NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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,
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 or 2017 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
September 30, 2018 (Unaudited)
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.
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.
The
reported amounts for the three and nine months ended September 30, 2018 may not be indicative of the results ultimately achieved
for the year ended December 31, 2018 which will be presented in the Company’s annual report on form 10-K.
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, 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
September 30, 2018 (Unaudited)
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-Q, 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-Q, 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.
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, 2018 (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.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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
The
Company’s 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.
As
of September 30, 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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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 three and nine months ended September 30, 2018 was $10,872 and $34,000, respectively. Income from such sources for the
three and nine months ended September 30, 2017 was $14,188 and $37,891 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 for the three and nine months ended September 30, 2018 was $665 and $2,209, respectively. Income from
such sources for the three and nine months ended September 30, 2017 was $1,669 and $1,819, 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, 2018 PIK interest was $51,325 and $136,595, respectively. PIK interest for the
three and nine months ended September 30, 2017 PIK interest was $33,717 and $99,555, 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, 2018 and 2017 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
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 8. 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 three and nine months ended September
30, 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 invoiced to the Company for the three and nine months ended September 30, 2018 and 2017, were incurred in the normal operating
course of business and are included in professional fees on the Statement 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 2017 taxable year. 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 RIC for the 2017 tax year and will be taxed as a corporation under Subchapter C of
the Code. The failure to qualify as a RIC, however, 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 2018 tax year and will 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 2018 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 2018 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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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, 2018 and 2017 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 three and nine months ended September 30, 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
September 30, 2018 (Unaudited)
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 three months ended September 30, 2018 and September 30, 2017 and the nine months ended September 30,
2018 and September 30, 2017.
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
(118,447
|
)
|
|
$
|
977,028
|
|
|
$
|
43,615
|
|
|
$
|
(1,096,001
|
)
|
|
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
|
|
$
|
(0.001
|
)
|
|
$
|
0.008
|
|
|
$
|
0.000
|
|
|
$
|
(0.009
|
)
|
|
Diluted
|
|
$
|
(0.001
|
)
|
|
$
|
0.008
|
|
|
$
|
0.000
|
|
|
$
|
(0.009
|
)
|
(1)
Per share data based on weighted average shares outstanding.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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, 2018 and December
31, 2017, respectively:
|
|
|
As of September 30, 2018
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Portfolio Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,817,060
|
|
|
$
|
15,817,060
|
|
|
Second Lien Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
19,064,770
|
|
|
|
19,064,770
|
|
|
Unsecured Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
1,283,732
|
|
|
|
1,283,732
|
|
|
Equity
|
|
|
-
|
|
|
|
-
|
|
|
|
4,571,939
|
|
|
|
4,571,939
|
|
|
Total Portfolio Investments
|
|
|
-
|
|
|
|
-
|
|
|
|
40,737,501
|
|
|
|
40,737,501
|
|
|
U.S. Treasury Bill
|
|
|
33,994,220
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,994,220
|
|
|
Total Investments
|
|
$
|
33,994,220
|
|
|
$
|
-
|
|
|
$
|
40,737,501
|
|
|
$
|
74,731,721
|
|
|
|
|
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 nine months ended September 30, 2018 and the year ended December 31, 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 nine months ended September 30, 2018 are as follows:
|
|
|
First Lien
Loans
|
|
|
Second Lien Loans
|
|
|
Unsecured Loans
|
|
|
Equity
|
|
|
Total
|
|
|
Fair value at beginning of period
|
|
$
|
14,965,218
|
|
|
$
|
18,665,936
|
|
|
$
|
1,232,812
|
|
|
$
|
4,086,794
|
|
|
$
|
38,950,760
|
|
|
Amortization
|
|
|
(22,227
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(22,227
|
)
|
|
Purchases of investments
|
|
|
200,000
|
|
|
|
600,000
|
|
|
|
1,338,225
|
|
|
|
-
|
|
|
|
2,138,225
|
|
|
Sales of investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(879,891
|
)
|
|
|
-
|
|
|
|
(879,891
|
)
|
|
Payment-in-kind interest
|
|
|
101,590
|
|
|
|
35,005
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,595
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
572,479
|
|
|
|
(721,427
|
)
|
|
|
77,842
|
|
|
|
485,145
|
|
|
|
414,039
|
|
|
