NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
NOTE
1—NATURE OF OPERATIONS
SuRo
Capital Corp. (“we”, “us”, “our”, “Company” or “SuRo Capital”), formerly
known as Sutter Rock Capital Corp. and as GSV Capital Corp. and formed in September 2010 as a Maryland corporation, is an internally-managed,
non-diversified closed-end management investment company. The Company has elected to be regulated as a business development company (“BDC”)
under the Investment Company Act of 1940, as amended (the “1940 Act”), and has elected to be treated, and intends to qualify
annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the
“Code”).
On
and effective March 12, 2019, our Board of Directors approved internalizing our operating structure (“Internalization”) and
we began operating as an internally-managed, non-diversified closed-end management investment company that has elected to be regulated
as a BDC under the 1940 Act. Prior to March 12, 2019, we were externally managed by our former investment adviser, GSV Asset Management,
LLC (“GSV Asset Management”), pursuant to an investment advisory agreement (the “Investment Advisory Agreement”),
and our former administrator, GSV Capital Service Company, LLC (“GSV Capital Service Company”), provided the administrative
services necessary for our operations pursuant to an administration agreement (the “Administration Agreement”).
The
Company’s date of inception was January 6, 2011, which is the date we commenced development stage activities. The Company’s
common stock is currently listed on the Nasdaq Global Select Market under the symbol “SSSS” (formerly “GSVC”).
Prior to November 24, 2021, our common stock traded on the Nasdaq Capital Market under the same symbol (“SSSS”). The Company
began its investment operations during the second quarter of 2011.
The
table below displays the Company’s subsidiaries as of September 30, 2022, which, other than GSV Capital Lending, LLC (“GCL”)
and SuRo Capital Sports, LLC, are collectively referred to as the “Taxable Subsidiaries.” The Taxable Subsidiaries were formed
to hold certain portfolio investments. The Taxable Subsidiaries, including their associated portfolio investments, are consolidated with
the Company for accounting purposes, but have elected to be treated as separate entities for U.S. federal income tax purposes. GCL was
formed to originate portfolio loan investments within the state of California and is consolidated with the Company for accounting purposes.
Refer to “Note 2—Significant Accounting Policies—Basis of Consolidation” below for further detail.
SCHEDULE
OF COMPANY’S SUBSIDIARIES
Subsidiary | |
Jurisdiction
of Incorporation |
|
Formation Date | |
Percentage Owned | |
GCL | |
Delaware |
|
| April
13, 2012 | |
| 100 | % |
SuRo
Capital Sports, LLC (“SuRo Sports”) | |
Delaware |
|
| March
19, 2021 | |
| 100 | % |
Subsidiaries
below are referred to collectively, as the “Taxable Subsidiaries” | |
|
|
| | |
| | |
GSVC
AE Holdings, Inc. (“GAE”) | |
Delaware |
|
| November
28, 2012 | |
| 100 | % |
GSVC
AV Holdings, Inc. (“GAV”) | |
Delaware |
|
| November
28, 2012 | |
| 100 | % |
GSVC
SW Holdings, Inc. (“GSW”) | |
Delaware |
|
| November
28, 2012 | |
| 100 | % |
GSVC
SVDS Holdings, Inc. (“SVDS”) | |
Delaware |
|
| August
13, 2013 | |
| 100 | % |
The
Company’s investment objective is to maximize its portfolio’s total return, principally by seeking capital gains on its equity
and equity-related investments, and to a lesser extent, income from debt investments. The Company invests principally in the equity securities
of what it believes to be rapidly growing venture-capital-backed emerging companies. The Company may invest in these portfolio companies
through offerings of the prospective portfolio companies, transactions on secondary marketplaces for private companies, or negotiations
with selling stockholders. In addition, the Company may invest in private credit and in founders equity, founders warrants, forward purchase
agreements, and private investment in public equity transactions of special purpose acquisition companies. The Company may also invest
on an opportunistic basis in select publicly traded equity securities or certain non-U.S. companies that otherwise meet its investment
criteria, subject to any applicable limitations under the 1940 Act.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
NOTE
2—SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
interim unaudited condensed consolidated financial statements of the Company are prepared on the accrual basis of accounting in conformity
with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and
Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is an investment company
following the specialized accounting and reporting guidance specified in the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies. In the opinion
of management, all adjustments, all of which were of a normal recurring nature, were considered necessary for the fair presentation of
consolidated financial statements for the period have been included.
The
results of operations for the current interim period are not necessarily indicative of results that ultimately may be achieved for any
other interim period or for the fiscal year ending December 31, 2022. The interim unaudited condensed consolidated financial statements
and notes hereto should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the
Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021.
Basis
of Consolidation
Under
Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ (“AICPA”) Audit and Accounting
Guide for Investment Companies, the Company is precluded from consolidating any entity other than another investment company, a controlled
operating company that provides substantially all of its services and benefits to the Company, and certain entities established for tax
purposes where the Company holds a 100% interest. Accordingly, the Company’s condensed consolidated financial statements include
its accounts and the accounts of the Taxable Subsidiaries, GCL, and SuRo Sports, its wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of condensed consolidated financial statements in accordance with GAAP requires the Company’s management to make a
number of significant estimates. These include estimates of the fair value of certain assets and liabilities and other estimates that
affect the reported amounts of certain assets and liabilities as of the date of the condensed consolidated financial statements and the
reported amounts of certain revenues and expenses during the reporting period. It is likely that changes in these estimates may occur
in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ materially from such
estimates.
Uncertainties
and Risk Factors
The
Company is subject to a number of risks and uncertainties in the nature of its operations, as well as vulnerability due to certain concentrations.
Refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q for a detailed discussion of the risks and uncertainties inherent
in the nature of the Company’s operations. Refer to “Note 4—Investments at Fair Value” for an overview of the
Company’s industry and geographic concentrations.
Investments
at Fair Value
The
Company applies fair value accounting in accordance with GAAP and the AICPA’s Audit and Accounting Guide for Investment Companies.
The Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. 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 for identical assets or liabilities in an active market that the Company has
the ability to access at the measurement date.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Level
2—Valuations based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at
the measurement date for substantially the full term of the assets or liabilities.
Level
3—Valuations based on unobservable inputs that reflect management’s best estimate of what market participants would use
in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and
the risk inherent in the inputs to the model. The majority of the Company’s investments are Level 3 investments and are subject
to a high degree of judgment and uncertainty in determining fair value.
When
the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement
is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level
3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses
for such assets and liabilities categorized within the Level 3 table set forth in “Note 4—Investments at Fair Value”
may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
A
review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may
result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy
are reported as transfers in/out of the Level 3 category as of the beginning of the measurement period in which the reclassifications
occur. Refer to “Levelling Policy” below for a detailed discussion of the levelling of the Company’s financial assets
or liabilities and events that may cause a reclassification within the fair value hierarchy.
Securities
for which market quotations are readily available on an exchange are valued at the most recently available closing price of such security
as of the valuation date, unless there are legal or contractual restrictions on the sale or use of such security that under ASC 820-10-35
should be incorporated into the security’s fair value measurement as a characteristic of the security that would transfer to market
participants who would buy the security. The Company may also obtain quotes with respect to certain of its investments from pricing services,
brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according
to GAAP to determine the fair value of the security. If determined to be adequate, the Company uses the quote obtained.
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 management, our Board of Directors or the valuation committee of the
Company’s Board of Directors (the “Valuation Committee”), does not reliably represent fair value, shall each be valued
as follows:
|
1. |
The
quarterly valuation process begins with each portfolio company or investment being initially valued by the internal investment professionals
responsible for the portfolio investment; |
|
|
|
|
2. |
Preliminary
valuation conclusions are then documented and discussed with senior management; |
|
|
|
|
3. |
For
all investments for which there are no readily available market quotations, the Valuation Committee engages an independent third-party
valuation firm to conduct independent appraisals, review management’s preliminary valuations and make its own independent assessment; |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
|
4. |
The
Valuation Committee applies the appropriate valuation methodology to each portfolio asset in a consistent manner, considers the
inputs provided by management and the independent third-party valuation firm, discusses the valuations and recommends to the
Company’s Board of Directors a fair value for each investment in the portfolio; and |
|
|
|
|
5. |
The
Company’s Board of Directors then discusses the valuations recommended by the Valuation Committee and determines in good faith
the fair value of each investment in the portfolio. |
In
valuing the Company’s investments in venture investment funds (“Venture Investment Funds”), the Company applies the
practical expedient provided by the ASC Topic 820 relating to investments in certain entities that calculate net asset value (“NAV”)
per share (or its equivalent). ASC Topic 820 permits an entity holding investments in certain entities that either are investment companies,
or have attributes similar to an investment company, and calculate NAV per share or its equivalent for which the fair value is not readily
determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment.
In
making a good faith determination of the fair value of investments, the Board applies valuation methodologies consistent with industry
practice. Valuation methods utilized include, but are not limited to, the following: comparisons to prices from secondary market transactions;
venture capital financings; public offerings; purchase or sales transactions; analysis of financial ratios and valuation metrics of portfolio
companies that issued such private equity securities to peer companies that are public; analysis of the portfolio company’s most
recent financial statements, forecasts and the markets in which the portfolio company does business, and other relevant factors. The
Company assigns a weighting based upon the relevance of each method to assist the Board in determining the fair value of each investment.
For
investments that are not publicly traded or that do not have readily available market quotations, the Valuation Committee generally engages
an independent valuation firm to provide an independent valuation, which the Company’s Board of Directors considers, among other
factors, in making its fair value determinations for these investments. For the current and prior fiscal year, the Valuation Committee
engaged an independent valuation firm to perform valuations of 100% of the Company’s investments for which there were no readily
available market quotations.
Due
to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair
value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these
estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed,
and it is reasonably possible that the difference could be material.
In
addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains
or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the consolidated
financial statements.
Equity
Investments
Equity
investments for which market quotations are readily available in an active market are generally valued at the most recently available
closing market prices and are classified as Level 1 assets. Equity investments with readily available market quotations that are subject
to sales restrictions due to an initial public offering (“IPO”) by the portfolio company will be classified as Level 1. Any
other equity investments with readily available market quotations that are subject to sales restrictions that would transfer to market
participants who would buy the security may be valued at a discount for a lack of marketability (“DLOM”), to the most recently
available closing market prices depending upon the nature of the sales restriction. These investments are generally classified as Level
2 assets. The DLOM used is generally based upon the market value of publicly traded put options with similar terms.
The
fair values of the Company’s equity investments for which market quotations are not readily available are determined based on various
factors and are classified as Level 3 assets. To determine the fair value of a portfolio company for which market quotations are not
readily available, the Board applies the appropriate respective valuation methodology for the asset class or portfolio holding, which may involve analyzing the relevant portfolio company’s most recently available historical and projected financial
results, public market comparables, and other factors. The Board may also consider other events, including the transaction in which
the Company acquired its securities, subsequent equity sales by the portfolio company, and mergers or acquisitions affecting the portfolio
company. In addition, the Board may consider the trends of the portfolio company’s basic financial metrics from the time of its
original investment until the measurement date, with material improvement of these metrics indicating a possible increase in fair value,
while material deterioration of these metrics may indicate a possible reduction in fair value.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
In
determining the fair value of equity or equity-linked securities (including warrants to purchase common or preferred stock) in a
portfolio company, the Board considers the rights, preferences and limitations of such securities. In cases where a portfolio
company’s capital structure includes multiple classes of preferred and common stock and equity-linked securities with
different rights and preferences, the Company may use an option pricing model to allocate value to each equity-linked security,
unless it believes a liquidity event such as an acquisition or a dissolution is imminent, or the portfolio company is unlikely to
continue as a going concern. When equity-linked securities expire worthless, any cost associated with these positions is recognized
as a realized loss on investments in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of
Cash Flows. In the event these securities are exercised into common or preferred stock, the cost associated with these securities is
reassigned to the cost basis of the new common or preferred stock. These conversions are noted as non-cash operating items on the
Condensed Consolidated Statements of Cash Flows.
Debt
Investments
Given
the nature of the Company’s current debt investments (excluding U.S. Treasuries), principally convertible and promissory notes
issued by venture-capital-backed portfolio companies, these investments are classified as Level 3 assets because there is no known or
accessible market or market indexes for these investment securities to be traded or exchanged. The Company’s debt investments are
valued at estimated fair value as determined in good faith by the Company’s Board of Directors.
Options
The
Company’s Board of Directors determines the fair value of options based on methodologies that can include discounted cash flow analyses,
option pricing models, comparable analyses and other techniques as deemed appropriate. These investments are classified as Level 3 assets
because there is no known or accessible market or market indexes for these investment securities to be traded or exchanged. The Company’s
options are valued at estimated fair value as determined by the Company’s Board of Directors.
Special
Purpose Acquisition Companies
The
Company’s Board of Directors measures its Special Purpose Acquisition Company (“SPAC”) investments at fair value, which
is equivalent to cost until a SPAC transaction is announced. After a SPAC transaction is announced, the Company’s Board of Directors
will determine the fair value of SPAC investments based on fair value analyses that can include option pricing models, probability-weighted expected
return method analyses and other techniques as deemed appropriate. Upon completion of the SPAC transaction, the Board utilizes the
public share price of the entity, less a DLOM if there are restrictions on selling. The Company’s SPAC investments are valued at
estimated fair value as determined in good faith by the Company’s Board of Directors.
Portfolio
Company Investment Classification
The
Company is a non-diversified company within the meaning of the 1940 Act. The Company classifies its investments by level of control.
As defined in the 1940 Act, control investments are those where the investor retains the 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 directly or indirectly owns
beneficially more than 25% 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 when a company or individual directly or indirectly owns, controls or holds the
power to vote 5% or more of the outstanding voting securities of a portfolio company. Refer to the Consolidated Schedules of Investments
as of September 30, 2022 and December 31, 2021, for details regarding the nature and composition of the Company’s investment portfolio.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Levelling
Policy
The
portfolio companies in which the Company invests may offer their shares in IPOs. The Company’s shares in such portfolio companies
are typically subject to lock-up agreements for 180 days following the IPO. Upon the IPO date, the Company transfers its investment from
Level 3 to Level 1 due to the presence of an active market, or Level 2 if limited by the lock-up agreement. The Company prices the investment
at the closing price on a public exchange as of the measurement date. In situations where there are lock-up restrictions, as well as
legal or contractual restrictions on the sale or use of such security that under ASC 820-10-35 should be incorporated into the security’s
fair value measurement as a characteristic of the security that would transfer to market participants who would buy the security, the
Company will classify the investment as Level 2 subject to an appropriate DLOM to reflect the restrictions upon sale. The Company transfers
investments between levels based on the fair value at the beginning of the measurement period in accordance with FASB ASC 820. For investments
transferred out of Level 3 due to an IPO, the Company transfers these investments based on their fair value at the IPO date.
Securities
Transactions
Securities
transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into by the Company
(i.e., trade date). Securities transactions outside conventional channels, such as private transactions, are recorded as of the
date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale and incurs an obligation
to pay for securities purchased or to deliver securities sold, respectively.
Valuation
of Other Financial Instruments
The
carrying amounts of the Company’s other, non-investment financial instruments, consisting of cash, receivables, accounts payable,
and accrued expenses, approximate fair value due to their short-term nature.
Cash
The
Company places its cash primarily with U.S. Bank, N.A., and may place cash with Bridge Bank (a subsidiary of Western Alliance Bank) and
Silicon Valley Bank in amounts that will not exceed, in the aggregate, the total value of the Company’s fidelity bond. The cash
held in these accounts may exceed the Federal Deposit Insurance Corporation insured limit. The Company believes that U.S. Bank, N.A.,
Bridge Bank (a subsidiary of Western Alliance Bank), and Silicon Valley Bank are high-quality financial institutions and that the risk
of loss associated with any uninsured balance is remote.
Escrow
Proceeds Receivable
A
portion of the proceeds from the sale of portfolio investments are held in escrow as a recourse for indemnity claims that may arise under
the sale agreement or other related transaction contingencies. Amounts held in escrow are held at estimated realizable value and included
in net realized gains (losses) on investments in the Condensed Consolidated Statements of Operations for the period in which they occurred
and are adjusted as needed. Any remaining escrow proceeds balances from these transactions reasonably expected to be received are reflected
on the Condensed Consolidated Statement of Assets and Liabilities as escrow proceeds receivable. Escrow proceeds receivable resulting
from contingent consideration are to be recognized when the amount of the contingent consideration becomes realized or realizable. As
of September 30, 2022 and December 31, 2021, the Company had $653,791 and $2,046,645, respectively, in escrow proceeds receivable.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Deferred
Financing Costs
The
Company records origination costs related to lines of credit as deferred financing costs. These costs are deferred and amortized as part
of interest expense using the straight-line method over the respective life of the line of credit. For modifications to a line of credit,
any unamortized origination costs are expensed. Included within deferred financing costs are offering costs incurred relating to the
Company’s shelf registration statement on Form N-2. The Company defers these offering costs until capital is raised pursuant to
the shelf registration statement or until the shelf registration statement expires. For equity capital raised, the offering costs reduce
paid-in capital resulting from the offering. For debt capital raised, the associated offering costs are amortized over the life of the
debt instrument. As of September 30, 2022 and December 31, 2021, the Company had deferred financing costs of $572,771 and $2,592,611,
respectively, on the Condensed Consolidated Statement of Assets and Liabilities.
