10-Q 1 triton173036_10q.htm FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2017

Table of Contents

 

 

 

UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

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

 

For the Quarterly Period Ended September 30, 2017

 

OR

 

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

 

For the transition period from to

 

Commission File Number 814-00908

 

Triton Pacific Investment Corporation, Inc.

 (Exact name of registrant as specified in its charter)

Maryland 45-2460782
(State or other jurisdiction of  (I.R.S. Employer
incorporation or organization) Identification No.)

 

6701 Center Drive West, Suite 1450  

Los Angeles, CA 90045 

(Address of principal executive offices)

 

(310) 943-4990  

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Accelerated filer
       
Non-accelerated filer ☒       (Do not check if a smaller reporting company) Smaller reporting company

 

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

 

As of November 14, 2017, the Registrant had 1,369,940.31 shares of Class A common stock, $0.001 par value, outstanding.

 

 


 

 

 

TABLE OF CONTENTS

 

Part I—Financial Information 3
   
  Item 1: Financial Statements 3
     
  Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations. 27
     
  Item 3: Quantitative and Qualitative Disclosures About Market Risk. 45
     
  Item 4: Controls and Procedures. 46
     
Part II—Other Information 46
   
  Item 1: Legal Proceedings. 46
     
  Item 1A: Risk Factors. 46
     
  Item 2: Unregistered Sales of Equity Securities and Use of Proceeds. 46
     
  Item 3: Defaults Upon Senior Securities 46
     
  Item 4: Mine Safety Disclosures. 46
     
  Item 5: Other Information 46
     
  Item 6: Exhibits. 47
     
SIGNATURES 48

 

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Part I—Financial Information

 

Item 1:Financial Statements

 

Triton Pacific Investment Corporation, Inc. 

CONSOLIDATED StatementS of Financial Position

 

   September 30,     
   2017   December 31, 
   (unaudited)   2016 
ASSETS        
         
Affiliate Investments, at fair value (amortized cost - $1,916,389 and $1,896,901, respectively)  $509,993   $1,875,202 
Non-affiliate Investments, at fair value (amortized cost - $11,017,651 and $8,705,606, respectively)   10,975,686    8,728,971 
Cash   5,874,634    3,788,901 
Principal and interest receivable   26,606    19,305 
Prepaid expenses   67,855    46,052 
Reimbursement due from Adviser (see Note 4)   330,587    106,583 
           
TOTAL ASSETS  $17,785,361   $14,565,014 
     
LIABILITIES AND NET ASSETS          
           
LIABILITIES          
Payable for investments purchased  $1,237,500   $1,061,625 
Accounts payable and accrued liabilities   340,248    225,000 
Stockholder distributions payable       16,574 
Due to related parties (see Note 4)   1,239    33,113 
TOTAL LIABILITIES   1,578,987    1,336,312 
           
COMMITMENTS AND CONTINGENCIES (see Note 9)          
           
NET ASSETS          
Common stock, $0.001 par value, 75,000,000 shares authorized, 1,338,115.18 and 976,407.17 shares issued and outstanding respectively   1,338    976 
Capital in excess of par value   18,070,020    13,255,764 
Accumulated undistributed net realized gains   14,444    21,925 
Accumulated overdistributed net investment income   (431,069)   (51,629)
Accumulated unrealized appreciation (depreciation) on investments   (1,448,359)   1,666 
TOTAL NET ASSETS   16,206,374    13,228,702 
           
TOTAL LIABILITIES AND NET ASSETS  $17,785,361   $14,565,014 
           
Net asset value per share of common stock at period end  $12.11   $13.55 

 

The accompanying notes are an integral part of these statements.

 

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Triton Pacific Investment Corporation, Inc. 

CONSOLIDATED Statements of Operations 

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 

(Unaudited)

 

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2017   2016   2017   2016 
INVESTMENT INCOME                    
Interest from affiliate investments  $   $9,540   $19,488   $27,994 
Interest from non-control/ non-affiliate investments   198,075    104,933    536,481    264,444 
Fee income from non-control/ non-affiliate investments   29,413    186    40,697    435 
                     
Total investment income   227,488    114,659    596,666    292,873 
                     
OPERATING EXPENSES                    
Management fees   83,459    60,625    246,154    156,957 
Capital gains incentive fees (see Notes 2 and 4)       11,265    (334)   31,609 
Administrator expense   70,495    78,840    213,473    242,332 
Professional fees   99,062    33,694    214,914    105,259 
Insurance expense   17,779    19,142    57,251    46,763 
Other operating expenses   13,095    9,272    23,168    15,189 
                     
Total operating expenses   283,890    212,838    754,626    598,109 
                     
Expense reimbursement and management fee offsets from Adviser       (201,573)   (80,847)   (566,501)
                     
Net expenses   283,890    11,265    673,779    31,608 
                     
Net investment (loss)/ income   (56,402)   103,394    (77,113)   261,265 
                     
REALIZED AND UNREALIZED GAIN/(LOSS)                    
Net realized gain on non-affiliated investments   26,569        91,134    (1,167)
Net increase (decrease) in unrealized appreciation on affiliate investments   (88,923)       (1,350,763)   53,879 
Net (decrease)/ increase in unrealized (depreciation)/ appreciation on non-control/ non-affiliate investments   (42,474)   56,324    (99,262)   104,167 
                     
Total net realized and unrealized gain (loss) on investments   (104,828)   56,324    (1,358,891)   156,879 
                     
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS  $(161,230)  $159,718   $(1,436,004)  $418,144 
                     
PER SHARE INFORMATION - Basic and Diluted                    
Net increase (decrease) in net assets resulting from operations per share  $(0.13)  $0.19   $(1.26)  $0.57 
                     
Weighted average common shares outstanding - basic and diluted   1,266,225    827,457    1,143,880    731,866 

  

The accompanying notes are an integral part of these statements.

 

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Triton Pacific Investment Corporation, Inc.

CONSOLIDATED StatementS of CHANGES IN NET ASSETS

NINE MONTHS ended SEPTEMBER 30, 2017 AND 2016

(Unaudited)

 

   Nine months ended 
   September 30, 
   2017   2016 
Operations          
Net investment income (loss)  $(77,113)  $261,264 
Net realized gain (loss) on investments   91,134    (1,167)
Net increase (decrease) in unrealized appreciation (depreciation) on investments   (1,450,025)   158,046 
Net increase (decrease) in net assets resulting from operations   (1,436,004)   418,143 
Stockholder distributions (see Note 5)          
Distributions from net investment income   (341,207)   (285,469)
Distributions from net realized gain on investments   (59,732)    
Net decrease in net assets resulting from stockholder distributions   (400,939)   (285,469)
Capital share transactions          
Issuance of common stock (see Note 3)   4,817,586    4,670,733 
Reinvestment of stockholder distributions (see Note 3)   214,336    155,067 
Repurchase of shares of common stock   (217,307)   (117,060)
Net increase in net assets resulting from capital share transactions   4,814,615    4,708,740 
           
Total increase in net assets   2,977,672    4,841,414 
Net assets at beginning of period   13,228,702    7,326,653 
Net assets at end of period  $16,206,374   $12,168,067 
Accumulated overdistributed net investment income  $(431,069)  $(50,571)
Accumulated undistributed net realized gains  $14,444   $1,025 

 

The accompanying notes are an integral part of these statements.

