Item
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following information should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form
10-K.
References
herein to “we”, “us” or “our” refer to Princeton Capital Corporation (the “Company” or
“Princeton Capital”), unless the context specifically requires otherwise.
Forward-Looking
Statements
Some
of the statements in this annual report on Form 10-K constitute forward-looking statements, which relate to future events or our future
performance or financial condition. Such forward-looking statements may include statements preceded by, followed by or that otherwise
include the words “may,” “might,” “will,” “intend,” “should,” “could,”
“can,” “would,” “expect,” “believe,” “estimate,” “anticipate,”
“predict,” “potential,” “plan” or similar words. The forward-looking statements contained in this
annual report on Form 10-K involve risks and uncertainties, including statements as to:
| ● | our
future operating results; |
| ● | our
business prospects and the prospects of our portfolio companies; |
| ● | the
effect of investments that we expect to make; |
| ● | our
contractual arrangements and relationships with third parties; |
| ● | actual
and potential conflicts of interest with our investment advisor; |
| ● | the
dependence of our future success on the general economy and its effect on the industries
in which we invest; |
| ● | the
ability of our portfolio companies to achieve their objectives; |
| ● | the
use of borrowed money to finance a portion of our investments; |
| ● | the
adequacy of our financing sources and working capital; |
| ● | the
timing of cash flows, if any, from the operations of our portfolio companies; |
| ● | the
ability of our investment advisor to locate suitable investments for us and to monitor and
administer our investments; |
| ● | the
ability of our investment advisor to attract and retain highly talented professionals; |
| ● | our
ability to qualify and maintain our qualification as a regulated investment company and as
a business development company; and |
| ● | the
effect of future changes in laws or regulations (including the interpretation of these laws
and regulations by regulatory authorities) and conditions in our operating areas, particularly
with respect to business development companies or regulated investment companies. |
We
have based the forward-looking statements included in this annual report on Form 10-K on information available to us on the date of this
annual report on Form 10-K, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially
from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We
undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or
otherwise, unless required by law or Securities and Exchange Commission (“SEC”) rule or regulation. You are advised to consult
any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Overview
We
are an externally managed, non-diversified, closed-end investment company that has elected to be treated as a business development company
(“BDC”) under the Investment Company Act of 1940 (the “1940 Act” or “Investment Company Act”). While
we have sought to invest primarily in private small and lower middle-market companies in various industries, 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 in private small and lower middle-market companies. Since January 1, 2018, we have been managed by House Hanover,
LLC (“House Hanover”).
As
a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition
is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments
in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes
all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that
have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case
organized in the United States.
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. On August 19, 2021, we provided an update with respect to our
strategic review process and reported that the process was ongoing and that our options have been enhanced by significant valuation growth
in our portfolio. As of December 31, 2021 and through the date of filing this Annual Report, the Company has not entered into any agreements
regarding any strategic alternative.
Corporate
History
In
order to expedite the ramp-up of our investment activities and further our ability to meet our investment objectives on March 13, 2015,
we (i) acquired approximately $11.2 million in cash, $43.5 million in equity and debt investments, and $1.9 million in restricted cash
escrow deposits of Capital Point Partners, L.P. (“CPP”) and Capital Point Partners II, L.P. (“CPPII”) (together,
the “Partnerships”), and (ii) issued approximately 115.5 million shares of our common stock based on a pre-valuation presumed
fair value of $60.9 million and on a price of approximately $0.53 per share. While we have sought to invest primarily in private small
and lower middle-market companies in various industries, we are now (with a strategic alternatives process underway and limited resources)
investing only in current investments and otherwise conserving cash.
On
an annual basis and in general, BDCs intend to elect to be treated for tax purposes as a regulated investment company (“RIC”)
under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). To qualify as a RIC, a BDC must, among other things,
meet certain source-of-income and asset diversification requirements. As a RIC, BDCs generally will not have to pay corporate-level taxes
on any income they distribute to their stockholders. We did not meet the qualifications of a RIC for the 2020 or 2021 tax years and will
be taxed as a corporation under Subchapter C of the Code. Further, we do not expect to meet the qualifications of a RIC until such time
as certain strategic alternatives are achieved.
Portfolio
Composition and Investment Activity
Portfolio
Composition
We
originate and invest primarily in private small and lower middle-market companies through first lien loans, second lien loans, unsecured
loans, unitranche and mezzanine debt financing, and corresponding equity investments. United States Treasury securities may be purchased
and temporarily held in connection with complying with RIC diversification requirements under Subchapter M of the Code.
At
December 31, 2021, the Company had investments in 7 portfolio companies. The total cost and fair value of the total investments were
approximately $46.0 million and $34.3 million, respectively. The composition of our investments by asset class as of December 31, 2021
is as follows:
Investments | |
Cost | | |
Fair Value | | |
Percentage of Total Portfolio | |
Portfolio Investments | |
| | |
| | |
| |
First Lien Loans | |
$ | 15,404,530 | | |
$ | 19,400,200 | | |
| 56.6 | % |
Second Lien Loans | |
| 12,766,144 | | |
| 11,435,134 | | |
| 33.3 | |
Unsecured Loans | |
| 1,381,586 | | |
| - | | |
| - | |
Equity | |
| 16,483,889 | | |
| 3,471,758 | | |
| 10.1 | |
Total Portfolio Investments | |
| 46,036,149 | | |
| 34,307,092 | | |
| 100.00 | |
Total Investments | |
$ | 46,036,149 | | |
$ | 34,307,092 | | |
| 100.00 | % |
At
December 31, 2020, the Company had investments in 7 portfolio companies. The total cost and fair value of the total investments were
approximately $46.2 million and $21.6 million, respectively. The composition of our investments by asset class as of December 31, 2020
is as follows:
Investments | |
Cost | | |
Fair Value | | |
Percentage of Total Portfolio | |
Portfolio Investments | |
| | |
| | |
| |
First Lien Loans | |
$ | 15,537,699 | | |
$ | 14,671,435 | | |
| 68.0 | % |
Second Lien Loans | |
| 12,766,144 | | |
| 5,235,708 | | |
| 24.3 | |
Unsecured Loans | |
| 1,381,586 | | |
| - | | |
| - | |
Equity | |
| 16,483,889 | | |
| 1,659,880 | | |
| 7.7 | |
Total Portfolio Investments | |
| 46,169,318 | | |
| 21,567,023 | | |
| 100.0 | |
Total Investments | |
$ | 46,169,318 | | |
$ | 21,567,023 | | |
| 100.0 | % |
At
December 31, 2021, our weighted average yield based upon cost of our portfolio investments was approximately 9.08% of which approximately
9.08% is current cash interest. At December 31, 2020, our weighted average yield based upon cost of our portfolio investments was approximately
7.39% of which approximately 7.39% is current cash interest.
At
December 31, 2021 and December 31, 2020, we held no United States Treasury securities. United States Treasury securities may be purchased
and temporarily held in connection with complying with RIC diversification requirements under Subchapter M of the Code.
Investment
Activity
Our
level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and
equity capital to middle market companies, the level of merger and acquisition activity, the general economic environment and the competitive
environment for the types of investments we make.
The
primary portfolio investment activities for the year ended December 31, 2021 are as follows:
| ● | On
March 4, 2021, the Final Judgment Order was entered, after the Harris County District Court granted the Company’s Motion for Partial
Summary Judgment on its breach of contract claim against Great Value Storage, LLC and World Class Capital Group, LLC, 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. (See Note 9 of the Notes to Financial
Statements) |
| ● | On
September 30, 2021, the Company received interest payments from Rockfish Seafood Grill, Inc. totaling $462,736 consisting of $50,734
of current interest, $181,431 of cash interest owed from periods prior to December 31, 2017, and $230,571 of PIK interest. |
| ● | Effective
November 1, 2021, the Company amended the Subordinated Note and Securities Purchase Agreement with Performance Alloys, LLC curing all
defaults and extending the maturity of the loan to December 31, 2023. In return, Performance Alloys resumed monthly interest payments
to the Company and also paid the Company four months of accrued interest. |
| ● | Effective
December 31, 2021, the Company amended the Revolving Promissory Note with Rockfish Seafood Grill, Inc. to extend the maturity date of
the note to December 31, 2022. |
| ● | Effective
December 31, 2021, the Company amended the Amended, Restated and Consolidated Promissory Note with Advantis Certified Staffing Solutions,
Inc. to extend the maturity date of the note to December 31, 2022. |
Asset
Quality
In
addition to various risk management and monitoring tools, our investment advisor used an investment rating system to characterize and
monitor the quality of our debt investment portfolio. Equity securities and Treasury Bills are not graded. This debt investment rating
system uses a five-level numeric scale. The following is a description of the conditions associated with each investment rating:
Investment
Rating |
|
Summary
Description |
|
|
|
1 |
|
Investments
that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original
investment. |
2 |
|
Investments
that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original
investment. All new loans will initially be rated 2. |
3 |
|
Investments
that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected.
Portfolio companies with a rating of 3 may be out of compliance with financial covenants. |
4 |
|
Investments
that are performing substantially below expectations and whose risks have increased substantially since the original investment.
These investments are often in work out. Investments with a rating of 4 will be those for which some loss of return but no loss of
principal is expected. |
5 |
|
Investments
that are performing substantially below expectations and whose risks have increased substantially since the original investment.
These investments almost always end up in work out. Investments with a rating of 5 are those for which some loss of return and principal
is expected. |
The
following table shows the investment rankings of our debt investments at fair value as of December 31, 2021 and December 31, 2020:
| |
As of December 31, 2021 | |
As of December 31, 2020 |
Investment Rating | |
Fair Value | | |
% of Total Portfolio | | |
Number of Portfolio Companies | | |
Fair Value | | |
% of Total Portfolio | | |
Number of Portfolio Companies | |
1 | |
$ | — | | |
| — | % | |
| — | | |
$ | — | | |
| — | % | |
| — | |
2 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
3 | |
| 21,380,690 | | |
| 69.34 | | |
| 2 | | |
| — | | |
| — | | |
| — | |
4 | |
| 9,296,485 | | |
| 30.15 | | |
| 2 | | |
| 17,679,643 | | |
| 88.81 | | |
| 3 | |
5 | |
| 158,159 | | |
| 0.51 | | |
| 1 | | |
| 2,227,500 | | |
| 11.19 | | |
| 2 | |
| |
$ | 30,835,334 | | |
| 100.00 | % | |
| 5 | | |
$ | 19,907,143 | | |
| 100.00 | % | |
| 5 | |
Loans
and Debt Securities on Non-Accrual Status
We
will not accrue interest on loans and debt securities if we have reason to doubt our ability to collect such interest. As of December
31, 2021, we had 4 loans on non-accrual status and as of December 31, 2020, we had 5 loans on non-accrual status.
Results
of Operations
An
important measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net
investment income (loss), net realized gain (loss) and net change in unrealized gain (loss). Net investment income (loss) is the difference
between our income from interest, dividends, fees and other investment income and our operating expenses including interest on borrowed
funds. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments
and their amortized cost. Net change in unrealized gain (loss) on investments is the net change in the fair value of our investment portfolio.
Revenues
We
generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities
that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear interest at a
fixed or floating rate. Interest on our debt securities is generally payable quarterly. Payments of principal on our debt investments
may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt
investments may pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest
will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing
investments multiplied by the weighted average yield of our investments. We expect that the dollar amount of interest and any dividend
income that we earn to increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of
prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing managerial assistance and possibly
consulting fees. These fees will be reorganized as they are earned.