SCHEDULE OF DEFERRED FINANCING COSTS
| |
September
30, 2022 | | |
December
31, 2021 | |
Deferred
debt issuance costs | |
$ | — | | |
$ | 1,970,892 | |
Deferred
offering costs | |
| 572,771 | | |
| 621,719 | |
Deferred
Financing Costs | |
$ | 572,771 | | |
$ | 2,592,611 | |
Operating
Leases & Related Deposits
The
Company accounts for its operating leases as prescribed by ASC 842, Leases, which requires lessees to recognize a right-of-use
asset on the balance sheet, representing its right to use the underlying asset for the lease term, and a corresponding lease liability
for all leases with terms greater than 12 months. The lease expense is presented as a single lease cost that is amortized on a straight-line
basis over the life of the lease. Non-lease components (maintenance, property tax, insurance and parking) are not included in the lease
cost. On June 3, 2019, the Company entered a 5-year operating lease for office space for which the Company has recorded a right-of-use
asset and a corresponding lease liability for the operating lease obligation. These amounts have been discounted using the rate implicit
in the lease. Refer to “Note 7—Commitments and Contingencies—Operating Leases and Related Deposits” for
further detail.
Stock-based
Compensation
Using
the fair value recognition provisions as prescribed by ASC 718, Stock Compensation, stock-based compensation cost is measured
at the grant date based on the fair value of the award and is recognized as expense over the appropriate service period. Determining
the fair value of stock-based awards requires considerable judgment, including estimating the expected term of stock options and the
expected volatility of our stock price. Differences between actual results and these estimates could have a material effect on our financial
results. Forfeitures are accounted for as they occur. Refer to “Note 11—Stock-Based Compensation” for further detail.
Revenue
Recognition
The
Company recognizes gains or losses on the sale of investments using the specific identification method. The Company recognizes interest
income, adjusted for amortization of premium and accretion of discount, on an accrual basis. The Company recognizes dividend income on
the ex-dividend date.
Investment
Transaction Costs and Escrow Deposits
Commissions
and other costs associated with an investment transaction, including legal expenses not reimbursed by the portfolio company, are included
in the cost basis of purchases and deducted from the proceeds of sales. The Company makes certain acquisitions on secondary markets,
which may involve making deposits to escrow accounts until certain conditions are met, including the underlying private company’s
right of first refusal. If the underlying private company does not exercise or assign its right of first refusal and all other conditions
are met, then the funds in the escrow account are delivered to the seller and the account is closed. Such transactions would be reflected
on the Condensed Consolidated Statement of Assets and Liabilities as escrow deposits. As of September 30, 2022 and December 31, 2021,
the Company had no material escrow deposits.
Unrealized
Appreciation or Depreciation of Investments
Unrealized
appreciation or depreciation is calculated as the difference between the fair value of the investment and the cost basis of such investment.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
U.S.
Federal and State Income Taxes
The
Company elected to be treated as a RIC under Subchapter M of the Code, beginning with its taxable year ended December 31, 2014, has qualified
to be treated as a RIC for subsequent taxable years and intends to continue to operate in a manner so as to qualify for the tax treatment
applicable to RICs. To qualify for tax treatment as a RIC, among other things, the Company is required to meet certain source of income
and asset diversification requirements and timely distribute to its stockholders at least the sum of 90% of our investment company taxable
income (“ICTI”), including payment-in-kind interest income, as defined by the Code, and 90% of our net tax-exempt interest
income (which is the excess of its gross tax-exempt interest income over certain disallowed deductions) for each taxable year (the “Annual
Distribution Requirement”). Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward into the
next tax year ICTI in excess of current year dividend distributions. Any such carryforward ICTI must be distributed on or before December
31 of the subsequent tax year to which it was carried forward.
If
the Company meets the Annual Distribution Requirement, but does not distribute (or is not deemed to have distributed) each calendar year
a sum of (1) 98% of its net ordinary income for each calendar year, (2) 98.2% of its 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 “Excise Tax
Avoidance Requirement”), it generally will be required to pay an excise tax equal to 4% of the amount by which the Excise Tax Avoidance
Requirement exceeds the distributions for the year. To the extent that the Company determines that its estimated current year annual
taxable income will exceed estimated current year dividend distributions from such taxable income, the Company will 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.
So
long as the Company qualifies and maintains its tax treatment as a RIC, it generally will not be subject to U.S. federal and state income
taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax
liability related to income earned by the RIC will represent obligations of the Company’s investors and will not be reflected in
the consolidated financial statements of the Company. Included in the Company’s consolidated financial statements, the Taxable
Subsidiaries are taxable subsidiaries, regardless of whether the Company is a RIC. These Taxable Subsidiaries are not consolidated for
income tax purposes and may generate income tax expenses as a result of their ownership of the portfolio companies. Such income tax expenses
and deferred taxes, if any, will be reflected in the Company’s condensed consolidated financial statements.
If
it is not treated as a RIC, the Company will be taxed as a regular corporation (a “C corporation”) under Subchapter C of
the Code for such taxable year. If the Company has previously qualified as a RIC but is subsequently unable to qualify for treatment
as a RIC, and certain amelioration provisions are not applicable, the Company would be subject to tax on all of its taxable income (including
its net capital gains) at regular corporate rates. The Company would not be able to deduct distributions to stockholders, nor would it
be required to make distributions. Distributions, including distributions of net long-term capital gain, would generally be taxable to
its stockholders as ordinary dividend income to the extent of the Company’s current and accumulated earnings and profits. Subject
to certain limitations under the Code, corporate stockholders would be eligible to claim a dividend received deduction with respect to
such dividend; non-corporate stockholders would generally be able to treat such dividends as “qualified dividend income,”
which is subject to reduced rates of U.S. federal income tax. Distributions in excess of the Company’s current and accumulated
earnings and profits would be treated first as a return of capital to the extent of the stockholder’s adjusted tax basis, and any
remaining distributions would be treated as a capital gain. In order to requalify as a RIC, in addition to the other requirements discussed
above, the Company would be required to distribute all of its previously undistributed earnings attributable to the period it failed
to qualify as a RIC by the end of the first year that it intends to requalify for tax treatment as a RIC. If the Company fails to requalify
for tax treatment as a RIC for a period greater than two taxable years, it may be subject to regular corporate tax on any net built-in
gains with respect to certain of its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses
that would have been realized with respect to such assets if the Company had been liquidated) that it elects to recognize on requalification
or when recognized over the next five years. The Company was taxed as a C Corporation for its 2012 and 2013 taxable years. Refer to “Note
9—Income Taxes” for further details.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
The
Company elected to be treated as a RIC for the taxable year ended December 31, 2014 in connection with the filing of its 2014 tax return.
As a result, the Company was required to pay a corporate-level U.S. federal income tax on the amount of the net built-in gains in its
assets (the amount by which the net fair market value of the Company’s assets exceeds the net adjusted basis in its assets) either
(1) as of the date it converted to a RIC (i.e., the beginning of the first taxable year that the Company qualifies as a RIC, which would
be January 1, 2014), or (2) to the extent that the Company recognized such net built-in gains during the five-year recognition period
beginning on the date of conversion. As of January 1, 2014, the Company had net unrealized built-in gains, but did not incur a built-in-gains
tax for the 2014 tax year due to the fact that there were sufficient net capital loss carryforwards to completely offset recognized built-in
gains as well as available net operating losses. The five-year recognition period ended on December 31, 2018.
Per
Share Information
Net
change in net assets resulting from operations per basic common share is computed using the weighted-average number of shares outstanding
for the period presented. Diluted net change in net assets resulting from operations per common share is computed by dividing net increase/(decrease)
in net assets resulting from operations for the period adjusted to include the pre-tax effects of interest incurred on potentially dilutive
securities, by the weighted-average number of common shares outstanding plus any potentially dilutive shares outstanding during the period.
The Company used the if-converted method in accordance with FASB ASC 260, Earnings Per Share (“ASC 260”) to determine
the number of potentially dilutive shares outstanding. Refer to “Note 6—Net Increase in Net Assets Resulting from Operations
per Common Share—Basic and Diluted” for further detail.
Recently
Issued or Adopted Accounting Standards
In
June 2022, the FASB issued ASU No. 2022-03 “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject
to Contractual Sale Restrictions.” This change prohibits entities from taking into account contractual restrictions on the sale
of equity securities when estimating fair value and introduces required disclosures for such transactions. The standard is effective
for annual periods beginning after December 15, 2023, and should be applied prospectively. Early adoption is permitted. The adoption
of ASU 2022-03 is not expected to have a material impact on the Company’s future financial statements.
In
April 2020, as part of the Securities Offering Reform for Closed-End Investment Companies final rule, the Securities and Exchange
Commission (“SEC”) adopted certain structured data reporting requirements for BDCs to submit financial statement information
using Inline eXtensible Business Reporting Language (XBRL) format to the extent required of operating companies. BDCs that are eligible
to file a short-form registration statement will be subject to the above structuring requirements with respect to Forms filed on or after
August 1, 2022. The Company adopted the XBRL format beginning August 1, 2022.
In
October 2020, the FASB issued ASU 2020-10, Codification Improvements, which made various technical changes and corrections intended
to provide clarifications to existing guidance, as well as simplifications to wording or structure of existing guidance. The Company
adopted the modified disclosure requirements during the period ended March 31, 2021.
In
December 2020, the SEC adopted Rule 2a-5, which established requirements for satisfying a fund board’s obligation to determine
fair value in good faith for purposes of the 1940 Act. The rule permits boards to assign the determination of fair value to a
“valuation designee,” who may be the fund’s investment adviser or, if the fund is internally managed, an officer
of the fund. The rule also defines a market quotation as “readily available” only when that quotation is a quoted price
(unadjusted) in active markets for identical investments that the fund can access at the measurement date. In connection with the
adoption of new Rule 2a-5, the SEC also adopted new Rule 31a-4, which requires funds to maintain documentation to support fair value
determinations and documentation related to the designation of the valuation designee. The Company adopted amended valuation
policies and procedures to comply with new Rule 2a-5 and Rule 31a-4 in advance of the compliance date of September 8, 2022. The
Company did not designate a valuation designee, and the Board retains the sole responsibility to determine fair value in good faith
under the 1940 Act.
In
December 2021, the SEC published Staff Accounting Bulletin No. 120 (“SAB 120”) to provide accounting and disclosure guidance
for stock compensation awards made to executives and conforming amendments to the Staff Accounting Bulletin Series to align with the
current authoritative accounting guidance in ASC 718, Compensation – Stock Compensation. In part, SAB 120 requires that
an entity disclose how it determines the current price of underlying shares for grant-date fair value, the policy for when an adjustment
to the share price is required, how it determines the amount of an adjustment to the share price and any significant assumptions used
in determining an adjustment to the share price. SAB 120 is effective for all stock compensation awards issued after December 1, 2021.
The Company is in compliance with the guidance pursuant to SAB 120 for any share-based compensation disclosures. See “Note 11 –
Stock-Based Compensation” for further discussion of the Company’s policies and procedures regarding share-based compensation.
The Company does not expect the impact of SAB 120 to be material to the condensed consolidated financial statements and the notes thereto.
From
time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company
as of the specified effective date. The Company believes that the impact of recently issued standards and any that are not yet effective
will not have a material impact on its consolidated financial statements upon adoption.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
NOTE
3—RELATED-PARTY ARRANGEMENTS
Consulting
Agreement
On
and effective March 12, 2019, we entered into a Consulting Agreement (the “Consulting Agreement”) with Michael T. Moe, the
former Chairman of our Board of Directors and the Chief Executive Officer and Chief Investment Officer of GSV Asset Management, for the
purpose of assisting us with certain transition services following the termination of the Investment Advisory Agreement and our Internalization.
See “Note 1 — Nature of Operations.” Pursuant to the Consulting Agreement, Mr. Moe provided certain transition services
to us related to our existing portfolio investments for which Mr. Moe previously had oversight in his role as the Chief Executive Officer
and Chief Investment Officer of GSV Asset Management. Such transition services included providing information to us regarding such portfolio
companies, including as a member of a portfolio company’s board of directors, assisting with the transition of portfolio company
board seats as requested by us, making appropriate introductions to representatives of portfolio companies, and providing other similar
types of services that we may reasonably request.
The
term of the Consulting Agreement commenced on March 12, 2019 and continued for eighteen months in accordance with its terms. Pursuant
to the Consulting Agreement, we paid Mr. Moe a total amount equal to $1,250,000. On September 12, 2020, the Consulting Agreement expired
in accordance with its terms and was not renewed or extended.
For
the three and nine months ended September 30, 2022 and 2021, the Company did not incur a consulting expense related to the Consulting
Agreement as it was no longer in effect.
Amended
and Restated Trademark License Agreement
On
and effective March 12, 2019, we entered into an Amended and Restated Trademark License Agreement (the “Amended and Restated License
Agreement”) with GSV Asset Management in connection with the termination of the Investment Advisory Agreement. See “Note
1 —Nature of Operations.”
GSV
Asset Management is the owner of the trade name “GSV”, and other state or unregistered “GSV” marks, including
the trading symbol “GSVC” (collectively, the “Licensed Marks”). Pursuant to the Amended and Restated License
Agreement, GSV Asset Management granted us a non-transferable, non-sublicensable, and non-exclusive right and license to use the Licensed
Marks, solely in connection with the operation of our existing business.
The
term of the Amended and Restated License Agreement commenced on March 12, 2019 and continued for eighteen months in accordance with its
terms. Pursuant to the Amended and Restated License Agreement, we paid GSV Asset Management a total amount equal to $1,250,000. On September
12, 2020, the Amended and Restated License Agreement expired in accordance with its terms and was not renewed or extended.
For
the three and nine months ended September 30, 2022 and 2021, the Company did not incur a licensing expense related to the Amended and
Restated License Agreement as it was no longer in effect.
Other
Arrangements
The
Company’s executive officers and directors serve or may serve as officers, directors, or managers of entities that operate in a
line of business similar to the Company’s, including new entities that may be formed in the future. Accordingly, they may have
obligations to investors in those entities, the fulfillment of which might not be in the best interests of the Company or the Company’s
stockholders.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
The
1940 Act prohibits the Company from participating in certain negotiated co-investments with certain affiliates unless it receives an
order from the SEC permitting it to do so. As a BDC, the Company is prohibited under the 1940 Act from participating in certain transactions
with certain of its affiliates without the prior approval of the Board of Directors, including its independent directors, and, in some
cases, the SEC. The affiliates with which the Company may be prohibited from transacting include its officers, directors, and employees
and any person controlling or under common control with the Company, subject to certain exceptions.
In
the ordinary course of business, the Company may enter into transactions with portfolio companies that may be considered related-party
transactions. To ensure that the Company does not engage in any prohibited transactions with any persons affiliated with the Company,
the Company has implemented certain written policies and procedures whereby the Company’s executive officers screen each of the
Company’s transactions for any possible affiliations between the proposed portfolio investment, the Company, companies controlled
by the Company, and the Company’s executive officers and directors.
The
Company’s investment in Churchill Sponsor VI LLC, the sponsor of Churchill Capital Corp VI, a special purpose acquisition company,
constituted a “remote-affiliate” transaction for purposes of the 1940 Act in light of the fact that Mark D. Klein, our Chairman,
Chief Executive Officer and President, has a non-controlling interest in the entity that controls Churchill Sponsor VI LLC, and is a
non-controlling member of the board of directors of Churchill Capital Corp VI. The Company’s investment in Churchill Sponsor VII
LLC, the sponsor of Churchill Capital Corp VII, a special purpose acquisition company, also constituted a “remote-affiliate”
transaction for purposes of the 1940 Act in light of the fact that Mr. Klein has a non-controlling interest in the entity that controls
Churchill Sponsor VII LLC, and is a non-controlling member of the board of directors of Churchill Capital Corp VII. In addition, Mr.
