UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 814-00710

 

PRINCETON CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

Maryland   46-3516073
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)
     

800 Turnpike Street, Suite 300

North Andover, Massachusetts

   01845
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (978) 794-3366

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐   No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one.)

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☐
  Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

The number of shares of the issuer’s Common Stock, $0.001 par value, outstanding as of August 13, 2021 was 120,486,061.

 

 

 

 

 

 

PRINCETON CAPITAL CORPORATION

 

TABLE OF CONTENTS

 

      Page
PART I. FINANCIAL INFORMATION    
       
Item 1. Financial Statements   1
       
  Statements of Assets and Liabilities as of June 30, 2021 (unaudited) and December 31, 2020   1
       
  Statements of Operations (unaudited) for the three and six months ended June 30, 2021 and June 30, 2020   2
       
  Statements of Changes in Net Assets (unaudited) for the six months ended June 30, 2021 and June 30, 2020   3
       
  Statements of Cash Flows (unaudited) for the six months ended June 30, 2021 and June 30, 2020   4
       
  Schedule of Investments as of June 30, 2021 (unaudited)   5
       
  Schedule of Investments as of December 31, 2020   8
       
  Notes to Financial Statements (unaudited) as of June 30, 2021   11
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   34
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   46
       
Item 4. Controls and Procedures   46
       
PART II. OTHER INFORMATION    
       
Item 1. Legal Proceedings   47
       
Item 1A. Risk Factors   47
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   47
       
Item 3. Defaults Upon Senior Securities   47
       
Item 4. Mine Safety Disclosures   47
       
Item 5. Other Information   47
       
Item 6. Exhibits   48
       
SIGNATURES   49

 

- i -

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PRINCETON CAPITAL CORPORATION

 

STATEMENTS OF ASSETS AND LIABILITIES

 

  

June 30,
2021

  

December 31,
2020

 
   (unaudited)     
ASSETS        
Control investments at fair value (cost of $27,486,442 and $27,486,442, respectively)  $24,439,871   $14,280,391 
Non-control/non-affiliate investments at fair value (cost of $18,682,876 and $18,682,876, respectively)   9,663,294    7,286,632 
Total investments at fair value (cost of $46,169,318 and $46,169,318, respectively)   34,103,165    21,567,023 
Cash   655,416    1,725,700 
Restricted cash   25,561    25,530 
Due from portfolio companies   230,996    199,865 
Interest receivable, net of allowance for bad debt of $430,445 and $430,445, respectively   136,179    114,740 
Taxes receivable   1,250    7,250 
Prepaid expenses   113,250    26,610 
Total assets   35,265,817    23,666,718 
           
LIABILITIES          
Accrued management fees   375,415    552,121 
Accounts payable   34,382    89,461 
Due to affiliates   405,000    472,500 
Tax expense payable   1,137    1,593 
Deferred fee income   30,125    42,056 
Accrued expenses and other liabilities   13,119    29,447 
Total liabilities   859,178    1,187,178 
           
Net assets  $34,406,639   $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 June 30, 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   (10,354,706)   (9,745,663)
Accumulated unrealized loss on investments   (12,066,153)   (24,602,295)
Total net assets  $34,406,639   $22,479,540 
Net asset value per share  $0.286   $0.187 

 

See notes to financial statements (unaudited).

 

- 1 -

 

 

PRINCETON CAPITAL CORPORATION

 

STATEMENTS OF OPERATIONS
(Unaudited)

 

   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2021   2020   2021   2020 
INVESTMENT INCOME                
Interest income from non-control/non-affiliate investments  $-   $201,379   $-   $404,411 
Interest income from control investments   71,987    22,148    143,182    22,148 
Interest income from paid-in-kind control investments   -    -    -    21,804 
Other income from non-control/non-affiliate investments   5,999    5,999    11,932    15,024 
Other income from non-investment sources   29    72    64    307 
Total investment income   78,015    229,598    155,178    463,694 
                     
OPERATING EXPENSES                    
Management fees   57,337    72,677    108,431    156,130 
Administration fees   99,412    98,750    198,824    197,500 
Audit fees   21,115    62,620    91,567    114,120 
Tax preparation fees   19,487    -    19,487    - 
Legal fees   45,926    34,244    65,610    66,561 
Valuation fees   33,000    42,000    66,000    84,000 
Other professional fees   -    -    -    470 
Directors’ fees   38,250    42,750    75,750    80,250 
Insurance expense   40,753    45,610    77,858    69,781 
Interest expense   -    1,838    188    1,838 
Other general and administrative expenses   28,450    20,507    60,506    41,563 
Total operating expenses   383,730    420,996    764,221    812,213 
                     