 

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Triton Pacific Investment Corporation, Inc.

CONSOLIDATED Statements of CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(Unaudited)

 

   Nine months ended 
   September 30, 
   2017   2016 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net (decrease)/ increase in net assets resulting from operations  $(1,436,004)  $418,143 
Adjustments to reconcile net (decrease)/ increase in net assets resulting from operations to net cash used by operating activities          
Purchases of investments   (6,118,500)   (3,470,750)
Proceeds from sales and repayments of investments   3,921,509    220,384 
Net realized gain (loss) from investments   (91,134)   1,167 
Net increase (decrease) in unrealized appreciation (depreciation) on investments   1,450,025    (158,046)
Accretion of discount   (23,918)   (11,985)
Net increase in paid-in-kind interest   (19,488)   (27,997)
Increases and decreases in assets and liabilities          
Principal and interest receivable   (7,301)   (14,569)
Prepaid expenses   (21,803)   (32,182)
Reimbursement due from Adviser   (224,004)   32,675 
Payable for investments purchased   175,875    336,000 
Accounts payable and accrued liabilities   115,248     
Due to related parties   (31,874)   42,614 
NET CASH USED BY OPERATING ACTIVITIES   (2,311,369)   (2,664,546)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Issuance of common stock   4,817,586    4,670,733 
Payments on repurchases of shares of common stock   (217,307)   (117,060)
Stockholder distributions   (186,603)   (130,403)
Increases in distributions payable   (16,574)   2,705 
NET CASH PROVIDED BY FINANCING ACTIVITIES   4,397,102    4,425,975 
           
NET INCREASE IN CASH   2,085,733    1,761,429 
           
CASH - BEGINNING OF PERIOD  $3,788,901   $1,812,341 
           
CASH  - END OF PERIOD  $5,874,634   $3,573,770 
           
Supplemental schedule of non-cash investing activities          
Reinvestment of stockholder distributions  $214,336   $155,067 

 

The accompanying notes are an integral part of these statements.

 

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TRITON PACIFIC INVESTMENT CORPORATION, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

AS OF SEPTEMBER 30, 2017

(UNAUDITED)

 

Portfolio Company  Footnotes  Industry  Rate (b)  Floor   Maturity Principal Amount/ Number of Shares  Amortized Cost(f)  Fair Value(c) 
Senior Secured Loans—First Lien—47.03%                             
LSF9 Atlantis Holdings, LLC     Telecommunications  L+6.00% (7.24%)  1.24%  5/1/2023   496,875  $492,146  $499,876 
California Pizza Kitchen, Inc.     Beverage, Food & Tobacco  L+6.00% (7.24%)  1.24%  8/19/2022   346,500   343,659   344,191 
CareCentrix, Inc.     Healthcare & Pharmaceuticals  L+5.00% (6.33%)  1.33%  7/8/2021   196,000   192,617   197,593 
CareerBuilder     Business Services  L+6.75% (8.08%)  1.33%  7/27/2023   500,000   485,390   489,793 
Coronado Group LLC     Metals & Mining  L+7.00% (8.33%)  1.33%  6/6/2023   498,750   484,503   503,738 
CRCI Holdings, Inc.     Business Services  L+5.50% (6.83%)  1.33%  8/31/2023   324,564   321,612   326,795 
Deluxe Entertainment Services Group, Inc.     Media: Diversified and Production  L+5.50% (6.81%)  1.31%  2/28/2020   343,112   335,523   345,471 
FHC Health Systems, Inc.     Healthcare & Pharmaceuticals  L+4.00% (5.24%)  1.24%  12/23/2021   121,875   121,168   119,183 
Flavors Holdings, Inc. Tranche B     Beverage, Food & Tobacco  L+5.75% (7.08%)  1.33%  4/3/2020   106,250   104,000   101,203 
GK Holdings, Inc.     Business Services  L+6.00% (7.33%)  1.33%  1/20/2021   121,563   121,045   114,877 
IG Investments Holdings, LLC     Business Services  L+4.00% (5.33%)  1.33%  10/29/2021   345,543   344,153   349,287 
InfoGroup Inc.     Business Services  L+5.00% (6.33%)  1.33%  3/28/2023   497,500   492,911   486,928 
Jackson Hewitt, Inc.     Business Services  L+7.00% (8.31%)  1.31%  7/30/2020   186,138   183,700   180,089 
McAfee LLC     Business Services  L+4.50% (5.83%)  1.33%  9/27/2024   250,000   247,500   251,469 
Moran Foods, LLC     Beverage, Food & Tobacco  L+6.00% (7.24%)  1.24%  12/5/2023   347,375   338,119   319,585 
Paradigm Acquisition Corp.     Healthcare & Pharmaceuticals  L+5.00% (6.42%)  1.42%  6/2/2022   122,188   120,735   122,798 
Pre-Paid Legal Services, Inc     Consumer Services  L+5.25% (6.50%)  1.25%  7/1/2019   320,191   319,563   323,092 
Raley’s     Beverage, Food & Tobacco  L+5.25% (6.49%)  1.24%  5/18/2022   288,431   288,431   291,676 
Sahara Parent Inc     Business Services  L+5.00% (6.31%)  1.31%  8/16/2024   350,000   346,532   343,875 
SITEL Worldwide Corporation     Business Services  L+5.50% (6.81%)  1.31%  9/20/2021   196,000   195,530   196,294 
Strike, LLC     Energy: Oil & Gas  L+8.00% (9.33%)  1.33%  11/30/2022   336,875   327,876   341,928 
Travel Leaders Group, LLC     Hotel, Gaming & Leisure  L+4.50% (5.81%)  1.31%  1/25/2024   348,252   346,677   353,478 
TruGreen Limited Partnership     Consumer Services  L+4.00% (5.24%)  1.24%  4/13/2023   346,500   342,323   351,264 
Verdesian Life Sciences LLC     Wholesale Trade-Nondurable Goods  L+5.00% (6.31%)  1.31%  7/1/2020   208,335   207,172   162,501 
Wirepath LLC     Consumer Services  L+5.25% (6.56%)  1.31%  8/5/2024   500,000   497,500   504,063 
Total Senior Secured Loans—First Lien                 $ 7,698,817  $7,600,385  $7,621,047 
                              
