Warrants
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Total
|
|
$
|
75.9
|
|
|
|
100.0
|
%
|
|
$
|
88.2
|
|
|
|
100.0
|
%
|
At December 31, 2013,
the 18 borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 71% (i.e.,
each $71 of loan value outstanding is secured by $100 of collateral value).
At June 30, 2013, the
19 borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 60% (i.e.,
each $60 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, 2013, and June 30, 2013, excluding United
States Treasury Bills of approximately $21.0 million and $0.0 million, respectively:
|
|
December 31, 2013 (Unaudited)
|
|
|
June 30, 2013 (Audited)
|
|
|
|
Investments
at Fair
Value
(in millions)
|
|
|
Percentage of
Total
Portfolio
|
|
|
Investments at
Fair Value (in
millions)
|
|
|
Percentage
of
Total
Portfolio
|
|
Energy Efficiency Services
|
|
$
|
12.1
|
|
|
|
15.9
|
%
|
|
$
|
11.7
|
|
|
|
13.2
|
%
|
Cable TV / Broadband Services
|
|
|
11.0
|
|
|
|
14.5
|
|
|
|
15.9
|
|
|
|
18.0
|
|
Consumer Finance
|
|
|
7.6
|
|
|
|
10.0
|
|
|
|
6.9
|
|
|
|
7.8
|
|
Stationery, Tablets, and Related Products
|
|
|
4.9
|
|
|
|
6.4
|
|
|
|
-
|
|
|
|
-
|
|
Healthcare Billing and Collections
|
|
|
4.8
|
|
|
|
6.3
|
|
|
|
-
|
|
|
|
-
|
|
Munitions
|
|
|
4.8
|
|
|
|
6.2
|
|
|
|
6.2
|
|
|
|
7.0
|
|
Building Cleaning and Maintenance Services
|
|
|
4.4
|
|
|
|
5.8
|
|
|
|
3.9
|
|
|
|
4.4
|
|
Food Distributors and Wholesalers
|
|
|
3.8
|
|
|
|
5.0
|
|
|
|
4.0
|
|
|
|
4.6
|
|
Information and Data Services
|
|
|
3.7
|
|
|
|
4.9
|
|
|
|
4.2
|
|
|
|
4.8
|
|
Radio Broadcasting
|
|
|
3.7
|
|
|
|
4.9
|
|
|
|
5.6
|
|
|
|
6.4
|
|
Healthcare Services
|
|
|
3.5
|
|
|
|
4.5
|
|
|
|
3.5
|
|
|
|
3.9
|
|
Industrial Molded Products
|
|
|
2.7
|
|
|
|
3.6
|
|
|
|
-
|
|
|
|
-
|
|
Asset Recovery Services
|
|
|
2.5
|
|
|
|
3.4
|
|
|
|
1.5
|
|
|
|
1.7
|
|
Outdoor Advertising Services
|
|
|
2.2
|
|
|
|
3.0
|
|
|
|
2.3
|
|
|
|
2.6
|
|
Geophysical Surveying and Mapping Services
|
|
|
2.2
|
|
|
|
2.9
|
|
|
|
1.5
|
|
|
|
1.7
|
|
Equipment Rental Services
|
|
|
2.0
|
|
|
|
2.7
|
|
|
|
2.2
|
|
|
|
2.6
|
|
Medical Transcription Services
|
|
|
-
|
|
|
|
-
|
|
|
|
5.2
|
|
|
|
5.9
|
|
Staffing Services
|
|
|
-
|
|
|
|
-
|
|
|
|
5.0
|
|
|
|
5.7
|
|
Aerospace Parts Plating and Finishing
|
|
|
-
|
|
|
|
-
|
|
|
|
4.8
|
|
|
|
5.5
|
|
Industrial Metal Treatings
|
|
|
-
|
|
|
|
-
|
|
|
|
3.8
|
|
|
|
4.2
|
|
Total
|
|
$
|
75.9
|
|
|
|
100.0
|
%
|
|
$
|
88.2
|
|
|
|
100.0
|
%
|
Portfolio Grading
We have adopted a credit
grading system to monitor the quality of our debt investment portfolio. As of December 31, 2013, 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
$21.0 million. Equity securities are not graded. This was a change of 0.08 from the weighted average grade of 3.12 at June 30,
2013.