Net investment loss before tax   (305,715)   (191,398)   (609,043)   (348,519)
Income tax expense   -    3,206    -    5,257 
Net investment loss after taxes   (305,715)   (194,604)   (609,043)   (353,776)
                     
Net change in unrealized gain (loss) on:                    
Non-control/non-affiliate investments   83,121    (5,443,679)   2,376,662    (8,482,149)
Control investments   8,042,969    1,156,057    10,159,480    (3,370,685)
Net change in unrealized gain (loss) on investments   8,126,090    (4,287,622)   12,536,142    (11,852,834)
                     
Net increase (decrease) in net assets resulting from operations  $7,820,375   $(4,482,226)  $11,927,099   $(12,206,610)
                     
Net investment loss per share                    
Basic  $(0.003)  $(0.002)  $(0.005)  $(0.003)
Diluted  $(0.003)  $(0.002)  $(0.005)  $(0.003)
                     
Net increase (decrease) in net assets resulting from operations per share                    
Basic  $0.065   $(0.037)  $0.099   $(0.101)
Diluted  $0.065   $(0.037)  $0.099   $(0.101)
                     
Weighted average shares of common stock outstanding                    
Basic   120,486,061    120,486,061    120,486,061    120,486,061 
Diluted   120,486,061    120,486,061    120,486,061    120,486,061 

 

See notes to financial statements (unaudited).

 

- 2 -

 

 

PRINCETON CAPITAL CORPORATION

 

STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)

 

   Six Months Ended
June 30,		 
   2021   2020 
Net assets at beginning of year  $22,479,540   $33,280,329 
           
Increase/(decrease) in net assets resulting from operations:          
Net investment loss  $(303,328)  $(159,172)
Net change in unrealized gain/(loss) on investments   4,410,052    (7,565,212)
Net increase/(decrease) in net assets resulting from operations   4,106,724    (7,724,384)
           
Total increase/(decrease) in net assets   4,106,724    (7,724,384)
Net assets at March 31  $26,586,264   $25,555,945 
           
Increase/(decrease) in net assets resulting from operations          
Net investment loss  $(305,715)  $(194,604)
Net change in unrealized gain/(loss) on investments   8,126,090    (4,287,622)
Net increase/(decrease) in net assets resulting from operations   7,820,375    (4,482,226)
           
Total increase/(decrease) in net assets   7,820,375    (4,482,226)
Net assets at June 30  $34,406,639   $21,073,719 
           
Capital share activity:          
Common stock          
Common stock outstanding at the beginning of period   120,486,061    120,486,061 
Common stock outstanding at the end of period   120,486,061    120,486,061 

 

See notes to financial statements (unaudited).

 

- 3 -

 

 

PRINCETON CAPITAL CORPORATION

 

STATEMENTS OF CASH FLOWS
(Unaudited)

 

   Six Months Ended
June 30,		 
   2021   2020 
Cash flows from operating activities:        
Net increase (decrease) in net assets resulting from operations  $11,927,099   $(12,206,610)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:          
Purchases of investments in:          
Portfolio investments   -    (90,537)
Proceeds from sales, repayments, or maturity of investments in:          
Portfolio investments   -    21,804 
Net change in unrealized (gain)/loss on investments   (12,536,142)   11,852,834 
Increase in investments due to PIK   -    (21,804)
Changes in other assets and liabilities:          
Due from portfolio companies   (31,131)   (80,987)
Interest receivable   (21,439)   204 
Prepaid expenses   (86,640)   (73,001)
Taxes receivable   6,000    4,075 
Other receivable   -    2,689 
Accrued management fees   (176,706)   156,130 
Accounts payable   (55,079)   (36,283)
Due to affiliates   (67,500)   135,000 
Tax expense payable   (456)   (3,887)
Deferred fee income   (11,931)   (15,024)
Accrued expenses and other liabilities   (16,328)   125,070 
Net cash used in operating activities   (1,070,253)   (230,327)
           
Net decrease in cash and restricted cash   (1,070,253)   (230,327)
Cash and restricted cash at beginning of period   1,751,230    382,986 
Cash and restricted cash at end of period  $680,977   $152,659 
           
Cash  $655,416   $127,201 
Restricted Cash   25,561    25,458 
Total Cash and Restricted Cash  $680,977   $152,659 
           
Supplemental disclosure of cash flow financing activities:          
Interest expense paid  $188   $1,838 
Income tax paid  $456   $5,257 

 

See notes to financial statements (unaudited).

