NOTES TO FINANCIAL STATEMENTS
December 31, 2018
NOTE 1 – NATURE OF OPERATIONS
References herein to “we”,
“us” or “our” refer to Princeton Capital Corporation (the “Company” or “Princeton Capital”),
unless the context specifically requires otherwise.
Princeton Capital Corporation, a Maryland
corporation, was incorporated under the general laws of the State of Maryland on July 25, 2013, with its principal office located
in Princeton, New Jersey. We are a non-diversified, closed-end investment company that has filed an election to be regulated as
a business development company (“BDC”), under the Investment Company Act of 1940, as amended (the “1940 Act”).
As a BDC, our goal is to annually qualify and elect to be treated as a regulated investment company (“RIC”) under Subchapter
M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company, however, did not meet the requirements
to qualify as a RIC for the 2016, 2017, and 2018 tax years and expects to be taxed as a corporation under Subchapter C of the Code
for those years. We invest primarily in private small and lower middle-market companies through first lien loans, second lien loans,
unsecured loans, unitranche and mezzanine debt financing, often times with a corresponding equity investment. Our investment objective
is to maximize the total return to our stockholders in the form of current income and capital appreciation through debt and related
equity investments.
Prior to March 13, 2015, Princeton Capital’s
predecessor operated under the name Regal One Corporation (“Regal One”). Regal One had been located in Scottsdale,
Arizona, and was a Florida corporation initially incorporated in 1959 as Electro-Mechanical Services Inc. Since inception, Regal
One had been involved in several industries. In 1998, Electro-Mechanical Services Inc. changed its name to Regal One Corporation.
On March 7, 2005, Regal One’s board
of directors determined it was in the shareholders’ best interest to change the focus of its operations to providing financial
consulting services through its network of advisors and professionals, and to be regulated as a BDC under the 1940 Act. On September
16, 2005, Regal One filed a Form N54A (Notification of Election by Business Development Companies) with the Securities and Exchange
Commission (“SEC”), which transformed Regal One into a BDC in accordance with sections 55 through 65 of the 1940 Act.
Regal One reported as an operating BDC from March 31, 2006 until March 13, 2015 and since March 13, 2015 (following the Reincorporation
described below) Princeton Capital has reported as an operating BDC.
On July 9, 2014, Regal One acquired Princeton
Capital as a wholly owned subsidiary. On July 14, 2014, Regal One, Princeton Capital, Capital Point Partners, LP, a Delaware limited
partnership (“CPP”), and Capital Point Partners II, LP, a Delaware limited partnership (“CPPII” and, together
with CPP, the “Partnerships”), entered into an Asset Purchase Agreement (the “Purchase Agreement”). Pursuant
to the Purchase Agreement, Regal One would acquire cash, equity and debt investments of the Partnerships in exchange for shares
of common stock of Regal One. In addition to the customary conditions to closing the transactions contemplated by the Purchase
Agreement, Regal One was required to (i) to effect a reverse stock split of Regal One’s outstanding common stock at a ratio
of 1-for-2 (the “Reverse Stock Split”), (ii) reincorporate from Florida to Maryland by merging into Princeton Capital
(the “Reincorporation”) and (iii) become an externally managed BDC by entering into an external investment advisory
agreement with Princeton Investment Advisors, LLC, (“Princeton Investment Advisors”) a Delaware limited liability company.
On March 13, 2015, following the Reverse
Stock Split and the Reincorporation, we completed our previously announced acquisition in the approximate amounts of $11.2 million
in cash, $43.5 million in equity & debt investments, and $1.9 million in restricted cash escrow deposits of the Partnerships
with an aggregate value of approximately $56.6 million and issued approximately 115.5 million shares of our common stock to the
Partnerships. The shares issued were based on a pre-valuation presumed fair value of $60.9 million. We also entered into an investment
advisory agreement with Princeton Investment Advisors, which subsequently was terminated by the Company’s Board of Directors
on January 18, 2016, effective as of June 9, 2016.
On January 18, 2016, the Board of Directors
of the Company conditionally approved the investment advisory agreement with Princeton Advisory Group, Inc., a New Jersey corporation
(“Princeton Advisory Group”) (the “PAG Investment Advisory Agreement”), subject to the approval of the
Company’s stockholders at the 2016 Annual Meeting of Stockholders. At the 2016 Annual Meeting of Stockholders held on June
9, 2016, the Company’s stockholders approved the PAG Investment Advisory Agreement, effective June 9, 2016. From June 9,
2016 through December 31, 2017, Princeton Advisory Group acted as the Company’s investment advisor pursuant to the terms
of the PAG Investment Advisory Agreement.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
On December 27, 2017, the Board determined
that it would be in the best interests of the Company and its stockholders to terminate the PAG Investment Advisory Agreement and
sent a formal Notice of Termination to Princeton Advisory Group notifying Princeton Advisory Group of its termination as the Company’s
investment advisor, effective as of December 31, 2017 at 11:59 p.m. Eastern Time. Also on December 27, 2017, the Board approved
(specifically in accordance with Rule 15a-4(b)(1)(ii) of the Investment Company Act) and authorized the Company to enter into an
Interim Investment Advisory Agreement between the Company and House Hanover, LLC, a Delaware limited liability company (“House
Hanover”) (the “Interim Investment Advisory Agreement”), in accordance with Rule 15a-4 of the Investment Company
Act. The effective date of the Interim Investment Advisory Agreement was January 1, 2018.
On April 5, 2018, the Board, including
a majority of the independent directors, conditionally approved the Investment Advisory Agreement between the Company and House
Hanover (the “House Hanover Investment Advisory Agreement”) subject to the approval of the Company’s stockholders
at the 2018 Annual Meeting of Stockholders. The House Hanover Investment Advisory Agreement replaced the Interim Investment Advisory
Agreement. On May 30, 2018, the Company’s stockholders approved the House Hanover Investment Advisory Agreement. The effective
date of the House Hanover Investment Advisory Agreement was May 31, 2018.
Since January 1, 2018, House Hanover has
acted as our investment advisor under the Interim Investment Advisory Agreement (from January 1, 2018 until May 31, 2018) and the
House Hanover Investment Advisory Agreement (since May 31, 2018).
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America, (“U.S. GAAP”).
In accordance with Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate
portfolio company investments. The accounting records of the Company are maintained in U.S. dollars. As an investment company,
as defined by the 1940 Act, the Company follows investment company accounting and reporting guidance of Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 – Financial Services - Investment
Companies, which is U.S. GAAP.
Reclassifications
Certain prior period amounts in the accompanying
financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect
previously reported amounts of net income.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.
Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used
in determining these estimates could cause actual results to differ. It is likely that changes in these estimates will occur in
the near term. The Company’s estimates are inherently subjective in nature and actual results could differ materially from
such estimates.
Portfolio Investment Classification
The Company classifies its investments
in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments
in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which the
Company owns between 5% and 25% of the voting securities. Under the 1940 Act, “Non-affiliated Investments” are defined
as investments that are neither Control Investments nor Affiliated Investments. As of December 31, 2018, the Company had control
investments in Advantis Certified Staffing Solutions, Inc., PCC SBH Sub, Inc., Rockfish Seafood Grill, Inc., Rockfish Holdings,
LLC and Integrated Medical Partners, LLC as defined under the 1940 Act. As of December 31, 2017, the Company had control investments
in Advantis Certified Staffing Solutions, Inc., PCC SBH Sub, Inc., Rockfish Seafood Grill, Inc., Rockfish Holdings, LLC and Integrated
Medical Partners, LLC as defined under the 1940 Act.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Investments are recognized when we assume
an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments
are derecognized when we assume an obligation to sell a financial instrument and forgo the risks for gains and losses related to
that instrument. Specifically, we record all security transactions on a trade date basis. Investments in other non-security financial
instruments, such as limited partnerships or private companies, are recorded on the basis of subscription date or redemption date,
as applicable. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments
sold or payable for investments acquired, respectively, in the Statements of Assets and Liabilities.
Valuation of Investments
In accordance with U.S. GAAP, fair value
is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date.
In determining fair value, our board of
directors uses various valuation approaches. In accordance with U.S. GAAP, ASC 820 establishes a fair value hierarchy for inputs
and is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available.
Observable inputs are those that market
participants would use in pricing the asset or liability based on market data obtained from sources independent of the board of
directors. Unobservable inputs reflect our board of director’s assumptions about the inputs market participants would use
in pricing the asset or liability developed based on the best information available in the circumstances.
With respect to investments for which market
quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described
below:
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Our quarterly valuation process begins with each portfolio company or investment being initially
valued by an independent valuation firm, except for those investments where market quotations are readily available;
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Preliminary valuation conclusions are then documented and discussed with our senior management
and our investment advisor (our investment advisor, as disclosed in various public filings, in Note 1, and elsewhere in this Form
10-K, changed on January 1, 2018 from Princeton Advisory Group to House Hanover);
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The valuation committee of our board of directors then reviews these preliminary valuations and
approves them for recommendation to the board of directors;
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The board of directors then discusses valuations and determines the fair value of each investment
in our portfolio in good faith, based on the input of our investment advisor (our investment advisor, as disclosed in various public
filings, in Note 1, and elsewhere in this Form 10-K, changed on January 1, 2018 from Princeton Advisory Group to House Hanover),
the independent valuation firm and the valuation committee.
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U.S. GAAP establishes a framework for measuring
fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs
to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair
value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels
of the fair value hierarchy are as follows:
Level 1 — Valuations based
on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily
and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
Level 2 — Valuations based
on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based
on inputs that are unobservable and significant to the overall fair value measurement.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The availability of valuation techniques
and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security,
whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized
due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation,
those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities
existed. Accordingly, the degree of judgment exercised by the board of directors in determining fair value is greatest for securities
categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement
in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered
from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are
not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing
the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date,
including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced
for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
Valuation Processes
The Company establishes valuation processes
and procedures to ensure that the valuation techniques for investments that are categorized within Level 3 of the fair value hierarchy
are fair, consistent, and verifiable. The Company’s board of directors designates a Valuation Committee (the “Committee”)
to oversee the entire valuation process of the Company’s Level 3 investments. The Committee is comprised of independent directors
and reports to the Company’s board of directors. The Committee is responsible for developing the Company’s written
valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness
and consistent application of the valuation policies.
The Committee meets on a quarterly basis,
or more frequently as needed, to determine the valuations of the Company’s Level 3 investments. Valuations determined by
the Committee are required to be supported by market data, third-party pricing sources, industry accepted pricing models, counterparty
prices, or other methods that the Committee deems to be appropriate.
The Company will periodically test its
valuations of Level 3 investments through performing back testing of the sales of such investments by comparing the amounts realized
against the most recent fair values reported, and if necessary, uses the findings to recalibrate its valuation procedures. On a
quarterly basis, the Company engages the services of a nationally recognized third-party valuation firm to perform an independent
valuation of the Company’s Level 3 investments.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Investment Valuation
We expect that most of our portfolio investments
will take the form of securities that are not publicly traded. The fair value of loans, securities and other investments that are
not publicly traded may not be readily determinable, and we will value these investments at fair value as determined in good faith
by our board of directors, including reflecting significant events affecting the value of our investments. Most, if not all, of
our investments (other than cash and cash equivalents) will be classified as Level 3 under Financial Accounting Standards Board
Accounting Standards Codification “Fair Value Measurements and Disclosures”, or ASC 820. This means that our portfolio
valuations will be based on unobservable inputs and our own assumptions about how market participants would price the asset or
liability in question. We expect that inputs into the determination of fair value of our portfolio investments will require significant
management judgment or estimation. Even if observable market data are available, such information may be the result of consensus
pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual
transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability
of such information. We expect to retain the services of one or more independent service providers to review the valuation of these
loans and securities. The types of factors that the board of directors may take into account in determining the fair value of our
investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity
and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral,
the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio
company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and
private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations
of fair value may differ materially from the values that would have been used if a ready market for these loans and securities
existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were
materially higher than the values that we ultimately realize upon the disposal of such loans and securities.
We will adjust the valuation of our portfolio
quarterly to reflect our board of directors’ determination of the fair value of each investment in our portfolio. Any changes
in fair value are recorded in our statement of operations as net change in unrealized gain or loss.
Debt Securities
The Company’s portfolio consists
primarily of first lien loans, second lien loans, and unsecured loans. Investments for which market quotations are readily available
(“Level 2 Loans”) are generally valued using market quotations, which are generally obtained from an independent pricing
service or broker-dealers. For other debt investments (“Level 3 Loans”), market quotations are not available and other
techniques are used to determine fair value. The Company considers its Level 3 Loans to be performing if the borrower is not in
default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is otherwise not deemed to
be impaired. In determining the fair value of the performing Level 3 Loans, the Board considers fluctuations in current interest
rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions,
success and prepayment fees, and other relevant factors, both qualitative and quantitative. In the event that a Level 3 Loan instrument
is not performing, as defined above, the Board may evaluate the value of the collateral utilizing the same framework described
above for a performing loan to determine the value of the Level 3 Loan instrument.
