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 June 30, 2018 

 

Commission File Number: 000-55411

 

Parkview Capital Credit, Inc. 

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland   47-2441958
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
     

1980 Post Oak Blvd, Two Post Oak Center,

15th Floor  
Houston, Texas

  77056
(Address of Principal Executive Offices)   (Zip Code)

 

(713) 622-5000

(Registrant’s telephone number, including area code)

 

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

None

 

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

Common Stock, par value $0.01 per share

 

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 past 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, if any, every Interactive Data File required to be submitted 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 such files).  ☐  Yes  ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
Emerging growth company      

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: There were 4,000,010 issued and outstanding shares of the issuer’s common stock, $.01 par value per share, on August 13, 2018. 

 

 

 

 

 

  

PARKVIEW CAPITAL CREDIT, INC. FORM 10-Q

QUARTER ENDED

 

June 30, 2018

 

Table of Contents

 

  Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Unaudited Financial Statements  
     
  Condensed Statements of Financial Condition as of June 30, 2018 (Unaudited) and December 31, 2017 1
     
  Unaudited Condensed Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 2
     
  Unaudited Condensed Statements of Changes in Net Assets for the Six Months Ended June 30, 2018 and 2017 3
     
  Unaudited Condensed Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 4
     
  Condensed Schedules of Investments as of June 30, 2018 (Unaudited) and December 31, 2017 5
     
  Notes to Unaudited Condensed Financial Statements 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
     
Item 4. Controls and Procedures 29
     
PART II. OTHER INFORMATION
     
Item 1. Legal Proceedings 30
     
Item 1A. Risk Factors 30
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
     
Item 3. Defaults Upon Senior Securities 30
     
Item 4. Mine Safety Disclosures 30
     
Item 5. Other Information 30
     
Item 6. Exhibits 30
     
Signatures 31

 

i

 

 

PARKVIEW CAPITAL CREDIT, INC.

CONDENSED STATEMENTS OF FINANCIAL CONDITION 

(in thousands, except share and per share information)

 

   June 30,   December 31, 
   2018   2017 
   (Unaudited)     
Assets        
Investments at fair value        
Non-controlled/ unaffiliated investments (amortized cost $52,182 and $48,780, respectively)  $50,096   $46,582 
Controlled/ affiliated investments (amortized cost $12,586 and $8,164, respectively)   13,471    8,265 
Total investments, at fair value (amortized cost $64,768 and $56,944, respectively)   63,567    54,847 
Cash and cash equivalents   1,163    2,105 
Accounts receivable   7    - 
Interest receivable   1,457    766 
Dividend receivable   1,100    538 
Prepaid expenses and other assets   163    113 
Total assets  $67,457   $58,369 
           
Liabilities and stockholders' equity          
           
Liabilities          
Payable for investments purchased  $26,993   $19,502 
Accounts payable and accrued expenses   33    52 
Due to advisor   3    2 
Loan origination fees, net   106    141 
Management fees payable   81    79 
Total liabilities   27,216    19,776 
           
Commitments and contingencies          
           
Stockholders' equity          
Preferred stock, par value $0.01 per share, 10,000,000 shares authorized, no shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively   -    - 
Common stock, par value $0.01 per share, 50,000,000 shares authorized, 4,000,010 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively   40    40 
Additional paid-in capital   39,928    39,928 
Accumulated undistributed net realized gain (loss) on investments   42    (4)
Accumulated undistributed net investment income   1,432    726 
Net unrealized depreciation on investments   (1,201)   (2,097)
Total stockholders' equity   40,241    38,593 
Total liabilities and stockholders' equity  $67,457   $58,369 
           
Net asset value per share  $10.06   $9.65 

 

See Notes to Unaudited Condensed Financial Statements.

  

 1 

 

 

PARKVIEW CAPITAL CREDIT, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share information)

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2018   2017   2018   2017 
                 
Investment income                
From non-controlled/ unaffiliated investments:                
Net interest income  $559   $682   $1,157   $1,393 
Paid-in-kind interest   78    92    170    394 
From controlled/ affiliated investments:                    
Dividend income   329    71    605    142 
Total investment income   966    845    1,932    1,929 
Operating expenses                    
Management fees   321    248    616    486 
Professional fees   187    173    445    426 
General and administrative expenses   200    185    389    380 
Total expenses before expense waiver   708    606    1,450    1,292 
Waiver of management fees   (122)   (64)   (224)   (124)
Total operating expenses   586    542    1,226    1,168 
Net investment income   380    303    706    761 
                     
Realized and unrealized income (loss)                    
Net realized gain (loss) on investments   7    3    46    (7)
Net change in unrealized appreciation on investments   846    373    896    112 
Total net realized and unrealized gain on investments   853    376    942    105 
Net increase in net assets resulting from operations  $1,233   $679   $1,648   $866 
                     
Per share information - basic and diluted                    
Weighted average - net increase in net assets resulting from operations  $0.31   $0.18   $0.41   $0.23 
Weighted average - net investment income per common share   0.10    0.08    0.18    0.20 
Weighted average shares outstanding   4,000,010    3,804,454    4,000,010    3,802,232 

 

See Notes to Unaudited Condensed Financial Statements.

 

 2 

 

 

PARKVIEW CAPITAL CREDIT, INC.

