NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
NOTE
1 – NATURE OF OPERATIONS
References
herein to “we”, “us” or “our” refer to Princeton Capital Corporation (the “Company” or
“Princeton Capital”), unless the context specifically requires otherwise.
Princeton
Capital Corporation, a Maryland corporation, was incorporated under the general laws of the State of Maryland on July 25, 2013. We are
a non-diversified, closed-end investment company that has filed an election to be regulated as a business development company (“BDC”),
under the Investment Company Act of 1940, as amended (the “1940 Act”). A goal of a BDC is to annually qualify and elect to
be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended
(the “Code”). The Company, however, did not meet the requirements to qualify as a RIC for the 2020 tax year and will be taxed
as a corporation under Subchapter C of the Code and does not expect to meet the qualifications of a RIC until such time as certain strategic
alternatives are achieved. While we have sought to invest primarily in private small and lower middle-market companies in various industries
through first lien loans, second lien loans, unsecured loans, unitranche and mezzanine debt financing, often times with a corresponding
equity investment, we are now (with a strategic alternatives process underway and limited resources) investing only in current investments
and otherwise conserving cash. 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 Regal One’s reincorporation from Florida to Maryland by merging with and into the Company with the Company continuing
as the surviving corporation) Princeton Capital has reported as an operating BDC.
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. The House Hanover Investment Advisory
Agreement was last annually renewed by the Board and by a majority of the members of the Board who are not parties to the House Hanover
Investment Advisory Agreement or “interested persons” (as such term is defined in the 1940 Act) of any such party, in accordance
with the requirements of the 1940 Act and the House Hanover Investment Advisory Agreement on May 14, 2021.
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).
On
November 15, 2019, our Board announced that the Company has initiated a strategic review process to identify, examine, and consider a
range of strategic alternatives available to the Company, including but not limited to, (i) selling the Company’s assets to a business
development company or other potential buyer, (ii) merging with another business development company, (iii) liquidating the Company’s
assets in accordance with a plan of liquidation, (iv) raising additional funds for the Company, or (v) otherwise entering into another
business combination, with the objective of maximizing stockholder value. As of June 30, 2021 and through the date of filing this Quarterly
Report, the Company has not entered into any agreements regarding any strategic alternative.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America, (“U.S. GAAP”). In accordance with Regulation S-X under the Securities Act of 1933 and Securities Exchange Act
of 1934, the Company does not consolidate portfolio company investments. The accounting records of the Company are maintained in U.S.
dollars. As an investment company, as defined by the 1940 Act, the Company follows investment company accounting and reporting guidance
of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 –
Financial Services - Investment Companies, which is U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation are reflected in the interim financial statements. The reported amounts for the three and
six months ended June 30, 2021 may not be indicative of the results ultimately achieved for the year ended December 31, 2021 which will
be presented in the Company’s annual report on form 10-K.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses
during the reporting period. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and
any other parameters used in determining these estimates could cause actual results to differ. It is likely that changes in these estimates
will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ materially
from such estimates.
Portfolio
Investment Classification
The
Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments”
are defined as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50%
of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in
companies in which the Company owns between 5% and 25% of the voting securities. Under the 1940 Act, “Non-affiliated Investments”
are defined as investments that are neither Control Investments nor Affiliated Investments. As of June 30, 2021, the Company had control
investments in Advantis Certified Staffing Solutions, Inc., PCC SBH Sub, Inc., Rockfish Holdings, LLC, Rockfish Seafood Grill, Inc.,
Integrated Medical Partners, LLC and Dominion Medical Management, Inc. as defined under the 1940 Act. As of December 31, 2020, the Company
had control investments in Advantis Certified Staffing Solutions, Inc., PCC SBH Sub, Inc., Rockfish Holdings, LLC, Rockfish Seafood Grill,
Inc., Integrated Medical Partners, LLC and Dominion Medical Management, Inc. as defined under the 1940 Act.
Investments
are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that
instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forgo the risks for gains and
losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments in other non-security
financial instruments, such as limited partnerships or private companies, are recorded on the basis of subscription date or redemption
date, as applicable. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments
sold or payable for investments acquired, respectively, in the Statements of Assets and Liabilities.
Valuation
of Investments
In
accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
(i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
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.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
Observable
inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent
of the board of directors. Unobservable inputs reflect our board of director’s assumptions about the inputs market participants
would use in pricing the asset or liability developed based on the best information available in the circumstances.
With
respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation
process each quarter, as described below:
|
●
|
Our
quarterly valuation process begins with each portfolio company or investment being initially
valued by an independent valuation firm, except for those investments where market quotations
are readily available;
|
|
●
|
Preliminary
valuation conclusions are then documented and discussed with our senior management and our
investment advisor;
|
|
●
|
The
valuation committee of our board of directors then reviews these preliminary valuations and
approves them for recommendation to the board of directors;
|
|
●
|
The
board of directors then discusses valuations and determines the fair value of each investment
in our portfolio in good faith, based on the input of our investment advisor, the independent
valuation firm and the valuation committee.
|
U.S.
GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value.
The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value
hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair
value measurement. The levels of the fair value hierarchy are as follows:
Level
1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the
ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted
prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree
of judgment.
Level
2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either
directly or indirectly.
Level
3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The
availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors
including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular
to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately
realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation,
those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities
existed. Accordingly, the degree of judgment exercised by the board of directors in determining fair value is greatest for securities
categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.
In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety
falls is determined based on the lowest level input that is significant to the fair value measurement. For the three months ended June
30, 2021, there was a change in valuation technique on a second lien loan and equity position. The reason for the change is that the
performance of the portfolio company improved and current enterprise value coverage levels became more material.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
Fair
value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore,
even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants
would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement
date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced
for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
Valuation
Processes
The
Company establishes valuation processes and procedures to ensure that the valuation techniques for investments that are categorized within
Level 3 of the fair value hierarchy are fair, consistent, and verifiable. The Company’s board of directors designates a Valuation
Committee (the “Committee”) to oversee the entire valuation process of the Company’s Level 3 investments. The Committee
is comprised of independent directors and reports to the Company’s board of directors. The Committee is responsible for developing
the Company’s written valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating
the overall fairness and consistent application of the valuation policies.
The
Committee meets on a quarterly basis, or more frequently as needed, to determine the valuations of the Company’s Level 3 investments.
Valuations determined by the Committee are required to be supported by market data, third-party pricing sources, industry accepted pricing
models, counterparty prices, or other methods that the Committee deems to be appropriate.
The
Company will periodically test its valuations of Level 3 investments through performing back testing of the sales of such investments
by comparing the amounts realized against the most recent fair values reported, and if necessary, uses the findings to recalibrate its
valuation procedures. On a quarterly basis, the Company engages the services of a nationally recognized third-party valuation firm to
perform an independent valuation of the Company’s Level 3 investments. This valuation firm provides a range of values for selected
investments, which is presented to the Valuation Committee to determine the value for each of the selected investments.
Investment
Valuation
We
expect that most of our portfolio investments will take the form of securities that are not publicly traded. The fair value of loans,
securities and other investments that are not publicly traded may not be readily determinable, and we will value these investments at
fair value as determined in good faith by our board of directors, including reflecting significant events affecting the value of our
investments. Most, if not all, of our investments (other than cash and cash equivalents) will be classified as Level 3 under Financial
Accounting Standards Board Accounting Standards Codification “Fair Value Measurements and Disclosures”, or ASC 820. This
means that our portfolio valuations will be based on unobservable inputs and our own assumptions about how market participants would
price the asset or liability in question. We expect that inputs into the determination of fair value of our portfolio investments will
require significant management judgment or estimation. Even if observable market data are available, such information may be the result
of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an
actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability
of such information. We expect to retain the services of one or more independent service providers to review the valuation of these loans
and securities. The types of factors that the board of directors may take into account in determining the fair value of our investments
generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of
credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s
ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other
relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain,
may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the
values that would have been used if a ready market for these loans and securities existed. Our net asset value could be adversely affected
if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon
the disposal of such loans and securities.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
We
will adjust the valuation of our portfolio quarterly to reflect our board of directors’ determination of the fair value of each
investment in our portfolio. Any changes in fair value are recorded in our statement of operations as net change in unrealized gain or
loss on investments.
