NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
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, we expect 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 did not meet the requirements to qualify as a RIC for the 2015, 2016 and 2017 tax years and expects to be taxed as a corporation
under Subchapter C of the Code. 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 until December 31, 2017, Princeton Advisory Group acted as the Company’s investment advisor
pursuant to the terms of the PAG Investment Advisory Agreement.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
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.
Portfolio
Investment Classification
The
Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments”
are defined as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater
than 50% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control
investments in companies in which the Company owns between 5% and 25% of the voting securities. Under the 1940 Act, “Non-affiliated
Investments” are defined as investments that are neither Control Investments nor Affiliated Investments. As of December
31, 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. As of December 31, 2016,
the Company had control investments in Rockfish Seafood Grill, Inc., Rockfish Holdings, LLC and Integrated Medical Partners, LLC,
and Dominion Medical Management, Inc. and affiliated investments in Spencer Enterprises Holdings, LLC, as defined under the 1940
Act.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
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:
|
●
|
Our
quarterly valuation process begins with each portfolio company or investment being initially
valued by an independent valuation firm, except for those investments where market quotations
are readily available;
|
|
●
|
Preliminary
valuation conclusions are then documented and discussed with our senior management and
our investment advisor (our investment advisor, as disclosed in various public filings,
in Note 1, and elsewhere in this Form 10-K, changed on June 9, 2016 from Princeton Investment
Advisors to Princeton Advisory Group, and on January 1, 2018 from Princeton Advisory
Group to House Hanover);
|
|
●
|
The
valuation committee of our board of directors then reviews these preliminary valuations
and approves them for recommendation to the board of directors;
|
|
●
|
The
board of directors then discusses valuations and determines the fair value of each investment
in our portfolio in good faith, based on the input of our investment advisor (our investment
advisor, as disclosed in various public filings, in Note 1, and elsewhere in this Form
10-K, changed on June 9, 2016 from Princeton Investment Advisors to Princeton Advisory
Group, and on January 1, 2018 from Princeton Advisory Group to House Hanover), the independent
valuation firm and the valuation committee.
|
U.S.
GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring
fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level
in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is
significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level
1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company
has the ability to access. Valuation adjustments and block discounts are not applied to
Level
1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation
of these securities does not entail a significant degree of judgment.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Level
2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable,
either directly or indirectly.
Level
3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The
availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety
of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other
characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable
or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily
represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably
determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the
values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised
by the board of directors in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs
used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes,
the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the
lowest level input that is significant to the fair value measurement.
Fair
value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure.
Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those
that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs
that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability
of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level
within the fair value hierarchy.
Valuation
Processes
The
Company establishes valuation processes and procedures to ensure that the valuation techniques for investments that are categorized
within Level 3 of the fair value hierarchy are fair, consistent, and verifiable. The Company’s board of directors designates
a Valuation Committee (the “Committee”) to oversee the entire valuation process of the Company’s Level 3 investments.
The Committee is comprised of independent directors and reports to the Company’s board of directors. The Committee is responsible
for developing the Company’s written valuation processes and procedures, conducting periodic reviews of the valuation policies,
and evaluating the overall fairness and consistent application of the valuation policies.
The
Committee meets on a quarterly basis, or more frequently as needed, to determine the valuations of the Company’s Level 3
investments. Valuations determined by the Committee are required to be supported by market data, third-party pricing sources,
industry accepted pricing models, counterparty prices, or other methods that the Committee deems to be appropriate.
The
Company will periodically test its valuations of Level 3 investments through performing back testing of the sales of such investments
by comparing the amounts realized against the most recent fair values reported, and if necessary, uses the findings to recalibrate
its valuation procedures. On a quarterly basis, the Company engages the services of a nationally recognized third-party valuation
firm to perform an independent valuation of the Company’s Level 3 investments.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Investment
Valuation
We
expect that most of our portfolio investments will take the form of securities that are not publicly traded. The fair value of
loans, securities and other investments that are not publicly traded may not be readily determinable, and we will value these
investments at fair value as determined in good faith by our board of directors, including reflecting significant events affecting
the value of our investments. Most, if not all, of our investments (other than cash and cash equivalents) will be classified as
Level 3 under Financial Accounting Standards Board Accounting Standards Codification “Fair Value Measurements and Disclosures”,
or ASC 820. This means that our portfolio valuations will be based on unobservable inputs and our own assumptions about how market
participants would price the asset or liability in question. We expect that inputs into the determination of fair value of our
portfolio investments will require significant management judgment or estimation. Even if observable market data are available,
such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker
would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied
by disclaimers materially reduces the reliability of such information. We expect to retain the services of one or more independent
service providers to review the valuation of these loans and securities. The types of factors that the board of directors may
take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded
securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company,
the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and
discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations,
and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods
of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have
been used if a ready market for these loans and securities existed. Our net asset value could be adversely affected if our determinations
regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal
of such loans and securities.
We
will adjust the valuation of our portfolio quarterly to reflect our board of directors’ determination of the fair value
of each investment in our portfolio. Any changes in fair value are recorded in our statement of operations as net change in unrealized
gain or loss.
Debt
Securities
The
Company’s portfolio consists primarily of first lien loans, second lien loans, and unsecured loans. Investments for which
market quotations are readily available (“Level 2 Loans”) are generally valued using market quotations, which are
generally obtained from an independent pricing service or broker-dealers. For other debt investments (“Level 3 Loans”),
market quotations are not available and other techniques are used to determine fair value. The Company considers its Level 3 Loans
to be performing if the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant
compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 Loans, the Board
considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial
condition of the borrower, economic conditions, success and prepayment fees, and other relevant factors, both qualitative and
quantitative. In the event that a Level 3 Loan instrument is not performing, as defined above, the Board may evaluate the value
of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 Loan
instrument.
Equity
Investments
Our
equity investments, including common stock, membership interests, and warrants, are generally valued using a market approach and
income approach. The income approach utilizes primarily the discount rate to value the investment whereas the primary inputs for
the market approach are the earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiple and
revenue multiples. The Black-Scholes Option Pricing Model, a valuation technique that follows the income approach, is used to
allocate the value of the equity to the investment. The pricing model takes into account the contract terms (including maturity)
as well as multiple inputs, including time value, implied volatility, equity prices, risk free rates, and interest rates.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Valuation
of Other Financial Instruments
The
carrying amounts of the Company’s other, non-investment, financial instruments, consisting of cash, receivables, accounts
payable, and accrued expenses, approximate fair value due to their short-term nature.
Cash
and Restricted Cash
The
Company deposits its cash and restricted cash in financial institutions and, at times, such balances may be in excess of the Federal
Deposit Insurance Corporation insured limit; however, management does not believe it is exposed to any significant credit risk.
The
following table provides a reconciliation of cash and restricted cash reporting within the statements of assets and liabilities
that sum to the total of the same such amounts shown in the statements of cash flows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash
|
|
$
|
2,084,282
|
|
|
$
|
9,942
|
|
Restricted
Cash
|
|
|
-
|
|
|
|
524,007
|
|
Total
Cash and Restricted Cash
|
|
$
|
2,084,282
|
|
|
$
|
533,949
|
|
As
of December 31, 2017, there was no restricted cash for purpose of purchasing U.S. Treasury Bills on margin. As of December 31,
2016, restricted cash consisted of cash held at Jefferies for purpose of purchasing U.S. Treasury Bills on margin.
Notes
Receivable
Effective
December 31, 2017, there were no notes receivable. Effective December 31, 2016, the Company had $500,000 in receivables relating
to the sale of its equity investment in Advantis Certified Staffing Solutions, Inc.
U.S.
Treasury Bills
At
the end of each fiscal quarter, we may take proactive steps to be in compliance with the RIC diversification requirements under
Subchapter M of the Code, which are dependent upon the composition of our total assets at quarter end. We may accomplish this
in several ways, including purchasing U.S. Treasury Bills and closing out positions after quarter-end.
Revenue
Recognition
Realized
gains or losses on the sale of investments are calculated using the specific identification method. The Company measures realized
gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment,
without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and
prepayment penalties.
Interest
income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing
and/or commitment fees associated with senior and subordinated secured loans are accreted into interest income over the respective
terms of the applicable loans. Upon the prepayment of a senior or subordinated secured loan, any prepayment penalties and unamortized
loan origination, closing and commitment fees are recorded as interest income. Generally, when a payment default occurs on a loan
in the portfolio, or if the Company otherwise believes that borrower will not be able to make contractual interest payments, the
Company may place the loan on non-accrual status and cease recognizing interest income on the loan until all principal and interest
is current through payment, or until a restructuring occurs, and the interest income is deemed to be collectible. The Company
may make exceptions to this policy if a loan has sufficient collateral value, is in the process of collection or is viewed to
be able to pay all amounts due if the loan were to be collected on through an investment in or sale of the business, the sale
of the assets of the business, or some portion or combination thereof.
Dividend
income is recorded on the ex-dividend date.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Structuring
fees, excess deal deposits, prepayment fees and similar fees are recognized as income as earned, usually when paid. Other fee
income, including annual fees and monitoring fees are included in Other Income. Income from such sources was $47,259, $56,197
and $18,908 for the years ended December 31, 2017, 2016 and 2015, respectively. Other income from non-investment sources is generally
comprised of interest income earned on cash in the Company’s bank account. Income earned on cash in the Company’s
bank account was $3,193 and $189 for the years ended December 31, 2017, and 2016. There was no interest income earned on cash
in the Company’s bank account for the year ended December 31, 2015. For the year ended December 31, 2017, $968,256 was booked
as other income resulting from the reversal of previously accrued legal invoices related to the Settlement Agreement with the
law firms described in “Note 2 – Significant Accounting Policies – Legal Fees” and is included in Other
income from non-investment sources.
Payment-in-Kind
Interest (“PIK”)
We
have investments in our portfolio that contain a PIK interest provision. Any PIK interest is added to the principal balance of
such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible.