Klein’s brother, Michael Klein, is a control person of such Churchill entities. As of September 30, 2022, the fair values of the
Company’s investments in Churchill Sponsor VI LLC and Churchill Sponsor VII LLC were $ and $, respectively.
The
Company’s investment in Skillsoft Corp. (f/k/a Software Luxembourg Holding S.A.) (“Skillsoft”) constituted a “remote-affiliate”
transaction for purposes of the 1940 Act in light of the fact that Mr. Klein has a non-controlling interest in the entity that controls
Churchill Sponsor II LLC, the sponsor of Churchill Capital Corp II, a special purpose acquisition company, and is a non-controlling member
of the board of directors of Churchill Capital Corp II, through which the Company executed a private investment in public equity transaction
in order to acquire common shares of Skillsoft alongside the merger of Skillsoft and Churchill Capital Corp II. In addition, Mr. Klein’s
brother, Michael Klein, is a control person of such Churchill entities. As of September 30, 2022, the fair value of the Company’s
investment in Skillsoft Corp. was $1,796,773.
The
Company’s initial investment in Shogun Enterprises, Inc. on February 26, 2021 constituted a “remote-affiliate” transaction
for purposes of the 1940 Act in light of the fact that Keri Findley, a former senior managing director of the Company until her departure
on March 9, 2022, is a non-controlling member of the board of directors of Shogun Enterprises, Inc., and holds a minority equity interest
in such portfolio company. The Company’s investment in Architect Capital PayJoy SPV, LLC also constituted a “remote-affiliate”
transaction for purposes of the 1940 Act in light of the fact that Ms. Findley is a non-controlling member of the board of directors
of the investment manager to Architect Capital PayJoy SPV, LLC, and holds a minority equity interest in such investment manager. As of
September 30, 2022, the fair values of the Company’s remote-affiliate investments in Shogun Enterprises, Inc. and Architect Capital
PayJoy SPV, LLC were $3,508,721 and $10,000,000, respectively.
In
addition, Ms.Findley and Claire Councill, a former investment professional of the Company until her departure on April 15, 2022, are
non-controlling members of the board of directors of Colombier Acquisition Corp., a special purpose acquisition company, which is sponsored
by Colombier Sponsor LLC, one of the Company’s portfolio companies. The Company’s investment in AltC Sponsor LLC, the sponsor
of AltC Acquisition Corp, a special purpose acquisition company, constituted a “remote-affiliate” transaction for purposes
of the 1940 Act in light of the fact that Mr. Klein has a non-controlling interest in one of the entities that controls AltC Sponsor
LLC, and Allison Green, the Company’s Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary, is a non-controlling
member of the board of directors of AltC Acquisition Corp. As of September 30, 2022, the fair values of the Company’s aggregate
investments in each of Colombier Sponsor LLC and AltC Sponsor LLC were $ and $, respectively.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
NOTE
4—INVESTMENTS AT FAIR VALUE
Investment
Portfolio Composition
The
Company’s investments in portfolio companies consist primarily of equity securities (such as common stock, preferred stock and
options to purchase common and preferred stock) and to a lesser extent, debt securities, issued by private and publicly traded companies.
The Company may also, from time to time, invest in U.S. Treasury securities. Non-portfolio investments represent investments in U.S.
Treasury securities. As of September 30, 2022, the Company had 64 positions in 39 portfolio companies. As of December 31, 2021, the Company
had 64 positions in 38 portfolio companies.
The
following tables summarize the composition of the Company’s investment portfolio by security type at cost and fair value as of
September 30, 2022 and December 31, 2021:
SCHEDULE OF COMPOSITION OF INVESTMENT PORTFOLIO
| |
September
30, 2022 | | |
December
31, 2021 | |
| |
Cost | | |
Fair
Value | | |
Percentage
of Net
Assets | | |
Cost | | |
Fair
Value | | |
Percentage
of Net
Assets | |
Private
Portfolio Companies | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred
Stock | |
$ | 108,217,121 | | |
$ | 115,350,743 | | |
| 52.1 | % | |
$ | 99,964,047 | | |
$ | 163,801,798 | | |
| 44.9 | % |
Common
Stock | |
| 50,601,512 | | |
| 18,850,531 | | |
| 8.5 | % | |
| 51,581,524 | | |
| 42,860,156 | | |
| 11.7 | % |
Debt
Investments | |
| 6,566,466 | | |
| 4,708,284 | | |
|
2.1 | % | |
| 5,807,373 | | |
| 3,011,438 | | |
| 0.8 | % |
Options | |
| 11,415,787 | | |
| 3,447,105 | | |
| 1.6 | % | |
| 10,982,983 | | |
| 4,959,112 | | |
| 1.4 | % |
Total
Private Portfolio Companies | |
| 176,800,886 | | |
| 142,356,663 | | |
| 64.3 | % | |
| 168,335,927 | | |
| 214,632,504 | | |
| 58.8 | % |
Publicly
Traded Portfolio Companies | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common
Stock | |
| 32,248,667 | | |
| 15,391,229 | | |
| 6.9 | % | |
| 39,119,450 | | |
| 44,573,225 | | |
| 12.2 | % |
Options | |
| — | | |
| — | | |
| — | % | |
| — | | |
| 930,524 | | |
| 0.3 | % |
Total
Publicly Traded Portfolio Companies | |
| 32,248,667 | | |
| 15,391,229 | | |
| 6.9 | % | |
| 39,119,450 | | |
| 45,503,749 | | |
| 12.5 | % |
Total
Portfolio Investments | |
| 209,049,553 | | |
| 157,747,892 | | |
| 71.2 | % | |
| 207,455,377 | | |
| 260,136,253 | | |
| 71.3 | % |
Non-Portfolio Investments | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Treasury Bills | |
| 99,173,075 | | |
| 99,226,000 | | |
| 44.7 | % | |
| — | | |
| — | | |
| — | % |
Total Investments | |
$ | 308,222,628 | | |
$ | 256,973,892 | | |
| 115.9 | % | |
$ | 207,455,377 | | |
$ | 260,136,253 | | |
| 71.3 | % |
The
geographic and industrial compositions of the Company’s portfolio at fair value as of September 30, 2022 and December 31, 2021
were as follows:
| |
As
of September 30, 2022 | | |
As
of December 31, 2021 | |
| |
Fair
Value | | |
Percentage
of
Portfolio | | |
Percentage
of Net
Assets | | |
Fair
Value | | |
Percentage
of
Portfolio | | |
Percentage
of Net
Assets | |
Geographic
Region | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
West | |
$ | 103,006,693 | | |
| 65.3 | % | |
| 46.3 | % | |
$ | 188,304,542 | | |
| 72.4 | % | |
| 51.6 | % |
Northeast | |
| 38,937,240 | | |
| 24.7 | % | |
| 17.6 | % | |
| 47,666,629 | | |
| 18.3 | % | |
| 13.1 | % |
Midwest | |
| 8,328,181 | | |
| 5.3 | % | |
| 3.8 | % | |
| 12,722,423 | | |
| 4.9 | % | |
| 3.5 | % |
International | |
| 7,475,778 | | |
| 4.7 | % | |
| 3.4 | % | |
| 11,442,659 | | |
| 4.4 | % | |
| 3.1 | % |
Total | |
$ | 157,747,892 | | |
| 100.0 | % | |
| 71.1 | % | |
$ | 260,136,253 | | |
| 100.0 | % | |
| 71.3 | % |
| |
As
of September 30, 2022 | | |
As
of December 31, 2021 | |
| |
Fair
Value | | |
Percentage
of
Portfolio | | |
Percentage
of Net
Assets | | |
Fair
Value | | |
Percentage
of
Portfolio | | |
Percentage
of Net
Assets | |
Industry | |
| | |
| | |
| | |
| | |
| | |
| |
Education
Technology | |
$ | 68,408,734 | | |
| 43.4 | % | |
| 30.8 | % | |
$ | 109,048,688 | | |
| 41.9 | % | |
| 29.9 | % |
Financial
Technology | |
| 37,887,456 | | |
| 24.0 | % | |
| 17.1 | % | |
| 71,954,012 | | |
| 27.7 | % | |
| 19.7 | % |
Marketplaces | |
| 27,920,230 | | |
| 17.7 | % | |
| 12.6 | % | |
| 49,346,174 | | |
| 19.0 | % | |
| 13.5 | % |
Social/Mobile | |
| 17,315,224 | | |
| 11.0 | % | |
| 7.8 | % | |
| 16,439,523 | | |
| 6.3 | % | |
| 4.5 | % |
Big
Data/Cloud | |
| 5,230,743 | | |
| 3.3 | % | |
| 2.4 | % | |
| 12,300,823 | | |
| 4.7 | % | |
| 3.4 | % |
Sustainability | |
| 985,505 | | |
| 0.6 | % | |
| 0.4 | % | |
| 1,047,033 | | |
| 0.4 | % | |
| 0.3 | % |
Total | |
$ | 157,747,892 | | |
| 100.0 | % | |
| 71.1 | % | |
$ | 260,136,253 | | |
| 100.0 | % | |
| 71.3 | % |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
The
table below details the composition of the Company’s industrial themes presented in the preceding tables:
Industry
Theme |
|
Industry |
Education
Technology |
|
Business
Education |
|
|
Education
Software |
|
|
Interactive
Learning |
|
|
Online
Education |
Big
Data/Cloud |
|
Data Analysis |
|
|
Gaming Licensing |
|
|
Retail
Technology |
|
|
Geolocation
Technology |
Marketplaces |
|
Global
Innovation Platform |
|
|
Knowledge
Networks |
|
|
Micromobility |
|
|
On-Demand Commerce |
|
|
Peer-to-Peer
Pet Services |
|
|
Pharmaceutical
Technology |
|
|
Real
Estate Platform |
|
|
Subscription
Fashion Rental |
Financial
Technology |
|
Cannabis
REIT |
|
|
Financial
Services |
|
|
Home
Improvement Finance |
|
|
Mobile
Finance Technology |
|
|
Online
Marketplace Finance |
|
|
Gaming
Technology |
|
|
Special
Purpose Acquisition Company |
|
|
Venture
Investment Fund |
Social/Mobile |
|
Digital
Media Platform |
|
|
Digital
Media Technology |
|
|
Interactive
Media & Services |
|
|
Mobile
Access Technology |
|
|
Social
Data Platform |
|
|
Fitness
Technology |
|
|
Social
Networking |
Sustainability |
|
Clean
Technology |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Investment
Valuation Inputs
The
fair values of the Company’s investments disaggregated into the three levels of the fair value hierarchy based upon the lowest
level of significant input used in the valuation as of September 30, 2022 and December 31, 2021 are as follows:
SCHEDULE
OF FAIR VALUE OF INVESTMENT VALUATION INPUTS
| |
As
of September 30, 2022 | |
| |
Quoted
Prices
in Active
Markets for Identical
Securities (Level
1) | | |
Significant
Other Observable Inputs (Level
2) | | |
Significant Unobservable Inputs (Level
3) | | |
Total | |
Investments
at Fair Value | |
| | | |
| | | |
| | | |
| | |
Private
Portfolio Companies | |
| | | |
| | | |
| | | |
| | |
Preferred
Stock | |
$ | — | | |
$ | — | | |
$ | 115,350,743 | | |
$ | 115,350,743 | |
Common
Stock | |
| — | | |
| — | | |
| 18,850,531 | | |
| 18,850,531 | |
Debt
Investments | |
| — | | |
| — | | |
| 4,708,284 | | |
| 4,708,284 | |
Options | |
| — | | |
| — | | |
| 3,447,105 | | |
| 3,447,105 | |
Private
Portfolio Companies | |
| — | | |
| — | | |
| 142,356,663 | | |
| 142,356,663 | |
Publicly
Traded Portfolio Companies | |
| | | |
| | | |
| | | |
| | |
Common
Stock | |
| 15,321,409 | | |
| 69,820 | | |
| — | | |
| 15,391,229 | |
Non-Portfolio
Investments | |
| - | | |
| - | | |
| - | | |
| - | |
U.S. Treasury bills | |
| 99,226,000 | | |
| — | | |
| — | | |
| 99,226,000 | |
Total
Investments at Fair Value | |
$ | 114,547,409 | | |
$ | 69,820 | | |
$ | 142,356,663 | | |
$ | 256,973,892 | |
| |
As
of December 31, 2021 | |
| |
Quoted
Prices in Active
Markets for Identical
Securities (Level
1) | | |
Significant
Other Observable Inputs (Level
2) | | |
Significant Unobservable Inputs (Level
3) | | |
Total | |
Investments
at Fair Value | |
| | | |
| | | |
| | | |
| | |
Private
Portfolio Companies | |
| | | |
| | | |
| | | |
| | |
Preferred
Stock | |
$ | — | | |
$ | — | | |
$ | 163,801,798 | | |
$ | 163,801,798 | |
Common
Stock | |
| — | | |
| — | | |
| 42,860,156 | | |
| 42,860,156 | |
Debt
Investments | |
| — | | |
| — | | |
| 3,011,438 | | |
| 3,011,438 | |
Options | |
| — | | |
| — | | |
| 4,959,112 | | |
| 4,959,112 | |
Private
Portfolio Companies | |
| — | | |
| — | | |
| 214,632,504 | | |
| 214,632,504 | |
Publicly
Traded Portfolio Companies | |
| | | |
| | | |
| | | |
| | |
Common
Stock | |
| 16,970,411 | | |
| 27,602,814 | | |
| — | | |
| 44,573,225 | |
Options | |
| — | | |
| 930,524 | | |
| — | | |
| 930,524 | |
Publicly
Traded Portfolio Companies | |
| 16,970,411 | | |
| 28,533,338 | | |
| — | | |
| 45,503,749 | |
Total
Investments at Fair Value | |
$ | 16,970,411 | | |
$ | 28,533,338 | | |
$ | 214,632,504 | | |
$ | 260,136,253 | |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Significant
Unobservable Inputs for Level 3 Assets and Liabilities
In
accordance with FASB ASC 820, Fair Value Measurement, the tables below provide quantitative information about the Company’s
fair value measurements of its Level 3 assets as of September 30, 2022 and December 31, 2021. In addition to the techniques and inputs
noted in the tables below, according to the Company’s valuation policy, the Company may also use other valuation techniques and
methodologies when determining the Company’s fair value measurements. The tables below are not intended to be all-inclusive, but
rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements. To the extent
an unobservable input is not reflected in the tables below, such input is deemed insignificant with respect to the Company’s Level
3 fair value measurements as of September 30, 2022 and December 31, 2021. Significant changes in the inputs in isolation would result
in a significant change in the fair value measurement, depending on the input and the materiality of the investment. Refer to “Note
2—Significant Accounting Policies—Investments at Fair Value” for more detail.
SCHEDULE
OF FAIR VALUE OF ASSETS ON UNOBSERVABLE INPUT
As
of September 30, 2022 | |
Asset | |
Fair
Value | | |
Valuation
Approach/ Technique(1) | |
Unobservable
Inputs(2) | |
Range
(Weighted Average)(3) | |
Common
stock in private companies | |
$ | 18,850,531 | | |
Market
approach | |
Revenue
multiples | |
| 1.11x
- 3.63x (1.88x) | |
| |
| | | |
| |
Liquidation Value | |
| N/A | |
| |
| | | |
PWERM(5) | |
AFFO
(4) multiple | |
| 7.01x
-10.99x (9.38x) | |
Preferred
stock in private companies | |
$ | 115,350,743 | | |
Market
approach | |
Revenue
multiples | |
| 0.55x
- 5.49x (1.41x) | |
| |
| | | |
| |
Liquidation Value | |
| N/A | |
| |
| | | |
Discounted
cash flow | |
Discount
rate | |
| 15.0%
(15.0%) | |
| |
| | | |
PWERM(5) | |
Revenue
multiples | |
| 0.63x
- 5.49x (2.25x) | |
| |
| | | |
| |
DLOM | |
| 8.0%
- 10.0% (10.0%) | |
| |
| | | |
| |
Financing
Risk | |
| 10.0%
(10.0%) | |
Debt
investments | |
$ | 4,708,284 | | |
Market
approach | |
Revenue
multiples | |
| 0.55x
- 5.49x (3.8x) | |
Options | |
$ | 3,447,105 | | |
Option
pricing model | |
Term to expiration (Years) | |
| 1.25x
- 5.54x (1.9x) | |
| |
| | | |
Discounted
cash flow | |
Discount
Rate | |
| 15.0%
(15.0%) | |
(1) | As
of September 30, 2022, the Board used a hybrid market and income approach to value certain
common and preferred stock investments as the Board felt this approach better reflected
the fair value of these investments. In considering multiple valuation approaches (and consequently,
multiple valuation techniques), the valuation approaches and techniques are not likely to
change from one period of measurement to the next; however, the weighting of each in determining
the final fair value of a Level 3 investment may change based on recent events or transactions.