Debt
Securities
The
Company’s portfolio consists primarily of first lien loans, second lien loans, and unsecured loans. Investments for which market
quotations are readily available (“Level 2 Loans”) are generally valued using market quotations, which are generally obtained
from an independent pricing service or broker-dealers. For other debt investments (“Level 3 Loans”), market quotations are
not available and other techniques are used to determine fair value. The Company considers its Level 3 Loans to be performing if the
borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is otherwise
not deemed to be impaired. In determining the fair value of the performing Level 3 Loans, the Board considers fluctuations in current
interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions,
success and prepayment fees, and other relevant factors, both qualitative and quantitative. In the event that a Level 3 Loan instrument
is not performing, as defined above, the Board may evaluate the value of the collateral utilizing the same framework described above
for a performing loan to determine the value of the Level 3 Loan instrument.
Equity
Investments
Our
equity investments, including common stock, membership interests, and warrants, are generally valued using a market approach and income
approach. The income approach utilizes primarily the discount rate to value the investment whereas the primary inputs for the market
approach are the earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiple and revenue multiples.
The Black-Scholes Option Pricing Model, a valuation technique that follows the income approach, is used to allocate the value of the
equity to the investment. The pricing model takes into account the contract terms (including maturity) as well as multiple inputs, including
time value, implied volatility, equity prices, risk free rates, and interest rates.
Valuation
of Other Financial Instruments
The
carrying amounts of the Company’s other, non-investment, financial instruments, consisting of cash, receivables, accounts payable,
and accrued expenses, approximate fair value due to their short-term nature.
Cash
and Restricted Cash
The
Company deposits its cash and restricted cash in financial institutions and, at times, such balances may be in excess of the Federal
Deposit Insurance Corporation insured limit; however, management does not believe it is exposed to any significant credit risk.
The
following table provides a reconciliation of cash and restricted cash reporting within the statements of assets and liabilities that
sum to the total of the same such amounts shown in the statements of cash flows:
|
|
June 30,
2021
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2020
|
|
Cash
|
|
$
|
655,416
|
|
|
$
|
1,725,700
|
|
Restricted
Cash
|
|
|
25,561
|
|
|
|
25,530
|
|
Total
Cash and Restricted Cash
|
|
$
|
680,977
|
|
|
$
|
1,751,230
|
|
As
of June 30, 2021 and December 31, 2020 restricted cash consisted of cash held for deposit with the law firm that represents the Company
in its litigation with Great Value Storage, LLC.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
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. As of June 30, 2021 and December 31, 2020, the Company did
not purchase any U.S. Treasury Bills.
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 the borrower will not be able to make contractual interest payments, the Company may place the
loan on non-accrual status and cease recognizing interest income on the loan until all principal and interest is current through payment,
or until a restructuring occurs, and the interest income is deemed to be collectible. The Company may make exceptions to this policy
if a loan has sufficient collateral value, is in the process of collection or is viewed to be able to pay all amounts due if the loan
were to be collected on through an investment in or sale of the business, the sale of the assets of the business, or some portion or
combination thereof.
Dividend
income is recorded on the ex-dividend date.
Structuring
fees, excess deal deposits, prepayment fees and similar fees are recognized as income as earned, usually when paid.
Other
fee income from investment sources, includes annual fees and monitoring fees from our portfolio investments and are included in other
income from non-control/non-affiliate investments and other income from affiliate investments. Income from such sources was $5,999 and
$5,999 for the three months ended June 30, 2021, and 2020, respectively. Income from such sources was $11,932 and $15,024 for the six
months ended June 30, 2021, and 2020, respectively.
Other
income from non-investment sources is generally comprised of interest income earned on cash in the Company’s bank account. Income
from such sources was $29 and $72 for the three months ended June 30, 2021 and 2020, respectively. Income from such sources was $64 and
$307 for the six months ended June 30, 2021 and 2020, respectively.
Payment-in-Kind
Interest (“PIK”)
We
have investments in our portfolio that contain a PIK interest provision. Any PIK interest is added to the principal balance of such investments
and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. For the three months and
six months ended June 30, 2021, PIK interest was $0 and $0. For the three and six months ended June 30, 2020, PIK interest was $0 and
$21,804, respectively. In order to qualify as a RIC, substantially all of this income must be paid out to stockholders in the form of
dividends, even if we have not collected any cash.
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.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
Legal
Fees
Legal
fees invoiced to the Company for the three and six months ended June 30, 2021 and 2020, were incurred in the normal operating course
of business and are included in legal fees on the Statement of Operations.
The
Company incurred legal fees related to the lawsuit against Great Value Storage, LLC (“GVS”). The amounts invoiced to the
Company, prior to the final judgment received on March 4, 2021, for the six months ended June 30, 2021 and 2020 were $14,423 and $28,229,
respectively. These amounts are recoverable per the loan agreements and are invoiced to GVS and included in the amount Due from portfolio
companies on the Statements of Assets and Liabilities. Amounts invoiced to the Company, after the final judgment received on March 4,
2021, for fees incurred to recover our judgment were expensed to Legal fees on the Statements of Operations.
Federal
and State Income Taxes
The
Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded for tax loss carryforwards
and temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using
statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided
against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The
Company did not meet the qualifications of a RIC for the 2020 tax year and will be taxed as a corporation under Subchapter C of the Internal
Revenue Code of 1986 (the “Code”). The failure to qualify as a RIC, however, did not impact the 2020 tax year as the Company
had net operating losses and no realized gains in the tax year. Further, the Company has net operating losses and capital losses from
prior years it can carry forward to offset taxable income.
The
Company does not expect to meet the qualifications of a RIC for the 2021 tax year and is likely to be taxed as a corporation under Subchapter
C of the Code. However, in the event that the Company does meet the qualifications of a RIC for the 2021 tax year, it may not be in the
best interests of the Company’s stockholders to elect to be taxed as a RIC for the 2021 tax year due to the net operating losses
and capital loss carryforwards the Company currently has. Management will make a determination that is in the best interests of the Company
and its stockholders.
In
order to qualify as a RIC, among other things, the Company is required to distribute to its stockholders on a timely basis at least 90%
of investment company taxable income, as defined by the Code, for each year. If the Company achieves its status as a RIC, it generally
will not pay corporate-level U.S. federal and state income taxes on any ordinary income or capital gains that it distributes at least
annually to its stockholders as dividends. Rather, any tax liability related to income earned by the Company will represent obligations
of the Company’s investors and will not be reflected in the financial statements of the Company.
The
Company evaluates tax positions taken or expected to be taken while preparing its financial statements to determine whether the tax positions
are “more-likely-than-not” of being sustained by the applicable tax authority. The Company recognizes the tax benefits of
uncertain tax positions only where the position has met the “more-likely-than-not” threshold. The Company classifies penalties
and interest associated with income taxes, if any, as income tax expense. Conclusions regarding tax positions are subject to review and
may be adjusted at a later date based on factors including, but not limited to, ongoing analyses of tax laws, regulations and interpretations
thereof.
Dividends
and Distributions
Dividends
and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a dividend is approved
by our board of directors each quarter and is generally based upon our management’s estimate of our earnings for the quarter. For
the three and six months ended June 30, 2021 and 2020, and through the date of issuance of this report, no dividends have been declared
or distributed to stockholders.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
Per
Share Information
Basic
and diluted earnings (loss) per common share is calculated using the weighted average number of common shares outstanding for the period
presented.
Basic
earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted net earnings (loss) per share is computed by dividing net earnings (loss) per share by the weighted average
number of shares outstanding, plus, any potentially dilutive shares outstanding during the period. For the three and six months ended
June 30, 2021 and 2020, basic and diluted earnings (loss) per share were the same, since there were no potentially dilutive securities
outstanding.