In order to qualify as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends, even
if we have not collected any cash. For the years ended December 31, 2016 and December 31, 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 9. Through December 31, 2016, it was undeterminable 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 year ended December 31, 2017, the Company was not invoiced
any legal fees by these two law firms related to this lawsuit. For the years ended December 31, 2016 and 2015, the Company was
invoiced legal fees by these two law firms related to this lawsuit in the amount of $351,513 and $1,241,863, respectively, which
are included in professional fees on the Statements of Operations. As of December 31, 2016, $1,390,039 of these fees are included
in accounts payable on the Statements of Assets and Liabilities. 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. As a result of settling all outstanding amounts,
for the year ended December 31, 2017, the Company increased other income by $968,256, to account for legal fees previously included
in professional fees. In addition, as of December 31, 2017, the Company reduced accounts payable by $968,256 as a result of the
settlements.
Other
legal fees invoiced to the Company for the years ended December 31, 2016 and December 31, 2017, were incurred in the normal operating
course of business and are included in professional fees on the Statements of Operations.
Federal
and State Income Taxes
The
Company was taxed as a regular corporation (a “C corporation”) under subchapter C of the Internal Revenue Code of
1986, as amended, for its 2017, 2016 and 2015 taxable years. The Company uses the liability method of accounting for income taxes.
Deferred tax assets and liabilities are recorded for tax loss carryforwards and temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year
in which the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when
it is more likely than not that some portion or all of the deferred tax assets will not be realized.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
The
Company did not meet the qualifications of RIC for the 2017, 2016 and 2015 tax years and will be taxed as a corporation under
Subchapter C of the Code. The Company expects to meet the qualifications of a RIC for the 2018 tax year. If the Company were unable
to meet the qualifications of a RIC for the 2018 tax year, it would be taxed as a corporation under Subchapter C of the Code.
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 years ended December 31, 2017, 2016 and 2015 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. The Company had 100,000 Series B Preferred Shares convertible
at 100 for 1 outstanding through March 12, 2015, but were excluded from the calculation of diluted loss per share of common stock
because their inclusion would have been antidilutive. Therefore, dilutive loss per share of common stock was equal to basic loss
per share of common stock for the years ended December 31, 2015. For the years ended December 31, 2017 and 2016, basic and diluted
earnings (loss) per share were the same, since there were no potentially dilutive securities outstanding.
Transactional
Expenses
A
portion of the assets acquired on March 13, 2015 from the Partnerships were used for legal and accounting fees related to the
acquisition transaction and were expensed as professional fees. The Company incurred $935,161 of professional fees related to
the transaction for the year ended December 31, 2015. There were no professional fees related to the transaction for the years
ended December 31, 2016 or 2017.
Capital
Accounts
Certain
capital accounts including undistributed net investment income, accumulated net realized gain or loss, accumulated net unrealized
gain or loss, and paid-in capital in excess of par, are adjusted, at least annually, for permanent differences between book and
tax. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations
that may differ from U.S. GAAP.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Recent
Accounting Pronouncements
In
August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires
management to evaluate relevant conditions or events that are known or reasonably knowable as of the evaluation date when determining
whether substantial doubt about an entity’s ability to continue as a going concern exists. If management concludes that
substantial doubt about an entity’s ability to continue as a going concern is not alleviated by its plans, the notes to
the financial statements are required to include a statement that there is substantial doubt about the entity’s ability
to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued,
when applicable). ASU 2014-15 is effective for annual periods ending after December 15, 2016 and for annual periods and interim
periods thereafter. Adoption of ASU 2014-15 did not have a material effect on its financial position or results of operations.
In
November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU
2015-17”). ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance,
be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred
tax asset or liability. ASU 2015-17 is effective for public business entities in fiscal years beginning after December 15, 2016,
including interim periods within those years. Adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated
financial statements.
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
May 2014, the FASB issued a converged standard to provide a single, comprehensive revenue recognition model for all contracts
with customers to improve comparability within industries, across industries, and across capital markets. The core principle of
the new guidance is that an entity will recognize revenue to depict the transfer of goods or services to customers in an amount
that the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606) –Deferral of the Effective Date, formally amending the effective date
of the new revenue recognition guidance. The amended guidance defers the effective date of the new guidance to interim reporting
periods within annual reporting periods beginning after December 15, 2017. Public business entities are permitted to apply the
new guidance early, but not before the original effective date (
i.e
., interim periods within annual periods beginning after
December 15, 2016). Adoption of ASU 2015-14 did not have a material impact on the Company’s consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606) –Principal versus Agent Considerations
(Reporting Revenue Gross Versus Net) (“ASU 2016-08”). The amended guidance affects entities that enter into contracts
with customers to transfer goods or services in exchange for consideration. Under ASU 2016-08, when another party is involved
in providing goods or services to a customer, an entity must determine whether the nature of its promise is to provide the specified
good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided by the other
party (that is, the entity is an agent). An entity is a principal if it controls the specified good or service before that good
or service is transferred to a customer. The amended guidance includes indicators to assist an entity in determining whether it
controls a specified good or service before it is transferred to the customer. ASU 2016-08 affects the guidance in the new revenue
standard issued in May 2014 and has the same effective date which is described above. Adoption of ASU 2016-08 did not have a material
impact on the Company’s consolidated financial statements.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
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. Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material
impact on the Company’s consolidated financial statements.
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
consolidated 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 of the Company does not expect that the adoption of ASU 2018-13 will have a material impact on the Company’s
consolidated financial statements.
NOTE
3 – CONCENTRATION OF CREDIT RISK
In
the normal course of business, the Company maintains its cash balances in financial institutions, which at times may exceed federally
insured limits. The Company is subject to credit risk to the extent any financial institution with which it conducts business
is unable to fulfill contractual obligations on its behalf. Management monitors the financial condition of such financial institutions
and does not anticipate any losses from these counterparties.
NOTE
4 – NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE
The
following information sets forth the computation of basic and diluted net increase (decrease) in net assets resulting from operations
per common share for the years ended December 31, 2017, 2016, and 2015.
|
|
For
the Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Per
Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in net assets resulting from operations
|
|
$
|
(2,577,780
|
)
|
|
$
|
(4,240,844
|
)
|
|
$
|
(8,848,036
|
)
|
Weighted
average shares outstanding for year
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
97,402,398
|
(2)
|
Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
98,375,001
|
(2),(3)
|
Basic
and diluted net increase (decrease) in net assets resulting from operations per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.021
|
)
|
|
$
|
(0.035
|
)
|
|
$
|
(0.091
|
)
|
Diluted
|
|
$
|
(0.021
|
)
|
|
$
|
(0.035
|
)
|
|
$
|
(0.091
|
)
|
|
(1)
|
Per
share data based on weighted average shares outstanding.
|
|
(2)
|
Includes
retroactive application of 2 for 1 stock split.
|
|
(3)
|
Includes
Series B Preferred Shares convertible at 100 for 1 through March 12, 2015, but is excluded
from the diluted calculation for net increase (decrease) in net assets resulting from
operations per share for the year ended December 31, 2015 due to it being anti-dilutive.
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
NOTE
5 – FAIR VALUE OF INVESTMENTS
The
Company’s assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with ASC Topic
820 – Fair Value Measurements and Disclosures (“ASC 820”). See Note 2 for a discussion of the Company’s
policies.
The
following table presents information about the Company’s assets measured at fair value as of December 31, 2017 and December
31, 2016, respectively:
|
|
As
of December 31, 2017
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Portfolio
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,965,218
|
|
|
$
|
15,965,218
|
|
Second
Lien Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
17,665,936
|
|
|
|
17,665,936
|
|
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
|
|
|
|
As
of December 31, 2016
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Portfolio
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,301,261
|
|
|
$
|
16,301,261
|
|
Second
Lien Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
17,250,000
|
|
|
|
17,250,000
|
|
Unsecured
Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
276,922
|
|
|
|
276,922
|
|
Equity
|
|
|
-
|
|
|
|
-
|
|
|
|
11,778,757
|
|
|
|
11,778,757
|
|
Total
Portfolio Investments
|
|
|
-
|
|
|
|
-
|
|
|
|
45,606,940
|
|
|
|
45,606,940
|
|
U.S.
Treasury Bill
|
|
|
52,398,952
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,398,952
|
|
Total
Investments
|
|
$
|
52,398,952
|
|
|
$
|
-
|
|
|
$
|
45,606,940
|
|
|
$
|
98,005,892
|
|
During
the years ended December 31, 2017 and 2016, there were no transfers between Level, 1, Level 2 or Level 3.
The
following table presents additional information about Level 3 assets measured at fair value. Both observable and unobservable
inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a
result, the unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable
to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities)
inputs.
