10-Q 1 v377601_10q.htm QUARTERLY REPORT

  

  

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



 

FORM 10-Q



 

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

     FOR THE QUARTERLY PERIOD ENDED March 31, 2014

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

COMMISSION FILE NUMBER: 814-00809



 

FULL CIRCLE CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)



 

 
MARYLAND   27-2411476
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

800 Westchester Ave., Suite S-620
Rye Brook, NY 10573

(Address of principal executive office)

(914) 220-6300

(Registrant’s telephone number, including area code)



 

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 o No o

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

 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer x (do not check if a smaller reporting company)   Smaller reporting company o

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

The number of shares of the issuer’s Common Stock, $0.01 par value, outstanding as of May 8, 2014 was 10,091,682.

 

 


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION

TABLE OF CONTENTS

 
  Page
PART I. FINANCIAL INFORMATION
        

Item 1.

Financial Statements

    1  
Consolidated Statements of Assets and Liabilities as of March 31, 2014 and June 30, 2013 (audited)     1  
Consolidated Statements of Operations for the three and nine months ended March 31, 2014 and March 31, 2013     2  
Consolidated Statements of Changes in Net Assets for the nine months ended March 31, 2014 and March 31, 2013     3  
Consolidated Statements of Cash Flows for the nine months ended March 31, 2014 and March 31, 2013     4  
Consolidated Schedule of Investments as of March 31, 2014     5  
Consolidated Schedule of Investments as of June 30, 2013 (audited)     10  
Notes to Consolidated Financial Statements as of March 31, 2014     14  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    34  
Forward-Looking Statements     34  
Overview     35  
Critical Accounting Policies     36  
Current Market Conditions and Market Opportunity     38  
Portfolio Composition and Investment Activity     39  
Results of Operations     43  
Liquidity and Capital Resources     46  
Recent Developments     51  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

    51  

Item 4.

Controls and Procedures

    52  
PART II. OTHER INFORMATION
        

Item 1.

Legal Proceedings

    53  

Item 1A.

Risk Factors

    53  

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

    53  

Item 3.

Defaults Upon Senior Securities

    53  

Item 4.

Mine Safety Disclosures

    53  

Item 5.

Other Information

    53  

Item 6.

Exhibits

    54  
SIGNATURES     56  

i


 
 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

     
    March 31, 2014   June 30, 2013
          Unaudited   Audited
Assets
                          
Control Investments at Fair Value (Cost of $19,842,061 and $18,139,543, respectively)     (NOTE 2, 9)
    $ 20,201,058     $ 19,115,440  
Affiliate Investments at Fair Value (Cost of $19,427,127 and $17,954,622, respectively)     (NOTE 2, 9)
      19,335,138       16,547,903  
Non-Control/Non-Affiliate Investments at Fair Value
(Cost of $65,692,689 and $53,220,538, respectively)
    (NOTE 2, 9)
      60,587,005       52,511,158  
Total Investments at Fair Value (Cost of $104,961,877 and $89,314,703, respectively)              100,123,201       88,174,501  
Cash              6,861,986       18,029,115  
Deposit with Broker              1,050,000        
Interest Receivable     (NOTE 2)
      973,594       1,097,970  
Principal Receivable              420,720       104,768  
Dividends Receivable              80,293       36,705  
Due from Affiliate              1,332        
Due from Portfolio Investment              137,337       105,030  
Receivable from Notes Offering                    2,299,704  
Prepaid Expenses              107,459       61,198  
Other Assets              700,710       1,437,273  
Deferred Offering Expenses                    86,834  
Deferred Debt Issuance Costs     (NOTE 8)
      987,344       1,086,895  
Deferred Credit Facility Fees     (NOTE 8)
      507,550       543,846  
Total Assets           111,951,526       113,063,839  
Liabilities
                          
Due to Affiliates     (NOTE 5)
      736,897       728,371  
Accounts Payable              186,565       471,297  
Accrued Liabilities              28,967       10,172  
Due to Broker              10,000,073        
Payable for Investments Acquired              5,940,000        
Dividends Payable              676,143       582,842  
Interest Payable              31,015       134,167  
Other Liabilities              494,316       358,696  
Accrued Offering Expenses              11,000        
Line of Credit     (NOTE 8)
            25,584,147  
Notes Payable 8.25% due June 30, 2020     (NOTE 8)
      21,145,525       21,145,525  
Distribution Notes     (NOTE 8)
            3,404,583  
Total Liabilities           39,250,501       52,419,800  
Net Assets         $ 72,701,025     $ 60,644,039  
Components of Net Assets
                          
Common Stock, par value $0.01 per share (100,000,000 authorized; 10,091,682 and 7,569,382 issued and outstanding, respectively)            $ 100,917     $ 75,694  
Paid-in Capital in Excess of Par              83,887,972       66,319,579  
Distributions in Excess of Net Investment Income              (1,091,069 )      (200,200 ) 
Accumulated Net Realized Losses              (5,358,119 )      (4,410,832 ) 
Accumulated Net Unrealized Losses           (4,838,676 )      (1,140,202 ) 
Net Assets         $ 72,701,025     $ 60,644,039  
Net Asset Value Per Share         $ 7.20     $ 8.01  

 
 
See notes to consolidated financial statements.

1


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

         
    Three Months Ended
March 31,
  Nine Months Ended
March 31,
       2014   2013   2014   2013
Investment Income
                                            
Interest Income from Non-Control/Non-Affiliate Investments            $ 1,308,432     $ 1,615,618     $ 4,839,103     $ 5,609,673  
Interest Income from Affiliate Investments              673,896       389,518       1,984,549       950,026  
Interest Income from Control Investments              510,038       435,300       1,452,149       1,033,884  
Dividend Income from Control Investments              80,293       80,178       114,704       186,768  
Other Income from Non-Control/Non-Affiliate Investments     (NOTE 2)
      603,190       305,935       1,966,552       834,515  
Other Income from Affiliate Investments     (NOTE 2)
      3,275       3,992       12,156       63,577  
Other Income from Control Investments     (NOTE 2)
      12,500       12,500       37,500       37,500  
Total Investment Income           3,191,624       2,843,041       10,406,713       8,715,943  
Operating Expenses
                                            
Management Fee     (NOTE 5)
      364,352       362,743       1,156,099       1,041,905  
Incentive Fee     (NOTE 5)
      351,594       328,044       1,141,230       1,001,406  
Total Advisory Fees           715,946       690,787       2,297,329       2,043,311  
Allocation of Overhead Expenses     (NOTE 5)
      43,604       84,552       142,315       225,860  
Sub-Administration Fees     (NOTE 5)
      50,000       50,000       150,000       173,429  
Officers’ Compensation     (NOTE 5)
      75,529       75,160       226,396       225,514  
Total Costs Incurred Under Administration Agreement           169,133       209,712       518,711       624,803  
Directors’ Fees              26,125       24,625       86,375       86,375  
Interest Expense     (NOTE 8)
      623,091       379,310       2,062,570       1,214,392  
Professional Services Expense              112,629       108,998       467,110       384,061  
Bank Fees              9,941       3,975       45,409       12,295  
Other           128,380       113,470       379,015       334,647  
Total Operating Expenses              1,785,245       1,530,877       5,856,519       4,699,884  
Net Investment Income              1,406,379       1,312,164       4,550,194       4,016,059  
Net Change in Unrealized Gain (Loss) on Investments              1,751,729       168,654       (3,698,474 )      1,978,556  
Net Realized Gain (Loss) on:
                                            
Investments              224,320             (946,449 )      (4,047,108 ) 
Foreign Currency Transactions           (906 )            (838 )       
Net Realized Gain (Loss)           223,414             (947,287 )      (4,047,108 ) 
Net Increase (Decrease) in Net Assets Resulting from Operations         $ 3,381,522     $ 1,480,818     $ (95,567 )    $ 1,947,507  
Earnings (Loss) per Common Share Basic and Diluted     (NOTE 4)
    $ 0.36     $ 0.20     $ (0.01 )    $ 0.28  
Net Investment Income per Common Share Basic and Diluted            $ 0.15     $ 0.18     $ 0.56     $ 0.59  
Weighted Average Shares of Common Share Outstanding Basic and Diluted              9,419,350       7,569,382       8,177,036       6,835,258  

 
 
See notes to consolidated financial statements.

2


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)

   
  Nine Months Ended
March 31, 2014
  Nine Months
Ended
March 31, 2013
Increase (Decrease) in Net Assets Resulting from Operations:
                 
Net Investment Income   $ 4,550,194     $ 4,016,059  
Net Change in Unrealized Gain (Loss) on Investments     (3,698,474 )      1,978,556  
Net Realized Gain (Loss) on:
                 
Investments     (946,449 )      (4,047,108 ) 
Foreign Currency Transactions     (838 )       
Net Realized Gain (Loss)     (947,287 )      (4,047,108 ) 
Net Increase (Decrease) in Net Assets Resulting from Operations     (95,567 )      1,947,507  
Dividends to Shareholders     (5,441,063 )      (4,829,782 ) 
Capital Share Transactions:
                 
Issuance of Common Stock     18,412,399       10,665,000  
Less Offering Costs and Underwriting Fees     (818,783 )      (686,580 ) 
Net Increase in Net Assets Resulting from Capital Share Transactions     17,593,616       9,978,420  
Total Increase (Decrease) in Net Assets     12,056,986       7,096,145  
Net Assets at Beginning of Period     60,644,039       53,442,785  
Net Assets at End of Period   $ 72,701,025     $ 60,538,930  
Capital Share Activity:
                 
Shares Issued     2,522,300       1,350,000  
Shares Outstanding at Beginning of Period     7,569,382       6,219,382  
Shares Outstanding at End of Period     10,091,682       7,569,382  

 
 
See notes to consolidated financial statements.

3


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

   
  Nine months
ended
March 31, 2014
  Nine months
ended
March 31, 2013
Cash Flows from Operating Activities:
                 
Net Increase (Decrease) in Net Assets Resulting from Operations   $ (95,567 )    $ 1,947,507  
Adjustments to Reconcile Net Increase (Decrease) in Net Assets Resulting from Operations to Net Cash Provided by (Used in) Operating Activities
                 
Purchases of Investments     (121,391,833 )      (124,978,996 ) 
Proceeds from Sale or Refinancing of Investments     105,129,987       114,855,522  
Realized (Gain) Loss on:
                 
Investments     946,449       4,047,108  
Foreign Currency Transactions     838        
Net Change in Unrealized (Gain) Loss on Investments     3,698,474       (1,978,556 ) 
Amortization and Accretion of Fixed Income Premiums and Discounts     (332,615 )      (240,175 ) 
Amortization of Deferred Debt Issuance Costs     118,653        
Amortization of Deferred Credit Facility Fees     208,028        
Change in Operating Assets and Liabilities
                 
Deposit with Broker     (1,050,000 )      800,000  
Interest Receivable     124,376       (90,623 ) 
Principal Receivable     (315,952 )      365,769  
Dividend Receivable     (43,588 )      (53,682 ) 
Due from Affiliate     (1,332 )       
Due from Portfolio Investment     (32,307 )      3,223  
Receivable for Investments Sold           (1,126,196 ) 
Prepaid Expenses     (46,261 )      (62,715 ) 
Other Assets     736,563       (83,921 ) 
Due to Affiliates     8,526       110,431  
Accounts Payable     (284,732 )      (66,770 ) 
Accrued Liabilities     18,795       (40,666 ) 
Due to Broker     10,000,073       (7,499,916 ) 
Payable for Investments Acquired     5,940,000       4,155,951  
Interest Payable     (103,152 )      (28,273 ) 
Other Liabilities     135,620       338,900  
Net Cash Provided by (Used in) Operating Activities     3,369,043       (9,626,078 ) 
Cash Flows from Financing Activities:
                 
Borrowings Under Credit Facility     95,980,120       52,499,326  
Payments Under Credit Facility     (121,564,267 )      (48,296,231 ) 
Dividends Paid to Shareholders     (5,347,762 )      (4,725,832 ) 
Proceeds from Notes Payable     2,299,704        
Deferred Credit Facility Fees     (171,732 )       
Deferred Debt Issuance Costs     (19,102 )       
Payment of Distribution Notes     (3,404,583 )       
Payment of Offering Expenses and Underwriting Fees     (720,949 )      (673,771 ) 
Proceeds from Issuance of Common Stock     18,412,399       10,665,000  
Net Cash Provided by (Used in) Financing Activities     (14,536,172 )      9,468,492  
Total Decrease in Cash     (11,167,129 )      (157,586 ) 
Cash Balance at Beginning of Period     18,029,115       639,149  
Cash Balance at End of Period   $ 6,861,986     $ 481,563  
Supplemental Disclosure of Non-Cash Financing Activity:
                 
Dividends Declared, Not Yet Paid   $ 676,143     $ 582,842  
Accrued Offering Expenses   $ 11,000     $  
Supplemental Disclosure of Cash Flow Information:
                 
Cash Paid During the Period for Interest   $ $1,839,041     $ 1,242,665  

 
 
See notes to consolidated financial statements.

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TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited)
March 31, 2014

           
           
Description(1)   Industry   Type of Investment(2)   Par Amount/
Quantity
  Cost   Fair Value   % of Net
Asset
Value
Control Investments(3)
                                                     
New Media West, LLC     Cable TV
Broadband Services
      Senior Secured Term Loan, 9.00%,
12/31/2017
    $ 4,953,195     $ 4,953,195     $ 4,824,412       6.63 % 
          Limited Liability Company
Interestsˆ,(5)
      720       3,600,000       3,057,262       4.21 % 
New Media West, LLC Total                       8,553,195       7,881,674       10.84 % 
Takoda Resources Inc.*     Geophysical Surveying
and Mapping Services
      Senior Secured Term Loan, 16.00%,
4/1/2016
    $ 2,450,000       2,450,000       2,432,605       3.35 % 
             Common Stockˆ,(6)       743                   0.00 % 
Takoda Resources Inc. Total                       2,450,000       2,432,605       3.35 % 
Texas Westchester Financial, LLC     Consumer Finance       Limited Liability Company
Interestsˆ
      9,278       905,819       553,459       0.76 % 
The Finance Company, LLC     Consumer Finance       Senior Secured Term Loan, 15.00%
(LIBOR plus 14.25%,
15.00% floor), 9/30/2015
    $ 5,163,547       5,108,271       5,258,384       7.23 % 
             Limited Liability Company Interests       50       140,414       1,956,521       2.69 % 
The Finance Company, LLC Total                       5,248,685       7,214,905       9.92 % 
TransAmerican Asset Servicing
Group, LLC
    Asset Recovery
Services
      Senior Secured Term Loan,
14.25%, 7/25/2016
    $ 2,725,000       2,684,362       2,118,415       2.91 % 
             Limited Liability Company
Interestsˆ,(7)
      75                   0.00 % 
TransAmerican Asset Servicing
Group, LLC Total
                      2,684,362       2,118,415       2.91 % 
Total Control Investments                       19,842,061       20,201,058       27.78 % 
Affiliate Investments(4)
                                                     
Advanced Cannabis Solutions, Inc.*     Non-Residential
Property Owner
      Warrant for 1,000,000 shares
(at a $5.50 strike price), 1/21/2017
      1       500,000       6,868,077       9.45 % 
Modular Process Control, LLC     Energy Efficiency
Services
      Senior Secured Revolving Loan,
14.50% (LIBOR plus 13.50%,
14.50% floor), 3/28/17
    $ 996,625       953,345       958,986       1.32 % 
             Senior Secured Term Loan,
15.50% (LIBOR plus
14.50%, 15.50% floor), 3/28/17
    $ 5,000,000       4,752,731       2,646,667       3.64 % 
             Senior Secured Term Loan –
Tranche 2, 18.00%, 3/28/17***
    $ 759,750       759,750       127,562       0.18 % 
          Modular Process Control, LLC –
Warrants for 14.50% of the
outstanding Class B LLC Interests
(at a $0.01 strike price),
expire 3/28/23ˆ
      1       288,000             0.00 % 
Modular Process Control, LLC Total                       6,753,826       3,733,215       5.14 % 

 
 
See notes to consolidated financial statements.