Capital
Accounts
Certain
capital accounts including undistributed net investment income, accumulated net realized gain or loss, accumulated net unrealized gain
or loss, and paid-in capital in excess of par, are adjusted, at least annually, for permanent differences between book and tax. In addition,
the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from U.S.
GAAP.
Recent
Accounting Pronouncements
In
May 2020, the SEC adopted rule amendments that will impact the requirements of investment companies, including BDCs, to disclose the
financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules
adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities
Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial
information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of
“significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only
to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the
definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended
to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment
company. The Final Rules were effective on January 1, 2021, The adoption resulted in more portfolio companies meeting the significant
subsidiary definition under the Final Rules, thus resulting in increased disclosures.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
NOTE
3 – CONCENTRATION OF CREDIT RISK
In
the normal course of business, the Company maintains its cash balances in financial institutions, which at times may exceed federally
insured limits. The Company is subject to credit risk to the extent any financial institution with which it conducts business is unable
to fulfill contractual obligations on its behalf. Management monitors the financial condition of such financial institutions and does
not anticipate any losses from these counterparties.
NOTE
4 – NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE
The
following information sets forth the computation of basic and diluted net increase (decrease) in net assets resulting from operations
per common share for the three months ended June 30, 2021 and June 30, 2020 and the six months ended June 30, 2021 and June 30, 2020.
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per
Share Data (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in net assets resulting from operations
|
|
$
|
7,820,375
|
|
|
$
|
(4,482,226
|
)
|
|
$
|
11,927,099
|
|
|
$
|
(12,206,610
|
)
|
Weighted
average shares outstanding for period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Diluted
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
Basic
and diluted net increase (decrease) in net assets resulting from operations per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.065
|
|
|
$
|
(0.037
|
)
|
|
$
|
0.099
|
|
|
$
|
(0.101
|
)
|
Diluted
|
|
$
|
0.065
|
|
|
$
|
(0.037
|
)
|
|
$
|
0.099
|
|
|
$
|
(0.101
|
)
|
(1)
|
Per
share data based on weighted average shares outstanding.
|
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 June 30, 2021 and December 31, 2020,
respectively:
|
|
As
of June 30, 2021
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Portfolio
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,256,223
|
|
|
$
|
20,256,223
|
|
Second
Lien Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
8,050,494
|
|
|
|
8,050,494
|
|
Equity
|
|
|
-
|
|
|
|
-
|
|
|
|
5,796,448
|
|
|
|
5,796,448
|
|
Total
Portfolio Investments
|
|
|
-
|
|
|
|
-
|
|
|
|
34,103,165
|
|
|
|
34,103,165
|
|
Total
Investments
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
34,103,165
|
|
|
$
|
34,103,165
|
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
|
|
As
of December 31, 2020
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Portfolio
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,671,435
|
|
|
$
|
14,671,435
|
|
Second
Lien Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
5,235,708
|
|
|
|
5,235,708
|
|
Equity
|
|
|
-
|
|
|
|
-
|
|
|
|
1,659,880
|
|
|
|
1,659,880
|
|
Total
Portfolio Investments
|
|
|
-
|
|
|
|
-
|
|
|
|
21,567,023
|
|
|
|
21,567,023
|
|
Total
Investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21,567,023
|
|
|
$
|
21,567,023
|
|
During
the six months ended June 30, 2021 and the year ended December 31, 2020, 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 six months ended June 30, 2021 are as follows:
|
|
First
Lien
Loans
|
|
|
Second
Lien
Loans
|
|
|
Unsecured
Loans
|
|
|
Equity
|
|
|
Total
|
|
Fair
value at beginning of period
|
|
$
|
14,671,435
|
|
|
$
|
5,235,708
|
|
|
$
|
-
|
|
|
$
|
1,659,880
|
|
|
$
|
21,567,023
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchases
of investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Sales
of investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Payment-in-kind
interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change
in unrealized gain (loss) on investments
|
|
|
5,584,788
|
|
|
|
2,814,786
|
|
|
|
-
|
|
|
|
4,136,568
|
|
|
|
12,536,142
|
|
Fair
value at end of period
|
|
$
|
20,256,223
|
|
|
$
|
8,050,494
|
|
|
$
|
-
|
|
|
$
|
5,796,448
|
|
|
$
|
34,103,165
|
|
Change
in unrealized gain (loss) on Level 3 investments still held as of June 30, 2021
|
|
$
|
5,584,788
|
|
|
$
|
2,814,786
|
|
|
$
|
-
|
|
|
$
|
4,136,568
|
|
|
$
|
12,536,142
|
|
Changes
in Level 3 assets measured at fair value for the year ended December 31, 2020 are as follows:
|
|
First
Lien
Loans
|
|
|
Second
Lien
Loans
|
|
|
Unsecured
Loans
|
|
|
Equity
|
|
|
Total
|
|
Fair
value at beginning of year
|
|
$
|
13,740,173
|
|
|
$
|
17,956,452
|
|
|
$
|
-
|
|
|
$
|
1,655,877
|
|
|
$
|
33,352,502
|
|
Purchases
of investments
|
|
|
-
|
|
|
|
90,537
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,537
|
|
Sales
or repayment of investments
|
|
|
-
|
|
|
|
(1,663,690
|
)
|
|
|
(21,804
|
)
|
|
|
-
|
|
|
|
(1,685,494
|
)
|
Payment-in-kind
interest
|
|
|
-
|
|
|
|
-
|
|
|
|
21,804
|
|
|
|
-
|
|
|
|
21,804
|
|
Realized
gain (loss) on investments
|
|
|
|
|
|
|
(7,502,982
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,502,982
|
)
|
Change
in unrealized gain (loss) on investments
|
|
|
931,262
|
|
|
|
(3,644,609
|
)
|
|
|
-
|
|
|
|
4,003
|
|
|
|
(2,709,344
|
)
|
Transfer
due to restructuring
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Fair
value at end of year
|
|
$
|
14,671,435
|
|
|
$
|
5,235,708
|
|
|
$
|
-
|
|
|
$
|
1,659,880
|
|
|
$
|
21,567,023
|
|
Change
in unrealized gain (loss) on Level 3 investments still held as of December 31, 2020
|
|
$
|
931,262
|
|
|
$
|
(828,344
|
)
|
|
$
|
(2,816,265
|
)
|
|
$
|
4,003
|
|
|
$
|
(2,709,344
|
)
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
The
following table provides quantitative information regarding Level 3 fair value measurements as of June 30, 2021:
Description
|
|
Fair
Value
|
|
|
Valuation
Technique (1)
|
|
Unobservable
Inputs
|
|
Range
(Average (2))
|
|
First
Lien Loans
|
|
$
|
6,017,094
|
|
|
Discounted Cash Flow
|
|
Discount rate
|
|
60.0%-70.0%
(65.0%)
|
|
|
|
|
14,239,129
|
|
|
Enterprise Value Coverage
|
|
EV / Store Level EBITDAR
|
|
5.25x-5.75x (5.50x)
|
|
|
|
|
|
|
|
|
|
Location value
|
|
$775,000-$875,000
($825,000)
|
|
Total
|
|
|
20,256,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loans
|
|
|
8,050,494
|
|
|
Enterprise Value Coverage
|
|
EV / RR Revenue multiple
|
|
0.45x-0.50 (0.48x)
|
|
|
|
|
|
|
|
|
|
EV / 2021 Adjusted revenue
|
|
0.65x-0.65x (0.65x)
|
|
|
|
|
|
|
|
|
|
EV / CFY EBITDA
|
|
7.00x-8.50x (7.75x)
|
|
|
|
|
|
|
|
|
|
EV / CFY Revenue
|
|
0.90x-1.00x
(0.95x)
|
|
Total
|
|
|
8,050,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
Loans
|
|
|
-
|
|
|
Enterprise Value Coverage
|
|
EV / RR Revenue multiple
|
|
0.45x-0.50
(0.48x)
|
|
Total
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
4,142,201
|
|
|
Enterprise Value Coverage
|
|
EV / RR Revenue multiple
|
|
0.45x-0.50x (0.48x)
|
|
|
|
|
|
|
|
|
|
EV / 2021 Adjusted revenue
|
|
0.65x-0.65x (0.65x)
|
|
|
|
|
|
|
|
|
|
EV / CFY EBITDA
|
|
7.00x-8.50x (0.00x)
|
|
|
|
|
|
|
|
|
|
EV / CFY revenue
|
|
0.90x-1.00x (0.95x)
|
|
|
|
|
|
|
|
|
|
EV / Store Level EBITDAR
|
|
5.25x-5.75x (5.50x)
|
|
|
|
|
|
|
|
|
|
Location Value
|
|
$775,000-$875,000
($825,000)
|
|
|
|
|
1,653,047
|
|
|
Appraisal Value Coverage
|
|
Cost Approach
|
|
$1,314,000-$1,606,000
($1,460,000)
|
|
|
|
|
|
|
|
|
|
Sales Comparison Approach
|
|
$1,350,000-$1,650,000
($1,500,000)
|
|
Total
|
|
|
5,795,248
|
|
|
|
|
|
|
|
|
Total
Level 3 Investments
|
|
$
|
34,101,965
|
|
|
|
|
|
|
|
|
(1)
|
The
valuation technique for the Company’s investment in a Second Lien Loan and Equity changed
from a Black Scholes model for the three months ended March 31, 2021 to an Enterprise Value
Coverage technique for the three months ended June 30, 2021. The reason for the change is
that the performance of the portfolio company improved and current enterprise value coverage
levels became more material.