CONDENSED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

(in thousands, except share information)

 

   For the Six Months Ended
June 30,
 
   2018   2017 
         
Increase from operations        
Net investment income  $706   $761 
Net realized gain (loss) on investments   46    (7)
Net change in unrealized appreciation on investments   896    112 
Net increase in net assets resulting from operations   1,648    866 
Issuance of common stock   -    2,000 
Net increase in net assets from capital share transactions   -    2,000 
Total increase in net assets   1,648    2,866 
Net assets at beginning of period   38,593    35,765 
Net assets at end of period  $40,241   $38,631 
           
Net asset value per common share  $10.06   $9.66 
Common shares outstanding, end of period   4,000,010    4,000,010 

 

See Notes to Unaudited Condensed Financial Statements.

  

 3 

 

  

PARKVIEW CAPITAL CREDIT, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   For the Six Months Ended
June 30,
 
   2018   2017 
         
Cash flows from operating activities        
Net increase in net assets resulting from operations  $1,648   $866 
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities          
Purchases of investments   (54,854)   (33,333)
Paid-in-kind interest   (170)   (394)
Paydowns of investments   1,834    30 
Sales of investments   45,441    30,338 
Loan origination fee amortization   (35)   (69)
Net unrealized appreciation on investments   (896)   (112)
Net amortization of premiums on investments   (30)   (41)
Realized loss (gain) on sold/repaid investments   (45)   7 
Decrease (increase)  in operating assets:          
Accounts receivable   (7)   - 
Interest receivable   (691)   (54)
Dividend receivable   (562)   (73)
Receivable for investments sold and repaid   -    9 
Prepaid expenses and other assets   (50)   (20)
Increase (decrease) in operating liabilities:          
Payable for investments purchased   7,491    998 
Accounts payable and accrued expenses   (19)   (37)
Due to advisor   1    - 
Loan origination fees   -    33 
Management fees payable   2    (1)
Net cash used in operating activities   (942)   (1,853)
           
Total decrease in cash   (942)   (1,853)
Cash and cash equivalents at beginning of period   2,105    5,491 
Cash and cash equivalents at end of period  $1,163   $3,638 
           
Supplemental disclosures of non-cash financing activies          
Issuance of common stock  $-    2,000 

 

See Notes to Unaudited Condensed Financial Statements.

 

 4 

 

  

PARKVIEW CAPITAL CREDIT, INC.

CONDENSED SCHEDULE OF INVESTMENTS

(Unaudited)

(in thousands, except share information)

June 30, 2018

 

Portfolio Company (a)  Industry  Spread Above Index (b)  Interest Rate  Maturity  Principal   Amortized Cost   Fair
Value (c)
   % of Net Assets 
Senior Secured Loans - First Lien                                
Ebony Media Holdings, LLC  Media  N/A  12%, 2% PIK  (h)   5,777    5,724    5,563    13.8%
Ebony Media Holdings, LLC  Media  N/A  (f)  11/11/2018   2,176    2,176    2,067    5.1%
Ebony Media Holdings, LLC  Media  P + 4.00%  8.25%  10/31/2018   890    890    890    2.2%
Medi-fare Drug & Pharmaceutical Compounding, LLC  Healthcare  N/A  10%, 4% PIK  (j)   3,786    3,789    3,777    9.4%
Total Senior Secured Loans - First Lien                    12,579    12,297    30.5%
                                 
Senior Secured Loans - Second Lien                                
Turning Point Brands, Inc. (d)  Tobacco  N/A  11.00%  8/17/2022   1,000    993    1,020    2.5%
Action Resources (g)  Specialized Freight Trucking  L + 10.00% PIK  11.00% PIK  4/29/2022   905    905    905    2.2%
Action Resources (g)  Specialized Freight Trucking  8.00% PIK  8.00% PIK  8/31/2021   2,714    2,714    2,226    5.5%
Action Resources (g)  Specialized Freight Trucking  9.00% PIK  9.00% PIK  8/31/2021   2,171    2,171    1,151    2.9%
Transportation Demand Management, LLC  Charter Bus Industry  N/A  12%, 2% PIK  10/1/2021   5,154    5,154    5,102    12.7%
Anchor Glass Container Corporation (d)  Manufacturing  L + 7.75%  8.75%  12/7/2024   500    496    356    .9%
Total Senior Secured Loans - Second Lien                    12,433    10,760    26.7%

 

Portfolio Company (a)  Industry  Dividend Rate   Number of Shares   Amortized Cost   Fair
Value (c)
   % of Net Assets 
Equity Investments                       
Langham Creek LLC; Preferred Units  Real Estate   14.00%   2,426,085    2,426    2,232    5.5%
Langham Creek LLC; Common Units  Real Estate   N/A    1,000    1    1    .0%
Ebony Media Holdings, LLC; Warrants  Media   N/A    50,000    119    -    .0%
Medi-fare Drug & Pharmaceutical Compounding, LLC; Warrants  Healthcare   N/A    5    58    41    .1%
Transportation Demand Management; Warrants  Charter Bus Industry   N/A    34,000    -    5    - 
Action Resources; Common Units (g)  Specialized Freight Trucking   N/A    (i)    -    -    - 
Lone Star Brewery Development, Inc.; Preferred Units  Real Estate   12.00%   2,914    8,159    8,778    21.8%
Lone Star Brewery Development, Inc.; Common Units  Real Estate   N/A    1,000    2,000    2,460    6.1%
Total Equity Investments                12,763    13,517    33.5%