The hybrid approach may also consider certain risk weightings to account for the uncertainty
of future events. Refer to “Note 2—Significant Accounting Policies—Investments
at Fair Value” for more detail. |
(2) | The
Board considers all relevant information that can reasonably be obtained when determining
the fair value of Level 3 investments. Due to any given portfolio company’s information
rights, changes in capital structure, recent events, transactions, or liquidity events, the
type and availability of unobservable inputs may change. Increases/(decreases) in revenue
multiples, earnings before interest and taxes (“EBIT”) multiples, time to expiration,
and stock price/strike price would result in higher (lower) fair values, all else equal.
Decreases/(increases) in discount rates, volatility, and annual risk rates, would result
in higher (lower) fair values, all else equal. The market approach utilizes market value
(revenue and EBIT) multiples of publicly traded comparable companies and available precedent
sales transactions of comparable companies. The Company carefully considers numerous factors
when selecting the appropriate companies whose multiples are used to value its portfolio
companies. These factors include, but are not limited to, the type of organization, similarity
to the business being valued, relevant risk factors, as well as size, profitability and growth
expectations. In general, precedent transactions include recent rounds of financing, recent
purchases made by the Company, and tender offers. Refer to “Note 2—Significant
Accounting Policies—Investments at Fair Value” for more detail. |
(3) | The
weighted averages are calculated based on the fair market value of each investment. |
(4) | Adjusted
Funds From Operations, or “AFFO” |
(5) | Probability-Weighted
Expected Return Method, or “PWERM” |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
As
of December 31, 2021 | |
Asset | |
Fair
Value | | |
Valuation
Approach/ Technique(1) | |
Unobservable
Inputs(2) | |
Range
(Weighted Average)(3) | |
Common
stock in private companies | |
$ | 42,860,156 | | |
Market
approach | |
Revenue
multiples | |
| 1.80x
- 9.62x (6.00x) | |
| |
| | | |
Discounted
cash flow | |
Discount
rate | |
| 15.0%
(15.0%) | |
| |
| | | |
| |
DLOM(6) | |
| 10.0%
(10.0%) | |
| |
| | | |
PWERM(5) | |
AFFO(4)
multiple | |
| 23.03
- 36.28x (23.03x) | |
| |
| | | |
| |
Financing
Risk | |
| 10.0%
(10.0%) | |
| |
$ | 163,801,798 | | |
Market
approach | |
Revenue
multiples | |
| 0.53x
- 9.62x (6.63x) | |
| |
| | | |
Discounted
cash flow | |
Discount
rate | |
| 15.0%
(15.0%) | |
Preferred
stock in private companies | |
| | | |
| |
Revenue
multiples | |
| 1.05x
- 9.62x (3.04x) | |
| |
| | | |
PWERM(5) | |
DLOM | |
| 10.0%
(10.0%) | |
| |
| | | |
| |
Financing
Risk | |
| 10.0%
(10.0%) | |
Debt
investments | |
$ | 3,011,438 | | |
Market
approach | |
Revenue
multiples | |
| 1.74x
- 2.91x (1.95x) | |
Options | |
$ | 4,959,112 | | |
Option
pricing model | |
Term
to expiration (Years) | |
| 0.17
- 6.61 (3.08) | |
| |
| | | |
Discounted
cash flow | |
Volatility | |
| 37.7%
- 56.5% (37.7%) | |
| |
| | | |
| |
Discount
Rate | |
| 15.0%
(15.0%) | |
(1) | As
of December 31, 2021, the Company used a hybrid market and income approach to value certain
common and preferred stock investments as the Company felt this approach better reflected
the fair value of these investments. In considering multiple valuation approaches (and consequently,
multiple valuation techniques), the valuation approaches and techniques are not likely to
change from one period of measurement to the next; however, the weighting of each in determining
the final fair value of a Level 3 investment may change based on recent events or transactions.
The hybrid approach may also consider certain risk weightings to account for the uncertainty
of future events. Refer to “Note 2—Significant Accounting Policies—Investments
at Fair Value” for more detail. |
(2) | The
Company considers all relevant information that can reasonably be obtained when determining
the fair value of Level 3 investments. Due to any given portfolio company’s information
rights, changes in capital structure, recent events, transactions, or liquidity events, the
type and availability of unobservable inputs may change. Increases/(decreases) in revenue
multiples, earnings before interest and taxes (“EBIT”) multiples, time to expiration,
and stock price/strike price would result in higher (lower) fair values, all else equal.
Decreases/(increases) in discount rates, volatility, and annual risk rates, would result
in higher (lower) fair values, all else equal. The market approach utilizes market value
(revenue and EBIT) multiples of publicly traded comparable companies and available precedent
sales transactions of comparable companies. The Company carefully considers numerous factors
when selecting the appropriate companies whose multiples are used to value its portfolio
companies. These factors include, but are not limited to, the type of organization, similarity
to the business being valued, relevant risk factors, as well as size, profitability and growth
expectations. In general, precedent transactions include recent rounds of financing, recent
purchases made by the Company, and tender offers. Refer to “Note 2—Significant
Accounting Policies—Investments at Fair Value” for more detail. |
(3) | The
weighted averages are calculated based on the fair market value of each investment. |
(4) | Adjusted
Funds From Operations, or “AFFO” |
(5) | Probability-Weighted
Expected Return Method, or “PWERM” |
(6) | Discount for Lack of Marketability, or “DLOM” |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
The
aggregate values of Level 3 assets and liabilities changed during the nine months ended September 30, 2022 as follows:
SCHEDULE
OF AGGREGATE VALUE OF ASSETS AND LIABILITIES
| |
Common Stock | | |
Preferred Stock | | |
Debt Investments | | |
Options | | |
Total | |
| |
Nine
Months Ended September 30, 2022 | |
| |
Common Stock | | |
Preferred Stock | | |
Debt Investments | | |
Options | | |
Total | |
Assets: | |
| | |
| | |
| | |
| | |
| |
Fair
Value as of December 31, 2021 | |
$ | 42,860,156 | | |
$ | 163,801,798 | | |
$ | 3,011,438 | | |
$ | 4,959,112 | | |
$ | 214,632,504 | |
Transfers
out of Level 3(1) | |
| (6,918,251 | ) | |
| (1,775,506 | ) | |
| — | | |
| (48,639 | ) | |
| (8,742,396 | ) |
Purchases,
capitalized fees and interest | |
| — | | |
| 10,512,790 | | |
| 1,509,093 | | |
| 503,183 | | |
| 12,525,066 | |
Sales/Maturity of
investments | |
| (874,470 | ) | |
| — | | |
| (750,000 | ) | |
| — | | |
| (1,624,470 | ) |
Realized
gains/(losses) | |
| 160,965 | | |
| — | | |
| — | | |
| (70,379 | ) | |
| 90,586 | |
Net
change in unrealized appreciation/(depreciation) included in earnings | |
| (16,377,869 | ) | |
| (57,188,339 | ) | |
| 937,753 | | |
| (1,896,172 | ) | |
| (74,524,627 | ) |
Fair
Value as of September 30, 2022 | |
$ | 18,850,531 | | |
$ | 115,350,743 | | |
$ | 4,708,284 | | |
$ | 3,447,105 | | |
$ | 142,356,663 | |
Net
change in unrealized appreciation/ (depreciation) of Level 3 investments still held as of September 30, 2022 | |
$ | (6,865,565 | ) | |
$ | (54,747,097 | ) | |
$ | 937,754 | | |
$ | (1,646,717 | ) | |
$ | (62,321,625 | ) |
(1) | During
the nine months ended September 30, 2022, the Company’s portfolio investments had the
following corporate actions which are reflected above: |
Portfolio
Company | |
Conversion
from | |
Conversion
to |
Forge
Global, Inc. | |
Common
Shares, Class AA Junior Preferred Shares Junior Preferred Warrants, Strike Price $12.42, Expiration Date 11/9/2025 | |
Public
Common shares (Level 2) Common warrants, Strike Price $3.98, Expiration Date 11/9/2025 (Level 2) |
The
aggregate values of Level 3 assets and liabilities changed during the year ended December 31, 2021 as follows:
| |
Common Stock | | |
Preferred Stock | | |
Debt Investments | | |
Options | | |
Total | |
| |
Year
Ended December 31, 2021 | |
| |
Common Stock | | |
Preferred Stock | | |
Debt Investments | | |
Options | | |
Total | |
Assets: | |
| | |
| | |
| | |
| | |
| |
Fair
Value as of December 31, 2020 | |
$ | 34,190,839 | | |
$ | 141,235,987 | | |
$ | 4,845,340 | | |
$ | 5,872,210 | | |
$ | 186,144,376 | |
Fair Value, Beginnng | |
$ | 34,190,839 | | |
$ | 141,235,987 | | |
$ | 4,845,340 | | |
$ | 5,872,210 | | |
$ | 186,144,376 | |
Transfers
out of Level 3(1) | |
| (31,652,675 | ) | |
| (155,414,652 | ) | |
| (5,211,120 | ) | |
| (1,619,463 | ) | |
| (193,897,910 | ) |
Purchases,
capitalized fees and interest | |
| 36,154,823 | | |
| 43,239,463 | | |
| — | | |
| 2,321,752 | | |
| 81,716,038 | |
Sales/Maturity of
investments | |
| (61,675 | ) | |
| (10,646,457 | ) | |
| (2,344,979 | ) | |
| — | | |
| (13,053,111 | ) |
Realized
gains/(losses) | |
| 204,195 | | |
| 5,551,864 | | |
| 88,788 | | |
| (103,655 | ) | |
| 5,741,192 | |
Net
change in unrealized appreciation/(depreciation) included in earnings | |
| 4,024,649 | | |
| 139,835,593 | | |
| 5,633,409 | | |
| (1,511,732 | ) | |
| 147,981,919 | |
Fair
Value as of December 31, 2021 | |
$ | 42,860,156 | | |
$ | 163,801,798 | | |
$ | 3,011,438 | | |
$ | 4,959,112 | | |
$ | 214,632,504 | |
Fair Value, Ending | |
$ | 42,860,156 | | |
$ | 163,801,798 | | |
$ | 3,011,438 | | |
$ | 4,959,112 | | |
$ | 214,632,504 | |
Net
change in unrealized appreciation/ (depreciation) of Level 3 investments still held as of December 31, 2021 | |
$ | 6,117,069 | | |
$ | 46,943,434 | | |
$ | — | | |
$ | (586,899 | ) | |
$ | 52,473,604 | |
Net change in unrealized appreciation/ (depreciation) of Level 3 investments still held | |
$ | 6,117,069 | | |
$ | 46,943,434 | | |
$ | — | | |
$ | (586,899 | ) | |
$ | 52,473,604 | |
(1) | | During
the year ended December 31, 2021, the Company’s portfolio investments had the following corporate actions which are reflected above: |
Portfolio
Company |
|
Conversion
from |
|
Conversion
to |
Coursera,
Inc. |
|
Preferred
shares, Series F 8%
Preferred
shares, Series B 8% |
|
Public
Common shares (Level 2) |
Churchill
Capital Corp. II |
|
Common
shares, Class A |
|
Skillsoft
Corp. Public Common shares (Level 2) |
NewLake
Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) |
|
Common
shares |
|
Public
Common shares (Level 2) |
A
Place for Rover, Inc. (f/k/a DogVacay, Inc.) |
|
Common
shares |
|
Rover
Group, Inc. Public Common shares
(Level
2) |
Enjoy
Technology, Inc. |
|
Preferred
shares, Series B 6%
Preferred
shares, Series A 6%
Convertible
Promissory Note 14% Due 1/30/2024 |
|
Public
Common shares (Level 2) |
Nextdoor
Holdings, Inc. |
|
Common
shares |
|
Public
Common shares (Level 2) |
Rent
the Runway, Inc. |
|
Preferred
shares, Series G |
|
Public
Common shares (Level 2) |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Schedule
of Investments In, and Advances to, Affiliates
Transactions
during the nine months ended September 30, 2022 involving the Company’s controlled investments and non-controlled/affiliate investments
were as follows:
SCHEDULE
OF INVESTMENTS IN AND ADVANCES TO AFFILIATES
Type/Industry/Portfolio
Company/Investment | |
Principal/ Quantity | | |
Interest,
Fees, or Dividends
Credited in
Income | | |
Fair
Value at December 31, 2021 | | |
Transfer
In/ (Out) | | |
Purchases, Capitalized
Fees, Interest
and Amortization | | |
Sales | | |
Realized Gains/(Losses) | | |
Unrealized Gains/(Losses) | | |
Fair
Value at September 30, 2022 | | |
Percentage of
Net Assets | |
CONTROLLED
INVESTMENTS*(2) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Options | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Special
Purpose Acquisition Company | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Colombier
Sponsor LLC**–Class W Units(7) | |
| 2,700,000 | | |
$ | — | | |
$ | 1,157,487 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | | |
$ | | |
$ | 1,157,487 | | |
| % |
Total
Options | |
| | | |
| — | | |
| 1,157,487 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,157,487 | | |
| 0.52 | % |
Preferred
Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Clean
Technology | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
SPBRX,
INC. (f/k/a GSV Sustainability Partners, Inc.)–Preferred shares, Class A(4) | |
| 14,300,000 | | |
| — | | |
| 1,047,033 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (61,528 | ) | |
| 985,505 | | |
| 0.44 | % |
Total
Preferred Stock | |
| | | |
| — | | |
| 1,047,033 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (61,528 | ) | |
| 985,505 | | |
| 0.44 | % |
Common
Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Clean
Technology | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
SPBRX,
INC. (f/k/a GSV Sustainability Partners, Inc.)–Common shares | |
| 100,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Mobile
Finance Technology | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Architect
Capital PayJoy SPV, LLC**–Membership Interest in Lending SPV***(7) | |
$ | 10,000,000 | | |
| 1,225,000 | | |
| 10,000,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 10,000,000 | | |
| 4.51 | % |
Special
Purpose Acquisition Company | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Colombier
Sponsor LLC**–Class B Units(7) | |
| 1,976,033 | | |
| — | | |
| 1,554,354 | | |
| — | | |
| — | | |
| — | | |
| | |
| | |
| 1,554,354 | | |
| % |
Total
Common Stock | |
| | | |
| 1,225,000 | | |
| 11,554,354 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 11,554,354 | | |
| 5.21 | % |
TOTAL
CONTROLLED INVESTMENTS*(2) | |
| | | |
$ | 1,225,000 | | |
$ | 13,758,874 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | (61,528 | ) | |
$ | 13,697,346 | | |
| 6.18 | % |
NON-CONTROLLED/AFFILIATE
INVESTMENTS*(1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Debt
Investments | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Global
Innovation Platform | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
OneValley,
Inc. (f/k/a NestGSV, Inc.) –Convertible Promissory Note 8%, Due 8/23/2024(3)(6) | |
$ | 1,010,198 | | |
$ | — | | |
$ | 505,099 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,453,185 | | |
$ | 1,958,284 | | |
| 0.88 | % |
Total
Debt Investments | |
| | | |
| — | | |
| 505,099 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,453,185 | | |
| 1,958,284 | | |
| 0.88 | % |
Preferred
Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Knowledge
Networks | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Maven
Research, Inc.–Preferred shares, Series C | |
| 318,979 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Maven
Research, Inc.–Preferred shares, Series B | |
| 49,505 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Total
Knowledge Networks | |
| | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Digital
Media Platform | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ozy
Media, Inc.–Preferred shares, Series C-2 6% | |
| 683,482 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| — | | |
| — | % |
Ozy
Media, Inc.–Preferred shares, Series B 6% | |
| 922,509 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Ozy
Media, Inc.–Preferred shares, Series A 6% | |
| 1,090,909 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Ozy
Media, Inc.–Preferred shares, Series Seed 6% | |
| 500,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Total
Digital Media Platform | |
| | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Interactive
Learning | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
StormWind,
LLC–Preferred shares, Series D 8%(5) | |
| 329,337 | | |
| — | | |
| 621,093 | | |
| — | | |
| — | | |
| | | |
| — | | |
| (98,308 | ) | |
| 522,785 | | |
| 0.24 | % |
StormWind,
LLC–Preferred shares, Series C 8%(5) | |
| 2,779,134 | | |
| — | | |
| 6,496,729 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (921,411 | ) | |
| 5,575,318 | | |
| 2.51 | % |
StormWind,
LLC–Preferred shares, Series B 8%(5) | |
| 3,279,629 | | |
| — | | |
| 4,423,607 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (978,971 | ) | |
| 3,444,636 | | |
| 1.55 | % |
StormWind,
LLC–Preferred shares, Series A 8%(5) | |
| 366,666 | | |
| — | | |
| 289,293 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (109,450 | ) | |
| 179,843 | | |
| 0.08 | % |
Total
Interactive Learning | |
| | | |
| — | | |
| 11,830,722 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,108,140 | ) | |
| 9,722,582 | | |
| 4.38 | % |
Total
Preferred Stock | |
| | | |
| — | | |
| 11,830,722 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,108,140 | ) | |
| 9,722,582 | | |
| 4.38 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Options | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Digital
Media Platform | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ozy
Media, Inc.–Common Warrants, Strike Price $0.01, Expiration Date 4/9/2028 | |
| 295,565 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
| — | % |
Global
Innovation Platform | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series B, Strike Price $2.31, Expiration Date 5/29/2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (70,379 | ) | |
| 70,379 | | |
| — | | |
| — | % |
OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series B, Strike Price $2.31, Expiration Date 12/31/2023 | |
| 250,000 | | |
| — | | |
| 5,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (5,000 | ) | |
| — | | |
| 0.00 | % |
OneValley,
Inc. (f/k/a NestGSV, Inc.)– Derivative Security, Expiration Date 8/23/2024(6) | |
| 1 | | |
| — | | |
| 2,268,268 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,638,533 | ) | |
| 629,735 | | |
| 0.28 | % |
Total
Global Innovation Platform | |
| | | |
| — | | |
| 2,273,268 | | |
| — | | |
| — | | |
| | | |
| (70,379 | ) | |
| (1,573,154 | ) | |
| 629,735 | | |
| 0.28 | % |
Total
Options | |
| | | |
| — | | |
| 2,273,268 | | |
| — | | |
| — | | |
| — | | |
| (70,379 | ) | |
| (1,573,154 | ) | |
| 629,735 | | |
| 0.28 | % |
Common
Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Online
Education | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Curious.com,
Inc.–Common shares | |
| 1,135,944 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Total
Common Stock | |
| | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
TOTAL
NON-CONTROLLED/AFFILIATE INVESTMENTS*(1) | |
| | | |
$ | — | | |
$ | 14,609,089 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | (70,379 | ) | |
$ | (2,228,109 | ) | |
$ | 12,310,601 | | |
| 5.55 | % |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
* | All
portfolio investments are non-income-producing, unless otherwise identified. Equity investments
are subject to lock-up restrictions upon their IPO. Preferred dividends are generally only
payable when declared and paid by the portfolio company’s board of directors. The Company’s
directors, officers, employees and staff, as applicable, may serve on the board of directors
of the Company’s portfolio investments. (Refer to “Note 3—Related-Party
Arrangements”). All portfolio investments are considered Level 3 and valued using significant
unobservable inputs, unless otherwise noted. (Refer to “Note 4—Investments at
Fair Value”). All portfolio investments are considered Level 3 and valued using unobservable
inputs, unless otherwise noted. All of the Company’s portfolio investments are restricted
as to resale, unless otherwise noted, and were valued at fair value as determined in good
faith by the Company’s Board of Directors. (Refer to “Note 2—Significant
Accounting Policies—Investments at Fair Value”). |
** | Indicates
assets that SuRo Capital Corp. believes do not represent “qualifying assets”
under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”).