|
(2)
|
The
average represents the arithmetic average of the unobservable inputs and is not weighted
by the relative fair value.
|
The
Company’s remaining Level 3 investments aggregating approximately $1,200 have been valued using unadjusted third party transactions.
As a result, there were no unobservable inputs that have been internally developed by the Company in determining the fair values of these
investments as of June 30, 2021.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
The
following table provides quantitative information regarding Level 3 fair value measurements as of December 31, 2020:
Description
|
|
Fair
Value
|
|
|
Valuation
Technique (1)
|
|
Unobservable
Inputs
|
|
Range
(Average (2))
|
|
First
Lien Loans
|
|
$
|
5,057,932
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
60.0%-70.0%
(65.0%)
|
|
|
|
|
9,613,503
|
|
|
Enterprise Value Coverage
|
|
EV / Store level EBITDAR
|
|
5.00x-5.50x
(5.25x)
|
|
|
|
|
|
|
|
|
|
Location Value
|
|
$750,000-$850,000
($800,000)
|
|
Total
|
|
|
14,671,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loans
|
|
|
3,008,208
|
|
|
Enterprise Value Coverage
|
|
EV / LQA Revenue Multiple
|
|
0.38x-0.43x
(0.40x)
|
|
|
|
|
|
|
|
|
|
EV / LQA EBITDA Multiple
|
|
6.00x-6.50x (6.25x)
|
|
|
|
|
|
|
|
|
|
EV / 2021 Adjusted Revenue
|
|
0.65x-0.65x (0.65x)
|
|
|
|
|
2,227,500
|
|
|
Black-Scholes
|
|
Time Horizon
|
|
0.00x-1.75years (0.88years)
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
57.50%-57.50%
(57.50%)
|
|
Total
|
|
|
5,235,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
Loans
|
|
|
-
|
|
|
Enterprise Value Coverage
|
|
EV/LQA Revenue Multiple
|
|
0.38x-0.43x (0.40x)
|
|
|
|
|
|
|
|
|
|
EV/LQA EBITDA Multiple
|
|
6.00x-6.50x (6.25x)
|
|
Total
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
-
|
|
|
Enterprise Value Coverage
|
|
EV / LTM Revenue multiple
|
|
0.38x-0.43x (0.40x)
|
|
|
|
|
|
|
|
|
|
EV/LQA EBITDA Multiple
|
|
6.00x-6.50x (6.25x)
|
|
|
|
|
|
|
|
|
|
EV / 2021 Adjusted Revenue
|
|
0.65x-0.65x (0.65x)
|
|
|
|
|
|
|
|
|
|
EV / STORE LEVEL EBITDAR
|
|
5.00x-5.50x (5.25x)
|
|
|
|
|
|
|
|
|
|
Location Value
|
|
$750,000-$850,000
($800,000)
|
|
|
|
|
1,658,680
|
|
|
Appraisal Value Coverage
|
|
Cost Approach
|
|
$1,296,000-$1,584,000
($1,440,000)
|
|
|
|
|
|
|
|
|
|
Sales Comparison Approach
|
|
$1,296,000-$1,584,000
($1,440,000)
|
|
|
|
|
-
|
|
|
Black-Scholes
|
|
Time Horizon
|
|
0.00-1.75 years (0.88years)
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
57.50%-57.50%
(57.50%)
|
|
Total
|
|
|
1,658,680
|
|
|
|
|
|
|
|
|
Total
Level 3 Investments
|
|
$
|
21,565,823
|
|
|
|
|
|
|
|
|
(1)
|
There
was no change in valuation technique from the three months ended December 31, 2020.
|
(2)
|
The
average represents the arithmetic average of the unobservable inputs and is not weighted
by the relative fair value.
|
The
Company’s remaining Level 3 investments aggregating approximately $1,200 have been valued using unadjusted third party transactions.
As a result, there were no unobservable inputs that have been internally developed by the Company in determining the fair values of these
investments as of December 31, 2020.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
As
of June 30, 2021 and December 31, 2020, the Company used both market and income approaches to value certain equity investments as the
Company felt this approach better reflected the fair value of these investments. By considering multiple valuation approaches (and consequently,
multiple valuation techniques), the valuation approaches and techniques are not likely to change from one period of measurement to the
next; however, the weighting of each in determining the final fair value of a Level 3 investment may change based on recent events or
transactions. Refer to “Note 2—Significant Accounting Policies” for more detail.
The
Company considers all relevant information that can reasonably be obtained when determining the fair value of Level 3 investments. Due
to any given portfolio company’s information rights, changes in capital structure, recent events, transactions, or liquidity events,
the type and availability of unobservable inputs may change. Increases (decreases) in revenue multiples, earnings before interest and
taxes (“EBIT”) multiples, time to expiration, and stock price/strike price would result in higher (lower) fair values all
else equal. Decreases (increases) in discount rates, volatility, and annual risk rates, would result in higher (lower) fair values all
else equal. The market approach utilizes market value (revenue and EBIT) multiples of publicly traded comparable companies and available
precedent sales transactions of comparable companies. The Company carefully considers numerous factors when selecting the appropriate
companies whose multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization,
similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. In general, precedent
transactions include recent rounds of financing, recent purchases made by the Company, and tender offers. Refer to “Note 2—Significant
Accounting Policies” for more detail.
The
primary significant unobservable input used in the fair value measurement of the Company’s debt securities (first lien loans, second
lien loans and unsecured loans), including income-producing investments in funds, is the discount rate. Significant increases (decreases)
in the discount rate in isolation would result in a significantly lower (higher) fair value measurement. In determining the discount
rate, for the income (discounted cash flow) or yield approach, the Company considers current market yields and multiples, portfolio company
performance, leverage levels and credit quality, among other factors in its analysis. Changes in one or more of these factors can have
a similar directional change on other factors in determining the appropriate discount rate to use in the income approach.
The
primary significant unobservable inputs used in the fair value measurement of the Company’s equity investments are the EBITDA multiple
and revenue multiple, which is used to determine the Enterprise Value. Significant increases (decreases) in the Enterprise Value in isolation
would result in a significantly higher (lower) fair value measurement. To determine the Enterprise Value for the market approach, the
Company considers current market trading and/or transaction multiples, portfolio company performance (financial ratios) relative to public
and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional
change on other factors in determining the appropriate multiple to use in the market approach.
