The following tables show the fair value
of our portfolio of investments (excluding U.S. Treasury Bills, if any) by geography and industry as of September 30, 2019.
The following tables show the fair value
of our portfolio of investments (excluding U.S. Treasury Bills) by geography and industry as of December 31, 2018.
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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. 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 2018 tax year and was taxed
as a corporation under Subchapter C of the Code for 2018. 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.
From June 9, 2016 through December 31,
2017, Princeton Advisory Group, Inc., a New Jersey corporation (“Princeton Advisory Group”) acted as the Company’s
investment advisor pursuant to the terms of an investment advisory agreement between the Company and Princeton Advisory Group (the
“PAG Investment Advisory Agreement”).
On December 27, 2017, the board of directors
of the Company (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 terminated Princeton Advisory Group 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).
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation are reflected in the interim financial statements. The reported amounts for the three and nine months ended
September 30, 2019 may not be indicative of the results ultimately achieved for the year ended December 31, 2019 which will be
presented in the Company’s annual report on form 10-K.
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 September 30, 2019, the Company had control
investments in Advantis Certified Staffing Solutions, Inc., PCC SBH Sub, Inc., Rockfish Holdings, LLC, Rockfish Seafood Grill,
Inc., Integrated Medical Partners, LLC and Dominion Medical Management, Inc. as defined under the 1940 Act. As of September 30,
2018, the Company had control investments in Advantis Certified Staffing Solutions, Inc., PCC SBH Sub, Inc., Rockfish Holdings,
LLC, Rockfish Seafood Grill, Inc., Integrated Medical Partners, LLC and Dominion Medical Management, Inc. as defined under the
1940 Act.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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:
|
●
|
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;
|
|
●
|
Preliminary valuation conclusions are then documented and discussed with our senior management and our investment advisor
|
|
●
|
The valuation committee of our board of directors then reviews these preliminary valuations and approves them for recommendation to the board of directors;
|
|
●
|
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, the independent valuation firm and the valuation committee.
|
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.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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. Beginning with the period ending June 30, 2019, the Company engaged a new
third-party valuation firm to perform its independent valuations of the Company’s Level 3 investments. This valuation
firm provides a range of values for selected investments, which is presented to the Valuation Committee to determine the value
for each of the selected investments.
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 on investments.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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.
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.
The following table provides a reconciliation
of cash and restricted cash reporting within the statements of assets and liabilities that sum to the total of the same such amounts
shown in the statements of cash flows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash
|
|
$
|
323,667
|
|
|
$
|
2,575,620
|
|
Restricted Cash
|
|
|
25,201
|
|
|
|
-
|
|
Total Cash and Restricted Cash
|
|
$
|
348,868
|
|
|
$
|
2,575,620
|
|
As of September 30, 2019 restricted cash
consisted of cash held for deposit with the law firm that represents the Company in its litigation with Great Value Storage, LLC.
As of December 31, 2018, 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. For the quarter ending September 30, 2019, the Company did not purchase any
U. S Treasury Bills.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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 was $6,328 and $10,872 for the three months ended
September 30, 2019, and 2018, respectively. Income from such sources was $18,776 and $34,000 for the nine months ended September
30, 2019, and 2018, respectively.
Other income from non-investment sources
is generally comprised of interest income earned on cash in the Company’s bank account. Income from such sources was $402
and $665 for the three months ended September 30, 2019 and 2018, respectively. Income from such sources was $3,009 and $2,209 for
the nine months ended September 30, 2019 and 2018, respectively.
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 three and nine months ended September
30, 2019, PIK interest was $45,090 and $119,975, respectively. For the three and nine months ended September 30, 2018 PIK interest
was $51,325 and $136,596, 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 three and nine months ended September 30, 2019 and 2018
and through the date of issuance of this report, no dividends have been paid out to stockholders.
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
Legal fees invoiced to the Company for
the three and nine months ended September 30, 2019 and 2018, were incurred in the normal operating course of business and are included
in legal fees on the Statement of Operations.
Federal and State Income Taxes
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
The Company did not meet the qualifications
of a RIC for the 2018 tax year and was taxed as a corporation under Subchapter C of the Code. The failure to qualify as a RIC,
however, did not impact the 2018 tax year as the Company used net operating losses and capital losses from 2017 that it carried
forward to offset taxable income. 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.