Equity Investments
Our equity investments, including common
stock, membership interests, and warrants, are generally valued using a market approach and income approach. The income approach
utilizes primarily the discount rate to value the investment whereas the primary inputs for the market approach are the earnings
before interest, taxes, depreciation and amortization (“EBITDA”) multiple and revenue multiples. The Black-Scholes
Option Pricing Model, a valuation technique that follows the income approach, is used to allocate the value of the equity to the
investment. The pricing model takes into account the contract terms (including maturity) as well as multiple inputs, including
time value, implied volatility, equity prices, risk free rates, and interest rates.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Cash and Restricted Cash
The Company deposits its cash and restricted
cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insured
limit; however, management does not believe it is exposed to any significant credit risk.
As of December 31, 2018 and December 31,
2017, there was no restricted cash.
U.S. Treasury Bills
At the end of each fiscal quarter, we may
take proactive steps to be in compliance with the RIC diversification requirements under Subchapter M of the Code, which are dependent
upon the composition of our total assets at quarter end. We may accomplish this in several ways, including purchasing U.S. Treasury
Bills and closing out positions after quarter-end.
Revenue Recognition
Realized gains or losses on the sale of
investments are calculated using the specific identification method. The Company measures realized gains or losses by the difference
between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized
appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties.
Interest income, adjusted for amortization
of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with
senior and subordinated secured loans are accreted into interest income over the respective terms of the applicable loans. Upon
the prepayment of a senior or subordinated secured loan, any prepayment penalties and unamortized loan origination, closing and
commitment fees are recorded as interest income. Generally, when a payment default occurs on a loan in the portfolio, or if the
Company otherwise believes that borrower will not be able to make contractual interest payments, the Company may place the loan
on non-accrual status and cease recognizing interest income on the loan until all principal and interest is current through payment,
or until a restructuring occurs, and the interest income is deemed to be collectible. The Company may make exceptions to this policy
if a loan has sufficient collateral value, is in the process of collection or is viewed to be able to pay all amounts due if the
loan were to be collected on through an investment in or sale of the business, the sale of the assets of the business, or some
portion or combination thereof.
Dividend income is recorded on the ex-dividend
date.
Structuring fees, excess deal deposits,
prepayment fees and similar fees are recognized as income as earned, usually when paid.
Other fee income from investment sources,
includes annual fees and monitoring fees from our portfolio investments and are included in other income from non-control/non-affiliate
investments and other income from affiliate investments. Income from such sources for the years ended December 31, 2018, 2017 and
2016 was $44,872, $47,259 and $56,197 respectively.
Other income from non-investment sources
is generally comprised of interest income earned on cash in the Company’s bank account. However, for the year ended December
31, 2018, the Company entered into a confidential settlement agreement effective November 27, 2018 with a former vendor/provider
of services in which the Company received $1,294,754 on December 4, 2018, which is included in Other income from non-investment
sources. For the year ended December 31, 2017, $1,060,039 was booked as other income resulting from the reversal of previously
accrued legal invoices related to the Settlement Agreement with the law firms described in “Note 2 – Significant Accounting
Policies – Legal Fees” and is included in Other income from non-investment sources.
Payment-in-Kind Interest (“PIK”)
We have investments in our portfolio that
contain a PIK interest provision. Any PIK interest is added to the principal balance of such investments and is recorded as income,
if the portfolio company valuation indicates that such PIK interest is collectible. For the years ended December 31, 2018, 2017
and 2016 PIK interest was $188,353, $33,717 and $473,818, respectively. In order to qualify as a RIC, substantially all of this
income must be paid out to stockholders in the form of dividends, even if we have not collected any cash. For the years ended December
31, 2016, 2017 and 2018 and through the date of issuance of this report, no dividends have been paid out to stockholders.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Net Change in Unrealized Gain or Loss
Net change in unrealized gain or loss will
reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized
appreciation or depreciation, when gains or losses are realized.
Legal Fees
The Company incurred legal fees related
to the lawsuit captioned
Capital Link Fund I, LLC, et al. v. Capital Point Management, LP, et al.
as disclosed in Note 9.
Up until the agreements to settle in December 2017, it was undeterminable as to the ultimate responsibility for amounts invoiced
to the Company by two law firms that provided services, as these invoices were for all of such law firm’s fees even though
they represented multiple parties and the Company believed that some of these services rendered were provided solely or primarily
for the benefit of other represented parties. For the years ended December 31, 2018 and 2017, the Company was not invoiced any
legal fees by these two law firms related to this lawsuit. As of December 31, 2017, the Company reached an agreement with the two
law firms and paid them $330,000 to settle all outstanding invoices. In addition, as of December 31, 2017, the Company reduced
accounts payable by $1,060,039 as a result of the settlements. Other legal fees incurred in the normal operating course of business
and legal fees incurred for claims against a former vendor/provider of services invoiced to the Company for the years ended December
31, 2017 and December 31, 2018, are included in professional fees on the Statements of Operations.
Federal and State Income Taxes
The Company was taxed as a regular corporation
(a “C corporation”) under subchapter C of the Internal Revenue Code of 1986, as amended, for its 2018, 2017 and 2016
taxable years. The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded
for tax loss carryforwards and temporary differences between the tax basis of assets and liabilities and their reported amounts
in the financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to
reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
The Company did not meet the qualifications
of a RIC for the 2018, 2017 and 2016 tax years and will be taxed as a corporation under Subchapter C of the Code. The failure to
qualify as a RIC, however, should not impact the 2018 tax year as the Company has net operating losses and capital losses from
2017 that it can carry forward to offset taxable income. The failure to qualify as a RIC also did not impact the 2017 tax year
as the Company incurred tax losses. As a result of the losses incurred for the year ended December 31, 2017, the Company intends
to carry forward the net operating losses to future periods in which the Company generates taxable income to reduce its tax liability.
The Company does not expect to meet the
qualifications of a RIC for the 2019 tax year and is likely to be taxed as a corporation under Subchapter C of the Code. However,
in the event that the Company does meet the qualifications of a RIC for the 2019 tax year, it may not be in the best interests
of the Company’s stockholders to elect to be taxed as a RIC for the 2019 tax year due to the net operating losses and capital
loss carryforwards the Company currently has. Management will make a determination that is in the best interests of the Company
and its stockholders.
In order to qualify as a RIC, among other
things, the Company is required to distribute to its stockholders on a timely basis at least 90% of investment company taxable
income, as defined by the Code, for each year. So long as the Company achieves its status as a RIC, it generally will not pay corporate-level
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 Company will represent obligations of the Company’s
investors and will not be reflected in the financial statements of the Company.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The Company evaluates tax positions taken
or expected to be taken while preparing its financial statements to determine whether the tax positions are “more-likely-than-not”
of being sustained by the applicable tax authority. The Company recognizes the tax benefits of uncertain tax positions only where
the position has met the “more-likely-than-not” threshold. The Company classifies penalties and interest associated
with income taxes, if any, as income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted
at a later date based on factors including, but not limited to, ongoing analyses of tax laws, regulations and interpretations thereof.
Dividends and Distributions
Dividends and distributions to common stockholders
are recorded on the ex-dividend date. The amount, if any, to be paid as a dividend is approved by our board of directors each quarter
and is generally based upon our management’s estimate of our earnings for the quarter. For the years ended December 31, 2018,
2017 and 2016 and through the date of issuance of this report, no dividends have been declared or distributed to stockholders.
Per Share Information
Basic and diluted earnings (loss) per common
share is calculated using the weighted average number of common shares outstanding for the period presented.
Basic net loss per share is computed by
dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per
share is computed by dividing net loss per share by the weighted average number of shares outstanding, plus, any potentially dilutive
shares outstanding during the period. For the years ended December 31, 2018 and 2017, basic and diluted earnings (loss) per share
were the same, since there were no potentially dilutive securities outstanding.
Capital Accounts
Certain capital accounts including undistributed
net investment income, accumulated net realized gain or loss, accumulated net unrealized gain or loss, and paid-in capital in excess
of par, are adjusted, at least annually, for permanent differences between book and tax. In addition, the character of income and
gains to be distributed is determined in accordance with income tax regulations that may differ from U.S. GAAP.
Recent Accounting Pronouncements
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash
flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. ASU 2016-18 is effective for public business entities in fiscal years beginning after December
15, 2017, including interim periods within those years. The Company early adopted ASU 2016-18 as shown on the Statement of Cash
Flows.
In January 2016,
the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” to generally
require equity investments be measured at fair value with changes in fair value recognized in net income, simplify the impairment
assessment of equity investments without readily-determinable fair value, and change disclosure and presentation requirements regarding
financial instruments and other comprehensive income, and clarify that an entity should evaluate the need for a valuation allowance
on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.
In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall
(Subtopic 825-10). The amendments in ASU 2018-03 make technical corrections to certain aspects of ASU 2016-01 on recognition of
financial assets and financial liabilities. For public entities, the guidance in ASU 2016-01 and amendments in ASU 2018-03 are
effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Adoption of
ASU 2016-01 and ASU 2018-03 did not have a material impact on the Company’s financial statements.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
In March 2018,
the FASB issued ASU 2018-05, “Income Taxes (Topic 740); Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 118”. This ASU provides accounting and disclosure guidance relating to the Tax Cuts and Jobs Act pursuant to the issuance
of SEC Staff Accounting Bulletin No. 118. The guidance allows a company to report provisional amounts when reasonable estimates
are determinable for certain income tax effects relating to the Act. These provisional amounts may give rise to new current or
deferred taxes based on certain provisions within the Act, as well as adjustments to existing current or deferred taxes that existed
prior to the Act’s enactment date. Adoption of ASU 2018-05 did not have a material impact on the Company’s financial
statements.
In August 2018,
the FASB issued ASU 2018-13 (“ASU 2018-13”), Disclosure Framework – Changes to the Disclosure Requirements for
Fair Value Measurement. The amendments in ASU 2018-13 on this update eliminate, add and modify certain disclosure requirements
on fair value measurements in Topic 820, Fair Value Measurement. The amendments are effective for fiscal years beginning after
December 15, 2019. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed
or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date.
Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company’s
financial statements.
The SEC recently
completed a project to streamline disclosure requirements in regulations S-X and S-K, as part of release 33-10532. The SEC
adopted amendments to certain of its disclosure requirements that have become redundant, duplicative, overlapping, outdated, or
superseded, in light of other SEC disclosure requirements and U.S. GAAP. Management is evaluating the new guidance, but does
not expect the adoption of this guidance to have a material impact on the Company’s financial statements.
NOTE 3 – CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company
maintains its cash balances in financial institutions, which at times may exceed federally insured limits. The Company is subject
to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual obligations
on its behalf. Management monitors the financial condition of such financial institutions and does not anticipate any losses from
these counterparties.
NOTE 4 – NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS PER COMMON SHARE
The following information sets forth the
computation of basic and diluted net increase (decrease) in net assets resulting from operations per common share for the years
ended December 31, 2018, 2017, and 2016.
|
|
For the Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
147,412
|
|
|
$
|
(2,577,780
|
)
|
|
$
|
(4,240,844
|
)
|
Weighted average shares outstanding for year
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Basic and diluted net increase (decrease) in net assets resulting from operations per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.001
|
|
|
$
|
(0.021
|
)
|
|
$
|
(0.035
|
)
|
Diluted
|
|
$
|
0.001
|
|
|
$
|
(0.021
|
)
|
|
$
|
(0.035
|
)
|
(1)
|
Per
share data based on weighted average shares outstanding.
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
NOTE 5 – FAIR VALUE OF INVESTMENTS
The Company’s assets recorded at
fair value have been categorized based upon a fair value hierarchy in accordance with ASC Topic 820 – Fair Value Measurements
and Disclosures (“ASC 820”). See Note 2 for a discussion of the Company’s policies.
The following table presents information
about the Company’s assets measured at fair value as of December 31, 2018 and 2017, respectively:
|
|
As of December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Portfolio Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,022,163
|
|
|
$
|
14,022,163
|
|
Second Lien Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
18,103,815
|
|
|
|
18,103,815
|
|
Unsecured Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
1,102,463
|
|
|
|
1,102,463
|
|
Equity
|
|
|
-
|
|
|
|
-
|
|
|
|
5,355,494
|
|
|
|
5,355,494
|
|
Total Portfolio Investments
|
|
|
-
|
|
|
|
-
|
|
|
|
38,583,935
|
|
|
|
38,583,935
|
|
Total Investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
38,583,935
|
|
|
$
|
38,583,935
|
|
|
|
As of December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Portfolio Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,965,218
|
|
|
$
|
14,965,218
|
|
Second Lien Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
18,665,936
|
|
|
|
18,665,936
|
|
Unsecured Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
1,232,812
|
|
|
|
1,232,812
|
|
Equity
|
|
|
-
|
|
|
|
-
|
|
|
|
4,086,794
|
|
|
|
4,086,794
|
|
Total Portfolio Investments
|
|
|
-
|
|
|
|
-
|
|
|
|
38,950,760
|
|
|
|
38,950,760
|
|
Total Investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
38,950,760
|
|
|
$
|
38,950,760
|
|
During the years ended December 31, 2018
and 2017, there were no transfers between Level, 1, Level 2 or Level 3.