Changes
in Level 3 assets measured at fair value for the year ended December 31, 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
|
|
|
1,267,000
|
|
|
|
-
|
|
|
|
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 (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
589,111
|
|
|
|
589,111
|
|
Change
in unrealized gain (loss) on investments
|
|
|
909,349
|
|
|
|
415,936
|
|
|
|
(146,335
|
)
|
|
|
(5,360,696
|
)
|
|
|
(4,181,746
|
)
|
Transfer
due to restructuring
|
|
|
(2,525,481
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,525,481
|
|
|
|
-
|
|
Fair
value at end of year
|
|
$
|
15,965,218
|
|
|
$
|
17,665,936
|
|
|
$
|
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
|
)
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Changes
in Level 3 assets measured at fair value for the year ended December 31, 2016 are as follows:
|
|
First
Lien
Loans
|
|
|
Second
Lien Loans
|
|
|
Unsecured
Loans
|
|
|
Equity
|
|
|
Total
|
|
Fair
value at beginning of year
|
|
$
|
16,064,535
|
|
|
$
|
21,386,494
|
|
|
$
|
371,922
|
|
|
$
|
10,876,569
|
|
|
$
|
48,699,520
|
|
Amortization
|
|
|
(16,161
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,161
|
)
|
Purchases
of investments
|
|
|
463,211
|
|
|
|
-
|
|
|
|
280,000
|
|
|
|
-
|
|
|
|
743,211
|
|
Sales
of investments
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(500,000
|
)
|
|
|
(550,000
|
)
|
Payment-in-kind
interest
|
|
|
473,818
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
473,818
|
|
Realized
gain (loss)
|
|
|
-
|
|
|
|
(1,454,270
|
)
|
|
|
(375,000
|
)
|
|
|
367,383
|
|
|
|
(1,461,887
|
)
|
Change
in unrealized gain (loss) on investments
|
|
|
(634,142
|
)
|
|
|
2,448,866
|
|
|
|
-
|
|
|
|
(4,096,285
|
)
|
|
|
(2,281,561
|
)
|
Transfer
due to restructuring
|
|
|
-
|
|
|
|
(5,131,090
|
)
|
|
|
-
|
|
|
|
5,131,090
|
|
|
|
-
|
|
Fair
value at end of year
|
|
$
|
16,301,261
|
|
|
$
|
17,250,000
|
|
|
$
|
276,922
|
|
|
$
|
11,778,757
|
|
|
$
|
45,606,940
|
|
Change
in unrealized gain (loss) on Level 3 investments still held as of December 31, 2016
|
|
$
|
(634,141
|
)
|
|
$
|
463,275
|
|
|
$
|
-
|
|
|
$
|
(4,197,583
|
)
|
|
$
|
(4,368,449
|
)
|
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
|
|
$
|
7,664,000
|
|
|
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
|
|
|
15,965,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loans
|
|
|
7,500,000
|
|
|
Market
Approach
|
|
Real
Estate Appraisal Values
|
|
N/A
|
|
|
|
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
|
|
|
17,665,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
The
following table provides quantitative information regarding Level 3 fair value measurements as of December 31, 2016:
Description
|
|
Fair
Value
|
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Range
(Average)
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loans
|
|
$
|
6,531,000
|
|
|
Discounted
Cash Flow
|
|
Discount
Rate
|
|
14.00%
|
|
|
|
8,030,261
|
|
|
Discounted
Cash Flow
|
|
Discount
Rate
|
|
12.20%
|
|
|
|
|
|
|
Market
Approach
|
|
Enterprise
Value/Revenue Multiple
|
|
0.6x-0.9x
(0.75x)
|
|
|
|
1,740,000
|
|
|
Market
Approach
|
|
Real
Estate Appraisal Values
|
|
N/A
|
Total
|
|
|
16,301,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loans
|
|
|
6,000,000
|
|
|
Discounted
Cash Flow
|
|
Discount
Rate
|
|
68.00%
|
|
|
|
4,500,000
|
|
|
Discounted
Cash Flow
|
|
Discount
Rate
|
|
14.10%
|
|
|
|
|
|
|
Market
Approach
|
|
Enterprise
Value / Revenue & EBITDA Multiples
|
|
0.6x
|
|
|
|
6,750,000
|
|
|
Discounted
Cash Flow
|
|
Discount
Rate
|
|
9.00%
|
|
|
|
|
|
|
Market
Approach
|
|
Enterprise
Value/Revenue Multiple
|
|
8.6x
|
Total
|
|
|
17,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
Loans
|
|
|
276,922
|
|
|
Discounted
Cash Flow
|
|
Discount
Rate
|
|
12.60%
|
|
|
|
|
|
|
Market
Approach
|
|
Enterprise
Value / Revenue & EBITDA Multiples
|
|
1.10x-
20.60x (10.85x)
|
Total
|
|
|
276,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
11,778,757
|
|
|
Black-Scholes
Option
Pricing Model
|
|
Volatility
|
|
22.50%-39.50%
(31.00%)
|
|
|
|
|
|
|
|
|
Discount
for lack of marketability
|
|
5.00%-32.00%
(18.50%)
|
|
|
|
|
|
|
Market
Approach
|
|
Enterprise
Value / Revenue & EBITDA Multiples
|
|
0.4x
- 20.6x (10.5x)
|
|
|
|
|
|
|
Income
Approach
|
|
Discount
Rate
|
|
9.4%
- 14.1% (11.75%)
|
Total
|
|
|
11,778,757
|
|
|
|
|
|
|
|
Total
Level 3 Investments
|
|
$
|
45,606,940
|
|
|
|
|
|
|
|
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.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
The
primary significant unobservable inputs used in the fair value measurement of the Company’s equity investments are the EBITDA
multiple and revenue multiple, which is used to determine the Enterprise Value. Significant increases (decreases) in the Enterprise
Value in isolation would result in a significantly higher (lower) fair value measurement. To determine the Enterprise Value for
the market approach, the Company considers current market trading and/or transaction multiples, portfolio company performance
(financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more
of these factors can have a similar directional change on other factors in determining the appropriate multiple to use in the
market approach.
The
primary unobservable inputs used in the fair value measurement of the Company’s equity investments, when using an option
pricing model to allocate the equity value to the investment, are the discount rate for lack of marketability and volatility.
Significant increases (decreases) in the discount rate in isolation would result in a significantly lower (higher) fair value
measurement. Significant increases (decreases) in the volatility in isolation would result in a significantly higher (lower) fair
value measurement. Changes in one or more factors can have a similar directional change on other factors in determining the appropriate
discount rate or volatility to use in the valuation of equity using an option pricing model.
NOTE
6 – INCOME TAX
The
Company is currently taxable as a C corporation and subject to federal and state corporate income taxes. The Company recorded
a provision as follows:
|
|
2017
|
|
|
2016
|
|
Current
expense (benefit)
|
|
$
|
28,065
|
|
|
$
|
41,123
|
|
Deferred
expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
Total
expense (benefit)
|
|
$
|
28,065
|
|
|
$
|
41,123
|
|
The
components of deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows:
Deferred tax assets:
|
|
2017
|
|
|
2016
|
|
Net operating loss carryforward
|
|
$
|
494,161
|
|
|
$
|
390,881
|
|
Net capital loss carryforwards
|
|
|
1,384,133
|
|
|
|
2,553,820
|
|
Basis differences in investments
|
|
|
3,402,760
|
|
|
|
2,503,655
|
|
Total gross deferred tax assets
|
|
|
5,281,054
|
|
|
|
5,448,355
|
|
Less: Valuation allowance
|
|
|
(5,281,054
|
)
|
|
|
(5,128,839
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
319,516
|
|
As of December 31, 2017 and 2016, the
total amount of federal net operating loss carryforwards was $1,819,548 and $212,862, respectively. The federal net operating
loss carryforwards will begin to expire in 2036. As of December 31, 2017 and 2016, the total amount of federal capital loss
carryforwards was $5,096,508 and $6,190,524, respectively. The federal capital loss carryforwards will expire in 2021.
The
recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about the Company’s
future profitability which are inherently uncertain. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion of all of the deferred tax assets will not be realized. Management
believes that the likelihood of realizing the benefits of these deductible differences at December 31, 2017, does not meet the
“more likely than not threshold” as defined in ASC 740 – Income Taxes and thus management has recorded a full
valuation allowance.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
For
federal and state purposes, a portion of the Company’s net operating loss carryforwards and basis differences may be subject
to limitations on annual utilization in case of a change in ownership, as defined by federal and state law. The amount of such
limitations, if any, has not been determined. Accordingly, the amount of such tax attributes available to offset future profits
may be significantly less than the actual amounts of the tax attributes.
The
difference between the tax provision (benefit) at the statutory federal income tax rate and the tax provision (benefit) was as
follows:
|
|
2017
|
|
|
2016
|
|
Federal statutory tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal tax benefit
|
|
|
(1.1
|
)
|
|
|
6.4
|
|
Permanent items
|
|
|
20.7
|
|
|
|
-
|
|
True-up
|
|
|
21.0
|
|
|
|
(74.3
|
)
|
Rate change
|
|
|
(88.9
|
)
|
|
|
-
|
|
Increase/(decrease) in valuation allowance
|
|
|
14.8
|
|
|
|
24.9
|
|
Other
|
|
|
(1.6
|
)
|
|
|
-
|
|
Effective tax rate
|
|
|
(1.1
|
)%
|
|
|
(9.0
|
)%
|
The
Company did not meet the qualifications of a RIC for the 2017 tax year and will be taxed as a corporation under Subchapter C of
the Code. The Company expects that it will meet the qualifications of a RIC for the 2018 tax year. If the Company is unable to
meet the qualifications of a RIC for the 2018 tax year, it will be taxed as a corporation under Subchapter C of the Code. As a
RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains
that the Company distributes to its stockholders as dividends and claims dividends paid deductions to compute taxable income.
A RIC will not be eligible to utilize net operating losses. However, the net operating losses may become available should the
Company disqualify as a RIC and become a C corporation in the future. In the event that the Company qualifies as a RIC, the Company
itself will no longer be required to recognize deferred tax assets or liabilities.
In
addition to meeting other requirements, the Company must generally distribute at least 90% of its investment company taxable income
to qualify for the special treatment accorded to a RIC and maintain its RIC status. As part of maintaining RIC status, undistributed
taxable income (subject to a 4% excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to
the end of that fiscal year, provided such dividends are declared prior to the later of (1) the fifteenth day of the ninth month
following the close of that fiscal year or (2) the extended due date for filing the federal income tax return for that fiscal
year.
The
Company did not have any unrecognized tax benefits as of the period presented herein. The Company identified its major tax jurisdictions
as U.S. federal and New Jersey. For the years ended December 31, 2017, 2016, and 2015, no income tax expenses or related liabilities
for uncertain tax positions were recognized for the Company’s open tax years from inception through the present. The Company
is not aware of any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will
change significantly in the next 12 months.
The
Tax Cuts and Jobs Act was enacted on December 22, 2017. A key provision of the act was the reduction in the corporate tax rate
to 21% for tax years beginning January 1, 2018. The Company has re-measured its deferred tax
assets and liabilities and this re-measurement will be offset by a change in the valuation allowance during the corresponding
period
.