 

Portfolio Company (a)  Yield to Maturity   Maturity Date  Number of Shares   Principal   Amortized Cost   Fair
Value (c)
   % of Net Assets 
U.S Government Securities                           
U.S. Treasury Bill (e)   1.531%  7/5/2018   27,000,000    26,993    26,993    26,993    67.1%
Total U.S Government Securities                     26,993    26,993    67.1%
                                  
Total Investments                    $64,768   $63,567    157.8%
Liabilities in excess of other assets                          (23,326)   -57.8%
Net assets                         $40,241    100.0%

 

 5 

 

   

(a)

With the exception of the Company’s investments in Langham Creek LLC, Turning Point Brands, Inc. and Lone Star Brewery Development, Inc., all of the Company’s investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). Under the 1940 Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. The Company would be deemed an “affiliated person” of a portfolio company if the Company owned 5% or more of the portfolio company’s outstanding voting securities. As of June 30, 2018, the Company is an “affiliated person” of Langham Creek LLC by virtue of its ownership of voting securities of Langham Creek LLC.

 

As of June 30, 2018, the Company is deemed to be an “affiliated person” of and deemed to “control” Lone Star Brewery Development, Inc. The following table presents certain information with respect to investments in portfolio companies of which the Company was deemed to be an affiliated person of and deemed to control as of June 30, 2018:

 

   Fair Value at               Net realized   Net Change in Unrealized   Fair Value at   For the Six Months Ended
June 30, 2018
 
Portfolio Company  December 31,
2017
   Purchases   Sales and Repayments   Accretion of Discount   gain
(loss)
   Appreciation (Depreciation)   June 30, 2018   Interest Income   Fee Income   Dividend income 
Equity Investment                                        
Langham Creek LLC; Preferred Units  $2,102   $257   $-   $-   $-   $(127)  $2,232   $-   $-   $184 
Langham Creek LLC; Common Units   1    -    -    -    -    -    1    -    -    - 
Lone Star Brewery, Inc.; Preferred Units   4,205    4,165    -    -    -    408    8,778    -    -    417 
Lone Star Brewery, Inc.; Common Units   1,956    -    -    -    -    504    2,460    -    -    - 

  

(b) Certain investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or the U.S. Prime Rate (“P”) which generally reset monthly, quarterly, or semiannually. For each, the Company has provided the spread over LIBOR and the current contractual interest rate in effect at June 30, 2018. Certain investments are subject to a LIBOR interest rate floor.

 

(c) The fair value of the Company’s investments was determined in good faith by or under the guidance of the Company’s board of directors (the “Board”) pursuant to the Company’s valuation policies.

 

(d) Investment is not self-originated.

 

(e) Position or portion thereof unsettled as of June 30, 2018.

 

(f) There is a 3% of principal fee for the short-term Ebony Media principal loan. On September 29, 2017, the note was increased by $425 upon which interest accrues at 15% per annum.

 

(g) Asset is on non-accrual status.

 

(h) The maturity dates for the Ebony Media $3,917 and $1,860 principal loans are May 5, 2020 and November 11, 2018, respectively.
   
(i) The Company owns 2.82% of Bedrock Holdings Group LLC, which is the holding company of Action Resources.
   
(j)

The Company is currently in negotiations with Medi-fare Drug & Pharmaceutical Compounding, LLC regarding repayment of the principal loan. The maturity date was May 25, 2018 and is currently operating on a 90-day extension.

 

See Notes to Unaudited Condensed Financial Statements.

 

 6 

 

 

PARKVIEW CAPITAL CREDIT, INC.

CONDENSED SCHEDULE OF INVESTMENTS

(in thousands, except share information)

December 31, 2017

 

Portfolio Company (a)  Industry  Spread Above Index (b)  Interest Rate   Maturity  Principal   Amortized Cost   Fair
Value (c)
   % of Net Assets 
Senior Secured Loans - First Lien                             
Ebony Media Holdings, LLC  Media  N/A   12%, 2% PIK   (h)   5,719    5,649    5,489    14.2%
Ebony Media Holdings, LLC  Media  N/A   (f)   11/11/2018   2,176    2,176    2,067    5.4%
Ebony Media Holdings, LLC  Media  P + 4.00%   8.25%   10/31/2018   1,250    1,250    1,250    3.2%
Medi-fare Drug & Pharmaceutical Compounding, LLC  Healthcare  N/A   10%, 4% PIK   5/25/2018   3,763    3,752    3,726    9.7%
Total Senior Secured Loans - First Lien                      12,827    12,532    32.5%
                                   
Senior Secured Loans - Second Lien                                  
Turning Point Brands, Inc. (d)  Tobacco  N/A   11.00%   8/17/2022   1,000    992    1,020    2.6%
Lionbridge Technologies (d)  Translation and Interpretation Services  L + 9.75%   10.80%   2/28/2025   2,000    1,964    1,970    5.1%
Action Resources (g)  Specialized Freight Trucking  L + 10.00% PIK   11.00% PIK   4/29/2022   905    905    905    2.3%
Action Resources (g)  Specialized Freight Trucking  8.00% PIK   8.00% PIK   8/31/2021   2,714    2,714    2,206    5.7%
Action Resources (g)  Specialized Freight Trucking  9.00% PIK   9.00% PIK   8/31/2021   2,171    2,171    912    2.4%
Transportation Demand Management, LLC  Charter Bus Industry  N/A   12%, 2% PIK   10/1/2021   5,102    5,102    4,975    12.9%
American Bath Group, LLC (d)  Manufacturing  L + 9.75%   10.75%   9/30/2024   2,000    1,932    2,008    5.2%
Anchor Glass Container Corporation (d)  Manufacturing  L + 7.75%   8.75%   12/7/2024   500    496    507    1.3%
Total Senior Secured Loans - Second Lien                      16,276    14,503    37.5%