Senior Secured Loans—Second Lien—20.70%                             
Flavors Holdings, Inc.     Beverage, Food & Tobacco  L+10.00% (11.33%)  1.33%  10/7/2021   125,000   122,161   93,438 
FullBeauty Brands Holding     High Tech Industries  L+9.00% (10.24%)  1.24%  10/13/2023   250,000   218,743   114,688 
GK Holdings, Inc.     Business Services  L+10.25% (11.55%)  1.33%  1/21/2022   125,000   123,468   118,750 
Inmar     Business Services  L+8.00% (9.27%)  1.27%  5/1/2025   500,000   492,866   502,813 
McAfee LLC     Business Services  L+8.50% (9.83%)  1.33%  9/26/2025   500,000   492,500   502,293 
Neustar, Inc.     High Tech Industries  L+8.00% (9.31%)  1.31%  2/28/2025   750,000   738,862   761,250 
NPC International, Inc.     Beverage, Food & Tobacco  L+7.50 (8.74%)  1.24%  3/28/2025   500,000   497,896   508,438 
Oxbow Carbon LLC     Metals & Mining  L+7.00 (8.24%)  1.24%  1/19/2020   250,000   239,541   251,094 
Rocket Software, Inc.     Business Services  L+9.50% (10.83%)  1.33%  10/14/2024 500,000   491,229   501,875 
Total Senior Secured Loans—Second Lien                 $ 3,500,000  $3,417,266  $3,354,639 

 

The accompanying notes are an integral part of these statements.

 

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Portfolio Company  Footnotes  Industry  Rate (b)   Floor  Maturity  Principal Amount/ Number of Shares  Amortized Cost(f)  Fair Value(c) 
Subordinated Convertible Debt—0.00%                              
Javlin Capital LLC Subordinated Convertible Note  (a) (e)  Specialty Finance  6.00%     3/31/2020   666,389   666,389    
Total Subordinated Convertible Debt                   $666,389  $666,389  $ 
                               
Equity/Other—3.15%                              
ACON IWP Investors I, L.L.C.  (a)  Healthcare & Pharmaceuticals              500,000   500,000   509,993 
Javlin Capital LLC Class C-2 Preferred Units  (a) (d) (e)  Specialty Finance              214,286   750,000    
Total Equity/Other                    714,286  $1,250,000  $509,993 
                               
TOTAL INVESTMENTS—70.88%                       $12,934,040  $11,485,679 
OTHER ASSETS IN EXCESS OF LIABILITIES—29.12%                     $4,720,695 
NET ASSETS - 100.0%                           $16,206,374 

 

 

(a)Affiliated investment as defined by the 1940 Act, whereby the Company owns between 5% and 25% of the portfolio company’s outstanding voting securities and the investments are not classified as controlled investments. Affiliated funds that are managed by an affiliate of Triton Pacific Adviser, LLC also hold investments in this security.  The aggregate fair value of non-controlled, affiliated investments at September 30, 2017 represented 3.15% of the Company’s net assets. Fair value as of December 31, 2016 along with transactions during the period ended September 30, 2017 in affiliated investments were as follows):

 

      Nine months ended September 30, 2017    
Non-controlled, Affiliated Investments  Fair Value at December 31, 2016  Gross Additions (Cost)*  Gross Reductions (Cost)**  Fair Value at September 30, 2017  Net Realized Gain (Loss)  Interest & Dividends Credited to Income 
ACON IWP Investors I, L.L.C.  $691,072  $  $  $509,993  $  $ 
Javlin Capital, LLC, Convertible Note   646,901   19,488            19,488 
Javlin Capital, LLC, C-2 Preferred Units   537,229                
Total  $1,875,202  $19,488  $  $509,993  $  $19,488 

 

*Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

**Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

 

(b)Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly disclosed base rate spread. As of September 30, 2017, the three-month London Interbank Offered Rate, or LIBOR, was 1.33500%.
(c)Fair value and market value are determined by the Company’s board of directors (see Note 7.)
(d)Security held within TPJ Holdings, Inc., a wholly-owned subsidiary of the Company.  See Note 2 for a dicussion on the basis of consolidation.
(e)The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. As of September 30, 2017, 100% of the Company’s total assets represented qualifying assets.
(f)See Note 5 for a discussion of the tax cost of the portfolio.

 

The accompanying notes are an integral part of these statements. 

 

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TRITON PACIFIC INVESTMENT CORPORATION, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS 

AS OF DECEMBER 31, 2016

                           
Portfolio Company  Footnotes  Industry  Rate(b)  Base Rate Floor   Maturity  Principal Amount/ Number of Shares  Amortized Cost(f)  Fair Value(c) 
Senior Secured Loans—First Lien—51.11%                                
California Pizza Kitchen, Inc.     Beverage, Food & Tobacco   L+6.00% (7.00%)   1.0%   8/19/2022  $349,125  $345,842  $348,326 
CareCentrix, Inc.     Healthcare & Pharmaceuticals   L+5.00% (6.00%)   1.0%   7/8/2021   197,500   193,575   196,266 
CRCI Holdings, Inc.     Business Services   L+5.50% (6.50%)   1.0%   8/31/2023   349,125   345,794   349,851 
Curo Health Services Holdings, Inc.     Healthcare & Pharmaceuticals   L+5.50% (6.50%)   1.0%   2/7/2022   122,813   121,909   123,785 
Deluxe Entertainment Services Group, Inc.     Media: Diversified and Production   L+6.00% (7.00%)   1.0%   2/28/2020   350,000   340,080   347,375 
FHC Health Systems, Inc.     Healthcare & Pharmaceuticals   L+4.00% (5.00%)   1.0%   12/23/2021   122,812   121,970   119,742 
Flavors Holdings, Inc. Tranche B     Beverage, Food & Tobacco   L+5.75% (6.75%)   1.0%   4/3/2020   110,938   107,998   90,414 
GK Holdings, Inc.     Business Services   L+5.50% (6.50%)   1.0%   1/20/2021   122,500   121,847   121,888 
Global Healthcare Exchange, LLC     Healthcare & Pharmaceuticals   L+4.25% (5.25%)   1.0%   8/15/2022   148,132   148,140   149,583 
GTCR Valor Companies, Inc.     Business Services   L+6.00% (7.00%)   1.0%   6/16/2023   348,250   335,050   345,856 
IG Investments Holdings, LLC     Business Services   L+5.00% (6.00%)   1.0%   10/29/2021   348,187   346,539   351,146 
Imagine Print Solutions, LLC     Business Services   L+6.00% (7.00%)   1.0%   3/30/2022   248,125   244,986   252,467 
Jackson Hewitt, Inc.     Business Services   L+7.00% (8.00%)   1.0%   7/30/2020   196,000   193,020   189,385 
Mister Car Wash, Inc.     Automotive Repair, Services, and Parking   L+4.25% (5.25%)   1.0%   8/20/2021   121,875   121,036   122,459 
Moran Foods, LLC     Beverage, Food & Tobacco   L+6.00% (7.00%)   1.0%   12/5/2023   350,000   339,619   350,000 
Paradigm Acquisition Corp.     Healthcare & Pharmaceuticals   L+5.00% (6.00%)   1.0%   6/2/2022   123,125   121,537   122,560 
Polycom, Inc.     High Tech Industries   L+6.50% (7.50%)   1.0%   9/27/2023   338,479   324,979   341,441 
Pre-Paid Legal Services, Inc     Consumer Services   L+5.25% (6.25%)   1.0%   7/1/2019   350,000   349,125   351,750 
Raley’s     Beverage, Food & Tobacco   L+6.25% (7.25%)   1.0%   5/18/2022   295,823   295,823   299,151 
Ranpak Corp.     Paper and Allied Products   L+3.25% (4.25%)   1.0%   10/1/2021   114,506   114,297   115,294 
SITEL Worldwide Corporation     Business Services   L+5.50% (6.50%)   1.0%   9/20/2021   197,500   196,488   197,994 
SiteOne Landscape Supply LLC     Business Services   L+4.50% (5.50%)   1.0%   9/20/2021   347,379   344,506   350,094 
SolarWinds, Inc.     High Tech Industries   L+4.50% (5.50%)   1.0%   2/3/2023   248,750   236,913   252,237 
Strike, LLC     Energy: Oil & Gas   L+3.75% (10.75%)   7.0%   11/30/2022   350,000   339,692   346,500 
TIBCO Software, Inc.     High Tech Industries   L+5.50% (6.50%)   1.0%   12/4/2020   122,813   121,067   123,555 
TruGreen Limited Partnership     Consumer Services   L+5.50% (6.50%)   1.0%   4/13/2023   348,250   343,532   353,909 
Verdesian Life Sciences LLC     Wholesale Trade-Nondurable Goods   L+5.00% (6.00%)   1.0%   7/1/2020   221,546   220,054   198,285 
Vivid Seats Ltd.     Consumer Services   L+5.75% (6.75%)   1.0%   10/12/2022   250,000   245,197   250,000 
Total Senior Secured Loans—First Lien                     $6,793,553  $6,680,615  $6,761,313 
                                 