NOTE
7 – RELATED PARTY TRANSACTIONS
Transition
of Investment Advisory Agreements
On
January 18, 2016, the Board of Directors of the Company conditionally approved the Investment Advisory Agreement between the Company
and Princeton Advisory Group, 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 “PIA Investment Advisory
Agreement”). The effective date of the PAG Investment Advisory Agreement was June 9, 2016. The Board of Directors of the
Company previously approved the termination of the investment advisory agreement between the Company and Princeton Investment
Advisors, LLC (the “PIA Investment Advisory Agreement”), such termination becoming effective on June 9, 2016, the
date the PAG Investment Advisory Agreement was approved and adopted by the stockholders of the Company. Since the transition of
investment advisors occurred during the periods covered under the financial statements included in this Form 10-K, we have disclosed
below the material terms of both the PAG Investment Advisory Agreement and the PIA Advisory Agreement below, beginning with the
PIA Investment Advisory Agreement.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
As
disclosed elsewhere in this 10-K (including Note 1), House Hanover has served as the Company’s investment advisor since
January 1, 2018 pursuant to the Interim Investment Advisory Agreement and the House Hanover Investment Advisory Agreement. We
have not disclosed the material terms of the House Hanover Investment Advisory Agreement below because House Hanover began serving
as the Company’s investment advisor after the periods covered by the financial statements in this Form 10-K. However, a
description of the material terms of the House Hanover Investment Advisory Agreement is included under Part I of this Form 10-K.
PIA
Investment Advisory Agreement with Princeton Investment Advisors
Our
board of directors, including a majority of our independent directors, approved the PIA Investment Advisory Agreement at its meeting
held on March 13, 2015. Subject to the overall supervision of our board of directors and in accordance with the 1940 Act, Princeton
Investment Advisors managed our day-to-day operations and provided investment advisory services to us. Under the terms of the
PIA Investment Advisory Agreement, Princeton Investment Advisors was responsible for the following:
|
●
|
determining
the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such
changes;
|
|
|
|
|
●
|
identifying,
evaluating and negotiating the structure of the investments we make;
|
|
|
|
|
●
|
executing,
closing, servicing and monitoring the investments we make;
|
|
|
|
|
●
|
determining
the securities and other assets that we purchase, retain or sell;
|
|
|
|
|
●
|
performing
due diligence on prospective portfolio companies; and
|
|
|
|
|
●
|
providing
us with such other investment advisory, research and related services as we may, from time to time, reasonably require for
the investment of our funds.
|
Pursuant
to the PIA Investment Advisory Agreement, the Company agreed to pay Princeton Investment Advisors a fee for investment advisory
and management services consisting of two components — a base management fee and an incentive fee. The cost of both the
base management fee and the incentive fee will ultimately be borne by our stockholders.
Management
Fee
The
base management fee is calculated at an annual rate of 1.75% of our gross assets, including assets purchased with borrowed funds
or other forms of leverage and excluding cash and cash equivalents, U.S. Treasury Bills, and deposits. For services rendered under
the PIA Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated
based on the average value of our gross assets, as adjusted, at the end of the finalized prior quarter and the estimated current
quarter. The management fee shown on the statement of operations includes the estimated management fee for the current period
as well as a true-up for the prior quarter. Base management fees for any partial month or quarter will be appropriately pro-rated.
For
the year ended December 31, 2017 there were no management fees incurred under the PIA Investment Advisory Agreement. Management
fees under the PIA Investment Advisory Agreement for the year ended December 31, 2016 and 2015 were $365,805 and $656,479, respectively.
As of December 31, 2016 and 2015, management fees of $341,559 and $175,754, respectively, were payable to Princeton Investment
Advisors. On October 18, 2017, as part of the Settlement Agreement with Princeton Investment Advisors, $216,559 of previously
accrued management fees due to Princeton Investment Advisors were reversed. These are reflected as management fee waiver on the
statement of operations.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Incentive
Fee
The
Company pays Princeton Investment Advisors an incentive fee. The incentive fee consists of two components that are independent
of each other, with the result that one component may be payable even if the other is not.
The
first component, which is income-based, will be calculated and payable quarterly in arrears, commencing with the quarter beginning
April 1, 2015, based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose,
pre-incentive fee net investment income means interest income, distribution income and any other income (including any other fees
(other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting
fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses
for the quarter (including the base management fee, expenses payable under the administration agreement, any interest expense
and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net
investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
The
operation of the first component of the incentive fee for each quarter is as follows:
|
●
|
no
incentive fee is payable to Princeton Investment Advisors in any calendar quarter in which our pre-incentive fee net investment
income does not exceed the hurdle rate of 2.00% (8.00% annualized);
|
|
|
|
|
●
|
100%
of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income,
if any, that exceeds the hurdle rate but is less than 2.50% in any calendar quarter (10.00% annualized) is payable to Princeton
Investment Advisors. We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle rate
but is less than 2.50%) as the “catch-up.” The effect of the “catch-up” provision is that, if such
pre-incentive fee net investment income exceeds 2.50% in any calendar quarter, Princeton Investment Advisors will receive
20% of such pre-incentive fee net investment income as if the hurdle rate did not apply; and
|
|
|
|
|
●
|
20%
of the amount of such pre-incentive fee net investment income, if any, that exceeds 2.50% in any calendar quarter (10.00%
annualized) is payable to Princeton Investment Advisors (once the hurdle rate is reached and the catch-up is achieved).
|
The
portion of such incentive fee that is attributable to deferred interest (such as PIK interest or original issue discount) will
be paid to Princeton Investment Advisors, together with interest from the date of deferral to the date of payment, only if and
to the extent we actually receive such interest in cash, and any accrual will be reversed if and to the extent such interest is
reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual.
Any reversal of such amounts would reduce net income for the quarter by the net amount of the reversal (after taking into account
the reversal of incentive fees payable) and would result in a reduction and possibly elimination of the incentive fees for such
quarter.
There
is no accumulation of amounts on the hurdle rate from quarter to quarter and, accordingly, there is no clawback of amounts previously
paid if subsequent quarters are below the quarterly hurdle rate and there is no delay of payment if prior quarters are below the
quarterly hurdle rate. Since the hurdle rate is fixed, as interest rates rise, it will be easier for Princeton Investment Advisors
to surpass the hurdle rate and receive an incentive fee based on pre-incentive fee net investment income.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Our
net investment income used to calculate this component of the incentive fee is also included in the amount of our gross assets
used to calculate the 1.75% base management fee. These calculations will be appropriately prorated for any period of less than
three months and adjusted for any share issuances or repurchases during the current quarter.
The
second component, the capital gains component of the incentive fee, will be determined and payable in arrears as of the end of
each calendar year (or upon termination of the PIA Investment Advisory Agreement, which occurred on June 9, 2016, as of the termination
date of June 9, 2016), commencing on December 31, 2015, and will equal 20% of our cumulative aggregate realized capital gains
from January 1st through the end of that calendar year, computed net of our aggregate cumulative realized capital losses and our
aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously
paid capital gains incentive fees. If such amount is negative, then no capital gains incentive fee will be payable for such year.
Additionally, if the PIA Investment Advisory Agreement is terminated as of a date that is not a calendar year end (as is the case
with the termination having become effective as of June 9, 2016), the termination date will be treated as though it were a calendar
year end for purposes of calculating and paying the capital gains incentive fee. The capital gains component of the incentive
fee is not subject to any minimum return to stockholders.
Because
of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For
example, if we receive pre-incentive fee net investment income in excess of the hurdle rate, we will pay the applicable incentive
fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses.
There
were no incentive fees earned by Princeton Investment Advisors for the years ended December 31, 2017, 2016, or 2015.
Payment
of Our Expenses
All
investment professionals of Princeton Investment Advisors, when and to the extent engaged in providing investment advisory services
to us, and the compensation and routine overhead expenses of personnel allocable to these services to us, will be provided and
paid for by Princeton Investment Advisors and not by us. We will bear all other out-of-pocket costs and expenses of our operations
and transactions, including, without limitation, those relating to:
|
●
|
calculating
our net asset value (including the cost and expenses of any third party independent valuation firm);
|
|
|
|
|
●
|
fees
and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal
affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise
relating to, or associated with, evaluating and making investments;
|
|
|
|
|
●
|
interest
payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts;
|
|
|
|
|
●
|
offerings
of our common stock and other securities;
|
|
|
|
|
●
|
base
management and incentive fees;
|
|
|
|
|
●
|
administration
fees and expenses, if any, payable under the administration agreement (including our allocable portion of Princeton Investment
Advisors’ overhead in performing its obligations under the administration agreement, including rent and the allocable
portion of the cost of our chief compliance officer, chief financial officer and their respective staffs);
|
|
|
|
|
●
|
transfer
agent, dividend agent and custodial fees and expenses;
|
|
|
|
|
●
|
U.S.
federal and state registration fees;
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
|
●
|
all
costs of registration and listing our stock on any securities exchange;
|
|
|
|
|
●
|
U.S.
federal, state and local taxes;
|
|
|
|
|
●
|
independent
directors’ fees and expenses;
|
|
|
|
|
●
|
Costs
of preparing and filing report or other documents required by the SEC or other regulators;
|
|
|
|
|
●
|
costs
of any reports, proxy statements or other notices to stockholders, including printing costs;
|
|
|
|
|
●
|
costs
and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other
insurance premiums;
|
|
|
|
|
●
|
direct
costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other
staff, independent auditors and outside legal costs;
|
|
|
|
|
●
|
proxy
voting expenses; and
|
|
|
|
|
●
|
all
other expenses incurred by us or Princeton Investment Advisors in connection with administering our business.
|
Duration
and Termination
The
PIA Investment Advisory Agreement was to continue in effect for a period of two years from its effective date. It was to remain
in effect from year to year thereafter if approved annually by our board of directors or by the affirmative vote of the holders
of a majority of our outstanding voting securities, and, in either case, if also approved by a majority of our directors who are
not “interested persons.” The PIA Investment Advisory Agreement was to automatically terminate in the event of its
assignment, as defined in the 1940 Act, by Princeton Investment Advisors and may be terminated by either party without penalty
upon 60 days’ written notice to the other. The holders of a majority of our outstanding voting securities could also terminate
the investment advisory agreement without penalty upon 60 days’ written notice. As described elsewhere in this 10-K, on
January 18, 2016 the Board of Directors of the Company approved the termination of the PIA Investment Advisory Agreement, such
termination becoming effective on June 9, 2016, the date the PAG Investment Advisory Agreement was approved and adopted by the
Company’s stockholders. The Company did not pay any early termination penalties as a result of the termination of the PIA
Investment Advisory Agreement.