  

Portfolio Company (a)  Industry  Dividend Rate   Number of Shares   Amortized Cost   Fair
Value (c)
   % of Net Assets 
Equity Investments                       
Langham Creek LLC; Preferred Units  Real Estate   14.00%   2,168,600    2,169    2,102    5.4%
Langham Creek LLC; Common Units  Real Estate   N/A    1,000    1    1    .0%
Ebony Media Holdings, LLC; Warrants  Media   N/A    50,000    119    -    .0%
Medi-fare Drug & Pharmaceutical Compounding, LLC; Warrants  Healthcare   N/A    5    59    49    .1%
Transportation Demand Management; Warrants  Charter Bus Industry   N/A    34,000    -    -    - 
Action Resources; Common Units (g)  Specialized Freight Trucking   N/A    2.82%   -    -    - 
Lone Star Brewery Development, Inc.; Preferred Units  Real Estate   12.00%   1,427    3,994    4,205    10.9%
Lone Star Brewery Development, Inc.; Common Units  Real Estate   N/A    1,000    2,000    1,956    5.1%
Total Equity Investments                8,342    8,313    21.5%

  

Portfolio Company (a)  Yield to Maturity   Maturity Date  Number of Shares   Principal   Amortized Cost   Fair
Value (c)
   % of Net Assets 
U.S Government Securities                           
U.S. Treasury Bill (e)   1.085%  1/11/2018   19,507,000    19,499    19,499    19,499    50.5%
Total U.S Government Securities                     19,499    19,499    50.5%
                                  
Total Investments                    $56,944   $54,847    142.0%
Liabilities in excess of other assets                          (16,254)   -42.0%
Net assets                         $38,593    100.0%

 

 7 

 

  

(a) With the exception of the Company’s investments in Langham Creek LLC, Turning Point Brands, Inc. and Lone Star Brewery Development, Inc., all of the Company’s investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). Under the 1940 Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. The Company would be deemed an “affiliated person” of a portfolio company if the Company owned 5% or more of the portfolio company’s outstanding voting securities. As of December 31, 2017, the Company is an “affiliated person” of Langham Creek LLC by virtue of its ownership of voting securities of Langham Creek LLC.

  

As of December 31, 2017, the Company is deemed to be an “affiliated person” of and deemed to “control” Lone Star Brewery Development, Inc. The following table presents certain information with respect to investments in portfolio companies of which the Company was deemed to be an affiliated person of and deemed to control as of December 31, 2017:

 

Portfolio Company 

Fair Value

at December 31,
2016

   Purchases   Sales and Repayments   Accretion of Discount   Net realized gain (loss)   Net Change in Unrealized Appreciation (Depreciation)  

Fair Value

at December 31,
2017

   Interest Income   Fee Income   Dividend income 
Equity Investment                                        
Langham Creek LLC; Preferred Units  $1,756   $300   $-   $-   $-   $46   $2,102   $-   $-   $293 
Langham Creek LLC; Common Units   1    -    -    -    -    -    1    -    -    - 
Lone Star Brewery, Inc.; Preferred Units   -    3,994    -    -    -    211    4,205    -    -    209 
Lone Star Brewery, Inc.; Common Units   -    2,000    -    -    -    (44)   1,956    -    -    - 

 

(b) Certain investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or the U.S. Prime Rate (“P”) which generally reset monthly, quarterly, or semiannually. For each, the Company has provided the spread over LIBOR and the current contractual interest rate in effect at December 31, 2017. Certain investments are subject to a LIBOR interest rate floor.

 

(c) The fair value of the Company’s investments was determined in good faith by or under the guidance of the Company’s board of directors (the “Board”) pursuant to the Company’s valuation policies.

 

(d) Investment is not self-originated.

 

(e) Position or portion thereof unsettled as of December 31, 2017.

 

(f) There is a 3% of principal fee for the short-term Ebony Media principal loan. On September 29, 2017, the note was increased by $425 upon which interest accrues at 15% per annum.

 

(g) Asset is on non-accrual status.

 

(h) The maturity date for the Ebony Media $3,878 and $1,842 principal loans are May 5, 2020 and November 11, 2018, respectively.
   
(i) The Company owns 2.82% of Bedrock Holdings Group LLC, which is the holding company of Action Resources.

  

See Notes to Unaudited Condensed Financial Statements.

 

 8 

 

 

PARKVIEW CAPITAL CREDIT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share information)

 

NOTE A – ORGANIZATION AND BASIS OF PRESENTATION

 

Parkview Capital Credit, Inc. (the “Company”), was legally formed on November 25, 2014 (“Inception”) as a Maryland corporation and commenced its principal operations on April 24, 2015, commensurate with the raising of $20,000 through the sale of 2,000,000 shares of its common stock. The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the 1940 Act, as amended (the “1940 Act”), and elected to be treated for federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with the tax year ended June 30, 2017.