Senior Secured Loans—Second Lien—14.87%                                
Cheddar’s Casual Café, Inc.     Retail   L+9.75% (10.75%)   1.0%   1/4/2023   750,000   712,500   712,500 
Flavors Holdings, Inc.     Beverage, Food & Tobacco   L+10.00% (11.00%)   1.0%   10/7/2021   125,000   121,619   75,000 
FullBeauty Brands Holding     High Tech Industries   L+9.00% (10.00%)   1.0%   10/13/2023   250,000   218,269   173,750 
GK Holdings, Inc.     Business Services   L+9.50% (10.50%)   1.0%   1/21/2022   125,000   123,197   126,250 
Oxbow Carbon LLC     Metals & Mining   L+7.00 (8.00%)   1.0%   1/19/2020   250,000   237,142   245,625 
Rocket Software, Inc.     Business Services   L+9.50% (10.50%)   1.0%   10/14/2024   500,000   490,281   508,595 
SCS Holdings I Inc.     High Tech Industries   L+9.50% (10.50%)   1.0%   10/13/2023   125,000   121,983   125,938 
Total Senior Secured Loans—Second Lien                     $2,125,000  $2,024,991  $1,967,658 
                                 
Subordinated Convertible Debt—4.89%                                
Javlin Capital LLC Subordinated Convertible Note  (a) (e)  Specialty Finance   6.00%        3/31/2020   646,901   646,901   646,901 
Total Subordinated Convertible Debt                     $646,901  $646,901  $646,901 
                                 
Equity/Other—9.29%                                
ACON IWP Investors I, L.L.C.  (a)  Healthcare & Pharmaceuticals                500,000   500,000   691,072 
Javlin Capital LLC Class C-2 Preferred Units  (a) (d) (e)  Specialty Finance                214,286   750,000   537,229 
Total Equity/Other                      714,286  $1,250,000  $1,228,301 
                                 
TOTAL INVESTMENTS—80.16%                         $10,602,507  $10,604,173 
OTHER ASSETS IN EXCESS OF LIABILITIES—19.84%                             $2,624,529 
NET ASSETS - 100.00%                             $13,228,702 

 

 

(a)Affiliated investment as defined by the 1940 Act, whereby the Company owns between 5% and 25% of the portfolio company’s outstanding voting securities and the investments are not classified as controlled investments. Affiliated funds that are managed by an affiliate of Triton Pacific Adviser, LLC also hold investments in this security. The aggregate fair value of non-controlled, affiliated investments at December 31, 2016 represented 14.23% of the Company’s net assets. Fair value as of December 31, 2016 along with transactions during the period ended December 31, 2015 in affiliated investments were as follows:

 

     Year Ended December 31, 2016    
Non-controlled, Affiliated Investments  Fair Value at December 31, 2015   Gross Additions (Cost)*   Gross Reductions (Cost)**   Fair Value at December 31, 2016   Net Realized Gain (Loss)   Interest & Dividends Credited to Income 
ACON IWP Investors I, L.L.C.  $738,266   $   $   $691,072   $   $ 
Javlin Capital, LLC, Convertible Note   609,219    37,682        646,901        37,682 
Javlin Capital, LLC, C-2 Preferred Units   750,000            537,229         
Total  $2,097,485   $37,682   $   $1,875,202   $   $37,682 

 

*Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

**Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

 

(b)The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime Rate (“Prime” or “P”) which reset daily, monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at December 31, 2016. Certain investments are subject to a LIBOR or Prime interest rate floor. As of December 31, 2016, the three-month London Interbank Offered Rate, or LIBOR, was 0.99789%.

(c)Fair value and market value are determined by the Company’s board of directors (see Note 7.)

(d)Security held within TPJ Holdings, Inc., a wholly-owned subsidiary of the Company. See Note 2 for a discussion on the basis of consolidation.

(e)The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. As of December 31, 2016, 91.87% of the Company’s total assets represented qualifying assets.

(f)See Note 5 for a discussion of the tax cost of the portfolio.

 

The accompanying notes are an integral part of these statements.

 

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Triton Pacific Investment Corporation, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

Triton Pacific Investment Corporation, Inc. (the “Company”), incorporated in Maryland on April 29, 2011, is publicly registered, non-traded fund focused on private equity, structured as a business development company, that primarily makes structured equity and debt investments in small to mid-sized private U.S. companies. Structured equity refers to derivative investment products, including convertible notes and warrants, designed to facilitate highly customized risk-return objectives. Pursuant to the Articles of Incorporation, the Company is authorized to issue 75,000,000 shares of common stock with a par value of $0.001 per share. Additionally, the Company is authorized to issue 25,000,000 shares of preferred stock with a par value of $0.001 per share. The Company is currently offering for sale a maximum of $300,000,000 of shares of common stock on a “best efforts” basis pursuant to a registration statement on Form N-2 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Offering”). On June 25, 2014, the Company met its minimum offering requirement of $2,500,000 and released all shares held in escrow.