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TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
March 31, 2014

           
           
Description(1)   Industry   Type of Investment(2)   Par Amount/
Quantity
  Cost   Fair Value   % of Net
Asset
Value
Affiliate Investments (continued)
                                                     
ProGrade Ammo Group, LLC     Munitions       Senior Secured Revolving Loan,
9.19% (LIBOR plus 9.00%,
9.19% floor), 8/1/2014
    $ 2,826,047     $ 2,826,047     $ 2,826,047       3.88 % 
                Senior Secured Term Loan,
16.19% (LIBOR plus 16.00%,
16.19% floor), 8/1/2014
    $ 4,593,750       4,572,233       1,807,488       2.49 % 
             Warrants for 9.5% of the
outstanding LLC interests
(at a $10.00 strike price),
expire 8/2/2018ˆ
      181,240       176,770             0.00 % 
ProGrade Ammo Group, LLC Total                       7,575,050       4,633,535       6.37 % 
SOLEX Fine Foods, LLC; Catsmo, LLC     Food
Distributors &
Wholesalers
      Senior Secured Term Loan, 12.30%
(LIBOR plus 12.14%), 12/28/2016
    $ 3,900,000       3,819,412       3,781,830       5.21 % 
                Limited Liability Company
Interestsˆ,(8)
      1       290,284       67,830       0.09 % 
             Warrants for 1.6% of the
outstanding LLC interests (strike
price $0.01), expire 12/31/2022ˆ,(8)
      1       58,055       15,200       0.02 % 
SOLEX Fine Foods, LLC; Catsmo, LLC Total                       4,167,751       3,864,860       5.32 % 
West World Media, LLC     Information and
Data Services
      Limited Liability Company
Interestsˆ,(9)
      85,210       430,500       235,451       0.32 % 
Total Affiliate Investments                       19,427,127       19,335,138       26.60 % 
Other Investments
                                                     
Attention Transit Advertising Systems, LLC     Outdoor Advertising
Services
      Senior Secured Term Loan,
11.50%, 9/30/2016
    $ 2,205,544       2,205,544       2,185,694       3.01 % 
Background Images, Inc.     Equipment
Rental Services
      Senior Secured Term Loan –
Term A, 14.66% (LIBOR
plus 14.50%), 6/28/2015
    $ 1,207,500       1,205,743       1,266,185       1.75 % 
             Senior Secured Term –
Loan Term B, 16.41% (LIBOR
plus 16.25%), 6/28/2015
    $ 682,500       681,500       714,987       0.98 % 
Background Images, Inc.
Total
                      1,887,243       1,981,172       2.73 % 
Blackstrap Broadcasting, LLC     Radio
Broadcasting
      Senior Secured Term Loan, 6.16%
(LIBOR plus 6.00%), 7/31/2014(10)
    $ 3,080,000       3,080,000       2,341,519       3.22 % 
             Subordinated Secured Term Loan,
16.00% (PRIME plus 7.75%,
16.00% floor), 7/31/2014(10)
    $ 3,500,000       3,500,000             0.00 % 
Blackstrap Broadcasting, LLC Total                       6,580,000       2,341,519       3.22 % 
CPX, Inc.     Industrial
Molded Products
      Senior Secured Revolving Loan,
14.19% (LIBOR plus 14.00%,
14.19% floor), 9/30/2016
    $ 1,800,000       1,783,043       1,800,000       2.47 % 
          Senior Secured Term Loan,
14.69% (LIBOR plus 14.50%,
14.69% floor), 9/30/2016
    $ 1,100,000       1,084,812       1,046,100       1.44 % 
CPX, Inc. Total                       2,867,855       2,846,100       3.91 % 
Dynamic Energy Services International, LLC     Oil and Gas
Field Services
      Senior Secured Term Loan,
9.50%, (LIBOR plus 8.50%,
9.50% floor), 3/12/2018
    $ 5,000,000       4,900,592       4,900,592       6.74 % 
Esselte Holdings Inc.,
Esselte AB*
    Stationery, Tablets, and
Related Products
      Senior Secured Term Loan,
10.75% (LIBOR plus 8.75%,
10.75% floor), 2/29/2016
    $ 1,848,921       1,849,607       1,904,388       2.62 % 

 
 
See notes to consolidated financial statements.

6


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
March 31, 2014

           
           
Description(1)   Industry   Type of Investment(2)   Par Amount/
Quantity
  Cost   Fair Value   % of Net
Asset
Value
Other Investments (continued)
                                                     
GW Power, LLC and Greenwood Fuels WI, LLC     Electric Services       Senior Secured Term Loan, 12.16%
(LIBOR plus 12.00%), 3/31/2016
    $ 6,000,000     $ 5,940,025     $ 5,940,025       8.17 % 
Infinite Aegis Group, LLC     Healthcare Billing
and Collections
      Senior Secured Revolving Loan,
12.19% (LIBOR plus 12.00%,
12.19% floor), 7/31/2017
    $ 1,000,000       985,489       1,000,000       1.38 % 
                Senior Secured Tem Loan, 12.19%
(LIBOR plus 12.00%, 12.19%
floor), 7/31/2017
    $ 4,000,000       3,882,949       3,752,000       5.16 % 
          Warrants for 2.0% of the
outstanding LLC interests (at a
$0.01 strike price), expire 8/1/2023ˆ
      1       107,349       36,025       0.05 % 
Infinite Aegis Group, LLC Total                       4,975,787       4,788,025       6.59 % 
MDU Communications
(USA) Inc.
    Cable TV
Broadband Services
      Senior Secured Term Loan –
Tranche A, 2.00%, 3/31/2014(10)
    $ 2,068,170       2,068,170       1,608,001       2.21 % 
Ocean Protection Services*     Maritime
Security Services
      Senior Secured Term Loan,
12.50%, (LIBOR plus 12.00%,
12.50% floor), 3/4/2017
    $ 7,000,000       6,930,178       6,930,178       9.53 % 
PEAKS Trust 2009-1     Consumer Financing       Senior Secured Term Loan, 7.50%,
(LIBOR plus 5.50%, 7.50% floor),
1/27/2020
    $ 6,320,503       5,113,967       5,113,967       7.03 % 
Pristine Environments, Inc.     Building Cleaning and
Maintenance Services
      Senior Secured Revolving Loan,
12.70% (LIBOR plus 12.50%,
12.70% floor), 3/31/2017
    $ 2,280,468       2,280,077       2,432,727       3.35 % 
          Senior Secured Term Loan, 12.70%
(LIBOR plus 12.50%, 12.70%
floor), 3/31/2017
    $ 1,078,250       1,069,296       1,155,632       1.59 % 
Pristine Environments, Inc. Total                       3,349,373       3,588,359       4.94 % 
The Selling Source, LLC     Information and
Data Services
      Senior Secured Term Loan,
12.54%, 1/31/2017
    $ 3,637,572       3,611,392       2,975,170       4.09 % 
US Path Labs, LLC     Healthcare Services
      Senior Secured Term Loan,
14.00% (LIBOR plus 13.25%,
14.00% floor), 6/30/2014
    $ 3,380,000       3,356,760       3,483,766       4.79 % 
VaultLogix, LLC     Information
Retrieval Services
      Warrants for Variable% Ownership,
(at a $307.855 strike price),
expire 1/14/2019ˆ
      3,349       56,147             0.00 % 
United States Treasury           United States Treasury Bill**
(0.09)%, 4/3/2014
    $ 10,000,000       10,000,049       10,000,049       13.76 % 
Total Other Investments                       65,692,689       60,587,005       83.34 % 
Total Investments                     $ 104,961,877     $ 100,123,201       137.72 % 

 
 
See notes to consolidated financial statements.

7


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
March 31, 2014

   
  March 31, 2014
     Investment at
Fair Value
(in millions)
  Percentage of Net Assets
Consumer Finance   $ 12.9       17.71 % 
Cable TV/Broadband Services     9.5       13.04  
Maritime Security Services     6.9       9.53  
Non-Residential Property Owner     6.9       9.45  
Electric Services     5.9       8.17  
Oil and Gas Field Services     4.9       6.74  
Healthcare Billing and Collections     4.8       6.59  
Munitions     4.6       6.37  
Food Distributors and Wholesalers     3.9       5.32  
Energy Efficiency Services     3.7       5.14  
Building Cleaning and Maintenance Services     3.6       4.94  
Healthcare Services     3.5       4.79  
Information and Data Services     3.2       4.42  
Industrial Molded Products     2.9       3.91  
Geophysical Surveying and Mapping Services     2.4       3.35  
Radio Broadcasting     2.3       3.22  
Outdoor Advertising Services     2.2       3.01  
Asset Recovery Services     2.1       2.91  
Equipment Rental Services     2.0       2.73  
Stationery, Tablets, and Related Products     1.9       2.62  
Total   $ 90.1       123.96 % 

(1) Our investments are acquired in private transactions exempt from registration under the Securities Act of 1933, therefore are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act of 1933.
(2) A majority of the Company’s variable rate debt investments bear interest at a rate that is determined by reference to LIBOR or the U.S. prime rate, and which is reset daily, monthly, quarterly or semi-annually. For each debt investment, the Company has provided the interest rate in effect as of March 31, 2014. If no reference to LIBOR or the U.S. prime rate is made, the rate is fixed.
(3) “Control Investments” are investments in those companies that are “Control Investments” of the Company, as defined in the Investment Company Act of 1940. A company is deemed to be a “Control Investment” of Full Circle Capital Corporation if Full Circle Capital Corporation owns more than 25% of the voting securities of such company.
(4) “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the Investment Company Act of 1940, which are not “Control Investments.” A company is deemed to be an “Affiliate” of Full Circle Capital Corporation if Full Circle Capital Corporation owns 5% or more, but less than 25%, of the voting securities of such company.
(5) Full Circle Capital Corporation’s equity investment in New Media West, LLC is held through its wholly-owned subsidiary FC New Media, Inc.
(6) Full Circle Capital Corporation’s equity investment in Takoda Resources Inc. is held through its wholly-owned subsidiary FC Takoda Holdings, LLC.
(7) Full Circle Capital Corporation’s equity investment in TransAmerican Asset Servicing Group, LLC is held through its wholly-owned subsidiary TransAmerican Asset Servicing Group, Inc.
(8) Full Circle Capital Corporation’s equity investments in SOLEX Fine Foods, LLC; Catsmo, LLC are held through its wholly-owned subsidiary FC New Specialty Foods, Inc.

 
 
See notes to consolidated financial statements.

8


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
March 31, 2014

(9) A portion of Full Circle Capital Corporation’s investment in West World Media, LLC is held through its wholly-owned subsidiary Full Circle West, Inc. The remainder of the LLC interests are held directly by Full Circle Capital Corporation.
(10) Investments were on non-accrual status as of March 31, 2014.
* Investment is not a qualifying asset under Section 55(a) of the 1940 Act.
** Interest rate shown reflects yield to maturity at time of purchase.
*** Security pays interest in kind.
ˆ Security is a non-income producing security.

 
 
See notes to consolidated financial statements.

9


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Audited)
June 30, 2013

           
           
Description(1)   Industry   Type of Investment(2)   Par Amount/
Quantity
  Cost   Fair Value   % of Net
Asset
Value
Control Investments(4)
                                                     
New Media West, LLC     Cable TV
Broadband Services
      Senior Secured Term Loan,
9.00%, 12/31/2017
    $ 5,079,679     $ 5,079,679     $ 5,079,679       8.38 % 
          Limited Liability Company
Interestsˆ,(5)
      720       3,600,000       4,203,006       6.93 % 
New Media West, LLC Total                       8,679,679       9,282,685       15.31 % 
Takoda Resources Inc.*     Geophysical Surveying
and Mapping Services
      Senior Secured Term Loan,
16.00%, 4/1/2016
    $ 1,469,063       1,469,063       1,469,063       2.42 % 
             Common Stock(6)ˆ       520                   0.00 % 
Takoda Resources Inc. Total                       1,469,063       1,469,063       2.42 % 
Texas Westchester Financial, LLC     Consumer Finance       Limited Liability Company
Interestsˆ
      9,278       905,819       602,154       0.99 % 
The Finance Company, LLC     Consumer Finance       Senior Secured Term Loan,
15.00% (LIBOR plus 14.25%,
15.00% floor), 9/30/2015
    $ 5,163,547       4,585,205       4,698,524       7.75 % 
             Limited Liability Company Interests
      50       140,414       1,604,577       2.65 % 
The Finance Company, LLC Total                       4,725,619       6,303,101       10.40 % 
TransAmerican Asset Servicing Group, LLC     Asset Recovery
Services
      Senior Secured Term Loan,
14.25%, 7/25/2016
    $ 2,400,000       2,359,363       1,458,437       2.40 % 
             Limited Liability Company
Interestsˆ,(7)
      75                   0.00 % 
TransAmerican Asset Servicing Group, LLC Total                       2,359,363       1,458,437       2.40 % 
Total Control Investments                       18,139,543       19,115,440       31.52 % 
Affiliate Investments(3)
                                                     
Modular Process Control, LLC     Energy Efficiency
Services
      Senior Secured Revolving Loan,
15.00% (LIBOR plus 14.00%,
15.00% floor), 3/28/17
    $ 3,500,000       3,310,894       3,500,000       5.77 % 
             Senior Secured Term Loan,
15.00% (LIBOR plus 14.00%,
15.00% floor), 3/28/17
    $ 2,500,000       2,342,415       2,407,833       3.97 % 
          Modular Process Control, LLC –
Warrants for 8% of the
outstanding Class B LLC Interests
(at a $0.01 strike price),
expire 3/28/23ˆ
      1       288,000       161,413       0.27 % 
Modular Process Control, LLC Total                       5,941,309       6,069,246       10.01 % 
ProGrade Ammo Group, LLC     Munitions       Senior Secured Revolving Loan,
9.20% (LIBOR plus 9.00%,
9.20% floor), 8/1/2014
    $ 1,907,735       1,907,735       1,907,735       3.14 % 
                Senior Secured Term Loan,
15.20% (LIBOR plus 15.00%,
15.20% floor), 8/1/2014
    $ 5,468,750       5,389,137       4,304,089       7.10 % 
             Warrants for 9.5% of the
outstanding LLC interests
(at a $10.00 strike price),
expire 8/2/2018ˆ
      181,240       176,770             0.00 % 
ProGrade Ammo Group, LLC Total                       7,473,642       6,211,824       10.24 % 

 
 
See notes to consolidated financial statements.

10


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Audited) (Continued)
June 30, 2013

           
           
Description(1)   Industry   Type of Investment(2)   Par Amount/
Quantity
  Cost   Fair Value   % of Net
Asset
Value
Affiliate Investments (continued)
                                                     
SOLEX Fine Foods, LLC; Catsmo, LLC     Food
Distributors &
Wholesalers
      Senior Secured Term Loan,
12.31% (LIBOR plus 12.14%),
12/28/2016
    $ 3,900,000     $ 3,801,116     $ 3,859,440       6.37 % 
                Limited Liability Company
Interestsˆ,(8)
      1       250,000       139,247       0.23 % 
             Warrants for 1.6% of the
outstanding LLC interests (strike
price 0.01), expire 12/28/2022ˆ,(8)
      1       58,055       32,695       0.05 % 
SOLEX Fine Foods, LLC; Catsmo, LLC Total                       4,109,171       4,031,382       6.65 % 
West World Media, LLC     Information and
Data Services
      Limited Liability Company
Interestsˆ,(9)
      85,210       430,500       235,451       0.39 % 
Total Affiliate Investments                       17,954,622       16,547,903       27.29 % 
Other Investments
                                                     
Attention Transit Advertising Systems, LLC     Outdoor Advertising
Services
      Senior Secured Term Loan,
14.50%, 9/30/2016
    $ 2,321,626       2,321,626       2,321,626       3.83 % 
Background Images, Inc.     Equipment
Rental Services
      Senior Secured Term Loan –
Term A, 14.70% (LIBOR
plus 14.50%), 6/28/2015
    $ 1,466,250       1,456,440       1,465,419       2.42 % 
             Senior Secured Term Loan –
Term B, 16.45% (LIBOR
plus 16.25%), 6/28/2015
    $ 828,750       823,118       783,058       1.29 % 
Background Images, Inc. Total                       2,279,558       2,248,477       3.71 % 
Blackstrap Broadcasting, LLC     Radio
Broadcasting
      Senior Secured Term Loan,
5%, 7/31/2014
    $ 3,000,000       3,000,000       2,588,600       4.27 % 
             Subordinated Secured Term Loan,
16.00%, (PRIME plus 7.75%,
16.00% floor), 7/31/2014
    $ 3,500,000       3,500,000       3,034,383       5.00 % 
Blackstrap Broadcasting, LLC Total                       6,500,000       5,622,983       9.27 % 
Coast Plating, Inc.     Aerospace
Parts Plating
and Finishing
      Senior Secured Term Loan –
Term A, 11.70% (LIBOR
plus 11.50%, 11.70% floor),
9/13/2014
    $ 1,401,686       1,401,687       1,412,666       2.33 % 
             Senior Secured Term Loan –
Term B, 12.45% (LIBOR
plus 12.25%, 12.45% floor),
9/13/2014
    $ 3,431,714       3,431,714       3,412,268       5.63 % 
Coast Plating, Inc. Total                       4,833,401       4,824,934       7.96 % 
CSL Operating, LLC     Industrial
Metal Treatings
      Senior Secured Term Loan –
Term A, 11.70% (LIBOR
plus 11.50%, 11.70% floor),
5/11/2014
    $ 1,866,720       1,863,691       1,860,435       3.07 % 
             Senior Secured Term Loan –
Term B, 11.70% (LIBOR
plus 11.50%, 11.70% floor),
5/11/2014
    $ 1,866,720       1,863,691       1,856,142       3.06 % 
CSL Operating, LLC Total                       3,727,382       3,716,577       6.13 % 
Employment Plus, Inc.     Staffing Services       Senior Secured Term Loan,
12.00% (LIBOR plus 11.76%,
12.00% floor), 10/24/2013
    $ 5,000,000       5,000,000       5,000,000       8.24 % 

 
 
See notes to consolidated financial statements.