At December 31, 2013,
our debt investment portfolio was graded as follows:
|
|
|
December 31, 2013 (Unaudited)
|
|
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).
|
|
$
|
7,523,972
|
|
|
|
9.92
|
%
|
|
2
|
|
|
The portfolio company is performing above expectations and the risk profile is generally favorable.
|
|
|
-
|
|
|
|
-
|
|
|
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.
|
|
|
47,923,089
|
|
|
|
63.15
|
|
|
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.
|
|
|
10,512,178
|
|
|
|
13.85
|
|
|
5
|
|
|
The investment is performing well below expectations and is not anticipated to be repaid in full.
|
|
|
3,722,526
|
|
|
|
4.91
|
|
|
|
|
|
|
|
$
|
69,681,765
|
|
|
|
91.83
|
%
|
At June 30, 2013, our
debt investment portfolio was graded as follows:
|
|
|
June 30, 2013 (Audited)
|
|
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.
|
|
|
1,412,666
|
|
|
|
1.60
|
|
|
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.
|
|
|
68,397,783
|
|
|
|
77.58
|
|
|
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.
|
|
|
11,385,509
|
|
|
|
12.91
|
|
|
5
|
|
|
The investment is performing well below expectations and is not anticipated to be repaid in full.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
$
|
81,195,958
|
|
|
|
92.09
|
%
|
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, 2013 and 2012
Total Investment Income
Total investment income
includes interest and dividend income on our investments as well as other income, which is comprised entirely of fee income for
the three months ended December 31, 2013. Fee income typically consists of administrative fees, prepayment fees, structuring fees
and unused line fees.
Total investment income
for the three months ended December 31, 2013, was $3,996,903. This amount consisted of $2,790,675, of interest income from portfolio
investments (which included no PIK interest), $0 of dividend income and $1,206,228 of fee income.
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.
The increase in interest
income for the three months ended December 31, 2013 relative to the same time period in 2012 is primarily due to a larger average
investment portfolio. The dividend income for the three months ended December 31, 2013 decreased compared with the dividend income
for the three months ended December 31, 2012, reflecting the variability in distributions related to the Company’s equity
investment in The Finance Company, LLC. The increase in fee income, which can fluctuate, for the three months ended December 31,
2013, as compared to the three months ended December 31, 2012 was primarily a result of additional success and prepayment fees
received as a result of the payoffs of iMedx, Inc., CSL Operating, LLC and Coast Plating, Inc.
Expenses
Operating expenses for
the three months ended December 31, 2013, were $2,097,315.
Operating expenses for
the three months ended December 31, 2012, were $1,633,949.
The increase in our
net operating expenses for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012 is
primarily due to the increase in interest expense from greater borrowings under our Credit Facility and Notes (as defined below),
to fund portfolio growth, an increase in management fees due to a larger investment portfolio, and incentive fees due to greater
pre-incentive fee net investment income.
Net Investment Income (Loss)
Net investment income
for the three months ended December 31, 2013, was $1,899,588. Net investment income per share was $0.25 for the period.
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.
The increase
in net investment income for the three months ended December 31, 2013 as compared to the three months ended December 31,
2012 was primarily a result of additional success and prepayment fees received as a result of the payoffs of iMedx, Inc., CSL
Operating, LLC and Coast Plating, Inc. The increase in total investment income was partially offset by interest expense from
greater outstanding borrowings and greater management and incentive fees resulting from a larger portfolio and greater
pre-incentive fee 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, 2013, we recorded a realized loss of $492,216 primarily in connection with the partial disposition of our
investment in MDU Communications Inc. Realized loss per share for the three months ended December 31, 2013 was $0.07.