The
primary unobservable inputs used in the fair value measurement of the Company’s equity investments, when using an option pricing
model to allocate the equity value to the investment, are the discount rate for lack of marketability and volatility. Significant increases
(decreases) in the discount rate in isolation would result in a significantly lower (higher) fair value measurement. Significant increases
(decreases) in the volatility in isolation would result in a significantly higher (lower) fair value measurement. Changes in one or more
factors can have a similar directional change on other factors in determining the appropriate discount rate or volatility to use in the
valuation of equity using an option pricing model.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
NOTE
6 – RELATED PARTY TRANSACTIONS
House
Hanover Investment Advisory Agreement
House
Hanover has served as the Company’s investment advisor since January 1, 2018 pursuant to the Interim Investment Advisory Agreement
(until May 31, 2018) and the House Hanover Investment Advisory Agreement (since May 31, 2018). House Hanover is registered as an investment
advisor under the 1940 Act.
Advisory
Services
House
Hanover is registered as an investment adviser under the 1940 Act and serves as the Company’s investment advisor pursuant to the
House Hanover Investment Advisory Agreement in accordance with the 1940 Act. House Hanover is owned by and an affiliate of Mr. Mark DiSalvo,
the Company’s Interim President, Interim Chief Executive Officer, and a director of the Company.
Subject
to supervision by the Company’s Board, House Hanover oversees the Company’s day-to-day operations and provides the Company
with investment advisory services. Under the terms of the House Hanover Investment Advisory Agreement, House Hanover, among other things:
(i) determines the composition and allocation of the portfolio of the Company, the nature and timing of the changes therein and the manner
of implementing such changes; (ii) identifies, evaluates and negotiates the structure of the investments made by the Company; (iii) executes,
closes, services and monitors the Company’s investments; (iv) determines the securities and other assets that the Company shall
purchase, retain, or sell; (v) performs due diligence on prospective portfolio companies; (vi) provides the Company with such other investment
advisory, research and related services as the Company may, from time to time, reasonably require for the investment of its funds; and
(vii) if directed by the Board, assists in the execution and closing of the sale of the Company’s assets or a sale of the equity
of the Company in one or more transactions. House Hanover’s services under the House Hanover Investment Advisory Agreement may
not be exclusive and it is free to furnish similar services to other entities so long as its services to the Company are not impaired. At
the request of the Company, House Hanover, upon any transition of the Company’s investment advisory relationship to another investment
advisor or upon any internalization, shall provide reasonable transition assistance to the Company and any successor investment advisor.
Management
Fee
Pursuant
to the House Hanover Investment Advisory Agreement, the Company pays House Hanover a base management fee for investment advisory and
management services. The cost of the base management fee is ultimately borne by the Company’s stockholders. The House Hanover Investment
Advisory Agreement does not contain an incentive fee component.
The
base management fee is calculated at an annual rate of 1.00% of the Company’s gross assets, including assets purchased with borrowed
funds or other forms of leverage and excluding cash and cash equivalents net of all indebtedness of the Company for borrowed money and
other liabilities of the Company. The base management fee is payable quarterly in arrears, and determined as set forth in the preceding
sentence at the end of the two most recently completed calendar quarters. The Board may retroactively adjust the valuation of the Company’s
assets and the resulting calculation of the base management fee in the event the Company or any of its assets are sold or transferred
to an independent third party or the Company or House Hanover receives an audit report or other independent third party valuation of
the Company. To the extent that any such adjustment increases or decreases the base management fee of any prior period, the Company will
be obligated to pay the amount of increase to House Hanover or House Hanover will be obligated to refund the decreased amount, as applicable.
Management
fees earned by House Hanover for the three months ended June 30, 2021 and June 30, 2020 were $57,337 and $72,677, respectively. Management
fees earned by House Hanover for the six months ended June 30, 2021 and June 30, 2020 were $108,431 and $156,130, respectively.
As
of June 30, 2021 and December 31, 2020, management fees of $375,415 and $552,121, respectively, were payable to House Hanover. House
Hanover is allowing management fees to accrue and not be paid until such time as the Company has sufficient capital to pay them. On April
29, 2021, a payment was made to House Hanover in the amount of $285,137 to reduce a portion of the outstanding management fees payable.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
Incentive
Fee
The
Company is not obligated to pay House Hanover an incentive fee.
Payment
of Expenses
House
Hanover bears all compensation expense (including health insurance, pension benefits, payroll taxes and other compensation related matters)
of its employees and bears the costs of any salaries or directors’ fees of any officers or directors of the Company who are affiliated
persons (as defined in the 1940 Act) of House Hanover. However, House Hanover, subject to approval by the Board of the Company, is entitled
to reimbursement for the portion of any compensation expense and the costs of any salaries of any such employees to the extent attributable
to services performed by such employees for the Company. During the term of the House Hanover Investment Advisory Agreement, House Hanover
will also bear all of its costs and expenses for office space rental, office equipment, utilities and other non-compensation related
overhead allocable to performance of its obligations under the House Hanover Investment Advisory Agreement.
Except
as provided in the preceding paragraph the Company reimburses House Hanover all direct and indirect costs and expenses incurred by it
during the term of the House Hanover Investment Advisory Agreement for: (i) due diligence of potential investments of the Company, (ii)
monitoring performance of the Company’s investments, (iii) serving as officers of the Company, (iv) serving as directors and officers
of portfolio companies of the Company, (v) providing managerial assistance to portfolio companies of the Company, and (vi) enforcing
the Company’s rights in respect of its investments and disposing of its investments; provided, however, that, any third party expenses
incurred by House Hanover in excess of $50,000 in the aggregate in any calendar quarter will require advance approval by the Board of
the Company.
In
addition to the foregoing, the Company will also be responsible for the payment of all of the Company’s other expenses, including
the payment of the following fees and expenses:
|
●
|
organizational
and offering expenses;
|
|
●
|
expenses
incurred in valuing the Company’s assets and computing its net asset value per share
(including the cost and expenses of any independent valuation firm);
|
|
●
|
subject
to the guidelines approved by the Board of Directors, expenses incurred by House Hanover
that are payable to third parties, including agents, consultants or other advisors, in monitoring
financial and legal affairs for the Company and in monitoring the Company’s investments
and performing due diligence on the Company’s prospective portfolio companies or otherwise
related to, or associated with, evaluating and making investments;
|
|
●
|
interest
payable on debt, if any, incurred to finance the Company’s investments and expenses
related to unsuccessful portfolio acquisition efforts;
|
|
●
|
offerings
of the Company’s common stock and other securities;
|
|
●
|
transfer
agent and custody fees and expenses;
|
|
●
|
U.S.
federal and state registration fees of the Company (but not House Hanover);
|
|
●
|
all
costs of registration and listing the Company’s shares on any securities exchange;
|
|
●
|
U.S.
federal, state and local taxes;
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
|
●
|
independent
directors’ fees and expenses;
|
|
●
|
costs
of preparing and filing reports or other documents required of the Company (but not House
Hanover) by the SEC or other regulators;
|
|
●
|
costs
of any reports, proxy statements or other notices to stockholders, including printing costs;
|
|
●
|
the
costs associated with individual or group stockholders;
|
|
●
|
the
Company’s allocable portion of the fidelity bond, directors and officers/errors and
omissions liability insurance, and any other insurance premiums;
|
|
●
|
direct
costs and expenses of administration and operation of the Company, including printing, mailing,
long distance telephone, copying, secretarial and other staff, independent auditors and outside
legal costs; and
|
|
●
|
all
other non-investment advisory expenses incurred by the Company regarding administering the
Company’s business.
|
Duration
and Termination
Unless
terminated earlier as described below, the House Hanover Investment Advisory Agreement will continue in effect for a period of one (1)
year from its effective date. It will remain in effect from year to year thereafter if approved annually by the Company’s Board
or by the affirmative vote of the holders of a majority of the Company’s outstanding voting securities, and, in either case, if
also approved by a majority of Company’s directors who are neither parties to the House Hanover Investment Advisory Agreement nor
“interested persons” (as defined under the 1940 Act) of any such party. The House Hanover Investment Advisory Agreement was
last annually renewed by the Board and by a majority of the members of the Board who are not parties to the House Hanover Investment
Advisory Agreement or “interested persons” (as such term is defined in the 1940 Act) of any such party, in accordance with
the requirements of the 1940 Act and the House Hanover Investment Advisory Agreement on May 14, 2021.