The following table presents additional
information about Level 3 assets measured at fair value. Both observable and unobservable inputs may be used to determine the fair
value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for
assets within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in
market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
Changes in Level 3 assets measured at fair value for the year
ended December 31, 2018 are as follows:
|
|
First Lien
Loans
|
|
|
Second Lien Loans
|
|
|
Unsecured Loans
|
|
|
Equity
|
|
|
Total
|
|
Fair value at beginning of year
|
|
$
|
14,965,218
|
|
|
$
|
18,665,936
|
|
|
$
|
1,232,812
|
|
|
$
|
4,086,794
|
|
|
$
|
38,950,760
|
|
Amortization
|
|
|
(29,717
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(29,717
|
)
|
Purchases of investments
|
|
|
200,000
|
|
|
|
600,000
|
|
|
|
1,338,225
|
|
|
|
-
|
|
|
|
2,138,225
|
|
Sales of investments
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
|
|
(879,891
|
)
|
|
|
-
|
|
|
|
(1,879,891
|
)
|
Payment-in-kind interest
|
|
|
136,172
|
|
|
|
52,181
|
|
|
|
-
|
|
|
|
-
|
|
|
|
188,353
|
|
Realized gain (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change in unrealized gain (loss) on investments
|
|
|
(1,249,510
|
)
|
|
|
(699,558
|
)
|
|
|
(103,427
|
)
|
|
|
1,268,700
|
|
|
|
(783,795
|
)
|
Transfer due to restructuring
|
|
|
-
|
|
|
|
485,256
|
|
|
|
(485,256
|
)
|
|
|
-
|
|
|
|
-
|
|
Fair value at end of year
|
|
$
|
14,022,163
|
|
|
$
|
18,103,815
|
|
|
$
|
1,102,463
|
|
|
$
|
5,355,494
|
|
|
$
|
38,583,935
|
|
Change in unrealized gain (loss) on Level 3 investments still held as of December 31, 2018
|
|
$
|
(1,249,510
|
)
|
|
$
|
(699,559
|
)
|
|
$
|
(249,762
|
)
|
|
$
|
1,268,700
|
|
|
$
|
(930,131
|
)
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Changes in Level 3 assets measured at fair value for the year
ended December 31, 2017 are as follows:
|
|
First Lien
Loans
|
|
|
Second Lien Loans
|
|
|
Unsecured Loans
|
|
|
Equity
|
|
|
Total
|
|
Fair value at beginning of year
|
|
$
|
16,301,261
|
|
|
$
|
17,250,000
|
|
|
$
|
276,922
|
|
|
$
|
11,778,757
|
|
|
$
|
45,606,940
|
|
Amortization
|
|
|
(20,628
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,628
|
)
|
Purchases of investments
|
|
|
167,273
|
|
|
|
1,000,000
|
|
|
|
1,385,147
|
|
|
|
450,001
|
|
|
|
3,002,421
|
|
Sales of investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(282,922
|
)
|
|
|
(5,895,860
|
)
|
|
|
(6,178,782
|
)
|
Payment-in-kind interest
|
|
|
133,444
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133,444
|
|
Realized gain (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
589,111
|
|
|
|
589,111
|
|
Change in unrealized gain (loss) on investments
|
|
|
909,349
|
|
|
|
415,936
|
|
|
|
(146,335
|
)
|
|
|
(5,360,696
|
)
|
|
|
(4,181,746
|
)
|
Transfer due to restructuring
|
|
|
(2,525,481
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,525,481
|
|
|
|
-
|
|
Fair value at end of year
|
|
$
|
14,965,218
|
|
|
$
|
18,665,936
|
|
|
$
|
1,232,812
|
|
|
$
|
4,086,794
|
|
|
$
|
38,950,760
|
|
Change in unrealized gain (loss) on Level 3 investments still held as of December 31, 2017
|
|
$
|
123,865
|
|
|
$
|
415,936
|
|
|
$
|
(146,335
|
)
|
|
$
|
(4,280,765
|
)
|
|
$
|
(3,887,299
|
)
|
The following table provides quantitative
information regarding Level 3 fair value measurements as of December 31, 2018:
Description
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable
Inputs
|
|
Range (Average)
|
|
|
|
|
|
|
|
|
|
|
First Lien Loans
|
|
$
|
14,022,163
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
35.6%-48.6%(44.3%)
|
Total
|
|
|
14,022,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loans
|
|
|
7,950,000
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
N/A
|
|
|
|
10,153,815
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
10.6%-38.5%(19.6%)
|
Total
|
|
|
18,103,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Loans
|
|
|
1,088,463
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
31.6%
|
|
|
|
14,000
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
N/A
|
Total
|
|
|
1,102,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
3,428,572
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
10.1%-12.2%(10.7%)
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value/Revenue Multiples
|
|
0.7x
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value/EBITDA Multiples
|
|
6.2x-8.5x(7.4x)
|
|
|
|
|
|
|
Black-Scholes Option
|
|
Volatility
|
|
21.9%-31.1%(24.7%)
|
|
|
|
|
|
|
Pricing Model
|
|
Discount for Lack of Marketability
|
|
5.0%-20.0%(15.4%)
|
|
|
|
1,925,722
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
N/A
|
Total
|
|
|
5,354,294
|
|
|
|
|
|
|
|
Total Level 3 Investments
|
|
$
|
38,582,735
|
|
|
|
|
|
|
|
The Company’s remaining Level 3 investments
aggregating approximately $1,200 have been valued using unadjusted third party transactions. As a result, there were no unobservable
inputs that have been internally developed by the Company in determining the fair values of these investments as of December 31,
2018.
As of December 31, 2018, the Company used
both market and income approaches to value certain equity investments as the Company felt this approach better reflected the fair
value of these investments. By 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. Refer to
“Note 2—Significant Accounting Policies” for more detail.
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” for
more detail.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The following table provides quantitative
information regarding Level 3 fair value measurements as of December 31, 2017:
Description
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable
Inputs
|
|
Range (Average)
|
|
|
|
|
|
|
|
|
|
|
First Lien Loans
|
|
$
|
6,664,000
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
11.80%-13.80%(12.80%)
|
|
|
|
8,301,218
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
12.20%
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value/Revenue Multiple
|
|
0.6x-0.9x (0.75x)
|
|
|
|
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
N/A
|
Total
|
|
|
14,965,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loans
|
|
|
7,500,000
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
N/A
|
|
|
|
1,000,000
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
11.80%
|
|
|
|
3,826,477
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
14.90%
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value / Revenue & EBITDA Multiples
|
|
0.2
x
|
|
|
|
6,339,459
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
10.10%
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value/Revenue Multiple
|
|
8.5x
|
Total
|
|
|
18,665,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Loans
|
|
|
1,218,812
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
11.60-14.90%(13.25%)
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value / Revenue & EBITDA Multiples
|
|
0.20x– 19.10x (9.65x)
|
|
|
|
14,000
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
N/A
|
Total
|
|
|
1,232,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
2,516,039
|
|
|
Black-Scholes Option
|
|
Volatility
|
|
22.40%-32.80% (27.60%)
|
|
|
|
|
|
|
Pricing Model
|
|
Discount for lack of marketability
|
|
5.00%-30.00% (17.50%)
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value / Revenue & EBITDA Multiples
|
|
0.20x – 19.10x (9.65x)
|
|
|
|
|
|
|
Income Approach
|
|
Discount Rate
|
|
10.10% - 14.9% (12.50%)
|
|
|
|
1,570,755
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
N/A
|
Total
|
|
|
4,086,794
|
|
|
|
|
|
|
|
Total Level 3 Investments
|
|
$
|
38,950,760
|
|
|
|
|
|
|
|
The primary significant unobservable input
used in the fair value measurement of the Company’s debt securities (first lien loans, second lien loans and unsecured loans),
including income-producing investments in funds, is the discount rate. Significant increases (decreases) in the discount rate in
isolation would result in a significantly lower (higher) fair value measurement. In determining the discount rate, for the income
(discounted cash flow) or yield approach, the Company considers current market yields and multiples, portfolio company performance,
leverage levels and credit quality, among other factors in its analysis. Changes in one or more of these factors can have a similar
directional change on other factors in determining the appropriate discount rate to use in the income approach.
The primary significant unobservable inputs
used in the fair value measurement of the Company’s equity investments are the EBITDA multiple and revenue multiple, which
is used to determine the Enterprise Value. Significant increases (decreases) in the Enterprise Value in isolation would result
in a significantly higher (lower) fair value measurement. To determine the Enterprise Value for the market approach, the Company
considers current market trading and/or transaction multiples, portfolio company performance (financial ratios) relative to public
and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar
directional change on other factors in determining the appropriate multiple to use in the market approach.
The primary unobservable inputs used in
the fair value measurement of the Company’s equity investments, when using an option pricing model to allocate the equity
value to the investment, are the discount rate for lack of marketability and volatility. Significant increases (decreases) in the
discount rate in isolation would result in a significantly lower (higher) fair value measurement. Significant increases (decreases)
in the volatility in isolation would result in a significantly higher (lower) fair value measurement. Changes in one or more factors
can have a similar directional change on other factors in determining the appropriate discount rate or volatility to use in the
valuation of equity using an option pricing model.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
NOTE 6 – INCOME TAX
The Company is currently taxable as a C
corporation and subject to federal and state corporate income taxes. The Company recorded a provision as follows:
|
|
2018
|
|
|
2017
|
|
Current expense (benefit)
|
|
$
|
17,861
|
|
|
$
|
28,065
|
|
Deferred expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
Total expense (benefit)
|
|
$
|
17,861
|
|
|
$
|
28,065
|
|
The components of deferred tax assets and
liabilities at December 31, 2018 and 2017 were as follows:
Deferred tax assets:
|
|
2018
|
|
|
2017
|
|
Net operating loss carryforward
|
|
$
|
113,837
|
|
|
$
|
494,161
|
|
Net capital loss carryforwards
|
|
|
1,569,792
|
|
|
|
1,384,133
|
|
Basis differences in investments
|
|
|
3,504,134
|
|
|
|
3,402,760
|
|
Total gross deferred tax assets
|
|
|
5,187,763
|
|
|
|
5,281,054
|
|
Less: Valuation allowance
|
|
|
(5,187,763
|
)
|
|
|
(5,281,054
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2018 and 2017, the total
amount of federal net operating loss carryforwards was approximately $429,600 and $1,819,547, respectively. The federal net operating
loss carryforwards will begin to expire in 2036. As of December 31, 2018 and 2017, the total amount of federal capital loss carryforwards
was approximately $5,815,732 and $5,924,088, respectively. The federal capital loss carryforwards will expire in 2021.
The recognition of a valuation allowance
for deferred taxes requires management to make estimates and judgments about the Company’s future profitability which are
inherently uncertain. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion of all of the deferred tax assets will not be realized. Management believes that the likelihood of realizing
the benefits of these deductible differences at December 31, 2018, does not meet the “more likely than not threshold”
as defined in ASC 740 – Income Taxes and thus management has recorded a full valuation allowance.
For federal and state purposes, a portion
of the Company’s 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 difference between the tax provision
(benefit) at the statutory federal income tax rate and the tax provision (benefit) was as follows:
|
|
2018
|
|
|
2017
|
|
Federal statutory tax rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal tax benefit
|
|
|
3.8
|
|
|
|
(1.1
|
)
|
Permanent items
|
|
|
-
|
|
|
|
20.7
|
|
Deferred true-up
|
|
|
(37.8
|
)
|
|
|
21.0
|
|
Rate change
|
|
|
-
|
|
|
|
(88.9
|
)
|
Increase/(decrease) in valuation allowance
|
|
|
19.1
|
|
|
|
14.8
|
|
Federal payable true-up
|
|
|
7.0
|
|
|
|
-
|
|
Other
|
|
|
(2.3
|
)
|
|
|
(1.6
|
)
|
Effective tax rate
|
|
|
10.8
|
%
|
|
|
(1.1
|
)%
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The Company did not meet the qualifications
of a RIC for the 2018 tax year and will be taxed as a corporation under Subchapter C of the Code. The Company does not expect to
meet the qualifications of a RIC for the 2019 tax year. If the Company is unable to meet the qualifications of a RIC for the 2018
tax year, it will be taxed as a corporation under Subchapter C of the Code. As a RIC, the Company generally will not pay corporate-level
U.S. federal income taxes on any net ordinary income or capital gains that the Company distributes to its stockholders as dividends
and claims dividends paid deductions to compute taxable income. A RIC will not be eligible to utilize net operating losses. However,
the net operating losses may become available should the Company disqualify as a RIC and become a C corporation in the future.
In the event that the Company qualifies as a RIC, the Company itself will no longer be required to recognize deferred tax assets
or liabilities.