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. Realized loss per share was $0.49 for the period.
Change in Unrealized Gain (Loss) on
Investments
Net unrealized appreciation
or depreciation recorded 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. See “— Critical
Accounting Policies — Change in Unrealized Gain (Loss) on Investments.”
Change in unrealized
loss on investments was $2,627,312, or $0.34 per share, for the three months ended December 31, 2013. The change in unrealized
depreciation is primarily due to the depreciation of our senior secured term loans to ProGrade Ammo Group, LLC and Modular Process
Control, LLC of $1,267,845 and $460,781, respectively. $397,351 of the change in unrealized loss was related to the reversal of
previously unrealized gains related to iMedx, Inc., CSL Operating LLC, Coast Plating, Inc., and Employment Plus, Inc. Such amount
was recognized as fee income during the three months ended December 31, 2013 and is reflected as Other Income in the Statement
of Operations. This was partially offset by the $257,511 appreciation of our senior secured loans to Global Energy Efficiency Holdings,
Inc. The overall change in unrealized loss consisted of $2,317,710 of net unrealized depreciation on debt investments and $309,602
of net unrealized depreciation on equity investments.
Change in unrealized
gain on investments was $1,292,589, or $0.20 per share 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 Networks, Inc. and the realization of the prior unrealized loss of $953,715. The overall change in unrealized
gain consisted of $695,913 of net unrealized appreciation on debt investments and $596,731 of net unrealized appreciation on equity
investments.
Comparison of the six months ended
December 31, 2013 and 2012
Total Investment Income
Total investment income
includes interest and dividend income on our investments as well as other income, which is comprised entirely of fee income for
the six months ended December 31, 2013. Fee income typically consists of administrative fees, prepayment fees, structuring fees
and unused line fees.
Total investment income
for the six months ended December 31, 2013, was $7,215,089. This amount consisted of $5,783,435 of interest income from portfolio
investments (which included no PIK interest), $34,411 of dividend income and $1,397,243 of fee income. Dividend income was solely
earned from our equity investment in The Finance Company, LLC.
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.
The increase in interest
income for the six months ended December 31, 2013 relative to the same time period in 2012 is primarily due to a larger average
investment portfolio. The dividend income for the six months ended December 31, 2013 decreased as compared with the dividend income
for the six months ended December 31, 2012, reflecting lower distributions related to the Company’s investment in The Finance
Company, LLC. The increase in fee income, which can fluctuate, for the six months ended December 31, 2013 as compared to the six
months ended December 31, 2012 was primarily a result of additional success and prepayment fees received as a result of the payoffs
of iMedx, Inc., CSL Operating, LLC and Coast Plating, Inc.
Expenses
Operating expenses for
the six months ended December 31, 2013, were $4,071,274.
Operating expenses for
the six months ended December 31, 2012, were $3,169,007.
The increase in our
net operating expenses for the six months ended December 31, 2013 as compared to the six months ended December 31, 2012 is primarily
due to the increase in interest expense from greater borrowings under our Credit Facility and Notes (as defined below), to fund
portfolio growth, an increase in management fees due to a larger average investment portfolio, and an increase in incentive fees
due to greater pre-incentive fee net investment income.
Net Investment Income (Loss)
Net investment income
for the six months ended December 31, 2013, was $3,143,815. Net investment income per share was $0.42 for the period.
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.
The increase in net
investment income for the six months ended December 31, 2013 as compared to the six months ended December 31, 2012 was primarily
due to a larger average investment portfolio and additional success and prepayment fees received as a result of the payoff of iMedx,
Inc. The increase in interest income was partially offset by interest expense from greater outstanding borrowings and greater management
and incentive fees resulting from a larger portfolio and greater pre-incentive fee 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, 2013, we recorded a realized loss of $1,170,701 primarily in connection with the continued disposition of our
investment in Ygnition Networks, Inc. of $678,553 and a realized loss in MDU Communications (USA), Inc. of $492,217. Realized loss
per share for the six months ended December 31, 2013 was $0.15.