Indemnification
The
PIA Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance
of their duties or by reason of the reckless disregard of their duties and obligations under the PIA Investment Advisory Agreement,
Princeton Investment Advisors and its officers, managers, partners, agents, employees, controlling persons and members, and any
other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses
(including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of Princeton
Investment Advisors’ services under the PIA Investment Advisory Agreement or otherwise as our investment advisor.
PAG
Investment Advisory Agreement with Princeton Advisory Group
Unlike
the separate administration agreement that covered administrative services while Princeton Investment Advisors served as the investment
advisor to the Company (as described below), under the PAG Investment Advisory Agreement, the administrative services of the Company
were provided by Princeton Advisory Group. Inc. and subject to reimbursement of administrative related expenses under the PAG
Investment Advisory Agreement.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Advisory
Services
Princeton
Advisory Group is registered as an investment adviser under the 1940 Act, and from June 9, 2016 until December 31, 2017, served
as the Company’s investment advisor pursuant to the PAG Investment Advisory Agreement in accordance with the 1940 Act. Princeton
Advisory Group is owned by and an affiliate of Mr. Munish Sood, the Company’s former President and former Chief Executive
Officer.
Subject
to supervision by the Company’s Board of Directors, Princeton Advisory Group oversees the Company’s day-to-day operations
and provides the Company with investment advisory services. Under the terms of the PAG Investment Advisory Agreement, Princeton
Advisory Group, among other things: (i) determines the composition and allocation of the portfolio of the Company, the nature
and timing of the changes therein and the manner of implementing such changes; (ii) identifies, evaluates and negotiates the structure
of the investments made by the Company; (iii) executes, monitors and services the Company’s investments; (iv) determines
the securities and other assets that the Company shall purchase, retain, or sell; (v) performs due diligence on prospective portfolio
companies; (vi) provides the Company with such other investment advisory, research and related services as the Company may, from
time to time, reasonably require for the investment of its funds; and (vii) if directed by the Board, will assist in the execution
and closing of the sale of the Company’s assets or a sale of the equity of the Company in one or more transactions. Princeton
Advisory Group’s services under the PAG Investment Advisory Agreement may not be exclusive and it is free to furnish similar
services to other entities so long as its services to the Company are not impaired.
Management
Fee
Pursuant
to the PAG Investment Advisory Agreement, the Company pays Princeton Advisory Group a base management fee for investment advisory
and management services. The cost of the base management fee will ultimately be borne by the Company’s stockholders. The
PAG Investment Advisory Agreement does not include an incentive fee to Princeton Advisory Group.
The
base management fee is calculated at an annual rate of 1.00% of the Company’s gross assets, including assets purchased with
borrowed funds or other forms of leverage and excluding cash and cash equivalents net of all indebtedness of the Company for borrowed
money and other liabilities of the Company. The base management fee is payable quarterly in arrears, and determined as set forth
in the preceding sentence at the end of the two most recently completed calendar quarters prior to the quarter for which such
fees are being calculated. The Board of Directors may retroactively adjust the valuation of the Company’s assets and the
resulting calculation of the base management fee in the event the Company or any of its assets are sold or transferred to an independent
third party or the Company or Princeton Advisory Group receives an audit report or other independent third party valuation of
the Company. To the extent that any such adjustment increases or decreases the base management fee of any prior period, the Company
will be obligated to pay the amount of increase to Princeton Advisory Group or Princeton Advisory Group will be obligated to refund
the decreased amount, as applicable.
Management
fees under the PAG Investment Advisory Agreement for the year ended December 31, 2017 were $407,609. Management fees under the
PAG Investment Advisory Agreement for the year ended December 31, 2016 were $275,569. As of December 31, 2016, management fees
of $194,224 were payable to Princeton Advisory Group. As of December 31, 2017, management fees of $94,282 were payable to Princeton
Advisory Group.
Incentive
Fee
The
Company will not pay Princeton Advisory Group an incentive fee.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
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;
|
|
●
|
transfer
agent and custody fees and expenses;
|
|
●
|
U.S.
federal and state registration fees of the Company (but not Princeton Advisory Group);
|
|
●
|
all
costs of registration and listing the Company’s shares on any securities exchange;
|
|
●
|
U.S.
federal, state and local taxes;
|
|
●
|
independent
directors’ fees and expenses;
|
|
●
|
costs
of preparing and filing reports or other documents required of the Company (but not Princeton
Advisory Group) by the SEC or other regulators;
|
|
●
|
costs
of any reports, proxy statements or other notices to stockholders, including printing
costs;
|
|
●
|
the
costs associated with individual or group stockholders;
|
|
●
|
the
Company’s allocable portion of the fidelity bond, directors and officers/errors
and omissions liability insurance, and any other insurance premiums;
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
|
●
|
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-K
(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
Princeton
Advisory Group is entitled to reimbursement of expenses under the PAG Investment Advisory Agreement for administrative services
performed for the Company.
On
March 13, 2015, the Company entered into an administration agreement (the “Administration Agreement”) with PCC Administrator
LLC (the “Administrator”), a wholly owned subsidiary of Princeton Investment Advisors. This agreement effectively
terminated on June 9, 2016 with the PIA Investment Advisory Agreement. The Administration Agreement provides that our Administrator
furnishes us with office facilities and equipment and provide us with clerical, bookkeeping, recordkeeping and other administrative
services at such facilities. Under the Administration Agreement, our Administrator performs, or oversees the performance of, our
required administrative services, which include being responsible for the financial and other records that we are required to
maintain and preparing reports to our stockholders and reports and other materials filed with the SEC. In addition, our Administrator
assists us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing
and dissemination of reports and other materials to our stockholders, and generally oversees the payment of our expenses and the
performance of administrative and professional services rendered to us by others. Under the Administration Agreement, our Administrator
will also provide managerial assistance on our behalf to those portfolio companies that have accepted our offer to provide such
assistance.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Payments
under the Administration Agreement will be equal to an amount based upon our allocable portion (subject to the review of our board
of directors) of our Administrator’s overhead in performing its obligations under the Administration Agreement, including
rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our chief
financial officer and chief compliance officer and their respective staffs. In addition, if requested to provide significant managerial
assistance to our portfolio companies, our Administrator will be paid an additional amount based on the services provided, which
shall not exceed the amount we receive from such portfolio companies for providing this assistance. The Administration Agreement
will have an initial term of two years and may be renewed with the approval of our board of directors. The Administration Agreement
may be terminated by either party without penalty upon 60 days’ written notice to the other party. To the extent that our
Administrator outsources any of its functions, we will pay the fees associated with such functions on a direct basis without any
incremental profit to our Administrator. Stockholder approval is not required to amend the Administration Agreement.
Sub-Administration
Agreement
Princeton
Advisory Group has 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 a $200,000 annual minimum as adjusted for any reimbursement of expenses. This asset-based fee will vary
depending upon our gross assets, as adjusted, as follows:
Gross
Assets
|
|
Fee
|
first
$150 million of gross assets
|
|
20
basis points (0.20%)
|
next
$150 million of gross assets
|
|
15
basis points (0.15%)
|
next
$200 million of gross assets
|
|
10
basis points (0.10%)
|
in
excess of $500 million of gross assets
|
|
5
basis points (0.05%)
|
Included
under Administration Fees on the Statements of Operations for the year ended December 31, 2017, are sub-administration fees of
$139,354 and $200,293 of CCO and CFO fees. Administration fees were $238,143 for the year ended December 31, 2016, and sub-administration
fees were $158,173 as shown on the Statements of Operations under administration fees. Administration fees were $268,139 for the
year ended December 31, 2015, and sub-administration fees were $171,556 as shown on the Statements of Operations under administration
fees.
Indemnification
The
Administration Agreement provides that, absent criminal conduct, willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of the reckless disregard of its duties and obligations, our Administrator, its affiliates and their
respective directors, officers, managers, partners, agents, employees, controlling persons and members, and any other person or
entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including
reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of our Administrator’s
services under the Administration Agreement or otherwise as our administrator.
Managerial
Assistance
As
a BDC, we offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance could involve
monitoring the operations of our portfolio companies, participating in board of directors and management meetings, consulting
with and advising officers of portfolio companies and providing other organizational and financial guidance. As of December 31,
2017, none of the portfolio companies had accepted our offer for such services.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Other
Related Party Transactions
Gregory
J. Cannella served as the Chief Financial Officer of Rockfish Seafood Grill, Inc. (“RSG”), one of the Company’s
portfolio companies, until September 24, 2015. He had a stock option agreement with RSG, granted on January 28, 2013, with the
right to earn up to 103.8961 shares or approximately 8% of RSG. This stock option agreement was canceled on May 12, 2015 with
no consideration coming from RSG or the Company.
In
May 2015, RSG created a wholly owned subsidiary, Southwest Hospitality Group, LLC (“SHG”), for the purpose of entering
into franchise agreement with a new restaurant group. In July 2015, SHG was transferred to Sivco, Inc. and then signed a franchise
agreement with this new restaurant group. Sivco, Inc. is majority owned and controlled by Alfred Jackson, a former director of
the Company and minority-owned by Munish Sood, a former Director, the former President, and former CEO of the Company.
On
March 30, 2016, the Company, as Borrower, entered into a Term Loan in the amount of $1,500,000 with Sema4, Inc. and Princeton
Advisory Group, as Lenders in order to purchase certain assets to attempt to qualify as a RIC. Sema4, Inc. committed $1,000,000
and Princeton Advisory Group committed $500,000. The loan was repaid in full with interest at a rate of 10.0% per annum on April
8, 2016. Sema4, Inc. is owned by Mark DiSalvo, the Company’s Interim President, Interim Chief Executive Officer, and a director
of the Company, and is the general partner of CPP and CPPII, which own approximately 87% and 9% of our common stock, respectively.
Princeton Advisory Group is wholly owned by Munish Sood, a former Director, former President, and former CEO of the Company.