 

The Company is an investment company that follows the specialized accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 946 “Financial Services Investment Companies.”

 

The accompanying financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”). Additionally, the accompanying unaudited financial statements of the Company and related financial information as of and for the three and six months ended June 30, 2018 and 2017 have been prepared pursuant to the requirements for reporting in Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the periods included herein. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2018.

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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.

 

Income Taxes: The Company has elected to be regulated as a BDC under the 1940 Act. The Company has also elected to be treated as a RIC under Subchapter M of the Code, beginning with the tax year ended June 30, 2017. As a RIC, the Company generally is not required to pay corporate level federal income taxes on any ordinary income or capital gains that it distributes to its stockholders as dividends. To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify for RIC tax treatment, the Company must distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income” for that year, which is generally its ordinary income plus the excess of its realized net short-term capital gains over its realized net long-term capital losses. As a result, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s common stockholders and will not be reflected in the financial statements of the Company for the years in which it qualifies as a RIC.

 

 9 

 

 

Although the Company may not be subject to federal income taxes as a RIC, it may choose to retain a portion of its calendar year income. If so, the Company may be subject to a 4% excise tax on the amount retained.

 

The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. All tax years are open for examination.

 

Revenue Recognition: Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Discounts or premiums are accreted or amortized, respectively, using the effective interest method as interest income. Dividend income is recognized on an accrual basis to the extent that the Company expects to collect such amount. Loan origination fees, original issue discount and market discount are capitalized and amortized as interest income over the respective term of the loan. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

 

The Company places investments on non-accrual status when there is reasonable doubt that interest income will be collected. The Company considers many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that the Company will receive any previously accrued interest, then the interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest become current and are likely to remain current based on management’s judgment.

 

The Company has loans and preferred securities in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest or dividends that are accrued and recorded as interest or dividend income at the contractual rates, increases the loan or preferred equity principal on the respective capitalization dates, and is generally due at maturity. For the three and six months ended June 30, 2018, the Company recognized PIK income of $78 and $170, respectively. For the three and six months ended June 30, 2017, the Company recognized PIK income of $92 and $394, respectively.

 

Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of the investment, without regard to unrealized gains or losses previously recognized. The Company reports changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation on investments in the statements of operations.

 

Earnings per Share: Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive shares of common stock, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

 

Investments: Investment transactions are accounted for on a trade-date basis. The Company considers trade date for investments not traded on a recognized exchange, or traded in the over-the-counter markets, to be the date on which the Company receives legal or contractual title to the asset and bears the risk of loss.

 

Investments in certain senior loans generate a fixed spread over floating base rates such as LIBOR or the U.S. Prime Rate. These floating base rates generally reset either monthly, quarterly or semi-annually.  

 

Valuation of Portfolio Securities: The Company determines the net asset value per share of its common stock quarterly. The net asset value per share equals the value of the Company’s total assets minus liabilities and any preferred stock outstanding divided by the total number of shares of common stock outstanding. The Company’s investments are valued at the end of each fiscal quarter.

 

 10 

 

 

Substantially all of the Company’s investments are expected to be in loans that do not have readily ascertainable market prices. Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. In order to assist the Board in determining the fair value of assets that are not publicly traded or whose market prices are not readily available, Parkview Advisors, LLC (the “Advisor”) provides the Board with portfolio company valuations, which are based on relevant inputs, which may include but are not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third party valuation services. The Company has retained independent valuation firms to assist the Board by performing certain limited third-party valuation services. In connection with each valuation determination, investment professionals from the Advisor prepare portfolio company valuations using sources and/or proprietary models, depending on the availability of information, on the Company’s assets and the type of asset being valued, all in accordance with the Company’s valuation policy. The participation of the Advisor in the valuation process could result in a conflict of interest, since the base management fee is based on the Company’s gross assets.

 

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 may be considered include the borrower’s ability to adequately service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing its debt investments.

 

The Company’s equity interests in portfolio companies for which there is no liquid public market are valued at fair value. The Board, in its determination of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or the actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

 

The Advisor’s management team, any approved independent third-party valuation specialists and the Board may also consider private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. The Advisor’s management team, any approved independent third-party valuation specialists and the Board may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, and may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors as the Board, in consultation with the Advisor’s management team and any approved independent third-party valuation specialists may consider relevant in assessing fair value. Generally, the value of the equity interests in public companies for which market quotations are readily available will be based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

 

When the Company receives warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity securities received at the time of origination. The Board subsequently values these warrants or other equity securities received at their fair value.

 

 11 

 

 

The Company periodically benchmarks the bid and ask prices received from the third-party pricing services and/or dealers, as applicable, against the actual prices at which it purchases and sells investments. Based on the results of the benchmark analysis and the experience of management in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company also uses independent valuation firms to assist the Board in determining fair value for securities for which it cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers, or where the Board otherwise determines that the use of such other methods is appropriate. The Company periodically benchmarks the valuations provided by the independent valuation firms against the actual prices at which the Company purchases and sells investments. The audit committee and Board review and approve the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation policy.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investment portfolio may differ from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

 

Fair Value of Financial Instruments: The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, receivables, accounts payable and accrued expenses, approximate fair value due to their short-term nature.