11


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Audited) (Continued)
June 30, 2013

           
           
Description(1)   Industry   Type of Investment(2)   Par Amount/
Quantity
  Cost   Fair Value   % of Net
Asset
Value
Other Investments (continued)
                                                     
Global Energy Efficiency Holdings, Inc.     Energy
Efficiency Services
      Senior Secured Revolving Loan,
13.20% (LIBOR plus 13.00%),
9/7/2015
    $ 4,444,961     $ 4,439,802     $ 4,523,933       7.46 % 
             Senior Secured Term Loan,
13.20% (LIBOR plus 13.00%),
9/7/2015
    $ 1,000,000       990,088       1,036,900       1.71 % 
Global Energy Efficiency Holdings, Inc. Total                       5,429,890       5,560,833       9.17 % 
iMedX, Inc.     Medical
Transcription Services
      Senior Secured Revolving Loan,
13.75% (LIBOR plus 13.50%,
13.75% floor), 09/19/2014
    $ 1,578,962       1,578,962       1,685,752       2.78 % 
                Senior Secured Term Loan –
Term A, 13.75% (LIBOR
plus 13.50%, 13.75% floor),
09/19/2014
    $ 2,450,686       2,437,028       2,482,790       4.09 % 
             Senior Secured Term Loan –
Term B, 13.75% (LIBOR
plus 13.50%, 13.75% floor),
09/19/2014
    $ 1,071,180       1,071,180       1,073,679       1.77 % 
iMedX, Inc. Total                       5,087,170       5,242,221       8.64 % 
MDU Communications
(USA) Inc.
    Cable TV
Broadband Services
      Senior Secured Term –
Tranche A, 12.85% (PRIME
plus 4.10%, 12.85% floor),
12/31/2013
    $ 5,000,000       5,000,000       4,914,000       8.10 % 
                Senior Secured Term –
Tranche C, 10.75% (PRIME
plus 2.00%, 10.75% floor),
12/31/2013
    $ 250,000       250,000       242,642       0.40 % 
MDU Communications
(USA) Inc. Total
          Senior Secured Term –
Tranche D, 9.75% (PRIME
plus 1.00%, 9.75% floor),
12/31/2013
    $ 1,480,000       1,480,000       1,427,213       2.35 % 
                         6,730,000       6,583,855       10.85 % 
Pristine Environments, Inc.     Building Cleaning and
Maintenance Services
      Senior Secured Revolving Loan,
12.70%, (LIBOR plus 12.50%,
12.70% floor), 3/31/2017
    $ 2,764,801       2,737,585       2,774,017       4.57 % 
             Senior Secured Term Loan,
12.70%, (LIBOR plus 12.50%,
12.70% floor), 3/31/2017
    $ 1,135,000       1,123,828       1,143,437       1.89 % 
Pristine Environments, Inc.
Total
                      3,861,413       3,917,454       6.46 % 
The Selling Source, LLC     Information and
Data Services
      Senior Secured Term Loan,
12.54%, 1/31/2017
    $ 4,000,000       3,964,978       4,000,000       6.60 % 
US Path Labs, LLC     Healthcare Services
      Senior Secured Term Loan,
14.00%, (LIBOR plus 13.25%,
14.00% floor), 3/31/2014
    $ 3,470,000       3,428,973       3,472,198       5.73 % 
VaultLogix, LLC     Information
Retrieval Services
      Warrants for Variable% Ownership,
(at a $307.855 strike price),
expire 1/14/2019ˆ
      3,439       56,147             0.00 % 
Total Other Investments                       53,220,538       52,511,158       86.59 % 
Total Investments                     $ 89,314,703     $ 88,174,501       145.40 % 

 
 
See notes to consolidated financial statements.

12


 
 

TABLE OF CONTENTS

FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED SCHEDULE OF INVESTMENTS (Audited) (Continued)
June 30, 2013

   
  June 30, 2013
     Investment at Fair Value
(in millions)
  Percentage of Net Assets
Cable TV/Broadband Services   $ 15.9       26.16 % 
Energy Efficiency Services     11.6       19.18  
Consumer Finance     6.9       11.39  
Munitions     6.2       10.24  
Radio Broadcasting     5.6       9.28  
Medical Transcription Services     5.2       8.64  
Staffing Services     5.0       8.24  
Aerospace Parts Plating and Finishing     4.8       7.96  
Information and Data Services     4.2       6.98  
Food Distributors and Wholesalers     4.0       6.65  
Building Cleaning and Maintenance Services     3.9       6.46  
Industrial Metal Treatings     3.8       6.13  
Healthcare Services     3.6       5.73  
Outdoor Advertising Services     2.3       3.83  
Equipment Rental Services     2.2       3.71  
Geophysical Surveying and Mapping Services     1.5       2.42  
Asset Recovery Services     1.5       2.40  
Total   $ 88.2       145.40 % 

(1) Our investments are acquired in private transactions exempt from registration under the Securities Act of 1933, therefore are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act of 1933.
(2) A majority of the Company’s variable rate debt investments bear interest at a rate that is determined by reference to LIBOR or the U.S. prime rate, and which is reset daily, monthly, quarterly or semi-annually. For each debt investment, the Company has provided the interest rate in effect as of June 30, 2013. If no reference to LIBOR or the U.S. prime rate is made, the rate is fixed.
(3) “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the Investment Company Act of 1940, which are not “Control Investments.” A company is deemed to be an “Affiliate” of Full Circle Capital Corporation if Full Circle Capital Corporation owns 5% or more, but less than 25%, of the voting securities of such company.
(4) “Control Investments” are investments in those companies that are “Control Investments” of the Company, as defined in the Investment Company Act of 1940. A company is deemed to be a “Control Investment” of Full Circle Capital Corporation if Full Circle Capital Corporation owns more than 25% of the voting securities of such company.
(5) Full Circle Capital Corporation’s equity investment in New Media West, LLC is held through its wholly-owned subsidiary FC New Media, Inc.
(6) Full Circle Capital Corporation’s equity investments in Takoda Resources Inc. are held through its wholly-owned subsidiary FC Takoda Holdings, LLC.
(7) Full Circle Capital Corporation’s equity investment in TransAmerican Asset Servicing Group, LLC is held through its wholly-owned subsidiary TransAmerican Asset Servicing Group, Inc.
(8) Full Circle Capital Corporation’s equity investments in SOLEX Fine Foods, LLC; Catsmo, LLC are held through its wholly-owned subsidiary FC New Specialty Foods, Inc.
(9) A portion of Full Circle Capital Corporation’s investment in West World Media, LLC is held through its wholly-owned subsidiary Full Circle West, Inc. The remainder of the LLC interests are held directly by Full Circle Capital Corporation.
 * Investment is not a qualifying asset under Section 55(a) of the 1940 Act.
** Interest rate shown reflects yield to maturity at time of purchase.
 ˆ Security is a non-income producing security.

 
 
See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 1. Organization

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

We were formed as Full Circle Capital Corporation, a Maryland corporation, on April 16, 2010 and were funded in an initial public offering, or IPO, completed on August 31, 2010. We are a non-diversified, closed-end investment company that has filed an election to be treated as a business development company, or BDC, under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we expect to qualify annually as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code. We invest primarily in senior secured term debt issued by smaller and lower middle-market companies. Our investment objective is to generate both current income and capital appreciation through debt and equity investments.

Note 2. Significant Accounting Policies

Use of Estimates and Basis of Presentation

The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated 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.

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending June 30, 2014.

The June 30, 2013 and March 31, 2013 Consolidated Financial Statements were reclassified in order to be consistent with the new format used for the March 31, 2014 Consolidated Financial Statements.

Investment Classification

We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Affiliated Investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another company or person.

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 forego the risks for gains or 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 and payables for investments acquired, respectively, in the Consolidated Statements of Assets and Liabilities.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 2. Significant Accounting Policies  – (continued)

Basis of Consolidation

Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ Audit and Accounting Guide for Investment Companies, we are generally precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to us. Our financial statements include our accounts and the accounts of Full Circle West, Inc., FC New Media, Inc., TransAmerican Asset Servicing Group, Inc., FC New Specialty Foods, Inc., and FC Takoda Holdings, LLC, our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Valuation of Investments

In accordance with 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, Full Circle Capital’s Board of Directors (the “Board”) uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs 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. Unobservable inputs reflect the Board’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.

Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Board or the Audit Committee of the Board (the “Audit Committee”), does not represent fair value, are valued as follows:

1. The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment;
2. Preliminary valuation conclusions are then documented and discussed with the Company’s senior management. Independent third-party valuation firms are engaged by, or on behalf of, the Audit Committee to conduct independent appraisals or review management’s preliminary valuations or make their own independent assessment, for certain assets;
3. The Audit Committee discusses valuations and recommends the fair value of each investment in the portfolio in good faith based on the input of the Company and, where appropriate, the independent valuation firms; and
4. The Board then discusses the valuations and determines in good faith the fair value of each investment in the portfolio based upon input from the Company, estimates from the independent valuation firms and the recommendations of the Audit Committee.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 2. Significant Accounting Policies  – (continued)

Valuation of Investments (continued)

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 investment to investment and is affected by a wide variety of factors including, the type of investment, whether the investment 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 in determining fair value is greatest for investments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.

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

Valuation Techniques

Senior and Subordinated Secured Loans

The Company’s portfolio consists primarily of private debt instruments (“Level 3 debt”). The Company considers its Level 3 debt 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 debt, 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 and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt 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 debt instrument.

This evaluation will be updated no less than quarterly for Level 3 debt instruments that are not performing, and more frequently for time periods where there are significant changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed on an ongoing basis using internal metrics, appraisals, third party valuation agents and other data as may be acquired and analyzed by management and the Board.

Investments in Private Companies

The Board determines the fair value of its investments in private companies by incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples, among other factors, including third party valuation agents. These nonpublic investments are included in Level 3 of the fair value hierarchy.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 2. Significant Accounting Policies  – (continued)

Warrants

The Board will ascribe value to warrants based on fair value analyses that can include discounted cash flow analyses, option pricing models, comparable analyses and other techniques as deemed appropriate.

Cash

The Company places its cash with J.P. Morgan Chase Bank N.A. and Santander Bank, N.A. f/k/a Sovereign Bank. N.A. (“Santander Bank”), and at times, cash held in such accounts may exceed the Federal Deposit Insurance Corporation insured limit. The Company may invest a portion of its cash in money market funds, within the limitations of the 1940 Act.

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. 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 unamortized loan origination, closing and commitment fees are recorded as interest income.

Dividend income is recorded on the ex-dividend date.

Structuring fees, excess deal deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when received. Other fee income, including administrative and unused line fees, is included in Other Income. Income from such sources was $618,965 and $322,427 for the three months ended March 31, 2014, and March 31, 2013, respectively and $2,016,208 and $935,592 for the nine months ended March 31, 2014, and March 31, 2013, respectively.

Change in unrealized gain (loss) on investments

Net unrealized appreciation or depreciation recorded on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

From time to time the Company may enter into a new transaction with a portfolio company as a result of the sale, merger, foreclosure, bankruptcy or other corporate event involving the portfolio company. In such cases, the Company may receive newly-issued notes, securities and/or other consideration in exchange for, or resulting from, the cancellation of the instruments previously held by the Company with regard to that portfolio company. In such cases, the Company may experience a realized loss on the instrument being sold or cancelled, and, concurrently, an elimination of any previously recognized unrealized losses on the portfolio investment. Such elimination of unrealized loss is included on the Statements of Operations as an increase in the Change in Unrealized Gain (Loss) on Investments.

Federal and State Income Taxes

We have elected to be treated as a regulated investment company and intend to continue to comply with the requirements of the Internal Revenue Code of 1986 (the “Code”), applicable to regulated investment companies. We will be required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gains to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 2. Significant Accounting Policies  – (continued)

If we do not distribute (or are not deemed to have distributed) each calendar year sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years (the “Minimum Distribution Amount”), we will generally be required to pay an excise tax equal to 4% of the amount by the which Minimum Distribution Amount exceeds the distributions for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amounts, if any, of our monthly dividends are approved by our Board each quarter and are generally based upon our management’s estimate of our earnings for the quarter. Net realized capital gains, if any, are distributed at least annually.

Guarantees and Indemnification Agreements

We follow ASC Topic 460, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. ASC Topic 460 elaborates on the disclosure requirements of a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC Topic 460, the fair value of the obligation undertaken in issuing certain guarantees. ASC Topic 460 did not have a material effect on the consolidated financial statements. Refer to Note 5 and Note 8 for further discussion of guarantees and indemnification agreements.

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 and diluted earnings (loss) per share for the three and nine months ended March 31, 2014, and March 31, 2013, respectively, were the same since there were no potentially dilutive securities outstanding.

Organizational Expenses and Offering Costs

The Company did not incur organizational expenses for the three or nine months ended March 31, 2014, and March 31, 2013. The Company complies with the requirements of ASC 340-10-S99-1, “Expenses of Offering”. Deferred offering costs consist principally of legal and audit costs incurred through the balance sheet date that are related to an offering of equity securities. Such costs are charged against the gross proceeds of the offering or will be charged to the Company’s operations if the offering is not completed. Offering expenses related to the Company’s January 14, 2014 and February 27, 2014 offerings were $243,684 and $35,415, respectively. Refer to Note 6.

Capital Accounts

Certain capital accounts including undistributed net investment income, accumulated net realized gain or loss, net unrealized appreciation or depreciation, 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 GAAP.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 2. Significant Accounting Policies  – (continued)

Recent Accounting Pronouncements

In January 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”). ASU 2013-01 limits the scope of the new balance sheet offsetting disclosure requirements to derivatives (including bifurcated embedded derivatives), repurchase agreements and reverse repurchase agreements, and certain securities borrowing and lending arrangements. Public companies are required to apply ASU 2013-01 prospectively for interim and annual reporting periods beginning after January 1, 2013.

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU 2013-04”). ASU 2013-04 provides additional guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. Public companies are required to apply ASU 2013-04 prospectively for interim and annual reporting periods beginning after December 15, 2013.

In June 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2013-08, Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”). ASU 2013-08 amends the criteria that define an investment company, clarifies the measurement guidance and requires certain additional disclosures. Public companies are required to apply ASU 2013-08 prospectively for interim and annual reporting periods beginning after December 15, 2013.

The Company does not believe that the adoption of any recently issued accounting standards had or will have a material impact on its current financial position and results of operations.

Note 3. Concentration of Credit Risk and Liquidity 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.

The Company utilizes two financial institutions to provide financing, which are essential to its business. There are a number of other financial institutions available that could potentially provide the Company with financing. Management believes that such other financial institutions would likely be able to provide similar financing with generally comparable terms. However, a change in financial institutions at the present time could cause a delay in service provisioning or result in potential lost opportunities, which could adversely affect operating results.