As
disclosed in the Company’s Form 8-K filed with the SEC on June 30, 2016, on June 28, 2016, the Company, as Borrower, entered
into a Term Loan in the amount of $390,000 with Munish Sood, as Lender, in order to purchase certain assets to attempt to qualify
as a RIC. The board of directors of the Company, by unanimous written consent, authorized and approved that the Company enter
into the Loan Agreement. The loan was repaid in full with interest at a rate of 10.0% per annum on July 11, 2016.
As
disclosed in the Company’s Form 8-K filed with the SEC on September 16, 2016, on September 12, 2016, the Company, as a Borrower,
entered into a Term Loan in the amount of $225,000 with Munish Sood, as Lender, in order to fund capital to one of its portfolio
companies, Rockfish Seafood Grill, Inc. The board of directors of the Company, by unanimous written consent, authorized and approved
that the Company enter into the Loan Agreement. The loan will bear interest at a rate of 10.0% per annum and matures on December
12, 2016. As disclosed in the Company’s Form 8-K filed with the SEC on October 27, 2016, on October 21, 2016, Munish Sood
lent an additional $140,000 under this Term Loan. On March 29, 2017, Munish Sood, in order to purchase certain assets to qualify
as a RIC, lent an additional $450,000 under this Term Loan and extended the maturity date to June 30, 2017. On April 10, 2017,
the Company made a principal and interest payment totaling $450,984 on this Term Loan. The loan was repaid in full with interest
on July 17, 2017.
As
disclosed in the Company’s Form 8-K filed with the SEC on October 5, 2016, on September 29, 2016 the Company, as Borrower,
entered into a Term Loan in the amount of $470,000 with Munish Sood, as Lender, in order to purchase certain assets to attempt
to qualify as a RIC. The board of directors of the Company, by unanimous written consent, authorized and approved that the Company
enter into the Loan Agreement. The loan was repaid in full with interest at a rate of 10.0% per annum on October 7, 2016.
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
December
31, 2017
NOTE
8 – FINANCIAL HIGHLIGHTS
|
|
Year
Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Per
Share Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value at beginning of period
|
|
$
|
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
|
|
|
0.006
|
|
|
|
(0.012
|
)
|
|
|
0.002
|
|
|
|
0.192
|
|
|
|
0.064
|
|
Change
in capital share transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
0.238
|
|
|
|
-
|
|
|
|
-
|
|
Net
asset value at end of period
|
|
$
|
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 period, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
97,402,398
|
|
|
|
1,816,534
|
|
|
|
1,816,534
|
|
Raito/Supplemental
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets at end of period
|
|
$
|
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
|
)
(3)
%
|
|
|
105.4
|
(3)
%
|
Portfolio
Turnover
|
|
|
7.0
|
%
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
|
|
31.2
|
(3)
%
|
|
|
14.7
|
(3)
%
|
(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)
|
Unaudited
|
NOTE
9 – COMMITMENTS AND CONTINGENCIES
In
the normal course of business, the Company may enter into investment agreements under which it commits to make an investment in
a portfolio company at some future date or over a specified period of time. The Company maintains sufficient assets to provide
adequate cover to allow it to satisfy its unfunded commitment amount as of December 31, 2017. 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 has reduced to approximately $117,000.
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, 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
December
31, 2017
Subject
to the terms and conditions contained therein, the Settlement Agreement settles between the Plaintiffs and the Settling
Defendants the disputes described in the lawsuit. No monies were paid or exchanged by any of the parties as a part of the
settlement and none of the parties admitted any wrongdoing. For the avoidance of doubt, none of the following is a party to
the Settlement Agreement: Alfred Jackson (“Jackson”), Martin Tuchman (“Tuchman”), Capital
Point
Management, LP (“CPM”), Capital Point Advisors, LP (“CPA”) or Princeton Investment Advisors, LLC
(“PIA,” and, together with Jackson, Tuchman, CPM and CPA, collectively the “Non-Settling
Defendants”). As part of the terms of the Settlement Agreement, Sood and Cannella waived any rights to indemnification
they may have had against the Company as it relates to the lawsuit. Subsequently, pursuant to a written agreement among the
Company, Jackson, CPM, CPA, and PIA, Jackson waived any rights to indemnification that he may have had against the
Company.
On
June 17, 2016, a Stipulation and Order of Dismissal of Claims (the “Dismissal Order”) against the Settling Defendants
(which includes the Company) and Tuchman (collectively, the “Dismissed Defendants”) was entered in the Delaware Court
of Chancery. The Dismissal Order, which was dated June 10, 2016, dismissed with prejudice the claims brought by the Plaintiffs
against the Dismissed Defendants. The Dismissal Order did not dismiss the claims against Jackson, CPM, CPA or PIA.
On
February 24, 2017, a Stipulation and Order of Dismissal of Claims (the “Dismissal Order II”) against Jackson, CPM,
CPA and PIA was entered in the Delaware Court of Chancery. The Dismissal Order II, which was dated February 24, 2017, dismissed
with prejudice the claims brought by the Plaintiffs against Jackson, CPM, CPA and PIA. Terms of any settlement were not disclosed
and all claims with respect to the lawsuit have now been dismissed, signifying that the status quo order that included the Company
has now been lifted.
As
a result of the allegations contained in the complaints filed by the United States of America against Munish Sood, the former
President, Chief Executive Officer, and director of the Company, and others captioned
U.S. v. Lamont Evans, et al.
and
U.S. v. James Gotto, et al.
, in the Southern District of New York., on September 27, 2017 and as previously disclosed,
the Board authorized and directed its Audit Committee (which consists of the Board’s three independent board members) to
conduct an independent investigation into whether such events impacted the Company, and the extent to which any officer or employee
of the Company may have been involved, and whether any corporate funds may have been utilized in the conduct alleged.
Mr.
Sood resigned from his positions as a director, Chief Executive Officer, and President, effective September 27, 2017. The Company
has been informed that Mr. Sood plead guilty to charges of bribery and fraud in August of 2018.
From
time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings
relating to the enforcement of the Company’s rights under contracts with its portfolio companies. The Company is not currently
subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.
NOTE
10 – UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES
The
Company’s investments are primarily in private small and lower middle-market companies. In accordance with Rules 3.09 and
4.08(g) of Regulation S-X, the Company must determine which of its unconsolidated controlled portfolio companies are considered
“significant subsidiaries”, if any. In evaluating these investments, there are three tests utilized to determine if
any of the Company’s control investments are considered significant subsidiaries; the investment 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 SBH Sub, Inc.
three of its majority owned control investments were considered significant subsidiaries at the 20% level at December 31,
2017 as prescribed under Rule 3-09 of Regulation S-X. The Company has included the audited financial statements of Rockfish
Seafood Grill, Inc. and Advantis Certified Staffing Solutions, Inc. for the years ended December 31, 2017, 2016 and 2015 as
exhibits to the Company’s consolidated financial statements. See “Item 15. Exhibits And Financial Statement
Schedules.” PCC SBH Sub, Inc. did not exceed 10% of the Company’s total investments at fair value, total assets
or total income, and therefore has not included its audited financial statements as exhibits.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
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 10% level at December 31, 2017, as prescribed under Rule 4-08
(g) of Regulation S-X. The following tables show the summarized financial information for Integrated Medical Partners, LLC (numbers
in thousands):
Integrated
Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
December 31,
2017
(unaudited)
|
|
|
As
of
December 31,
2016
(unaudited)
|
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
411
|
|
|
$
|
2,695
|
|
Noncurrent
Assets
|
|
|
6,838
|
|
|
|
597
|
|
Current
Liabilities
|
|
|
3,298
|
|
|
|
4,030
|
|
Noncurrent
Liabilities
|
|
|
722
|
|
|
|
537
|
|
|
|
Year
Ended
December 31,
2017
(unaudited)
|
|
|
Year
Ended
December 31,
2016
(unaudited)
|
|
|
Year
Ended
December 31,
2015
(unaudited)
|
|
Income
Statement
|
|
|
|
|
|
|
|
|
|
Net
Revenue (Loss)
|
|
$
|
14,473
|
|
|
$
|
14,738
|
|
|
$
|
11,842
|
|
Gross
Profit
|
|
|
4,600
|
|
|
|
(290
|
)
|
|
|
5,542
|
|
Net
Income (Loss)
|
|
|
(513
|
)
|
|
|
(541
|
)
|
|
|
(468
|
)
|
NOTE
11 – SELECTED QUARTERLY FINANCIAL DATA
|
|
Quarter
Ended
|
|
|
|
December 31,
2017
|
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Investment Income
|
|
$
|
1,364,965
|
|
|
$
|
370,660
|
|
|
$
|
344,787
|
|
|
$
|
353,134
|
|
Total
Operating Expenses/(Reversal of Operating Expenses)
|
|
|
32,542
|
|
|
|
424,750
|
|
|
|
380,104
|
|
|
|
552,531
|
|
Income
tax expense
|
|
|
2,267
|
|
|
|
7,684
|
|
|
|
7,684
|
|
|
|
10,430
|
|
Net
Investment Income (Loss)
|
|
|
1,330,156
|
|
|
|
(61,774
|
)
|
|
|
(43,001
|
)
|
|
|
(209,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Realized Gain/(Loss) on Investments
|
|
|
-
|
|
|
|
589,111
|
|
|
|
-
|
|
|
|
-
|
|
Net
Change in Unrealized Appreciation/(Depreciation)
|
|
|
(2,811,935
|
)
|
|
|
449,691
|
|
|
|
128,650
|
|
|
|
(1,948,851
|
)
|
Net
Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
(1,481,779
|
)
|
|
$
|
977,028
|
|
|
$
|
85,649
|
|
|
$
|
(2,158,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Net Assets from Operations per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.012
|
)
|
|
$
|
0.008
|
|
|
$
|
0.001
|
|
|
$
|
(0.018
|
)
|
Diluted
|
|
$
|
(0.012
|
)
|
|
$
|
0.008
|
|
|
$
|
0.001