During the six months
ended December 31, 2012, we recorded a realized loss of $4,047,108, primarily from the disposition of our senior secured loan in
Ygnition Networks, Inc. Realized loss per share was $0.62 for the period.
Change in Unrealized Gain (Loss) on
Investments
Net unrealized appreciation
or depreciation recorded 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. See “— Critical
Accounting Policies — Change in Unrealized Gain (Loss) on Investments.”
Change in unrealized
loss on investments was $5,450,203, or $0.73 per share, for the six months ended December 31, 2013. The change in unrealized depreciation
is primarily due to the depreciation of our senior secured term loans to ProGrade Ammo Group, LLC and Modular Process Control, LLC
and our second lien loan to Blackstrap Broadcasting, LLC for $1,614,816, $1,225,579, and $1,758,050, respectively. This was partially
offset by the $789,083 appreciation of our senior secured loan to TransAmerican Asset Servicing Group, LLC. The overall change
in unrealized loss consisted of $4,525,093 of net unrealized depreciation on debt investments and $925,110 of net unrealized depreciation
on equity investments.
Change in unrealized
gain on investments was $1,809,902, or $0.28 per share for the six months ended December 31, 2012. The change in unrealized depreciation
was primarily due to $829,491 of net unrealized appreciation on debt investments, primarily in connection with the disposition
of our investment in Ygnition Networks, Inc., 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.
Liquidity and Capital Resources
At December 31, 2013,
we had investments in debt securities of 18 companies, totaling approximately $69.7 million in fair value, and equity investments
in 11 companies, totaling approximately $6.2 million in fair value.
For the six months ended
December 31, 2013, cash provided by operating activities, consisting primarily of purchases, sales and repayments of investments
and the items described in “Results of Operations,” was approximately $6.9 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 $5.8 million, reflecting net
additional investments in securities of $42.4 million, offset by principal repayments of $48.2 million. Such amounts are not inclusive
of our purchases or sales of United States Treasury Bills.
As of December 31, 2013,
we had $6.4 million outstanding under our senior secured credit facility (the “Credit Facility”) with Santander Bank,
N.A. f/k/a Sovereign Bank, N.A. (“Santander Bank”), as administrative agent, and $21.1 million outstanding of aggregate
principal amount of 8.25% Notes due June 30, 2020 (the “Notes”). On November 6, 2013, the Company increased the size
of the Credit Facility from $32.5 million to $45.0 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 expanding or 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 most recent Special 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 or, if earlier, the date of our next Annual Meeting of Shareholders. 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)(2)
|
|
$
|
6.4
|
|
|
$
|
—
|
|
|
$
|
6.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Notes
|
|
|
21.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21.1
|
|
Total
|
|
$
|
27.5
|
|
|
$
|
—
|
|
|
$
|
6.4
|
|
|
$
|
—
|
|
|
$
|
21.1
|
|
|
(1)
|
At December 31, 2013, $38.6
million 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 $1,581,383 for investment advisory services and $349,578 for administrative services
for the six months ended December 31, 2013.
As of December 31, 2013,
we had approximately $2.6 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.
On June 3, 2013, we entered into a credit agreement with Santander Bank, as administrative
agent, which provided us with our $32.5 million Credit Facility, subject to borrowing base requirements. The Credit Facility replaced
our prior senior secured revolving credit facility with FCC, LLC d/b/a First Capital.
The Credit Facility
matures on June 3, 2016 and bears interest based on a tiered rate structure, depending upon utilization, ranging from LIBOR (1-month,
2-month or 3-month, depending on our option) plus 3.25% to 4.00% per annum, or from Santander Bank’s prime rate plus 1.25%
to 2.00% per annum, based on our election. In addition, a fee of 0.50% per annum is charged on unused amounts under the Credit
Facility. The Credit Facility is secured by all of our assets. Under the Credit Facility, we have made certain customary representations
and warranties, and are required to comply with various covenants, reporting requirements and other customary requirements, including
a minimum balance sheet leverage ratio, for similar credit facilities. The Credit Facility includes usual and customary events
of default for credit facilities of this nature. On November 6, 2013, the Company increased the size of its Credit Facility with
Santander Bank from $32.5 million to $45.0 million.