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 three and nine months ended
September 30, 2019 and 2018, 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 earnings (loss) per share is computed
by dividing earnings (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net
earnings (loss) per share is computed by dividing net earnings (loss) per share by the weighted average number of shares outstanding,
plus, any potentially dilutive shares outstanding during the period. For the three and nine months ended September 30, 2019 and
2018, 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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
Recent Accounting Pronouncements
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 has evaluated 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 has adopted the new guidance where applicable and noted
it did not 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 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 three
months ended September 30, 2019 and September 30, 2018 and the nine months ended September 30, 2019 and September 30, 2018.
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per Share Data (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
(2,816,280
|
)
|
|
$
|
(118,447
|
)
|
|
$
|
(7,208,088
|
)
|
|
$
|
43,615
|
|
Weighted average shares outstanding for period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Diluted
|
|
|
120,486,061
|
|
|
|
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
|
|
$
|
(0.023
|
)
|
|
$
|
(0.001
|
)
|
|
$
|
(0.060
|
)
|
|
$
|
0.000
|
|
Diluted
|
|
$
|
(0.023
|
)
|
|
$
|
(0.001
|
)
|
|
$
|
(0.060
|
)
|
|
$
|
0.000
|
|
|
(1)
|
Per share data based on weighted average shares outstanding.
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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 September 30, 2019 and December 31, 2018, respectively:
|
|
As of September 30, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Portfolio Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,503,713
|
|
|
$
|
13,503,713
|
|
Second Lien Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
18,658,875
|
|
|
|
18,658,875
|
|
Unsecured Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity
|
|
|
-
|
|
|
|
-
|
|
|
|
1,643,634
|
|
|
|
1,643,634
|
|
Total Portfolio Investments
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
33,806,222
|
|
|
$
|
33,806,222
|
|
|
|
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
|
|
During the nine months ended September
30, 2019 and the year ended December 31, 2018, 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 nine months ended September 30, 2019 are as follows:
|
|
First Lien
Loans
|
|
|
Second Lien Loans
|
|
|
Unsecured Loans
|
|
|
Equity
|
|
|
Total
|
|
Fair value at beginning of period
|
|
$
|
14,022,163
|
|
|
$
|
18,103,815
|
|
|
$
|
1,102,463
|
|
|
$
|
5,355,494
|
|
|
$
|
38,583,935
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchases of investments
|
|
|
430,000
|
|
|
|
1,586,128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,016,128
|
|
Sales of investments
|
|
|
-
|
|
|
|
(241,994
|
)
|
|
|
(14,000
|
)
|
|
|
-
|
|
|
|
(255,994
|
)
|
Payment-in-kind interest
|
|
|
85,403
|
|
|
|
34,572
|
|
|
|
-
|
|
|
|
-
|
|
|
|
119,975
|
|
Change in unrealized gain (loss) on investments
|
|
|
(1,033,853
|
)
|
|
|
(823,646
|
)
|
|
|
(1,088,463
|
)
|
|
|
(3,711,860
|
)
|
|
|
(6,657,822
|
)
|
Fair value at end of period
|
|
$
|
13,503,713
|
|
|
$
|
18,658,875
|
|
|
$
|
-
|
|
|
$
|
1,643,634
|
|
|
$
|
33,806,222
|
|
Change in unrealized gain (loss) on Level 3 investments still held as of September 30, 2019
|
|
$
|
(1,033,853
|
)
|
|
$
|
(823,646
|
)
|
|
$
|
(1,088,463
|
)
|
|
$
|
(3,711,860
|
)
|
|
$
|
(6,657,822
|
)
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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
|
)
|
The following table provides quantitative
information regarding Level 3 fair value measurements as of September 30, 2019:
Description
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable
Inputs
|
|
Range (Average)
|
|
|
|
|
|
|
|
|
|
|
First Lien Loans
|
|
$
|
6,236,258
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
17.00%-25.00% (21.00%)
|
|
|
|
7,267,455
|
|
|
Enterprise Value Coverage
|
|
EV / CFY STORE LEVEL EBITDAR
|
|
4.50x-5.00x (4.75x)
|
|
|
|
|
|
|
|
|
Location Value
|
|
$750,000-$850,000 ($800,000)
|
Total
|
|
|
13,503,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loans
|
|
|
8,547,531