Of the Company’s total investments as of September 30, 2022, 14.63% of its total investments
are non-qualifying assets. |
*** | Investment
is income-producing. |
(1) | “Affiliate
Investments” are investments in those companies that are “Affiliated Companies”
of SuRo Capital Corp., as defined in the 1940 Act. In general, a company is deemed to be
an “Affiliate” of SuRo Capital Corp. if SuRo Capital Corp. beneficially owns, directly or indirectly, between 5% and 25% of
the voting securities (i.e., securities with the right to elect directors) of such
company. |
(2) | “Control
Investments” are investments in those companies that are “Controlled Companies”
of SuRo Capital Corp., as defined in the 1940 Act. In general, under the 1940 Act, the Company
would “Control” a portfolio company if the Company beneficially owns, directly or indirectly, more than 25% of its
outstanding voting securities (i.e., securities with the right to elect directors) and/or
had the power to exercise control over the management or policies of such portfolio company. |
(3) | As
of September 30, 2022, the investments noted had been placed on non-accrual status. |
(4) | The
SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.) preferred shares held by SuRo Capital
Corp. do not entitle SuRo Capital Corp. to a preferred dividend rate. SuRo Capital Corp.
does not anticipate that SPBRX, INC. will pay distributions on a quarterly or regular basis
or become a predictable distributor of distributions. |
(5) | SuRo
Capital Corp.’s investments in StormWind, LLC are held through SuRo Capital Corp.’s
wholly owned subsidiary, GSVC SW Holdings, Inc. |
(6) | On
August 23, 2019, SuRo Capital Corp. amended the structure of its investment in OneValley,
Inc. (f/k/a NestGSV, Inc.). As part of the agreement, SuRo Capital Corp.’s equity holdings
(warrants notwithstanding) were restructured into a derivative security. OneValley, Inc.
(f/k/a NestGSV, Inc.) has the right to call the position at any time over a five year period,
while SuRo Capital Corp. can put the shares to OneValley, Inc. (f/k/a NestGSV, Inc.) at the
end of the five year period. |
(7) | Colombier
Sponsor LLC is the sponsor of Colombier Acquisition Corp., a special purpose acquisition
company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with one or more businesses. |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Schedule
of Investments In, and Advances to, Affiliates
Transactions
during the year ended December 31, 2021 involving the Company’s controlled investments and non-controlled/affiliate investments
were as follows:
SCHEDULE
OF INVESTMENTS IN AND ADVANCES TO AFFILIATES
Type/Industry/Portfolio
Company/Investment | |
Principal/ Quantity | | |
Interest,
Fees, or Dividends
Credited in
Income | | |
Fair
Value at December 31, 2020 | | |
Transfer
In/ (Out) | | |
Purchases, Capitalized
Fees, Interest
and Amortization | | |
Sales | | |
Realized Gains/(Losses) | | |
Unrealized Gains/(Losses) | | |
Fair
Value at December 31, 2021 | | |
Percentage of
Net Assets | |
CONTROLLED
INVESTMENTS*(2) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Options | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Special
Purpose Acquisition Company | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Colombier
Sponsor LLC**–Class W Units(9) | |
| 2,700,000 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,159,150 | | |
$ | — | | |
$ | | |
$ | ) | |
$ | 1,157,487 | | |
| % |
Total
Options | |
| | | |
| — | | |
| — | | |
| — | | |
| 1,159,150 | | |
| — | | |
| — | | |
| (1,663 | ) | |
| 1,157,487 | | |
| 0.32 | % |
Preferred
Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Clean
Technology | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
SPBRX,
INC. (f/k/a GSV Sustainability Partners, Inc.)–Preferred shares, Class A(4) | |
| 14,300,000 | | |
| — | | |
| 809,198 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 237,835 | | |
| 1,047,033 | | |
| 0.29 | % |
Total
Preferred Stock | |
| | | |
| — | | |
| 809,198 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 237,835 | | |
| 1,047,033 | | |
| 0.29 | % |
Common
Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Clean
Technology | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
SPBRX,
INC. (f/k/a GSV Sustainability Partners, Inc.)–Common shares | |
| 100,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Mobile
Finance Technology | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Architect
Capital PayJoy SPV, LLC**–Membership Interest in Lending SPV***(7) | |
$ | 10,000,000 | | |
| 390,000 | | |
| — | | |
| — | | |
| 10,006,745 | | |
| — | | |
| — | | |
| (6,745 | ) | |
| 10,000,000 | | |
| 2.74 | % |
Special
Purpose Acquisition Company | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Colombier
Sponsor LLC**–Class B Units(9) | |
| 1,976,033 | | |
| — | | |
| — | | |
| — | | |
| 1,556,587 | | |
| — | | |
| | |
| ) | |
| 1,554,354 | | |
| % |
Total
Common Stock | |
| | | |
| 390,000 | | |
| — | | |
| — | | |
| 11,563,332 | | |
| — | | |
| — | | |
| (8,978 | ) | |
| 11,554,354 | | |
| 3.17 | % |
TOTAL
CONTROLLED INVESTMENTS*(2) | |
| | | |
$ | 390,000 | | |
$ | 809,198 | | |
$ | — | | |
$ | 12,722,482 | | |
$ | — | | |
$ | — | | |
$ | 227,194 | | |
$ | 13,758,874 | | |
| 3.78 | % |
NON-CONTROLLED/AFFILIATE
INVESTMENTS*(1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Debt
Investments | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Corporate
Education | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
CUX,
Inc. (d/b/a CorpU)–Senior Subordinated Convertible Promissory Note 4% Due 2/14/2023 | |
$ | — | | |
$ | — | | |
$ | 312,790 | | |
$ | — | | |
$ | — | | |
$ | (1,344,981 | ) | |
$ | 88,789 | | |
$ | 943,402 | | |
$ | — | | |
| — | % |
Global
Innovation Platform | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
OneValley,
Inc. (f/k/a NestGSV, Inc.) –Convertible Promissory Note 8% Due 8/23/2024(3)(6) | |
$ | 1,010,198 | | |
$ | — | | |
$ | 505,099 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 505,099 | | |
| 0.14 | % |
Total
Debt Investments | |
| | | |
| — | | |
| 817,889 | | |
| — | | |
| — | | |
| (1,344,981 | ) | |
| 88,789 | | |
| 943,402 | | |
| 505,099 | | |
| 0.14 | % |
Preferred
Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Corporate
Education | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
CUX,
Inc. (d/b/a CorpU)–Convertible preferred shares, Series D 6% | |
| — | | |
| — | | |
| 73,882 | | |
| — | | |
| — | | |
| (1,159,243 | ) | |
| 380,636 | | |
| 704,725 | | |
| — | | |
| — | % |
CUX,
Inc. (d/b/a CorpU) -Convertible preferred shares, Series C 8% | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (3,504,871 | ) | |
| 1,498,794 | | |
| 2,006,077 | | |
| — | | |
| — | % |
Total
Corporate Education | |
| | | |
| — | | |
| 73,882 | | |
| — | | |
| — | | |
| (4,664,114 | ) | |
| 1,879,430 | | |
| 2,710,802 | | |
| — | | |
| — | % |
Knowledge
Networks | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Maven
Research, Inc.–Preferred shares, Series C | |
| 318,979 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Maven
Research, Inc.–Preferred shares, Series B | |
| 49,505 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Total
Knowledge Networks | |
| | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
Digital
Media Platform | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ozy
Media, Inc.–Preferred shares, Series C-2 6% | |
| 683,482 | | |
| — | | |
| 1,865,547 | | |
| — | | |
| — | | |
| - | | |
| — | | |
| (1,865,547 | ) | |
| — | | |
| — | % |
Ozy
Media, Inc.–Preferred shares, Series B 6% | |
| 922,509 | | |
| — | | |
| 3,350,952 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (3,350,952 | ) | |
| — | | |
| — | % |
Ozy
Media, Inc.–Preferred shares, Series A 6% | |
| 1,090,909 | | |
| — | | |
| 2,824,679 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,824,679 | ) | |
| — | | |
| — | % |
Ozy
Media, Inc.–Preferred shares, Series Seed 6% | |
| 500,000 | | |
| — | | |
| 1,294,645 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,294,645 | ) | |
| — | | |
| — | % |
Total
Digital Media Platform | |
| | | |
| — | | |
| 9,335,823 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (9,335,823 | ) | |
| — | | |
| — | % |
Interactive
Learning | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
StormWind,
LLC–Preferred shares, Series D 8%(5) | |
| 329,337 | | |
| — | | |
| 440,515 | | |
| — | | |
| — | | |
| - | | |
| — | | |
| 180,578 | | |
| 621,093 | | |
| 0.17 | % |
StormWind,
LLC–Preferred shares, Series C 8%(5) | |
| 2,779,134 | | |
| — | | |
| 4,804,218 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,692,511 | | |
| 6,496,729 | | |
| 1.78 | % |
StormWind,
LLC–Preferred shares, Series B 8%(5) | |
| 3,279,629 | | |
| — | | |
| 2,625,365 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,798,242 | | |
| 4,423,607 | | |
| 1.21 | % |
StormWind,
LLC–Preferred shares, Series A 8%(5) | |
| 366,666 | | |
$ | — | | |
$ | 88,248 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 201,045 | | |
$ | 289,293 | | |
| 0.08 | % |
Total
Interactive Learning | |
| | | |
| — | | |
| 7,958,346 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,872,376 | | |
| 11,830,722 | | |
| 3.24 | % |
Total
Preferred Stock | |
| | | |
| — | | |
| 17,368,051 | | |
| — | | |
| — | | |
| (4,664,114 | ) | |
| 1,879,430 | | |
| (2,752,645 | ) | |
| 11,830,722 | | |
| 3.24 | % |
Options | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Digital
Media Platform | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ozy
Media, Inc.–Common Warrants, Strike Price $0.01, Expiration Date 4/9/2028 | |
| 295,565 | | |
| — | | |
| 762,558 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (762,558 | ) | |
| — | | |
| — | % |
Global
Innovation Platform | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series A-3 - Strike Price $1.33, Expiration Date 4/4/2021 | |
| — | | |
| — | | |
| 4,687 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,687 | ) | |
| — | | |
| — | % |
OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series A-4, Strike Price $1.33, Expiration Date 7/18/2021 | |
| — | | |
| — | | |
| 27,500 | | |
| — | | |
| — | | |
| — | | |
| (74,380 | ) | |
| 46,880 | | |
| — | | |
| — | % |
OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series A-4, Strike Price $1.33, Expiration Date 10/6/2021 | |
| — | | |
| — | | |
| 65,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (65,000 | ) | |
| — | | |
| — | % |
OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series B, Strike Price $2.31, Expiration Date 11/29/2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (29,275 | ) | |
| 29,275 | | |
| — | | |
| — | % |
OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series B, Strike Price $2.31, Expiration Date 5/29/2022 | |
| 125,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series B, Strike Price $2.31, Expiration Date 12/31/2023 | |
| 250,000 | | |
| — | | |
| 9,250 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,250 | ) | |
| 5,000 | | |
| 0.01 | % |
Derivative
Security, Expiration Date 8/23/2024(6) | |
| 1 | | |
| — | | |
| 2,173,148 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 95,120 | | |
| 2,268,268 | | |
| 0.62 | % |
Total
Global Innovation Platform | |
| | | |
| — | | |
| 2,279,585 | | |
| — | | |
| — | | |
| | | |
| (103,655 | ) | |
| 97,338 | | |
| 2,273,268 | | |
| 0.63 | % |
Total
Options | |
| | | |
| — | | |
| 3,042,143 | | |
| — | | |
| — | | |
| — | | |
| (103,655 | ) | |
| (665,220 | ) | |
| 2,273,268 | | |
| 0.63 | % |
Common
Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Online
Education | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Curious.com,
Inc.–Common shares | |
| 1,135,944 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cannabis
REIT | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NewLake
Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.)**–Common shares***(8) | |
| — | | |
$ | 102,632 | | |
$ | 8,937,690 | | |
$ | (9,009,952 | ) | |
$ | 500,319 | | |
$ | — | | |
$ | — | | |
$ | (428,057 | ) | |
$ | — | | |
| — | % |
Total
Common Stock | |
| | | |
| 102,632 | | |
| 8,937,690 | | |
| (9,009,952 | ) | |
| 500,319 | | |
| — | | |
| — | | |
| (428,057 | ) | |
| — | | |
| — | % |
TOTAL
NON-CONTROLLED/AFFILIATE INVESTMENTS*(1) | |
| | | |
$ | 102,632 | | |
$ | 30,165,773 | | |
$ | (9,009,952 | ) | |
$ | 500,319 | | |
$ | (6,009,095 | ) | |
$ | 1,864,564 | | |
$ | (2,902,520 | ) | |
$ | 14,609,089 | | |
| 4.01 | % |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
* | All
portfolio investments are non-income-producing, unless otherwise identified. Equity investments
are subject to lock-up restrictions upon their IPO. Preferred dividends are generally only
payable when declared and paid by the portfolio company’s board of directors. The Company’s
directors, officers, employees and staff, as applicable, may serve on the board of directors
of the Company’s portfolio investments. (Refer to “Note 3—Related-Party
Arrangements”). All portfolio investments are considered Level 3 and valued using significant
unobservable inputs, unless otherwise noted. (Refer to “Note 4—Investments at
Fair Value”). All portfolio investments are considered Level 3 and valued using unobservable
inputs, unless otherwise noted. All of the Company’s portfolio investments are restricted
as to resale, unless otherwise noted, and were valued at fair value as determined in good
faith by the Company’s Board of Directors. (Refer to “Note 2—Significant
Accounting Policies—Investments at Fair Value”). |
** | Indicates
assets that SuRo Capital Corp. believes do not represent “qualifying assets”
under Section 55(a) of the 1940 Act. Of the Company’s total investments as of December
31, 2021, 26.91% of its total investments are non-qualifying assets. |
*** | Investment
is income-producing. |
(1) | “Affiliate
Investments” are investments in those companies that are “Affiliated Companies”
of SuRo Capital Corp., as defined in the 1940 Act. In general, a company is deemed to be
an “Affiliate” of SuRo Capital Corp. if SuRo Capital Corp. owns 5% or more of
the voting securities (i.e., securities with the right to elect directors) of such
company. |
“Control
Investments” are investments in those companies that are “Controlled Companies”
of SuRo Capital Corp., as defined in the 1940 Act. In general, under the 1940 Act, the Company
would “Control” a portfolio company if the Company owned more than 25% of its
outstanding voting securities (i.e., securities with the right to elect directors) and/or
had the power to exercise control over the management or policies of such portfolio company. |
(3) | As
of December 31, 2021, the investments noted had been placed on non-accrual status. |
(4) | The
SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.) preferred shares held by SuRo Capital
Corp. do not entitle SuRo Capital Corp. to a preferred dividend rate. SuRo Capital Corp.
does not anticipate that SPBRX, INC. will pay distributions on a quarterly or regular basis
or become a predictable distributor of distributions. |
(5) | SuRo
Capital Corp.’s investments in StormWind, LLC are held through SuRo Capital Corp.’s
wholly owned subsidiary, GSVC SW Holdings, Inc. |
(6) | On
August 23, 2019, SuRo Capital Corp. amended the structure of its investment in OneValley,
Inc. (f/k/a NestGSV, Inc.). As part of the agreement, SuRo Capital Corp.’s equity holdings
(warrants notwithstanding) were restructured into a derivative security. OneValley, Inc.