 

Recent Accounting Pronouncements: In February 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-03, “Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2018-03”), which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments, ASU 2018-03 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. The Company is currently evaluating the impact this standard will have on its financial statements.

 

Distributions: Distributions to the Company’s stockholders are recorded as of the record date. The Company intends to distribute net realized capital gains, if any, at least annually.

 

The determination of the tax attributes of the distributions is made at the end of the tax year based upon the taxable income for the full tax year and the distributions paid during the full tax year. The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including proceeds from the sale of shares of the Company’s common stock, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, and dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies. The Company has not established limits on the amount of funds it may use from available sources to make distributions. During certain periods, the Company’s distributions may exceed its earnings. As a result, it is possible that a portion of the distributions the Company makes may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from the Company’s investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of capital, which is a nontaxable distribution) will be mailed to the Company’s stockholders. There can be no assurance that the Company will be able to pay distributions at a specific rate or at all.

 

 12 

 

 

NOTE C – RELATED PARTY TRANSACTIONS

 

Advisory Agreement

 

Pursuant to the Investment Advisory Agreement with the Advisor (the “Advisory Agreement”), the Advisor provides credit analysis, structuring capability and transactional experience. The fees associated with the Advisory Agreement consist of a base management fee and incentive fees. The Advisor is owned by SKW Financial, LLC, an entity controlled by the Company’s Chief Executive Officer.

 

The management fee is calculated at an annual rate of 2.00% of the end-of-period gross assets payable monthly in arrears if the Company’s gross assets are less than $250,000; 1.75% of the end-of period gross assets if the Company’s gross assets are equal to or greater than $250,000 but less than $750,000; and, 1.50% of the end-of period gross assets if the Company’s gross assets are equal to or greater than $750,000. For purposes of calculating the management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage. As a result, the Advisor will benefit when the Company incurs debt or uses leverage. The Advisory Agreement provides that the management fee is calculated based on the average value of gross assets at the end of the two most recently completed months. The Company has clarified its management fee calculation so that the management fee is calculated by averaging the value of the Company’s gross assets at the end of the two most recently completed quarters, and appropriately adjusting for any share issuances occurring during any month of the current quarter. Management fees for any partial month are appropriately prorated. In order to meet the diversification tests required to qualify as a RIC, the Company acquires short-term U.S. Treasury Bills. The following purchases of short-term U.S. Treasury bills had the effect of increasing management fees payable to the Advisor, all of which were waived by the Advisor:

 

Date acquired  Amount
acquired
 
Impact in 2018     
June 28, 2018  $26,993 
March 29, 2018  $22,000 
December 28, 2017  $19,500 
      
Impact in 2017     
June 29, 2017  $13,000 
March 29, 2017  $12,500 
December 29, 2016  $12,000 

 

For the three and six months ended June 30, 2018, the Company incurred management fees of $321 and $616, respectively, gross of the fee waiver of $122 and $224, respectively. For the three and six months ended June 30, 2017, the Company incurred management fees of $248 and $486, respectively, gross of the fee waiver of $64 and $124, respectively.

 

The incentive fee is divided into two parts: (i) an incentive fee on income and (ii) an incentive fee on capital gains.

 

The incentive fee on income is calculated and payable quarterly in arrears based upon the Company’s “pre-incentive fee net investment income” for the immediately preceding quarter. The incentive fee on income is subject to a hurdle rate, measured quarterly and expressed as a rate of return on adjusted capital at the beginning of the most recently completed calendar quarter, of 1.75% (7.0% annualized), subject to a “catch up” feature. For the three and six months ended June 30, 2018 and 2017, the Company did not incur any incentive fees on income.

 

The incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20% of realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. For the three and six months ended June 30, 2018 and 2017, the Company did not incur any incentive fees on capital gains.

 

During the three months ended June 30, 2018 and 2017, the Company reimbursed the Advisor $47 and $33, respectively, for amounts owed by the Company to third party providers of services paid by the Advisor on the Company’s behalf and reimbursements for Company-related travel. During the six months ended June 30, 2018 and 2017, the Company reimbursed the Advisor $84 and $71, respectively, for amounts owed by the Company to third party providers of services paid by the Advisor on the Company’s behalf and reimbursements for Company-related travel. There were $3 and $2 accrued to the Advisor as of June 30, 2018 and December 31, 2017, respectively.

 

License Agreement

 

On March 11, 2015, the Company entered into a license agreement (the “License Agreement”) with the Advisor, pursuant to which the Company was granted a non-exclusive license to use the name “Parkview.” Under the License Agreement, the Company has a right to use the “Parkview” name and logo, as long as the Advisor or one of its affiliates remains the Company’s investment adviser. Other than with respect to this limited license, the Company has no legal right to the “Parkview” name or logo.