Transfer due to restructuring
|
|
|
-
|
|
|
|
485,256
|
|
|
|
(485,256
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Fair value at end of period
|
|
$
|
15,817,060
|
|
|
$
|
19,064,770
|
|
|
$
|
1,283,732
|
|
|
$
|
4,571,939
|
|
|
$
|
40,737,501
|
|
|
Change in unrealized gain (loss) on Level 3 investments still held as
of September 30, 2018
|
|
$
|
572,479
|
|
|
$
|
(721,427
|
)
|
|
$
|
(68,493
|
)
|
|
$
|
485,145
|
|
|
$
|
267,704
|
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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
|
|
|
267,000
|
|
|
|
1,000,000
|
|
|
|
1,385,147
|
|
|
|
450,001
|
|
|
|
3,102,148
|
|
|
Sales of investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(282,922
|
)
|
|
|
(5,895,860
|
)
|
|
|
(6,178,782
|
)
|
|
Payment-in-kind interest
|
|
|
33,717
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,717
|
|
|
Realized gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
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 September 30, 2018:
|
Description
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range (Average)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loans
|
|
$
|
15,817,060
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
19.4%-29.6% (24.7%)
|
|
|
Total
|
|
|
15,817,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loans
|
|
|
11,614,770
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
9.2%-25.4% (18.0%)
|
|
|
|
|
|
7,450,000
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
|
N/A
|
|
|
Total
|
|
|
19,064,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Loans
|
|
|
1,269,732
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
31.2%
|
|
|
|
|
|
14,000
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
|
N/A
|
|
|
Total
|
|
|
1,283,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
2,566,352
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
10.2%-15.3% (11.7%)
|
|
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value/Revenue Multiples
|
|
|
0.2x-1.1x (0.7x)
|
|
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value/EBITDA Multiples
|
|
|
7.4x-10.0x (8.6x)
|
|
|
|
|
|
|
|
|
Market Approach
|
|
Enterprise Value/EBITDA Multiples
|
|
|
15.0x
|
|
|
|
|
|
|
|
|
Black-Scholes Option
Pricing Model
|
|
Volatility
|
|
|
24.3%-28.4% (24.7%)
|
|
|
|
|
|
|
|
|
|
|
Discount for lack of marketability
|
|
|
5.0%-30.0% (13.4%)
|
|
|
|
|
|
2,004,387
|
|
|
Market Approach
|
|
Real Estate Appraisal Values
|
|
|
N/A
|
|
|
Total
|
|
|
4,570,739
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 Investments
|
|
$
|
40,736,301
|
|
|
|
|
|
|
|
|
|
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, 2018.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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
|
|
|
0.2x
|
|
|
|
|
|
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 Pricing Model
|
|
Volatility
|
|
|
22.40%-32.80% (27.60%)
|
|
|
|
|
|
|
|
|
|
|
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
September 30, 2018 (Unaudited)
NOTE
6 – 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. 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.
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 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-Q, we have disclosed the material terms of both the PAG Investment Advisory Agreement and the House Hanover Investment Advisory
Agreement below, beginning with the PAG Investment Advisory Agreement.
PAG
Investment Advisory Agreement
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, Director and Chief Executive
Officer.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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 three and nine months ended September 30, 2017 were $110,740 and $323,131.
As of September 30, 2018 and December 31, 2017, management fees of $19,282 and $94,282 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.
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;
|
|
|
|
|
|
|
●
|
administration fees;
|
|
|
|
|
|
|
●
|
transfer agent and custody fees and expenses;
|
|
|
|
|
|
|
●
|
U.S. federal and state registration fees of the Company (but not Princeton
Advisory Group);
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
|
|
●
|
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.
|
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-Q
(including Note 1), the PAG Investment Advisory Agreement was terminated as of December 31, 2017.
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 for administrative services performed
for the Company.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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 $52,929 and $159,039 for the three and nine months ended September 30, 2017, respectively, and sub-administration fees
were $39,354 and $101,854 for the three and nine months ended September 30, 2017, 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.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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 under the Interim Investment Advisory Agreement and House Hanover Investment Advisory Agreement for the three and nine months
ended September 30, 2018 were $100,462 and $321,453, respectively. As of September 30, 2018 and December 31, 2017, management
fees of $204,626 and $0 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;
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
|
|
●
|
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;
|
|
|
|
|
|
|
●
|
administration fees;
|
|
|
|
|
|
|
●
|
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 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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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 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%)
|
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,
2018, none of the portfolio companies had accepted our offer for such services.