(f/k/a NestGSV, Inc.) has the right to call the position at any time over a five year period,
while SuRo Capital Corp. can put the shares to OneValley, Inc. (f/k/a NestGSV, Inc.) at the
end of the five year period. |
(7) | As
of December 31, 2021, the total $10.0 million capital commitment representing SuRo Capital
Corp.’s Membership Interest in Architect Capital PayJoy SPV, LLC had been called and
funded. |
(8) | During
the year ended December 31, 2021, NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real
Estate Corp.) declared an aggregate of approximately $0.3 million in dividend distributions,
of which approximately $0.1 million reflects the dividend income earned while NewLake Capital
Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) was a non-controlled/affiliate investment.
SuRo Capital Corp. does not anticipate that NewLake Capital Partners, Inc. (f/k/a GreenAcreage
Real Estate Corp.) will pay distributions on a recurring or regular basis or become a predictable
distributor of distributions. On August 20, 2021, NewLake Capital Partners, Inc.(f/k/a GreenAcreage
Real Estate Corp.) went public via an initial public offering on the OTCQX. As of December
31, 2021, none of SuRo Capital Corp.’s common shares in NewLake Capital Partners, Inc.
(f/k/a GreenAcreage Real Estate Corp.) were subject to lock-up restrictions. |
(9) | Colombier
Sponsor LLC is the sponsor of Colombier Acquisition Corp., a special purpose acquisition
company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with one or more businesses. |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
NOTE
5—COMMON STOCK
Share
Repurchase Program
On
August 8, 2017, the Company announced a $5.0
million discretionary open-market share repurchase program of shares of the Company’s common stock, $0.01
par value per share, of up to $5.0
million until the earlier of (i) August 6, 2018 or (ii) the repurchase of $5.0
million in aggregate amount of the Company’s common stock (the “Share Repurchase Program”). On November 7, 2017,
the Company’s Board of Directors authorized an extension of, and an increase in the amount of shares of the Company’s
common stock that may be repurchased under the discretionary Share Repurchase Program until the earlier of (i) November 6, 2018 or
(ii) the repurchase of $10.0
million in aggregate amount of the Company’s common stock. On May 3, 2018, the Company’s Board of Directors authorized a
$5.0
million increase in the amount of shares of the Company’s common stock that may be repurchased under the discretionary Share
Repurchase Program until the earlier of (i) November 6, 2018 or (ii) the repurchase of $15.0
million in aggregate amount of the Company’s common stock. On November 1, 2018, our Board of Directors authorized a $5.0
million increase in the amount of shares of our common stock that may be repurchased under the discretionary Share Repurchase
Program until the earlier of (i) October 31, 2019 or (ii) the repurchase of $20.0
million in aggregate amount of our common stock. On August 5, 2019, our Board of Directors authorized a $5.0
million increase in the amount of shares of our common stock that may be repurchased under the discretionary Share Repurchase
Program until the earlier of (i) August 4, 2020 or (ii) the repurchase of $25.0
million in aggregate amount of our common stock. On March 9, 2020, our Board of Directors authorized a $5.0
million increase in the amount of shares of our common stock that may be repurchased under the discretionary Share Repurchase
Program until the earlier of (i) March 8, 2021 or (ii) the repurchase of $30.0
million in aggregate amount of our common stock. On October 28, 2020, our Board of Directors authorized a $10.0
million increase in the amount of shares of our common stock that may be repurchased under the discretionary Share Repurchase
Program until the earlier of (i) October 31, 2021 or (ii) the repurchase of $40.0
million in aggregate amount of our common stock. On October 27, 2021, our Board of Directors approved an extension of the Share
Repurchase Program until the earlier of (i) October 31, 2022 or (ii) the repurchase of $40.0
million in aggregate amount of our common stock. On March 13, 2022, our Board of Directors authorized a $15.0
million increase in the amount of shares of our common stock that may be repurchased under the discretionary Share Repurchase
Program until the earlier of (i) October 31, 2022 or (ii) the repurchase of $55.0
million in aggregate amount of our common stock. On October 19, 2022, the Company’s Board of Directors approved an extension of the Share Repurchase Program
until the earlier of (i) October 31, 2023 or (ii) the repurchase of $55.0 million in aggregate amount of the Company’s common stock.
The
timing and number of shares to be repurchased will depend on a number of factors, including market conditions and alternative investment
opportunities. The Share Repurchase Program may be suspended, terminated or modified at any time for any reason and does not obligate
the Company to acquire any specific number of shares of its common stock. Under the Share Repurchase Program, we may repurchase our outstanding
common stock in the open market provided that we comply with the prohibitions under our insider trading policies and procedures and the
applicable provisions of the 1940 Act and the Securities Exchange Act of 1934, as amended.
During
the three and nine months ended September 30, 2022, the Company repurchased 0 and 1,008,676 shares, respectively, of the Company’s
common stock under the Share Repurchase Program. During the three and nine months ended September 30, 2021, the Company did not repurchase
any shares of common stock under the Share Repurchase Program. As of September 30, 2022, the dollar value of shares that remained available
to be purchased by the Company under the Share Repurchase Program was approximately $16.4 million.
Modified
Dutch Auction Tender Offer
On
August 8, 2022, the Company commenced a modified “Dutch Auction” tender offer (the “Modified Dutch Auction Tender Offer”)
to purchase up to 2,000,000 shares of its common stock from it’s stockholders, which expired on September 2, 2022. In accordance
with the terms of the Modified Dutch Auction Tender Offer, the Company selected the lowest price per share of not less than $6.00 per
share and not greater than $7.00 per share.
Pursuant
to the Modified Dutch Auction Tender Offer, the Company repurchased 2,000,000 shares, representing 6.6% of its outstanding shares, on
or about September 12, 2022 at a price of $6.60 per share. The Company used available cash to fund the purchases of its shares of common
stock in the Modified Dutch Auction Tender Offer and to pay for all related fees and expenses.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Amended
and Restated 2019 Equity Incentive Plan
Refer
to “Note 11—Stock-Based Compensation” for a description of the Company’s restricted shares of common stock granted
under the Amended & Restated 2019 Equity Incentive Plan (as defined therein).
Dividends
Paid in Common Stock
On
May 4, 2021, the Company’s Board of Directors declared a dividend of $2.50 per share that was paid on June 30, 2021 to stockholders
of record as of the close of business on May 18, 2021. The ex-dividend date was May 17, 2021. The dividend was paid in cash and shares
of the Company’s common stock at the election of the stockholders, although the total amount of cash to be distributed to all stockholders
was limited to no more than 50% of the total dividend paid to all stockholders. The total dividend amount paid to all stockholders consisted
of approximately $30.0 million in cash and 2,335,527 in shares of common stock issued.
On
August 3, 2021, the Company’s Board of Directors declared a dividend of $2.25 per share that was paid on September 30, 2021 to
stockholders of record as of the close of business on August 18, 2021. The ex-dividend date was August 17, 2021. The dividend was paid
in cash and shares of the Company’s common stock at the election of the stockholders, although the total amount of cash to be distributed
to all stockholders was limited to no more than 50% of the total dividend paid to all stockholders. The total dividend amount paid to
all stockholders consisted of approximately $29.6 million in cash and 2,225,193 in shares of common stock issued.
On
November 2, 2021, the Company’s Board of Directors declared a dividend of $2.00 per share that was paid on December 30, 2021 to
stockholders of record as of the close of business on November 17, 2021. The ex-dividend date was November 16, 2021. The dividend was
paid in cash and shares of the Company’s common stock at the election of the stockholders, although the total amount of cash to
be distributed to all stockholders was limited to no more than 50% of the total dividend paid to all stockholders. The total dividend
amount paid to all stockholders consisted of approximately $28.5 million in cash and 2,170,807 in shares of common stock issued.
Conversion
of 4.75% Convertible Senior Notes due 2023
During
the three and nine months ended September 30, 2021, the Company issued 0 and 4,097,808 shares, respectively, of its common stock and
cash for fractional shares upon the conversion of approximately $37.9 million in aggregate principal amount of the 4.75% Convertible
Senior Notes due 2023. The Company also redeemed approximately $0.3 million of aggregate principal amount for cash plus accrued and unpaid
interest on March 29, 2021. During the year ended December 31, 2020, the Company issued 174,888 shares of its common stock and cash for
fractional shares upon the conversion of $1,785,000 in aggregate principal amount of the 4.75% Convertible Senior Notes due 2023. Refer
to “Note 10—Debt Capital Activities” for more detail regarding conversion terms.
At-the-Market
Offering
On
July 29, 2020, the Company entered into an At-the-Market Sales Agreement, dated July 29, 2020 (the “Initial Sales Agreement”),
with BTIG, LLC, JMP Securities LLC and Ladenburg Thalmann & Co., Inc. (collectively, the “Agents”). Under the Initial
Sales Agreement, the Company may, but has no obligation to, issue and sell up to $50.0 million in aggregate amount of shares of its common
stock (the “Shares”) from time to time through the Agents or to them as principal for their own account (the “ATM Program”).
On September 23, 2020, the Company increased the maximum amount of Shares to be sold through the ATM Program to $150.0 million from $50.0
million. In connection with the upsize of the ATM Program to $150.0 million, the Company entered into Amendment No. 1 to the At-the-Market
Sales Agreement, dated September 23, 2020, with the Agents (the “Amendment No. 1 to the Sales Agreement,” and together with
the Initial Sales Agreement, the “Sales Agreement”). The Company intends to use the net proceeds from the ATM Program to
make investments in portfolio companies in accordance with its investment objective and strategy and for general corporate purposes.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Sales
of the Shares, if any, will be made by any method that is deemed to be an “at-the-market” offering as defined in Rule 415
under the Securities Act, including sales made directly on the Nasdaq Global Select Market or sales made to or through a market maker
other than on an exchange, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at other
negotiated prices. Actual sales in the ATM Program will depend on a variety of factors to be determined by the Company from time to time.
The
Agents will receive a commission from the Company equal to up to 2.0% of the gross sales price of any Shares sold through the Agents
under the Sales Agreement and reimbursement of certain expenses. The Sales Agreement contains customary representations, warranties and
agreements of the Company, conditions to closing, indemnification rights and obligations of the parties and termination provisions.
During
the three and nine months ended September 30, 2022, the Company issued and sold 0 and 17,807 shares, respectively, under the ATM Program
at a weighted-average price of $13.01 per share, for gross proceeds of $231,677 and net proceeds of $229,896, after deducting commissions
to the Agents on Shares sold. As of September 30, 2022, up to approximately $98.8 million in aggregate amount of the Shares remain available
for sale under the ATM Program.
NOTE
6—NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE—BASIC AND DILUTED
The
following information sets forth the computation of basic and diluted net increase in net assets resulting from operations per common
share, pursuant to ASC 260, for the three and nine months ended September 30, 2022 and 2021.
SCHEDULE
OF BASIC AND DILUTED COMMON SHARE
| |
| | | |
| | | |
| | | |
| | |
| |
Three
Months Ended September 30, | | |
Nine
Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Earnings
per common share–basic: | |
| | | |
| | | |
| | | |
| | |
Net change in net assets resulting
from operations | |
$ | (45,902,250 | ) | |
$ | 15,248,404 | | |
$ | (119,785,483 | ) | |
$ | 156,607,831 | |
Weighted-average common
shares–basic | |
| 29,781,801 | | |
| 27,619,062 | | |
| 30,542,611 | | |
| 24,506,181 | |
Earnings
per common share–basic | |
$ | (1.54 | ) | |
$ | 0.55 | | |
$ | (3.92 | ) | |
$ | 6.39 | |
Earnings
per common share–diluted: | |
| | | |
| | | |
| | | |
| | |
Net change in net assets resulting from operations | |
$ | (45,902,250 | ) | |
$ | 15,248,404 | | |
$ | (119,785,483 | ) | |
$ | 156,607,831 | |
Adjustment
for interest and amortization on 4.75% Convertible Senior Notes due 2023(1) | |
| — | | |
| — | | |
| — | | |
| 501,065 | |
Net
change in net assets resulting from operations, as adjusted | |
$ | (45,902,250 | ) | |
$ | 15,248,404 | | |
$ | (119,785,483 | ) | |
$ | 157,108,896 | |
Adjustment
for dilutive effect of 4.75% Convertible Senior Notes due 2023(1) | |
| — | | |
| — | | |
| — | | |
| 1,198,918 | |
Weighted-average common
shares outstanding–diluted | |
| 29,781,801 | | |
| 27,619,062 | | |
| 30,542,611 | | |
| 25,705,099 | |
Earnings
per common share–diluted | |
$ | (1.54 | ) | |
$ | 0.55 | | |
$ | (3.92 | ) | |
$ | 6.11 | |
(1) | For
the three and nine months ended September 30, 2022 and the three months ended September 30, 2021, there were no
potentially dilutive securities outstanding. For the nine months ended September 30, 2021, 0 potentially dilutive common shares were excluded from the weighted-average
common shares outstanding for diluted net increase in net assets resulting from operations per common share. |
NOTE
7—COMMITMENTS AND CONTINGENCIES
In
the normal course of business, the Company may enter into investment agreements under which it commits to make an investment in a portfolio
company at some future date or over a specified period of time. As of September 30, 2022 and December 31, 2021, the Company had $1,330,000
and $1,330,000, respectively, in non-binding investment agreements that required it to make a future investment in a portfolio company.
From
time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating
to the enforcement of its rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be
predicted with certainty, the Company does not expect that these proceedings will have a material effect upon its business, financial
condition or results of operations. The Company is not currently a party to any material legal proceedings.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Operating
Leases & Related Deposits
The
Company currently has one operating lease for office space for which the Company has recorded a right-of-use asset and lease liability
for the operating lease obligation. The lease commenced June 3, 2019 and expires July 31, 2024. The lease expense is presented as a single
lease cost that is amortized on a straight-line basis over the life of the lease.
As
of September 30, 2022 and December 31, 2021, the Company booked a right-of-use asset and operating lease liability of $333,882 and $470,508,
respectively, on the Condensed Consolidated Statement of Assets and Liabilities. As of September 30, 2022 and December 31, 2021, the
Company recorded a security deposit of $16,574 and $16,574, respectively, on the Condensed Consolidated Statement of Assets and Liabilities.
For the three months ended September 30, 2022 and 2021, the Company incurred $48,738 and $47,362, respectively, of operating lease expense.
For the nine months ended September 30, 2022 and 2021, the Company incurred $143,459 and $139,406, respectively, of operating lease expense.
The amounts reflected on the Condensed Consolidated Statement of Assets and Liabilities have been discounted using the rate implicit
in the lease. As of September 30, 2022, the remaining lease term was 1.8 years and the discount rate was 3.00%.