The
House Hanover Investment Advisory Agreement may be terminated at any time, without the payment of any penalty, (i) upon written notice,
effective on the date set forth in such notice, by the vote of a majority of the outstanding voting securities of the Company or by the
vote of the Company’s directors, or (ii) upon 60 days’ written notice, by House Hanover. The House Hanover Investment Advisory
Agreement automatically terminates in the event of its “assignment,” as defined in the 1940 Act.
Indemnification
The
House Hanover Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of
their duties, or by reason of the material breach or reckless disregard of their duties and obligations under the House Hanover Investment
Advisory Agreement, House Hanover and its officers, managers, employees and members are entitled to indemnification from the Company
for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement)
arising from the rendering of House Hanover’s services under the House Hanover Investment Advisory Agreement or otherwise as the
Company’s investment advisor. The amounts payable for indemnification will be calculated net of payments recovered by the indemnified
party under any insurance policy with respect to such losses.
At
all times during the term of the House Hanover Investment Advisory Agreement and for one year thereafter, House Hanover is obligated
to maintain directors and officers/errors and omission liability insurance in an amount and with a provider reasonably acceptable to
the Board of the Company.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
Administration
Services and Service Agreement
House
Hanover is entitled to reimbursement of expenses under the House Hanover Investment Advisory Agreement for administrative services performed
for the Company.
On
January 1, 2018, Princeton Capital Corporation directly entered into a service agreement with SS&C Technologies Holdings, Inc. (the
“Sub-Administrator”) to provide certain administrative services to the Company. In exchange for providing services, the Company
pays the Sub-Administrator an asset-based fee with a $127,647 annual minimum as adjusted for any reimbursement of expenses. This annual
minimum was amended in the service agreement on April 20, 2019 and increased on July 1, 2020 by the US Consumer Price Index – All
Urban Consumers per the service agreement. This asset-based fee will vary depending upon our gross assets, as adjusted, as follows:
Gross
Assets
|
|
Fee
|
|
first
$150 million of gross assets
|
|
20 basis points (0.20%)
|
|
next
$150 million of gross assets
|
|
15 basis points (0.15%)
|
|
next
$200 million of gross assets
|
|
10 basis points (0.10%)
|
|
in
excess of $500 million of gross assets
|
|
5 basis points (0.05%)
|
|
Administration
fees were $67,500 and fees to the Sub-Administrator were $31,912 for the three months ended June 30, 2021, as shown on the Statements
of Operations under administration fees. Administration fees were $135,000 and fees to the Sub-Administrator were $63,824 for the six
months ended June 30, 2021, as shown on the Statements of Operations under administration fees.
Administration
fees were $67,500 and fees to the Sub-Administrator were $31,250 for the three months ended June 30, 2020, as shown on the Statements
of Operations under administration fees. Administration fees were $135,000 and fees to the Sub-Administrator were $62,500 for the six
months ended June 30, 2020, as shown on the Statements of Operations under administration fees.
As
of June 30, 2021 and December 31, 2020, administration fees of $405,000 and $472,500, respectively, were payable to House Hanover and
are recorded as Due to affiliates on the Statements of Assets and Liabilities. House Hanover is allowing administration fees to accrue
and not be paid until such time as the Company has sufficient capital to pay them. On April 29, 2021, a payment was made to House Hanover
in the amount of $202,500 to reduce a portion of the outstanding administration fees payable.
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 June 30, 2021, none of the portfolio
companies had accepted our offer for such services.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
NOTE
7 – FINANCIAL HIGHLIGHTS
|
|
Three Months Ended
June 30,
2021
|
|
|
Three Months Ended
June 30,
2020
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per
Share Data (1):
|
|
|
|
|
|
|
|
|
Net
asset value at beginning of period
|
|
$
|
0.221
|
|
|
$
|
0.212
|
|
Net
investment loss
|
|
|
(0.003
|
)
|
|
|
(0.002
|
)
|
Realized
gain (loss)
|
|
|
-
|
|
|
|
-
|
|
Change
in unrealized gain (loss)
|
|
|
0.068
|
|
|
|
(0.035
|
)
|
Net
asset value at end of period
|
|
$
|
0.286
|
|
|
$
|
0.175
|
|
Total
return based on net asset value (2)
|
|
|
29.0
|
%
|
|
|
(17.9
|
)%
|
Weighted
average shares outstanding for period, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
|
|
|
|
|
|
|
Ratio/Supplemental
Data:
|
|
|
|
|
|
|
|
|
Net
assets at end of period
|
|
$
|
34,406,639
|
|
|
$
|
21,073,719
|
|
Average
net assets
|
|
$
|
26,672,202
|
|
|
$
|
25,506,690
|
|
Ratio
of net operating expenses to average net assets (3)
|
|
|
5.8
|
%
|
|
|
6.6
|
%
|
Ratio
of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets (3)
|
|
|
4.9
|
%
|
|
|
5.4
|
%
|
Ratio
of net investment loss to average net assets (3)
|
|
|
(4.6
|
)%
|
|
|
(3.1
|
)%
|
Ratio
of net investment loss to average net assets, excluding other income from non-investment sources (3)
|
|
|
(4.6
|
)%
|
|
|
(3.1
|
)%
|
Ratio
of net decrease in net assets resulting from operations to average net assets (3)
|
|
|
117.6
|
%
|
|
|
(70.5
|
)%
|
Portfolio
Turnover
|
|
|
0.00
|
%
|
|
|
0.09
|
%
|
|
|
Six Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per
Share Data (1):
|
|
|
|
|
|
|
|
|
Net
asset value at beginning of period
|
|
$
|
0.187
|
|
|
$
|
0.276
|
|
Net
investment loss
|
|
|
(0.005
|
)
|
|
|
(0.003
|
)
|
Realized
gain (loss)
|
|
|
-
|
|
|
|
-
|
|
Change
in unrealized gain (loss)
|
|
|
0.104
|
|
|
|
(0.098
|
)
|
Net
asset value at end of period
|
|
$
|
0.286
|
|
|
$
|
0.175
|
|
Total
return based on net asset value (2)
|
|
|
52.9
|
%
|
|
|
(36.6
|
)%
|
Weighted
average shares outstanding for period, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
|
|
|
|
|
|
|
Ratio/Supplemental
Data:
|
|
|
|
|
|
|
|
|
Net
assets at end of period
|
|
$
|
34,406,639
|
|
|
$
|
21,073,719
|
|
Average
net assets
|
|
$
|
24,610,142
|
|
|
$
|
29,351,068
|
|
Ratio
of net operating expenses to average net assets (3)
|
|
|
6.3
|
%
|
|
|
5.5
|
%
|
Ratio
of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets (3)
|
|
|
5.4
|
%
|
|
|
4.5
|
%
|
Ratio
of net investment loss to average net assets (3)
|
|
|
(5.0
|
)%
|
|
|
(2.4
|
)%
|
Ratio
of net investment loss to average net assets, excluding other income from non-investment sources (3)
|
|
|
(5.0
|
)%
|
|
|
(2.4
|
)%
|
Ratio
of net decrease in net assets resulting from operations to average net assets (3)
|
|
|
97.7
|
%
|
|
|
(83.4
|
)%
|
Portfolio
Turnover
|
|
|
0.00
|
%
|
|
|
0.08
|
%
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
|
|
Year
Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Per
Share Data (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value at beginning of year
|
|
$
|
0.276
|
|
|
$
|
0.345
|
|
|
$
|
0.344
|
|
|
$
|
0.365
|
|
|
$
|
0.400
|
|
Net
investment income (loss)
|