 

- 4 -

 

 

PRINCETON CAPITAL CORPORATION

 

SCHEDULE OF INVESTMENTS as of June 30, 2021

(Unaudited)

 

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   $4,405,494    12.81%
Unsecured loan 6.33%, due 12/31/2020 (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 (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 (7)     12/31/2016   1    -    -    -%
Total              6,331,585    4,405,494    12.81%
                           
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    -    -%
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    -    -%
                           
PCC SBH Sub, Inc.  Karnes City, TX                       
Common stock (5) (7)  Energy Services  2/06/2017   100    2,525,481    1,653,047    4.80%
                           
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    11,576,127    33.65%
Revolving Loan, 8% Cash, due 12/31/2021(7)     6/29/2015  $2,384,169    2,384,169    2,663,002    7.74%
Rockfish Holdings, LLC                          

Warrant for Membership Interest, exercise price $0.001 per 1% membership interest, expires 7/28/2028 (7)

     3/13/2015   10.0%   414,960    414,231    1.2%
Membership Interest – Class A (5) (7)     3/13/2015   99.997%   3,734,636    3,727,970    10.84%
Total              12,886,709    18,381,330    53.43%
                           
Total control investments              27,486,442    24,439,871    71.04%

 

See notes to financial statements (unaudited).

 

- 5 -

 

 

PRINCETON CAPITAL CORPORATION

 

SCHEDULE OF INVESTMENTS as of June 30, 2021

(Unaudited) (Continued)

 

Investments  Headquarters /
Industry		  Acquisition
Date		 

Principal Amount/
Shares/%
Ownership

   Amortized
Cost		   Fair
Value (1)		   % of
Net Assets		 
                       
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   $ 6,017,094    17.49%
                               
Performance Alloys, LLC  Houston, TX                           
Second Lien Loan, 10.0% cash, due 9/30/2022 (2)(5)(7)(9)  Nickel Pipe, Fittings & Flanges  7/01/2016  $6,750,000   6,750,000   3,645,000    10.59%
Membership Interest – Class B (5) (7)     7/01/2016   25.97%   5,131,090    -    -%
Total              11,881,090    3,645,000    10.59%
                           
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    9,663,294    28.08%
                           

Total Portfolio Investments

              46,169,318    34,103,165    99.12%
                           
Total Investments             $46,169,318   $34,103,165    99.12%

 

 

(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 June 30, 2021, less than 1% of the total fair value of investments represents non-qualifying assets.

(5)Investment is non-income producing as of June 30, 2021.

(6)Represents an illiquid investment. At June 30, 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 4, 2021, the Company received a Final Judgment Order against Great Value Storage, LLC and World Class Capital Group, 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.

 

See notes to financial statements (unaudited).

- 6 -

 

 

PRINCETON CAPITAL CORPORATION

 

SCHEDULE OF INVESTMENTS as of June 30, 2021

(Unaudited) (Continued)

 

The following tables show the fair value of our portfolio of investments (excluding U.S. Treasury Bills, if any) by geography and industry as of June 30, 2021.

 

   June 30, 2021 
Geography  Investments at
Fair Value		   Percentage of
Net Assets		 
United States  $34,101,965    99.11%
Canada   1,200    00.01 
Total  $34,103,165    99.12%

 

   June 30, 2021 
Industry  Investments at
Fair Value		   Percentage of
Net Assets		 
Nickel Pipe, Fittings and Flanges  $3,645,000    10.59%
Casual Dining   18,381,330    53.43 
Storage Company Property Management   6,017,094    17.49 
Staffing   4,405,494    12.80 
Energy Services   1,653,047    4.80 
Security   1,200    0.01 
Total  $34,103,165    99.12%

 

See notes to financial statements (unaudited).

 

- 7 -

 

 

PRINCETON CAPITAL CORPORATION

 

SCHEDULE OF INVESTMENTS as of December 31, 2020

 

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% Cash, due 11/30/2021(2) (5) (7)   Staffing 

3/13/2015

  $4,500,000   $4,500,000   $3,008,208    13.38%
Unsecured loan 6.33%, due 12/31/2021 (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 (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 (7)     12/31//2016   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  

3/22/2018

   1,516,144    1,516,144    -    - 
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    -    -%
                           
PCC SBH Sub, Inc.  Karnes City, TX                       
Common stock (5) (7)  Energy Services  2/06/2017   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 

3/13/2015

 

  $6,352,944    6,352,944    6,910,188    30.74%
Revolving Loan, 8% Cash, due 12/31/2021 (7)     6/29/2015  $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 (7)

    

3/13/2015

   10.0%   414,960    -    -%
Membership Interest – Class A (5) (7)     3/13/2015   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%

 

See notes to financial statements (unaudited).