Expenses
Our
primary operating expenses include the payment of fees to House Hanover and our allocable portion of overhead expenses under the investment
advisory agreements and other operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and
transactions, which may include:
| ● | 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 our investment advisor 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 our investment advisor); |
| ● | 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 our investment
advisor) 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 in connection with administering
the Company’s business. |
Comparison
of the Years Ended December 31, 2021, 2020, and 2019
| |
Year Ended
December 31, 2021 | | |
Year Ended
December 31, 2020 | | |
Year
Ended
December 31, 2019
| |
| |
Total | | |
Per Share (1) | | |
Total | | |
Per Share (1) | | |
Total | | |
Per Share (1) | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Investment income | |
| | |
| | |
| | |
| | |
| | |
| |
Interest income (2) | |
$ | 849,731 | | |
$ | 0.007 | | |
$ | 783,633 | | |
$ | 0.007 | | |
$ | 1,115,620 | | |
$ | 0.009 | |
Other income | |
| 24,805 | | |
| 0.000 | | |
| 121,310 | | |
| 0.001 | | |
| 29,646 | | |
| 0.000 | |
Total investment income | |
| 874,536 | | |
| 0.007 | | |
| 904,943 | | |
| 0.008 | | |
| 1,145,266 | | |
| 0.009 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Management fees | |
| 265,340 | | |
| 0.002 | | |
| 266,984 | | |
| 0.002 | | |
| 364,135 | | |
| 0.003 | |
Administration fees | |
| 402,110 | | |
| 0.004 | | |
| 396,324 | | |
| 0.003 | | |
| 407,500 | | |
| 0.003 | |
Audit Fees | |
| 159,547 | | |
| 0.001 | | |
| 197,550 | | |
| 0.002 | | |
| 284,020 | | |
| 0.002 | |
Legal Fees | |
| 349,332 | | |
| 0.003 | | |
| 131,451 | | |
| 0.001 | | |
| 187,381 | | |
| 0.002 | |
Valuation fees | |
| 132,000 | | |
| 0.001 | | |
| 159,000 | | |
| 0.001 | | |
| 170,920 | | |
| 0.001 | |
Other professional fees | |
| 19,487 | | |
| 0.000 | | |
| 21,920 | | |
| 0.000 | | |
| 24,350 | | |
| 0.000 | |
Directors’ fees | |
| 150,000 | | |
| 0.001 | | |
| 150,000 | | |
| 0.001 | | |
| 148,500 | | |
| 0.001 | |
Insurance expense | |
| 160,260 | | |
| 0.002 | | |
| 141,893 | | |
| 0.001 | | |
| 128,551 | | |
| 0.001 | |
Interest expense | |
| 188 | | |
| 0.000 | | |
| 3,598 | | |
| 0.000 | | |
| 3,527 | | |
| 0.000 | |
Other general and administrative expenses | |
| 116,058 | | |
| 0.001 | | |
| 93,053 | | |
| 0.001 | | |
| 103,431 | | |
| 0.001 | |
Bad debt expense | |
| - | | |
| - | | |
| 16,549 | | |
| 0.000 | | |
| 413,928 | | |
| 0.003 | |
Total operating expenses | |
| 1,754,322 | | |
| 0.015 | | |
| 1,578,322 | | |
| 0.012 | | |
| 2,236,243 | | |
| 0.017 | |
Total net operating expenses | |
| 1,754,322 | | |
| 0.015 | | |
| 1,578,322 | | |
| 0.012 | | |
| 2,236,243 | | |
| 0.017 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income (loss) before tax | |
| (879,786 | ) | |
| (0.007 | ) | |
| (673,379 | ) | |
| (0.006 | ) | |
| (1,090,977 | ) | |
| (0.009 | ) |
Income tax expense (benefit) | |
| - | | |
| - | | |
| 1,816 | | |
| - | | |
| (19,024 | ) | |
| - | |
Net investment income (loss) after tax | |
| (879,786 | ) | |
| (0.007 | ) | |
| (675,195 | ) | |
| (0.006 | ) | |
| (1,071,953 | ) | |
| (0.009 | ) |
Net change in unrealized gain ((loss) | |
| 12,873,238 | | |
| 0.107 | | |
| (2,709,344 | ) | |
| (0.022 | ) | |
| (7,202,669 | ) | |
| (0.060 | ) |
Net realized loss | |
| - | | |
| - | | |
| (7,416,250 | ) | |
| (0.062 | ) | |
| - | | |
| (0.000 | ) |
Net increase (decrease) in net assets
resulting from operations | |
$ | 11,993,452 | | |
$ | 0.100 | | |
$ | (10,800,789 | ) | |
$ | (0.090 | ) | |
$ | (8,274,622 | ) | |
$ | (0.069 | ) |
| (1) | The
basic per share figures noted above are based on a weighted average of 120,486,061, 120,486,061 and 120,486,061 shares outstanding for
the years ended December 31, 2021, 2020, and 2019, respectively, except where such amounts need to be adjusted to be consistent with
what is disclosed in the financial highlights of our financial statements. |
| (2) | Interest
income includes PIK interest of $97,401, $21,804, and $211,102, for the years ended December 31, 2021, 2020, and 2019, respectively. |
Operating
Expenses
Total
net operating expenses increased from $1,578,322 for the year ended December 31, 2020 to $1,754,322 for the year ended December 31, 2021.
The increase is primarily due to a increase in legal expense, and to a lesser extent, insurance fees and other general and administrative
expenses. The increase was minimally offset by an decrease in audit fees, valuation fees and bad debt expense.
Total
net operating expenses per share increased from $0.012 per share for the year ended December 31, 2020 to $0.015 per share for the year
ended December 31, 2021.
Total
net operating expenses decreased from $2,236,243 for the year ended December 31, 2019 to $1,578,322 for the year ended December 31, 2020.
The decrease is primarily due to a decrease in bad debt expense, and to a lesser extent, management, audit and legal fees. The decrease
was minimally offset by an increase in insurance expense.
Total
net operating expenses per share decreased from $0.017 per share for the year ended December 31, 2019 to $0.012 per share for the year
ended December 31, 2020.
Net
Investment Income (Loss)
Net
investment income (loss) (after tax) increased from $(675,195) for the year ended December 31, 2020 to $(879,786) for the year ended
December 31, 2021. This increase is primarily due to a increase in legal, insurance and other general and administrative expenses as
well as a decrease interest income for the year ended December 31, 2021.
Net
investment income (loss) (after tax) per share increased from $(0.006) per share for the year ended December 31, 2020 to $(0.007) per
share for the year ended December 31, 2021.
Net
investment income (loss) (after tax) decreased from $(1,071,953) for the year ended December 31, 2019 to $(675,195) for the year ended
December 31, 2020. This decrease is primarily due to a decrease in bad debt expense, management, audit and legal fees as well as a decrease
interest income for the year ended December 31, 2020.
Net
investment income (loss) (after tax) per share decreased from $(0.009) per share for the year ended December 31, 2019 to $(0.006) per
share for the year ended December 31, 2020.
Net
Realized Gain (Loss)
We
measure realized gains (losses) by the difference between the net proceeds from the repayment or sale and the amortized cost basis of
the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized.
For
the year ended December 31, 2021, we did not recognize any realized gain or loss.
For
the year ended December 31, 2020, we recognized a net realized loss of $7,416,250 in connection with a loss attributable to the receipt
of final proceeds from our loan to Lone Star Brewery Development Inc. and a gain of $86,731 for the final distribution of escrowed amounts
from our previously exited investment in Spencer Enterprises Holdings, LLC.
For
the year ended December 31, 2019, we did not recognize any realized gain or loss.
Net
Change in Unrealized Gain (Loss)
Net
change in unrealized gain (loss) primarily reflects the change in portfolio investment values during the reporting period, including
the reversal of previously recorded appreciation or depreciation when gains or losses are realized.
Net
change in unrealized gain (loss) on investments totaled a gain of $12,873,238 for the year ended December 31, 2021 primarily in connection
with unrealized gains of $5,065,146, $4,607,710, $1,725,445, $1,433,557 on Rockfish Seafood Grill, Inc., Performance Alloys, Inc., Rockfish
Holdings, LLC and Advantis Certified Staffing Solutions, Inc.
Net
change in unrealized gain (loss) on investments totaled a loss of $(2,709,344) for the year ended December 31, 2020 primarily in connection
with unrealized losses of $(3,089,886), $(1,266,245), $(1,224,885) on Performance Alloys, Inc., Dominion Medical Management, Inc, and
Great Value Storage, LLC, Inc, respectively, partially offset by unrealized gains of $2,156,147 on Rockfish Seafood Grill, Inc.
Net
change in unrealized gain (loss) on investments totaled a loss of $(7,202,669) for the year ended December 31, 2019 primarily in connection
with unrealized losses of $(3,730,752), $(1,046,606), $(1,261,058) on Performance Alloys, Inc., Integrated Medical Partners, LLC, and
Rockfish Seafood Grill, Inc, respectively, partially offset by unrealized gains of $415,899 on Great Value Storage, LLC.
Financial
Condition, Liquidity and Capital Resources
We
intend to continue to generate cash from future offerings of securities and cash flows from operations, including earnings on investments
in our portfolio and future investments, as well as interest earned from the temporary investment of cash in U.S. government securities
and other high-quality debt investments that mature in one year or less. We may, if permitted by regulation, seek various forms of leverage
and borrow funds to make investments.
As
of December 31, 2021, we had $564,401 in cash and restricted cash, and our net assets totaled $34,472,992. We believe that our anticipated
cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next 12 months.
Contractual
Obligations
As
of December 31, 2021, we did not have any contractual obligations that would trigger the tabular disclosure of contractual obligations
under Section 303(a)(5) of Regulation S-K.
We
have entered into one contract under which we have material future commitments, the House Hanover Investment Advisory Agreement, pursuant
to which House Hanover serves as our investment adviser. Payments under the House Hanover Investment Advisory Agreement in future periods
will be equal to a percentage of the value of our net assets.
The
House Hanover Investment Advisory Agreement is terminable by either party without penalty upon written notice by the Company or 60 days’
written notice by House Hanover. If this agreement is terminated, the costs we incur under a new agreement may increase. In addition,
we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under
our investment advisory agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.
Distributions
For
the twelve months ended December 31, 2021 and 2020, and through the date of issuance of this report, no dividends have been declared
or distributed to stockholders.
In
order to qualify as a RIC and to avoid U.S. federal corporate level income tax on the income we distribute to our stockholders, we are
required to distribute at least 90% of our net ordinary income and our net short-term capital gains in excess of net long-term capital
losses, if any, to our stockholders on an annual basis. Additionally, we must distribute an amount at least equal to the sum of 98% of
our net ordinary income (during the calendar year) plus 98.2% of our net capital gain income (during each 12-month period ending on October
31) plus any net ordinary income and capital gain net income for preceding years that were not distributed during such years and on which
we paid no U.S. federal income tax to avoid a U.S. federal excise tax. To the extent that we have income available, we intend to make
quarterly distributions to our stockholders. Our stockholder distributions, if any, will be determined by our board of directors on a
quarterly basis. Any distribution to our stockholders will be declared out of assets legally available for distribution. The Company
did not meet the requirements to qualify as a RIC for the 2021 and 2020 tax years and will be taxed as a corporation under Subchapter
C of the Code. It may not be in the best interests of the Company’s stockholders to elect to be taxed as a RIC at the present time
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. While the Company does not expect to meet the qualifications of a RIC until
such time as certain strategic alternatives are achieved, it can still declare a dividend even though it is not required to do so.
We
may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of
our distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements
applicable to us as a BDC under the 1940 Act. If we do not distribute a certain percentage of our income annually, we could suffer adverse
tax consequences, including the possible failure to qualify as a RIC. We cannot assure stockholders that they will receive any distributions.
To
the extent our taxable earnings fall below the total amount of our distributions for that fiscal year, a portion of those distributions
may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our
stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written
disclosure accompanying any stockholder distribution carefully and should not assume that the source of any distribution is our ordinary
income or capital gains.
We
have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution,
the stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder
specifically “opts out” of our dividend reinvestment plan. If a stockholder opts out, that stockholder will receive cash
distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal,
state and local taxes in the same manner as cash distributions, stockholders participating in our dividend reinvestment plan will not
receive any corresponding cash distributions with which to pay any such applicable taxes.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Related
Party Transactions
Management
Fees
Management fees under the House Hanover Investment Advisory Agreement
for the years ended December 31, 2021 2020 and 2019 were $265,340, $266,984 and $364,135, respectively. As of December 31, 2021 and 2020,
management fees of $262,324 and $552,121, respectively, were payable to House Hanover. House Hanover is allowing management fees to accrue
and not be paid to allow the Company to build its cash balance and analyze the best use of its available funds. On April 29, 2021 and
December 6, 2021, the Company made payments to House Hanover for management fees in the amount of $285,137 and $270,000, respectively.
Incentive
Fees
The
Company is not obligated to pay House Hanover an incentive fee. Incentive fees are a typical component of investment advisory agreements
with business development companies.
Administration
Fees
House Hanover is entitled to reimbursement of expenses under the House
Hanover Investment Advisory Agreement for administrative services performed for the Company. Administration fees were $270,000, $270,000
and $270,000 for the years ended December 31, 2021, 2020 and 2019, respectively, as shown on the Statements of Operations under administration
fees. As of December 31, 2021 and 2020, there were $273,016 and $472,500, respectively, of administration fees owed to House Hanover,
as shown on the Statements of Assets and Liabilities under Due to affiliates. 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 and December 6, 2021, the Company
made payments to House Hanover for administration fees in the amount of $202,500 and $266,984, respectively.