|
|
|
$
|
(0.018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding - Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Weighted
Average Common Shares Outstanding - Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
|
|
Quarter
Ended
|
|
|
|
December 31,
2016
|
|
|
September 30,
2016
|
|
|
June
30,
2016
|
|
|
March
31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Investment Income
|
|
$
|
1,002,619
|
|
|
$
|
345,210
|
|
|
$
|
474,488
|
|
|
$
|
464,017
|
|
Total
Operating Expenses
|
|
|
493,740
|
|
|
|
550,802
|
|
|
|
739,286
|
|
|
|
959,478
|
|
Income
tax (benefit) expense
|
|
|
(296,572
|
)
|
|
|
8,689
|
|
|
|
9,006
|
|
|
|
320,000
|
|
Net
Investment Income (Loss)
|
|
|
805,451
|
|
|
|
(214,281
|
)
|
|
|
(273,804
|
)
|
|
|
(815,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Realized Gain/(Loss) on Investments
|
|
|
(1,411,757
|
)
|
|
|
(49,958
|
)
|
|
|
(172
|
)
|
|
|
-
|
|
Net
Change in Unrealized Appreciation/(Depreciation)
|
|
|
437,527
|
|
|
|
(919,686
|
)
|
|
|
(4,700,868
|
)
|
|
|
2,902,165
|
|
Net
Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
(168,779
|
)
|
|
$
|
(1,183,925
|
)
|
|
$
|
(4,974,844
|
)
|
|
$
|
2,086,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Net Assets from Operations per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.001
|
)
|
|
$
|
(0.010
|
)
|
|
$
|
(0.041
|
)
|
|
$
|
0.0170
|
|
Diluted
|
|
$
|
(0.001
|
)
|
|
$
|
(0.010
|
)
|
|
$
|
(0.041
|
)
|
|
$
|
0.0170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding - Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Weighted
Average Common Shares Outstanding - Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
Quarter
Ended
|
|
|
|
December 31,
2015
|
|
|
September 30,
2015
|
|
|
June 30,
2015
|
|
|
March 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Investment Income
|
|
$
|
722,586
|
|
|
$
|
1,227,715
|
|
|
$
|
1,022,753
|
|
|
$
|
121,496
|
|
Total
Operating Expenses
|
|
|
1,509,380
|
|
|
|
1,047,143
|
|
|
|
707,954
|
|
|
|
1,056,515
|
|
Income
tax (benefit) expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
Investment Income (Loss)
|
|
|
(786,794
|
)
|
|
|
180,572
|
|
|
|
314,799
|
|
|
|
(935,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Realized Gain/(Loss) on Investments
|
|
|
-
|
|
|
|
142,351
|
|
|
|
(10,881
|
)
|
|
|
104,040
|
|
Net
Change in Unrealized Appreciation/(Depreciation)
|
|
|
(550,416
|
)
|
|
|
(5,617,533
|
)
|
|
|
(1,567,726
|
)
|
|
|
(121,429
|
)
|
Net
Increase (Decrease) in Net Assets Resulting from Operations
|
|
$
|
(1,337,210
|
)
|
|
$
|
(5,294,610
|
)
|
|
$
|
(1,263,808
|
)
|
|
$
|
(952,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Net Assets from Operations per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.011
|
)
|
|
$
|
(0.044
|
)
|
|
$
|
(0.010
|
)
|
|
$
|
(0.035
|
)
|
Diluted
|
|
$
|
(0.011
|
)
|
|
$
|
(0.044
|
)
|
|
$
|
(0.010
|
)
|
|
$
|
(0.031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding - Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
26,868,987
|
|
Weighted
Average Common Shares Outstanding - Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
30,813,432
|
|
NOTE
12 – SUBSEQUENT EVENTS
Portfolio
Activity
|
●
|
On
January 1, 2018, the Company consolidated the prior bridge loans to Advantis Certified
Staffing Solutions, Inc. into one note in the amount of $813,225. The note will bear
an annual interest rate of 5% paid quarterly with a maturity of December 31, 2018.
|
|
●
|
On
January 25, 2018, the Company made a short term bridge loan to Advantis Certified Staffing
Solutions, Inc. in the amount of $90,000 for working capital needs. The note will bear
an annual interest rate of 5% paid quarterly with a maturity of December 31, 2018.
|
|
●
|
On
February 13, 2018, the Company entered into a Forbearance Letter Agreement (the “Forbearance”)
with Lone Star Brewery Development, Inc. for a maximum period of two years. During this
period, the Company agreed to forbear from exercising and enforcing certain rights and
remedies which the Company is entitled to and to accept a payoff equal to $7,500,000
plus 25% of the net sales proceeds/value of the property if by December 31, 2018 or $8,000,000
plus 25% of the net sales proceeds/value if on or after January 1, 2019. In return, Lone
Star Brewery Development, Inc. refinanced out the first lien holder with a new lender
in the amount of $11,000,000, put $3,248,000 into the project and paid the Company a
forbearance fee at closing of $50,000. In connection with this Forbearance, the Company
made a partial release of lien on an approximate three acre tract of land to a lender
with a lien that was senior to the Company’s lien.
|
|
●
|
On
February 20, 2018, the Company amended the Rockfish Seafood Grill, Inc. Revolving Line
of Credit (“RSG Revolver”) to increase the maximum principal amount to $1,821,000
for restaurant improvements and enhancements. In connection with this amendment, Rockfish
Seafood Grill, Inc. agreed to make the RSG Revolver a performing loan on a quarter basis
with payments resuming on March 31, 2018.
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
|
●
|
On
February 26, 2018, the Company made a short term bridge loan to Advantis Certified Staffing
Solutions, Inc. in the amount of $150,000 for working capital needs. The note will bear
an annual interest rate of 8% with all interest and principal due on maturity of December
31, 2018.
|
|
●
|
On
March 22, 2018, the Company made a loan to Dominion Medical Management, Inc. (“Dominion”),
a wholly owned subsidiary of Integrated Medical Partners, LLC, in the amount of $600,000
for working capital needs and amended, restated and consolidated the two prior notes.
The new consolidated note has a principal balance of $1,085,256 and will accrue and pay
interest only on a quarterly basis at an annual rate of 18.0%. Dominion has the option
to defer 6.0% of the annual rate of interest which will compound quarterly on the payment
date. The maturity date of the new note is March 1, 2019.
|
|
●
|
On
April 12, 2018, the Company funded $100,000 on the RSG Revolver.
|
|
●
|
On
April 24, 2018, the Company made a short term bridge loan to Advantis Certified Staffing
Solutions, Inc. in the amount of $110,000 for working capital needs. The note will bear
an annual interest rate of 8% with all interest and principal due on maturity of December
31, 2018.
|
|
●
|
On
June 4, 2018, the Company made a short term bridge loan to Advantis Certified Staffing
Solutions, Inc. in the amount of $175,000 for working capital needs. The note will bear
an annual interest rate of 10.75% with all interest and principal due on maturity of
December 31, 2018.
|
|
●
|
On
July 12, 2018, the Company funded $100,000 on the RSG Revolver, making it fully funded.
|
|
●
|
Effective
July 27, 2018 Rockfish Holdings, LLC and the Company entered into an amendment of its
warrant agreement and warrant to extend the expiration of the warrant until July 28,
2028.
|
|
●
|
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
As
of December 31, 2017 and 2016, the total amount of federal net operating loss carryforwards was $1,819,548 and $212,862,
respectively as shown in “Note 6 – Income Tax”. On August 8, 2018, the Company elected to carryback
$753,827 of net operating loss carryforwards to the Company’s 2015 tax return. As of the date of this filing, the
Company has federal net operating loss carryforwards available of $212,862 which can be used to offset taxable income for the
2016 and 2017 tax years at the Company’s discretion.
As
of December 31, 2017 and 2016, the total amount of federal capital losses of $5,096,508 and $6,190,524, respectively as shown
in “Note 6 – Income Tax”. On August 8, 2018, the Company elected to carryback $125,340 of net capital loss carryforwards
to the Company’s 2015 tax return.
In
connection with the Company’s 2015 amended tax return, the Company received a check in September of 2018 for $287,404 which
resulted in the extinguishment of $298,917 of the Deferred Tax Asset as shown on the Company’s Statement of Assets and Liabilities
as of December 31, 2017. The Company will record a loss of $11,513 for the fiscal year ended December 31, 2018 as a result of
difference between the tax refund and the Deferred Tax Asset.
Effective November 27, 2018, the Company entered into a confidential settlement agreement with a former
vendor/provider of services in which the Company will receive $1.1 million within 10 days of the effective date. 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.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
As
a result of the allegations contained in the Complaints filed by the United States of America filed Complaints against Munish
Sood 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.
As
set forth in the Company’s 8-K filed on January 24, 2018, the Audit Committee conducted an independent investigation into
this matter with the assistance of outside advisors. The investigation concluded on January 24, 2018. The investigation uncovered
(i) no evidence that the allegations contained in the Complaints impacted the Company (other than the resignation of Mr. Sood),
(ii) no evidence that any officer or employee of the Company, other than (as has been alleged) Mr. Sood, had any involvement in
the allegations contained in the Complaints, and (iii) no evidence that any corporate or portfolio company funds were utilized
in the conduct alleged in the Complaints. In respect to Mr. Sood, the Audit Committee did not make any judgment regarding the
criminal allegations made by the U.S. Attorney in its Complaints. As a result of this investigation, the Company, its Audit Committee,
and its advisors have concluded that the Company’s internal controls over financial reporting are effective and do not recommend
implementing any additional procedures or controls at this time.
Entry
into Interim Investment Advisory Agreement with House Hanover
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.
In
accordance with Rule 15a-4(a)(2), the Interim Investment Advisory Agreement does not need to be approved by the Company’s
stockholders and the duration of the interim contract may not be greater than 150 days following the date on which the PAG Investment
Advisory Agreement terminates.
A
summary of the Interim Investment Advisory Agreement was included in the Form 8-K filed on January 2, 2018 and the full text of
the Interim Investment Advisory Agreement is attached as Exhibit 10.1 thereto and incorporated by reference therein.