 

- 8 -

 

 

PRINCETON CAPITAL CORPORATION

 

SCHEDULE OF INVESTMENTS as of December 31, 2020

(Continued)

 

Investments  Headquarters /
Industry		  Acquisition
Date		  Principal Amount/
Shares/%
Ownership		   Amortized
Cost		   Fair
Value (1)		  

% of

Net Assets

 
                       
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   $ 5,057,932    22.50%
                           
Performance Alloys, LLC  Houston, TX                       

Second Lien Loan, 10% Cash, due 9/30/2022 (2)(5)(7)(9)

  Nickel Pipe,
Fittings & Flanges		  7/01/2016  $6,750,000   6,750,000   2,227,500    9.91%
Membership Interest – Class B (5) (7)     7/01/2016   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  3/13/2015   600,000    1,200    1,200    -%
                           
Total non-control/non-affiliate investments              18,682,876    7,286,632    32.41%
                           
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.

 

See notes to financial statements (unaudited).

 

- 9 -

 

 

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 
Geography  Investments at
Fair Value		   Percentage of
Net Assets		 
United States  $21,565,823    95.94%
Canada   1,200    0.01 
Total  $21,567,023    95.95%

 

 

   December 31, 2020 
Industry  Investments at
Fair Value		   Percentage of
Net Assets		 
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%

 

See notes to financial statements (unaudited).

 

- 10 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS

 

References herein to “we”, “us” or “our” refer to Princeton Capital Corporation (the “Company” or “Princeton Capital”), unless the context specifically requires otherwise.

 

Princeton Capital Corporation, a Maryland corporation, was incorporated under the general laws of the State of Maryland on July 25, 2013. We are a non-diversified, closed-end investment company that has filed an election to be regulated as a business development company (“BDC”), under the Investment Company Act of 1940, as amended (the “1940 Act”). A goal of a BDC is to annually qualify and elect to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company, however, did not meet the requirements to qualify as a RIC for the 2020 tax year and will be taxed as a corporation under Subchapter C of the Code and does not expect to meet the qualifications of a RIC until such time as certain strategic alternatives are achieved. While we have sought to invest primarily in private small and lower middle-market companies in various industries through first lien loans, second lien loans, unsecured loans, unitranche and mezzanine debt financing, often times with a corresponding equity investment, we are now (with a strategic alternatives process underway and limited resources) investing only in current investments and otherwise conserving cash. Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through debt and related equity investments.

 

Prior to March 13, 2015, Princeton Capital’s predecessor operated under the name Regal One Corporation (“Regal One”). Regal One had been located in Scottsdale, Arizona, and was a Florida corporation initially incorporated in 1959 as Electro-Mechanical Services Inc. Since inception, Regal One had been involved in several industries. In 1998, Electro-Mechanical Services Inc. changed its name to Regal One Corporation.

 

On March 7, 2005, Regal One’s board of directors determined it was in the shareholders’ best interest to change the focus of its operations to providing financial consulting services through its network of advisors and professionals, and to be regulated as a BDC under the 1940 Act. On September 16, 2005, Regal One filed a Form N54A (Notification of Election by Business Development Companies) with the Securities and Exchange Commission (“SEC”), which transformed Regal One into a BDC in accordance with sections 55 through 65 of the 1940 Act. Regal One reported as an operating BDC from March 31, 2006 until March 13, 2015 and since March 13, 2015 (following Regal One’s reincorporation from Florida to Maryland by merging with and into the Company with the Company continuing as the surviving corporation) Princeton Capital has reported as an operating BDC.

 

On December 27, 2017, the Board approved (specifically in accordance with Rule 15a-4(b)(1)(ii) of the Investment Company Act) and authorized the Company to enter into an Interim Investment Advisory Agreement between the Company and House Hanover, LLC, a Delaware limited liability company (“House Hanover”) (the “Interim Investment Advisory Agreement”), in accordance with Rule 15a-4 of the Investment Company Act. The effective date of the Interim Investment Advisory Agreement was January 1, 2018.