Recent
Accounting Pronouncements
See
Note 2 of the financial statements for a description of recent accounting pronouncements, if any, including the expected dates of adoption
and the anticipated impact on the financial statements.
Critical
Accounting Policies
The
preparation of our financial statements and related disclosures in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.
Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual
results to differ. In addition to the discussion below, our significant accounting policies are further described in the notes to the
financial statements.
Valuation
of Portfolio Investments
As a BDC, we generally invest in illiquid loans and securities including
debt and equity securities of middle-market companies. Under procedures established by our board of directors, we value investments for
which market quotations are readily available at such market quotations. We obtain these market values from an independent pricing service
or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market
maker or a primary market dealer). Debt and equity securities that are not publicly traded or whose market prices are not readily available
are valued at fair value as determined in good faith by our board of directors. Such determination of fair values may involve subjective
judgments and estimates, although we engage independent valuation providers to review the valuation of each portfolio investment that
does not have a readily available market quotation quarterly. Investments purchased within 60 days of maturity are valued at cost plus
accreted discount, or minus amortized premium, which approximate fair value. With respect to unquoted securities, our board of directors
values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies
that are public and other factors, which are provided by a nationally recognized independent valuation firm. Beginning with the period
ending June 30, 2019, the Company engaged a new third-party valuation firm to perform its independent valuations of the Company’s
Level 3 investments. This valuation firm provides a range of values for selected investments, which is presented to the Valuation
Committee to determine the value for each of the selected investments.
When
an external event such as a purchase transaction, public offering or subsequent equity sale occurs, our board of directors uses the pricing
indicated by the external event to corroborate and/or assist us in our valuation. Because there is not a readily available market for
substantially all of the investments in our portfolio, we value our portfolio investments at fair value as determined in good faith by
our board of directors using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty
of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may
differ significantly from the values that would have been used had a readily available market value existed for such investments, and
the differences could be material.
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, our investment advisor, and our auditors; |
| ● | 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. |
Revenue
Recognition
Realized
gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and
their stated costs. Realized gains or losses on the sale of investments are calculated using the specific identification method.
Interest
income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that we expect
to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and
added to the loan balance that generally becomes due at maturity, we do not accrue PIK interest if the portfolio company valuation indicates
that such PIK interest is not collectible. Generally, we will not accrue interest on loans and debt securities if we have reason to doubt
our ability to collect such interest. Loan origination fees, original issue discount and market discount or premium are capitalized,
and we then accrete or amortize such amounts using the effective interest method as interest income. Upon the prepayment of a loan or
debt security, any unamortized loan origination is recorded as interest income. We record prepayment premiums on loans and debt securities
as interest income.
Dividend
income, if any, will be recognized on the ex-dividend date.
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.
Recent
Developments
Portfolio
Activity
| ● | Subsequent
to the year ending December 31, 2021 and through the date of this filing, there was no portfolio
activity or other events to report. |
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.
RUSSIA/BELARUS ACTION WITH UKRAINE
In February 2022, the Russian Federation and Belarus commenced a military
action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic
sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are
not determinable as of the date of these financial statements. The specific impact on the Company's financial condition, results of operations,
and cash flows is also not determinable as of the date of these financial statements.
Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
to Financial Statements
|
Page |
Report of Independent Registered Public Accounting Firm |
F-1 |
Statements of Assets and Liabilities as of December 31, 2021 and December 31, 2020 |
F-3 |
Statements of Operations for the years ended December 31, 2021, 2020 and 2019 |
F-4 |
Statements of Changes in Net Assets for the years ended December 31, 2021, 2020 and 2019 |
F-5 |
Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 |
F-6 |
Schedule of Investments as of December 31, 2021 |
F-7 |
Schedule of Investments as of December 31, 2020 |
F-10 |
Notes to Financial Statements |
F-13 |
Report of Independent Registered Public Accounting
Firm
Board of Directors
and Stockholders
Princeton Capital Corporation
Opinion on the Financial Statements
We have audited the accompanying Statements of
Assets and Liabilities of Princeton Capital Corporation (the "Company"), including the schedules of investments, as of December
31, 2021 and 2020, the related statements of operations, changes in net assets and cash flows for each of the three years in the period
ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. Our procedures included verification by confirmation of securities as of December
31, 2021 and 2020, by correspondence with the portfolio companies and custodians, or by other appropriate auditing procedures where replies
were not received. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is
a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the
Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value of investments
As discussed in Note 5 to the financial statements,
the Company measures substantially all of its investments at fair value using unobservable inputs and assumptions as there is no readily
available market value. As of December 31, 2021, total investments at fair value were $34,307,092.
We identified the evaluation of the fair value
of investments as a critical audit matter. Assessment of the Company’s judgments regarding the use of specific valuation techniques,
inputs and assumptions involved a high degree of subjective auditor judgment. Changes in these techniques, inputs and assumptions could
have a significant impact on the fair value of investments. In particular, the Company uses the market, income, and cost approaches to
value certain equity and debt investments. Additionally, the Company makes judgments relating to credit risk and market yields used in
yield analyses, guideline company market multiples and financial performance measures used in determining enterprise values, discount
rates used in discounted cash flow analyses for certain equity, debt and other interest-bearing investments, and replacement or reproduction
cost indications, in the application of the cost approach.
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among
others, either (i) testing management’s process for determining the fair value estimate, which included evaluating the appropriateness
of the market approach, income approach, or cost approach; testing the completeness, accuracy, and relevance of the underlying data used
in the technique; and evaluating the significant unobservable inputs and assumptions used by management, including the selected valuation
multiples, discount rates, market yields or replacement or reproduction cost indications, by considering the consistency and reasonableness
of the unobservable inputs relative to the performance and condition of the subject company or assets, and the external market and industry
data and evidence obtained in other areas of the audit; or (ii) the involvement of professionals with specialized skill and knowledge
to assist in developing an independent fair value estimate range for certain level 3 debt and equity investments, and comparison of management’s
fair value indications to the independently developed range of fair value estimates. Developing the independent range involved selection
of significant unobservable inputs for the market multiples, discount rates or market yields, or replacement or reproduction cost indications,
in order to evaluate the reasonableness of management’s fair value estimate of these certain level 3 investments, using a range
of available market information.
We have served as the Company's auditor since
2015.
/s/ WithumSmith+Brown, PC
Whippany, New Jersey
March 31, 2022
PCAOB Number 100
PRINCETON
CAPITAL CORPORATION
STATEMENTS OF ASSETS AND LIABILITIES
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
| | |
| |
ASSETS | |
| | |
| |
Control
investments at fair value (cost of $27,353,273 and $27,486,442, respectively) | |
$ | 22,615,962 | | |
$ | 14,280,391 | |
Non-control/non-affiliate
investments at fair value (cost of $18,682,876 and $18,682,876, respectively) | |
| 11,691,130 | | |
| 7,286,632 | |
Total
investments at fair value (cost of $46,036,149 and $46,169,318, respectively) | |
| 34,307,092 | | |
| 21,567,023 | |
Cash | |
| 523,815 | | |
| 1,725,700 | |
Restricted
cash | |
| 40,586 | | |
| 25,530 | |
Due
from portfolio companies | |
| 225,396 | | |
| 199,865 | |
Interest
receivable, net of allowance for bad debt of $430,445 and $430,445, respectively | |
| 104,145 | | |
| 114,740 | |
Taxes
receivable | |
| 750 | | |
| 7,250 | |
Prepaid
expenses | |
| 30,473 | | |
| 26,610 | |
Total
assets | |
| 35,232,257 | | |
| 23,666,718 | |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Accrued
management fees | |
| 262,324 | | |
| 552,121 | |
Accounts
payable | |
| 203,645 | | |
| 89,461 | |
Due
to affiliates(1) | |
| 273,016 | | |
| 472,500 | |
Tax
expense payable | |
| - | | |
| 1,593 | |
Deferred
fee income | |
| 17,996 | | |
| 42,056 | |
Accrued
expenses and other liabilities | |
| 2,284 | | |
| 29,447 | |
Total
liabilities | |
| 759,265 | | |
| 1,187,178 | |
| |
| | | |
| | |
Net
assets | |
$ | 34,472,992 | | |
$ | 22,479,540 | |
| |
| | | |
| | |
NET
ASSETS | |
| | | |
| | |
Common
Stock, par value $0.001 per share (250,000,000 shares authorized; 120,486,061 shares issued and outstanding at December 31, 2021
and December 31, 2020) | |
$ | 120,486 | | |
$ | 120,486 | |
Paid-in
capital | |
| 64,868,884 | | |
| 64,868,884 | |
Accumulated
undistributed net realized loss | |
| (8,161,872 | ) | |
| (8,161,872 | ) |
Distributions
in excess of net investment income | |
| (10,625,449 | ) | |
| (9,745,663 | ) |
Accumulated
unrealized loss on investments | |
| (11,729,057 | ) | |
| (24,602,295 | ) |
Total
net assets | |
$ | 34,472,992 | | |
$ | 22,479,540 | |
Net
asset value per share | |
$ | 0.286 | | |
$ | 0.187 | |
(1) | Amounts
under Due to Affiliates are for accrued amounts payable to the Company’s investment
advisor, House Hanover, LLC for the reimbursement of administration fees that it incurs
on the Company’s behalf. See Note 7 of the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
| |
For
the Year Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
INVESTMENT INCOME | |
| | |
| | |
| |
Interest
income from non-control/non-affiliate investments | |
$ | 286,875 | | |
$ | 594,126 | | |
$ | 556,897 | |
Interest
income from control investments | |
| 465,455 | | |
| 167,703 | | |
| 347,621 | |
Interest
income paid-in-kind from control investments | |
| 97,401 | | |
| 21,804 | | |
| 211,102 | |
Other
income from non-control/non-affiliate investments | |
| 24,060 | | |
| 27,152 | | |
| 26,421 | |
Other
income from non-investment sources (Note 2) | |
| 745 | | |
| 94,158 | | |
| 3,225 | |
Total
investment income | |
| 874,536 | | |
| 904,943 | | |
| 1,145,266 | |
| |
| | | |
| | | |
| | |
OPERATING
EXPENSES | |
| | | |
| | | |
| | |
Management
fees | |
| 265,340 | | |
| 266,984 | | |
| 364,135 | |
Administration
fees | |
| 402,110 | | |
| 396,324 | | |
| 407,500 | |
Audit
fees | |
| 159,547 | | |
| 197,550 | | |
| 284,020 | |
Legal
fees (Note 2) | |
| 349,332 | | |
| 131,451 | | |