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
13.15%-18.76% (17.25%)
|
|
|
|
10,111,344
|
|
|
Enterprise Value Coverage
|
|
EV / LTM Revenue multiple
|
|
0.33x-0.38x (0.35x)
|
|
|
|
|
|
|
|
|
EV / LTM EBITDA multiple
|
|
8.50x-9.50x (9.00x)
|
|
|
|
|
|
|
|
|
EV / CFY EBITDA
|
|
8.25x-9.25x (8.75x)
|
Total
|
|
|
18,658,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Loans
|
|
|
-
|
|
|
Enterprise Value Coverage
|
|
EV / LTM Revenue multiple
|
|
0.33x-0.38x (0.35x)
|
Total
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
-
|
|
|
Enterprise Value Coverage
|
|
EV / LTM Revenue multiple
|
|
0.33x-0.38x (0.35x)
|
|
|
|
|
|
|
|
|
EV / LTM EBITDA multiple
|
|
8.50x-9.50x (9.00x)
|
|
|
|
|
|
|
|
|
EV / CFY EBITDA
|
|
8.25x-9.25x (8.75x)
|
|
|
|
|
|
|
|
|
EV / CFY STORE LEVEL EBITDAR
|
|
4.50x-5.00x (4.75x)
|
|
|
|
|
|
|
|
|
Location Value
|
|
$750,000-$850,000 ($800,000)
|
|
|
|
1,642,434
|
|
|
Appraisal Value Coverage
|
|
Cost Approach
|
|
$1,350,000-$1,650,000 ($1,50,000)
|
|
|
|
|
|
|
|
|
Sales Comparison Approach
|
|
$1,449,000-$1,771,000 ($1,610,000)
|
Total
|
|
|
1,642,434
|
|
|
|
|
|
|
|
Total Level 3 Investments
|
|
$
|
33,805,022
|
|
|
|
|
|
|
|
Beginning with the period ending June 30, 2019, the Company
engaged a new third-party valuation firm to perform its independent valuations for the Company’s Level 3 investments.
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 September 30,
2019.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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 September 30, 2019 and 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
September 30, 2019
(Unaudited)
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.
NOTE 6 – RELATED PARTY TRANSACTIONS
House Hanover Investment Advisory Agreement
As disclosed elsewhere in this 10-Q (including
Note 1), House Hanover has served as the Company’s investment advisor since January 1, 2018 pursuant to the Interim Investment
Advisory Agreement (until May 31, 2018) and the House Hanover Investment Advisory Agreement (since May 31, 2018).
House Hanover is registered as an investment
advisor under the 1940 Act.
Material Differences between Interim
Investment Advisory Agreement and House Hanover Investment Advisory Agreement
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
Subject to supervision by the Company’s
Board, House Hanover oversees the Company’s day-to-day operations and provides 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.
Management fees earned by House Hanover
for the three months ended September 30, 2019 and September 30, 2018 were $96,055 and $100,462, respectively. Management fees earned
by House Hanover for the nine months ended September 30, 2019 and September 30, 2018 were $293,168 and $321,453, respectively.
As of September 30, 2019 and December 31,
2018, management fees of $194,889 and $81,296, respectively, were payable to House Hanover. As of September 30, 2019 and December
31, 2018, management fees of $19,282 and $19,282, respectively, were payable to Princeton Advisory Group, Inc., our former investment
advisor.
Incentive Fee
The House Hanover Investment Advisory Agreement
does not obligate the Company to pay House Hanover an inventive fee. Incentive fees are a typical component of investment advisory
agreements with business development companies.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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;
|
|
●
|
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 the 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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
The House Hanover Investment Advisory Agreement
was most recently approved by our Board and a majority of the Company’s directors who are neither parties to the House Hanover
Investment Advisory Agreement nor “interested persons” (as defined in the 1940 Act) of any such party, on May 9, 2019.
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.
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 providing 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%)
|
Administration fees were $67,500 and fees
to the Sub-Administrator were $37,500 for the three months ended September 30, 2019, as shown on the Statements of Operations under
administration fees. Administration fees were $202,500 and fees to the Sub-Administrator were $112,500 for the nine months ended
September 30, 2019, as shown on the Statements of Operations under administration fees.