 

The Company invests either alone or together with other private equity sponsors. The Company is an externally managed, non-diversified closed-end investment company that has elected to be treated as a business development company, or BDC, under the Investment Company Act of 1940, or the Company Act. As a BDC, the Company is required to comply with certain regulatory requirements. The Company has elected to be treated for U.S. federal income tax purposes, and intends to annually qualify as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue code of 1986, as amended, or the Code. The Company has one wholly-owned subsidiary through which it holds interest in a non-controlled, affiliated portfolio company. The consolidated financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiary. All significant intercompany transactions have been eliminated in consolidation. The Company’s consolidated subsidiary is subject to U.S. federal and state income taxes. No taxes were accrued or paid by the wholly-owned subsidiary for the three and nine months ended September 30, 2017 and 2016.

 

Triton Pacific Adviser, LLC (“Adviser”) serves as the Investment Adviser and TFA Associates, LLC (“TFA”) serves as the Administrator. Each of these entities are affiliated with Triton Pacific Group, Inc., a private equity investment management firm, and its subsidiary Triton Pacific Capital Partners, LLC, a private equity investment fund management company, each focused on debt and equity investments for small to mid-sized private companies.

 

The Adviser was formed in Delaware as a private investment management firm and is registered as an investment adviser with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, or the Advisers Act. The Adviser oversees the management of the Company’s activities and is responsible for making the investment decisions for the portfolio.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, including accounting for investment companies under ASC Topic 946, and the rules and regulations of the Securities and Exchange Commission for interim financial statements. These financial statements reflect all adjustments and accruals of a normal recurring nature that, in the opinion of management, are necessarily indicative of results expected for any future period. These interim, unaudited financial statements and related notes should be read in conjunction with the financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2016.

 

Management Estimates and Assumptions. The preparation of unaudited financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

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Cash. All cash balances are maintained with high credit quality financial institutions which are members of the Federal Deposit Insurance Corporation. The Company maintains cash balances that may exceed federally insured limits.

 

Valuation of Portfolio Investments. The Company determines the net asset value of its investment portfolio each quarter. Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by the Company’s board of directors. In connection with that determination, the Adviser provides the Company’s board of directors with portfolio company valuations which are based on relevant inputs which may include indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and also may include valuations prepared by third-party valuation services.

 

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the Financial Accounting Standards Board, clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

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

 

    the Company’s quarterly valuation process begins with the Adviser’s management team providing a preliminary valuation of each portfolio company or investment to the Company’s board of directors, which valuation may be obtained from an independent valuation firm or Adviser, if applicable;
    preliminary valuation conclusions are then documented and discussed with the Company’s board of directors;
    the Company’s board of directors reviews the preliminary valuation and the Adviser’s management team, together with its independent valuation firm, if applicable, responds and supplements the preliminary valuation to reflect any comments provided by the board of directors; and
    the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on various statistical and other factors, including the input and recommendation of the Adviser and any third-party valuation firm, if applicable.

Determination of fair value involves subjective judgments and estimates. Accordingly, these notes to the Company’s financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on the Company’s financial statements. Below is a description of factors that the Company’s board of directors may consider when valuing the Company’s debt and equity investments.

  

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Company may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that the Company’s board of directors may consider include the borrower’s ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s debt investments. The determination of fair market value for the equity positions were determined by considering, among other factors, various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues, waterfall and liquidation priority and market comparables, book value multiples, economic profits and portfolio multiples.

 

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The fair values of the Company’s investments are determined in good faith by the Company’s board of directors. The Company’s board of directors is solely responsible for the valuation of the Company’s portfolio investments at fair value as determined in good faith pursuant to the Company’s valuation policy and consistently applied valuation process.

 

Revenue Recognition. Security transactions are accounted for on the trade date. The Company records interest income on an accrual basis to the extent it expects to collect such amounts. The Company records dividend income on the ex-dividend date. The Company does not accrue as a receivable interest or dividends on loans and securities if it has reason to doubt its ability to collect such income. Loan origination fees, original issue discount and market discount are capitalized, and the Company amortizes such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Upfront structuring fees are recorded as fee income when earned. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

 

Paid-In-Kind Interest. The company has certain investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. For the three months ended September 30, 2017 and 2016, interest income included $0 and $9,540 of PIK interest, respectively. For the nine months ended September 30, 2017 and 2016, interest income included $19,488 and $27,994 of PIK interest, respectively. The Company stops accruing PIK interest when it is determined that PIK interest is no longer collectible. As of July 1, 2017, the Company has stopped accruing PIK interest on the subordinated convertible note made by Javlin Financial LLC. To maintain RIC tax treatment, and to avoid corporate tax, substantially all of this income must be paid out to the stockholders in the form of distributions, even though the Company has not yet collected the cash.

 

Net Realized Gains or Losses, and Net Change in Unrealized Appreciation or Depreciation. Gains or losses on the sale of investments are calculated by using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses when gains or losses are realized.

 

Capital Gains Incentive Fees. The Company has entered into an investment advisory agreement with the Adviser dated as of July 27, 2012. Pursuant to the terms of the investment advisory agreement, the Incentive Fee shall be determined and payable in arrears as of the end of each quarter, upon liquidation of the Company or upon termination of this Agreement, as of the termination date, and shall equal 20.0% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each quarter, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid Incentive Fees. There was no fee earned for the three months ended September 30, 2017. The fee for the nine months ended September 30, 2017 was ($334), of which ($13,124) was for Incentive Fees calculated on unrealized gains.

 

For purposes of calculating the foregoing: (1) the calculation of the Incentive Fee shall include any capital gains that result from cash distributions that are treated as a return of capital; (2) any such return of capital shall be treated as a decrease in the Company’s cost basis of an investment; and (3) all fiscal year-end valuations shall be determined by the Company in accordance with generally accepted accounting principles, applicable provisions of the Company Act (even if such valuation is made prior to the date on which the Company has elected to be regulated as a BDC) and the Company’s pricing procedures. In determining the Incentive Fee payable to the Adviser, the Company will calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each of the investments in its portfolio. For this purpose, aggregate realized capital gains, if any, will equal the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since inception. Aggregate realized capital losses will equal the sum of the amounts by which the net sales price of each investment, when sold, is less than the cost of such investment since inception. Aggregate unrealized capital depreciation will equal the sum of the difference, if negative, between the valuation of each investment as of the applicable date and the original cost of such investment. At the end of the applicable period, the amount of capital gains that serves as the basis for the Company’s calculation of the Incentive Fees will equal the aggregate realized capital gains less aggregate realized capital losses and less aggregate unrealized capital depreciation with respect to its portfolio of investments. If this number is positive at the end of such period, then the Incentive Fees for such period will be equal to 20% of such amount, less the aggregate amount of any Incentive Fees paid in respect of its portfolio in all prior periods.