| 187,381 | |
Valuation
fees | |
| 132,000 | | |
| 159,000 | | |
| 170,920 | |
Other
professional fees | |
| 19,487 | | |
| 21,920 | | |
| 24,350 | |
Directors’
fees | |
| 150,000 | | |
| 150,000 | | |
| 148,500 | |
Insurance
expense | |
| 160,260 | | |
| 141,893 | | |
| 128,551 | |
Interest
expense | |
| 188 | | |
| 3,598 | | |
| 3,527 | |
Other
general and administrative expenses | |
| 116,058 | | |
| 93,053 | | |
| 103,431 | |
Bad
debt expense | |
| - | | |
| 16,549 | | |
| 413,928 | |
Total
operating expenses | |
| 1,754,322 | | |
| 1,578,322 | | |
| 2,236,243 | |
| |
| | | |
| | | |
| | |
Net
investment income (loss) before tax | |
| (879,786 | ) | |
| (673,379 | ) | |
| (1,090,977 | ) |
Income
tax expense (benefit) | |
| - | | |
| 1,816 | | |
| (19,024 | ) |
Net
investment income (loss) after taxes | |
| (879,786 | ) | |
| (675,195 | ) | |
| (1,071,953 | ) |
| |
| | | |
| | | |
| | |
Net
realized gain (loss) on: | |
| | | |
| | | |
| | |
Non-control/non-affiliate
investments | |
| - | | |
| (7,416,250 | ) | |
| - | |
Control
investments | |
| - | | |
| - | | |
| - | |
Affiliate
investments | |
| - | | |
| - | | |
| - | |
Total
net realized gain (loss) | |
| - | | |
| (7,416,250 | ) | |
| - | |
Net
change in unrealized gain (loss) on investments: | |
| | | |
| | | |
| | |
Non-control/non-affiliate
investments | |
| 4,404,498 | | |
| (3,795,192 | ) | |
| (3,708,297 | ) |
Control
investments | |
| 8,468,740 | | |
| 1,085,848 | | |
| (3,494,372 | ) |
Affiliate
investments | |
| - | | |
| - | | |
| - | |
US
Treasury Bills and Cash | |
| - | | |
| - | | |
| - | |
Net
change in unrealized gain (loss) on investments | |
| 12,873,238 | | |
| (2,709,344 | ) | |
| (7,202,669 | ) |
Net
realized and unrealized loss on investments | |
| 12,873,238 | | |
| (10,125,594 | ) | |
| (7,202,669 | ) |
Net
increase (decrease) in net assets resulting from operations | |
$ | 11,993,452 | | |
$ | (10,800,789 | ) | |
$ | (8,274,622 | ) |
| |
| | | |
| | | |
| | |
Net
investment income (loss) per share | |
| | | |
| | | |
| | |
Basic | |
$ | (0.007 | ) | |
$ | (0.006 | ) | |
$ | (0.009 | ) |
Diluted | |
$ | (0.007 | ) | |
$ | (0.006 | ) | |
$ | (0.009 | ) |
Net
increase (decrease) in net assets resulting from operations per share | |
| | | |
| | | |
| | |
Basic | |
$ | 0.100 | | |
$ | (0.090 | ) | |
$ | (0.069 | ) |
Diluted | |
$ | 0.100 | | |
$ | (0.090 | ) | |
$ | (0.069 | ) |
Weighted
average shares of common stock outstanding | |
| | | |
| | | |
| | |
Basic | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
Diluted | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS
| |
For
the Year Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
Net assets at
beginning of year | |
$ | 22,479,540 | | |
$ | 33,280,329 | | |
$ | 41,554,951 | |
Increase
(decrease) in net assets resulting from operations: | |
| | | |
| | | |
| | |
Net investment income (loss) | |
| (879,786 | ) | |
| (675,195 | ) | |
| (1,071,953 | ) |
Realized gain/loss on investments | |
| - | | |
| (7,416,250 | ) | |
| - | |
Net
change in unrealized loss on investments | |
| 12,873,238 | | |
| (2,709,344 | ) | |
| (7,202,669 | ) |
Net
increase (decrease) in net assets resulting from operations | |
| 11,993,452 | | |
| (10,800,789 | ) | |
| (8,274,622 | ) |
Total
increase (decrease) in net assets | |
| 11,993,452 | | |
| (10,800,789 | ) | |
| (8,274,622 | ) |
Net
Assets at December 31 | |
$ | 34,472,992 | | |
$ | 22,479,540 | | |
$ | 33,280,329 | |
| |
| | | |
| | | |
| | |
Capital share activity: | |
| | | |
| | | |
| | |
Common
stock | |
| | | |
| | | |
| | |
Common
stock outstanding at the beginning of year | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
Common
stock outstanding at the end of year | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
| |
For
the Year Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
Cash flows from operating
activities: | |
| | |
| | |
| |
Net
increase (decrease) in net assets resulting from operations | |
$ | 11,993,452 | | |
$ | (10,800,789 | ) | |
$ | (8,274,622 | ) |
Adjustments
to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | |
| | | |
| | | |
| | |
Purchases
of investments in: | |
| | | |
| | | |
| | |
Portfolio
investments | |
| - | | |
| (90,537 | ) | |
| (2,016,128 | ) |
Proceeds
from sales, repayments, or maturity of investments in: | |
| | | |
| | | |
| | |
Portfolio
investments | |
| 230,570 | | |
| 1,772,226 | | |
| 255,994 | |
Net
realized (gain) loss on investments | |
| - | | |
| 7,416,250 | | |
| - | |
Net
change in unrealized (gain) loss on investments | |
| (12,873,238 | ) | |
| 2,709,344 | | |
| 7,202,669 | |
Increase
in investments due to PIK | |
| (97,401 | ) | |
| (21,804 | ) | |
| (211,102 | ) |
Allowance
for bad debt | |
| - | | |
| 16,517 | | |
| 413,928 | |
Changes
in other assets and liabilities: | |
| | | |
| | | |
| | |
Due
from portfolio companies | |
| (25,531 | ) | |
| 22,268 | | |
| 45,868 | |
Interest
receivable | |
| 10,595 | | |
| (47,570 | ) | |
| 6,283 | |
Prepaid
expenses | |
| (3,863 | ) | |
| (889 | ) | |
| (2,169 | ) |
Tax
receivable | |
| 6,500 | | |
| 37,500 | | |
| (29,077 | ) |
Other
receivable | |
| - | | |
| 2,689 | | |
| (2,689 | ) |
Accrued
management fees | |
| (289,797 | ) | |
| 266,983 | | |
| 184,560 | |
Accounts
payable | |
| 114,184 | | |
| (162,243 | ) | |
| 42,337 | |
Due
to affiliates | |
| (199,484 | ) | |
| 270,000 | | |
| 135,000 | |
Tax
expense payable | |
| (1,593 | ) | |
| (5,407 | ) | |
| 2,000 | |
Deferred
fee income | |
| (24,060 | ) | |
| (27,152 | ) | |
| 41,079 | |
Accrued
expenses and other liabilities | |
| (27,163 | ) | |
| 10,858 | | |
| 13,435 | |
Net
cash provided by (used in) operating activities | |
| (1,186,829 | ) | |
| 1,368,244 | | |
| (2,192,634 | ) |
| |
| | | |
| | | |
| | |
Net
increase (decrease) in cash and restricted cash | |
| (1,186,829 | ) | |
| 1,368,244 | | |
| (2,192,634 | ) |
Cash
and restricted cash at beginning of year | |
| 1,751,230 | | |
| 382,986 | | |
| 2,575,620 | |
Cash
and restricted cash at end of year | |
$ | 564,401 | | |
$ | 1,751,230 | | |
$ | 382,986 | |
| |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Supplemental
disclosure of cash flow financing activities: | |
| | | |
| | | |
| | |
Interest
expense paid | |
$ | 188 | | |
$ | 3,598 | | |
$ | 3,528 | |
Income
tax paid | |
$ | 1,593 | | |
$ | 6,836 | | |
$ | 8,053 | |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
SCHEDULE
OF INVESTMENTS as of December 31, 2021
Investments |
|
Headquarters / Industry |
|
Acquisition Date |
|
Principal Amount/ Shares/ % Ownership |
|
|
Amortized Cost |
|
|
Fair Value (1) |
|
|
% of Net Assets |
|
Portfolio Investments (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantis Certified Staffing Solutions, Inc. |
|
Houston, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loan, 12.0% Cash, due 11/30/2021(2) (5) (7) |
|
Staffing |
|
3/13/2015 |
|
$ |
4,500,000 |
|
|
$ |
4,500,000 |
|
|
$ |
4,441,765 |
|
|
|
12.89 |
% |
Unsecured loan 6.33%, due 12/31/2022 (7) |
|
|
|
10/01/2019 |
|
$ |
1,381,586 |
|
|
|
1,381,586 |
|
|
|
- |
|
|
|
- |
% |
Common Stock – Series A (5) (7) |
|
|
|
7/02/2017 |
|
|
225,000 |
|
|
|
10,150 |
|
|
|
- |
|
|
|
- |
% |
Common Stock – Series B (5) (7) |
|
|
|
7/02/2017 |
|
|
9,500,000 |
|
|
|
428,571 |
|
|
|
- |
|
|
|
- |
% |
Warrant for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027 (5) (7) |
|
|
|
7/02/2017 |
|
|
1 |
|
|
|
11,278 |
|
|
|
- |
|
|
|
- |
% |
Warrant for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027 (5) (7) |
|
|
|
12/31/2016 |
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
% |
Total |
|
|
|
|
|
|
|
|
|
|
6,331,585 |
|
|
|
4,441,765 |
|
|
|
12.89 |
% |
Dominion Medical Management, Inc. |
|
Milwaukee, WI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Lien Loan, 12.0% Cash, 6% PIK due, 3/31/2020 (2) (3) (5) (7) |
|
Medical Business Services |
|
3/22/2018 |
|
$ |
1,516,144 |
|
|
|
1,516,144 |
|
|
|
158,159 |
|
|
|
0.46 |
% |
Integrated Medical Partners, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Membership, Class A units (5) (7) |
|
|
|
3/13/2015 |
|
|
800 |
|
|
|
4,196,937 |
|
|
|
- |
|
|
|
- |
% |
Preferred Membership, Class B units (5) (7) |
|
|
|
3/13/2015 |
|
|
760 |
|
|
|
29,586 |
|
|
|
- |
|
|
|
- |
% |
Common Units (5) (7) |
|
|
|
3/13/2015 |
|
|
14,082 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
% |
Total |
|
|
|
|
|
|
|
|
|
|
5,742,667 |
|
|
|
158,159 |
|
|
|
0.46 |
% |
PCC SBH Sub, Inc. |
|
Karnes City, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (5) (7) |
|
Energy Services |
|
2/06/2017 |
|
|
100 |
|
|
|
2,525,481 |
|
|
|
1,745,113 |
|
|
|
5.06 |
% |
Rockfish Seafood Grill, Inc. |
|
Richardson, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018 (2) (3) (5) (7) |
|
Casual Dining |
|
3/13/2015 |
|
$ |
6,352,944 |
|
|
|
6,352,944 |
|
|
|
12,294,480 |
|
|
|
35.66 |
% |
Revolving Loan, 8% Cash, due 12/31/2022(7) |
|
|
|
6/29/2015 |
|
$ |
2,251,000 |
|
|
|
2,251,000 |
|
|
|
2,251,000 |
|
|
|
6.53 |
% |
Rockfish Holdings, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028 (5) (7) |
|
|
|
3/13/2015 |
|
|
10.0 |
% |
|
|
414,960 |
|
|
|
172,549 |
|
|
|
0.50 |
% |
Membership Interest – Class A (5) (7) |
|
|
|
3/13/2015 |
|
|
99.997 |
% |
|
|
3,734,636 |
|
|
|
1,552,896 |
|
|
|
4.51 |
% |
Total |
|
|
|
|
|
|
|
|
|
|
12,753,540 |
|
|
|
16,270,925 |
|
|
|
47.20 |
% |
Total control investments |
|
|
|
|
|
|
|
|
|
|
27,353,273 |
|
|
|
22,615,962 |
|
|
|
65.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/non-affiliate investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Value Storage, LLC |
|
Austin, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Loan, 12.0% cash, 2.0% PIK, due 12/31/2018 (2) (3) (5) (7) (8) |
|
Storage Company
Property Management |
|
3/13/2015 |
|
$ |
6,800,586 |
|
|
|
6,800,586 |
|
|
|
4,854,720 |
|
|
|
14.08 |
% |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
SCHEDULE
OF INVESTMENTS as of December 31, 2021
(Continued)
Investments | |
Headquarters / Industry | |
Acquisition Date | |
Principal Amount/Shares/
% Ownership | | |
Amortized Cost | | |
Fair Value (1) | | |
% of Net Assets | |
Non-control/non-affiliate investments (continued) | |
| |
| |
| | |
| | |
| | |
| |
| |
| |
| |
| | |
| | |
| | |
| |
Performance Alloys, LLC | |
Houston, TX | |
| |
| | |
| | |
| | |
| |
Second Lien Loan, 10% Cash, due 12/31/2023 (7) | |
Nickel Pipe, Fittings & Flanges | |
7/01/2016 | |
$ | 6,750,000 | | |
$ | 6,750,000 | | |
$ | 6,835,210 | | |
| 19.83 | % |
Membership Interest – Class B (5) (7) | |
| |
7/01/2016 | |
| 25.97 | % | |
| 5,131,090 | | |
| - | | |
| - | % |
Total | |
| |
| |
| | | |
| 11,881,090 | | |
| 6,835,210 | | |
| 19.83 | % |
Rampart Detection Systems, Ltd. | |
British Columbia, Canada | |
| |
| | | |
| | | |
| | | |
| | |
Common Stock Shares (4) (5) | |
Security | |
3/13/2015 | |
| 600,000 | | |
| 1,200 | | |
| 1,200 | | |
| - | % |
Total non-control/non-affiliate investments | |
| |
| |
| | | |
| 18,682,876 | | |
| 11,691,130 | | |
| 33.91 | % |
Total Portfolio Investments | |
| |
| |
| | | |
| 46,036,149 | | |
| 34,307,092 | | |
| 99.52 | % |
| |
| |
| |
| | | |
| | | |
| | | |
| | |
Total Investments | |
| |
| |
| | | |
$ | 46,036,149 | | |
$ | 34,307,092 | | |
| 99.52 | % |
| (1) | See
Note 5 of the Notes to Financial Statements for a discussion of the methodologies used to value securities in the portfolio. |
| (2) | Investment
is on non-accrual status. |
| (3) | Represents
a security with a payment-in-kind component (“PIK”). At the option of the issuer, interest can be paid in cash or cash and
PIK. The percentage of PIK shown is the maximum PIK that can be elected by the portfolio company. |
| (4) | The
investment in Rampart Detection Systems, Ltd does not represent a “qualifying asset” under Section 55(a) of the 1940 Act
as the principal place of business is in British Columbia, Canada. As of December 31, 2021, less than 1% of the total fair value of investments
represents non-qualifying assets. |
| (5) | Investment
is non-income producing as of December 31, 2021. |
| (6) | Represents
an illiquid investment. At December 31, 2021, 100% of the total fair value of portfolio investments are illiquid. All of the Company’s
portfolio investments are generally subject to restrictions on resale as “restricted securities.” |
| (7) | Represents
an investment valued using significant unobservable inputs. |
| (8) | On
March 14, 2019, the Company filed a lawsuit against Great Value Storage, LLC due to a breach of contract. See Note 8 of the Notes to
Financial Statements. The Company has not received financial statements since August 2018. |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
SCHEDULE
OF INVESTMENTS as of December 31, 2021
(Continued)
The
following tables show the fair value of our portfolio of investments (excluding U.S. Treasury Bills) by geography and industry as of
December 31, 2021.