 

On April 5, 2018, the Board, including a majority of the independent directors, conditionally approved the Investment Advisory Agreement between the Company and House Hanover (the “House Hanover Investment Advisory Agreement”) subject to the approval of the Company’s stockholders at the 2018 Annual Meeting of Stockholders. The House Hanover Investment Advisory Agreement replaced the Interim Investment Advisory Agreement. On May 30, 2018, the Company’s stockholders approved the House Hanover Investment Advisory Agreement. The effective date of the House Hanover Investment Advisory Agreement was May 31, 2018. The House Hanover Investment Advisory Agreement was last annually renewed by the Board and by a majority of the members of the Board who are not parties to the House Hanover Investment Advisory Agreement or “interested persons” (as such term is defined in the 1940 Act) of any such party, in accordance with the requirements of the 1940 Act and the House Hanover Investment Advisory Agreement on May 14, 2021.

 

Since January 1, 2018, House Hanover has acted as our investment advisor under the Interim Investment Advisory Agreement (from January 1, 2018 until May 31, 2018) and the House Hanover Investment Advisory Agreement (since May 31, 2018).

 

On November 15, 2019, our Board announced that the Company has initiated a strategic review process to identify, examine, and consider a range of strategic alternatives available to the Company, including but not limited to, (i) selling the Company’s assets to a business development company or other potential buyer, (ii) merging with another business development company, (iii) liquidating the Company’s assets in accordance with a plan of liquidation, (iv) raising additional funds for the Company, or (v) otherwise entering into another business combination, with the objective of maximizing stockholder value. As of June 30, 2021 and through the date of filing this Quarterly Report, the Company has not entered into any agreements regarding any strategic alternative.

 

- 11 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, (“U.S. GAAP”). In accordance with Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments. The accounting records of the Company are maintained in U.S. dollars. As an investment company, as defined by the 1940 Act, the Company follows investment company accounting and reporting guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 – Financial Services - Investment Companies, which is U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The reported amounts for the three and six months ended June 30, 2021 may not be indicative of the results ultimately achieved for the year ended December 31, 2021 which will be presented in the Company’s annual report on form 10-K.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ. It is likely that changes in these estimates will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ materially from such estimates.

 

Portfolio Investment Classification

 

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which the Company owns between 5% and 25% of the voting securities. Under the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments. As of June 30, 2021, the Company had control investments in Advantis Certified Staffing Solutions, Inc., PCC SBH Sub, Inc., Rockfish Holdings, LLC, Rockfish Seafood Grill, Inc., Integrated Medical Partners, LLC and Dominion Medical Management, Inc. as defined under the 1940 Act. As of December 31, 2020, the Company had control investments in Advantis Certified Staffing Solutions, Inc., PCC SBH Sub, Inc., Rockfish Holdings, LLC, Rockfish Seafood Grill, Inc., Integrated Medical Partners, LLC and Dominion Medical Management, Inc. as defined under the 1940 Act.

 

Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forgo the risks for gains and losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments in other non-security financial instruments, such as limited partnerships or private companies, are recorded on the basis of subscription date or redemption date, as applicable. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold or payable for investments acquired, respectively, in the Statements of Assets and Liabilities.

 

Valuation of Investments

 

In accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

In determining fair value, our board of directors uses various valuation approaches. In accordance with U.S. GAAP, ASC 820 establishes a fair value hierarchy for inputs and is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

 

- 12 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the board of directors. Unobservable inputs reflect our board of director’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

 

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

 

●Our quarterly valuation process begins with each portfolio company or investment being initially valued by an independent valuation firm, except for those investments where market quotations are readily available;

 

●Preliminary valuation conclusions are then documented and discussed with our senior management and our investment advisor;

 

●The valuation committee of our board of directors then reviews these preliminary valuations and approves them for recommendation to the board of directors;

 

●The board of directors then discusses valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of our investment advisor, the independent valuation firm and the valuation committee.

 

U.S. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

 

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

 

Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the board of directors in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement. For the three months ended June 30, 2021, there was a change in valuation technique on a second lien loan and equity position. The reason for the change is that the performance of the portfolio company improved and current enterprise value coverage levels became more material.

 

- 13 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

 

Valuation Processes

 

The Company establishes valuation processes and procedures to ensure that the valuation techniques for investments that are categorized within Level 3 of the fair value hierarchy are fair, consistent, and verifiable. The Company’s board of directors designates a Valuation Committee (the “Committee”) to oversee the entire valuation process of the Company’s Level 3 investments. The Committee is comprised of independent directors and reports to the Company’s board of directors. The Committee is responsible for developing the Company’s written valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness and consistent application of the valuation policies.