|
|
(0.005
|
)
|
|
|
(0.009
|
)
|
|
|
0.009
|
|
|
|
0.008
|
|
|
|
(0.004
|
)
|
Change
in unrealized gain (loss)
|
|
|
(0.022
|
)
|
|
|
(0.060
|
)
|
|
|
(0.007
|
)
|
|
|
(0.035
|
)
|
|
|
(0.019
|
)
|
Realized
gain (loss)
|
|
|
(0.062
|
)
|
|
|
-
|
|
|
|
(0.001
|
)
|
|
|
0.006
|
|
|
|
(0.012
|
)
|
Net
asset value at end of year
|
|
$
|
0.187
|
|
|
$
|
0.276
|
|
|
$
|
0.345
|
|
|
$
|
0.344
|
|
|
$
|
0.365
|
|
Total
return (loss) based on net asset value (2)
|
|
|
(32.60
|
)%
|
|
|
(20.0
|
)%
|
|
|
0.3
|
%
|
|
|
(5.8
|
)%
|
|
|
(8.8
|
)%
|
Weighted
average shares outstanding for year, basic
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
120,486,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio/Supplemental
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets at end of year
|
|
$
|
22,479,540
|
|
|
$
|
33,280,329
|
|
|
$
|
41,554,951
|
|
|
$
|
41,407,539
|
|
|
$
|
43,985,319
|
|
Average
net assets
|
|
$
|
25,276,013
|
|
|
$
|
38,504,249
|
|
|
$
|
41,416,562
|
|
|
$
|
42,634,685
|
|
|
$
|
46,991,446
|
|
Total
operating expenses to average net assets
|
|
|
6.2
|
%
|
|
|
5.8
|
%
|
|
|
5.4
|
%
|
|
|
3.8
|
%
|
|
|
5.8
|
%
|
Net
operating expenses to average net assets (4)
|
|
|
6.2
|
%
|
|
|
5.8
|
%
|
|
|
5.4
|
%
|
|
|
3.3
|
%
|
|
|
5.8
|
%
|
Net
operating expenses excluding management fees, incentive fees, and interest expense to average net assets
|
|
|
5.2
|
%
|
|
|
4.9
|
%
|
|
|
4.3
|
%
|
|
|
2.8
|
%
|
|
|
4.3
|
%
|
Net
operating expenses excluding management fees, incentive fees, and interest expense to average net assets, excluding management fee
waiver
|
|
|
5.2
|
%
|
|
|
4.9
|
%
|
|
|
4.3
|
%
|
|
|
3.2
|
%
|
|
|
4.3
|
%
|
Net
investment income (loss) to average net assets
|
|
|
(2.7
|
)%
|
|
|
(2.8
|
)%
|
|
|
2.5
|
%
|
|
|
2.4
|
%
|
|
|
(1.1
|
)%
|
Net
investment income (loss) to average net assets, excluding management fee waiver
|
|
|
(2.7
|
)%
|
|
|
(2.8
|
)%
|
|
|
2.5
|
%
|
|
|
1.9
|
%
|
|
|
(1.1
|
)%
|
Net
investment income (loss) to average net assets, excluding other income from non-investment sources
|
|
|
(3.0
|
)%
|
|
|
(2.8
|
)%
|
|
|
2.5
|
%
|
|
|
0.1
|
%
|
|
|
(1.1
|
)%
|
Net
investment income (loss) to average net assets, excluding other income from non-investment sources, excluding management
fee waiver (5)
|
|
|
(3.0
|
)%
|
|
|
(2.8
|
)%
|
|
|
2.5
|
%
|
|
|
(0.4
|
)%
|
|
|
(1.1
|
)%
|
Net
increase (decrease) in net assets resulting from operations to average net assets
|
|
|
(42.7
|
)%
|
|
|
(21.5
|
)%
|
|
|
0.4
|
%
|
|
|
(6.0
|
)%
|
|
|
(9.0
|
)%
|
Portfolio
Turnover
|
|
|
0.4
|
%
|
|
|
0.7
|
%
|
|
|
0.5
|
%
|
|
|
7.0
|
%
|
|
|
1.1
|
%
|
(1)
|
Financial
highlights are based on weighted average shares outstanding.
|
(2)
|
Total
return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values
per share in the period. The total returns are not annualized.
|
(3)
|
Financial Highlights for periods of less than one year are annualized and the ratios of operating expenses to average net assets and net investment loss to average net assets are adjusted accordingly. Non-recurring expenses are not annualized. For the three and six months ended June 30, 2021 and 2020, the Company did not exclude any non-recurring expenses. Because the ratios are calculated for the Company’s common stock taken as a whole, an individual investor’s ratios may vary from these ratios.
|
(4)
|
Net operating expenses includes a management fee waiver in the amount of $216,559 for the year ended December 31, 2017.
|
(5)
|
Other income from non-investment sources only includes the reduction of previously accrued expenses totaling $968,256 for the year ended December 31, 2017.
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
NOTE
8 – COMMITMENTS AND CONTINGENCIES
In
the normal course of business, the Company may enter into investment agreements under which it commits to make an investment in a portfolio
company at some future date or over a specified period of time. The Company maintains sufficient assets to provide adequate cover to
allow it to satisfy its unfunded commitment amount as of June 30, 2021. The unfunded commitment is accounted for under ASC 820. As of
the date of this report, all commitments have been funded.
Legal
Proceedings
From
time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating
to the enforcement of the Company’s rights under contracts with its portfolio companies. Other than the Great Value Storage Litigation
described below, the Company is not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal
proceeding threatened against us.
Great
Value Storage Litigation
On
March 14, 2019, we filed a complaint against Great Value Storage, LLC (“GVS”), World Class Capital Group, LLC
(“World Class”), and Natin Paul, which we refer to collectively as the GVS Defendants, in the District Court for Harris
County, Texas. GVS is one of the Company’s portfolio companies. The complaint alleges that the GVS defendants are in breach of
certain contractual obligations under a Note Purchase Agreement entered into between the parties on July 31, 2012, as amended (the
“Note Purchase Agreement”), including failure to make payments owed to the Company under the Note Purchase Agreement.
The Company seeks (i) actual damages, (ii) special, statutory, or exemplary damages, (iii) pre-judgment interest, (iv) post-judgment
interest, (v) court costs, (vi) reasonable attorneys’ fees, and (vii) all other relief to which the Company may be entitled to
under law or equity. On April 15, 2019, the GVS Defendants filed an Answer with Request for Disclosure. On January 22, 2021, the
Harris County District Court granted the Company’s Motion for Partial Summary Judgment on its breach of contract claim against
GVS and World Class. On March 4, 2021, the Final Judgment Order was entered awarding damages to the Company in the amount of
$9,910,601. On March 9, 2021, the Harris County District Court granted the Company’s Motion to Sever Remaining Claims. These
remaining claims are pending in the Harris County District Court. On June 2, 2021, the GVS Defendants filed a Notice of Appeal and
its deadline to file its appeal brief by August 9, 2021 was extended by the court for 30 days. On June 30, 2021, the Company filed a Motion for Post-Judgment
Receivership to appoint a receiver to the court to collect the judgment on our behalf. This motion is still pending.
The
Company has not received financial statements from GVS since August 2018 and does not have current information regarding the properties
owned by GVS affiliates which have been managed by GVS (some of which have filed for Chapter 11 bankruptcy). Because of the inherent
uncertainty of litigation, the fair market value of our investment in GVS may be materially lower than the value included in our financial
statements.
Risks
and Uncertainties
COVID-19
As
the global spread of COVID-19 continues, we have experienced increased market volatility and economic uncertainties which may materially
impact the valuation of portfolio investments and in turn, the net asset value of the Company. This may have other financial or operational
effects, though the extent of such impact is unpredictable at this time. Further, while the effects of this pandemic have negatively
impacted our portfolio companies, four of them have benefited from the Paycheck Protection Program by the U.S. Small Business Administration.