| |
December
31, 2021 | |
| |
Investments
at Fair Value | | |
Percentage
of Net Assets | |
Geography | |
| | |
| |
United States | |
$ | 34,305,892 | | |
| 99.52 | % |
Canada | |
| 1,200 | | |
| 0.00 | |
Total | |
$ | 34,307,092 | | |
| 99.52 | % |
| |
December
31, 2021 | |
| |
Investments
at Fair Value | | |
Percentage
of Net Assets | |
Industry | |
| | |
| |
Casual Dining | |
$ | 16,270,925 | | |
| 47.20 | % |
Nickel Pipe, Fittings and
Flanges | |
| 6,835,210 | | |
| 19.83 | |
Storage Company Property Management | |
| 4,854,720 | | |
| 14.08 | |
Staffing | |
| 4,441,765 | | |
| 12.89 | |
Energy Services | |
| 1,745,113 | | |
| 5.06 | |
Medical Business Services | |
| 158,159 | | |
| 0.46 | |
Security | |
| 1,200 | | |
| - | |
Total | |
$ | 34,307,092 | | |
| 99.52 | % |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
SCHEDULE
OF INVESTMENTS as of December 31, 2020
Investments | |
Headquarters / Industry | |
Principal Amount/ Shares/ % Ownership | | |
Amortized Cost | | |
Fair Value (1) | | |
% of Net Assets | |
Portfolio Investments (6) | |
| |
| | |
| | |
| | |
| |
Control investments | |
| |
| | |
| | |
| | |
| |
Advantis Certified Staffing Solutions, Inc. | |
Houston, TX | |
| | |
| | |
| | |
| |
Second Lien Loan, 12% Cash, due 11/30/2021(2) (5) (7) | |
Staffing | |
$ | 4,500,000 | | |
$ | 4,500,000 | | |
$ | 3,008,208 | | |
| 13.38 | % |
Unsecured loan 6.33%, due 12/31/2021 (7) | |
| |
$ | 1,381,586 | | |
| 1,381,586 | | |
| - | | |
| - | % |
Common Stock – Series A (5) (7) | |
| |
| 225,000 | | |
| 10,150 | | |
| - | | |
| - | % |
Common Stock – Series B (5) (7) | |
| |
| 9,500,000 | | |
| 428,571 | | |
| - | | |
| - | % |
Warrant for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027 (5) (7) | |
| |
| 1 | | |
| 11,278 | | |
| - | | |
| - | % |
Warrant for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027 (5) (7) | |
| |
| 1 | | |
| - | | |
| - | | |
| - | % |
Total | |
| |
| | | |
| 6,331,585 | | |
| 3,008,208 | | |
| 13.38 | % |
Dominion Medical Management, Inc. | |
Milwaukee, WI | |
| | | |
| | | |
| | | |
| | |
Second Lien Loan, 12.0% Cash, 6% PIK due, 3/31/2020 (2) (3) (5) (7) | |
Medical Business Services | |
$ | 1,516,144 | | |
| 1,516,144 | | |
| - | | |
| - | % |
Integrated Medical Partners, LLC | |
| |
| | | |
| | | |
| | | |
| | |
Preferred Membership, Class A units (5) (7) | |
| |
| 800 | | |
| 4,196,937 | | |
| - | | |
| - | % |
Preferred Membership, Class B units (5) (7) | |
| |
| 760 | | |
| 29,586 | | |
| - | | |
| - | % |
Common Units (5) (7) | |
| |
| 14,082 | | |
| - | | |
| - | | |
| - | % |
Total | |
| |
| | | |
| 5,742,667 | | |
| - | | |
| - | % |
PCC SBH Sub, Inc. | |
Karnes City, TX | |
| | | |
| | | |
| | | |
| | |
Common stock (5) (7) | |
Energy Services | |
| 100 | | |
| 2,525,481 | | |
| 1,658,680 | | |
| 7.38 | % |
Rockfish Seafood Grill, Inc. | |
Richardson, TX | |
| | | |
| | | |
| | | |
| | |
First Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018 (2) (3) (5) (7) | |
Casual Dining | |
$ | 6,352,944 | | |
| 6,352,944 | | |
| 6,910,188 | | |
| 30.74 | % |
Revolving Loan, 8% Cash, due 12/31/2021 (7) | |
| |
$ | 2,384,169 | | |
| 2,384,169 | | |
| 2,703,315 | | |
| 12.03 | % |
Rockfish Holdings, LLC | |
| |
| | | |
| | | |
| | | |
| | |
Warrant for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028 (5) (7) | |
| |
| 10.0 | % | |
| 414,960 | | |
| - | | |
| - | % |
Membership Interest – Class A (5) (7) | |
| |
| 99.997 | % | |
| 3,734,636 | | |
| - | | |
| - | % |
Total | |
| |
| | | |
| 12,886,709 | | |
| 9,613,503 | | |
| 42.77 | % |
Total control investments | |
| |
| | | |
| 27,486,442 | | |
| 14,280,391 | | |
| 63.53 | % |
| |
| |
| | | |
| | | |
| | | |
| | |
Non-control/non-affiliate investments | |
| |
| | | |
| | | |
| | | |
| | |
Great Value Storage, LLC | |
Austin, TX | |
| | | |
| | | |
| | | |
| | |
First Lien Loan, 12.0% cash, 2.0% PIK, due 12/31/2018 (2) (3) (5) (7) (8) | |
Storage Company Property Management | |
$ | 6,800,586 | | |
| 6,800,586 | | |
| 5,057,932 | | |
| 22.50 | % |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
SCHEDULE
OF INVESTMENTS as of December 31, 2020 (Continued)
Investments | |
Headquarters / Industry | |
Principal Amount/Shares/ % Ownership | | |
Amortized Cost | | |
Fair Value (1) | | |
% of Net Assets | |
Non-control/non-affiliate investments (continued) | |
| |
| | |
| | |
| | |
| |
| |
| |
| | |
| | |
| | |
| |
Performance Alloys, LLC | |
Houston, TX | |
| | |
| | |
| | |
| |
Second Lien Loan, 10% Cash, due 9/30/2022 (2)(5)(7)(9) | |
Nickel Pipe, Fittings & Flanges | |
$ | 6,750,000 | | |
$ | 6,750,000 | | |
$ | 2,227,500 | | |
| 9.91 | % |
Membership Interest – Class B (5) (7) | |
| |
| 25.97 | % | |
| 5,131,090 | | |
| - | | |
| - | % |
Total | |
| |
| | | |
| 11,881,090 | | |
| 2,227,500 | | |
| 9.91 | % |
Rampart Detection Systems, Ltd. | |
British Columbia, Canada | |
| | | |
| | | |
| | | |
| | |
Common Stock Shares (4) (5) | |
Security | |
| 600,000 | | |
| 1,200 | | |
| 1,200 | | |
| 0.01 | % |
Total non-control/non-affiliate investments | |
| |
| | | |
| 18,682,876 | | |
| 7,286,632 | | |
| 32.42 | % |
Total Portfolio Investments | |
| |
| | | |
| 46,169,318 | | |
| 21,567,023 | | |
| 95.95 | % |
| |
| |
| | | |
| | | |
| | | |
| | |
Total Investments | |
| |
| | | |
$ | 46,169,318 | | |
$ | 21,567,023 | | |
| 95.95 | % |
(1) | See
Note 5 of the Notes to Financial Statements for a discussion of the methodologies used to
value securities in the portfolio. |
(2) | Investment
is on non-accrual status. |
(3) | Represents
a security with a payment-in-kind component (“PIK”). At the option of the issuer,
interest can be paid in cash or cash and PIK. The percentage of PIK shown is the maximum
PIK that can be elected by the portfolio company. |
(4) | The
investment in Rampart Detection Systems, Ltd does not represent a “qualifying asset”
under Section 55(a) of the 1940 Act as the principal place of business is in British Columbia,
Canada. As of December 31, 2020, less than 1% of the total fair value of investments represents
non-qualifying assets. |
(5) | Investment
is non-income producing as of December 31, 2020. |
(6) | Represents
an illiquid investment. At December 31, 2020, 100% of the total fair value of portfolio investments
are illiquid. All of the Company’s portfolio investments are generally subject to restrictions
on resale as “restricted securities.” |
(7) | Represents
an investment valued using significant unobservable inputs. |
(8) | On
March 14, 2019, the Company filed a lawsuit against Great Value Storage, LLC due to a breach
of contract. See Note 8 of the Notes to Financial Statements. The Company has not received
financial statements since August 2018. |
(9) | On
September 1, 2020, the Company received notice from Performance Alloys, LLC that it was not
allowed to make its monthly interest payment due to a minimum availability threshold on its
revolving line of credit that it must maintain in the underlying agreements with its first
lien holder |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
SCHEDULE
OF INVESTMENTS as of December 31, 2020 (Continued)
The
following tables show the fair value of our portfolio of investments (excluding U.S. Treasury Bills) by geography and industry as of
December 31, 2020.
| |
December
31, 2020 | |
| |
Investments
at Fair Value | | |
Percentage
of Net Assets | |
Geography | |
| | |
| |
United States | |
$ | 21,565,823 | | |
| 95.94 | % |
Canada | |
| 1,200 | | |
| 0.01 | |
Total | |
$ | 21,567,023 | | |
| 95.95 | % |
| |
December
31, 2020 | |
| |
Investments
at Fair Value | | |
Percentage
of Net Assets | |
Industry | |
| | |
| |
Casual Dining | |
$ | 9,613,503 | | |
| 42.77 | % |
Storage Company Property Management | |
| 5,057,932 | | |
| 22.50 | |
Staffing | |
| 3,008,208 | | |
| 13.38 | |
Nickel Pipe, Fittings and
Flanges | |
| 2,227,500 | | |
| 9.92 | |
Energy Services | |
| 1,658,680 | | |
| 7.38 | |
Security | |
| 1,200 | | |
| - | |
Total | |
$ | 21,567,023 | | |
| 95.95 | % |
The accompanying notes are an integral part of these financial statements.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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 2021 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 the Reincorporation described below) 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.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 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 December 31, 2021 and through the date of filing this
Annual Report, the Company has not entered into any agreements regarding any strategic alternative.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”). In accordance with Regulation S-X under the Securities Act of 1933 and Securities Exchange Act
of 1934, the Company does not consolidate portfolio company investments. The accounting records of the Company are maintained in U.S.
dollars. As an investment company, as defined by the 1940 Act, the Company follows investment company accounting and reporting guidance
of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 –
Financial Services - Investment Companies, which is U.S. GAAP.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses
during the reporting period. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and
any other parameters used in determining these estimates could cause actual results to differ. It is likely that changes in these estimates
will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ materially
from such estimates.
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, 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.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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. |
| ● | 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.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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 fair value measurements
as of December 31, 2021, the valuation technique for the Company’s investment in a First Lien Loan changed with addition of a Judgment
Recovery, Judgment plus Penalty Recovery and Zero Recovery techniques. The reason for the change was the additional recovery options
that presented itself in the fourth quarter. The valuation technique for the Company’s investment in a Second Lien Loan and an Equity
position changed with the addition of a Pending Sale technique. The reason for the change is that these investments are pending sale
as of December 31, 2021.