As of March 31, 2014, we had approximately $3.0 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 4. Earnings (Loss) per Common Share

The following information sets forth the computation of basic and diluted earnings (loss) per common share for the three and nine months ended March 31, 2014, and March 31, 2013:

       
  Three months ended
March 31,
  Nine months ended
March 31,
     2014   2013   2014   2013
Per Share Data(1):
                                   
Net Increase (Decrease) in Net Assets Resulting from Operations   $ 3,381,522     $ 1,480,818     $ (95,567 )    $ 1,947,507  
Weighted average shares outstanding for period     9,419,350       7,569,382       8,177,036       6,835,258  
Basic and diluted earnings (loss) per common share   $ 0.36     $ 0.20     $ (0.01 )    $ 0.28  

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

Note 5. Related Party Agreements and Transactions

Investment Advisory Agreement

On June 24, 2013, the Board re-approved an investment advisory agreement (the “Investment Advisory Agreement”) with Full Circle Advisors, LLC (the “Adviser”) under which the Adviser, subject to the overall supervision of our Board, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, our Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make.

The Adviser’s services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Adviser receives a fee from us, consisting of two components, a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% of our gross assets, as adjusted. For services rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets, as adjusted, at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter will be appropriately pro-rated.

The total base management fees earned by the Adviser for the three and nine months ended March 31, 2014, were $364,352 and $1,156,099, respectively. The total base management fee payable to the Adviser as of March 31, 2014 was $364,352, after reflecting payment of $1,181,692, for the nine months ended March 31, 2014, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliates. The total base management fees earned by the Adviser for the three and nine months ended March 31, 2013, were $362,743 and $1,041,905, respectively.

The incentive fee has two parts. The first part of the incentive fee (the “Income incentive fee”) is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 5. Related Party Agreements and Transactions  – (continued)

Administration Agreement to Full Circle Service Company (the “Administrator”), and any interest expenses and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include organizational costs or any realized capital gains, computed net of all realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.75% per quarter (7.00% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 1.75% base management fee. We pay the Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle of 1.75%;
100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 2.1875% in any calendar quarter (8.75% annualized). We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle but is less than 2.1875%) as the “catch-up.” The “catch-up” is meant to provide our investment adviser with 20% of our pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 2.1875% in any calendar quarter; and
20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to the Adviser (once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to the Adviser).

These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees with respect to each of the investments in our portfolio, provided that, the incentive fee determined as of December 31, 2010 was calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses and unrealized capital depreciation from the inception of Full Circle Capital. There were no incentive fees earned on realized capital gains for the three and nine months ended March 31, 2014, and 2013.

Income incentive fees of $351,594 and $1,141,230 were earned by the Adviser for the three and nine months ended March 31, 2014, respectively, and the total income incentive fee payable to the Adviser as of March 31, 2014, was $351,594, after reflecting payment of $1,128,062, during the nine months ended March 31, 2014, and is included in the Consolidated Statement of Assets and Liabilities in Due to Affiliates. Income incentive fees of $328,044 and $1,001,406 were earned by the Adviser for the three and nine months ended March 31, 2013.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 5. Related Party Agreements and Transactions  – (continued)

The Adviser had agreed to reimburse the Company for any operating expenses, excluding interest expenses, investment advisory and management fees, and organizational and offering expenses, in excess of 2% of our net assets for the first twelve months following the completion of the initial public offering, which occurred on August 31, 2010.

Administration Agreement

On June 24, 2013, the Board re-approved an Administration Agreement with the Administrator under which the Administrator, among other things, furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Under the Administration Agreement, the Administrator also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders. In addition, the Administrator assists us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Full Circle Service Company’s overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our chief financial officer and our allocable portion of the compensation of any administrative support staff employed by the Administrator, directly or indirectly. Under the Administration Agreement, the Administrator will also provide on our behalf managerial assistance to those portfolio companies that request such assistance. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

The Administrator, and Vastardis Fund Services LLC (“Vastardis” or the “Sub-Administrator”), may also provide administrative services to the Adviser. As a result, the Adviser also reimburses the Administrator and/or the Sub-Administrator for its allocable portion of the Administrator’s and/or Sub-Administrator’s overhead, including rent, the fees and expenses associated with performing compliance functions for Full Circle Advisors, and its allocable portion of the compensation of any administrative support staff. To the extent the Adviser or any of its affiliates manage other investment vehicles in the future, no portion of any administrative services provided by the Administrator to such other investment vehicles will be charged to us.

The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, the Administrator and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from Full Circle Capital for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Administrator’s services under the Administration Agreement or otherwise as administrator for Full Circle Capital.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 5. Related Party Agreements and Transactions  – (continued)

Sub-Administration Agreement

The Administrator has engaged Vastardis to provide certain administrative services to us. In exchange for providing such services, the Administrator pays Vastardis an asset-based fee with a $200,000 annual minimum as adjusted for any reimbursement of expenses. This asset-based fee will vary depending upon our gross assets, as adjusted, as follows:

 
Gross Assets   Fee
first $150 million of gross assets   20 basis points (0.20%)
next $150 million of gross assets   15 basis points (0.15%)
next $200 million of gross assets   10 basis points (0.10%)
in excess of $500 million of gross assets   5 basis points (0.05%)

Additionally, prior to September 30, 2013, we reimbursed the Administrator for the fees charged for the services of William E. Vastardis, our Chief Financial Officer, Treasurer and Secretary, at an annual rate of up to $250,000. On September 9, 2013, the Company’s Board of Directors appointed Michael J. Sell to succeed William E. Vastardis as our Chief Financial Officer, Treasurer and Secretary effective as of September 30, 2013. Mr. Vastardis is the President of Vastardis.

For the three and nine months ended March 31, 2014, the Company incurred $169,133 and $518,711, respectively, of expenses under the Administration Agreement, $50,000 and $150,000, respectively, of which were earned by the Sub-Administrator and $75,529, and $226,396, respectively, were paid for officers’ compensation. The remaining $43,604 and $142,315, respectively, were recorded as an Allocation of Overhead Expenses in the Consolidated Statement of Operations.

For the three and nine months ended March 31, 2013, the Company incurred $209,712 and $624,803, respectively, of expenses under the Administration Agreement, $50,000 and $173,429, respectively, of which were earned by the Sub-Administrator and $75,160 and $225,514, respectively, were paid for officers’ compensation. The remaining $84,552 and $225,860, respectively, were recorded as an Allocation of Overhead Expenses to the Administrator in the Consolidated Statement of Operations.

Managerial Assistance

As a business development company, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. With regard to the Control Investments in Texas Westchester Financial, LLC, New Media West, LLC, TransAmerican Asset Servicing Group, LLC, Takoda Resources Inc. and The Finance Company, LLC, the Company has provided managerial assistance during the period for which no fees were charged. Our Co-Chief Executive Officer and Chairman, John Stuart, currently serves as a director of The Finance Company, LLC, New Media West, LLC and Takoda Resources Inc. Lawrence Chua, a Vice President of Full Circle Advisors, serves on the board of Takoda Resources Inc. As of March 31, 2014, only Background Images, Inc., Modular Process Control, LLC, and Solex Fine Foods, LLC; Catsmo, LLC had accepted our offer for such services. No fees were charged to Background Images, Inc., Modular Process Control, LLC or Solex Fine Foods, LLC; Catsmo, LLC for such services.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 6. Equity Offerings, Related Expenses and Other Stock Issuances

Offering expenses are generally charged against paid-in capital in excess of par. The proceeds raised, the related underwriting fees, the offering expenses, and the price at which common stock was issued, since inception, are detailed in the following table:

         
Issuances of Common Stock   Number of Shares
Issued
  Gross Proceeds Raised, Net Assets Acquired and Dividends Reinvested   Underwriting Fees   Offering Expenses   Gross
Offering Price
April 16, 2010     100     $ 1,500                   $15.00 per/share
 
August 31, 2010     4,191,415 (1)    $ 42,425,564                   $10.13 per/share(2)
 
August 31, 2010     2,000,000     $ 18,000,000     $ 1,350,000     $ 1,052,067       $9.00 per/share  
January 14, 2011     27,867 (3)    $ 241,608                   $8.67 per/share  
November 27, 2012     1,350,000     $ 10,665,000     $ 533,250     $ 153,330       $7.90 per/share  
January 14, 2014     1,892,300 (4)    $ 13,492,099     $ 539,684     $ 243,684       $7.13 per/share  
February 27, 2014     630,000     $ 4,920,300       (5)    $ 35,415       $7.81 per/share  

(1) Includes 403,662 shares that were issued on September 30, 2010 upon the expiration of the overallotment option granted to the underwriters in connection with our initial public offering. Such shares were deemed to be outstanding at August 31, 2010.
(2) Based on weighted average price assigned to shares.
(3) Issued pursuant to the Company’s dividend reinvestment plan.
(4) Includes 242,300 overallotment shares that were granted to the underwriters in connection with our January 14, 2014 follow-on offering. The underwriters exercised their option to purchase additional shares on January 27, 2014. Such shares were deemed to be outstanding at January 14, 2014.
(5) This was a private placement offering placed directly with certain institutional investors.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 7. Financial Highlights

   
  Three months ended March 31, 2014   Three months ended March 31, 2013
     (Unaudited)   (Unaudited)
Per Share Data(1):
                 
Net asset value at beginning of period   $ 7.09     $ 8.03  
Dilution from offering     0.00 (8)       
Offering costs     (0.03 )       
Net investment income     0.15       0.18  
Change in unrealized gain (loss)     0.18       0.02  
Realized gain (loss)     0.02       0.00  
Dividends declared     (0.21 )      (0.23 ) 
Net asset value at end of period   $ 7.20     $ 8.00  
Per share market value at end of period   $ 7.78     $ 7.65  
Total return based on market value(4)     13.34 %      7.11 % 
Total return based on net asset value(4)     4.15 %      2.59 % 
Shares outstanding at end of period     10,091,682       7,569,382  
Weighted average shares outstanding for period     9,419,350       7,569,382  
Ratio/Supplemental Data:
                 
Net assets at end of period   $ 72,701,025     $ 60,538,930  
Average net assets   $ 66,426,646     $ 60,672,785  
Annualized ratio of net operating expenses to average net assets(5)     10.90 %      10.23 % 
Annualized ratio of net investment income to average net assets(5)     8.59 %      8.77 % 
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets(5)     2.72 %      3.08 % 

   
  Nine months ended March 31, 2014   Nine months ended March 31, 2013
     (Unaudited)   (Unaudited)
Per Share Data(1):
                 
Net asset value at beginning of period   $ 8.01     $ 8.59  
Dilution from offering     0.00 (8)      (0.17 )(2) 
Offering costs     (0.03 )      (0.01 ) 
Net investment income     0.56       0.59  
Change in unrealized gain (loss)     (0.53 )      0.28  
Realized gain (loss)     (0.14 )      (0.59 ) 
Dividends declared     (0.67 )      (0.69 ) 
Net asset value at end of period   $ 7.20     $ 8.00  
Per share market value at end of period   $ 7.78     $ 7.65  
Total return based on market value(4)     8.27 %      9.31 % 
Total return based on net asset value(4)     (2.11 )%      1.81 % 
Shares outstanding at end of period     10,091,682       7,569,382  
Weighted average shares outstanding for period     8,177,036       6,835,258  
Ratio/Supplemental Data:
                 
Net assets at end of period   $ 72,701,025     $ 60,538,930  
Average net assets   $ 61,217,476     $ 56,949,979  
Annualized ratio of net operating expenses to average net assets(5)     12.74 %      10.99 % 
Annualized ratio of net investment income to average net assets(5)     9.90 %      9.39 % 
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets(5)     3.26 %      3.37 % 

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 7. Financial Highlights  – (continued)

       
  Year Ended
June 30, 2013
  Year Ended
June 30, 2012
  For the
period from
August 31, 2010 (commencement
of operations) to
June 30, 2011
  For the
period from
April 16, 2010
(date of
inception) to
June 30, 2010
     (audited)   (audited)   (audited)   (audited)
Per Share Data(1):
                                   
Net asset value at beginning of period   $ 8.59     $ 9.08     $ 9.40     $ 15.00 (6) 
Dilution from offering     (0.18 )(2)                   
Offering costs     (0.02 )            (0.04 )       
Net investment income (loss)     0.77       0.78       0.70       (125.45 ) 
Change in unrealized gain (loss)     0.37       (0.32 )      (0.29 )       
Realized gain (loss)     (0.60 )      (0.03 )      0.06        
Dividends declared     (0.92 )      (0.92 )      (0.75 )       
Net asset value at end of period   $ 8.01     $ 8.59     $ 9.08     $ (110.45 ) 
Per share market value at end of period   $ 7.83     $ 7.65     $ 7.90     $ (110.45 ) 
Total return based on market value     15.12 %(4)      8.71 %(4)      (4.03 )%(3)      (836.33 )%(7) 
Total return based on net asset value     4.94 %(4)      6.20 %(4)      5.62 %(3)      (836.33 )%(7) 
Shares outstanding at end of period     7,569,382       6,219,382       6,219,382       100  
Weighted average shares outstanding for period     7,018,286       6,219,382       6,206,824       100  
Ratio/Supplemental Data:
                                   
Net assets at end of period   $ 60,644,039     $ 53,442,785     $ 56,474,006     $ (11,045 ) 
Average net assets   $ 57,842,601     $ 55,531,518     $ 57,455,987     $ (4,773 ) 
Annualized ratio of gross operating expenses to average net assets(5)     11.52 %      9.56 %      8.49 %      1,279.28 % 
Annualized ratio of net operating expenses to average net assets(5)     11.52 %      8.99 %      7.34 %      1,279.28 % 
Annualized ratio of net investment income (loss) to average net assets(5)     9.30 %      8.70 %      9.29 %      (1,279.28 )% 
Annualized ratio of net operating expenses excluding management fees, incentive fees, and interest expense to average net assets(5)     3.53 %      3.15 %      2.00 %      1,279.28 % 

(1) Financial highlights are based on weighted average shares outstanding.
(2) Dilution from offering is based on the change in net asset value from a follow on offering on November 27, 2012.
(3) Total return based on market value is based on the change in market price per share assuming an investment at the initial public offering price of $9.00 per share and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. 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 and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 7. Financial Highlights  – (continued)

(4) Total return based on market value is based on the change in market price per share and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. 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 and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. The total returns are not annualized.
(5) Financial Highlights for periods of less than one year are annualized and the ratios of gross and net operating expenses to average net assets and net investment income (loss) to average net assets are adjusted accordingly. Non-recurring expenses were not annualized. For the period from August 31, 2010 (commencement of operations) to June 30, 2011 the Company incurred $102,609 of organizational expenses, which were deemed to be non-recurring. For the period from April 16, 2010 to June 30, 2010, the Company incurred $12,500 of Organizational Expenses, which were deemed to be non-recurring.
(6) For the period from April 16, 2010 (date of inception) to June 30, 2010, the net asset value of the Company’s common stock at issuance was $15.00.
(7) 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 each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on market value is the same as total return based on net asset value as our shares were not publicly traded from inception through June 30, 2010. The total returns are not annualized.
(8) Dilution from offering is based on the change in net asset value from the follow-on offerings on January 14, 2014 and February 27, 2014.

Note 8. Long Term Liabilities

Line of Credit

On August 31, 2010, the Company entered into the “First Capital Credit Facility” with FCC, LLC d/b/a First Capital. The facility size was $35 million and was initially scheduled to expire in January 2012. The Company extended the First Capital Credit Facility various times through March 31, 2014. The Company incurred unused line, average usage and other fees related to the First Capital Credit Facility. The First Capital Credit Facility was secured by all of the assets of the Company. Under the First Capital Credit Facility, the Company was required to satisfy several financial covenants, including maintaining a minimum level of stockholders’ equity, a maximum level of leverage and minimum asset coverage and earnings. In addition, the Company was required to comply with other general covenants, including with respect to indebtedness, liens, restricted payments and mergers and consolidations.

On June 3, 2013, the Company entered into the “Credit Facility” with Santander Bank. The facility size was originally $32.5 million and replaced the Company’s First Capital Credit Facility. The facility was subsequently increased to $45.0 million on November 5, 2013.