 

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Offering Costs. The Company will incur certain expenses in connection with registering to sell shares of its common stock in connection with the Offering. These costs principally relate to professional and filing fees. Upon recognition or repayment to the Adviser of these costs, they will be capitalized as deferred offering expenses and then subsequently expensed over a 12-month period. The Adviser may reimburse the Company for all or part of these amounts pursuant to the Expense Support and Conditional Reimbursement Agreement (“Expense Reimbursement Agreement”) discussed below. As of September 30, 2017, and December 31, 2016, $3,314,687 and $2,765,662, respectively, of offering costs have been reclassified and included as part of the Expense Reimbursement Agreement and accordingly included in Reimbursement due from the Adviser.

 

Distributions. Distributions to the Company’s stockholders are recorded as of the record date. Subject to the discretion of the Company’s board of directors and applicable legal restrictions, the Company intends to authorize and declare ordinary cash distributions on a monthly basis and pay such distributions on a monthly basis.

 

Income Taxes. The Company has elected to be treated for federal income tax purposes, and intends to annually qualify thereafter, as a regulated investment company (“RIC”) under Subchapter M of the Code. Generally, a RIC is exempt from federal income taxes if it distributes at least 90% of “Investment Company Taxable Income,” as defined in the Code, each year. Dividends paid up to 8.5 months after the current tax year can be carried back to the prior tax year for determining the dividends paid in such tax year. The Company intends to distribute sufficient dividends to maintain its RIC status each year. The Company is also subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income, 98.2% of capital gain income, if any, and any recognized and undistributed income from prior years for which it paid no federal excise tax. The Company will generally endeavor each year to avoid any federal excise taxes.

 

GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability if the Company has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service or other tax authorities. Management has analyzed the tax positions taken by the Company, and has concluded that as of September 30, 2017 and 2016, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Company is subject to routine audits by the Internal Revenue Service or other tax authorities, generally for three years after the tax returns are filed; however, there are currently no audits for any tax periods in progress.

 

Recent Accounting Pronouncements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

 

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In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarified the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements. The new standard will become effective for the Company on January 1, 2018, with early application permitted to the effective date of January 1, 2017. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. The guidance does not apply to revenue associated with financial instruments, including loans and notes that are accounted for under other U.S. GAAP. As a result, the Company does not expect the new revenue recognition guidance to have a material impact on the elements of its consolidated statements of operations, most closely associated with financial instruments, including realized gains, fees, interest and dividend income. The Company plans to adopt the revenue recognition guidance in the first quarter of 2018. The Company’s implementation efforts include the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts and related accounting policies. While the Company has not yet identified any material changes in the timing of revenue recognition, the Company’s review is ongoing, and it continues to evaluate the presentation of certain contract costs.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU further clarifies how the predominance principle should be applied to cash receipts and payments relating to more than one class of cash flows. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. The ASU is to be applied retrospectively for each period presented. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated statement of cash flows.

 

NOTE 3 – SHARE TRANSACTIONS

 

Below is a summary of transactions with respect to shares of the Company’s common stock during the nine months ended September 30, 2017 and 2016:

 

   Nine months ended September 30, 
   2017   2016 
   Shares   Amount   Shares   Amount 
Gross proceeds from Offering   362,028.61   $5,320,227    341,456.57   $5,109,288 
Reinvestment of Distributions   16,105.02    214,336    11,178.05    155,067 
Commissions and Dealer Manager Fees       (502,640)       (438,556)
Net Proceeds to Company from Share Transactions   378,133.63   $5,031,923    352,634.62   $4,825,798 

  

Status of Continuous Public Offering

 

During the nine months ended September 30, 2017 and 2016, the Company sold 362,028.61 and 341,456.57 shares of common stock, respectively, for gross proceeds of approximately $5,320,227 and $5,109,288, at an average price per share of $14.70 and $14.96, respectively. The increase in Capital in excess of par during the nine months ended September 30, 2017 and 2016 include reinvested stockholder distributions of $214,336 and $155,067, respectively, for which the Company issued 16,105.02 and 11,178.05 shares of common stock, respectively.

 

The proceeds from the issuance of common stock as presented on the accompanying statements of changes in net assets and statements of cash flows are presented net of selling commissions and dealer manager fees of $502,640 and $438,556 for the nine months ended September 30, 2017 and 2016, respectively.

 

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Share Repurchase Program

 

The Company intends to continue to conduct quarterly tender offers pursuant to its share repurchase program. The Company’s board of directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares of common stock and under what terms:

 

    the effect of such repurchases on the Company’s qualification as a RIC (including the consequences of any necessary asset sales);

 

    the liquidity of the Company’s assets (including fees and costs associated with disposing of assets);

 

    the Company’s investment plans and working capital requirements;

 

    the relative economies of scale with respect to the Company’s size;

 

    the Company’s history in repurchasing shares of common stock or portions thereof; and

 

    the condition of the securities markets.

   

The Company currently intends to limit the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock it can repurchase with the proceeds it receives from the issuance of shares of common stock under its distribution reinvestment plan. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. In addition, the Company will limit the number of shares of common stock to be repurchased in any calendar year to 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter, though the actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above.

 

Our board of directors reserves the right, in its sole discretion, to limit the number of shares to be repurchased for each class by applying the limitations on the number of shares to be repurchased, noted above, on a per class basis. We further anticipate that we will offer to repurchase such shares on each date of repurchase at a price equal to 90% of the current offering price on each date of repurchase. If the amount of repurchase requests exceeds the number of shares we seek to repurchase, we will repurchase shares on a pro-rata basis. As a result, we may repurchase less than the full amount of shares that shareholders submit for repurchase. If we do not repurchase the full amount of the shares that shareholders have requested to be repurchased, or we determine not to make repurchases of our shares, shareholders may not be able to dispose of their shares. Any periodic repurchase offers will be subject in part to our available cash and compliance with the Company Act.

 

The following table provides information concerning the Company’s repurchase of shares of common stock during the nine months ended September 30, 2017 and 2016:

 

For the Three Months Ended   Repurchase Date  Shares Repurchased   Percentage of Shares Tendered That Were Repurchased   Repurchase Price Per Share   Aggregate Consideration for Repurchased Shares 
Fiscal 2017                        
September 30, 2016   July 15, 2016   8,482.60    50%  $13.80   $117,060 
December 31, 2016   October 14, 2016   8,482.60    48%  $13.80   $117,060 
March 31, 2017   January 20, 2017   8,482.60    27%  $13.87   $117,654 
June 30, 2017   May 12, 2017   1,936.81    6%  $13.55   $26,243 
September 30, 2017   September 25, 2017   5,968.22    9%  $12.30   $73,409 
        16,387.63    12%  $13.26   $217,306 

 

For the Three Months Ended   Repurchase Date  Shares
Repurchased
   Percentage of
Shares Tendered
That Were
Repurchased
   Repurchase
Price Per
Share
   Aggregate
Consideration for Repurchased
Shares
 
Fiscal 2017                        
September 30, 2016   July 15, 2016   8,482.60    50%  $13.80   $117,060 

 

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NOTE 4 – RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

 

The Adviser and TFA and their affiliates will receive compensation and reimbursement for services relating to our offering and the investment and management of its assets.