Other
Related Party Transactions
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 September 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.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
NOTE 7 – FINANCIAL HIGHLIGHTS
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
0.345
|
|
|
$
|
0.348
|
|
|
Net investment loss
|
|
|
(0.001
|
)
|
|
|
(0.001
|
)
|
|
Realized gain (loss)
|
|
|
(0.001
|
)
|
|
|
0.005
|
|
|
Change in unrealized gain
|
|
|
0.001
|
|
|
|
0.004
|
|
|
Net asset value at end of period
|
|
$
|
0.344
|
|
|
$
|
0.356
|
|
|
Total return based on net asset value
(2)
|
|
|
0.3
|
%
|
|
|
2.3
|
%
|
|
Weighted average shares outstanding for period, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
41,451,154
|
|
|
$
|
42,889,318
|
|
|
Average net assets
|
|
$
|
41,568,327
|
|
|
$
|
41,922,796
|
|
|
Annualized ratio of net operating expenses to average net assets
(3)
|
|
|
6.7
|
%
|
|
|
4.1
|
%
|
|
Annualized ratio of net investment loss to average net assets
(3)
|
|
|
(1.3
|
)%
|
|
|
(0.6
|
)%
|
|
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets
(3)
|
|
|
5.5
|
%
|
|
|
2.9
|
%
|
|
Annualized ratio of net increase in net assets resulting from operations to average net assets
(3)
|
|
|
(1.1
|
)%
|
|
|
9.3
|
%
|
|
Portfolio Turnover
|
|
|
0.51
|
%
|
|
|
5.75
|
%
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
0.344
|
|
|
$
|
0.365
|
|
|
Net investment loss
|
|
|
(0.002
|
)
|
|
|
(0.003
|
)
|
|
Realized gain (loss)
|
|
|
(0.001
|
)
|
|
|
0.005
|
|
|
Change in unrealized gain (loss)
|
|
|
0.003
|
|
|
|
(0.011
|
)
|
|
Net asset value at end of period
|
|
$
|
0.344
|
|
|
$
|
0.356
|
|
|
Total return based on net asset value
(2)
|
|
|
0.0
|
%
|
|
|
(2.5
|
)%
|
|
Weighted average shares outstanding for period, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
|
Net assets at end of period
|
|
$
|
41,451,154
|
|
|
$
|
42,889,318
|
|
|
Average net assets
|
|
$
|
41,404,525
|
|
|
$
|
42,560,454
|
|
|
Annualized ratio of net operating expenses to average net assets
(3)
|
|
|
8.3
|
%
|
|
|
4.3
|
%
|
|
Annualized ratio of net investment loss to average net assets
(3)
|
|
|
(1.3
|
)%
|
|
|
(1.0
|
)%
|
|
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets
(3)
|
|
|
4.4
|
%
|
|
|
3.1
|
%
|
|
Annualized ratio of net increase (decrease) in net assets resulting from operations to average net assets
(3)
|
|
|
0.2
|
%
|
|
|
(3.4
|
)%
|
|
Portfolio Turnover
|
|
|
0.52
|
%
|
|
|
0.01
|
%
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
|
|
|
Year Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Per Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of year
|
|
$
|
0.365
|
|
|
$
|
0.400
|
|
|
$
|
0.254
|
|
|
$
|
0.564
|
|
|
$
|
0.174
|
|
|
Net investment income (loss)
|
|
|
0.008
|
|
|
|
(0.004
|
)
|
|
|
(0.013
|
)
|
|
|
(0.144
|
)
|
|
|
(0.062
|
)
|
|
Change in unrealized gain (loss)
|
|
|
(0.035
|
)
|
|
|
(0.019
|
)
|
|
|
(0.081
|
)
|
|
|
(0.358
|
)
|
|
|
0.388
|
|
|
Realized gain (loss)
|
|
|
0.006
|
|
|
|
(0.012
|
)
|
|
|
0.002
|
|
|
|
0.192
|
|
|
|
0.064
|
|
|
Change in capital share transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
0.238
|
|
|
|
-
|
|
|
|
-
|
|
|
Net asset value at end of year
|
|
$
|
0.344
|
|
|
$
|
0.365
|
|
|
$
|
0.400
|
|
|
$
|
0.254
|
|
|
$
|
0.564
|
|
|
Total return based on net asset value
(2)
|
|
|
(5.8
|
)%
|
|
|
(8.8
|
)%
|
|
|
(36.2
|
)%
|
|
|
(55.0
|
)%
|
|
|
224.1
|
%
|
|
Weighted average shares outstanding for year, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
97,402,398
|
|
|
|
1,816,534
|
|
|
|
1,816,534
|
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of year
|
|
$
|
41,407,539
|
|
|
$
|
43,985,319
|
|
|
$
|
48,225,563
|
|
|
$
|
462,022
|
|
|
$
|
1,025,493
|
|
|
Average net assets
|
|
$
|
42,634,685
|
|
|
$
|
46,991,446
|
|
|
$
|
45,472,971
|
|
|
$
|
743,758
|
|
|
$
|
671,498