Administration fees were $67,500 and fees
to the Sub-Administrator were $37,500 for the three months ended September 30, 2018, as shown on the Statements of Operations under
administration fees. Administration fees were $196,500 and fees to the Sub-Administrator were $112,500 for the nine months ended
September 30, 2018, as shown on the Statements of Operations under administration fees.
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 September 30, 2019, none of the portfolio companies had accepted
our offer for such services.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
NOTE 7 – FINANCIAL HIGHLIGHTS
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per Share Data (1):
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
0.308
|
|
|
$
|
0.345
|
|
Net investment loss
|
|
|
(0.001
|
)
|
|
|
(0.001
|
)
|
Realized gain (loss)
|
|
|
-
|
|
|
|
(0.001
|
)
|
Change in unrealized loss
|
|
|
(0.022
|
)
|
|
|
0.001
|
|
Net asset value at end of period
|
|
$
|
0.285
|
|
|
$
|
0.344
|
|
Total return based on net asset value (2)
|
|
|
(7.5
|
)%
|
|
|
0.3
|
%
|
Weighted average shares outstanding for period, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
34,346,863
|
|
|
$
|
41,451,154
|
|
Average net assets
|
|
$
|
37,132,531
|
|
|
$
|
41,568,327
|
|
Annualized ratio of net operating expenses to average net assets (3)
|
|
|
4.1
|
%
|
|
|
6.7
|
%
|
Annualized ratio of net investment loss to average net assets (3)
|
|
|
(1.3
|
)%
|
|
|
(1.3
|
)%
|
Annualized ratio of net investment loss to average net assets, excluding other income from non-investment sources (3)
|
|
|
(1.3
|
)%
|
|
|
(1.4
|
)%
|
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets (3)
|
|
|
3.1
|
%
|
|
|
5.5
|
%
|
Annualized ratio of net decrease in net assets resulting from operations to average net assets (3)
|
|
|
(30.1
|
)%
|
|
|
(1.1
|
)%
|
Portfolio Turnover
|
|
|
0.04
|
%
|
|
|
0.51
|
%
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per Share Data (1):
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
0.345
|
|
|
$
|
0.344
|
|
Net investment loss
|
|
|
(0.005
|
)
|
|
|
(0.002
|
)
|
Realized gain (loss)
|
|
|
-
|
|
|
|
(0.001
|
)
|
Change in unrealized gain (loss)
|
|
|
(0.055
|
)
|
|
|
0.003
|
|
Net asset value at end of period
|
|
$
|
0.285
|
|
|
$
|
0.344
|
|
Total return based on net asset value (2)
|
|
|
(17.4
|
)%
|
|
|
0.0
|
%
|
Weighted average shares outstanding for period, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
34,346,863
|
|
|
$
|
41,451,154
|
|
Average net assets
|
|
$
|
39,909,179
|
|
|
$
|
41,404,525
|
|
Annualized ratio of net operating expenses to average net assets (3)
|
|
|
4.8
|
%
|
|
|
8.3
|
%
|
Annualized ratio of net investment loss to average net assets (3)
|
|
|
(1.8
|
)%
|
|
|
(0.8
|
)%
|
Annualized ratio of net investment income (loss) to average net assets, excluding other income from non-investment sources (3)
|
|
|
(1.9
|
)%
|
|
|
(0.9
|
)%
|
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets (3)
|
|
|
3.9
|
%
|
|
|
4.4
|
%
|
Annualized ratio of net increase (decrease) in net assets resulting from operations to average net assets (3)
|
|
|
(24.1
|
)%
|
|
|
0.2
|
%
|
Portfolio Turnover
|
|
|
0.04
|
%
|
|
|
0.52
|
%
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Per Share Data (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of year
|
|
$
|
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 (loss)
|
|
|
(0.001
|
)
|
|
|
0.006
|
|
|
|
(0.012
|
)
|
|
|
0.002
|
|
|
|
0.192
|
|
Change in capital share transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.238
|
|
|
|
-
|
|
Net asset value at end of year
|
|
$
|
0.345
|
|
|
$
|
0.344
|
|
|
$
|
0.365
|
|
|
$
|
0.400
|
|
|
$
|
0.254
|
|
Total return (loss) based on net asset value (2)
|
|
|
0.3
|
%
|
|
|
(5.8
|
)%
|
|
|
(8.8
|
)%
|
|
|
(36.2
|
)%
|
|
|
(55.0
|
)%
|
Weighted average shares outstanding for year, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
97,402,398
|
|
|
|
1,816,534
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of year
|
|
$
|
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 (3)
|
|
|
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 (4)
|
|
|
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 (4)
|
|
|
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
|
)(5)%
|
Portfolio Turnover
|
|
|
0.5
|
%
|
|
|
7.0
|
%
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
|
|
31.2
|
(5)%
|
(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)
|
Net Operating expenses includes a management fee waiver in the amount of $216,559 for the year ended December 31, 2017.