In addition to meeting other requirements,
the Company must generally distribute at least 90% of its investment company taxable income to qualify for the special treatment
accorded to a RIC and maintain its RIC status. As part of maintaining RIC status, undistributed taxable income (subject to a 4%
excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided
such dividends are declared prior to the later of (1) the fifteenth day of the ninth month following the close of that fiscal year
or (2) the extended due date for filing the federal income tax return for that fiscal year.
The Company did not have any unrecognized
tax benefits as of the period presented herein. The Company identified its major tax jurisdictions as U.S. federal and Massachusetts.
For the years ended December 31, 2018, 2017, and 2016, no income tax expenses or related liabilities for uncertain tax positions
were recognized for the Company’s open tax years from inception through the present. The Company is not aware of any tax
positions for which it is reasonably possible that the total amount of unrecognized tax benefits will change significantly in the
next 12 months.
The Tax Cuts and Jobs Act was enacted on
December 22, 2017. A key provision of the act was the reduction in the corporate tax rate to 21% for tax years beginning January
1, 2018. The Company has re-measured its deferred tax assets and liabilities and this re-measurement will be offset by a change
in the valuation allowance during the corresponding period.
NOTE 7 – RELATED PARTY TRANSACTIONS
Transition of Investment Advisory Agreements
Our board of directors, including a majority
of our independent directors, conditionally approved the PAG Investment Advisory Agreement between the Company and Princeton Advisory
Group at its meeting held on January 18, 2016, subject to the approval of the Company’s stockholders at the 2016 Annual Meeting
of Stockholders. On June 9, 2016, the Company’s stockholders approved the PAG Investment Advisory Agreement. The effective
date of the PAG Investment Advisory Agreement was June 9, 2016. The Board of Directors of the Company previously approved the termination
of the investment advisory agreement between the Company and Princeton Investment Advisors, LLC (the “PIA Investment Advisory
Agreement”), such termination becoming effective on June 9, 2016, the date the PAG Investment Advisory Agreement was approved
and adopted by the stockholders of the Company. At a Special Meeting of the Board held on June 27, 2017, the Board, including a
majority of the independent directors of the Board, voted to renew the PAG Investment Advisory Agreement for another one year term,
pursuant to the requirements of Section 9(c) of the PAG Investment Advisory Agreement and Section 15(c) of the 1940 Act. Subject
to the overall supervision of our board of directors and in accordance with the 1940 Act, Princeton Advisory Group managed our
day-to-day operations and provided investment advisory services to us until the PAG Investment Advisory Agreement was terminated
effective December 31, 2017.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
As disclosed elsewhere in this 10-K (including
Note 1), House Hanover has served as the Company’s investment advisor since January 1, 2018 pursuant to the Interim Investment
Advisory Agreement and the House Hanover Investment Advisory Agreement.
Since the transition of investment advisors
occurred during the periods covered under the financial statements included in this Form 10-K, we have disclosed the material terms
of the PIA Investment Advisory Agreement, PAG Investment Advisory Agreement and the House Hanover Investment Advisory Agreement,
beginning with the PIA Investment Advisory Agreement.
PIA Investment Advisory Agreement
Our board of directors, including a majority
of our independent directors, approved the PIA Investment Advisory Agreement at its meeting held on March 13, 2015. Subject to
the overall supervision of our board of directors and in accordance with the 1940 Act, Princeton Investment Advisors managed our
day-to-day operations and provided investment advisory services to us. Under the terms of the PIA Investment Advisory Agreement,
Princeton Investment Advisors was responsible for the following:
|
●
|
determining the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;
|
|
|
|
|
●
|
identifying, evaluating and negotiating the structure of the investments we make;
|
|
|
|
|
●
|
executing, closing, servicing and monitoring the investments we make;
|
|
|
|
|
●
|
determining the securities and other assets that we purchase, retain or sell;
|
|
|
|
|
●
|
performing due diligence on prospective portfolio companies; and
|
|
|
|
|
●
|
providing us with such other investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds.
|
Pursuant to the PIA Investment Advisory
Agreement, the Company agreed to pay Princeton Investment Advisors a fee for investment advisory and management services consisting
of two components — a base management fee and an incentive fee. The cost of both the base management fee and the incentive
fee will ultimately be borne by our stockholders.
Management Fee
The base management fee is calculated at
an annual rate of 1.75% of our gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding
cash and cash equivalents, U.S. Treasury Bills, and deposits. For services rendered under the PIA Investment Advisory Agreement,
the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our
gross assets, as adjusted, at the end of the finalized prior quarter and the estimated current quarter. The management fee shown
on the statement of operations includes the estimated management fee for the current period as well as a true-up for the prior
quarter. Base management fees for any partial month or quarter will be appropriately pro-rated.
For the year ended December 31, 2017 and
2018 there were no management fees incurred under the PIA Investment Advisory Agreement. Management fees under the PIA Investment
Advisory Agreement for the year ended December 31, 2016 were $365,805. As of December 31, 2016, management fees of $341,559 were
payable to Princeton Investment Advisors. On October 18, 2017, as part of the Settlement Agreement with Princeton Investment Advisors,
$216,559 of previously accrued management fees due to Princeton Investment Advisors were reversed. These are reflected as management
fee waiver on the statement of operations.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Incentive Fee
The Company pays Princeton Investment Advisors
an incentive fee. The incentive fee consists of two components that are independent of each other, with the result that one component
may be payable even if the other is not.
The first component, which is income-based,
will be calculated and payable quarterly in arrears, commencing with the quarter beginning April 1, 2015, based on our pre-incentive
fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income
means interest income, distribution income and any other income (including any other fees (other than fees for providing managerial
assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio
companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee,
expenses payable under the administration agreement, any interest expense and any dividends paid on any issued and outstanding
preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital
gains, realized capital losses or unrealized capital appreciation or depreciation.
The operation of the first component of
the incentive fee for each quarter is as follows:
|
●
|
no incentive fee is payable to Princeton Investment Advisors in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate of 2.00% (8.00% annualized);
|
|
|
|
|
●
|
100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.50% in any calendar quarter (10.00% annualized) is payable to Princeton Investment Advisors. We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.50%) as the “catch-up.” The effect of the “catch-up” provision is that, if such pre-incentive fee net investment income exceeds 2.50% in any calendar quarter, Princeton Investment Advisors will receive 20% of such pre-incentive fee net investment income as if the hurdle rate did not apply; and
|
|
|
|
|
●
|
20% of the amount of such pre-incentive fee net investment income, if any, that exceeds 2.50% in any calendar quarter (10.00% annualized) is payable to Princeton Investment Advisors (once the hurdle rate is reached and the catch-up is achieved).
|
The portion of such incentive fee that
is attributable to deferred interest (such as PIK interest or original issue discount) will be paid to Princeton Investment Advisors,
together with interest from the date of deferral to the date of payment, only if and to the extent we actually receive such interest
in cash, and any accrual will be reversed if and to the extent such interest is reversed in connection with any write-off or similar
treatment of the investment giving rise to any deferred interest accrual. Any reversal of such amounts would reduce net income
for the quarter by the net amount of the reversal (after taking into account the reversal of incentive fees payable) and would
result in a reduction and possibly elimination of the incentive fees for such quarter.
There is no accumulation of amounts on
the hurdle rate from quarter to quarter and, accordingly, there is no clawback of amounts previously paid if subsequent quarters
are below the quarterly hurdle rate and there is no delay of payment if prior quarters are below the quarterly hurdle rate. Since
the hurdle rate is fixed, as interest rates rise, it will be easier for Princeton Investment Advisors to surpass the hurdle rate
and receive an incentive fee based on pre-incentive fee net investment income.
Our net investment income used to calculate
this component of the incentive fee is also included in the amount of our gross assets used to calculate the 1.75% base management
fee. These calculations will be appropriately prorated for any period of less than three months and adjusted for any share issuances
or repurchases during the current quarter.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The second component, the capital gains
component of the incentive fee, will be determined and payable in arrears as of the end of each calendar year (or upon termination
of the PIA Investment Advisory Agreement, which occurred on June 9, 2016, as of the termination date of June 9, 2016), commencing
on December 31, 2015, and will equal 20% of our cumulative aggregate realized capital gains from January 1st through the end of
that calendar year, computed net of our aggregate cumulative realized capital losses and our aggregate cumulative unrealized capital
depreciation through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees. If such
amount is negative, then no capital gains incentive fee will be payable for such year. Additionally, if the PIA Investment Advisory
Agreement is terminated as of a date that is not a calendar year end (as is the case with the termination having become effective
as of June 9, 2016), the termination date will be treated as though it were a calendar year end for purposes of calculating and
paying the capital gains incentive fee. The capital gains component of the incentive fee is not subject to any minimum return to
stockholders.
Because of the structure of the incentive
fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For example, if we receive pre-incentive
fee net investment income in excess of the hurdle rate, we will pay the applicable incentive fee even if we have incurred a loss
in that quarter due to realized and unrealized capital losses.
There were no incentive fees earned by
Princeton Investment Advisors for the years ended December 31, 2017 and 2016.
Payment of Our Expenses
All investment professionals of Princeton
Investment Advisors, when and to the extent engaged in providing investment advisory services to us, and the compensation and routine
overhead expenses of personnel allocable to these services to us, will be provided and paid for by Princeton Investment Advisors
and not by us. We will bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation,
those relating to:
|
●
|
calculating our net asset value (including the cost and expenses of any third party independent valuation firm);
|
|
|
|
|
●
|
fees and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments;
|
|
|
|
|
●
|
interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts;
|
|
|
|
|
●
|
offerings of our common stock and other securities;
|
|
|
|
|
●
|
base management and incentive fees;
|
|
|
|
|
●
|
administration fees and expenses, if any, payable under the administration agreement (including our allocable portion of Princeton Investment Advisors’ overhead in performing its obligations under the administration agreement, including rent and the allocable portion of the cost of our chief compliance officer, chief financial officer and their respective staffs);
|
|
|
|
|
●
|
transfer agent, dividend agent and custodial fees and expenses;
|
|
|
|
|
●
|
U.S. federal and state registration fees;
|
|
|
|
|
●
|
all costs of registration and listing our stock on any securities exchange;
|
|
|
|
|
●
|
U.S. federal, state and local taxes;
|
|
|
|
|
●
|
independent directors’ fees and expenses;
|
|
|
|
|
●
|
Costs of preparing and filing report or other documents required by the SEC or other regulators;
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
|
●
|
costs of any reports, proxy statements or other notices to stockholders, including printing costs;
|
|
|
|
|
●
|
costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;
|
|
|
|
|
●
|
direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs;
|
|
|
|
|
●
|
proxy voting expenses; and
|
|
|
|
|
●
|
all other expenses incurred by us or Princeton
Investment Advisors in connection with administering our business.
|
Duration and Termination
The PIA Investment Advisory Agreement was
to continue in effect for a period of two years from its effective date. It was to remain in effect from year to year thereafter
if approved annually by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting
securities, and, in either case, if also approved by a majority of our directors who are not “interested persons.”
The PIA Investment Advisory Agreement was to automatically terminate in the event of its assignment, as defined in the 1940 Act,
by Princeton Investment Advisors and may be terminated by either party without penalty upon 60 days’ written notice to the
other. The holders of a majority of our outstanding voting securities could also terminate the investment advisory agreement without
penalty upon 60 days’ written notice. As described elsewhere in this 10-K, on January 18, 2016 the Board of Directors of
the Company approved the termination of the PIA Investment Advisory Agreement, such termination becoming effective on June 9, 2016,
the date the PAG Investment Advisory Agreement was approved and adopted by the Company’s stockholders. The Company did not
pay any early termination penalties as a result of the termination of the PIA Investment Advisory Agreement.
Indemnification
The PIA Investment Advisory Agreement provides
that, absent willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless
disregard of their duties and obligations under the PIA Investment Advisory Agreement, Princeton Investment Advisors and its officers,
managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are
entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees
and amounts reasonably paid in settlement) arising from the rendering of Princeton Investment Advisors’ services under the
PIA Investment Advisory Agreement or otherwise as our investment advisor.
PAG Investment Advisory Agreement
Unlike the separate administration agreement
that covered administrative services while Princeton Investment Advisors served as the investment advisor to the Company (as described
below), under the PAG Investment Advisory Agreement, the administrative services of the Company were provided by Princeton Advisory
Group. Inc. and subject to reimbursement of administrative related expenses under the PAG Investment Advisory Agreement.