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
NOTE
9 – UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES
The
Company’s investments are primarily in private small and lower middle-market companies. In accordance with Rules 3.09 and 4.08(g)
of Regulation S-X, the Company must determine which of its unconsolidated controlled portfolio companies are considered “significant
subsidiaries”, if any. On May 21, 2020, the U.S. Securities and Exchange Commission adopted rule amendments to be effective on
January 1, 2021. Under the new rules, a new definition of “significant subsidiary” was adopted.
In
evaluating these investments, there are now two tests utilized to determine if any of the Company’s control investments are considered
significant subsidiaries; the investment and the income significant tests. The asset significant test was eliminated under the new rules.
Rule 3.09 of Regulation S-X, as interpreted by the SEC, requires the Company to include separate audited financial statements of any
unconsolidated majority-owned or controlled subsidiary in an annual report if the Company’s control investment meets the definition
of a significant subsidiary under either the investment or income significant tests. Rule 4-08(g) of Regulation S-X requires summarized
financial information of an unconsolidated subsidiary in an annual report if it does not qualify under Rule 3.09 of Regulation S-X and
the Company’s control investment meets the definition of a significant subsidiary under either of the two significant tests. Rule
10-01(b)(1) of Regulation S-X requires summarized financial information for interim financial statements, if the Company’s control
investment meets the definition of a significant subsidiary under either the investment or income significant tests.
The
Company has determined that Rockfish Seafood Grill, Inc. and Advantis Certified Staffing Solutions, Inc., two of the Company’s
four majority owned or controlled portfolio companies, were considered a significant subsidiary at June 30, 2021 as prescribed under
Rule 10-01(b)(1) of Regulation S-X.
The
following tables show the summarized financial information for Rockfish Seafood Grill, Inc. and Advantis Certified Staffing Solutions,
Inc. (numbers in thousands):
|
|
Rockfish
Seafood Grill, Inc.
|
|
|
Advantis
Certified Staffing Solutions, Inc.
|
|
|
|
Six
months Ended
June 30,
2021
|
|
|
Six
months Ended
June 30,
2020
|
|
|
Six
months Ended
June 30,
2021
|
|
|
Six
months Ended
June 30,
2020
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Income
Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
|
$
|
9,536
|
|
|
$
|
6,885
|
|
|
$
|
4,013
|
|
|
$
|
2,913
|
|
Gross
Profit
|
|
|
6,707
|
|
|
|
4,897
|
|
|
|
887
|
|
|
|
738
|
|
Net
Income (Loss)
|
|
|
(228
|
)
|
|
|
(1,525
|
)
|
|
|
(399
|
)
|
|
|
(538
|
)
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
NOTE
10 – SUBSEQUENT EVENTS
Subsequent
to the quarter ending June 30, 2021 and through the date of this filing, there was no portfolio activity or other events to report.
Schedule
12-14
The
table below represents the fair value of control and affiliate investments at December 31, 2020 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 June 30, 2021.
Portfolio
Company/Type of Investment (1)
|
|
Principal
Amount/Shares/
Ownership % at
June 30,
2021
|
|
|
Amount
of Interest and Dividends Credited in Income
|
|
|
Fair
Value at
December 31,
2020
|
|
|
Purchases
(2)
|
|
|
Sales
|
|
|
Change
in Unrealized Gains/(Losses)
|
|
|
Fair
Value at
June 30,
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantis
Certified Staffing Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loan, 12.0% Cash, due 11/30/2021(3)
|
|
$
|
4,500,000
|
|
|
$
|
-
|
|
|
$
|
3,008,208
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,397,286
|
|
|
$
|
4,405,494
|
|
Unsecured
loan Consolidated BL Note 6.33% due 12/31/2021
|
|
$
|
1,381,586
|
|
|
|
43,368
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
Stock – Series A (3)
|
|
|
225,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
Stock – Series B (3)
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrant
for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrant
for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dominion
Medical Management, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loan, 12.0% Cash, 6% PIK due, 3/31/2020 (2) (3)
|
|
$
|
1,516,144
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integrated
Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Membership – Class A units (3)
|
|
|
800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred
Membership – Class B units (3)
|
|
|
760
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
Units (3)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCC
SBH Sub, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock (3)
|
|
|
100
|
|
|
|
-
|
|
|
|
1,658,680
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,633
|
)
|
|
|
1,653,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockfish
Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018 (3)
|
|
$
|
6,352,944
|
|
|
|
-
|
|
|
|
6,910,188
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,665,939
|
|
|
|
11,576,127
|
|
Revolving
Loan, 8% Cash, due 12/31/2021
|
|
$
|
2,384,169
|
|
|
|
99,814
|
|
|
|
2,703,315
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(40,313
|
)
|
|
|
2,663,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockfish
Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028
|
|
|
10.000
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
414,231
|
|
|
|
414,231
|
|
Membership
Interest – Class A (3)
|
|
|
99.997
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,727,970
|
|
|
|
3,727,970
|
|
Total
Control Investments
|
|
|
|
|
|
$
|
143,182
|
|
|
$
|
14,280,391
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,159,480
|
|
|
$
|
24,439,871
|
|
(1)
|
Represents
an illiquid investment.
|
(2)
|
Includes
PIK interest.
|
(3)
|
Non-income
producing security.
|
PRINCETON
CAPITAL CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2021
(Unaudited)
The
table below represents the fair value of control and affiliate investments at December 31, 2019 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 June 30, 2020.
Portfolio
Company/Type of Investment (1)
|
|
Principal
Amount/Shares/
Ownership % at
June 30,
2020
|
|
|
Amount
of Interest and Dividends Credited in Income
|
|
|
Fair
Value at
December 31,
2019
|
|
|
Purchases
(2)
|
|
|
Sales
|
|
|
Transfers
from Restructuring/
Transfers into Control Investments
|
|
|
Change
in Unrealized Gains/(Losses)
|
|
|
Fair
Value at
June 30,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantis
Certified Staffing Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loan, 12.0% Cash, due 11/30/2021(3)
|
|
$
|
4,500,000
|
|
|
$
|
-
|
|
|
$
|
2,816,265
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
(854,643
|
)
|
|
$
|
1,961,622
|
|
Unsecured
loan 6.33% PIK, due 12/31/2020 (2)
|
|
$
|
1,381,586
|
|
|
|
43,952
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
Stock – Series A (3)
|
|
|
225,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
Stock – Series B (3)
|
|
|
9,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrant
for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrant
for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dominion
Medical Management, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Lien Loan, 12.0% Cash, 6% PIK due, 3/31/2020 (2) (3)
|
|
$
|
1,516,144
|
|
|
|
-
|
|
|
|
1,266,245
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,108,443
|
)
|
|
|
157,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integrated
Medical Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Membership – Class A units (3)
|
|
|
800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred
Membership – Class B units (3)
|
|
|
760
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
Units (3)
|
|
|
14,082
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCC
SBH Sub, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock (3)
|
|
|
100
|
|
|
|
-
|
|
|
|
1,654,677
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(96,548
|
)
|
|
|
1,558,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockfish
Seafood Grill, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018 (3)
|
|
$
|
6,352,944
|
|
|
|
-
|
|
|
|
5,073,470
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,359,547
|
)
|
|
|
3,713,923
|
|
Revolving
Loan, 8% PIK, due 12/31/2020 (2)(3)
|
|
$
|
2,384,169
|
|
|
|
-
|
|
|
|
2,383,886
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,496
|
|
|
|
2,432,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockfish
Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028
(3)
|
|
|
10.000
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Membership
Interest – Class A (3)
|
|
|
99.997
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
Control Investments
|
|
|
|
|
|
$
|
43,952
|
|
|
$
|
13,194,543
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(3,370,685
|
)
|
|
$
|
9,823,858
|
|
(1)
|
Represents
an illiquid investment.
|
(2)
|
Includes
PIK interest.
|
(3)
|
Non-income
producing security.
|
End
of notes to financial statements.