 

 13 

 

   

NOTE D – INVESTMENT PORTFOLIO

 

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of June 30, 2018 and December 31, 2017:

 

   June 30, 2018   December 31, 2017 
   Fair Value   Percentage
of Portfolio
   Fair Value   Percentage
of Portfolio
 
Charter Bus Industry  $5,107    8%  $4,975    9%
Healthcare   3,818    6%   3,775    7%
Manufacturing   356    1%   2,515    5%
Media   8,520    13%   8,806    16%
Real Estate   13,471    21%   8,264    15%
Specialized Freight Trucking   4,282    7%   4,023    6%
Tobacco   1,020    2%   1,020    2%
Translation and Interpretation Services   -    -    1,970    4%
U.S. Government Securities   26,993    42%   19,499    36%
   $63,567    100%  $54,847    100%

 

The following table summarizes the amortized cost and fair value of the investment portfolio as of June 30, 2018 and December 31, 2017:

 

June 30, 2018  Amortized
Cost(a)
   Percentage
of Portfolio
   Fair Value   Percentage
of Portfolio
 
Senior Secured Loans - First Lien  $12,579    19%  $12,297    19%
Senior Secured Loans - Second Lien   12,433    19%   10,760    17%
Equity Investments   12,763    20%   13,517    21%
U.S. Government Securities   26,993    42%   26,993    43%
Total  $64,768    100%  $63,567    100%
                     
December 31, 2017  Amortized
Cost(a)
   Percentage
of Portfolio
   Fair Value   Percentage
of Portfolio
 
Senior Secured Loans - First Lien  $12,827    23%  $12,532    23%
Senior Secured Loans - Second Lien   16,276    28%   14,503    26%
Equity Investments   8,342    15%   8,313    15%
U.S. Government Securities   19,499    34%   19,499    36%
Total  $56,944    100%  $54,847    100%

 

(a)Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

 

 14 

 

 

NOTE E – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is defined as the price that the Company would receive upon selling an investment or paying to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. Accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. The three levels are defined as follows:

 

Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2 — Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

 

Level 3 — Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date.

 

The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the market or income approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

 

Pricing inputs and weightings applied to determine value require subjective determination. Accordingly, valuations do not necessarily represent the amounts that may eventually be realized from sales or other dispositions of investments.

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

The following table presents the fair value measurements of the investment portfolio, by major class according to the fair value hierarchy, as of June 30, 2018: 

 

   Level 1   Level 2   Level 3   Total 
Senior Secured Loans - First Lien  $-   $-   $12,297   $12,297 
Senior Secured Loans - Second Lien   -             -    10,760    10,760 
Equity Investments   -    -    13,517    13,517 
U.S. Government Securities   26,993    -    -    26,993 
   $26,993   $-   $36,574   $63,567 

 

 15 

 

 

The following table presents the fair value measurements of the investment portfolio, by major class according to the fair value hierarchy, as of December 31, 2017:

 

   Level 1   Level 2   Level 3   Total 
Senior Secured Loans - First Lien  $-   $-   $12,532   $12,532 
Senior Secured Loans - Second Lien   -              -    14,503    14,503 
Equity Investments   -    -    8,313    8,313 
U.S. Government Securities   19,499    -    -    19,499 
   $19,499   $-   $35,348   $54,847 

 

The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the six months ended June 30, 2018:

 

   Senior
Secured
Loans First
Lien
  

Senior

Secured
Loans Second
Lien

   Equity
Investments
   Total 
Fair value beginning of period  $12,532   $14,503   $8,313   $35,348 
Purchases   1,437    -    4,423    5,860 
Net realized gain   -    39    -    39 
Amortization of premium   29    1    -    30 
Paid in kind interest   118    52    -    170 
Sales   -    (3,935)   -    (3,935)
Paydowns   (1,834)   -    -    (1,834)
Net change in unrealized appreciation (depreciation)   15    100    781    896 
Fair value end of period  $12,297   $10,760   $13,517   $36,574 
                     
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date  $15   $181   $781   $977 

 

During the six months ended June 30, 2018, the Company did not have any transfers between levels.

 

The following provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the six months ended June 30, 2017:

 

  

Senior

Secured
Loans First
Lien

  

Senior

Secured
Loans Second
Lien

   Equity
Investments
   Total 
Fair value beginning of period  $13,317   $14,833   $1,805   $29,955 
Purchases   2,091    2,950    4,800    9,841 
Net realized gain (loss)   21    (27)   -    (6)
Amortization of premium   32    9    -    41 
Paid in kind interest   131    263    -    394 
Sales   (4,345)   (1,500)   -    (5,845)
Paydowns   (3)   (27)   -    (30)
Net change in unrealized (appreciation) depreciation   52    (88)   148    112 
Fair value end of period  $11,296   $16,413   $6,753   $34,462 
                     
The amount of total gains or losses for period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date  $34   $(117)  $147   $64 

 

During the six months ended June 30, 2017, the Company did not have any transfers between levels.

 

 16 

 

 

The following table presents the quantitative information about Level 3 fair value measurements of the investment portfolio, as of June 30, 2018:

 

   Fair Value   Valuation Techniques  Unobservable input  Range   Weighted Average 
Senior Secured Loans - First Lien  $12,297   Market comparables  Market yield (%)   94.4% - 100.2%    97.4% 
           EBITDA Multiples (x)   2.8x - 4.0x    3.2x 
Senior Secured Loans - Second Lien  $1,376   Market quotes  Indicative Dealer Quotes   69.5% - 102.5%    94.0% 
Senior Secured Loans - Second Lien  $9,384   Market comparables  Market yield (%)   39.0% - 102.3%    89.3% 
           EBITDA Multiples (x)   0.65x - 12.1x    6.6x 
Equity Investments  $13,517   Market comparables  Market yield (%)   83.0% - 123.4%    107.7% 
           Book Value Multiples (x)   1.0x -12.1x    1.1x 