The Credit Facility matures on June 3, 2016 and bears interest based on a tiered rate structure, depending upon utilization, ranging from 1-month LIBOR to 3-month LIBOR plus 3.25% to 4.00% per annum, or from Santander Bank’s prime rate plus 1.25% to 2.00% per annum, based on the Company’s election. As of March 31, 2014, the 1-month LIBOR to 3-month LIBOR rates respectively were: 0.15%, 0.19%, and 0.23%. As of March 31, 2014, the prime rate was 3.25%. In addition, a fee of 0.50% per annum is charged on unused amounts under the Credit Facility. The Credit Facility is secured by all of the Company’s assets. Under the Credit Facility, the Company has made certain customary representations and warranties, and is required to comply with various covenants, reporting requirements and other customary requirements, including a minimum balance sheet leverage ratio, for similar credit facilities. The Credit Facility includes usual and customary events of default for credit facilities of this nature.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 8. Long Term Liabilities  – (continued)

The expenses associated with opening and expanding the Credit Facility are being amortized over the term of the Credit Facility in accordance with ASC 470 Debt. As of March 31, 2014, of the total $728,911 incurred, $507,550 remains to be amortized and is reflected as Deferred Credit Facility Fees on the Consolidated Statement of Assets and Liabilities.

At March 31, 2014 and June 30, 2013, the Company had outstanding borrowings of $0 and $25,584,147 under the Credit Facility, respectively, which amounts are included in the Consolidated Statements of Assets and Liabilities.

Distribution Notes

On August 31, 2010, the Company entered into multiple senior unsecured notes (the “Distribution Notes”). The Distribution Notes consisted of $3,404,583 in senior unsecured notes, which bore interest at a fixed rate of 8% per annum, payable quarterly in cash, and were scheduled to mature on February 28, 2014. The Distribution Notes were paid off at par plus accrued interest on July 3, 2013. At March 31, 2014 and June 30, 2013, the Company had a balance of $0 and $3,404,583 on the Distribution Notes, which is included in the Consolidated Statements of Assets and Liabilities.

Notes Payable

On June 28, 2013, the Company issued $21,145,525 in aggregate principal amount of 8.25% Notes due June 30, 2020, the “Notes”, (including a partial exercise of the underwriters’ overallotment option in July 2013) for net proceeds of $20,038,250 after deducting underwriting commissions of approximately $860,822 and offering expenses of $246,453. The offering expenses and underwriting commissions are being amortized over the term of the notes in accordance with ASC 470 Debt. As of March 31, 2014, of the total $1,107,275 incurred, $987,344 remains to be amortized and is reflected as Deferred Debt Issuance Costs on the Consolidated Statement of Assets and Liabilities.

The Notes were issued pursuant to an indenture, dated June 3, 2013, as supplemented by the first supplemental indenture, dated June 28, 2013 (collectively, the “Indenture”), between the Company and U.S. Bank National Association (the “Trustee”). The Notes are unsecured obligations of the Company and rank senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including existing unsecured indebtedness that is later secured) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries or financing vehicles. Interest on the Notes is paid quarterly in arrears on March 30, June 30, September 30 and December 30, at a fixed rate of 8.25% per annum, beginning September 30, 2013. The Notes mature on June 30, 2020 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after June 30, 2016. The Notes are listed on the Nasdaq Global Market under the trading symbol “FULLL” with a par value of $25.00 per share.

The Indenture contains certain covenants, including covenants requiring compliance with (regardless of whether the Company is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring the Company to provide financial information to the holders of the Notes and the Trustee if the Company ceases to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the Indenture. The Company may repurchase the Notes in accordance with the 1940 Act and the rules promulgated thereunder. Any Notes repurchased by the Company may, at the Company’s option, be surrendered to the Trustee for cancellation, but may not be reissued or resold by the Company. Any Notes surrendered for cancellation will be promptly cancelled and no longer outstanding under the Indenture. As of March 31, 2014, the Company had not repurchased any of the Notes in the open market.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 8. Long Term Liabilities  – (continued)

At March 31, 2014 and June 30, 2013, the Company had a balance of $21,145,525 on the Notes, which is included in the Consolidated Statements of Assets and Liabilities.

Note 9. Fair Value Measurements

The Company’s assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with Accounting Standards Codification (“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 March 31, 2014 and June 30, 2013, respectively:

As of March 31, 2014 (unaudited)

       
  Level 1   Level 2   Level 3   Total
Assets
                                   
Senior and Subordinated Loans, at fair value   $     $        —     $ 77,333,327     $ 77,333,327  
Investments in private companies, at fair value                 5,870,523       5,870,523  
Investments in securities, at fair value                 6,919,302       6,919,302  
U.S. Treasury securities, at fair value(1)     10,000,049                   10,000,049  
     $ 10,000,049     $     $ 90,123,152     $ 100,123,201  

As of June 30, 2013 (audited)

       
  Level 1   Level 2   Level 3   Total
Assets
                                   
Senior and Subordinated Loans, at fair value   $        —     $        —     $ 81,195,958     $ 81,195,958  
Investments in private companies, at fair value                 6,784,435       6,784,435  
Investments in securities, at fair value                 194,108       194,108  
     $     $     $ 88,174,501     $ 88,174,501  

(1) U.S. Treasury Securities were purchased and temporarily held in connection with compliance with RIC diversification requirements under Subchapter M of the Code.

During the nine months ended March 31, 2014 and for the year ended June 30, 2013, there were no transfers in or out of levels.

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 net 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.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 9. Fair Value Measurements  – (continued)

Changes in Level 3 assets measured at fair value for the nine months ended March 31, 2014 and for the year ended June 30, 2013 are as follows:

             
  Nine months ended March 31, 2014 (unaudited)
     Beginning
Balance
July 1, 2013
  Amortization
and Accretion
of Fixed
Income
Premiums and
Discounts
  Realized &
Unrealized
Gains (Losses)
  Purchases   Sales
And
Settlements
  Ending
Balance
March 31, 2014
  Change in
Unrealized
Gains (Losses)
for Investments
still held at
March 31, 2014
Assets
                                                              
Senior and Subordinated Loans, at fair value   $ 81,195,958     $ 333,075     $ (9,808,572 )    $ 74,742,853     $ (69,129,987 )    $ 77,333,327     $ (8,655,546 ) 
Investments in private companies, at fair value     6,784,435             (954,196 )      40,284             5,870,523       (954,195 ) 
Investments in securities, at fair value     194,108             6,117,845       607,349             6,919,302       6,117,845  
     $ 88,174,501     $ 333,075     $ (4,644,923 )    $ 75,390,486     $ (69,129,987 )    $ 90,123,152     $ (3,491,896 ) 

  

             
  Year ended June 30, 2013 (audited)
     Beginning
Balance
July 1, 2012
  Amortization
and Accretion
of Fixed
Income
Premiums and
Discounts
  Realized &
Unrealized
Gains (Losses)
  Purchases   Sales
And
Settlements
  Ending
Balance
June 30, 2013
  Change in
Unrealized
Gains (Losses)
for Investments
still held at
June 30, 2013
Assets
                                                              
Senior and Subordinated Loans, at fair value   $ 70,970,152     $ 358,947     $ (2,974,512 )    $ 70,949,232     $ (58,107,861 )    $ 81,195,958     $ (443,443 ) 
Investments in private companies, at fair value     1,376,737             1,557,697       3,850,001             6,784,435       1,557,697  
Investments in securities, at fair value                 (151,948 )      346,056             194,108       (151,947 ) 
     $ 72,346,889     $ 358,947     $ (1,568,763 )    $ 75,145,289     $ (58,107,861 )    $ 88,174,501     $ 962,307  

Realized and unrealized gains and losses are included in net realized gain (loss) on investments and net change in unrealized gain (loss) on investments in the Consolidated Statement of Operations. The change in unrealized losses for Level 3 investments still held at March 31, 2014 of $3,491,896 is included in net change in net unrealized gain (loss) on investments in the Consolidated Statement of Operations for the nine months ended March 31, 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 9. Fair Value Measurements  – (continued)

The following table provides quantitative information regarding Level 3 fair value measurements as of March 31, 2014:

       
Description:   Fair Value   Valuation Technique   Unobservable Inputs   Range (Average)(1)
Secured debt   $ 46,088,614       Discounted cash flows
(income approach)
      Discount Rate       3.40% – 50.00%
(14.28)%
 
Equity     5,368,289       Market comparable
companies (market
approach)
      EBITDA multiple       2.00 – 7.00 (5.18 ) 
Warrant     6,868,077       Option Pricing Model       Volatility       60% – 100%  
                         Discount Rate
      40% – 60%  
Debt or Equity subject to liquidation     8,913,410       Liquidation Value       Asset Value       N/A  
Secured Debt     22,884,762       Precedent Transactions       Cost Basis       N/A  
Total investments   $ 90,123,152                    

(1) The average values were determined using the weighted average of the fair value of the investments in each investment category.

The primary significant unobservable input used in the fair value measurement of the Company’s debt securities (first lien debt, second lien debt and subordinated debt), 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, 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 input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple, or 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 warrant investments, when using an option pricing mode, are the discount rate 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 a warrant using an option pricing model.

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FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 10. Derivative Contracts

In the normal course of business, the Company may utilize derivative contracts in connection with its investment activities. Investments in derivative contracts are subject to additional risks that can result in a loss of all or part of an investment. The derivative activities and exposure to derivative contracts primarily involve equity price risks. In addition to the primary underlying risk, additional counterparty risk exists due to the potential inability of counterparties to meet the terms of their contracts.

Warrants

The warrants provide exposure and potential gains upon equity appreciation or depreciation of the portfolio company’s equity value.

As described in the chart below, the value of a warrant has two components: time value and intrinsic value. A warrant has a limited life and expires on a certain date. As a warrant’s expiration date approaches, the time value of the warrant will decline. In addition, if the stock underlying the warrant declines in price, the intrinsic value of an “in the money” warrant will decline. Further, if the price of the stock underlying the warrant does not exceed the strike price of the warrant on the expiration date, the warrant will expire worthless. As a result, there is the potential for the entire value of an investment in a warrant to be lost.

The Company has written a warrant to sell within a limited time, a financial instrument at a contracted price based on differentials between specified prices. Written warrants may expose the Company to market risk of an unfavorable change in the financial instrument underlying the written warrant.

Counterparty risk exists from the potential failure of an issuer of warrants to settle its exercised warrants. The maximum risk of loss from counterparty risk is the fair value of the contracts and the purchase price of the warrants. The Company’s Board of Directors considers the effects of counterparty risk when determining the fair value of its investments in warrants.

Volume of Derivative Activities

At March 31, 2014, the notional amounts and number of warrants, categorized by primary underlying risk, are as follows:

       
  Long Exposure   Short Exposure
     Notional Amounts   Number of Warrants   Notional Amounts   Number of Warrants
Primary Underlying Risk
                                   
Equity Price Warrants(a),(b)   $ 18,551,225       184,683     $ 1,528,631       1  

(a) Notional amounts presented for warrants are based on the fair value of the underlying shares as if the warrants were exercised at March 31, 2014.
(b) The written warrant is on 360 of the Company’s 720 limited liability company interests in New Media West, LLC and has a strike price of $3,125,000, which increases over time to $3,500,000. This warrant expires on December 18, 2019.

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FULL CIRCLE CAPITAL CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (Unaudited)
March 31, 2014

Note 11. Subsequent Events

Dividend

On May 2, 2014, the Board of Directors declared monthly dividends of $0.067, $0.067 and $0.067 per share payable on August 15, 2014 for holders of record at July 31, 2014, September 15, 2014 for holders of record at August 29, 2014 and October 15, 2014 for holders of record at September 30, 2014.

Recent Portfolio Activity

On April 30, 2014, the Company closed on approximately $4.5 million of a $150.0 million secured second lien term loan to RCS Capital Corporation, a financial services company. The secured second lien term loan is guaranteed by all existing and subsequent direct and indirect domestic subsidiaries of RCS Capital Corporation, and bears interest at LIBOR plus 9.50% with a minimum LIBOR of 1.00% per annum and has a final maturity of April 29, 2021.

Share Repurchase Program

On April 7, 2014, the Board of Directors authorized a share repurchase program which provides for the purchase of up to 1 million shares of outstanding common stock, to be implemented at the discretion of our management team. Under the repurchase program, we may, but are not obligated to, repurchase our outstanding common stock in the open market from time to time. The timing and number of shares to be repurchased in the open market will depend on a number of factors, including market conditions and alternative investment opportunities. In addition, any repurchases will be conducted in accordance with the 1940 Act.

Note 12. Selected Quarterly Financial Data (Unaudited)

               
  Total Investment Income   Net Investment
Income
  Net Realized and Unrealized Gains (Losses)   Net Increase (Decrease) in Net Assets from Operations
Quarter Ended   Total   Per Share(1)   Total   Per Share(1)   Total   Per Share(1)   Total   Per Share(1)
September 30, 2010   $ 867,582     $ 0.42     $ 306,783     $ 0.15     $ (99,791 )    $ (0.05 )    $ 206,992     $ 0.10  
December 31, 2010     2,678,197       0.43       1,495,125       0.24       (137,707 )      (0.02 )      1,357,418       0.22  
March 31, 2011     2,305,423       0.37       1,361,635       0.22       (799,361 )      (0.13 )      562,274       0.09  
June 30, 2011     2,108,426       0.34       1,170,836       0.19       (415,206 )      (0.07 )      755,630       0.12  
September 30, 2011     2,558,243       0.41       1,544,342       0.25       54,991       0.01       1,599,333       0.26  
December 31, 2011     2,398,665       0.39       1,098,640       0.18       (846,099 )      (0.14 )      252,541       0.04  
March 31, 2012     2,388,960       0.38       1,118,574       0.18       405,240       0.07       1,523,814       0.25  
June 30, 2012     2,481,143       0.40       1,071,947       0.17       (1,769,463 )      (0.28 )      (697,516 )      (0.11 ) 
September 30, 2012     2,773,303       0.45       1,238,245       0.20       (343,354 )      (0.06 )      894,891       0.14  
December 31, 2012     3,099,599       0.46       1,465,650       0.22       (1,893,852 )      (0.28 )      (428,202 )      (0.06 ) 
March 31, 2013     2,843,041       0.38       1,312,164       0.18       168,654       0.02       1,480,818       0.20  
June 30, 2013     3,330,080       0.44       1,364,522       0.18       489,114       0.06       1,853,636       0.24  
September 30, 2013     3,218,186       0.43       1,244,227       0.16       (3,501,376 )      (0.46 )      (2,257,149 )      (0.30 ) 
December 31, 2013     3,996,903       0.53       1,899,588       0.25       (3,119,528 )      (0.41 )      (1,219,940 )      (0.16 ) 
March 31, 2014     3,191,624       0.34       1,406,379       0.15       1,975,143       0.21       3,381,522       0.36  

(1) Per share amounts are calculated using weighted average shares outstanding during the period.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The information contained in this section should be read in conjunction with our consolidated financial statements and related notes and schedules thereto appearing elsewhere in this quarterly report on Form 10-Q, as well as the sections entitled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes and schedules thereto included in our Annual Report on Form 10-K for the period ended June 30, 2013.

This quarterly report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about Full Circle Capital Corporation, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

our future operating results;
our business prospects and the prospects of our portfolio companies;
the impact of investments that we expect to make;
our contractual arrangements and relationships with third parties;
the dependence of our future success on the general economy and its impact on the industries in which we invest;
the ability of our portfolio companies to achieve their objectives;
our expected financings and investments;
the adequacy of our cash resources and working capital; and
the timing of cash flows, if any, from the operations of our portfolio companies.

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;
an expiration or contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;
interest rate volatility could adversely affect our results, particularly when we elect to use leverage as part of our investment strategy;
currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and
the risks, uncertainties and other factors we identify in “Risk Factors” in our Annual Report on Form 10-K for the period ended June 30, 2013 and elsewhere in this quarterly report on Form 10-Q and in our filings with the SEC.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking

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statement in this quarterly report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this quarterly report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report on Form 10-Q.

Except as otherwise specified, references to “Full Circle Capital,” “the Company,” “we,” “us” and “our” refer to Full Circle Capital Corporation.

Overview

We are an externally managed non-diversified closed-end management investment company formed in April 2010, and have elected to be treated as a business development company under the 1940 Act. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We are managed by Full Circle Advisors, and Full Circle Service Company provides the administrative services necessary for us to operate.

We invest primarily in senior secured loans and, to a lesser extent, second lien loans, mezzanine loans and equity securities issued by smaller and lower middle-market companies that operate in a diverse range of industries. In our lending activities, we focus primarily on portfolio companies with both (i) tangible and intangible assets available as collateral and security against our loan to help mitigate our risk of loss, and (ii) cash flow to cover debt service. We believe this provides us with a more attractive risk adjusted return profile, with greater principal protection and likelihood of repayment.