 

In connection with the Offering, the Company has incurred registration, organization, operating and offering costs. Such costs have been advanced by the Adviser. As discussed below, the Company has entered into an Expense Reimbursement Agreement with its Adviser. For the period from inception through September 30, 2017, certain registration, organization, operating and offering costs have been accounted for under the Expense Reimbursement Agreement (see Expense Reimbursement Agreement below) and accordingly included in Reimbursement due from the Adviser on the statements of financial position.

 

The table below, on a cumulative basis, discloses the components of the Reimbursement due from Adviser reflected on the Statements of Financial Position:

     
   September 30,   December 31, 
   2017   2016 
Operating Expenses  $1,977,504   $1,896,657 
Offering Costs   3,314,687    2,765,662 
Due to related party offset   (4,619,337)   (4,213,469)
Reimbursements received from Adviser   (342,715)   (342,715)
Other amounts due to affiliates   448    448 
Total Reimbursement due from Adviser  $330,587   $106,583 

 

Operating Expenses are the amounts reimbursed by the Adviser for our operating costs and offering costs are the cumulative amount of organizational and offering expenses reimbursed to us by the Adviser and subject to future reimbursement per the terms of our expense reimbursement agreement.

 

Due to related party offset represents the cash the Adviser paid directly for our operating and offering expenses and reimbursements received from sponsor are the amounts the Adviser paid in cash to us for reimbursement of our operating and offering costs.

 

The Company compensates the Adviser for investment services per an Investment Adviser Agreement (“Agreement”), approved by the Company’s directors, calculated as the sum of (1) base management fee, calculated quarterly at 0.5% of the Company’s average gross assets payable quarterly in arrears, and (2) an incentive fee upon capital gains determined and payable in arrears as of the end of each quarter or upon liquidation of the Company or upon termination of Agreement at 20% of Company’s realized capital gains, as defined. The Agreement expires July 2018 and may continue automatically for successive annual periods, as approved by the Company. All management fees earned by the Adviser prior to January 1, 2014 were waived by the Adviser.

 

As a BDC, we will be subject to certain regulatory restrictions in making our investments. For example, we generally will not be permitted to co-invest alongside our Adviser and its affiliates unless we obtain an exemptive order from the SEC or the transaction is otherwise permitted under existing regulatory guidance, such as syndicated transactions where price is the only negotiated term, and approval from our independent directors. As of September 30, 2017, the Company has two affiliate investments in ACON IWP Investors I, L.L.C and Javlin Capital, LLC (held by TPJ Holdings, Inc., a wholly-owned subsidiary.)

 

The Company compensates TFA for administration services per an Administration Agreement for costs and expenses incurred with the administration and operation of the Company. Such agreement expires July 2018 and may continue automatically for successive annual periods, as approved by the Company. These fees have been reimbursed from the Adviser pursuant to the Expense Reimbursement Agreement discussed below.

 

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The following table describes the fees and expenses accrued under the investment advisory and administration agreement and the dealer manager agreement during the three and nine months ended September 30, 2017 and 2016:

 

         Three months ended September 30,  Nine months ended September 30,
Related Party  Source Agreement  Description  2017  2016  2017   2016
Triton Pacific Adviser, LLC  Investment Adviser Agreement  Base Management Fees  $83,459   $60,625   $246,154   $156,957 
Triton Pacific Adviser, LLC  Investment Adviser Agreement  Capital Gains Incentive Fees(1)  $   $11,265   $(334)  $31,609 
TFA Associates, LLC  Administration Agreement  Administrative Services Expenses  $70,495   $78,840   $213,473   $242,332 
Triton Pacific Securities, LLC  Dealer Manager Agreement  Dealer Manager Fees(2)  $37,201   $20,987   $97,435   $107,444 

 

 

(1)During the nine months ended September 30, 2017 and 2016, the Company earned capital gains incentive fees of ($334) and $31,609 respectively, based on the performance of its portfolio, of which ($13,124) and $31,609 were based on unrealized gains, respectively. No capital gains incentive fees are actually payable by the Company with respect to unrealized gains unless and until those gains are actually realized. See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fees.

(2)During the nine months ended September 30, 2017 and 2016, the Company paid the Dealer Manager $502,640 and $438,555 respectively, in sales commissions and dealer fees. $97,435 and $107,444 were retained by TPS, respectively, and the remainder re-allowed to third party participating broker dealers.

 

Director’s Fees

 

On December 15, 2014, the Company entered into an agreement (the “Director Agreement”) with its three independent directors, Marshall Goldberg, William Pruitt and Ronald Ruther (collectively, the “Independent Directors”), whereby the Independent Directors agreed to certain revisions to their compensation for serving as members of the Company’s Board. Specifically, effective October 1, 2014, the fees payable to an Independent Director shall be determined based on the Company’s net assets as of the end of each fiscal quarter and be paid quarterly in arrears as follows:

 

Net Asset Value  Annual Cash
Retainer Fee
  Board Meeting
Fee
  Annual Audit
Committee
Chairperson
Fee
  Annual Audit
Committee
Member Fee
  Audit
Committee
Meeting Fee
$0 to $25 million         
$25 million to $75 million  $20,000  $1,000  $10,000  $2,500  $500
over $75 million  $30,000  $1,000  $12,500  $2,500  $500

 

No Director’s fees were accrued for the three and nine months ended September 30, 2017 and 2016.

 

Expense Reimbursement Agreement

 

On March 27, 2014, the Company and its Adviser agreed to an Expense Support and Conditional Reimbursement Agreement, or the Expense Reimbursement Agreement. The Expense Reimbursement Agreement was amended and restated effective November 17, 2014. Under the Expense Reimbursement Agreement, as amended, the Adviser, in consultation with the Company, will pay up to 100% of both the Company’s organizational and offering expenses and its operating expenses, all as determined by the Company and the Adviser. As used in the Expense Reimbursement Agreement, operating expenses refer to third party operating costs and expenses incurred by the Company, as determined under GAAP for investment management companies. Organizational and offering expenses include expenses incurred in connection with the organization of the Company and expenses incurred in connection with its offering, which are recorded as a component of equity. The Expense Reimbursement Agreement states that until the net proceeds to the Company from its offering are at least $25 million, the Adviser will pay up to 100% of both the Company’s organizational and offering expenses and its operating expenses. After the Company receives at least $25 million in net proceeds from its offering, the Adviser may, with the Company’s consent, continue to make expense support payments to the Company in such amounts as are acceptable to the Company and the Adviser. Any expense support payments shall be paid by the Adviser to the Company in any combination of cash, and/or offsets against amounts otherwise due from the Company to the Adviser.