 

The Committee meets on a quarterly basis, or more frequently as needed, to determine the valuations of the Company’s Level 3 investments. Valuations determined by the Committee are required to be supported by market data, third-party pricing sources, industry accepted pricing models, counterparty prices, or other methods that the Committee deems to be appropriate.

 

The Company will periodically test its valuations of Level 3 investments through performing back testing of the sales of such investments by comparing the amounts realized against the most recent fair values reported, and if necessary, uses the findings to recalibrate its valuation procedures. On a quarterly basis, the Company engages the services of a nationally recognized third-party valuation firm to perform an independent valuation of the Company’s Level 3 investments. This valuation firm provides a range of values for selected investments, which is presented to the Valuation Committee to determine the value for each of the selected investments.

 

Investment Valuation

 

We expect that most of our portfolio investments will take the form of securities that are not publicly traded. The fair value of loans, securities and other investments that are not publicly traded may not be readily determinable, and we will value these investments at fair value as determined in good faith by our board of directors, including reflecting significant events affecting the value of our investments. Most, if not all, of our investments (other than cash and cash equivalents) will be classified as Level 3 under Financial Accounting Standards Board Accounting Standards Codification “Fair Value Measurements and Disclosures”, or ASC 820. This means that our portfolio valuations will be based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. We expect that inputs into the determination of fair value of our portfolio investments will require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. We expect to retain the services of one or more independent service providers to review the valuation of these loans and securities. The types of factors that the board of directors may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such loans and securities.

 

- 14 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

We will adjust the valuation of our portfolio quarterly to reflect our board of directors’ determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our statement of operations as net change in unrealized gain or loss on investments.

 

Debt Securities

 

The Company’s portfolio consists primarily of first lien loans, second lien loans, and unsecured loans. Investments for which market quotations are readily available (“Level 2 Loans”) are generally valued using market quotations, which are generally obtained from an independent pricing service or broker-dealers. For other debt investments (“Level 3 Loans”), market quotations are not available and other techniques are used to determine fair value. The Company considers its Level 3 Loans to be performing if the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 Loans, the Board considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions, success and prepayment fees, and other relevant factors, both qualitative and quantitative. In the event that a Level 3 Loan instrument is not performing, as defined above, the Board may evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 Loan instrument.

 

Equity Investments

 

Our equity investments, including common stock, membership interests, and warrants, are generally valued using a market approach and income approach. The income approach utilizes primarily the discount rate to value the investment whereas the primary inputs for the market approach are the earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiple and revenue multiples. The Black-Scholes Option Pricing Model, a valuation technique that follows the income approach, is used to allocate the value of the equity to the investment. The pricing model takes into account the contract terms (including maturity) as well as multiple inputs, including time value, implied volatility, equity prices, risk free rates, and interest rates.

 

Valuation of Other Financial Instruments

 

The carrying amounts of the Company’s other, non-investment, financial instruments, consisting of cash, receivables, accounts payable, and accrued expenses, approximate fair value due to their short-term nature.

 

Cash and Restricted Cash

 

The Company deposits its cash and restricted cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insured limit; however, management does not believe it is exposed to any significant credit risk.

 

The following table provides a reconciliation of cash and restricted cash reporting within the statements of assets and liabilities that sum to the total of the same such amounts shown in the statements of cash flows:

 

   June 30,
2021		   December 31, 
   (Unaudited)   2020 
Cash  $655,416   $1,725,700 
Restricted Cash   25,561    25,530 
Total Cash and Restricted Cash  $680,977   $1,751,230 

 

As of June 30, 2021 and December 31, 2020 restricted cash consisted of cash held for deposit with the law firm that represents the Company in its litigation with Great Value Storage, LLC.

 

- 15 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

U.S. Treasury Bills

 

At the end of each fiscal quarter, we may take proactive steps to be in compliance with the RIC diversification requirements under Subchapter M of the Code, which are dependent upon the composition of our total assets at quarter end. We may accomplish this in several ways, including purchasing U.S. Treasury Bills and closing out positions after quarter-end. As of June 30, 2021 and December 31, 2020, the Company did not purchase any U.S. Treasury Bills.

 

Revenue Recognition

 

Realized gains or losses on the sale of investments are calculated using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties.

 

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with senior and subordinated secured loans are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a senior or subordinated secured loan, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income. Generally, when a payment default occurs on a loan in the portfolio, or if the Company otherwise believes that the borrower will not be able to make contractual interest payments, the Company may place the loan on non-accrual status and cease recognizing interest income on the loan until all principal and interest is current through payment, or until a restructuring occurs, and the interest income is deemed to be collectible. The Company may make exceptions to this policy if a loan has sufficient collateral value, is in the process of collection or is viewed to be able to pay all amounts due if the loan were to be collected on through an investment in or sale of the business, the sale of the assets of the business, or some portion or combination thereof.