As
reported in the Company’s Form 8-K filed on May 31, 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. On May 30, 2018, the Company’s stockholders approved the House Hanover Investment Advisory Agreement. The
effective date of the New Advisory Agreement is May 31, 2018.
A
summary of the House Hanover Investment Advisory Agreement was included in the Form 8-K filed on March 31, 2018 and the full text
of the House Hanover Investment Advisory Agreement is attached as Exhibit 10.1 thereto and incorporated by reference therein.
Election
of Florina Klingbaum as Chief Compliance Officer
As
set forth in the Company’s Form 8-K filed on January 2, 2018, on December 30, 2017, the Board, including a majority of the
directors who are not “interested persons” (as such term is defined in Section 2(a)(19) of the Investment Company
Act of 1940), unanimously approved the election of Florina Klingbaum to serve as the Company’s Chief Compliance Officer,
effective January 1, 2018. There are no related party transactions involving Ms. Klingbaum that are reportable under Item 404(a)
of Regulation S-K.
Pursuant
to the Interim Investment Advisory Agreement and the House Hanover Investment Advisory Agreement, the Company is responsible for
its allocable portion of Ms. Klingbaum’s compensation including, but not limited to, salaries and benefits while performing
services to the Company.
Late
Filings
As
set forth in the Company’s Form 12b-25 filings on May 16, 2018, August 15, 2018 and November 15, 2018, the Company has not
timely made its Form 10-Q filings for the periods ending March 31, 2018, June 30, 2018 and September 30, 2018 due to its inability
to do so without undue effort or expense.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
Schedule
12-14
The
table below represents the fair value of control and affiliate investments at December 31, 2016 and any amortization, purchases,
sales, and realized and change in unrealized gain (loss) made to such investments, as well as the ending fair value as of December
31, 2017.
Portfolio
Company/Type of Investment
|
|
Principal
Amount/Shares/
Ownership
% at December 31,
2017
|
|
|
Amount
of Interest and Dividends Credited in Income
|
|
|
Fair
Value at December 31,
2016
|
|
|
Purchases
(2)
|
|
|
Sales
|
|
|
Transfers
from Restructuring/
Transfers into Control Investments
|
|
|
Change
in Unrealized Gains/Losses
|
|
|
Fair
Value at December 31,
2017
|
Control
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantis
Certified Staffing Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loan
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,500,000
|
|
|
$
|
(673,523
|
)
|
|
$3,826,477
|
Unsecured
Loan
|
|
$
|
813,225
|
|
|
|
12,412
|
|
|
|
-
|
|
|
|
813,225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(112,887
|
)
|
|
700,338
|
Common
Stock – Series A
|
|
|
225,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,437
|
)
|
|
3,713
|
Common
Stock – Series B
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
428,571
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(271,814
|
)
|
|
156,757
|
Warrants
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,278
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,398
|
|
|
15,676
|
Rockfish
Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loan
(1)
|
|
$
|
6,352,944
|
|
|
|
-
|
|
|
|
6,549,261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,622
|
|
|
6,637,883
|
Revolving
Loan
(1)
|
|
$
|
1,621,000
|
|
|
|
-
|
|
|
|
1,481,000
|
|
|
|
140,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,335
|
|
|
1,663,335
|
Rockfish
Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
(1)
|
|
|
10
|
%
|
|
|
-
|
|
|
|
102,826
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
154,821
|
|
|
257,647
|
Membership
Interest
(1)
|
|
|
89.400
|
%
|
|
|
-
|
|
|
|
925,407
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(896,779
|
)
|
|
28,628
|
Integrated
Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
Loan
(1)
|
|
$
|
551,922
|
|
|
|
21,475
|
|
|
|
276,922
|
|
|
|
551,922
|
|
|
|
(276,922
|
)
|
|
|
-
|
|
|
|
(33,448
|
)
|
|
518,474
|
Preferred
Membership – Class A
(1)
|
|
|
800
|
|
|
|
-
|
|
|
|
3,337,779
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,492,923
|
)
|
|
1,844,856
|
Preferred
Membership – Class B
(1)
|
|
|
760
|
|
|
|
-
|
|
|
|
365,884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(331,370
|
)
|
|
34,514
|
Common
Stock
(1)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
20,059
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,752
|
)
|
|
307
|
PCC
SBH Sub, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,525,481
|
|
|
|
(954,726
|
)
|
|
1,570,755
|
Unsecured
Loan
(1)
|
|
$
|
14,000
|
|
|
|
1,721
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
(6,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
14,000
|
Total
Control Investments
|
|
|
|
|
|
$
|
35,608
|
|
|
$
|
13,059,138
|
|
|
$
|
1,975,146
|
|
|
$
|
(282,922
|
)
|
|
$
|
7,025,481
|
|
|
$
|
(4,503,483
|
)
|
|
$17,273,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spencer
Enterprises Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Membership, Class AA units
(1)
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
2,705,363
|
|
|
$
|
-
|
|
|
$
|
(2,071,043
|
)
|
|
$
|
-
|
|
|
$
|
(634,320
|
)
|
|
$
|
-
|
Preferred
Membership, Class BB units
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,681,316
|
|
|
|
-
|
|
|
|
(3,824,818
|
)
|
|
|
-
|
|
|
|
143,501
|
|
|
-
|
Total
Affiliate Investments
|
|
|
|
|
|
$
|
-
|
|
|
$
|
6,386,679
|
|
|
$
|
-
|
|
|
$
|
(5,895,861
|
)
|
|
$
|
-
|
|
|
$
|
(490,819
|
)
|
|
$
|
-
|
|
(1)
|
Non-income
producing security.
|
|
(2)
|
Includes
PIK interest and common stock issued in exchange for investments.
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
December
31, 2017
The
table below represents the fair value of control and affiliate investments at December 31, 2015 and any amortization, purchases,
sales, and realized and change in unrealized gain (loss) made to such investments, as well as the ending fair value as of December
31, 2016.
Portfolio
Company/Type of Investment
|
|
Principal
Amount/Shares/
Ownership
% at December 31,
2016
|
|
|
Amount
of Interest and Dividends Credited in Income
|
|
|
Fair
Value at December 31,
2015
|
|
|
Purchases
(2)
|
|
|
Sales
|
|
|
Realized
and Change in Unrealized Gains/Losses
|
|
|
Fair
Value at December 31,
2016
|
|
Control
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockfish
Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loan
(1)
|
|
$
|
6,352,944
|
|
|
$
|
387,214
|
|
|
$
|
6,164,535
|
|
|
$
|
188,409
|
|
|
$
|
-
|
|
|
$
|
196,317
|
|
|
$
|
6,549,261
|
|
Revolving
Loan
(1)
|
|
$
|
1,481,000
|
|
|
|
-
|
|
|
|
1,051,000
|
|
|
|
430,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,481,000
|
|
Rockfish
Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
(1)
|
|
|
10
|
%
|
|
|
-
|
|
|
|
316,531
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(213,705
|
)
|
|
|
102,826
|
|
Membership
Interest
(1)
|
|
|
99.997
|
%
|
|
|
-
|
|
|
|
2,848,693
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,923,286
|
)
|
|
|
925,407
|
|
Integrated
Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
Loan
(1)
|
|
$
|
276,922
|
|
|
|
-
|
|
|
|
276,922
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
276,922
|
|
Preferred
Membership – Class A
(1)
|
|
|
800
|
|
|
|
-
|
|
|
|
2,331,439
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,006,340
|
|
|
|
3,337,779
|
|
Preferred
Membership – Class B
(1)
|
|
|
760
|
|
|
|
-
|
|
|
|
32,923
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332,961
|
|
|
|
365,884
|
|
Common
Stock
(1)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
65
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,994
|
|
|
|
20,059
|
|
Advantis
Certified Staffing Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loan
(1)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
4,104,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,104,994
|
)
|
|
|
-
|
|
Unsecured
Loan (due 3/31/2018)
(1)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
95,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(95,000
|
)
|
|
|
-
|
|
Unsecured
Loan (due 3/31/2020)
(1)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
195,000
|
|
|
|
-
|
|
|
|
(195,000
|
)
|
|
|
-
|
|
Unsecured
Loan (due 3/31/2018)
(1)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85,000
|
|
|
|
-
|
|
|
|
(85,000
|
)
|
|
|
-
|
|
Warrant
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
691
|
|
|
|
-
|
|
|
|
(12,534
|
)
|
|
|
11,843
|
|
|
|
-
|
|
Common
Stock – Series A
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
622
|
|
|
|
-
|
|
|
|
(11,281
|
)
|
|
|
10,659
|
|
|
|
-
|
|
Common
Stock – Series B
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
26,256
|
|
|
|
-
|
|
|
|
(476,185
|
)
|
|
|
449,929
|
|
|
|
-
|
|
Total
Control Investments
|
|
|
|
|
|
$
|
387,214
|
|
|
$
|
17,249,671
|
|
|
$
|
898,409
|
|
|
$
|
(500,000
|
)
|
|
$
|
(4,588,942
|
)
|
|
$
|
13,059,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spencer
Enterprises Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Membership, Class AA units
(1)
|
|
|
500,000
|
|
|
$
|
740,741
|
|
|
$
|
2,353,965
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
351,398
|
|
|
$
|
2,705,363
|
|
Preferred
Membership, Class BB units
(1)
|
|
|
500,000
|
|
|
|
-
|
|
|
|
2,960,434
|
|
|
|
-
|
|
|
|
-
|
|
|
|
720,882
|
|
|
|
3,681,316
|
|
Total
Affiliate Investments
|
|
|
|
|
|
$
|
740,741
|
|
|
$
|
5,314,399
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,072,280
|
|
|
$
|
6,386,679
|
|
|
(1)
|
Non-income
producing security.
|
|
(2)
|
Includes
PIK interest and common stock issued in exchange for investments.
|
|
(3)
|
Represents
the sale of the equity investments in Advantis Certified Staffing Solutions, Inc. due
to the restructuring on December 31, 2016. Due to the restructuring, two new positions
in Advantis Certified Staffing Solutions, Inc. are held at December 31, 2016 and Advantis
Certified Staffing Solutions, Inc. is no longer considered a control investment and thus
these positions are excluded from the table above.
|
End
of notes to financial statements.