|
(4)
|
Other income from non-investment sources only includes the reduction of previously accrued expenses totaling $968,256 for the year ended December 31, 2017.
|
(5)
|
Unaudited
|
NOTE 8 – 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 September 30, 2019. 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 approximately $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 September
30, 2019, the guaranteed amount was reduced to $63,419.
Legal Proceedings
As of September 30, 2019, there were no
material legal proceedings against the Company or any of its officers or directors.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
Great Value Storage Litigation
On March 14, 2019, we filed a complaint
against Great Value Storage, LLC (“GVS”), World Class Capital Group, LLC, and Natin Paul, which we refer to collectively
as the GVS Defendants, in the District Court for Harris County, Texas. GVS is one of the Company’s portfolio companies. The
complaint alleges that the GVS defendants are in breach of certain contractual obligations under a Note Purchase Agreement entered
into between the parties on July 31, 2012, as amended (the “Note Purchase Agreement”), including failure to make payments
owed to the Company under the Note Purchase Agreement. The Company seeks (i) actual damages, (ii) special, statutory, or exemplary
damages, (iii) pre-judgment interest, (iv) post-judgment interest, (v) court costs, (vi) reasonable attorneys’ fees, and
(vii) all other relief to which the Company may be entitled to under law or equity. On April 15, 2019, the GVS Defendants filed
an Answer with Request for Disclosure. The action is pending in the Harris County District Court.
General
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. Other than as described above, the Company is not currently
involved in any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.
NOTE 9 – 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 controlled subsidiary in an annual report 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 an annual report 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, respectively.
Rule 10-01(b)(1) of Regulation S-X requires summarized financial information for interim financial statements, if either the investment
or income significant test exceeds 20% of the Company’s total investments at fair value or total income, respectively.
The Company has determined that Rockfish
Seafood Grill, Inc., one of the Company’s four majority owned or control portfolio companies, was considered a significant
subsidiary at the 20% level at September 30, 2019 as prescribed under Rule 10-01(b)(1) of Regulation S-X.
The following tables show the summarized
financial information for Rockfish Seafood Grill, Inc. (numbers in thousands):
|
|
Rockfish Seafood Grill, Inc.
|
|
|
|
Nine months Ended
September 30,
2019
|
|
|
Nine months Ended
September 30,
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Income Statement
|
|
|
|
|
|
|
Net Revenue
|
|
$
|
14,514
|
|
|
$
|
15,344
|
|
Gross Profit
|
|
|
10,292
|
|
|
|
10,700
|
|
Net Income (Loss)
|
|
|
(1,849
|
)
|
|
|
(1,216
|
)
|
NOTE 10 – SUBSEQUENT EVENTS
Effective October 1, 2019, the Company
amended all of the unsecured bridge loans to Advantis Certified Staffing Solutions, Inc. (“ACSS”) to consolidate the
notes and to PIK interest payments through December 31, 2019 to give ACSS cash flow relief due to the workers strike with General
Motors, one of their major customers. The Company also extended the notes to December 31, 2020.
On November 6, 2019, the Company received
notice that Lone Star Brewery Development, Inc. is in default with its first lien lender. Subsequently, and on November 8, 2019,
the Company issued a notice of default of the forbearance agreement in place with Lone Star, making the entire balance of the original
second lien loan due.
PRINCETON CAPITAL
CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
Schedule 12-14
The table below represents the fair value of control and affiliate
investments at December 31, 2018 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 September 30, 2019.