Advisory Services
Princeton Advisory Group is registered
as an investment adviser under the 1940 Act, and from June 9, 2016 until December 31, 2017, served as the Company’s investment
advisor pursuant to the PAG Investment Advisory Agreement in accordance with the 1940 Act. Princeton Advisory Group is owned by
and an affiliate of Mr. Munish Sood, the Company’s former President and former Chief Executive Officer.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Subject to supervision by the Company’s
Board of Directors, Princeton Advisory Group oversees the Company’s day-to-day operations and provides the Company with investment
advisory services. Under the terms of the PAG Investment Advisory Agreement, Princeton Advisory Group, among other things: (i)
determines the composition and allocation of the portfolio of the Company, the nature and timing of the changes therein and the
manner of implementing such changes; (ii) identifies, evaluates and negotiates the structure of the investments made by the Company;
(iii) executes, monitors and services the Company’s investments; (iv) determines the securities and other assets that the
Company shall purchase, retain, or sell; (v) performs due diligence on prospective portfolio companies; (vi) provides the Company
with such other investment advisory, research and related services as the Company may, from time to time, reasonably require for
the investment of its funds; and (vii) if directed by the Board, will assist in the execution and closing of the sale of the Company’s
assets or a sale of the equity of the Company in one or more transactions. Princeton Advisory Group’s services under the
PAG Investment Advisory Agreement may not be exclusive and it is free to furnish similar services to other entities so long as
its services to the Company are not impaired.
Management Fee
Pursuant to the PAG Investment Advisory
Agreement, the Company pays Princeton Advisory Group a base management fee for investment advisory and management services. The
cost of the base management fee will ultimately be borne by the Company’s stockholders. The PAG Investment Advisory Agreement
does not include an incentive fee to Princeton Advisory Group.
The base management fee is calculated at
an annual rate of 1.00% of the Company’s gross assets, including assets purchased with borrowed funds or other forms of leverage
and excluding cash and cash equivalents net of all indebtedness of the Company for borrowed money and other liabilities of the
Company. The base management fee is payable quarterly in arrears, and determined as set forth in the preceding sentence at the
end of the two most recently completed calendar quarters prior to the quarter for which such fees are being calculated. The Board
of Directors may retroactively adjust the valuation of the Company’s assets and the resulting calculation of the base management
fee in the event the Company or any of its assets are sold or transferred to an independent third party or the Company or Princeton
Advisory Group receives an audit report or other independent third party valuation of the Company. To the extent that any such
adjustment increases or decreases the base management fee of any prior period, the Company will be obligated to pay the amount
of increase to Princeton Advisory Group or Princeton Advisory Group will be obligated to refund the decreased amount, as applicable.
Management fees under the PAG Investment
Advisory Agreement for the years ended December 31, 2017 and December 31, 2016 were $407,609 and $275,569, respectively. As of
December 31, 2018 and December 31, 2017, management fees of $19,282 and $94,282, respectively, were payable to Princeton Advisory
Group.
Incentive Fee
The Company is not obligated to pay Princeton
Advisory Group an incentive fee.
Payment of Expenses
Princeton Advisory Group will bear all
compensation expense (including health insurance, pension benefits, payroll taxes and other compensation related matters) of its
employees and bear the costs of any salaries or directors’ fees of any officers or directors of the Company who are affiliated
persons (as defined in the 1940 Act) of Princeton Advisory Group. However, Princeton Advisory Group, subject to approval by the
Board of Directors of the Company, will be entitled to reimbursement for the portion of any compensation expense and the costs
of any salaries of any such employees to the extent attributable to services performed by such employees for the Company. During
the term of the PAG Investment Advisory Agreement, Princeton Advisory Group will also bear all of its costs and expenses for office
space rental, office equipment, utilities and other non-compensation related overhead allocable to performance of its obligations
under the PAG Investment Advisory Agreement.
Except as provided in the preceding paragraph
the Company will reimburse Princeton Advisory Group all direct and indirect costs and expenses incurred by it during the term of
the PAG Investment Advisory Agreement for: (i) due diligence of potential investments of the Company, (ii) monitoring performance
of the Company’s investments, (iii) serving as officers of the Company, (iv) serving as directors and officers of portfolio
companies of the Company, (v) providing managerial assistance to portfolio companies of the Company, and (vi) enforcing the Company’s
rights in respect of its investments and disposing of its investments; provided, however, that, any third party expenses incurred
by Princeton Advisory Group in excess of $50,000 in the aggregate in any calendar quarter will require advance approval by the
Board of Directors of the Company.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
In addition to the foregoing, the Company
will also be responsible for the payment of all of the Company’s other expenses, including the payment of the following fees
and expenses:
|
●
|
organizational and offering expenses;
|
|
●
|
expenses incurred in valuing the Company’s
assets and computing its net asset value per share (including the cost and expenses of any independent valuation firm);
|
|
●
|
subject to the guidelines approved by
the Board of Directors, expenses incurred by Princeton Advisory Group that are payable to third parties, including agents, consultants
or other advisors, in monitoring financial and legal affairs for the Company and in monitoring the Company’s investments
and performing due diligence on the Company’s prospective portfolio companies or otherwise related to, or associated with,
evaluating and making investments;
|
|
●
|
interest payable on debt, if any, incurred
to finance the Company’s investments and expenses related to unsuccessful portfolio acquisition efforts;
|
|
●
|
offerings of the Company’s common
stock and other securities;
|
|
●
|
transfer agent and custody fees and expenses;
|
|
●
|
U.S. federal and state registration fees
of the Company (but not Princeton Advisory Group);
|
|
●
|
all costs of registration and listing
the Company’s shares on any securities exchange;
|
|
●
|
U.S. federal, state and local taxes;
|
|
●
|
independent directors’ fees and
expenses;
|
|
●
|
costs of preparing and filing reports
or other documents required of the Company (but not Princeton Advisory Group) by the SEC or other regulators;
|
|
●
|
costs of any reports, proxy statements
or other notices to stockholders, including printing costs;
|
|
●
|
the costs associated with individual or
group stockholders;
|
|
●
|
the Company’s allocable portion
of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;
|
|
●
|
direct costs and expenses of administration
and operation of the Company, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent
auditors and outside legal costs; and
|
|
●
|
all other non-investment advisory expenses
incurred by the Company regarding administering the Company’s business.
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Duration and Termination
Unless terminated earlier as described
below, the PAG Investment Advisory Agreement will continue in effect for a period of one (1) year from its effective date. It will
remain in effect from year to year thereafter if approved annually by the Company’s Board or by the affirmative vote of the
holders of a majority of the Company’s outstanding voting securities, and, in either case, if also approved by a majority
of the of Company’s directors who are neither parties to the PAG Investment Advisory Agreement nor “interested persons”
(as defined under the 1940 Act) of any such party. The PAG Investment Advisory Agreement may be terminated at any time, without
the payment of any penalty, (i) upon written notice, effective on the date set forth in such notice, by the vote of a majority
of the outstanding voting securities of the Company or by the vote of the Company’s directors, or (ii) upon 60 days’
written notice, by Princeton Group. The PAG Investment Advisory Agreement automatically terminates in the event of its “assignment,”
as defined in the 1940 Act. As disclosed elsewhere in this Form 10-K (including Note 1), the PAG Investment Advisory Agreement
was terminated as of December 31, 2017. The Company did not pay any early termination penalties as a result of the termination
of the PAG Investment Advisory Agreement.
Indemnification
The PAG Investment Advisory Agreement provides
that, absent willful misfeasance, bad faith or negligence in the performance of their duties, or by reason of the material breach
or reckless disregard of their duties and obligations under the PAG Investment Advisory Agreement (and to the extent specified
in Section 36(b) of the Investment Company Act concerning loss resulting from a breach of fiduciary duty (as the same is finally
determined by judicial proceedings) with respect to the receipt of compensation for services), Princeton Advisory Group and its
officers, managers, employees and members are entitled to indemnification from the Company for any damages, liabilities, costs
and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering
of Princeton Advisory Group’s services under the PAG Investment Advisory Agreement or otherwise as the Company’s investment
advisor. The amounts payable for indemnification will be calculated net of payments recovered by the indemnified party under any
insurance policy with respect to such losses.
At all times during the term of the PAG
Investment Advisory Agreement and for one year thereafter, Princeton Advisory Group is obligated to maintain directors and officers/errors
and omission liability insurance in an amount and with a provider reasonably acceptable to the Board of Directors of the Company.
Administration Services and Sub-Administration
Agreement
Princeton Advisory Group is entitled to
reimbursement of expenses under the PAG Investment Advisory Agreement for administrative services performed for the Company.
Princeton Advisory Group engaged Conifer
Asset Solutions LLC (the “Sub-Administrator”) to provide certain administrative services to us. As of December 15,
2016, Conifer Asset Solutions LLC’s parent company, Conifer Financial Services, LLC, was acquired by SS&C Technologies
Holdings, Inc. In exchange for provided services, the Administrator pays the Sub-Administrator an asset-based fee with an annual
minimum as adjusted for any reimbursement of expenses. The minimum annual fee rate is $125,000 through June 9, 2017 and increases
to a minimum annual fee rate of $150,000 from June 10, 2017 through December 31, 2017. This asset-based fee will vary depending
upon our gross assets, as adjusted, as follows:
Gross Assets
|
|
Fee
|
first $150 million of gross assets
|
|
20 basis points (0.20%)
|
next $150 million of gross assets
|
|
15 basis points (0.15%)
|
next $200 million of gross assets
|
|
10 basis points (0.10%)
|
in excess of $500 million of gross assets
|
|
5 basis points (0.05%)
|
Administration fees were $264,000, $200,293 and $238,143 for
the years ended December 31, 2018, 2017 and 2016, respectively, and sub-administration fees were $150,000, $139,354 and $158,173
for the years ended December 31, 2018, 2017 and 2016, respectively, as shown on the Statements of Operations under administration
fees.
House Hanover Investment Advisory Agreement
Effective as of January 1, 2018, House
Hanover serves as our investment advisor. House Hanover is registered as an investment advisor under the 1940 Act.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Material Changes in Investment Advisory
Agreements
The terms and conditions of the House Hanover
Investment Advisory Agreement and the PAG Investment Advisory Agreement are substantially similar, including all management fees
payable by the Company. Neither the House Hanover Investment Advisory Agreement nor the PAG Investment Advisory Agreement, contain
an incentive fee component, as would be typical of many external investment advisory agreements.
The terms and conditions of the House Hanover
Investment Advisory Agreement and the Interim Investment Advisory Agreement are substantially similar, except that (i) the Interim
Investment Advisory Agreement did not require approval in accordance with Rule 15a-4 of the 1940 Act and (ii) the duration of the
House Hanover Investment Advisory Agreement is one year from the effective date (May 31, 2018) and thereafter shall continue automatically
for successive annual periods, provided that such continuance is specifically approved at least annually by (a) the vote of the
Board, or by the vote of a majority of the outstanding voting securities of the Company and (b) the vote of a majority of the members
of the Board who are not parties to the House Hanover Investment Advisory Agreement or “interested persons” (as such
term is defined in Section 2(a)(19) of the 1940 Act) of any such party, in accordance with the requirements of the 1940 Act, as
opposed to a 150-day limitation on the term, as set forth in the Interim Investment Advisory Agreement.
Advisory Services
House Hanover is registered as an investment
adviser under the 1940 Act and serves as the Company’s investment advisor pursuant to the House Hanover Investment Advisory
Agreement in accordance with the 1940 Act. House Hanover is owned by and an affiliate of Mr. Mark DiSalvo, the Company’s
Interim President, Interim Chief Executive Officer, and a director of the Company.
Subject to supervision by the Company’s
Board, House Hanover oversees the Company’s day-to-day operations and provide the Company with investment advisory services.
Under the terms of the House Hanover Investment Advisory Agreement, House Hanover, among other things: (i) determines the composition
and allocation of the portfolio of the Company, the nature and timing of the changes therein and the manner of implementing such
changes; (ii) identifies, evaluates and negotiates the structure of the investments made by the Company; (iii) executes, closes,
services and monitors the Company’s investments; (iv) determines the securities and other assets that the Company shall purchase,
retain, or sell; (v) performs due diligence on prospective portfolio companies; (vi) provides the Company with such other investment
advisory, research and related services as the Company may, from time to time, reasonably require for the investment of its funds;
and (vii) if directed by the Board, assists in the execution and closing of the sale of the Company’s assets or a sale of
the equity of the Company in one or more transactions. House Hanover’s services under the House Hanover Investment Advisory
Agreement may not be exclusive and it is free to furnish similar services to other entities so long as its services to the Company
are not impaired. At the request of the Company, House Hanover, upon any transition of the Company’s investment advisory
relationship to another investment advisor or upon any internalization, shall provide reasonable transition assistance to the Company
and any successor investment advisor.
Management Fee
Pursuant to the House Hanover Investment
Advisory Agreement, the Company pays House Hanover a base management fee for investment advisory and management services. The cost
of the base management fee is ultimately borne by the Company’s stockholders. The House Hanover Investment Advisory Agreement
does not contain an incentive fee component.
The base management fee is calculated at
an annual rate of 1.00% of the Company’s gross assets, including assets purchased with borrowed funds or other forms of leverage
and excluding cash and cash equivalents net of all indebtedness of the Company for borrowed money and other liabilities of the
Company. The base management fee is payable quarterly in arrears, and determined as set forth in the preceding sentence at the
end of the two most recently completed calendar quarters. The Board may retroactively adjust the valuation of the Company’s
assets and the resulting calculation of the base management fee in the event the Company or any of its assets are sold or transferred
to an independent third party or the Company or House Hanover receives an audit report or other independent third party valuation
of the Company. To the extent that any such adjustment increases or decreases the base management fee of any prior period, the
Company will be obligated to pay the amount of increase to House Hanover or House Hanover will be obligated to refund the decreased
amount, as applicable.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Management fees under the House Hanover
Investment Advisory Agreement for the year ended December 31, 2018 were $402,750. As of December 31, 2018 and December 31, 2017,
management fees of $81,296 and $0, respectively were payable to House Hanover.