|
|
|
Annualized ratio of net operating expenses to average net assets
|
|
|
3.4
|
%
|
|
|
5.8
|
%
|
|
|
9.5
|
%
|
|
|
35.2
|
%
|
|
|
16.6
|
%
|
|
Annualized ratio of net investment income (loss) to average net assets
|
|
|
2.4
|
%
|
|
|
(1.1
|
)%
|
|
|
(2.7
|
)%
|
|
|
(35.2
|
)%
|
|
|
(16.6
|
)%
|
|
Annualized ratio of net operating expenses
excluding management fees, incentive fees, and interest expense to average net assets
|
|
|
2.8
|
%
|
|
|
4.3
|
%
|
|
|
8.0
|
%
|
|
|
35.2
|
%
|
|
|
16.2
|
%
|
|
Annualized ratio of net increase (decrease) in net assets resulting from operations to average net assets
|
|
|
(6.0
|
)%
|
|
|
(9.0
|
)%
|
|
|
(19.5
|
)%
|
|
|
(75.8
|
)
(4)
%
|
|
|
105.4
|
(4)
%
|
|
Portfolio Turnover
|
|
|
7.0
|
%
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
|
|
31.2
|
(4)
%
|
|
|
14.7
|
(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)
|
Financial highlights for periods of less than one year are annualized and each of the ratios to average net assets are adjusted accordingly. Non-recurring expenses are not annualized.
|
|
(4)
|
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, 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 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. Through the date
of filing, the guaranteed amount was reduced to $107,324.
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.
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, former CEO, President and Director of the Company, 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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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 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 test, the asset test, and the income test. 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
subsidiary in an annual report if any of the three tests exceed 20% of the Company’s total investments at fair value, total
assets or total income. Rule 4-08(g) of Regulation S-X requires summarized financial information of an unconsolidated subsidiary
in an annual report if any of the three tests exceeds 10% of the Company’s total investments at fair value, total assets
or total income and summarized financial information in a quarterly report if any of the three tests exceeds 20% of the Company’s
total amounts.
The Company has determined that Rockfish
Seafood Grill, Inc., Advantis Certified Staffing Solutions, Inc. and PCC SBC Sub, Inc. three of its majority owned control investments
were considered significant subsidiaries at the 20% level at September 30, 2018.
Additionally, Integrated Medical Partners,
LLC, an unconsolidated portfolio company that was a control investment, but which was not majority-owned by the Company was also
considered a significant subsidiary at the 20% level at September, 30, 2018.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
The following tables show the summarized
financial information for Rockfish Seafood Grill, Inc., Advantis Certified Staffing Solutions, Inc., Integrated Medical Partners,
LLC, Inc., and PCC SBC Sub, Inc. (numbers in thousands):
|
Nine Months Ended
September 30, 2018
(unaudited)
|
|
Rockfish Seafood Grill, Inc.
|
|
|
Integrated Medical Partners, LLC
|
|
|
Advantis Certified Staffing Solutions, Inc.
|
|
|
PCC SBH Sub, Inc.
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
462
|
|
|
$
|
1,757
|
|
|
$
|
3,524
|
|
|
$
|
240
|
|
|
Noncurrent Assets
|
|
|
3,134
|
|
|
|
5,559
|
|
|
|
1,684
|
|
|
|
2,384
|
|
|
Current Liabilities
|
|
|
2,595
|
|
|
|
3,784
|
|
|
|
5,645
|
|
|
|
148
|
|
|
Noncurrent Liabilities
|
|
|
10,834
|
|
|
|
2,111
|
|
|
|
8,748
|
|
|
|
-
|
|
|
Nine Months Ended
September 30, 2018
(unaudited)
|
|
Rockfish Seafood Grill, Inc.
|
|
|
Integrated Medical Partners, LLC
|
|
|
Advantis Certified Staffing Solutions, Inc.
|
|
|
PCC SBH Sub, Inc.