Our investments generally range in size from $3 million to $10 million; however, we may make larger or smaller investments from time to time on an opportunistic basis. We focus primarily on senior secured loans and “stretch” senior secured loans, also referred to as “unitranche” loans, which combine characteristics of traditional first-lien senior secured loans and second-lien or subordinated loans. We believe that having a first lien, senior secured position provides us with greater control and security in the primary collateral of a borrower and helps to mitigate risk against loss of principal should a borrower default. Our stretch senior secured loans typically possess a greater advance rate against the borrower’s assets and cash flow, and accordingly carry a higher interest rate and/or greater equity participation, than traditional senior secured loans. This stretch senior secured loan instrument can provide borrowers with a more efficient and desirable solution than a senior bank line combined with a separate second lien or mezzanine loan obtained from another source. We also may invest in mezzanine, subordinated or unsecured loans. In addition, we may acquire equity or equity related interests from a borrower along with our debt investment. We attempt to protect against risk of loss on our debt investments by investing in borrowers with cash flows to cover debt service, while frequently securing our loans against tangible or intangible assets of our borrowers, which may include accounts receivable and contracts for services, and obtaining a favorable loan-to-value ratio, and in many cases, securing other financial protections or credit enhancements, such as personal guarantees from the principals of our borrowers, make well agreements and other forms of collateral, rather than lending predominantly against anticipated cash flows of our borrowers. We believe this allows us more options and greater likelihood of repayment from refinancing, asset sales of our borrowers and/or amortization.

We generally seek to invest in smaller and lower middle-market companies in areas that we believe have been historically under-serviced, especially during and after the 2008/2009 credit crisis. These areas include industries that are outside the focus of mainstream institutions or investors due to required industry-specific knowledge or are too small to attract interest from larger investment funds or other financial institutions. Because we believe there are fewer banks and specialty finance companies focused on lending to these smaller and lower middle-market companies, we believe we can negotiate more favorable terms on our debt investments in these companies than those that would be available for debt investments in comparable larger, more mainstream borrowers. Such favorable terms may include higher debt yields, lower leverage levels, more significant covenant protection and/or greater equity grants than typical of other transactions. We generally seek to avoid competing directly with other capital providers with respect to specific transactions in order to avoid the less favorable terms we believe are typically associated with such competitive bidding processes.

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Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.

Basis of Consolidation

Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to us. Our financial statements include our accounts and the accounts of Full Circle West, Inc., FC New Media Inc., TransAmerican Asset Servicing Group, Inc., FC New Specialty Foods, Inc., and FC Takoda Holdings, LLC our only wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Valuation of Investments in Securities at Fair Value — Definition and Hierarchy

In accordance with 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, Full Circle Capital’s Board of Directors uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs 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 the Board of Directors’ assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs 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

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value hierarchy within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.

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

Change in realized gain (loss) and unrealized gain (loss) on investments

Net unrealized appreciation or depreciation recorded on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. Realized gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs.

From time to time the Company may enter into a new transaction with a portfolio company as a result of the sale, merger, foreclosure, bankruptcy or other corporate event involving the portfolio company. In such cases, the Company may receive newly-issued notes, securities and/or other consideration in exchange for, or resulting from, the cancellation of the instruments previously held by the Company with regard to that portfolio company. In such cases, the Company may experience a realized loss on the instrument being sold or cancelled, and, concurrently, an elimination of any previously recognized unrealized losses on the portfolio investment. Such elimination of unrealized loss is included on the Statements of Operations as an increase in the Change in Unrealized Gain (Loss) on Investments.

Valuation Techniques

Senior and Subordinated Secured Loans

Our portfolio consists primarily of private debt instruments (“Level 3 debt”). The Company considers its Level 3 debt 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 debt, the Company’s Board of Directors considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, the financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Company’s Board of Directors will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument.

This evaluation will be updated no less than quarterly for Level 3 debt instruments, and more frequently for time periods where there are significant changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed on an ongoing basis using internal metrics, appraisals, work performed by third party valuation agents, if applicable, and other data as may be acquired and analyzed by Management and the Company’s Board of Directors.

Investments in Private Companies

The Company’s Board of Directors determines the fair value of its investments in private companies by incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples, among other factors, including third party valuation agents. These nonpublic investments are included in Level 3 of the fair value hierarchy.

Warrants

The Company’s Board of Directors ascribes value to warrants based on fair value analyses that may include discounted cash flow analyses, option pricing models, comparable analyses and other techniques as deemed appropriate.

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Fair Value

The Company’s assets measured at fair value on a recurring basis subject to the requirements of ASC Topic 820 at March 31, 2014 and June 30, 2013, were as follows:

As of March 31, 2014 (Unaudited)

       
  Level 1   Level 2   Level 3   Total
Assets
                                   
Senior and Subordinated Loans, at fair value   $     $        —     $ 77,333,327     $ 77,333,327  
Investments in private companies, at fair value                 5,870,523       5,870,523  
Investments in securities, at fair value                 6,919,302       6,919,302  
US Treasury Securities, at fair value(1)     10,000,049                   10,000,049  
     $ 10,000,049     $     $ 90,123,152     $ 100,123,201  

As of June 30, 2013 (Audited)

       
  Level 1   Level 2   Level 3   Total
Assets
                                   
Senior and Subordinated Loans, at fair value   $        —     $        —     $ 81,195,958     $ 81,195,958  
Investments in private companies, at fair value                 6,784,435       6,784,435  
Investments in other securities, at fair value                 194,108       194,108  
     $     $     $ 88,174,501     $ 88,174,501  

(1) U.S. Treasury Securities were purchased and temporarily held in connection with compliance with RIC diversification requirements under Subchapter M of the Code.

During the nine months ended March 31, 2014 and the year ended June 30, 2013, there were no transfers in or out of levels.

Revenue Recognition

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. 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 unamortized loan origination, closing and/or commitment fees are recorded as interest income.

Dividend income is recorded on the ex-dividend date.

Structuring fees, board fees, excess deal deposits, prepayment fees and similar fees are recognized as Other Income as earned, usually when received. Other fee income, including annual fees and monitoring fees are included in Other Income.

Use of Estimates

The preparation of the financial statements of Full Circle Capital in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts disclosed in the financial statements of Full Circle Capital. Actual results could differ from those estimates.

Current Market Conditions and Market Opportunity

We believe that the current credit environment provides favorable opportunities to achieve attractive risk-adjusted returns on the types of senior secured loans and other investments we may target. In particular,

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we believe that, despite an overall fall off in loan demand due to the depressed economic conditions, demand for financing from smaller to lower middle-market companies is largely outpacing the availability of lenders that have traditionally served this market. We believe that bank consolidations, the failure of a number of alternative lending vehicles due to poor underwriting practices and an overall tightening of underwriting standards has significantly reduced the number and activity level of potential lenders. We believe there has long been a combination of demand for capital and an underserved market for capital addressing smaller and lower middle-market borrowers. We believe there is robust demand for continued growth capital as well as demand from very significant refinancing requirements of many borrowers as debt facilities come due, given the lack of willing and qualified capital providers. We believe these market conditions have been further exacerbated in the current environment due to:

º larger lenders exiting this market to focus on larger investment opportunities which are more appropriate for their operating cost structures;
º the elimination of many specialized lenders from the market due to lack of capital as a result of, for instance, the closing off of the securitization market or their own poor performance, and
º the need for certain capital providers to reduce lending activities due to their reduced access to capital and the overall deleveraging of the financial market.

With the decreased availability of debt capital for smaller to lower middle-market borrowers, combined with the significant demand for refinancing, we believe there are increased lending opportunities for us. As always, we remain cautious in selecting new investment opportunities, and will only deploy capital in deals which are consistent with our disciplined philosophy of pursuing superior risk-adjusted returns.

Portfolio Composition and Investment Activity

Our portfolio of investments consists primarily of senior secured loans and, to a lesser extent, mezzanine loans and equity securities issued by smaller and lower middle-market companies. Our investment objective is to generate both current income and capital appreciation through debt and equity investments.

The following is a summary of our quarterly investment activity since the completion of our initial public offering. Such amounts are not inclusive of our holdings of United States Treasury Bills.

     
Time Period   Acquisitions(1)
(dollars
in millions)
  Dispositions(2)
(dollars
in millions)
  Weighted Average
Interest Rate of
Portfolio at
End of Period(3)
Legacy Portfolio Acquisition (August 31, 2010)   $ 72.3     $ N/A       12.10 % 
August 31, 2010 through September 30, 2010     0.4       1.4       12.16 % 
October 1, 2010 through December 31, 2010     3.7       10.1       12.09 % 
January 1, 2011 through March 31, 2011     4.0       19.9       12.39 % 
April 1, 2011 through June 30, 2011     9.6       1.2       12.68 % 
Fiscal 2011     90.0       32.6           
July 1, 2011 through September 30, 2011     27.7       15.9       12.89 % 
October 1, 2011 through December 31, 2011     5.9       9.4       13.04 % 
January 1, 2012 through March 31, 2012     6.7       5.7       12.98 % 
April 1, 2012 through June 30, 2012     15.0       7.1       12.93 % 
Fiscal 2012     55.3       38.1           
July 1, 2012 through September 30, 2012     11.4       8.1       12.84 % 
October 1, 2012 through December 31, 2012     29.1       25.1       12.55 % 
January 1, 2013 through March 31, 2013     22.4       12.1       12.69 % 
April 1, 2013 through June 30, 2013     12.2       12.8       12.90 % 
Fiscal 2013     75.1       58.1           
July 1, 2013 through September 30, 2013     20.0       10.1       12.81 % 
October 1, 2013 through December 31, 2013     22.4       38.1       12.48 % 
January 1, 2014 through March 31, 2014     33.0       20.9       11.41 % 
Fiscal 2014     75.4       69.1           
Since inception   $ 297.8     $ 197.9       N/A  

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(1) Includes new deals, additional fundings, refinancings (inclusive of those on revolving credit facilities) and payment in kind “PIK” interest.
(2) Includes scheduled principal payments, prepayments, sales and repayments (inclusive of those on revolving credit facilities).
(3) For transactions in the secondary market, the interest rate used for the weighted average interest rate reflects the effective yield on the loan at the purchase price.

Portfolio Activity for the Nine Months ended March 31, 2014

The primary investment activities for the nine months ended March 31, 2014 were fundings and repayments under the revolving credit facilities and the funding of the following loan facilities:

On August 1, 2013, the Company funded $4,500,000 of a $9,000,000 senior secured credit facility to Infinite Aegis Group, LLC.
On September 4, 2013, the Company funded $1,500,000 of a $5,000,000 senior secured credit facility to Franklin Place Shops — Red, LLC.
On September 30, 2013, the Company funded $2,500,000 of a $3,250,000 senior secured credit facility to CPX, Inc.
On October 17, 2013, the senior secured credit facility with CSL Operating, LLC, an industrial metal treatings company, was paid off at par value plus accrued interest and fees of $3,655,118.
On October 17, 2013, the senior secured credit facility with Coast Plating, Inc., an aerospace parts plating and finishing company, was paid off at par plus accrued interest and fees of $4,740,312.
On October 21, 2013, the senior secured credit facility with Employment Plus, Inc., a staffing services company, was paid off at par value plus accrued interest of $5,033,333.
On October 30, 2013, the Company purchased $5,000,000 of a $141,700,000 senior secured credit facility to Esselte Holdings, Inc./Esselte AB, a global manufacturer and distributor of office supplies.
On October 31, 2013, MDU Communications (USA) Inc., a cable TV/broadband services company entered into an asset purchase agreement to sell substantially all of its assets to a third party. In conjunction with this sale, the senior secured credit facility has been partially prepaid in an amount of $4,634,365. As part of this sales process, on October 22, 2013, the Company reduced the interest rate on the outstanding balance of the loan to 2.00% and realized a partial loss of $492,217 as part of the transaction. Future gains and losses related to the sales process may occur as the borrower finalizes the sales process.
On December 11, 2013, we received gross proceeds of $6,028,880 relating to the full repayment of our senior secured credit facility to iMedX, Inc. Of the $6,028,880 in gross proceeds, $978,488 represented early termination fees and success fees upon repayment.
On December 26, 2013, the senior secured loan with Franklin Place Shops-Red, LLC, a real estate investment trust, was paid off at par of $1,500,000.
On January 15, 2014, the senior secured revolving loan with Global Energy Efficiency Holdings, Inc., an energy efficiency company, was paid off at par value plus accrued interest and fees of $7,664,074. Of the $7,664,074 in gross proceeds, $437,337 represented early termination fees and success fees upon repayment.
On January 21, 2014, the Company invested $500,000 in a warrant as part of a $30 million senior secured convertible note purchase agreement with Advanced Cannabis Solutions, Inc. (ACS), a non-residential property manager. The agreement to purchase convertible notes is contingent upon ACS’ satisfaction of certain requirements. The convertible notes bear interest at a fixed rate of 12.00% per annum and have a final maturity of January 21, 2020.
On January 31, 2014, the Company purchased $7,500,000 par amount of a $256,336,139 senior secured credit facility to PEAKS Trust 2009-1 for $6,032,538.

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On March 4, 2014, the Company funded a $7,000,000 senior secured credit facility to Ocean Protection Services.
On March 12, 2014, the Company funded $5,000,000 of a $150,000,000 senior secured credit facility to Dynamic Energy Services International, LLC.
On March 31, 2014, the Company funded a $6,000,000 senior secured credit facility to GW Power, LLC and Greenwood Fuels IW, LLC.

The following is a reconciliation of the investment portfolio for the nine months ended March 31, 2014, and for the year ended June 30, 2013:

   
  Nine Months Ended March 31, 2014   Year Ended June 30, 2013
Beginning Investment Portfolio   $ 88,174,501     $ 94,846,770  
Portfolio Investments Acquired     75,390,486       75,145,289  
Treasury Purchases(1)     46,000,509       62,001,462  
Amortization and Accretion of Fixed Income Premiums and Discounts     332,615       368,279  
Portfolio Investments Repaid     (69,129,987 )      (58,107,861 ) 
Sales and Maturities of Treasury Securities(1)     (36,000,000 )      (84,500,000 ) 
Net Unrealized Appreciation (Depreciation)     (3,698,474 )      2,636,310  
Net Realized Losses     (946,449 )      (4,215,748 ) 
Ending Investment Portfolio   $ 100,123,201     $ 88,174,501  

(1) U.S. Treasury Securities were purchased and temporarily held in connection with complying with RIC diversification requirements under Subchapter M of the Code.

During the nine months ended March 31, 2014, we recorded net unrealized depreciation of $3,698,474. This consisted of $8,862,125 of net unrealized depreciation on debt investments and $5,163,651 of net unrealized appreciation on equity investments.

Portfolio Classifications

The following table shows the fair value of our portfolio of investments by asset class as of March 31, 2014, and June 30, 2013, excluding United States Treasury Bills of approximately $10.0 million and $0.0 million, respectively:

       
  March 31, 2014 (Unaudited)   June 30, 2013 (Audited)
     Investments at Fair Value (dollars in millions)   Percentage
of Total Portfolio
  Investments at Fair Value (dollars in millions)   Percentage
of Total Portfolio
Senior Secured Loans   $ 77.3       85.8 %    $ 78.2       88.7 % 
Subordinated Secured Loans                 3.0       3.4  
Limited Liability Company Interests     5.9       6.5       6.8       7.7  
Warrants     6.9       7.7       0.2       0.2  
Total   $ 90.1       100.0 %    $ 88.2       100.0 % 

At March 31, 2014, the 21 borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 64% (i.e., each $64 of loan value outstanding is secured by $100 of collateral value).

At June 30, 2013, the 19 borrowers whose debt investments are included in the table above averaged a loan to value ratio of approximately 60% (i.e., each $60 of loan value outstanding is secured by $100 of collateral value).