 

Dividend income is recorded on the ex-dividend date.

 

Structuring fees, excess deal deposits, prepayment fees and similar fees are recognized as income as earned, usually when paid.

 

Other fee income from investment sources, includes annual fees and monitoring fees from our portfolio investments and are included in other income from non-control/non-affiliate investments and other income from affiliate investments. Income from such sources was $5,999 and $5,999 for the three months ended June 30, 2021, and 2020, respectively. Income from such sources was $11,932 and $15,024 for the six months ended June 30, 2021, and 2020, respectively.

 

Other income from non-investment sources is generally comprised of interest income earned on cash in the Company’s bank account. Income from such sources was $29 and $72 for the three months ended June 30, 2021 and 2020, respectively. Income from such sources was $64 and $307 for the six months ended June 30, 2021 and 2020, respectively.

 

Payment-in-Kind Interest (“PIK”)

 

We have investments in our portfolio that contain a PIK interest provision. Any PIK interest is added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. For the three months and six months ended June 30, 2021, PIK interest was $0 and $0. For the three and six months ended June 30, 2020, PIK interest was $0 and $21,804, respectively. In order to qualify as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends, even if we have not collected any cash.

 

Net Change in Unrealized Gain or Loss

 

Net change in unrealized gain or loss will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

 

- 16 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

Legal Fees

 

Legal fees invoiced to the Company for the three and six months ended June 30, 2021 and 2020, were incurred in the normal operating course of business and are included in legal fees on the Statement of Operations.

 

The Company incurred legal fees related to the lawsuit against Great Value Storage, LLC (“GVS”). The amounts invoiced to the Company, prior to the final judgment received on March 4, 2021, for the six months ended June 30, 2021 and 2020 were $14,423 and $28,229, respectively. These amounts are recoverable per the loan agreements and are invoiced to GVS and included in the amount Due from portfolio companies on the Statements of Assets and Liabilities. Amounts invoiced to the Company, after the final judgment received on March 4, 2021, for fees incurred to recover our judgment were expensed to Legal fees on the Statements of Operations.

 

Federal and State Income Taxes

 

The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded for tax loss carryforwards and temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Company did not meet the qualifications of a RIC for the 2020 tax year and will be taxed as a corporation under Subchapter C of the Internal Revenue Code of 1986 (the “Code”). The failure to qualify as a RIC, however, did not impact the 2020 tax year as the Company had net operating losses and no realized gains in the tax year. Further, the Company has net operating losses and capital losses from prior years it can carry forward to offset taxable income.

 

The Company does not expect to meet the qualifications of a RIC for the 2021 tax year and is likely to be taxed as a corporation under Subchapter C of the Code. However, in the event that the Company does meet the qualifications of a RIC for the 2021 tax year, it may not be in the best interests of the Company’s stockholders to elect to be taxed as a RIC for the 2021 tax year due to the net operating losses and capital loss carryforwards the Company currently has. Management will make a determination that is in the best interests of the Company and its stockholders.

 

In order to qualify as a RIC, among other things, the Company is required to distribute to its stockholders on a timely basis at least 90% of investment company taxable income, as defined by the Code, for each year. If the Company achieves its status as a RIC, it generally will not pay corporate-level U.S. federal and state income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax liability related to income earned by the Company will represent obligations of the Company’s investors and will not be reflected in the financial statements of the Company.

 

The Company evaluates tax positions taken or expected to be taken while preparing its financial statements to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. The Company recognizes the tax benefits of uncertain tax positions only where the position has met the “more-likely-than-not” threshold. The Company classifies penalties and interest associated with income taxes, if any, as income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, ongoing analyses of tax laws, regulations and interpretations thereof.

 

Dividends and Distributions

 

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a dividend is approved by our board of directors each quarter and is generally based upon our management’s estimate of our earnings for the quarter. For the three and six months ended June 30, 2021 and 2020, and through the date of issuance of this report, no dividends have been declared or distributed to stockholders.

 

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PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

Per Share Information

 

Basic and diluted earnings (loss) per common share is calculated using the weighted average number of common shares outstanding for the period presented.

 

Basic earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings (loss) per share is computed by dividing net earnings (loss) per share by the weighted average number of shares outstanding, plus, any potentially dilutive shares outstanding during the period. For the three and six months ended June 30, 2021 and 2020, basic and diluted earnings (loss) per share were the same, since there were no potentially dilutive securities outstanding.