Portfolio Company/Type of Investment (1)
|
|
Principal
Amount/Shares/
Ownership % at
September 30,
2019
|
|
|
Amount of Interest and Dividends Credited in Income
|
|
|
Fair Value
at
December 31,
2018
|
|
|
Purchases(2)
|
|
|
Sales
|
|
|
Change in Unrealized Gains/(Losses)
|
|
|
Fair Value
at
September 30,
2019
|
|
Control Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantis Certified Staffing Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loan, 6.0% Cash, due 11/30/2021(3)
|
|
$
|
4,500,000
|
|
|
$
|
-
|
|
|
$
|
2,457,887
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
597,457
|
|
|
$
|
3,055,344
|
|
Unsecured loan 5%, due 12/31/2019
|
|
$
|
813,225
|
|
|
|
30,412
|
|
|
|
652,277
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(652,277
|
)
|
|
|
-
|
|
Unsecured loan 5%, due 12/31/2019
|
|
$
|
90,000
|
|
|
|
3,366
|
|
|
|
72,188
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(72,188
|
)
|
|
|
-
|
|
Unsecured loan 8%, due 12/31/2019
|
|
$
|
150,000
|
|
|
|
8,975
|
|
|
|
124,115
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(124,115
|
)
|
|
|
-
|
|
Unsecured loan 8%, due 12/31/2019
|
|
$
|
110,000
|
|
|
|
6,582
|
|
|
|
91,017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(91,017
|
)
|
|
|
-
|
|
Unsecured loan 10.75%, due 12/31/2019
|
|
$
|
175,000
|
|
|
|
14,073
|
|
|
|
148,866
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(148,866
|
)
|
|
|
-
|
|
Common Stock – Series A (3)
|
|
|
225,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common Stock – Series B (3)
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrant for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027(3)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrant for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027(3)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Dominion Medical Management, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loan, 12.0% Cash, 6% PIK due, 3/31/2020 (2) (3)
|
|
$
|
1,516,144
|
|
|
|
125,900
|
|
|
|
1,029,756
|
|
|
|
620,700
|
|
|
|
(241,994
|
)
|
|
|
102,067
|
|
|
|
1,510,529
|
|
Integrated Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Membership – Class A units (3)
|
|
|
800
|
|
|
|
-
|
|
|
|
997,272
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(997,272
|
)
|
|
|
-
|
|
Preferred Membership – Class B units (3)
|
|
|
760
|
|
|
|
-
|
|
|
|
42,611
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(42,611
|
)
|
|
|
-
|
|
Common Units (3)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
6,723
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,723
|
)
|
|
|
-
|
|
PCC SBH Sub, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured loan, 12% Cash, due 12/31/2019
|
|
$
|
14,000
|
|
|
|
1,082
|
|
|
|
14,000
|
|
|
|
-
|
|
|
|
(14,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Common Stock (3)
|
|
|
100
|
|
|
|
-
|
|
|
|
1,925,722
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(283,288
|
)
|
|
|
1,642,434
|
|
Rockfish Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018 (3)
|
|
$
|
6,352,944
|
|
|
|
-
|
|
|
|
6,689,793
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,758,463
|
)
|
|
|
4,931,330
|
|
Revolving Loan, 8% PIK, due 12/31/2019 (2)
|
|
$
|
2,336,403
|
|
|
|
122,045
|
|
|
|
1,465,452
|
|
|
|
515,403
|
|
|
|
-
|
|
|
|
355,270
|
|
|
|
2,336,125
|
|
Rockfish Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant for
Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028 (3)
|
|
|
10.000
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Membership Interest – Class A (3)
|
|
|
99.997
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Control Investments
|
|
|
|
|
|
$
|
312,435
|
|
|
$
|
15,717,679
|
|
|
$
|
1,136,103
|
|
|
$
|
(255,994
|
)
|
|
$
|
(3,122,026
|
)
|
|
$
|
13,475,762
|
|
|
(1)
|
Represents
an illiquid investment.
|
|
(2)
|
Includes
PIK interest.
|
|
(3)
|
Non-income
producing security.
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
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 September 30, 2018.