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The following table shows the fair value of our portfolio of investments by industry, as of March 31, 2014, and June 30, 2013, excluding United States Treasury Bills of approximately $10.0 million and $0.0 million, respectively:

       
  March 31, 2014 (Unaudited)   June 30, 2013 (Audited)
     Investments at Fair Value
(in millions)
  Percentage
of Total Portfolio
  Investments at Fair Value
(in millions)
  Percentage
of Total Portfolio
Consumer Finance   $ 12.9       14.3 %    $ 6.9       7.8 % 
Cable TV/Broadband Services     9.5       10.5       15.9       18.0  
Maritime Security Services     6.9       7.7              
Non-Residential Property Owner     6.9       7.6              
Electric Services     5.9       6.6              
Oil and Gas Field Services     4.9       5.4              
Healthcare Billing and Collections     4.8       5.3              
Munitions     4.6       5.1       6.2       7.0  
Food Distributors and Wholesalers     3.9       4.3       4.0       4.6  
Energy Efficiency Services     3.7       4.1       11.7       13.2  
Building Cleaning and Maintenance Services     3.6       4.0       3.9       4.4  
Healthcare Services     3.5       3.9       3.5       3.9  
Information and Data Services     3.2       3.6       4.2       4.8  
Industrial Molded Products     2.9       3.2              
Geophysical Surveying and Mapping Services     2.4       2.7       1.5       1.7  
Radio Broadcasting     2.3       2.6       5.6       6.4  
Outdoor Advertising Services     2.2       2.4       2.3       2.6  
Asset Recovery Services     2.1       2.4       1.5       1.7  
Equipment Rental Services     2.0       2.2       2.2       2.6  
Stationery, Tablets, and Related Products     1.9       2.1              
Medical Transcription Services                 5.2       5.9  
Staffing Services                 5.0       5.7  
Aerospace Parts Plating and Finishing                 4.8       5.5  
Industrial Metal Treatings                 3.8       4.2  
Total   $ 90.1       100.0 %    $ 88.2       100.0 % 

Portfolio Grading

We have adopted a credit grading system to monitor the quality of our debt investment portfolio. As of March 31, 2014, our portfolio had a weighted average grade of 3.20, based upon the fair value of the debt investments in the portfolio, excluding United States Treasury Bills of approximately $10.0 million. Equity securities are not graded. This was an increase of 0.08 from the weighted average grade of 3.12 at June 30, 2013.

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At March 31, 2014, our debt investment portfolio was graded as follows:

     
  March 31, 2014 (Unaudited)
Grade   Summary Description   Fair Value   Percentage
of Total Portfolio
1     Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit).     $       % 
2     The portfolio company is performing above expectations and the risk profile is generally favorable.       1,904,388       2.11  
3     Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 3.       61,931,679       68.72  
4     The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable.       9,547,740       10.59  
5     The investment is performing well below expectations and is not anticipated to be repaid in full.       3,949,520       4.38  
           $ 77,333,327       85.80 % 

At June 30, 2013, our debt investment portfolio was graded as follows:

     
  June 30, 2013 (Audited)
Grade   Summary Description   Fair Value   Percentage
of Total Portfolio
1     Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk profile are favorable (including a potential exit).     $       % 
2     The portfolio company is performing above expectations and the risk profile is generally favorable.       1,412,666       1.60  
3     Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk profile is generally neutral; all new investments are initially assessed a grade of 3.       68,397,783       77.58  
4     The portfolio company is performing below expectations, requires procedures for closer monitoring, may be out of compliance with debt covenants, and the risk profile is generally unfavorable.       11,385,509       12.91  
5     The investment is performing well below expectations and is not anticipated to be repaid in full.              
           $ 81,195,958       92.09 % 

We expect that a portion of our investments will be in grades 4 or 5 from time to time, and, as such, we will be required to work with portfolio companies to improve their business and protect our investment. The number and amount of investments included in grades 4 or 5 may fluctuate from period to period.

Results of Operations

Comparison of the three months ended March 31, 2014 and 2013

Total Investment Income

Total investment income includes interest and dividend income on our investments as well as other income, which is comprised entirely of fee income for the three months ended March 31, 2014. Fee income typically consists of administrative fees, prepayment fees, structuring fees and unused line fees.

Total investment income for the three months ended March 31, 2014, was $3,191,624. This amount consisted of $2,492,366 of interest income from portfolio investments (which included $21,526 of PIK interest), $80,293 of dividend income and $618,965 of fee income. Dividend income was solely earned from our equity investment in The Finance Company, LLC.

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Total investment income for the three months ended March 31, 2013, was $2,843,041. This amount consisted of $2,440,436 of interest income from portfolio investments (which included no PIK interest), $80,178 of dividend income and $322,427 of fee income. Dividend income was earned solely from our investment in The Finance Company, LLC.

The increase in investment income for the three months ended March 31, 2014 relative to the same time period in 2013 is primarily due to the increase in fee income, which can fluctuate. The increase in fee income for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013, was a result of success and prepayment fees received from the full repayment of our loan to Global Energy Efficiency Holdings, Inc. Interest income also increased due to a larger investment portfolio.

Expenses

Operating expenses for the three months ended March 31, 2014, were $1,785,245.

Operating expenses for the three months ended March 31, 2013, were $1,530,877.

The increase in our net operating expenses for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 is primarily due to the increase in interest expense of $243,781 from greater borrowings under our Notes (as defined below), to fund portfolio growth and an increase of $23,550 in incentive fees due to greater pre-incentive fee net investment income. These increases were partially offset by declining costs under our Administration Agreement.

Net Investment Income (Loss)

Net investment income for the three months ended March 31, 2014, was $1,406,379. Net investment income per share was $0.15 for the period.

Net investment income for the three months ended March 31, 2013, was $1,312,164. Net investment income per share was $0.18 for the period.

The increase in net investment income for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 was primarily a result of success and prepayment fees received as a result of the payoff of Global Energy Efficiency Holdings, Inc. The increase in total investment income was partially offset by interest expense from greater costs associated with outstanding borrowings and greater incentive fees resulting from a higher level of pre-incentive fee net investment income during the period.

The $0.03 decrease in net investment income per share for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013 was a result of having greater shares outstanding during the period, as we issued 2,522,300 shares during the three months ended March 31, 2014.

Realized Gain (Loss) on Investments

Realized gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs.

During the three months ended March 31, 2014, we recorded a realized gain of $223,414 in connection with a partial prepayment of PEAKS Trust 2009-1. Realized gain per share for the three months ended March 31, 2014 was $0.02.

During the three months ended March 31, 2013, we recorded no realized gain or loss.

Change in Unrealized Gain (Loss) on Investments

Net unrealized appreciation or depreciation recorded on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See “— Critical Accounting Policies — Change in Unrealized Gain (Loss) on Investments.”

Change in unrealized gain on investments was $1,751,729, or $0.18 per share, for the three months ended March 31, 2014. The change in unrealized appreciation is primarily due to the appreciation of our Advanced Cannabis Solutions, Inc. warrant of $6,368,077. This was partially offset by depreciation of $1,346,557 and $1,621,454 related to our loans to Blackstrap Broadcasting, LLC and to Modular Process Control, LLC,

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respectively. The overall change in unrealized gain consisted of $4,337,032 of net unrealized depreciation on debt investments and $6,088,761 of net unrealized appreciation on equity investments.

Change in unrealized gain on investments was $168,654, or $0.02 per share for the three months ended March 31, 2013. The change in unrealized was primarily due to the appreciation of our senior secured loan in ProGrade Ammo Group, LLC. The overall change in unrealized gain consisted of $40,717 of net unrealized appreciation on debt investments and $209,371 of net unrealized appreciation on equity investments, primarily resulting from unrealized appreciation on our holding in the Finance Company, LLC.

Comparison of the nine months ended March 31, 2014 and 2013

Total Investment Income

Total investment income includes interest and dividend income on our investments as well as other income, which is comprised entirely of fee income for the nine months ended March 31, 2014. Fee income typically consists of administrative fees, prepayment fees, structuring fees and unused line fees.

Total investment income for the nine months ended March 31, 2014, was $10,406,713. This amount consisted of $8,275,801 of interest income from portfolio investments (which included $21,526 of PIK interest), $114,704 of dividend income and $2,016,208 of fee income. Dividend income was solely earned from our equity investment in The Finance Company, LLC.

Total investment income for the nine months ended March 31, 2013, was $8,715,943. This amount consisted of $7,593,583 of interest income from portfolio investments (which included no PIK interest), $186,768 of dividend income and $935,592 of fee income.

The increase in interest income for the nine months ended March 31, 2014 relative to the same time period in 2013 is primarily due to a larger average investment portfolio. The dividend income for the nine months ended March 31, 2014 decreased as compared with the dividend income for the nine months ended March 31, 2013, reflecting lower distributions related to the Company’s investment in The Finance Company, LLC. The increase in fee income, which can fluctuate, for the nine months ended March 31, 2014 as compared to the nine months ended March 31, 2013 was primarily a result of success and prepayment fees received as a result of the full repayment of our loans to iMedx, Inc. and Global Energy Efficiency Holdings, Inc.

Expenses

Operating expenses for the nine months ended March 31, 2014, were $5,856,519.

Operating expenses for the nine months ended March 31, 2013, were $4,699,884.

The increase in our net operating expenses for the nine months ended March 31, 2014 as compared to the nine months ended March 31, 2013 is primarily due to the increase in interest expense of $848,178 from greater borrowings under our Notes (as defined below), to fund portfolio growth, an increase in management fees of $114,194 due to a larger average investment portfolio, and an increase in incentive fees of $139,824 due to greater pre-incentive fee net investment income. These increases were partially offset by declining costs incurred under our Administration Agreement.

Net Investment Income (Loss)

Net investment income for the nine months ended March 31, 2014, was $4,550,194. Net investment income per share was $0.56 for the period.

Net investment income for the nine months ended March 31, 2013, was $4,016,059. Net investment income per share was $0.59 for the period.

The increase in net investment income for the nine months ended March 31, 2014 as compared to the nine months ended March 31, 2013 was primarily due to a larger average investment portfolio and success and prepayment fees received as a result of the full repayment of our loans to iMedx, Inc. and Global Energy Efficiency Holdings, Inc. The increase in interest income was partially offset by greater interest expense from greater costs associated with outstanding borrowings and greater management and incentive fees resulting from a larger portfolio and greater pre-incentive fee net investment income during the period.

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The $0.03 decrease in net investment income per share for the nine months ended March 31, 2014, as compared to the nine months ended March 31, 2013 was a result of having greater average shares outstanding during the period. Weighted average shares outstanding for the nine months ended March 31, 2014, were 8,177,036 compared to 6,835,258 for the nine months ended March 31, 2013.

Realized Gain (Loss) on Investments

Realized gain (loss) on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs.

During the nine months ended March 31, 2014, we recorded a realized loss of $947,287 primarily in connection with the continued disposition of our investment in Ygnition Networks, Inc. in an amount of $678,553 and a realized loss on our position in MDU Communications (USA), Inc. of $492,217. This was partially offset by a gain realized on the partial prepayment of PEAKS Trust 2009-1 of $224,321. Realized loss per share for the nine months ended March 31, 2014 was $0.14.

During the nine months ended March 31, 2013, we recorded a realized loss of $4,047,108, primarily from the disposition of our senior secured loan in Ygnition Networks, Inc. and the conversion of our senior secured loan in Equisearch Acquisition, Inc. to a senior secured term loan in TransAmerican Asset Servicing Group, LLC upon the finalization of Equisearch Acquisition, Inc.’s bankruptcy proceedings. Realized loss per share was $0.59 for the period.

Change in Unrealized Gain (Loss) on Investments

Net unrealized appreciation or depreciation recorded on investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See “— Critical Accounting Policies — Change in Unrealized Gain (Loss) on Investments.”

Change in unrealized loss on investments was $3,698,474, or $0.53 per share, for the nine months ended March 31, 2014. The change in unrealized depreciation is primarily due to the depreciation of $3,361,464 and $1,679,697 of our loans to Blackstrap Broadcasting, LLC and to ProGrade Ammo Group, LLC, respectively, and $3,148,549 of our loans to and warrants in Modular Process Control, LLC. This was partially offset by the $6,368,077 appreciation of our warrant in Advanced Cannabis Solutions, Inc. The overall change in unrealized loss consisted of $8,862,125 of net unrealized depreciation on debt investments and $5,163,651 of net unrealized appreciation on equity investments.

Change in unrealized gain on investments was $1,978,556, or $0.29 per share for the nine months ended March 31, 2013. The change in unrealized depreciation was primarily due to $792,186 of net unrealized appreciation on debt investments, primarily in connection with the disposition of our investment in Ygnition Networks, Inc., and the conversion of our senior secured loan in Equisearch Acquisition, Inc. to a senior secured term loan in TransAmerican Asset Servicing Group, LLC upon the finalization of Equisearch Acquisition, Inc.’s bankruptcy proceedings. Additionally, we recorded $1,186,370 of net unrealized appreciation on equity investments.

Liquidity and Capital Resources

At March 31, 2014, we had investments in debt securities of 21 companies, totaling approximately $77.3 million in fair value, and equity investments in 12 companies, totaling approximately $12.8 million in fair value.

For the nine months ended March 31, 2014, cash provided by operating activities, consisting primarily of purchases, sales and repayments of investments and the items described in “Results of Operations,” was approximately $3.4 million, reflecting the purchases and repayments of investments, income resulting from operations, offset by non-cash income related to OID income, changes in working capital and accrued interest receivable. Net cash used in purchases and sales of investments was approximately $6.3 million, reflecting net additional investments in securities of $75.4 million, offset by principal repayments of $69.1 million. Such amounts are not inclusive of our purchases or sales of United States Treasury Bills.

As of March 31, 2014, we had $0 outstanding under our senior secured credit facility (the “Credit Facility”) with Santander Bank, N.A. f/k/a Sovereign Bank, N.A. (“Santander Bank”), as administrative agent, and

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$21.1 million outstanding of aggregate principal amount of 8.25% Notes due June 30, 2020 (the “Notes”). On November 6, 2013, the Company increased the size of the Credit Facility from $32.5 million to $45.0 million.

As a business development company, we generally have an ongoing need to raise additional capital for investment purposes. As a result, we expect, from time to time, to access the debt and equity markets when we believe it is necessary and appropriate to do so. In this regard, we continue to explore various options for obtaining additional debt or equity capital for investments. This may include expanding or extending our Credit Facility, or the issuance of additional shares of our common stock, possibly at prices below our then current net asset value per share pursuant to a proposal, approved by our stockholders at our most recent Special Meeting of Stockholders, authorizing us to sell shares of our common stock below its then current net asset value per share in one or more offerings for a period of one year or, if earlier, the date of our next Annual Meeting of Shareholders. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval. If we are unable to obtain leverage or raise equity capital on terms that are acceptable to us, our ability to grow our portfolio will be substantially impacted.

Capital Raises

On January 14, 2014, we completed a follow-on public offering of 1,650,000 shares of our common stock at $7.13 per share for gross proceeds of approximately $11.8 million. We also granted the underwriters a 30-day option to purchase up to 242,300 additional shares. On January 27, 2014, the underwriters exercised in full their option to purchase additional shares. The exercise of the over-allotment resulted in our receiving an additional $1.7 million in gross proceeds.

On February 27, 2014, we sold 630,000 shares of our common stock at $7.81 per share in a direct registered offering to certain institutional investors for total gross proceeds of $4.9 million.

Contractual Obligations

         
  Payments Due By Period (dollars in millions)
     Total   Less than
1 year
  1 – 3 years   3 – 5 years   More than
5 years
Credit Facility(1)   $     $     $     $     $  
Notes     21.1                         21.1  
Total   $ 21.1     $     $     $     $ 21.1  

(1) At March 31, 2014, $45.0 million remained unused under the Credit Facility.

In addition to the contractual obligations set forth above, we have certain obligations with respect to the investment advisory and administration services we receive. See “Overview”. We incurred $2,297,329 for investment advisory services and $518,711 for administrative services for the nine months ended March 31, 2014.

As of March 31, 2014, we had approximately $3.0 million in unfunded loan commitments, subject to our approval in certain instances, to provide debt financing to certain of our portfolio companies.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

Borrowings

Secured Revolving Credit Facility.  On June 3, 2013, we entered into a credit agreement with Santander Bank, as administrative agent, which provided us with our $32.5 million Credit Facility, subject to borrowing base requirements. The Credit Facility replaced our prior senior secured revolving credit facility with FCC, LLC d/b/a First Capital.

The Credit Facility matures on June 3, 2016 and bears interest based on a tiered rate structure, depending upon utilization, ranging from LIBOR (1-month, 2-month or 3-month, depending on our option) plus 3.25% to 4.00% per annum, or from Santander Bank’s prime rate plus 1.25% to 2.00% per annum, based on our

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election. In addition, a fee of 0.50% per annum is charged on unused amounts under the Credit Facility. The Credit Facility is secured by all of our assets. Under the Credit Facility, we have made certain customary representations and warranties, and are required to comply with various covenants, reporting requirements and other customary requirements, including a minimum balance sheet leverage ratio, for similar credit facilities. The Credit Facility includes usual and customary events of default for credit facilities of this nature. On November 6, 2013, the Company increased the size of its Credit Facility with Santander Bank from $32.5 million to $45.0 million.