 

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Under the Expense Reimbursement Agreement as amended, once the Company has received at least $25 million in net proceeds from its offering, during any quarter occurring within three years of the date on which the Company incurred any expenses that are funded by the Adviser, the Company is required to reimburse the Adviser for any expense support payments the Company received from them. However, with respect to any expense support payments attributable to the Company’s operating expenses, (i) the Company will only reimburse the Adviser for expense support payments made by the Adviser to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause “other operating expenses” (as defined below) (on an annualized basis and net of any expense reimbursement payments received by the Company during such fiscal year) to exceed the percentage of the Company’s average net assets attributable to shares of its common stock represented by “other operating expenses” during the fiscal year in which such expense support payment from the Adviser was made (provided, however, that this clause (i) shall not apply to any reimbursement payment which relates to an expense support payment from the Adviser made during the same fiscal year); and (ii) the Company will not reimburse the Adviser for expense support payments made by the Adviser if the annualized rate of regular cash distributions declared by the Company at the time of such reimbursement payment is less than the annualized rate of regular cash distributions declared by the Company at the time the Adviser made the expense support payment to which such reimbursement relates. “Other operating expenses” means the Company’s total operating expenses excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses.

 

Quarter Ended  Amount of Expense Payment Obligation  Amount of Offering Cost Payment Obligation  Operating Expense
Ratio as of the
Date Expense
Payment Obligation Incurred(1)
  Annualized Distribution
Rate as of the Date
Expense Payment
Obligation Incurred(2)
  Eligible for
Reimbursement
Through
September 30, 2012  $21,826     432.69%    September 30, 2015
December 31, 2012  $26,111     531.09%    December 31, 2015
March 31, 2013  $30,819     N/A    March 31, 2016
June 30, 2013  $59,062     N/A    June 30, 2016
September 30, 2013  $65,161     N/A    September 30, 2016
December 31, 2013  $91,378     455.09%    December 31, 2016
March 31, 2014  $68,293     148.96%    March 31, 2017
June 30, 2014  $70,027  $898,518  23.17%    June 30, 2017
September 30, 2014  $92,143  $71,060  20.39%    September 30, 2017
December 31, 2014  $115,777  $90,860  11.15%    December 31, 2017
March 31, 2015  $134,301  $106,217  13.75%  2.01%  March 31, 2018
June 30, 2015  $166,549  $167,113  14.10%  3.20%  June 30, 2018
September 30, 2015  $147,747  $240,848  10.45%  3.20%  September 30, 2018
December 31, 2015  $136,401  $280,376  7.41%  3.60%  December 31, 2018
March 31, 2016  $157,996  $232,895  6.00%  3.52%  March 31, 2019
June 30, 2016  $206,933  $285,878  4.95%  3.52%  June 30, 2019
September 30, 2016  $201,573  $223,020  4.52%  3.13%  September 30, 2019
December 31, 2016  $104,561  $168,876  4.45%  3.11%  December 31, 2019
March 31, 2017  $80,847  $252,875  4.21%  3.19%  March 31, 2020
June 30, 2017  $0  $176,963  3.98%  3.18%  June 30, 2020
September 30, 2017  $0  $119,188  4.19%  3.00%  September 30, 2020

 

(1) “Operating Expense Ratio” includes all expenses borne by us, except for organizational and offering expenses, base management and incentive fees owed to our Adviser, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not invest the proceeds from the offering and realize any income from investments prior to the end of its fiscal quarter.
 (2) “Annualized Distribution Rate” equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by our Adviser. “Annualized Distribution Rate” does not include special cash or stock distributions paid to stockholders. The Company did not achieve its minimum offering amount until June 25, 2014 and as a result, did not have an opportunity to invest the proceeds from the offering and realize any income from investments or pay any distributions to stockholders prior to the end of its fiscal quarter.

 

In addition, with respect to any expense support payment attributable to the Company’s organizational and offering expenses, the Company will only reimburse the Adviser for expense support payments made by the Adviser to the extent that the payment of such reimbursement (together with any other reimbursement for organizational and offering expenses paid during such fiscal year) is limited to 15% of cumulative gross sales proceeds from the Company’s offering including the sales load (or dealer manager fee) paid by the Company.

 

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The Expense Reimbursement Agreement is, by its terms, effective retroactively to the Company’s inception date of April 29, 2011 for Operating Expenses and from the break of escrow on June 25, 2014 for Offering Expenses. As of September 30, 2017, $5,292,191 has been recorded as Reimbursement due from the Adviser pursuant to the Expense Reimbursement Agreement. Of this, $4,619,337, representing an amount due to the Adviser, was netted against the Reimbursement due from Adviser and $342,715 was paid to the Company by the Adviser.

 

Beginning the year ended December 31, 2016, the Adviser began to reimburse less than 100% of Operating Expenses, and for the quarter ended September 30, 2017, the Adviser did not reimburse any Operating Expenses. Of these Operating and Offering Expenses in the table above, $1,494,398 has exceeded the three-year period for repayment and will not be repayable by the Company.

 

The Company or the Adviser may terminate the Expense Reimbursement Agreement at any time upon thirty days’ written notice; The Expense Reimbursement Agreement will automatically terminate upon termination of the Investment Advisory Agreement or upon the Company’s liquidation or dissolution.

 

NOTE 5 – DISTRIBUTIONS

 

The following table reflects the cash distributions per share that the Company declared and paid on its common stock during the nine months ended September 30, 2017 and 2016:

 

    Distribution 
For the Nine Months Ended   Per Share   Amount 
Fiscal 2017         
January 27, 2017   $0.04000    39,407 
February 24, 2017   $0.04000    41,323 
March 23, 2017   $0.04000    42,513 
April 27, 2017   $0.04000    44,526 
May 25, 2017   $0.04000    46,364 
June 23, 2017   $0.04000    47,861 
July 21, 2017   $0.04000    48,678 
August 29, 2017   $0.03417    44,767 
September 28, 2017   $0.03417    45,500 

 

Fiscal 2016         
January 22, 2016   $0.04500   $25,244 
February 16, 2016   $0.04500   $26,477 
March 23, 2016   $0.04500   $30,271 
April 21, 2016   $0.04500   $32,832 
May 19, 2016   $0.04500   $34,950 
June 23, 2016   $0.04500   $36,206 
July 21, 2016   $0.04000   $32,318 
August 25, 2016   $0.04000   $33,293 
September 22, 2016   $0.04000   $33,877 

 

On October 23, 2017, the Company authorized and declared a cash distribution of $0.03417 per share for the month of October 2017, to the shareholders of record as of October 26, 2017. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.

 

The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a cash distribution, its stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of the Company’s common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in the distribution reinvestment plan.

 

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The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from the Adviser. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

 

The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common stock during the nine months ended September 30, 2017 and 2016:

 

   Nine months ended September 30, 
   2017   2016 
Source of Distribution&