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
December 31, 2021
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.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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, | |
| |
2021 | | |
2020 | |
Cash | |
$ | 523,815 | | |
$ | 1,725,700 | |
Restricted
Cash | |
| 40,586 | | |
| 25,530 | |
Total
Cash and Restricted Cash | |
$ | 564,401 | | |
$ | 1,751,230 | |
As
of December 30, 2021 and December 31, 2020 restricted cash consisted of cash held for deposit with law firms that represents the Company
in its litigation with Great Value Storage, LLC.
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 December 31, 2021 and December 31, 2020, the Company
did not purchase any U.S. Treasury Bills. The Company does not expect to meet the qualifications of a RIC nor anticipate buying U.S.
Treasury Bills until such time as certain strategic alternatives are achieved.
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, can include loan fees, annual fees or monitoring fees from our portfolio investments and are included
in other income from non-control/non-affiliate investments and other income from affiliate investments. Income from such sources for
the years ended December 31, 2021, 2020 and 2019 was $24,060, $27,152 and $26,421, respectively.
Other
income from non-investment sources is generally comprised of interest income earned on cash in the Company’s bank account. For
the year ended December 31, 2020, $86,920 of the other income from non-investment sources resulted from the reversal of previously accrued
valuation fees.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
Payment-in-Kind
Interest (“PIK”)
We
have investments in our portfolio that contain a PIK interest provision. Any PIK interest is added to the principal balance of such investments
and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. For the years ended December
31, 2021, 2020 and 2019 PIK interest was $97,401, $21,804 and $211,102, respectively. In order to qualify as a RIC, substantially all
of this income must be paid out to stockholders in the form of dividends, even if we have not collected any cash. For the years ended
December 31, 2021, 2020 and 2019 and through the date of issuance of this report, no dividends have been paid out to stockholders.
Net
Change in Unrealized Gain or Loss
Net
change in unrealized gain or loss will reflect the change in portfolio investment values during the reporting period, including any reversal
of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Legal
Fees
Legal
fees invoiced to the Company for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, were incurred in the normal
operating course of business and are included in legal fees on the Statements 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 years ended December 31, 2021, 2020 and 2019 were $14,423, $64,201
and $106,727, respectively. These amounts are recoverable per the loan agreements and are invoiced to GVS and included in the account
Due from portfolio companies on the Statements of Assets and Liabilities. The amount invoiced to the Company after the final judgment
received on March 4, 2021, for the years ended December 31, 2021 was $200,857. These amounts are for fees incurred to recover our judgment
and were expensed to Legal 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 (the “Code”), for its 2020 and 2019 taxable years. The Company uses the liability method of accounting for income
taxes. Deferred tax assets and liabilities are recorded for tax loss carryforwards and temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year in which
the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely
than not that some portion or all of the deferred tax assets will not be realized.
The
Company did not meet the qualifications of a RIC for the 2020 and 2019 tax years and was taxed as a corporation under the Code. The failure
to qualify as a RIC did not impact the 2020 and 2019 tax years as the Company incurred tax losses. As a result of the losses incurred
for the years ended December 31, 2020 and 2019, the Company intends to carry forward the net operating losses to future periods in which
the Company generates taxable income to reduce its tax liability.
The
Company did not meet the qualifications of a RIC for the 2021 tax year and will be taxed as a corporation under the Code. It may not
be in the best interests of the Company’s stockholders to elect to be taxed as a RIC at the present time due to the net operating
losses and capital loss carryforwards the Company currently has. Further, we do not expect to meet the qualifications of a RIC until
such time as certain strategic alternatives are achieved. Management will make a determination that is in the best interests of the Company
and its stockholders.
In
order to qualify as a RIC, among other things, the Company is required to distribute to its stockholders on a timely basis at least 90%
of investment company taxable income, as defined by the Code, for each year. So long as the Company achieves its status as a RIC, it
generally will not pay corporate-level U.S. federal and state income taxes on any ordinary income or capital gains that it distributes
at least annually to its stockholders as dividends. Rather, any tax liability related to income earned by the Company will represent
obligations of the Company’s investors and will not be reflected in the financial statements of the Company. While the Company
does not expect to meet the qualifications of a RIC until such time as certain strategic alternatives are achieved, it can still declare
a dividend even though it is not required to do so.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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, 2021, 2020 and 2019 and through the date of issuance of this report, no dividends have been declared or
distributed to stockholders.
Per
Share Information
Basic
and diluted earnings (loss) per common share is calculated using the weighted average number of common shares outstanding for the period
presented.
Basic
earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings (loss) per share is computed by dividing earnings (loss) per share by the weighted average number
of shares outstanding, plus, any potentially dilutive shares outstanding during the period. For the years ended December 31, 2021, 2020
and 2019, 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 no change to the Company’s disclosures of
unconsolidated significant subsidiaries.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
NOTE
3 – RISK FACTORS
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.
COVID
Risk
The
Company is subject to risks associated with unforeseen events, including but not limited to, natural disasters, acts of terrorism and
the emergence of pandemic or other public health emergencies, which could create economic, financial and business disruptions. Certain
impacts from the COVID-19 outbreak may have a significant negative impact on the Company’s operations and performance. These circumstances
may continue for an extended period of time, and may have an adverse impact on economic and market conditions. The ultimate economic
fallout from the pandemic, and the long-term impact on economies, markets, industries and individual companies, are not known. The extent
of the impact to the financial performance and the operations of the Company will depend on future developments, which are highly uncertain
and cannot be predicted.
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, 2021, 2020, and 2019.
| |
For
the Year Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
Per
Share Data (1): | |
| | |
| | |
| |
Net
increase (decrease) in net assets resulting from operations | |
$ | 11,993,452 | | |
$ | (10,800,789 | ) | |
$ | (8,274,622 | ) |
Weighted
average shares outstanding for year | |
| | | |
| | | |
| | |
Basic | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
Diluted | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
Basic
and diluted net increase (decrease) in net assets resulting from operations per common share | |
| | | |
| | | |
| | |
Basic | |
$ | 0.100 | | |
$ | (0.090 | ) | |
$ | (0.069 | ) |
Diluted | |
$ | 0.100 | | |
$ | (0.090 | ) | |
$ | (0.069 | ) |
(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 December 31, 2021 and 2020:
| |
As
of December 31, 2021 | |
| |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
Portfolio Investments | |
| | |
| | |
| | |
| |
First Lien Loans | |
$ | - | | |
$ | - | | |
$ | 19,400,200 | | |
$ | 19,400,200 | |
Second Lien Loans | |
| - | | |
| - | | |
| 11,435,134 | | |
| 11,435,134 | |
Equity | |
| - | | |
| - | | |
| 3,471,758 | | |
| 3,471,758 | |
Total
Portfolio Investments | |
| - | | |
| - | | |
| 34,307,092 | | |
| 34,307,092 | |
Total
Investments | |
$ | - | | |
$ | - | | |
$ | 34,307,092 | | |
$ | 34,307,092 | |
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
| |
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 years ended December 31, 2021 and 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 year ended December 31, 2021 are as follows:
| |
First
Lien Loans | | |
Second
Lien Loans | | |
Unsecured
Loans | | |
Equity | | |
Total | |
Fair
value at beginning of year | |
$ | 14,671,435 | | |
$ | 5,235,708 | | |
$ | - | | |
$ | 1,659,880 | | |
$ | 21,567,023 | |
Purchases
of investments | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Sales
or repayment of investments | |
| (230,570 | ) | |
| - | | |
| - | | |
| - | | |
| (230,570 | ) |
Payment-in-kind
interest | |
| 97,401 | | |
| - | | |
| - | | |
| - | | |
| 97,401 | |
Realized
gain (loss) on investments | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Change
in unrealized gain (loss) on investments | |
| 4,861,934 | | |
| 6,199,426 | | |
| - | | |
| 1,811,878 | | |
| 12,873,238 | |
Transfer
due to restructuring | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Fair
value at end of year | |
$ | 19,400,200 | | |
$ | 11,435,134 | | |
$ | - | | |
$ | 3,471,758 | | |
$ | 34,307,092 | |
Change
in unrealized gain (loss) on Level 3 investments still held as of December 31, 2021 | |
$ | 4,861,934 | | |
$ | 6,199,426 | | |
$ | - | | |
$ | 1,811,878 | | |
$ | 12,873,238 | |
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
December 31, 2021
The
following table provides quantitative information regarding Level 3 fair value measurements as of December 31, 2021:
Description | |
Fair
Value | | |
Valuation
Technique (1) | |
Unobservable
Inputs | |
Range
(Average (2)) |
| |
| | |
| |
| |
|
First
Lien Loans | |
$ | 4,854,720 | | |
Discounted Cash
Flow | |
Discount Rate | |
55.00%-65.00%(60.00%) |
| |
| | | |
Judgment Recovery | |
Recovery Rate | |
40.00%-60.00%(50.00%) |
| |
| | | |
Judgment + Penalty Recovery | |
Recovery Rate | |
40.00%-60.00%(50.00%) |
| |
| | | |
Zero Recovery | |
Recovery Rate | |
0.00%-0.00% |
| |
| 14,545,480 | | |
Enterprise Value Coverage | |
EV / Store level EBITDAR | |
4.75x-5.25x(5.00x) |
| |
| | | |
| |
Location Value | |
$1,275,000-$1,375,000 ($1,325,000) |
Total | |
| 19,400,200 | | |
| |
| |
|
| |
| | | |
| |
| |
|
Second
Lien Loans | |
| 11,435,134 | | |
Enterprise Value Coverage | |
EV / RR Revenue Multiple | |
0.48x-0.53x(0.50x) |
| |
| | | |
| |
EV / 2021 Revenue | |
0.60-0.70x(0.65x) |
| |
| | | |
| |
EV / CFY EBITDA | |
7.50x-8.50x(8.00x) |
| |
| | | |
| |
EV / CFY Revenue | |
0.95x-1.05x(1.00x) |
| |
| | | |
Pending Sale | |
Approach Weight | |
35.40%-35.40%(35.40%) |
Total | |
| 11,435,134 | | |
| |
| |
|
| |
| | | |
| |
| |
|
Unsecured
Loans | |
| - | | |
Enterprise Value Coverage | |
EV
/ RR Revenue Multiple | |
0.48x-0.53x(0.50x) |
Total | |
| - | | |
| |
| |
|
| |
| | | |
| |
| |
|
Equity | |
| 1,725,445 | | |
Enterprise Value Coverage | |
EV / RR Revenue Multiple | |
0.48x-0.53x(0.50x) |
| |
| | | |
| |
EV / 2021 Revenue | |
0.60x-0.70x(0.65x) |
| |
| | | |
| |
EV / CFY EBITDA | |
7.50x-8.50x(8.00x) |
| |
| | | |
| |
EV / CFY Revenue | |
0.95x-1.05x(1.00x) |
| |
| | | |
| |
EV / STORE LEVEL EBITDAR | |
4.75x-5.25x(5.00x) |
| |
| | | |
| |
Location Value | |
$1,275,000-$1,375,000 ($1,325,000) |
| |
| | | |
Pending Sale | |
Approach Weight | |
35.40%-35.40%(35.40%) |
| |
| 1,745,113 | | |
Appraisal Value Coverage | |
Cost Approach | |
$1,458,000-$1,782,000 ($1,620,000) |
| |
| | | |
| |
Sales
Comparison Approach | |
$1,350,000-$1,650,000
($1,500,000) |
Total | |
| 3,470,558 | | |
| |
| |
|
Total
Level 3 Investments | |
$ | 34,305,892 | | |
| |
| |
|
| (1) | The
valuation technique for the Company’s investment in a First Lien Loan changed with addition
of a Judgment Recovery, Judgment plus Penalty Recovery and Zero Recovery techniques. The
reason for the change was the additional recovery options that presented itself in the fourth
quarter. The valuation technique for the Company’s investment in a Second Lien Loan and an
Equity position changed with the addition of a Pending Sale technique. The reason for the
change is that these investments are pending sale as of December 31, 2021. The average represents
the arithmetic average of the unobservable inputs and is not weighted by the relative fair
value. |
| (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, 2021.
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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 fair value measurement as of December 31, 2020. |
| (2) | The
average represents the arithmetic average of the unobservable inputs and is not weighted
by the relative fair value. |
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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.