The
following table shows future minimum payments under the Company’s operating lease as of September 30, 2022:
SCHEDULE
OF FUTURE MINIMUM PAYMENTS OF OPERATING LEASE
| | | |
| | |
For
the Years Ended December 31, | | |
Amount | |
| 2022 | | |
| 46,868 | |
| 2023 | | |
| 190,750 | |
| 2024 | | |
| 113,603 | |
| Total | | |
$ | 351,221 | |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
NOTE
8—FINANCIAL HIGHLIGHTS
SCHEDULE
OF FINANCIAL HIGHLIGHTS
| |
| | | |
| | | |
| | | |
| | |
| |
Three
Months Ended September 30, | | |
Nine
Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Per Basic Share Data | |
| | | |
| | | |
| | | |
| | |
Net asset value at beginning of
the year | |
$ | 9.24 | | |
$ | 16.56 | | |
$ | 11.72 | | |
$ | 15.14 | |
Net investment
loss(1) | |
| (0.13 | ) | |
| (0.08 | ) | |
| (0.39 | ) | |
| (0.29 | ) |
Net realized
gain/(loss) on investments(1) | |
| (0.17 | ) | |
| 0.93 | | |
| (0.13 | ) | |
| 7.03 | |
Net change
in unrealized appreciation/(depreciation) of investments(1) | |
| (1.24 | ) | |
| (0.61 | ) | |
| (3.40 | ) | |
| (0.35 | ) |
Dividends declared | |
| — | | |
| (2.25 | ) | |
| (0.11 | ) | |
| (5.25 | ) |
Issuance of common stock
from stock dividend | |
| — | | |
| 0.22 | | |
| — | | |
| 0.38 | |
Issuance
of common stock from public offering(1) | |
| — | | |
| — | | |
| 0.01 | | |
| — | |
Issuance
of common stock from conversion of 4.75% Convertible Notes due 2023(1) | |
| — | | |
| — | | |
| — | | |
| (1.91 | ) |
Repurchase of common stock(1) | |
| 0.11 | | |
| | | |
| 0.08 | | |
| — | |
Stock-based
compensation(1) | |
| 0.02 | | |
| 0.02 | | |
| 0.05 | | |
| 0.04 | |
Net asset value at
end of period | |
$ | 7.83 | | |
$ | 14.79 | | |
$ | 7.83 | | |
$ | 14.79 | |
Per share market value at end of period | |
$ | 3.87 | | |
$ | 12.91 | | |
$ | 3.87 | | |
$ | 12.91 | |
Total return based on market
value(2) | |
| (39.53 | )% | |
| 30.46 | % | |
| (68.91 | )% | |
| 71.32 | % |
Total return based on net
asset value(2) | |
| (15.26 | )% | |
| 2.90 | % | |
| (32.25 | )% | |
| 32.36 | % |
Shares outstanding at end of period | |
| 28,333,661 | | |
| 28,781,016 | | |
| 28,333,661 | | |
| 28,781,016 | |
Ratios/Supplemental Data: | |
| | | |
| | | |
| | | |
| | |
Net assets at end of period | |
$ | 221,783,611 | | |
$ | 425,766,489 | | |
$ | 221,783,611 | | |
$ | 425,766,489 | |
Average net assets | |
$ | 278,994,914 | | |
$ | 427,927,307 | | |
$ | 340,160,110 | | |
$ | 389,106,239 | |
Ratio
of net operating expenses to average net assets(3) | |
| 5.14 | % | |
| 2.41 | % | |
| 4.89 | % | |
| 2.81 | % |
Ratio of net investment loss
to average net assets(3) | |
| (4.66 | )% | |
| (1.92 | )% | |
| (4.52 | )% | |
| (2.43 | )% |
Portfolio Turnover Ratio | |
| 0.85 | % | |
| 10.03 | % | |
| 3.47 | % | |
| 23.93 | % |
(1) | Based
on weighted-average number of shares outstanding for the relevant period. |
(2) | Total
return based on market value is based upon the change in market price per share between the
opening and ending market values per share in the period, adjusted for dividends and equity
issuances. 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, adjusted
for dividends and equity issuances. |
(3) | Because
the ratios are calculated for the Company’s common stock taken as a whole, an individual
investor’s ratios may vary from these ratios. |
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
NOTE
9—INCOME TAXES
The
Company elected to be treated as a RIC under Subchapter M of the Code beginning with its taxable year ended December 31, 2014 and has
qualified to be treated as a RIC for subsequent taxable years. The Company intends to continue to operate so as to qualify to be subject
to tax treatment as a RIC under Subchapter M of the Code and, as such, will not be subject to U.S. federal income tax on the portion
of taxable income (including gains) distributed as dividends for U.S. federal income tax purposes to stockholders. Taxable income includes
the Company’s taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized investment
gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in
the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as such gains or losses are
not included in taxable income until they are realized.
To
qualify and be subject to tax as a RIC, the Company is required to meet certain income and asset diversification tests in addition to
distributing dividends of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code
and determined without regard to any deduction for distributions paid, to its stockholders. The amount to be paid out as a distribution
is determined by the Board of Directors each quarter and is based upon the annual earnings estimated by the management of the Company.
To the extent that the Company’s earnings fall below the amount of dividend distributions declared, however, a portion of the total
amount of the Company’s distributions for the fiscal year may be deemed a return of capital for tax purposes to the Company’s
stockholders.
During
the three and nine months ended September 30, 2022, the Company declared distributions of $0 and $0.11 per share, respectively. The determination
of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s taxable year generally
based upon its taxable income for the full taxable year and distributions paid for the full taxable year. As a result, a determination
made on a by-dividend basis may not be representative of the actual tax attributes of the Company’s distributions for a full taxable
year. If the Company had determined the tax attributes of our distributions taxable year-to-date as of September 30, 2022, 100% would
be from net realized investment gains. However, there can be no certainty to stockholders that this determination is representative of
what the actual tax attributes of the Company’s fiscal year of 2022 distributions to stockholders will be.
As
a RIC, the Company will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless the Company makes
distributions treated as dividends for U.S. federal income tax purposes in a timely manner to its stockholders in respect of each calendar
year of an amount at least equal to the sum of (1) 98% of our ordinary income (taking into account certain deferrals and elections) for
each calendar year, (2) 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October
31 of each such calendar year and (3) any ordinary income and net capital gains for preceding years, but not distributed during such
years and on which the Company paid no U.S. federal income tax. The Company will not be subject to this excise tax on any amount on which
the Company incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).
Depending
on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current taxable
year distributions from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required.
The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the
total amount of distributions paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent
the Company chooses to carry over taxable income into the next taxable year, distributions declared and paid by the Company in a taxable
year may differ from the Company’s taxable income for that taxable year as such distributions may include the distribution of current
taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable
year, or returns of capital.
The
Company has taxable subsidiaries which hold certain portfolio investments in an effort to limit potential legal liability and/or comply
with source-income type requirements contained in the RIC tax provisions of the Code. These taxable subsidiaries are consolidated for
GAAP and the portfolio investments held by the taxable subsidiaries are included in the Company’s consolidated financial statements
and are recorded at fair value. These taxable subsidiaries are not consolidated with the Company for income tax purposes and may generate
income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments. Any income
generated by these taxable subsidiaries generally would be subject to tax at normal corporate tax rates based on its taxable income.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
The
Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that it
may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, may choose to
carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.
The
Company is required to include net deferred tax provision/benefit in calculating its total expenses even though these net deferred taxes
are not currently payable/receivable. Taxable income generally differs from net income for financial reporting purposes due to temporary
and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation,
as such gains or losses are not included in taxable income until they are realized.
For
U.S. federal and state income tax purposes, a portion of the Taxable Subsidiaries’ net operating loss carryforwards and basis differences
may be subject to limitations on annual utilization in case of a change in ownership, as defined by federal and state law. The amount
of such limitations, if any, has not been determined. Accordingly, the amount of such tax attributes available to offset future profits
may be significantly less than the actual amounts of the tax attributes.
The
Company and the Taxable Subsidiaries identified their major tax jurisdictions as U.S. federal, New York, and California and may be subject
to the taxing authorities’ examination for the tax years 2019–2022 and 2018–2022, respectively. Further, the Company
and the Taxable Subsidiaries accrue all interest and penalties related to uncertain tax positions as incurred. As of September 30, 2022,
there were no material interest or penalties incurred related to uncertain tax positions.
NOTE
10—DEBT CAPITAL ACTIVITIES
6.00%
Notes due 2026
On
December 17, 2021, the Company issued $70.0 million aggregate principal amount of its 6.00% Notes due 2026 (the “6.00% Notes due
2026”), pursuant to an Indenture, dated as of March 28, 2018 (the “Base Indenture”), between the Company and U.S. Bank
Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee (the “Trustee”),
as supplemented by a second supplemental indenture, dated as of December 17, 2021 (together with the Base Indenture, the “Indenture”),
between the Company and the Trustee. On December 21, 2021, the Company issued an additional $5.0 million aggregate principal amount of
6.00% Notes due 2026 pursuant to an overallotment option. The 6.00% Notes due 2026 bear interest at a fixed rate of 6.00% per year, payable
quarterly in arrears on March 30, June 30, September 30, and December 30 of each year, commencing on March 30, 2022. The 6.00% Notes
due 2026 have a maturity date of December 30, 2026, unless previously repurchased in accordance with their terms. The Company has the
right to redeem the 6.00% Notes due 2026, in whole or in part, at any time or from time to time, on or after December 30, 2024 at a redemption
price of 100% of the outstanding principal amount of the 6.00% Notes due 2026 plus accrued and unpaid interest.
The
6.00% Notes due 2026 are direct unsecured obligations of the Company and rank pari passu, or equal in right of payment, with all
outstanding and future unsecured, unsubordinated indebtedness of the Company; senior to any of the Company’s future indebtedness
that expressly provides it is subordinated to the 6.00% Notes due 2026; effectively subordinated to any of the Company’s future
secured indebtedness (including indebtedness that is initially unsecured in respect of which the Company subsequently grants a security
interest), to the extent of the value of the assets securing such indebtedness (provided, however, that the Company has agreed under
the Indenture to not incur any secured or unsecured indebtedness that would be senior to the 6.00% Notes due 2026 while the 6.00% Notes
due 2026 are outstanding, subject to certain exceptions); and structurally subordinated to all existing and future indebtedness and other
obligations of any of the Company’s subsidiaries.
The
6.00% Notes due 2026 are listed for trading on the Nasdaq Global Select Market under the symbol “SSSSL”. The reported closing
market price of SSSSL on September 30, 2022 and December 31, 2021 was $23.95 and $25.68 per note, respectively. As of September 30, 2022
and December 31, 2021, the fair value of the 6.00% Notes due 2026 was $71.9 million and $77.0 million, respectively. The 6.00% Notes
due 2026 are classified as Level 1 of the fair value hierarchy (Refer to “Note 2 — Significant Accounting Policies”).
As of September 30, 2022 and December 31, 2021, the Company was in compliance with the terms of the Indenture.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
4.75%
Convertible Senior Notes due 2023
On
March 28, 2018, the Company issued $40.0 million aggregate principal amount of convertible senior notes, which bore interest at a fixed
rate of 4.75% per year, payable semi-annually in arrears on March 31 and September 30 of each year, commencing on September 30, 2018.
The 4.75% Convertible Senior Notes due 2023 had a maturity date of March 28, 2023 (the “4.75% Convertible Senior Notes due 2023”),
unless previously repurchased or converted in accordance with their terms. The Company did not have the right to redeem the 4.75% Convertible
Senior Notes due 2023 prior to March 27, 2021. On or after March 27, 2021, the Company could redeem the 4.75% Convertible Senior Notes
due 2023 for cash, in whole or in part, from time to time, at the Company’s option if (i) the closing sale price of the Company’s
common stock for at least 15 trading days (whether or not consecutive) during the period of any 20 consecutive trading days was greater
than or equal to 150% of the conversion price on each applicable trading day, (ii) no public announcement of a pending, proposed or intended
fundamental change had occurred which had not been abandoned, terminated or consummated, and (iii) no event of default under the indenture
governing the 4.75% Convertible Senior Notes due 2023, and no event that with the passage of time or giving of notice would constitute
an event of default under such indenture, had occurred or existed.
All
of these conditions were met and on February 19, 2021, the Company caused notices to be issued to the holders of the 4.75% Convertible
Senior Notes due 2023 regarding the Company’s exercise of its option to redeem, in whole, the issued and outstanding 4.75% Convertible
Senior Notes due 2023, pursuant to the governing indenture. The Company established March 29, 2021 as the date on which all of the 4.75%
Convertible Senior Notes due 2023 would be redeemed (the “Redemption Date”), at 100% of their principal amount ($1,000 per
convertible note), plus the accrued and unpaid interest thereon from September 30, 2020, through, but excluding, the Redemption Date.
Holders of the 4.75% Convertible Senior Notes due 2023 had the option to surrender their 4.75% Convertible Senior Notes due 2023 for
conversion into shares of the Company’s common stock at the then existing conversion rate, in lieu of receiving cash, at any time
prior to the close of business on the business day immediately preceding the Redemption Date.
On
the Redemption Date, the Company redeemed $0.3 million in aggregate principal amount of the 4.75% Convertible Senior Notes due 2023 at
a redemption price equal to 100% of their principal amount ($1,000 per convertible note), plus accrued and unpaid interest thereon. Due
to the election of certain holders to surrender their 4.75% Convertible Senior Notes due 2023 for conversion into shares of the Company’s
common stock prior to the Redemption Date, the Company issued a total of 4,272,696 shares since the 4.75% Convertible Senior Notes due
2023 were initially issued. As result of such redemption and conversions, the 4.75% Convertible Senior Notes due 2023 were no longer
outstanding as of the Redemption Date.
The
initial conversion rate for the 4.75% Convertible Senior Notes due 2023 was 93.2836 shares of the Company’s common stock for each
$1,000 principal amount of the 4.75% Convertible Senior Notes due 2023, which represented an initial conversion price of approximately
$10.72 per share. As a result of the Company’s Modified Dutch Auction Tender Offer and cash dividends, the conversion rate for
the 4.75% Convertible Senior Notes due 2023 changed to 108.0505 shares of the Company’s common stock for each $1,000 principal
amount of the 4.75% Convertible Senior Notes due 2023, which represented a conversion price of approximately $9.25 per share.
The
indenture governing the 4.75% Convertible Senior Notes due 2023 contained customary financial reporting requirements and contained certain
restrictions on mergers, consolidations, and asset sales. The indenture also contained certain events of default, the occurrence of which
could have caused the 4.75% Convertible Senior Notes due 2023 to become due and payable before their maturity or immediately.
During
the three months ended March 31, 2021, the Company issued 4,097,808 shares of its common stock and cash for fractional shares upon the
conversion of approximately $37.9 million in aggregate principal amount of the 4.75% Convertible Senior Notes due 2023. The Company also
redeemed approximately $0.3 million of aggregate principal amount for cash plus accrued and unpaid interest on March 29, 2021. During
the year ended December 31, 2020, the Company issued 174,888 shares of its common stock and cash for fractional shares upon the conversion
of $1,785,000 in aggregate principal amount of the 4.75% Convertible Senior Notes due 2023.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
The
table below shows a reconciliation from the aggregate principal amount of 4.75% Convertible Senior Notes due 2023 to the balance shown
on the Condensed Consolidated Statement of Assets and Liabilities.
SCHEDULE
OF DEBT
| |
| | | |
| | |
| |
September
30, 2022 | | |
December
31, 2021 | |
Initial aggregate principal amount
of 4.75% Convertible Senior Notes due 2023 | |
$ | — | | |
$ | 38,215,000 | |
Conversion of 4.75% Convertible Senior Notes
due 2023 | |
| — | | |
| (37,925,000 | ) |
Redemption of 4.75% Convertible Senior Notes
due 2023 | |
| — | | |
| (290,000 | ) |
Direct deduction of
deferred debt issuance costs | |
| — | | |
| — | |
4.75% Convertible Senior
Notes due 2023 Payable | |
$ | — | | |
$ | — | |
The
4.75% Convertible Senior Notes due 2023 were the Company’s general, unsecured, senior obligations and ranked senior in right of
payment to any future indebtedness that was expressly subordinated in right of payment to the 4.75% Convertible Senior Notes due 2023,
equal in right of payment to any existing and future unsecured indebtedness that was not so subordinated to the 4.75% Convertible Senior
Notes due 2023, effectively junior to any future secured indebtedness to the extent of the value of the assets securing such indebtedness,
and structurally junior to all future indebtedness (including trade payables) incurred by the Company’s subsidiaries.