Incentive Fee
The Company is not obligated to pay House
Hanover an incentive fee.
Payment of Expenses
House Hanover bears all compensation expense
(including health insurance, pension benefits, payroll taxes and other compensation related matters) of its employees and bear
the costs of any salaries or directors’ fees of any officers or directors of the Company who are affiliated persons (as defined
in the 1940 Act) of House Hanover. However, House Hanover, subject to approval by the Board of the Company, is entitled to reimbursement
for the portion of any compensation expense and the costs of any salaries of any such employees to the extent attributable to services
performed by such employees for the Company. During the term of the House Hanover Investment Advisory Agreement, House Hanover
will also bear all of its costs and expenses for office space rental, office equipment, utilities and other non-compensation related
overhead allocable to performance of its obligations under the House Hanover Investment Advisory Agreement.
Except as provided in the preceding paragraph
the Company reimburses House Hanover all direct and indirect costs and expenses incurred by it during the term of the House Hanover
Investment Advisory Agreement for: (i) due diligence of potential investments of the Company, (ii) monitoring performance of the
Company’s investments, (iii) serving as officers of the Company, (iv) serving as directors and officers of portfolio companies
of the Company, (v) providing managerial assistance to portfolio companies of the Company, and (vi) enforcing the Company’s
rights in respect of its investments and disposing of its investments; provided, however, that, any third party expenses incurred
by House Hanover in excess of $50,000 in the aggregate in any calendar quarter will require advance approval by the Board of the
Company.
In addition to the foregoing, the Company
will also be responsible for the payment of all of the Company’s other expenses, including the payment of the following fees
and expenses:
|
●
|
organizational and offering expenses;
|
|
●
|
expenses incurred in valuing the Company’s
assets and computing its net asset value per share (including the cost and expenses of any independent valuation firm);
|
|
●
|
subject to the guidelines approved by
the Board of Directors, expenses incurred by House Hanover that are payable to third parties, including agents, consultants or
other advisors, in monitoring financial and legal affairs for the Company and in monitoring the Company’s investments and
performing due diligence on the Company’s prospective portfolio companies or otherwise related to, or associated with, evaluating
and making investments;
|
|
●
|
interest payable on debt, if any, incurred
to finance the Company’s investments and expenses related to unsuccessful portfolio acquisition efforts;
|
|
●
|
offerings of the Company’s common
stock and other securities;
|
|
●
|
transfer agent and custody fees and expenses;
|
|
●
|
U.S. federal and state registration fees
of the Company (but not House Hanover);
|
|
●
|
all costs of registration and listing
the Company’s shares on any securities exchange;
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
|
●
|
U.S. federal, state and local taxes;
|
|
●
|
independent directors’ fees and
expenses;
|
|
●
|
costs of preparing and filing reports
or other documents required of the Company (but not House Hanover) by the SEC or other regulators;
|
|
●
|
costs of any reports, proxy statements
or other notices to stockholders, including printing costs;
|
|
●
|
the costs associated with individual or
group stockholders;
|
|
●
|
the Company’s allocable portion
of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;
|
|
●
|
direct costs and expenses of administration
and operation of the Company, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent
auditors and outside legal costs; and
|
|
●
|
all other non-investment advisory expenses
incurred by the Company regarding administering the Company’s business.
|
Duration and Termination
Unless terminated earlier as described
below, the House Hanover Investment Advisory Agreement will continue in effect for a period of one (1) year from its effective
date. It will remain in effect from year to year thereafter if approved annually by the Company’s Board or by the affirmative
vote of the holders of a majority of the Company’s outstanding voting securities, and, in either case, if also approved by
a majority of Company’s directors who are neither parties to the House Hanover Investment Advisory Agreement nor “interested
persons” (as defined under the 1940 Act) of any such party. The House Hanover Investment Advisory Agreement may be terminated
at any time, without the payment of any penalty, (i) upon written notice, effective on the date set forth in such notice, by the
vote of a majority of the outstanding voting securities of the Company or by the vote of the Company’s directors, or (ii)
upon 60 days’ written notice, by House Hanover. The House Hanover Investment Advisory Agreement automatically terminates
in the event of its “assignment,” as defined in the 1940 Act.
Indemnification
The House Hanover Investment Advisory Agreement
provides that, absent willful misfeasance, bad faith or negligence in the performance of their duties, or by reason of the material
breach or reckless disregard of their duties and obligations under the House Hanover Investment Advisory Agreement, House Hanover
and its officers, managers, employees and members are entitled to indemnification from the Company for any damages, liabilities,
costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering
of House Hanover’s services under the House Hanover Investment Advisory Agreement or otherwise as the Company’s investment
advisor. The amounts payable for indemnification will be calculated net of payments recovered by the indemnified party under any
insurance policy with respect to such losses.
At all times during the term of the House
Hanover Investment Advisory Agreement and for one year thereafter, House Hanover is obligated to maintain directors and officers/errors
and omission liability insurance in an amount and with a provider reasonably acceptable to the Board of the Company.
Administration Services and Service
Agreement
House Hanover is entitled to reimbursement
of expenses under the House Hanover Investment Advisory Agreement for administrative services performed for the Company.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
On January 1, 2018, Princeton Capital Corporation
directly entered into a service agreement with SS&C Technologies Holdings, Inc. (the “Sub-Administrator”) to provide
certain administrative services to the Company. In exchange for provided services, the Company pays the Sub-Administrator an asset-based
fee with a $150,000 annual minimum as adjusted for any reimbursement of expenses. This asset-based fee will vary depending upon
our gross assets, as adjusted, as follows:
Gross Assets
|
|
Fee
|
first $150 million of gross assets
|
|
20 basis points (0.20%)
|
next $150 million of gross assets
|
|
15 basis points (0.15%)
|
next $200 million of gross assets
|
|
10 basis points (0.10%)
|
in excess of $500 million of gross assets
|
|
5 basis points (0.05%)
|
Managerial Assistance
As a BDC, we offer, and must provide upon
request, managerial assistance to our portfolio companies. This assistance could involve monitoring the operations of our portfolio
companies, participating in board of directors and management meetings, consulting with and advising officers of portfolio companies
and providing other organizational and financial guidance. As of December 31, 2018, none of the portfolio companies had accepted
our offer for such services.
Other Related Party Transactions
On March 30, 2016, the Company, as Borrower,
entered into a Term Loan in the amount of $1,500,000 with Sema4, Inc. and Princeton Advisory Group, as Lenders in order to purchase
certain assets to attempt to qualify as a RIC. Sema4, Inc. committed $1,000,000 and Princeton Advisory Group committed $500,000.
The loan was repaid in full with interest at a rate of 10.0% per annum on April 8, 2016. Sema4, Inc. is owned by Mark DiSalvo,
the Company’s Interim President, Interim Chief Executive Officer, and a director of the Company, and is the general partner
of CPP and CPPII, which own approximately 87% and 9% of our common stock, respectively. Princeton Advisory Group is wholly owned
by Munish Sood, a former Director, former President, and former CEO of the Company.
As disclosed in the Company’s Form
8-K filed with the SEC on June 30, 2016, on June 28, 2016, the Company, as Borrower, entered into a Term Loan in the amount of
$390,000 with Munish Sood, as Lender, in order to purchase certain assets to attempt to qualify as a RIC. The board of directors
of the Company, by unanimous written consent, authorized and approved that the Company enter into the Loan Agreement. The loan
was repaid in full with interest at a rate of 10.0% per annum on July 11, 2016.
As disclosed in the Company’s Form
8-K filed with the SEC on September 16, 2016, on September 12, 2016, the Company, as a Borrower, entered into a Term Loan in the
amount of $225,000 with Munish Sood, former CEO, President and Director of the Company, as Lender, in order to fund capital to
one of its portfolio companies, Rockfish Seafood Grill, Inc. The board of directors of the Company, by unanimous written consent,
authorized and approved that the Company enter into the Loan Agreement. The loan will bear interest at a rate of 10.0% per annum
and matures on December 12, 2016. As disclosed in the Company’s Form 8-K filed with the SEC on October 27, 2016, on October
21, 2016, Munish Sood lent an additional $140,000 under this Term Loan. On March 29, 2017, Munish Sood, in order to purchase certain
assets to qualify as a RIC, lent an additional $450,000 under this Term Loan and extended the maturity date to June 30, 2017. On
April 10, 2017, the Company made a principal and interest payment totaling $450,984 on this Term Loan. The loan was repaid in full
with interest on July 17, 2017.
As disclosed in the Company’s Form
8-K filed with the SEC on October 5, 2016, on September 29, 2016 the Company, as Borrower, entered into a Term Loan in the amount
of $470,000 with Munish Sood, as Lender, in order to purchase certain assets to attempt to qualify as a RIC. The board of directors
of the Company, by unanimous written consent, authorized and approved that the Company enter into the Loan Agreement. The loan
was repaid in full with interest at a rate of 10.0% per annum on October 7, 2016.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
On June 28, 2017, Munish Sood made a non-interest
bearing short term loan to Advantis Certified Staffing Solutions, Inc., one of the Company’s portfolio companies, in the
amount of $89,225 for a short term working capital need. The loan was repaid without interest on July 5, 2017.
NOTE 8 – FINANCIAL HIGHLIGHTS
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
0.344
|
|
|
$
|
0.365
|
|
|
$
|
0.400
|
|
|
$
|
0.254
|
|
|
$
|
0.564
|
|
Net investment income (loss)
|
|
|
0.009
|
|
|
|
0.008
|
|
|
|
(0.004
|
)
|
|
|
(0.013
|
)
|
|
|
(0.144
|
)
|
Change in unrealized gain (loss)
|
|
|
(0.007
|
)
|
|
|
(0.035
|
)
|
|
|
(0.019
|
)
|
|
|
(0.081
|
)
|
|
|
(0.358
|
)
|
Realized gain
|
|
|
(0.001
|
)
|
|
|
0.006
|
|
|
|
(0.012
|
)
|
|
|
0.002
|
|
|
|
0.192
|
|
Change in capital share transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.238
|
|
|
|
-
|
|
Net asset value at end of period
|
|
$
|
0.345
|
|
|
$
|
0.344
|
|
|
$
|
0.365
|
|
|
$
|
0.400
|
|
|
$
|
0.254
|
|
Total return based on net asset value
(2)
|
|
|
0.3
|
%
|
|
|
(5.8
|
)%
|
|
|
(8.8
|
)%
|
|
|
(36.2
|
)%
|
|
|
(55.0
|
)%
|
Weighted average shares outstanding for period, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
97,402,398
|
|
|
|
1,816,534
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
41,554,951
|
|
|
$
|
41,407,539
|
|
|
$
|
43,985,319
|
|
|
$
|
48,225,563
|
|
|
$
|
462,022
|
|
Average net assets
|
|
$
|
41,416,562
|
|
|
$
|
42,634,685
|
|
|
$
|
46,991,446
|
|
|
$
|
45,472,971
|
|
|
$
|
743,758
|
|
Total operating expenses to average net assets
|
|
|
5.4
|
%
|
|
|
3.8
|
%
|
|
|
5.8
|
%
|
|
|
9.5
|
%
|
|
|
35.2
|
%
|
Net operating expenses to average net assets
|
|
|
5.4
|
%
|
|
|
3.3
|
%
|
|
|
5.8
|
%
|
|
|
9.5
|
%
|
|
|
35.2
|
%
|
Net investment income (loss) to average net assets
|
|
|
2.5
|
%
|
|
|
2.4
|
%
|
|
|
(1.1
|
)%
|
|
|
(2.7
|
)%
|
|
|
(35.2
|
)%
|
Net investment income (loss) to average net assets, excluding management fee waiver
|
|
|
2.5
|
%
|
|
|
1.9
|
%
|
|
|
(1.1
|
)%
|
|
|
(2.7
|
)%
|
|
|
(35.2
|
)%
|
Net investment income (loss) to average net assets, excluding other income from non-investment sources
(3)
|
|
|
2.5
|
%
|
|
|
0.1
|
%
|
|
|
(1.1
|
)%
|
|
|
(2.7
|
)%
|
|
|
(35.2
|
)%
|
Net investment income (loss) to average net assets, excluding other income from non-investment sources, excluding management fee waiver
(3)
|
|
|
2.5
|
%
|
|
|
(0.4
|
)%
|
|
|
(1.1
|
)%
|
|
|
(2.7
|
)%
|
|
|
(35.2
|
)%
|
Net operating expenses
excluding management fees, incentive fees, and interest expense to average net assets
|
|
|
4.3
|
%
|
|
|
2.8
|
%
|
|
|
4.3
|
%
|
|
|
8.0
|
%
|
|
|
35.2
|
%
|
Net operating expenses
excluding management fees, incentive fees, and interest expense to average net assets, excluding management fee waiver
|
|
|
4.3
|
%
|
|
|
3.2
|
%
|
|
|
4.3
|
%
|
|
|
8.0
|
%
|
|
|
35.2
|
%
|
Net increase (decrease) in net assets resulting from operations to average net assets
|
|
|
0.4
|
%
|
|
|
(6.0
|
)%
|
|
|
(9.0
|
)%
|
|
|
(19.5
|
)%
|
|
|
(75.8
|
)
(4)
%
|
Portfolio Turnover
|
|
|
0.5
|
%
|
|
|
7.0
|
%
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
|
|
31.2
|
(4)
%
|
(1)
|
Financial highlights are based on weighted average shares outstanding.
|
(2)
|
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. The total returns are not annualized.
|
(3)
|
Other income from non-investment sources only includes the reduction of previously accrued expenses totaling
$968,256 for the year ended December 31, 2017.
|
(4)
|
Unaudited
|
NOTE 9 – 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. The Company maintains sufficient assets to provide adequate cover to allow it to satisfy its unfunded
commitment amount as of December 31, 2018. The unfunded commitment is accounted for under ASC 820. As of the date of this report,
all commitments have been funded.