As
of December 31, 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
December 31, 2021
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:
| |
2021 | | |
2020 | | |
2019 | |
Current expense
(benefit) | |
$ | - | | |
$ | 1,816 | | |
$ | (19,024 | ) |
Deferred
expense (benefit) | |
| - | | |
| - | | |
| - | |
Total
expense (benefit) | |
$ | - | | |
$ | 1,816 | | |
$ | (19,024 | ) |
The
components of deferred tax assets and liabilities at December 31, 2021, 2020 and 2019 were as follows:
Deferred tax assets: | |
2021 | | |
2020 | |
Net operating loss carryforward | |
$ | 929,161 | | |
$ | 396,954 | |
Net capital loss carryforwards | |
| 1,568,604 | | |
| 2,665,878 | |
Other | |
| 181,375 | | |
| 294,142 | |
Basis differences in investments | |
| 716,075 | | |
| 3,649,990 | |
Total gross deferred tax assets | |
| 3,395,215 | | |
| 7,006,963 | |
Less: Valuation allowance | |
| (3,395,215 | ) | |
| (7,006,963 | ) |
Net deferred tax assets | |
$ | - | | |
$ | - | |
As of December 31, 2021 and 2020, the total amount of federal net operating
loss carryforwards was approximately $4,424,575 and $1,890,256, respectively. The federal net operating loss carryforwards in the amount
of $741,630 will expire in 2037. The federal net operating loss carryforwards in the amount of $3,682,945 will not expire, but can only
be used to offset 80% of taxable income. As of December 31, 2021 and 2020, the total amount of federal capital loss carryforwards was
approximately $7,469,543 and $12,694,655, respectively. The federal capital loss carryforwards in the amount of $4,785 and $7,464,758
will expire in 2023 and 2025, respectively.
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 or 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, 2021, does not meet the “more likely than not threshold” as defined in ASC 740 – Income Taxes and thus
management has recorded a full valuation allowance.
For federal and state purposes, a portion of the Company’s net
operating loss carryforwards may be subject to limitations on annual utilization in case of a change in ownership, as defined by Section
382 of the Internal Revenue Code and corresponding provisions of 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:
| |
2021 | | |
2020 | | |
2019 | |
Federal statutory
tax rate | |
| 21.00 | % | |
| 21.00 | % | |
| 21.00 | % |
Federal payable true up | |
| - | | |
| - | | |
| 0.23 | |
Permanent items | |
| - | | |
| 0.01 | | |
| 0.06 | |
Capital loss carryforward
expiration | |
| 9.11 | | |
| - | | |
| - | |
Deferred true-up | |
| - | | |
| (0.35 | ) | |
| (13.11 | ) |
Rate change | |
| - | | |
| - | | |
| (13.04 | ) |
Increase (decrease) in valuation
allowance | |
| (30.11 | ) | |
| (20.66 | ) | |
| 8.05 | |
Other | |
| - | | |
| - | | |
| (2.96 | ) |
Effective
tax rate | |
| - | % | |
| - | % | |
| 0.23 | % |
PRINCETON
CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
The
Company did not meet the qualifications of a RIC for the 2021 tax year and will be taxed as a corporation under Subchapter C of the Code.
It may not be in the best interests of the Company’s stockholders to elect to be taxed as a RIC at the present time 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. 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, if the Company qualifies, to 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 jurisdiction
as U.S. federal. For the years ended December 31, 2021, 2020, and 2019, 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 Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In general, the
federal and state income tax returns remain open to examination by taxing authorities for tax years beginning in 2017 to present.
NOTE
7 – 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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
Management Fee
Pursuant to the House Hanover Investment Advisory
Agreement, the Company pays House Hanover a base management fee for investment advisory and management services. The cost of the base
management fee is ultimately borne by the Company’s stockholders. The House Hanover Investment Advisory Agreement does not contain
an incentive fee component.
The base management fee is calculated at an annual
rate of 1.00% of the Company’s gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding
cash and cash equivalents net of all indebtedness of the Company for borrowed money and other liabilities of the Company. The base management
fee is payable quarterly in arrears, and determined as set forth in the preceding sentence at the end of the two most recently completed
calendar quarters. The Board may retroactively adjust the valuation of the Company’s assets and the resulting calculation of the
base management fee in the event the Company or any of its assets are sold or transferred to an independent third party or the Company
or House Hanover receives an audit report or other independent third party valuation of the Company. To the extent that any such adjustment
increases or decreases the base management fee of any prior period, the Company will be obligated to pay the amount of increase to House
Hanover or House Hanover will be obligated to refund the decreased amount, as applicable.
Management fees under the House Hanover Investment Advisory Agreement
for the years ended December 31, 2021, 2020 and 2019 were $265,340, $266,984 and $364,135, respectively. As of December 31, 2021 and 2020,
management fees of $262,324 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 and December 6, 2021, the Company
made payments to House Hanover for management fees in the amount of $285,137 and $270,000, respectively.
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.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
In addition to the foregoing, the Company will
also be responsible for the payment of all of the Company’s other expenses, including the payment of the following fees and expenses:
| ● | organizational
and offering expenses; |
| ● | expenses
incurred in valuing the Company’s assets and computing its net asset value per share
(including the cost and expenses of any independent valuation firm); |
| ● | subject
to the guidelines approved by the Board of Directors, expenses incurred by House Hanover
that are payable to third parties, including agents, consultants or other advisors, in monitoring
financial and legal affairs for the Company and in monitoring the Company’s investments
and performing due diligence on the Company’s prospective portfolio companies or otherwise
related to, or associated with, evaluating and making investments; |
| ● | interest
payable on debt, if any, incurred to finance the Company’s investments and expenses
related to unsuccessful portfolio acquisition efforts; |
| ● | offerings
of the Company’s common stock and other securities; |
| ● | transfer
agent and custody fees and expenses; |
| ● | U.S.
federal and state registration fees of the Company (but not House Hanover); |
| ● | all
costs of registration and listing the Company’s shares on any securities exchange;
|
| ● | U.S.
federal, state and local taxes; |
| ● | independent
directors’ fees and expenses; |
| ● | costs
of preparing and filing reports or other documents required of the Company (but not House
Hanover) by the SEC or other regulators; |
| ● | costs
of any reports, proxy statements or other notices to stockholders, including printing costs;
|
| ● | the
costs associated with individual or group stockholders; |
| ● | the
Company’s allocable portion of the fidelity bond, directors and officers/errors and
omissions liability insurance, and any other insurance premiums; |
| ● | direct
costs and expenses of administration and operation of the Company, including printing, mailing,
long distance telephone, copying, secretarial and other staff, independent auditors and outside
legal costs; and |
| ● | all
other non-investment advisory expenses incurred by the Company regarding administering the
Company’s business. |
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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.
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 $136,573 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 and again on July 1, 2021 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 $270,000, $270,000 and $270,000 for the years
ended December 31, 2021, 2020 and 2019, respectively, and sub-administration fees were $132,110, $126,324 and $137,500 for the years ended
December 31, 2021, 2020 and 2019, respectively, as shown on the Statements of Operations under administration fees. As of December 31,
2021 and 2020, there were $273,016 and $472,500, respectively, of administration fees owed to House Hanover, as shown on the Statements
of Assets and Liabilities under Due to affiliates. 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 and December 6, 2021, the Company made payments to House Hanover
for administration fees in the amount of $202,500 and $266,984, respectively.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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, 2021, none of the portfolio companies had accepted our offer for such
services.
NOTE 8 – FINANCIAL HIGHLIGHTS
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | | |
2018 | | |
2017 | |
Per Share Data (1): | |
| | |
| | |
| | |
| | |
| |
Net asset value at beginning of period | |
$ | 0.187 | | |
$ | 0.276 | | |
$ | 0.345 | | |
$ | 0.344 | | |
$ | 0.365 | |
Net investment income (loss) | |
| (0.007 | ) | |
| (0.005 | ) | |
| (0.009 | ) | |
| 0.009 | | |
| 0.008 | |
Change in unrealized gain (loss) | |
| 0.106 | | |
| (0.022 | ) | |
| (0.060 | ) | |
| (0.007 | ) | |
| (0.035 | ) |
Realized gain (loss) | |
| - | | |
| (0.062 | ) | |
| - | | |
| (0.001 | ) | |
| 0.006 | |
Net asset value at end of period | |
$ | 0.286 | | |
$ | 0.187 | | |
$ | 0.276 | | |
$ | 0.345 | | |
$ | 0.344 | |
Total return based on net
asset value (2) | |
| 52.9 | % | |
| (32.60 | )% | |
| (20.0 | )% | |
| 0.3 | % | |
| (5.8 | )% |
Weighted average shares outstanding for period, basic | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
Ratio/Supplemental Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
Net assets at end of period | |
$ | 34,472,992 | | |
$ | 22,479,540 | | |
$ | 33,280,329 | | |
$ | 41,554,951 | | |
$ | 41,407,539 | |
Average net assets | |
$ | 29,126,862 | | |
$ | 25,276,013 | | |
$ | 38,504,249 | | |
$ | 41,416,562 | | |
$ | 42,634,685 | |
Total operating expenses to average net assets | |
| 6.0 | % | |
| 6.2 | % | |
| 5.8 | % | |
| 5.4 | % | |
| 3.8 | % |
Net
operating expenses to average net assets (3) | |
| 6.0 | % | |
| 6.2 | % | |
| 5.8 | % | |
| 5.4 | % | |
| 3.3 | % |
Net operating expenses excluding management fees, incentive
fees, and interest expense to average net assets | |
| 5.1 | % | |
| 5.2 | % | |
| 4.9 | % | |
| 4.3 | % | |
| 2.8 | |
Net operating expenses excluding management fees, incentive
fees, and interest expense to average net assets, excluding management fee waiver | |
| 5.1 | % | |
| 5.2 | % | |
| 4.9 | % | |
| 4.3 | % | |
| 3.2 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income (loss) to average net assets | |
| (3.0 | )% | |
| (2.7 | )% | |
| (2.8 | )% | |
| 2.5 | % | |
| 2.4 | % |
Net investment income (loss) to average net assets, excluding
management fee waiver | |
| (3.0 | )% | |
| (2.7 | )% | |
| (2.8 | )% | |
| 2.5 | % | |
| 1.9 | % |
Net investment income (loss) to average net assets, excluding
other income from non-investment sources | |
| (3.0 | )% | |
| (3.0 | )% | |
| (2.8 | )% | |
| 2.5 | % | |
| 0.1 | % |
Net investment income (loss) to average net assets,
excluding other income from non-investment sources, excluding management fee waiver | |
| (3.0 | )% | |
| (3.0 | )% | |
| (2.8 | )% | |
| 2.5 | % | |
| (0.4 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net increase (decrease) in net assets resulting from operations
to average net assets | |
| 41.2 | % | |
| (42.7 | )% | |
| (21.5 | )% | |
| 0.4 | % | |
| (6.0 | )% |
Portfolio Turnover | |
| 0.4 | % | |
| 0.4 | % | |
| 0.7 | % | |
| 0.5 | % | |
| 7.0 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
(1) |
Financial highlights are based on
weighted average shares outstanding. |
(2) |
Total return based on net asset value is based upon
the change in net asset value per share between the opening and ending net asset values per share in the period. The total returns
are not annualized. |
(3) |
Other income from non-investment sources only includes
the reduction of previously accrued expenses totaling $968,256 for the year ended December 31, 2017. |
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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, 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, the Company 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. The GVS Defendants filed an appeal of
the Partial Summary Judgment and the Company has responded to that appeal. The Appeal is pending in the appellate court. 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.
On September 8, 2021, the court granted the appointment of a receiver. While the appellate court granted a temporary stay of the receiver
to allow the GVS defendants to seek a supersedeas bond, that temporary stay has been lifted and the receiver has been reinstated.
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). The Company is concurrently seeking recovery in the U.S. Bankruptcy Court for the Northern District
of Texas, as it has been discovered that Natin Paul had transferred the properties from the GVS Defendants and to the debtor entities
that filed 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.
Russia/Belarus Action with Ukraine
In February 2022, the Russian Federation and Belarus commenced a military
action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic
sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are
not determinable as of the date of these financial statements. The specific impact on the Company's financial condition, results of operations,
and cash flows is also not determinable as of the date of these financial statements.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
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. 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 subsidiary in
this filing if the subsidiary investment value exceeds 20% of the Company’s total investments at fair value, the income from the
subsidiary investment exceeds 80% of the Company’s change in net assets resulting from operations, or the income from the subsidiary
investment exceeds 20% of the Company’s change in net assets resulting from operations and the subsidiary investment value exceeds
5% of the Company’s total investments at fair value. Rule 4-08(g) of Regulation S-X requires summarized financial information of
an unconsolidated subsidiary where the Company owns more than 25% of the voting securities or is otherwise controlled by the Company
in this filing if it does not qualify under Rule 3.09 of Regulation S-X and if the subsidiary investment value exceeds 10% of the Company’s
total investments at fair value, the income from the subsidiary investment exceeds 80% of the Company’s change in net assets resulting
from operations, or the income from the subsidiary investment exceeds 10% of the Company’s change in net assets resulting from
operations and the subsidiary investment value exceeds 5% of the Company’s total investments at fair value.