In
connection with the issuance of the 4.75% Convertible Senior Notes due 2023, the Company was required under the terms of its credit facility
with Western Alliance Bank (the “Credit Facility”) to deposit any proceeds from the 4.75% Convertible Senior Notes due 2023
offering into an account at Western Alliance Bank and was required to maintain at least $65.0 million (or such lesser amount to the extent
such funds are used to repay or repurchase a portion of the outstanding 5.25% Convertible Senior Notes due 2018 prior to their maturity
and repayment in full) in an account at Western Alliance Bank until such time as the 5.25% Convertible Senior Notes due 2018 were repaid
in full. The 5.25% Convertible Senior Notes due 2018 matured on September 15, 2018, at which time the Company repaid the remaining outstanding
aggregate principal amount of the 5.25% Convertible Senior Notes due 2018, including accrued but unpaid interest. In addition, the Credit
Facility with Western Alliance Bank matured on May 31, 2019. As a result, the company is no longer subject to such requirements.
NOTE
11—STOCK-BASED COMPENSATION
2019
Equity Incentive Plan
On
June 5, 2019, our Board of Directors adopted, and our stockholders approved, an equity-based incentive plan (the “2019 Equity Incentive
Plan”), which authorized equity awards to be granted for up to 1,976,264 shares of our common stock. Under the 2019 Equity Incentive
Plan, the exercise price of awards would be set on the grant date and could not be less than the fair market value per share on such
date, however, that in the case of an incentive stock option granted to an employee who, at the time of the grant of such option, owned
stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or the Company’s present
or future parent or subsidiary corporations, as defined in Section 424(e) or (f) of the Code, or other Affiliates the employees of which
were eligible to receive incentive stock options under the Code (the “10% Shareholders”), the exercise price per share would
be no less than one hundred ten percent (110%) of the fair market value per share on the date of grant. The fair market value would be
the closing price of the shares on Nasdaq on the date of grant.
On
July 17, 2019, stock options providing the right to purchase up to 1,165,000 shares were granted under the 2019 Equity Incentive Plan
with an exercise price equal to the market price of our common stock at the grant date. These stock options had a vesting period of 3
years with 1/3 vesting immediately on the grant date, 1/3 vesting on July 17, 2020, and the remaining 1/3 vesting on July 17, 2021.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Cancellation
of Stock Option Awards Under 2019 Equity Incentive Plan
On
April 28, 2020, all stock option awards granted under the 2019 Equity Incentive Plan were canceled for no payment pursuant to an option
cancellation agreement (the “Option Cancellation Agreement”). As a result, there are no stock option awards outstanding under
the 2019 Equity Incentive Plan. In accordance with FASB ASC 718, Compensation – Stock Compensation (“ASC 718”)
all unrecognized compensation cost related to still unvested shares was recognized as of the date of cancellation. For more information,
including a description of the Option Cancellation Agreement, please refer to our current report on Form 8-K filed with the SEC on April
29, 2020. Such description of the Option Cancellation Agreement is qualified in its entirety by reference to the text of such Option
Cancellation Agreement filed as Exhibit 10.3 to our quarterly report on Form 10-Q for the period ended March 31, 2020 filed with the
SEC on May 8, 2020.
The
Company follows ASC 718 to account for stock options granted. Under ASC 718, compensation expense associated with stock-based compensation
is measured at the grant date based on the fair value of the award and is recognized over the vesting period. Determining the appropriate
fair value model and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating stock
price volatility, forfeiture rate, and expected option life. The time-based options granted on July 17, 2019 were ascribed a weighted-average
fair value of $2.57 per share. The fair value of options granted under the 2019 Equity Incentive Plan was based upon a Black Scholes
option pricing model using the assumptions in the following table:
SCHEDULE OF STOCK OPTIONS,
VALUATION ASSUMPTIONS
Input Assumptions | |
As
of July 17, 2019 Grant Date | |
Term (years) | |
| 5.55 | |
Volatility | |
| 39.47 | % |
Risk-free rate | |
| 1.86 | % |
Dividend yield | |
| — | % |
SCHEDULE
OF OPTION, ACTIVITY
| |
Number
of Shares | | |
Weighted-Average
Exercise Price | | |
Weighted-Average
Grant Date Fair Value | |
Outstanding as of December
31, 2019 | |
| 1,155,000 | | |
$ | 6.57 | | |
$ | 2.57 | |
Cancelled | |
| - | | |
| - | | |
| - | |
Outstanding | |
| - | | |
| - | | |
| - | |
Vested and Exercisable as of December 31, 2019 | |
| 385,000 | | |
$ | 6.57 | | |
$ | 2.57 | |
Outstanding | |
| - | | |
| - | | |
| - | |
Cancelled | |
| (1,155,000 | ) | |
$ | 6.57 | | |
$ | 2.57 | |
Outstanding as of September 30, 2022 and December 31, 2021 | |
| — | | |
| - | | |
| - | |
As
of September 30, 2022 and December 31, 2021, there was $0 of total unrecognized compensation cost related to non-vested stock options
granted under the 2019 Equity Incentive Plan, as the options were cancelled effective April 28, 2020.
Amended
and Restated 2019 Equity Incentive Plan
On
June 19, 2020, our Board of Directors adopted, and our stockholders approved, an amendment and restatement of the Company’s 2019
Equity Incentive Plan (the “Amended & Restated 2019 Equity Incentive Plan”) under which the Company is authorized to
grant equity awards for up to 1,627,967 shares of its common stock. In accordance with the exemptive relief granted to the Company by
the SEC on June 16, 2020 with respect to the Amended & Restated 2019 Equity Incentive Plan, the Company is generally authorized to
(i) issue restricted shares as part of the compensation package for certain of its employees, officers and all directors, including non-employee
directors (collectively, the “Participants”), (ii) issue options to acquire shares of its common stock (“Options”)
to certain employees, officers and employee directors as a part of such compensation packages, (iii) withhold shares of the Company’s
common stock or purchase shares of common stock from the Participants to satisfy tax withholding obligations relating to the vesting
of restricted shares or the exercise of Options granted to the certain Participants pursuant to the Amended & Restated 2019 Equity
Incentive Plan, and (iv) permit the Participants to pay the exercise price of Options granted to them with shares of the Company’s
common stock.
Under
the Amended & Restated 2019 Equity Incentive Plan, each non-employee director will receive an annual grant of $50,000 worth of restricted
shares of common stock (based on the closing stock price of the common stock on the grant date). Each grant of $50,000 in restricted
shares will vest, in full, if the non-employee director is in continuous service as a director of the Company through the anniversary
of such grant (or, if earlier, the annual meeting of the Company’s stockholders that is closest to the anniversary of such grant).
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
Other
than such restricted shares granted to non-employee directors, the Company’s Compensation Committee may determine the time or times
at which Options and restricted shares granted to other Participants will vest or become payable or exercisable, as applicable. The exercise
price of each Option will not be less than 100% of the fair market value of the Company’s common stock on the date the option is
granted. However, any optionee who owns more than 10% of the combined voting power of all classes of the Company’s outstanding
common stock (a “10% Stockholder”), will not be eligible for the grant of an incentive stock option unless the exercise price
of the incentive stock option is at least 110% of the fair market value of the Company’s common stock on the date of grant. Generally,
no Option will be exercisable after the expiration of ten years from the date of grant. In the case of an Option granted to a 10% Stockholder,
the term of an incentive stock option will be for no more than five years from the date of grant.
During
the nine months ended September 30, 2022, the Company granted 241,827 restricted shares to the Company’s officers pursuant to the
Amended & Restated 2019 Equity Incentive Plan. These restricted shares have a vesting period of 3 years. The Company determined that
the fair values, based on the grant date close price of such restricted shares granted under the Amended & Restated 2019 Equity Incentive
Plan during the nine months ended September 30, 2022 and 2021 were approximately $2,885,000 and $3,078,182, respectively, in the aggregate.
On July 2, 2021, 21,760 restricted shares related to the 2020 non-employee director grants vested. The Company expensed the full value
of restricted stock compensation related to annual non-employee director grants on the vesting date. On June 1, 2022, 15,080 restricted
shares related to the 2021 non-employee director grants vested.
As
of September 30, 2022 and December 31, 2021, there were approximately $6,722,397 and $2,929,830, respectively, of total unrecognized
compensation costs related to the restricted share grants. Compensation expense associated with the restricted shares is recognized on
a quarterly basis over the respective vesting periods.
The
following table summarizes the activities for the Company’s restricted share grants for the nine months ended September 30, 2022
under the Amended & Restated 2019 Equity Incentive Plan:
SCHEDULE OF EQUITY INCENTIVE PLAN
| |
Number
of Restricted Shares | |
Outstanding as of December 31, 2021 | |
| 369,298 | |
Granted | |
| 277,037 | |
Vested(1) | |
| (86,541 | ) |
Forfeited | |
| (15,000 | ) |
Outstanding as of September 30, 2022 | |
| 544,794 | |
Vested as of September 30, 2022 | |
| 108,301 | |
(1) | The
balance of vested shares as of September 30, 2022 reflects the total shares vested during
the period and has not been reduced for those vested shares forfeited at time of vest related
to net share settlement. |
The
Amended & Restated 2019 Equity Incentive Plan provides for the concept of “net share settlement.” Specifically, it provides
that the Company is authorized to withhold the Common Stock at the time the restricted shares are vested and taxed in satisfaction of
the Participant’s tax obligations. On June 16, 2020, the Company received exemptive relief from the SEC to permit such withholding
of shares.
SURO
CAPITAL CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2022
NOTE
12—SUBSEQUENT EVENTS
Portfolio
Activity
From
October 1, 2022 through November 8, 2022, the Company exited or received proceeds from the following investments:
SCHEDULE OF INVESTMENTS
Portfolio
Company | |
Transaction
Date | | |
Shares
Sold | | |
Average
Net Share Price (1) | | |
Net
Proceeds | | |
Realized
Gain/(Loss)(2) | |
Rover Group, Inc.(3) | |
| Various | | |
| 106,854 | | |
$ | 3.93 | | |
$ | 420,217 | | |
$ | 100,806 | |
Kahoot! ASA(4) | |
| 10/19/2022 | | |
| 61,367 | | |
| 2.12 | | |
| 130,210 | | |
| (151,861 | ) |
Residential Homes For Rent, LLC (d/b/a Second Avenue)(5) | |
| 10/30/2022 | | |
| N/A | | |
| N/A | | |
| 83,333 | | |
| — | |
Total | |
| | | |
| | | |
| | | |
$ | 633,760 | | |
$ | (51,055 | ) |
(1) | The
average net share price is the net share price realized after deducting all commissions and
fees on the sale(s), if applicable. |
(2) | Realized
gain does not include adjustments to amounts held in escrow receivable. |
(3) | As of October 11, 2022, SuRo Capital had sold all its public common shares of Rover Group, Inc. |
(4) | As of November 8, 2022, SuRo Capital held 38,305 common shares of Kahoot! ASA, all of which are subject to lock-up
restrictions. |
(3) | Subsequent to September 30, 2022, $0.1 million has been received from Residential
Homes for Rent, LLC (d/b/a Second Avenue) related to the 15% term loan due December 23, 2023. Of the proceeds received, $0.1 million repaid
a portion of the outstanding principal and the remaining proceeds were attributed to interest. |
From
October 1, 2022 through November 8, 2022, the Company did not purchase any investments.
The
Company is frequently in negotiations with various private companies with respect to investments in such companies. Investments in private
companies are generally subject to satisfaction of applicable closing conditions. In the case of secondary market transactions, such
closing conditions may include approval of the issuer, waiver or failure to exercise rights of first refusal by the issuer and/or its
stockholders and termination rights by the seller or the Company. Equity investments made through the secondary market may involve making
deposits in escrow accounts until the applicable closing conditions are satisfied, at which time the escrow accounts will close and such
equity investments will be effectuated. From October 1, 2022 through November 8, 2022, the Company had $1.3 million in non-binding investment
agreements that required it to make a future investment in a portfolio company.
On October 19, 2022, the Company’s Board of Directors approved an extension of the Share Repurchase Program until the earlier of (i) October
31, 2023 or (ii) the repurchase of $55.0 million in aggregate amount of the Company’s common stock. See “Note 5 - Common Stock - Share
Repurchase Program” for more information regarding the Company’s Share Repurchase Program.
COVID-19
Over two years after COVID-19 was recognized as a pandemic by the World Health Organization, its continued persistence in the United
States and worldwide and the magnitude of the economic impact of the outbreak continue to create an uncertain environment in which
we and our portfolio companies operate. We have and continue to assess the impact of the COVID-19 pandemic on our portfolio
companies. We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide,
the effectiveness of governmental responses designed to mitigate strain to businesses and the economy and the magnitude of the
economic impact of the outbreak. The COVID-19 pandemic and preventative measures taken to contain or mitigate its spread have
caused, and are continuing to cause, business shutdowns, cancellations of events and travel, significant reductions in demand for
certain goods and services, reductions in business activity and financial transactions, supply chain interruptions and overall
economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration
of the pandemic, which is uncertain, and for some period thereafter. Our portfolio companies and, by extension, our operating
results may be adversely impacted by the COVID-19 pandemic and, depending on the duration and extent of the disruption to the
operations of our portfolio companies, certain portfolio companies may experience financial distress and may possibly default on
their financial obligations to us and their other capital providers. Some of our portfolio companies have significantly curtailed
business operations, furloughed or laid off employees and terminated service providers, and deferred capital expenditures, which
could impair their business on a permanent basis and additional portfolio companies may take similar actions. We continue to closely
monitor our portfolio companies, which includes assessing each portfolio company’s operational and liquidity exposure and
outlook; however, any of these developments would likely result in a decrease in the value of our investment in any such portfolio
company. In addition, to the extent that the impact to our portfolio companies results in reduced interest payments or permanent
impairments on our investments, we could see a decrease in our net investment income, which would increase the percentage of our
cash flows dedicated to our debt obligations and could impact the amount of any future distributions to our stockholders.
In
response to the COVID-19 pandemic, we instituted a temporary work-from-home policy in March 2020, pursuant to which our employees primarily
worked remotely without disruption to our operations. This policy was amended in February 2022 when it was deemed safe to return to our
offices. As of November 8, 2022, there is no indication of a reportable subsequent event impacting the Company’s financial statements
for the nine months ended September 30, 2022. The Company continues to observe and respond to the evolving COVID-19 environment and its
potential impact on areas across its business.
Revised
Custody Agreements
On
October 28, 2022, the Company and U.S. Bank Trust Company, National Association (the “Securities Custodian”) entered into
a custody agreement (the “Securities Custody Agreement”), pursuant to which the Securities Custodian was appointed to serve
as the Company’s custodian to hold securities, loans, cash, and other assets on behalf of the Company. Either party may terminate
the Securities Custody Agreement at any time upon sixty (60) days’ prior written notice. Also on October 28, 2022, the Company
and U.S. Bank, National Association (in such capacity, the “Document Custodian”) entered into a custody agreement (the “Document
Custody Agreement”), pursuant to which the Document Custodian was appointed to serve as the Company’s custodian to hold certain
documents on behalf of the Company. Either party may terminate the Document Custody Agreement at any time upon sixty (60) days’
prior written notice.
In
conjunction with the Company’s entry into the Securities Custody Agreement and Document Custody Agreement, the Company terminated
its existing custody agreement with U.S. Bank, National Association (the “Prior Custody Agreement”), effective October 28,
2022. Other than ordinary course payments under the Prior Custody Agreement through the effective date of termination, no termination
or other fees are payable in connection with the termination of the Prior Custody Agreement.
NOTE
13—SUPPLEMENTAL FINANCIAL DATA
Summarized
Financial Information of Unconsolidated Subsidiaries
In
accordance with the SEC’s Regulation S-X and GAAP, the Company is not permitted to consolidate any subsidiary or other entity that
is not an investment company, including those in which the Company has a controlling interest; however, the Company must disclose certain
financial information related to any subsidiaries or other entities that are considered to be “significant subsidiaries”
under the applicable rules of Regulation S-X.
The
Company’s three controlled portfolio companies as of September 30, 2022, SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.),
Architect Capital PayJoy SPV, LLC and Colombier Sponsor LLC, did not meet the definition of a “significant subsidiary” as
set forth in Rule 1-02(w)(2). For comparability purposes, the Company has omitted the previously disclosed summarized financial information
of the Company’s significant subsidiaries for the quarter ended September 30, 2021 as the Company’s significant subsidiaries
would not have been considered significant subsidiaries under the Final Rules.