Portfolio Company/Type of Investment
|
|
Principal Amount/Shares/
Ownership % at
September 30,
2018
|
|
|
Amount of Interest and Dividends Credited in Income
|
|
|
Fair Value
at
December 31,
2017
|
|
|
Purchases(2)
|
|
|
Sales
|
|
|
Change in Unrealized Gains/Losses
|
|
|
Fair Value
at
September 30,
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
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(679,193
|
)
|
|
$
|
3,147,284
|
|
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
|
|
|
|
30,301
|
|
|
|
-
|
|
|
|
813,225
|
|
|
|
-
|
|
|
|
(44,178
|
)
|
|
|
769,047
|
|
Unsecured loan, 5%, due 12/31/2018
|
|
$
|
90,000
|
|
|
|
3,058
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
(4,889
|
)
|
|
|
85,111
|
|
Unsecured loan, 8%, due 12/31/2018
|
|
$
|
150,000
|
|
|
|
7,101
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
(7,089
|
)
|
|
|
142,911
|
|
Unsecured loan, 8%, due 12/31/2018
|
|
$
|
110,000
|
|
|
|
3,833
|
|
|
|
-
|
|
|
|
110,000
|
|
|
|
-
|
|
|
|
(5,199
|
)
|
|
|
104,801
|
|
Unsecured loan, 10.75%, due 12/31/2018
|
|
$
|
175,000
|
|
|
|
6,082
|
|
|
|
-
|
|
|
|
175,000
|
|
|
|
-
|
|
|
|
(7,138
|
)
|
|
|
167,862
|
|
Common Stock – Series A(1)
|
|
|
225,000
|
|
|
|
-
|
|
|
|
3,713
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,522
|
)
|
|
|
1,191
|
|
Common Stock – Series B(1)
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
156,757
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(106,463
|
)
|
|
|
50,294
|
|
Warrant for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027(1)
|
|
|
1
|
|
|
|
-
|
|
|
|
4,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,801
|
)
|
|
|
1,324
|
|
Warrant for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027(1)
|
|
|
1
|
|
|
|
-
|
|
|
|
11,551
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,845
|
)
|
|
|
3,706
|
|
Rockfish Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018(1)
|
|
$
|
6,352,944
|
|
|
|
-
|
|
|
|
6,637,883
|
|
|
|
-
|
|
|
|
-
|
|
|
|
549,192
|
|
|
|
7,187,075
|
|
Revolving Loan, 8% Cash, due 12/31/2018
|
|
$
|
1,821,000
|
|
|
|
103,918
|
|
|
|
1,663,335
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
64,109
|
|
|
|
1,927,444
|
|
Rockfish Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2018 (1)
|
|
|
10.000
|
%
|
|
|
-
|
|
|
|
257,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(250,034
|
)
|
|
|
7,613
|
|
Membership Interest – Class A(1)
|
|
|
99.997
|
%
|
|
|
-
|
|
|
|
28,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,888
|
|
|
|
68,516
|
|
Integrated Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,120,261
|
|
|
|
104,709
|
|
|
|
-
|
|
|
|
635,005
|
|
|
|
-
|
|
|
|
463,110
|
|
|
|
1,098,115
|
|
Preferred Membership – Class A units (1)
|
|
|
800
|
|
|
|
-
|
|
|
|
1,844,856
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(282,434
|
)
|
|
|
1,562,422
|
|
Preferred Membership – Class B units (1)
|
|
|
760
|
|
|
|
-
|
|
|
|
34,514
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,955
|
)
|
|
|
7,559
|
|
Common Units (1)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
307
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(293
|
)
|
|
|
14
|
|
PCC SBH Sub, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured loan, 12% Cash, due 2/15/2018 (1)
|
|
$
|
14,000
|
|
|
|
1,274
|
|
|
|
14,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
Common Stock(1)
|
|
|
100
|
|
|
|
-
|
|
|
|
1,570,755
|
|
|
|
-
|
|
|
|
-
|
|
|
|
433,632
|
|
|
|
2,004,387
|
|
Total Control Investments
|
|
|
|
|
|
$
|
267,153
|
|
|
$
|
17,273,360
|
|
|
$
|
2,173,230
|
|
|
$
|
(879,891
|
)
|
|
$
|
(216,023
|
)
|
|
$
|
18,350,676
|
|
|
(1)
|
Non-income producing security.
|
|
(2)
|
Includes PIK interest and common stock issued in exchange
for investments.
|
End of notes to financial statements.