Notes Payable
. On
June 28, 2013, we issued approximately $21.1 million in aggregate principal amount of our 8.25% Notes due June 30, 2020 for net
proceeds of approximately $20.0 million after deducting underwriting commissions of approximately $0.9 million and offering expenses
of approximately $0.2 million.
The Notes were issued
pursuant to an indenture, dated June 3, 2013, as supplemented by the first supplemental indenture, dated June 28, 2013 (collectively,
the “Indenture”), between us and U.S. Bank National Association (the “Trustee”). The Notes are our unsecured
obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right
of payment to the Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated;
effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later
secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future
indebtedness (including trade payables) incurred by our subsidiaries or financing vehicles. Interest on the Notes is paid quarterly
in arrears on March 30, June 30, September 30 and December 30, at a rate of 8.25% per annum. The Notes mature on June 30, 2020
and may be redeemed in whole or in part at any time or from time to time at our option on or after June 30, 2016. The Notes are
listed on the Nasdaq Global Market under the trading symbol “FULLL” with a par value of $25.00 per share.
The Indenture contains
certain covenants, including covenants requiring our compliance with (regardless of whether we are subject to) the asset coverage
requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us
to provide financial information to the holders of the Notes and the Trustee if we cease to be subject to the reporting requirements
of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the Indenture.
We may repurchase the Notes in accordance with the 1940 Act and the rules promulgated thereunder. Any Notes repurchased by us may,
at our option, be surrendered to the Trustee for cancellation, but may not be reissued or resold by us. Any Notes surrendered for
cancellation will be promptly cancelled and no longer outstanding under the Indenture. As of December 31, 2013, we had not repurchased
any of the Notes in the open market.
Distribution Notes.
On
July 3, 2013, we repaid the $3.4 million of Distribution Notes issued in connection with our initial public offering at par plus
accrued interest. As a result, the Distribution Notes are no longer outstanding.
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. To the extent our earnings fall below the total amount of our distributions for a taxable year, a portion of
those distributions may be deemed a tax return of capital to our stockholders. In this regard, $1,089,055 of our distributions
during the year ended June 30, 2013 constituted a return of capital to our stockholders. For tax purposes, the Company expects
that dividends for the fiscal year ended June 30, 2014 will be funded primarily from net investment income. However, for the six
months ended December 31, 2013, for financial reporting purposes, the Company had net investment income of approximately $0.42
per share, compared to distributions to stockholders of $0.462 per share during the period. Management monitors available taxable
earnings, including net investment income and realized capital gains, to determine if a tax return of capital may occur for the
year. The tax character of distributions will be determined at the end of the taxable year. However, if the character of our distributions
for the fiscal year ended June 30, 2014 were determined as of December 31, 2013, a portion of the distributions for 2014 would
have been characterized as a tax return of capital to the Company’s stockholders; this tax return of capital may differ from
the return of capital calculated with reference to net investment income for financial reporting purposes. Stockholders should
read any written disclosure accompanying a dividend payment carefully and should not assume that the source of any distribution
is our taxable ordinary income or capital gains. The specific tax characteristics of our distributions will be reported to stockholders
after the end of the taxable year.