|
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenue
|
|
$
|
15,344
|
|
|
$
|
9,427
|
|
|
$
|
14,382
|
|
|
$
|
170
|
|
|
Gross Profit
|
|
|
10,700
|
|
|
|
2,511
|
|
|
|
3,599
|
|
|
|
170
|
|
|
Net Income (Loss)
|
|
|
(1,216
|
)
|
|
|
(1,090
|
)
|
|
|
(1,017
|
)
|
|
|
34
|
|
NOTE 10 – SUBSEQUENT EVENTS
Portfolio Activity
|
|
●
|
On October 29, 2018, the Company issued a Notice of Default on its loan to Great Value Storage
for non-payment of interest due on September 30, 2018.
|
|
|
●
|
On November 15, 2018, the Company received payment in full in the amount of $1,000,000 on its participation
in the loan from Capital Foundry Funding, LLC to ECM Energy Services, Inc.
|
Additional Subsequent Events
Effective November 27, 2018, the Company
entered into a confidential settlement agreement with a former vendor/provider of services in which the Company received $1.1 million
on December 4, 2018. Furthermore, the Company was released of the responsibility of outstanding Accounts Payable and Accrued Expenses
totaling approximately $279,172 to this vendor/provider of services, which would also forgive the related receivables Due From
Portfolio Companies totaling approximately $84,418.
Late Filings
As set forth in the Company’s Form
12b-25 filing on November 15, 2018, the Company has not timely made its Form 10-Q filing for the period ending September 30, 2018
due to its inability to do so without undue effort or expense.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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 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
|
)
|
|
|
-
|
|
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (Unaudited)
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 September 30, 2017.
|
Portfolio
Company/Type of Investment
|
|
Principal Amount/Shares/ Ownership % at
September 30,
2017
|
|
|
Amount of Interest and Dividends Credited in Income
|
|
|
Fair Value at
December 31,
2016
|
|
|
Purchases
(2)
|
|
|
Sales
|
|
|
Transfers from Restructuring
|
|
|
Change in Unrealized Gains/Losses
|
|
|
Fair Value at
September 30,
2017
|
|
|
Control Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantis Certified Staffing Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loan
|
|
$
|
4,500,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,500,000
|
|
|
$
|
(617,547
|
)
|
|
$
|
3,882,453
|
|
|
Unsecured Loan
|
|
$
|
618,225
|
|
|
|
3,858
|
|
|
|
-
|
|
|
|
618,225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
618,225
|
|
|
Common Stock – Series A
|
|
|
225,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,871
|
)
|
|
|
6,279
|
|
|
Common Stock – Series B
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
428,571
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(163,454
|
)
|
|
|
265,117
|
|
|
Warrants
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,278
|
|
|
|
-
|
|
|
|
16,510
|
|
|
|
(1,276
|
)
|
|
|
26,512
|
|
|
Rockfish Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loan
(1)
|
|
$
|
6,352,944
|
|
|
|
-
|
|
|
|
6,549,261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
302,534
|
|
|
|
6,851,795
|
|
|
Revolving Loan
(1)
|
|
$
|
1,621,000
|
|
|
|
-
|
|
|
|
1,481,000
|
|
|
|
140,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,621,000
|
|
|
Rockfish Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
(1)
|
|
|
10
|
%
|
|
|
-
|
|
|
|
102,826
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
845,307
|
|
|
|
948,133
|
|
|
Membership Interest
(1)
|
|
|
99.997
|
%
|
|
|
-
|
|
|
|
925,407
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(820,056
|
)
|
|
|
105,351
|
|
|
Integrated Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Loan
(1)
|
|
$
|
451,922
|
|
|
|
13,988
|
|
|
|
276,922
|
|
|
|
451,922
|
|
|
|
(276,922
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
451,922
|
|
|
Preferred Membership – Class A
(1)
|
|
|
800
|
|
|
|
-
|
|
|
|
3,337,779
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,505,518
|
)
|
|
|
1,832,261
|
|
|
Preferred Membership – Class B
(1)
|
|
|
760
|
|
|
|
-
|
|
|
|
365,884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(284,217
|
)
|
|
|
81,667
|
|
|
Common Stock
(1)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
20,059
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,335
|
)
|
|
|
3,724
|
|
|
PCC SBH Sub, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,525,481
|
|
|
|
(785,481
|
)
|
|
|
1,740,000
|
|
|
Unsecured Loan
(1)
|
|
$
|
14,000
|
|
|
|
1,293
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
(6,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
|
Total Control Investments
|
|
|
|
|
|
$
|
19,139
|
|
|
$
|
13,059,138
|
|
|
$
|
1,680,146
|
|
|
$
|
(282,922
|
)
|
|
$
|
7,041,991
|
|
|
$
|
(3,049,914
|
)
|
|
$
|
18,448,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
End of notes to financial statements.