On June 2, 2015, the Company entered into
a Lease Guaranty Agreement to guaranty a portion of a lease entered into by Rockfish Seafood Grill, Inc. The Company’s guaranty
is limited to the total tenant improvement allowance and the total amount of commissions that the landlord provided in connection
with the lease. The total guaranteed amount by the Company is $292,701 and reduces proportionally after each of the
first sixty months of the lease, which commenced in November 2015, so long as no uncured event of default exists. As of December
31, 2018, the guaranteed amount was approximately $107,000.
Legal Proceedings
On or around September 8, 2015, a lawsuit
was filed captioned
Capital Link Fund I, LLC, et al. v. Capital Point Management, LP, et al.
, C.A. No. 11483-VCN in the
Delaware Court of Chancery.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The following description of the settlement
agreement is qualified in its entirety by reference to the full text of the Settlement Agreement, which is attached as Exhibit
99.1 to the 8-K filed on January 22, 2016:
On January 19, 2016, the Company, Princeton
Advisory Group, Inc., Gregory J. Cannella, Munish Sood, Thomas Jones, Jr. and Trennis L. Jones (together the “Independent
Directors” and the Independent Directors together with the Company, Princeton Advisory Group, Inc., Cannella and Sood, the
“Settling Defendants”) on the one hand, entered into a settlement agreement (“Settlement Agreement”) with
Capital Link Fund I, LLC (“Capital Link”), CT Horizon Legacy Fund, LP (“CT Horizon”), CPP, and Sema4, Inc.
(“Semaphore” and together with Capital Link, CT Horizon and CPP I, the “Plaintiffs” or the “Capital
Point Parties”) on the other hand. CPP I is the Company’s largest stockholder.
Subject to the terms and conditions contained
therein, the Settlement Agreement settles between the Plaintiffs and the Settling Defendants the disputes described in the lawsuit.
No monies were paid or exchanged by any of the parties as a part of the settlement and none of the parties admitted any wrongdoing.
For the avoidance of doubt, none of the following is a party to the Settlement Agreement: Alfred Jackson (“Jackson”),
Martin Tuchman (“Tuchman”), Capital Point Management, LP (“CPM”), Capital Point Advisors, LP (“CPA”)
or Princeton Investment Advisors, LLC (“PIA,” and, together with Jackson, Tuchman, CPM and CPA, collectively the “Non-Settling
Defendants”). As part of the terms of the Settlement Agreement, Sood and Cannella waived any rights to indemnification they
may have had against the Company as it relates to the lawsuit. Subsequently, pursuant to a written agreement among the Company,
Jackson, CPM, CPA, and PIA, Jackson waived any rights to indemnification that he may have had against the Company.
On June 17, 2016, a Stipulation and Order
of Dismissal of Claims (the “Dismissal Order”) against the Settling Defendants (which includes the Company) and Tuchman
(collectively, the “Dismissed Defendants”) was entered in the Delaware Court of Chancery. The Dismissal Order, which
was dated June 10, 2016, dismissed with prejudice the claims brought by the Plaintiffs against the Dismissed Defendants. The Dismissal
Order did not dismiss the claims against Jackson, CPM, CPA or PIA.
On February 24, 2017, a Stipulation and
Order of Dismissal of Claims (the “Dismissal Order II”) against Jackson, CPM, CPA and PIA was entered in the Delaware
Court of Chancery. The Dismissal Order II, which was dated February 24, 2017, dismissed with prejudice the claims brought by the
Plaintiffs against Jackson, CPM, CPA and PIA. Terms of any settlement were not disclosed and all claims with respect to the lawsuit
have now been dismissed, signifying that the status quo order that included the Company has now been lifted.
As a result of the allegations contained
in the complaints filed by the United States of America against Munish Sood, the former President, Chief Executive Officer, and
director of the Company, and others captioned
U.S. v. Lamont Evans, et al.
and
U.S. v. James Gotto, et al.
, in the
Southern District of New York., on September 27, 2017 and as previously disclosed, the Board authorized and directed its Audit
Committee (which consists of the Board’s three independent board members) to conduct an independent investigation into whether
such events impacted the Company, and the extent to which any officer or employee of the Company may have been involved, and whether
any corporate funds may have been utilized in the conduct alleged.
Mr. Sood resigned from his positions as
a director, Chief Executive Officer, and President, effective September 27, 2017. The Company has been informed that Mr. Sood plead
guilty to charges of bribery and fraud in August of 2018.
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 the
Company’s rights under contracts with its portfolio companies. The Company is not currently subject to any material legal
proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.
NOTE
10 – UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES
The
Company’s investments are primarily in private small and lower middle-market companies. In accordance with Rules 3.09 and
4.08(g) of Regulation S-X, the Company must determine which of its unconsolidated controlled portfolio companies are considered
“significant subsidiaries”, if any. In evaluating these investments, there are three tests utilized to determine if
any of the Company’s control investments are considered significant subsidiaries; the investment, the asset, and the income
significant tests. Rule 3.09 of Regulation S-X, as interpreted by the SEC, requires the Company to include separate audited financial
statements of any unconsolidated majority-owned or control subsidiary in this filing if either the investment or income significant
test exceeds 20% of the Company’s total investments at fair value or total income, respectively. Rule 4-08(g) of Regulation
S-X requires summarized financial information of an unconsolidated subsidiary in this filing if it does not qualify under Rule
3.09 of Regulation S-X and any of the three significant tests exceeds 10% of the Company’s total investments at fair value,
total assets or total income.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The Company has determined that Rockfish Seafood
Grill, Inc., Advantis Certified Staffing Solutions, Inc., Integrated Medical Partners, LLC and PCC SBH Sub, Inc. its four majority
owned or control investments were considered significant subsidiaries at the 20% level at December 31, 2018 as prescribed under
Rule 3-09 of Regulation S-X. The Company has included the audited financial statements of Rockfish Seafood Grill, Inc. for the
years ended December 26, 2018 and December 27, 2017 and Advantis Certified Staffing Solutions, Inc., Integrated Medical Partners,
LLC and PCC SBH Sub, Inc. for the year ended December 31, 2018 as exhibits to the Company’s financial statements. See “Item
15. Exhibits And Financial Statement Schedules.”
The
audited financial statements of Rockfish Seafood Grill, Inc. for the year ended December 28, 2016 and Advantis Certified Staffing
Solutions, Inc. for the year ended December 31, 2017 were previously disclosed in the Company’s 2017 Form 10-K filed on
November 30, 2018.
NOTE
11 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
Quarter Ended
|
|
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
|
June 30, 2018
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income
|
|
$
|
1,808,087
|
|
|
$
|
555,013
|
|
|
$
|
485,043
|
|
|
$
|
428,382
|
|
Total Operating Expenses
|
|
|
504,672
|
|
|
|
693,668
|
|
|
|
536,359
|
|
|
|
484,402
|
|
Income tax expense
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
2,598
|
|
|
|
12,763
|
|
Net Investment Income (Loss)
|
|
|
1,302,165
|
|
|
|
(139,905
|
)
|
|
|
(53,914
|
)
|
|
|
(68,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized Gain/(Loss) on Investments
|
|
|
-
|
|
|
|
(108,356
|
)
|
|
|
-
|
|
|
|
-
|
|
Net Change in Unrealized Appreciation/(Depreciation)
|
|
|
(1,198,368
|
)
|
|
|
129,814
|
|
|
|
389,341
|
|
|
|
(104,582
|
)
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
103,797
|
|
|
$
|
(118,447
|
)
|
|
$
|
335,427
|
|
|
$
|
(173,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets from Operations per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.001
|
|
|
$
|
(0.001
|
)
|
|
$
|
0.003
|
|
|
$
|
(0.001
|
)
|
Diluted
|
|
$
|
0.001
|
|
|
$
|
(0.001
|
)
|
|
$
|
0.003
|
|
|
$
|
(0.001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding - Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Weighted Average Common Shares Outstanding - Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
Quarter Ended
|
|
|
|
December 31, 2017
|
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income
|
|
$
|
1,364,965
|
|
|
$
|
370,660
|
|
|
$
|
344,787
|
|
|
$
|
353,134
|
|
Total Operating Expenses/(Reversal of Operating Expenses)
|
|
|
32,542
|
|
|
|
424,750
|
|
|
|
380,104
|
|
|
|
552,531
|
|
Income tax expense
|
|
|
2,267
|
|
|
|
7,684
|
|
|
|
7,684
|
|
|
|
10,430
|
|
Net Investment Income (Loss)
|
|
|
1,330,156
|
|
|
|
(61,774
|
)
|
|
|
(43,001
|
)
|
|
|
(209,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized Gain/(Loss) on Investments
|
|
|
-
|
|
|
|
589,111
|
|
|
|
-
|
|
|
|
-
|
|
Net Change in Unrealized Appreciation/(Depreciation)
|
|
|
(2,811,935
|
)
|
|
|
449,691
|
|
|
|
128,650
|
|
|
|
(1,948,851
|
)
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
(1,481,779
|
)
|
|
$
|
977,028
|
|
|
$
|
85,649
|
|
|
$
|
(2,158,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets from Operations per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.012
|
)
|
|
$
|
0.008
|
|
|
$
|
0.001
|
|
|
$
|
(0.018
|
)
|
Diluted
|
|
$
|
(0.012
|
)
|
|
$
|
0.008
|
|
|
$
|
0.001
|
|
|
$
|
(0.018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding - Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Weighted Average Common Shares Outstanding - Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
|
|
Quarter Ended
|
|
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
|
June 30, 2016
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income
|
|
$
|
1,002,619
|
|
|
$
|
345,210
|
|
|
$
|
474,488
|
|
|
$
|
464,017
|
|
Total Operating Expenses
|
|
|
493,740
|
|
|
|
550,802
|
|
|
|
739,286
|
|
|
|
959,478
|
|
Income tax (benefit) expense
|
|
|
(296,572
|
)
|
|
|
8,689
|
|
|
|
9,006
|
|
|
|
320,000
|
|
Net Investment Income (Loss)
|
|
|
805,451
|
|
|
|
(214,281
|
)
|
|
|
(273,804
|
)
|
|
|
(815,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized Gain/(Loss) on Investments
|
|
|
(1,411,757
|
)
|
|
|
(49,958
|
)
|
|
|
(172
|
)
|
|
|
-
|
|
Net Change in Unrealized Appreciation/(Depreciation)
|
|
|
437,527
|
|
|
|
(919,686
|
)
|
|
|
(4,700,868
|
)
|
|
|
2,902,165
|
|
Net Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
(168,779
|
)
|
|
$
|
(1,183,925
|
)
|
|
$
|
(4,974,844
|
)
|
|
$
|
2,086,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets from Operations per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.001
|
)
|
|
$
|
(0.010
|
)
|
|
$
|
(0.041
|
)
|
|
$
|
0.0170
|
|
Diluted
|
|
$
|
(0.001
|
)
|
|
$
|
(0.010
|
)
|
|
$
|
(0.041
|
)
|
|
$
|
0.0170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding - Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Weighted Average Common Shares Outstanding - Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
NOTE
12 – SUBSEQUENT EVENTS
Portfolio
Activity
|
●
|
On
February 28, 2019, the Company made a loan to Capital Foundry Funding, LLC and CF Energy
Finance, LLC (together, “Capital Foundry”) in the amount of $1,000,000. The
loan will bear an interest rate of Prime as published in the Wall Street Journal with
a floor of 4.25% and has a collateral management fee of 0.68% per month. This loan is
secured by a second-priority collateral assignement of all loan documents between Capital
Foundry and its various borrowers. The Company has also obtained an unlimited guaranty
from Captial foundry, LLC, along with personal guaranties form the principals of Capital
Foundry that reduces as additional equity is put into their loan portfolio. The maturity
date on the loan is April 21, 2020.
|
|
●
|
On
March 1, 2019, the Company made a loan to Dominion Medical Mangement, Inc. (“Dominion”),
a wholly owned subsidiary of Intergrated Medical Partners, LLC, in the amount of $586,128.