The Company has determined that Rockfish Seafood
Grill, Inc., a majority owned or control investment, was considered a significant subsidiary at the 20% level at December 31, 2021 as
prescribed under Rule 3-09 of Regulation S-X. The Company has included the audited financial statements of Rockfish Seafood Grill, Inc.
for the year ended December 29, 2021. See “Item 15. Exhibits And Financial Statement Schedules.”
The audited financial statements of Rockfish
Seafood Grill, Inc., for the year ended December 30, 2020, were previously disclosed in the Company’s 2020 Form 10-K filed on March
31, 2021. Due to economic events surrounding the COVID-19 virus, its impact on the economy and specifically the restaurant industry,
Rockfish Seafood Grill, Inc. was unable to complete its audit for the fiscal year ended December 25, 2019 without unreasonable effort
and expense. Summarized financial information for Rockfish Seafood Grill’s 2019 fiscal year was previously disclosed in the Company’s
2019 Form 10-K filed on March 30, 2020.
The Company has determined that Advantis Certified
Staffing Solutions, Inc., one of the Company’s four majority owned or controlled portfolio companies, was considered a significant
subsidiary at December 31, 2021 as prescribed under Rule 4-08(g) of Regulation S-X.
The following tables show the summarized financial
information for Advantis Certified Staffing Solutions, Inc. (numbers in thousands):
Advantis Certified Staffing Solutions, Inc. | |
| | |
| |
| |
| | |
| |
| |
As of December
31,
2021 | | |
As of December
31,
2020 | |
Balance Sheet | |
| | |
| |
Current Assets | |
$ | 3,682 | | |
$ | 2,841 | |
Noncurrent Assets | |
| - | | |
| - | |
Current Liabilities | |
| 12,365 | | |
| 11,748 | |
Noncurrent Liabilities | |
| 1,156 | | |
| 1,200 | |
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
| |
Year
Ended December
31,
2021
| | |
Year
Ended December
31,
2020 | | |
Year
Ended December
31,
2019 | |
Income Statement | |
| | |
| | |
| |
Net Revenue (Loss) | |
$ | 8,182 | | |
$ | 6,935 | | |
$ | 12,967 | |
Gross Profit | |
| 1,993 | | |
| 1,873 | | |
| 3,764 | |
Net Income (Loss) | |
| 269 | | |
| 1,790 | | |
| (2,410 | ) |
NOTE 11 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
| |
Quarter Ended | |
| |
December 31, 2021 | | |
September 30, 2021 | | |
June 30, 2021 | | |
March 31, 2021 | |
| |
| | |
| | |
| | |
| |
Total Investment Income | |
$ | 361,663 | | |
$ | 357,695 | | |
$ | 78,015 | | |
$ | 77,163 | |
Total Operating Expenses | |
| 588,863 | | |
| 401,238 | | |
| 383,730 | | |
| 380,491 | |
Income tax expense | |
| - | | |
| - | | |
| - | | |
| - | |
Net Investment Income (Loss) | |
| (227,200 | ) | |
| (43,543 | ) | |
| (305,715 | ) | |
| (303,328 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Realized Loss on Investments | |
| - | | |
| - | | |
| - | | |
| - | |
Net Change in Unrealized Appreciation/(Depreciation) | |
| 1,967,671 | | |
| (1,630,575 | ) | |
| 8,126,090 | | |
| 4,410,052 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | |
$ | 1,740,471 | | |
$ | (1,674,118 | ) | |
$ | 7,820,375 | | |
$ | 4,106,724 | |
| |
| | | |
| | | |
| | | |
| | |
Net Increase (Decrease) in Net Assets from Operations per Common Share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.014 | | |
$ | (0.014 | ) | |
$ | 0.065 | | |
$ | 0.034 | |
Diluted | |
$ | 0.014 | | |
$ | (0.014 | ) | |
$ | 0.065 | | |
$ | 0.034 | |
| |
| | | |
| | | |
| | | |
| | |
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,
2020 | | |
September 30,
2020 | | |
June 30,
2020 | | |
March 31,
2020 | |
| |
| | |
| | |
| | |
| |
Total Investment Income | |
$ | 175,467 | | |
$ | 265,782 | | |
$ | 229,598 | | |
$ | 234,096 | |
Total Operating Expenses | |
| 400,173 | | |
| 365,936 | | |
| 420,996 | | |
| 391,217 | |
Income tax expense (benefit) | |
| (5,191 | ) | |
| 1,750 | | |
| 3,206 | | |
| 2,051 | |
Net Investment Income (Loss) | |
| (219,515 | ) | |
| (101,904 | ) | |
| (194,604 | ) | |
| (159,172 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Realized Gain/(Loss) on Investments | |
| (7,416,250 | ) | |
| - | | |
| - | | |
| - | |
Net Change in Unrealized Depreciation | |
| 8,713,799 | | |
| 429,691 | | |
| (4,287,622 | ) | |
| (7,565,212 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | |
$ | 1,078,034 | | |
$ | 327,787 | | |
$ | (4,482,226 | ) | |
$ | (7,724,384 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Increase (Decrease) in Net Assets from Operations
per Common Share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.009 | | |
$ | 0.003 | | |
$ | (0.037 | ) | |
$ | (0.064 | ) |
Diluted | |
$ | 0.009 | | |
$ | 0.003 | | |
$ | (0.037 | ) | |
$ | (0.064 | ) |
| |
| | | |
| | | |
| | | |
| | |
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, 2021
| |
Quarter Ended | |
| |
December 31,
2019 | | |
September 30,
2019 | | |
June 30,
2019 | | |
March 31,
2019 | |
| |
| | |
| | |
| | |
| |
Total Investment Income | |
$ | 269,779 | | |
$ | 262,624 | | |
$ | 325,251 | | |
$ | 287,612 | |
Total Operating Expenses | |
| 790,121 | | |
| 385,806 | | |
| 526,494 | | |
| 533,822 | |
Income tax expense | |
| 1,345 | | |
| 1,425 | | |
| (23,169 | ) | |
| 1,375 | |
Net Investment Income (Loss) | |
| (521,687 | ) | |
| (124,607 | ) | |
| (178,074 | ) | |
| (247,585 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Realized Loss on Investments | |
| - | | |
| - | | |
| - | | |
| - | |
Net Change in Unrealized Appreciation/(Depreciation) | |
| (544,847 | ) | |
| (2,691,673 | ) | |
| (3,795,698 | ) | |
| (170,451 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | |
$ | (1,066,534 | ) | |
$ | (2,816,280 | ) | |
$ | (3,973,772 | ) | |
$ | (418,036 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Increase (Decrease) in Net Assets from Operations
per Common Share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.009 | ) | |
$ | (0.023 | ) | |
$ | (0.033 | ) | |
$ | (0.003 | ) |
Diluted | |
$ | (0.009 | ) | |
$ | (0.023 | ) | |
$ | (0.033 | ) | |
$ | (0.003 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted Average Common Shares Outstanding - Basic | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
Weighted Average Common Shares Outstanding - Diluted | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | | |
| 120,486,061 | |
NOTE 12 – SUBSEQUENT EVENTS
Portfolio Activity
Subsequent to the year ending December 31, 2021
and through the date of this filing, there was no portfolio activity or other events to report.
Russia/Belarus Action with Ukraine
In February 2022, the Russian Federation and Belarus commenced a military
action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic
sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are
not determinable as of the date of these financial statements. The specific impact on the Company's financial condition, results of operations,
and cash flows is also not determinable as of the date of these financial statements.
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
Schedule 12-14
Flow
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 December 31, 2021.
Portfolio
Company/Type of Investment (1) | |
Principal
Amount/Shares/ Ownership
% at December 31 2021 | | |
Amount
of Interest and Dividends Credited in Income | | |
Fair
Value
at
December 31,
2020 | | |
Purchases
(2) | | |
Sales | | |
Transfers
from Restructuring/ Transfers
into
Control Investments | | |
Change
in Unrealized Gains/(Losses) | | |
Fair
Value
at
December 31,
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 | | |
$ | - | | |
$ | - | | |
| - | | |
$ | 1,433,557 | | |
$ | 4,441,765 | |
Unsecured
loan Consolidated BL Note 6.33% due 12/31/2022 | |
$ | 1,381,586 | | |
| 87,454 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Common
Stock – Series A (3) | |
| 225,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Common
Stock – Series B (3) | |
| 9,500,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Warrant
for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027(3) | |
| 1 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Warrant
for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027(3) | |
| 1 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Dominion
Medical Management, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Second
Lien Loan, 12.0% Cash, 6% PIK due, 3/31/2020 (2) (3) | |
$ | 1,516,144 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 158,159 | | |
| 158,159 | |
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 | | |
| - | | |
| - | | |
| - | | |
| 86,433 | | |
| 1,745,113 | |
Rockfish
Seafood Grill, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
First
Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018 (3) | |
$ | 6,352,944 | | |
| - | | |
| 6,910,188 | | |
| - | | |
| - | | |
| - | | |
| 5,384,292 | | |
| 12,294,480 | |
Revolving
Loan, 8% PIK, due 12/31/2022 | |
$ | 2,251,000 | | |
| 475,402 | | |
| 2,703,315 | | |
| 97,401 | | |
| (230,570 | ) | |
| - | | |
| (319,146 | ) | |
| 2,251,000 | |
Rockfish
Holdings, LLC | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant
for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028 (3) | |
| 10.0 | % | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 172,549 | | |
| 172,549 | |
Membership
Interest – Class A (3) | |
| 99.997 | % | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,552,896 | | |
| 1,552,896 | |
Total
Control Investments | |
| | | |
$ | 562,856 | | |
$ | 14,280,391 | | |
$ | 97,401 | | |
$ | (230,570 | ) | |
$ | - | | |
$ | 8,468,740 | | |
$ | 22,615,962 | |
(1) |
Represents an illiquid investment. |
(2) |
Includes PIK interest. |
(3) |
Non-income producing security. |
PRINCETON CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2021
Schedule 12-14
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 December 31, 2020.
Portfolio Company/Type of Investment (1) | |
Principal
Amount/Shares/
Ownership % at
December 31
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
December 31,
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 | | |
$ | - | | |
$ | - | | |
| - | | |
$ | 191,943 | | |
$ | 3,008,208 | |
Unsecured loan Consolidated BL Note 6.33% due date 12/31/2021 | |
$ | 1,381,586 | | |
| 88,038 | | |
| - | | |
| 21,804 | | |
| (21,804 | ) | |
| - | | |
| - | | |
| - | |
Common Stock – Series A (3) | |
| 225,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Common Stock – Series B (3) | |
| 9,500,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Warrant for 250,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027(3) | |
| 1 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Warrant for 700,000 Shares of Series A Common Stock, exercise price $0.01 per share, expires 1/1/2027(3) | |
| 1 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Dominion Medical Management, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Second Lien Loan, 12.0% Cash, 6% PIK due, 3/31/2020 (2) (3) | |
$ | 1,516,144 | | |
| - | | |
| 1,266,245 | | |
| - | | |
| - | | |
| - | | |
| (1,266,245 | ) | |
| - | |
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 | | |
| - | | |
| - | | |
| - | | |
| 4,003 | | |
| 1,658,680 | |
Rockfish Seafood Grill, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
First Lien Loan, 8% Cash, 6.0% PIK, due 3/31/2018 (3) | |
$ | 6,352,944 | | |
| - | | |
| 5,073,470 | | |
| - | | |
| - | | |
| - | | |
| 1,836,718 | | |
| 6,910,188 | |
Revolving Loan, 8% PIK, due 12/31/2021 | |
$ | 2,384,169 | | |
| 101,469 | | |
| 2,383,886 | | |
| - | | |
| - | | |
| - | | |
| 319,429 | | |
| 2,703,315 | |
Rockfish Holdings, LLC | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028 (3) | |
| 10 | % | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Membership Interest – Class A (3) | |
| 99.997 | % | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total Control Investments | |
| | | |
$ | 189,507 | | |
$ | 13,194,543 | | |
$ | 21,804 | | |
$ | (21,804 | ) | |
$ | - | | |
$ | 1,085,848 | | |
$ | 14,280,391 | |
| (1) | Represents an illiquid investment. |
| (2) | Includes PIK interest. |
| (3) | Non-income producing security. |
End of notes to financial statements.