 

Capital Accounts

 

Certain capital accounts including undistributed net investment income, accumulated net realized gain or loss, accumulated net unrealized gain or loss, and paid-in capital in excess of par, are adjusted, at least annually, for permanent differences between book and tax. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from U.S. GAAP.

 

Recent Accounting Pronouncements

 

In May 2020, the SEC adopted rule amendments that will impact the requirements of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules were effective on January 1, 2021, The adoption resulted in more portfolio companies meeting the significant subsidiary definition under the Final Rules, thus resulting in increased disclosures.

 

- 18 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

NOTE 3 – CONCENTRATION OF CREDIT RISK

 

In the normal course of business, the Company maintains its cash balances in financial institutions, which at times may exceed federally insured limits. The Company is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual obligations on its behalf. Management monitors the financial condition of such financial institutions and does not anticipate any losses from these counterparties.

 

NOTE 4 – NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE

 

The following information sets forth the computation of basic and diluted net increase (decrease) in net assets resulting from operations per common share for the three months ended June 30, 2021 and June 30, 2020 and the six months ended June 30, 2021 and June 30, 2020.

 

   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2021   2020   2021   2020 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Per Share Data (1):                
Net increase (decrease) in net assets resulting from operations  $7,820,375   $(4,482,226)  $11,927,099   $(12,206,610)
Weighted average shares outstanding for period                    
Basic   120,486,061    120,486,061    120,486,061    120,486,061 
Diluted   120,486,061    120,486,061    120,486,061    120,486,061 
Basic and diluted net increase (decrease) in net assets resulting from operations per common share                    
Basic  $0.065   $(0.037)  $0.099   $(0.101)
Diluted  $0.065   $(0.037)  $0.099   $(0.101)

 

 

(1)Per share data based on weighted average shares outstanding.

 

NOTE 5 – FAIR VALUE OF INVESTMENTS

 

The Company’s assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures (“ASC 820”). See Note 2 for a discussion of the Company’s policies.

 

The following table presents information about the Company’s assets measured at fair value as of June 30, 2021 and December 31, 2020, respectively:

 

   As of June 30, 2021 
   Level 1   Level 2   Level 3   Total 
Portfolio Investments                    
First Lien Loans  $-   $-   $20,256,223   $20,256,223 
Second Lien Loans   -    -    8,050,494    8,050,494 
Equity   -    -    5,796,448    5,796,448 
Total Portfolio Investments   -    -    34,103,165    34,103,165 
Total Investments  $   $-   $34,103,165   $34,103,165 

 

- 19 -

 

 

PRINCETON CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

 

   As of December 31, 2020 
   Level 1   Level 2   Level 3   Total 
Portfolio Investments                    
First Lien Loans  $-   $-   $14,671,435   $14,671,435 
Second Lien Loans   -    -    5,235,708    5,235,708 
Equity   -    -    1,659,880    1,659,880 
Total Portfolio Investments   -    -    21,567,023    21,567,023 
Total Investments  $-   $-   $21,567,023   $21,567,023 

 

During the six months ended June 30, 2021 and the year ended December 31, 2020, there were no transfers between Level, 1, Level 2 or Level 3.

 

The following table presents additional information about Level 3 assets measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

 

Changes in Level 3 assets measured at fair value for the six months ended June 30, 2021 are as follows:

 

   First Lien
Loans		   Second Lien
Loans		   Unsecured
Loans		   Equity   Total 
Fair value at beginning of period  $14,671,435   $5,235,708   $      -   $1,659,880   $21,567,023 
Amortization   -    -    -    -    - 
Purchases of investments   -    -    -    -    - 
Sales of investments   -    -    -    -    - 
Payment-in-kind interest   -    -    -    -    - 
Change in unrealized gain (loss) on investments   5,584,788    2,814,786    -    4,136,568    12,536,142 
Fair value at end of period  $20,256,223   $8,050,494   $-   $5,796,448   $34,103,165 
Change in unrealized gain (loss) on Level 3 investments still held as of June 30, 2021  $5,584,788   $2,814,786   $-   $4,136,568   $12,536,142 

 

Changes in Level 3 assets measured at fair value for the year ended December 31, 2020 are as follows:

 

   First Lien
Loans		   Second Lien
Loans		   Unsecured
Loans		   Equity   Total 
Fair value at beginning of year  $13,740,173   $17,956,452   $-   $1,655,877   $33,352,502 
Purchases of investments   -    90,537    - </