Notes Payable.  On June 28, 2013, we issued approximately $21.1 million in aggregate principal amount of our 8.25% Notes due June 30, 2020 for net proceeds of approximately $20.0 million after deducting underwriting commissions of approximately $0.9 million and offering expenses of approximately $0.2 million.

The Notes were issued pursuant to an indenture, dated June 3, 2013, as supplemented by the first supplemental indenture, dated June 28, 2013 (collectively, the “Indenture”), between us and U.S. Bank National Association (the “Trustee”). The Notes are our unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries or financing vehicles. Interest on the Notes is paid quarterly in arrears on March 30, June 30, September 30 and December 30, at a rate of 8.25% per annum. The Notes mature on June 30, 2020 and may be redeemed in whole or in part at any time or from time to time at our option on or after June 30, 2016. The Notes are listed on the Nasdaq Global Market under the trading symbol “FULLL” with a par value of $25.00 per share.

The Indenture contains certain covenants, including covenants requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of the Notes and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the Indenture. We may repurchase the Notes in accordance with the 1940 Act and the rules promulgated thereunder. Any Notes repurchased by us may, at our option, be surrendered to the Trustee for cancellation, but may not be reissued or resold by us. Any Notes surrendered for cancellation will be promptly cancelled and no longer outstanding under the Indenture. As of March 31, 2014, we had not repurchased any of the Notes in the open market.

Distribution Notes.  On July 3, 2013, we repaid the $3.4 million of Distribution Notes issued in connection with our initial public offering at par plus accrued interest. As a result, the Distribution Notes are no longer outstanding.

Distributions

In order to qualify as a regulated investment company and to avoid corporate level tax on the income we distribute to our stockholders, we are required, under Subchapter M of the Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual basis. To the extent our earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a tax return of capital to our stockholders. In this regard, $1,089,055 of our distributions during the year ended June 30, 2013 constituted a return of capital to our stockholders. For tax purposes, the Company expects that dividends for the fiscal year ended June 30, 2014 will be funded primarily from net investment income. However, for the nine months ended March 31, 2014, for financial reporting purposes, the Company had net investment income of approximately $0.56 per share, compared to distributions to stockholders of $0.673 per share during the period. Management monitors available taxable earnings, including net investment income and realized capital gains, to determine if a tax return of capital may occur for the year. The tax character of distributions will be determined at the end of the taxable year. However, if the character of our distributions for the fiscal year ended June 30, 2014 were determined as of March 31, 2014, a portion of the distributions for 2014 would have been characterized as a tax return of capital to the Company’s stockholders; this tax return of capital may differ from the return of capital calculated with

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reference to net investment income for financial reporting purposes. Stockholders should read any written disclosure accompanying a dividend payment carefully and should not assume that the source of any distribution is our taxable ordinary income or capital gains. The specific tax characteristics of our distributions will be reported to stockholders after the end of the taxable year.

The following table lists the cash distributions, including dividends and returns of capital, if any, per share that we have declared since our formation on April 16, 2010. The table is divided by fiscal year according to record date.

     
Date Declared   Record Date   Payment Date   Amount
Fiscal 2011:
                          
July 21, 2010     September 30, 2010       October 15, 2010     $ 0.076 (1) 
November 5, 2010     December 31, 2010       January 14, 2011       0.225  
February 4, 2011     March 31, 2011       April 15, 2011       0.225  
May 6, 2011     June 30, 2011       July 15, 2011       0.225  
Total (2011)               $ 0.751  
Fiscal 2012:
                          
June 28, 2011     July 29, 2011       August 15, 2011     $ 0.075 (2) 
June 28, 2011     August 31, 2011       September 15, 2011       0.075  
June 28, 2011     September 30, 2011       October 14, 2011       0.075  
September 8, 2011     October 31, 2011       November 15, 2011       0.077  
September 8, 2011     November 30, 2011       December 15, 2011       0.077  
September 8, 2011     December 30, 2011       January 13, 2012       0.077  
November 7, 2011     January 31, 2012       February 15, 2012       0.077  
November 7, 2011     February 29, 2012       March 15, 2012       0.077  
November 7, 2011     March 30, 2012       April 13, 2012       0.077  
February 3, 2012     April 30, 2012       May 15, 2012       0.077  
February 3, 2012     May 31, 2012       June 15, 2012       0.077  
February 3, 2012     June 29, 2012       July 13, 2012       0.077  
Total (2012)               $ 0.918  
Fiscal 2013:
                          
May 7, 2012     July 31, 2012       August 15, 2012     $ 0.077  
May 7, 2012     August 31, 2012       September 14, 2012       0.077  
May 7, 2012     September 28, 2012       October 15, 2012       0.077  
September 10, 2012     October 31, 2012       November 15, 2012       0.077  
September 10, 2012     November 30, 2012       December 14, 2012       0.077  
September 10, 2012     December 31, 2012       January 15, 2013       0.077  
November 5, 2012     January 31, 2013       February 15, 2013       0.077  
November 5, 2012     February 28, 2013       March 15, 2013       0.077  
November 5, 2012     March 29, 2013       April 15, 2013       0.077  
February 5, 2013     April 30, 2013       May 15, 2013       0.077  
February 5, 2013     May 31, 2012       June 14, 2013       0.077  
February 5, 2013     June 28, 2013       July 15, 2013       0.077  
Total (2013)               $ 0.924  

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Date Declared   Record Date   Payment Date   Amount
Fiscal 2014:
                          
May 3, 2013     July 31, 2013       August 15, 2013     $ 0.077  
May 3, 2013     August 30, 2013       September 13, 2013       0.077  
May 3, 2013     September 30, 2013       October 15, 2013       0.077  
September 9, 2013     October 31, 2013       November 15, 2013       0.077  
September 9, 2013     November 29, 2013       December 13, 2013       0.077  
September 9, 2013     December 31, 2013       January 15, 2014       0.077  
November 7, 2013     January 31, 2014       February 15, 2014       0.067  
November 7, 2013     February 28, 2014       March 15, 2014       0.067  
November 7, 2013     March 31, 2014       April 15, 2014       0.067  
February 5, 2014     April 30, 2014       May 15, 2014       0.067  
February 5, 2014     May 30, 2014       June 13, 2014       0.067  
February 5, 2014     June 30, 2014       July 15, 2014       0.067  
Total (2014)               $ 0.864  
Fiscal 2015:
                          
May 2, 2014     July 31, 2014       August 15, 2014       0.067  
May 2, 2014     August 29, 2014       September 15, 2014       0.067  
May 2, 2014     September 30, 2014       October 15, 2014       0.067  
Total (2015 to date)               $ 0.201  

(1) This quarterly dividend was prorated for the number of days remaining in the third calendar quarter after our initial public offering. Our initial public offering was on August 31, 2010, and the gross amount of the prorated dividend was $0.225.
(2) From our initial public offering through the fourth fiscal quarter of 2012, we paid quarterly dividends, but in the first fiscal quarter of 2013 we began paying, and we intend to continue paying, monthly dividends to our stockholders. Our monthly dividends, if any, are determined by our Board of Directors on a quarterly basis.

Related Parties

We have entered into a number of business relationships with affiliated or related parties, including the following:

We have entered into the Investment Advisory Agreement with Full Circle Advisors. John E. Stuart, our Co-Chief Executive Officer and Chairman, and Gregg J. Felton, our Co-Chief Executive Officer and President, are both managing members of, and have financial and controlling interests in, Full Circle Advisors.
We have entered into the Administration Agreement with Full Circle Service Company. Pursuant to the terms of the Administration Agreement, Full Circle Service Company provides us with the office facilities and administrative services necessary to conduct our day-to-day operations. Mr. Stuart, our Co-Chief Executive Officer and Chairman, and Mr. Felton, our Co-Chief Executive Officer and President, are managing members of, and have financial and controlling interests in, Full Circle Service Company.
We have entered into a license agreement with Full Circle Advisors, pursuant to which Full Circle Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name “Full Circle.”
Our former Chief Financial Officer, Treasurer and Secretary, William E. Vastardis, is the President of Vastardis Fund Services LLC (“Vastardis”). Full Circle Service Company has engaged Vastardis to provide certain administrative services to us. For the nine months ended March 31, 2014, Vastardis earned $150,000 for services provided under the Administration Agreement. On September 30, 2013, Michael J. Sell succeeded Mr. Vastardis as our Chief Financial Officer, Treasurer, and Secretary.

Certain members of Full Circle Advisors’ investment committee presently manage Full Circle Funding, LP, a specialty lender serving smaller and lower middle-market companies. Although the existing investment

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funds managed by Full Circle Funding, LP, which currently consist of the Legacy Funds, are no longer making investments in new opportunities, any affiliated investment vehicle formed in the future and managed by our investment adviser or its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. Full Circle Advisors and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, Full Circle Advisors or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with Full Circle Advisors’ allocation procedures.

We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our Co-Chief Executive Officers and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code of Ethics. As required by the NASDAQ corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K).

Recent Developments

Dividend

On May 2, 2014, the Board of Directors declared monthly dividends of 0.067, $0.067 and $0.067 per share payable on August 15, 2014 for holders of record at July 31, 2014, September 15, 2014 for holders of record at August 29, 2014 and October 15, 2014 for holders of record at September 30, 2014.

Share Repurchase Program

On April 7, 2014, the Board of Directors authorized a share repurchase program which provides for the purchase of up to 1 million shares of outstanding common stock to be implemented at the discretion of our management team. Under the repurchase program, we may, but are not obligated to, repurchase our outstanding common stock in the open market from time to time. The timing and number of shares to be repurchased in the open market will depend on a number of factors, including market conditions and alternative investment opportunities. In addition, any repurchases will be conducted in accordance with the 1940 Act.

Recent Portfolio Activity

On April 30, 2014, the Company closed on approximately $4.5 million of a $150.0 million secured second lien term loan to RCS Capital Corporation, a financial services company. The secured second lien term loan is guaranteed by all existing and subsequent direct and indirect domestic subsidiaries of RCS Capital Corporation, and bears interest at LIBOR plus 9.50% with a minimum LIBOR of 1.00% per annum and has a final maturity of April 29, 2021.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of March 31, 2014, 6 debt investments in our portfolio were at a fixed rate, and the remaining 23 debt investments were at variable rates, representing approximately $14.1 million and $63.2 million in fair value, respectively. The majority of our floating rate debt instruments are currently at their floor interest rate. The variable rate investments in our portfolio bear interest at a rate that is determined by reference to LIBOR or the U.S. prime rate.

To illustrate the potential impact of a change in the underlying interest rate on our net investment income, we have assumed a 1% increase in the underlying Prime rate or LIBOR, and no other change in our portfolio as of March 31, 2014. We have also assumed outstanding borrowings by the Company of $21.1 million. Under this analysis, net investment income would increase by approximately $0.4 million annually. If we had instead assumed a 1% decrease in the underlying Prime rate or LIBOR, net investment

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income would decrease by approximately $0.1 million annually. Although management believes that this analysis is indicative of our existing interest rate sensitivity at March 31, 2014, it does not adjust for changes in the credit quality, size and composition of our portfolio, and other business developments, including borrowing under a credit facility, that could affect the net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the results under this hypothetical analysis.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

Item 4. Controls and Procedures

As of March 31, 2014, we, including our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures were effective in timely alerting management, including the Co-Chief Executive Officers and Chief Financial Officer, of material information about us required to be included in periodic SEC filings.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.  Legal Proceedings

None of us, our investment adviser or administrator, is currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us, or against our investment adviser or administrator. From time to time, we, our investment adviser or administrator, may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

Item 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. There have been no material changes during the nine months ended March 31, 2014 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended June 30, 2013.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

We did not engage in unregistered sales of equity securities during the nine months ended March 31, 2014.

Issuer Purchases of Equity Securities

For the quarter ended March 31, 2014, as a part of our dividend reinvestment plan for our common stockholders, we purchased 2,961 shares of our common stock for an average price of approximately $7.77 in the open market in order to satisfy the reinvestment portion of our dividends. The following chart outlines repurchases of our common stock during the quarter ended March 31, 2014.

       
Month   Total Number of Shares Purchased   Average Price Paid per Share   Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs   Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 2014     1,114     $ 7.09              
February 2014     929     $ 7.47              
March 2014     918     $ 8.89              
Total     2,961     $ 7.77              

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

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Item 6.  Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

 
Exhibit
Number
  Description
 3.1   Articles of Amendment and Restatement(2)
 3.2   Amended and Restated Bylaws(9)
 4.1   Form of Common Stock Certificate(1)
 4.2   Form of Note Agreement for Distribution Notes(1)
 4.3   Indenture, dated as of June 3, 2013(6)
 4.4   Form of First Supplemental Indenture(7)
 4.5   Form of Global Note (included as Exhibit A to the Form of First Supplemental Indenture)(7)
10.1   Form of Dividend Reinvestment Plan(1)
10.2   Investment Advisory Agreement by and between Registrant and Full Circle Advisors, LLC(1)
10.3   Administration Agreement by and between Registrant and Full Circle Service Company, LLC(1)
10.4   Credit Agreement by and among Registrant, Sovereign Bank, N.A., as agent, and the lenders party thereto, dated as of June 3, 2013(5)
10.5   First Amendment to Credit Agreement by and between Registrant and Sovereign Bank, N.A., as agent, dated as of September 25, 2013.(10)
10.6   Second Amendment to Credit Agreement by and between Registrant, Santander Bank, N.A. (formerly known as Sovereign Bank, N.A.), as agent, and the lenders party thereto, dated as of November 6, 2013(11)
10.7   Pledge Agreement by Registrant in favor of Sovereign Bank, N.A., as agent, dated as of June 3, 2013(5)
10.8   Security Agreement by Registrant in favor of Sovereign Bank, N.A., as agent, dated as of June 3, 2013(5)
10.9   Form of Indemnification Agreement by and between Registrant and each of its directors(1)
10.10   Trademark License Agreement by and between Registrant and Full Circle Advisors, LLC(1)
10.11   Form of Purchase and Sale Agreement by and between Registrant, Full Circle Partners, LP, Full Circle Fund, Ltd., Full Circle Offshore, LLC, and FCC, LLC d/b/a First Capital(2)
14.1   Code of Ethics(8)
14.2   Code of Business Conduct(8)
31.1   Certification of Co-Chief Executive Officers pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended*
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended*
32.1   Certification of Co-Chief Executive Officers pursuant to Section 906 of The Sarbanes-Oxley Act of 2002*
32.2   Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002*

(1) Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-166302) filed on August 5, 2010.
(2) Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 3 (File No. 333-166302) filed on August 26, 2010.
(3) Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-180321) filed on July 13, 2012.

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(4) Incorporated by reference to the Registrant’s registration statement on Form N-2 (File No. 333-187207) filed on March 12, 2013.
(5) Incorporated by reference to Registrant’s current report on Form 8-K (File No. 814-00809) filed on June 4, 2013.
(6) Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 1 (File No. 333-188280) filed on June 11, 2013.
(7) Incorporated by reference to Registrant’s registration statement on Form N-2 Pre-Effective Amendment No. 2 (File No. 333-188280) filed on June 19, 2013.
(8) Incorporated by reference to Registrant’s annual report on form 10-K (File No. 814-00809) filed on September 13, 2013.
(9) Incorporated by reference to Registrant’s current report on Form 8-K (Item 5.03) (File No. 814-00809) filed on November 7, 2013.
(10) Incorporated by reference to Registrant’s quarterly report on Form 10-Q (File No. 814-00809) filed on November 7, 2013.
(11) Incorporated by reference to Registrant’s current report on Form 8-K (Items 1.01, 2.03 and 9.01) (File No. 814-00809) filed on November 7, 2013.
* Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
  FULL CIRCLE CAPITAL CORPORATION
Date: May 8, 2014   /s/ John E. Stuart
John E. Stuart,
Co-Chief Executive Officer and
Chairman of the Board of Directors
(Co-Principal Executive Officer)
Date: May 8, 2014   /s/ Gregg J. Felton
Gregg J. Felton,
Co-Chief Executive Officer and President (Co-Principal Executive Officer)
Date: May 8, 2014   /s/ Michael J. Sell
Michael J. Sell,
Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

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