This amount was consolidated in to the existing second lien loan outstanding from Dominion.
Dominon has agreed to pay $35,000 per month plus an approximately $258,000 from expected
federal tax refunds until the principal amount of this new loan is paid in full. The
maturity date of the loan was also extended until March 31, 2020.
|
|
●
|
On
March 8, 2019, the Company received a payment of $258,774 from Dominion related to their
agreement to pay the Company that amount from expected federal tax refunds. Of this amount,
$47,000 was applied to outstanding invoices from the Company to Dominion related to legal
fee reimbursement with the remaining $211,744 applied to principal and interest on the
outstanding second lien loan.
|
|
●
|
On
March 19, 2019, the Company amended the Rockfish Seafood Grill, Inc. Revolving Line of
Credit (“RSG Revolver”) to increase the maximum principal amount to $1,921,000
for restaurant improvements and enhancements and to extend the maturity date to December
31, 2019.
|
|
●
|
On
March 19, 2019, the Company entered into a letter agreement with regards to the promissory
note with PCC SBH Sub, Inc. to extend the maturity date to December 31, 2019.
|
|
●
|
On
March 20, 2019, the Company entered into a letter agreement with regards to all outstanding
bridge loans to Advantis Certified Staffing Solutions, Inc. to extend their maturity
dates to December 31, 2019.
|
|
●
|
On
March 21, 2019, the Company funded $100,000 on the RSG Revolver, making it fully funded.
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
Schedule
12-14
The
table below represents the fair value of control and affiliate investments at December 31, 2017 and any amortization, purchases,
sales, and realized and change in unrealized gain (loss) made to such investments, as well as the ending fair value as of December
31, 2018.
Portfolio
Company/Type of Investment
(3)
|
|
Principal
Amount/
Shares/
Ownership
% at December 31, 2018
|
|
|
Amount
of Interest and Dividends Credited in Income
|
|
|
Fair
Value at December 31, 2017
|
|
|
Purchases
(2)
|
|
|
Sales
|
|
|
Transfers
from Restructuring/
Transfers into Control Investments
|
|
|
Change
in Unrealized Gains/Losses
|
|
|
Fair
Value at December 31, 2018
|
|
Control Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantis Certified Staffing
Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loan, 6.0% Cash, due 11/30/2021
(1)
|
|
$
|
4,500,000
|
|
|
$
|
-
|
|
|
$
|
3,826,477
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,368,590
|
)
|
|
$
|
2,457,887
|
|
Unsecured loan 5%, due 10/31/2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
76,839
|
|
|
|
-
|
|
|
|
(89,224
|
)
|
|
|
-
|
|
|
|
12,385
|
|
|
|
-
|
|
Unsecured loan 5%, due 12/31/2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
59,422
|
|
|
|
-
|
|
|
|
(69,000
|
)
|
|
|
-
|
|
|
|
9,578
|
|
|
|
-
|
|
Unsecured loan 5%, due 12/31/2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
107,648
|
|
|
|
-
|
|
|
|
(125,000
|
)
|
|
|
-
|
|
|
|
17,352
|
|
|
|
-
|
|
Unsecured loan 5%, due 12/31/2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
25,836
|
|
|
|
-
|
|
|
|
(30,000
|
)
|
|
|
-
|
|
|
|
4,164
|
|
|
|
-
|
|
Unsecured loan 5%, due 12/31/2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
90,425
|
|
|
|
-
|
|
|
|
(105,000
|
)
|
|
|
-
|
|
|
|
14,575
|
|
|
|
-
|
|
Unsecured loan 5%, due 12/31/2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
172,237
|
|
|
|
-
|
|
|
|
(200,000
|
)
|
|
|
-
|
|
|
|
27,763
|
|
|
|
-
|
|
Unsecured loan 5%, due 12/31/2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
129,178
|
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
|
20,822
|
|
|
|
-
|
|
Unsecured loan 5%, due 12/31/2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
38,753
|
|
|
|
-
|
|
|
|
(45,000
|
)
|
|
|
-
|
|
|
|
6,247
|
|
|
|
-
|
|
Unsecured loan, 5%, due 12/31/2018
|
|
$
|
813,225
|
|
|
|
40,550
|
|
|
|
-
|
|
|
|
813,225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(160,948
|
)
|
|
|
652,277
|
|
Unsecured loan, 5%, due 12/31/2018
|
|
$
|
90,000
|
|
|
|
4,192
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,812
|
)
|
|
|
72,188
|
|
Unsecured loan, 8%, due 12/31/2018
|
|
$
|
150,000
|
|
|
|
10,126
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,885
|
)
|
|
|
124,115
|
|
Unsecured loan, 8%, due 12/31/2018
|
|
$
|
110,000
|
|
|
|
6,052
|
|
|
|
-
|
|
|
|
110,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,983
|
)
|
|
|
91,017
|
|
Unsecured loan, 10.75%, due
12/31/2018
|
|
$
|
175,000
|
|
|
|
10,824
|
|
|
|
-
|
|
|
|
175,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,134
|
)
|
|
|
148,866
|
|
Common
Stock – Series A
(1)
|
|
|
225,000
|
|
|
|
-
|
|
|
|
3,713
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,713
|
)
|
|
|
-
|
|
Common
Stock – Series B
(1)
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
156,757
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(156,757
|
)
|
|
|
-
|
|
Warrant
for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027
(1)
|
|
|
1
|
|
|
|
-
|
|
|
|
4,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,125
|
)
|
|
|
-
|
|
Warrant
for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027
(1)
|
|
|
1
|
|
|
|
-
|
|
|
|
11,551
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,551
|
)
|
|
|
-
|
|
Rockfish
Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018
(1)
|
|
$
|
6,352,944
|
|
|
|
-
|
|
|
|
6,637,883
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51,910
|
|
|
|
6,689,793
|
|
Revolving Loan, 8% Cash, due
12/31/2018
|
|
$
|
1,821,000
|
|
|
|
141,381
|
|
|
|
1,663,335
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(397,883
|
)
|
|
|
1,465,452
|
|
Rockfish
Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028
(1)
|
|
|
10.000
|
%
|
|
|
-
|
|
|
|
257,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(257,647
|
)
|
|
|
-
|
|
Membership
Interest – Class A
(1)
|
|
|
99.997
|
%
|
|
|
-
|
|
|
|
28,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,628
|
)
|
|
|
-
|
|
Dominion
Medical Management, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Loan, 6.0% Cash,
due 9/30/2019
|
|
$
|
-
|
|
|
|
6,017
|
|
|
|
437,085
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(437,085
|
)
|
|
|
-
|
|
Unsecured Loan, 6.0% Cash,
due 5/20/2018
|
|
$
|
-
|
|
|
|
860
|
|
|
|
81,389
|
|
|
|
-
|
|
|
|
(66,667
|
)
|
|
|
-
|
|
|
|
(14,722
|
)
|
|
|
-
|
|
Second Lien Term Loan, 12.0%
Cash, 6% PIK due, 3/1/2019
|
|
$
|
1,137,438
|
|
|
|
155,768
|
|
|
|
-
|
|
|
|
652,182
|
|
|
|
-
|
|
|
|
-
|
|
|
|
377,574
|
|
|
|
1,029,756
|
|
Integrated Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Membership – Class A units
(1)
|
|
|
800
|
|
|
|
-
|
|
|
|
1,844,856
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(847,584
|
)
|
|
|
997,272
|
|
Preferred
Membership – Class B units
(1)
|
|
|
760
|
|
|
|
-
|
|
|
|
34,514
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,097
|
|
|
|
42,611
|
|
Common
Units
(1)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
307
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,416
|
|
|
|
6,723
|
|
PCC SBH
Sub, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
loan, 12% Cash, due 2/15/2018
(1)
|
|
$
|
14,000
|
|
|
|
1,734
|
|
|
|
14,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
Common
Stock
(1)
|
|
|
100
|
|
|
|
-
|
|
|
|
1,570,755
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
354,967
|
|
|
|
1,925,722
|
|
Total
Control Investments
|
|
|
|
|
|
$
|
377,504
|
|
|
$
|
17,273,360
|
|
|
$
|
2,190,407
|
|
|
$
|
(879,891
|
)
|
|
$
|
-
|
|
|
$
|
(2,866,197
|
)
|
|
$
|
15,717,679
|
|
(1)
|
Non-income
producing security.
|
(2)
|
Includes
PIK interest and common stock issued in exchange for investments.
|
(3)
|
Represents
an illiquid investment.
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2018
The
table below represents the fair value of control and affiliate investments at December 31, 2016 and any amortization, purchases,
sales, and realized and change in unrealized gain (loss) made to such investments, as well as the ending fair value as of December
31, 2017.
Portfolio
Company/Type of Investment
(3)
|
|
Principal
Amount/
Shares/
Ownership
% at December 31, 2017
|
|
|
Amount
of Interest and Dividends Credited in Income
|
|
|
Fair
Value at December 31, 2016
|
|
|
Purchases
(2)
|
|
|
Sales
|
|
|
Transfers
from Restructuring/
Transfers into Control Investments
|
|
|
Change
in Unrealized Gains/Losses
|
|
|
Fair
Value at December 31, 2017
|
|
Control Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantis
Certified Staffing Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loan
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,500,000
|
|
|
$
|
(673,523
|
)
|
|
$
|
3,826,477
|
|
Unsecured Loan
|
|
$
|
813,225
|
|
|
|
12,412
|
|
|
|
-
|
|
|
|
813,225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(112,887
|
)
|
|
|
700,338
|
|
Common Stock – Series
A
|
|
|
225,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,437
|
)
|
|
|
3,713
|
|
Common Stock – Series
B
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
428,571
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(271,814
|
)
|
|
|
156,757
|
|
Warrants
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,278
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,398
|
|
|
|
15,676
|
|
Rockfish
Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loan
(1)
|
|
$
|
6,352,944
|
|
|
|
-
|
|
|
|
6,549,261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,622
|
|
|
|
6,637,883
|
|
Revolving
Loan
(1)
|
|
$
|
1,621,000
|
|
|
|
-
|
|
|
|
1,481,000
|
|
|
|
140,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,335
|
|
|
|
1,663,335
|
|
Rockfish
Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
(1)
|
|
|
10
|
%
|
|
|
-
|
|
|
|
102,826
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
154,821
|
|
|
|
257,647
|
|
Membership
Interest
(1)
|
|
|
89.400
|
%
|
|
|
-
|
|
|
|
925,407
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(896,779
|
)
|
|
|
28,628
|
|
Dominion
Medical Management, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
Loan
(1)
|
|
$
|
551,922
|
|
|
|
21,475
|
|
|
|
276,922
|
|
|
|
551,922
|
|
|
|
(276,922
|
)
|
|
|
-
|
|
|
|
(33,448
|
)
|
|
|
518,474
|
|
Integrated Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Membership – Class A
(1)
|
|
|
800
|
|
|
|
-
|
|
|
|
3,337,779
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,492,923
|
)
|
|
|
1,844,856
|
|
Preferred
Membership – Class B
(1)
|
|
|
760
|
|
|
|
-
|
|
|
|
365,884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(331,370
|
)
|
|
|
34,514
|
|
Common
Stock
(1)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
20,059
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,752
|
)
|
|
|
307
|
|
PCC SBH
Sub, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,525,481
|
|
|
|
(954,726
|
)
|
|
|
1,570,755
|
|
Unsecured
Loan
(1)
|
|
$
|
14,000
|
|
|
|
1,721
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
(6,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
Total
Control Investments
|
|
|
|
|
|
$
|
35,608
|
|
|
$
|
13,059,138
|
|
|
$
|
1,975,146
|
|
|
$
|
(282,922
|
)
|
|
$
|
7,025,481
|
|
|
$
|
(4,503,483
|
)
|
|
$
|
17,273,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spencer
Enterprises Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Membership, Class AA units
(1)
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
2,705,363
|
|
|
$
|
-
|
|
|
$
|
(2,071,043
|
)
|
|
$
|
-
|
|
|
$
|
(634,320
|
)
|
|
$
|
-
|
|
Preferred
Membership, Class BB units
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,681,316
|
|
|
|
-
|
|
|
|
(3,824,818
|
)
|
|
|
-
|
|
|
|
143,501
|
|
|
|
-
|
|
Total
Affiliate Investments
|
|
|
|
|
|
$
|
-
|
|
|
$
|
6,386,679
|
|
|
$
|
-
|
|
|
$
|
(5,895,861
|
)
|
|
$
|
-
|
|
|
$
|
(490,819
|
)
|
|
$
|
-
|
|
(1)
|
Non-income producing
security.
|
(2)
|
Includes PIK interest and
common stock issued in exchange for investments.
|
(3)
|
Represents an illiquid investment.
|
End
of notes to financial statements.