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)
|
|
|
|
|
|
$
|
0.924
|
|
Fiscal 2014:
|
|
|
|
|
|
|
|
|
May 3, 2013
|
|
July 31, 2013
|
|
August 15, 2013
|
|
$
|
0.077
|
|
May 3, 2013
|
|
August 30, 2013
|
|
September 13, 2013
|
|
|
0.077
|
|
May 3, 2013
|
|
September 30, 2013
|
|
October 15, 2013
|
|
|
0.077
|
|
September 9, 2013
|
|
October 31, 2013
|
|
November 15, 2013
|
|
|
0.077
|
|
September 9, 2013
|
|
November 29, 2013
|
|
December 13, 2013
|
|
|
0.077
|
|
September 9, 2013
|
|
December 31, 2013
|
|
January 15, 2014
|
|
|
0.077
|
|
November 7, 2013
|
|
January 31, 2014
|
|
February 15, 2014
|
|
|
0.067
|
|
November 7, 2013
|
|
February 28, 2014
|
|
March 15, 2014
|
|
|
0.067
|
|
November 7, 2013
|
|
March 31, 2014
|
|
April 15, 2014
|
|
|
0.067
|
|
February 5, 2014
|
|
April 30, 2014
|
|
May 15, 2014
|
|
|
0.067
|
|
February 5, 2014
|
|
May 30, 2014
|
|
June 13, 2014
|
|
|
0.067
|
|
February 5, 2014
|
|
June 30, 2014
|
|
July 15, 2014
|
|
|
0.067
|
|
Total (2014 to date)
|
|
|
|
|
|
$
|
0.864
|
|
|
(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 2012, we paid quarterly dividends, but in the first fiscal quarter of 2013 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 Co-Chief Executive Officer and Chairman, and Gregg
J. Felton, our Co-Chief Executive Officer and President, are both managing members of, and have 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 Co-Chief Executive Officer and Chairman, and Mr. Felton, our Co-Chief Executive Officer and President, are managing
members of, and have 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 former 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, 2013, Vastardis earned $100,000 for services provided under the Administration Agreement. On September 30, 2013, Michael J.
Sell succeeded Mr. Vastardis as our Chief Financial Officer, Treasurer, and Secretary.
|
Certain members of Full
Circle Advisors’ investment committee presently manage 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.
We have also adopted
a Code of Ethics which applies to, among others, our senior officers, including our Co-Chief Executive Officers 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, 2014,
the Board of Directors declared monthly dividends of $0.067, $0.067 and $0.067 per share payable on May 15, 2014 for holders of
record at April 30, 2014, June 13, 2014 for holders of record at May 30, 2014 and July 15, 2014 for holders of record at June 30,
2014.
Recent Portfolio
Activity
On January 15, 2014,
the senior secured credit facility and the senior secured revolving loan with Global Energy Efficiency Holdings, Inc., an energy
efficiency services company, was paid off at par value plus accrued interest and fees of $7,664,074.
On January 21,
2014, the Company invested $500,000 in warrants as part of a $30 million dollar senior secured convertible note purchase
agreement with Advanced Cannabis Solutions, Inc. (ACS), non-residential property owner and provider of consulting services.
The agreement to purchase convertible notes is contingent upon ACS’ satisfaction of certain requirements. The
convertible notes, when funded, will bear interest at a fixed rate of 12.00% per annum and have a final maturity of January
21, 2020. As of February 7, 2014, ACS’ common stock’s last sale on the OTC bulletin board was $12.32 per
share.
On January 31, 2014,
the Company purchased $7.5 million par amount of a $256.3 million senior secured credit facility to PEAKS Trust 2009-1, a special
purpose entity holding student loans, for $6.0 million. The senior secured credit facility is guaranteed by ITT Educational Services,
Inc., and bears interest at LIBOR plus 5.50%, with a minimum LIBOR of 2.00% per annum and has a final maturity of January 27, 2020.
Equity Offering
On January 14, 2014,
the Company completed a follow-on public offering of 1,650,000 shares of the Company’s common stock for gross proceeds of
approximately $11.8 million. The Company also granted the underwriters a 30-day option to purchase up to 242,300 additional shares.
On January 27, 2014, the underwriters exercised in full their option to purchase additional shares. The exercise of the over-allotment
resulted in the Company receiving an additional $1.7 million in gross proceeds.