 

The following table presents the quantitative information about Level 3 fair value measurements of the investment portfolio, as of December 31, 2017: 

 

   Fair Value   Valuation Techniques  Unobservable input  Range   Weighted Average 
Senior Secured Loans - First Lien  $12,532   Market comparables  Market yield (%)   93.9% - 100.3%    97.0% 
           EBITDA Multiples (x)   2.8x - 3.8x    3.1x 
Senior Secured Loans - Second Lien  $5,505   Market quotes  Indicative Dealer Quotes   98.0% - 102.5%    100.1% 
Senior Secured Loans - Second Lien  $8,998   Market comparables  Market yield (%)   31.0% - 102.3%    88.1% 
           EBITDA Multiples (x)   0.70x - 15x    8.3x 
Equity Investments  $8,313   Market comparables  Market yield (%)   23.6% - 144.3%    101.3% 
           Book Value Multiples (x)   1.0x -3.8x    1.1x 

 

NOTE F – SIGNIFICANT SUBSIDIARIES

 

In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, the Company must determine which of its unconsolidated controlled portfolio companies, if any, are considered “significant subsidiaries.” In evaluating these investments, there are three tests utilized to determine if any of the Company’s controlled investments are considered significant subsidiaries: the asset test, the income test and the investment test. Rule 3-09 of Regulation S-X requires separate audited financial statements of an unconsolidated subsidiary in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceeds 10%. After performing this analysis, the Company determined that for the year ended December 31, 2017, one of its portfolio companies, Lone Star Brewery Development, Inc. ("Lone Star"), is a significant subsidiary. Accordingly, unaudited financial information for the three and six months ended June 30, 2018 has been included below. Since Lone Star was not acquired by the Company until June 29, 2017, the Company has not provided unaudited financial information for the period from June 29, 2017 through June 30, 2017.

 

   June 30,
2018
   December 31,
2017
 
Balance Sheet        
Current assets  $1,271   $3 
Noncurrent assets  $15,726   $18,505 
Current liabilities  $4,997   $27,344 
Noncurrent liabilities  $19,000   $- 
Total deficit  $(7,000)  $(8,836)

 

  

For the

Three Months
Ended

  

For the

Six Months
Ended

 
   June 30,
2018
   June 30,
2018
 
Statement of Operations        
Revenue  $-   $- 
Expenses  $804   $2,282 
Other income  $-   $368 
Net loss  $(804)  $(1,914)

 

On February 16, 2018, Lone Star entered into a loan agreement (the “Loan Agreement”) with BI 28 LLC (the “Lender”), a subsidiary of BridgeInvest. In connection with the Loan Agreement, the Lender required that the Company guarantee the performance of Lone Star under the terms of the Loan Agreement. On February 8, 2018, the Board of Directors of the Company authorized the Company to enter into a Guaranty, whereby the Company agreed to guarantee to the Lender the performance of Lone Star under the Loan Agreement. The loan has an 18-month term, which term can be extended by an additional six months. Assuming the loan has a duration of two years, the Company’s aggregate obligation as a result of its 100% ownership of Lone Star would be $14,300, which includes interest payments and repayment of principal.

 

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NOTE G - FINANCIAL HIGHLIGHTS

 

The following is a schedule of financial highlights of the Company for the six months ended June 30, 2018 and 2017:

 

   June 30, 
   2018   2017 
Per share data          
Net asset value, beginning of period  $9.65   $9.41 
Results of operations (a)          
Net investment income   0.18    0.20 
Net realized gain on investments   0.01    - 
Net change in unrealized appreciation on investments   0.22    0.03 
Net increase in net assets resulting from operations   0.41    0.23 
Capital share transactions          
Issuance of common stock (b)   -    0.02 
Total increase in net assets   0.41    0.25 
Net asset value, end of period  $10.06   $9.66 
           
Shares outstanding at end of period   4,000,010    4,000,010 
Total return (c)   4.18%   2.33%
           
Ratio/Supplemental data (d)          
Net assets, end of period   40,241    38,631 
Ratio of operating expenses to average net assets (e)   3.11%   3.14%
Ratio of net investment income to average net assets   1.79%   2.05%
Portfolio turnover   16.49%   19.65%

 

(a)Per share data was derived by using the weighted average shares outstanding during the applicable period.

  

(b)The issuance of common stock on a per share basis reflects the incremental net asset value change as a result of the issuance of shares of common stock.  The issuance of common stock at a price that is greater than the net asset value per share results in an increase in net asset value per share.

 

(c)The total return for the six months ended June 30, 2018 and 2017 was calculated by taking the increase in net assets resulting from operations of the Company for the period divided by the average net assets during the period.

 

(d)The financial information has not been annualized in computing ratios and may not be indicative of full year results.

 

(e)The effect of the management fee waiver discussed in Note C is 0.57% and 0.33% for the six months ended June 30, 2018 and 2017, respectively.

 

NOTE H – SUBSEQUENT EVENTS

 

Management performed an evaluation of the Company’s activity through the date the financial statements were issued and has determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the financial statements. 

 

On August 8, 2018, the Board, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of either party, approved the annual renewal of the Advisory Agreement through August 13, 2019.

 

 18 

 

 

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

 

Forward Looking Statements

 

This report 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 us, our prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward looking statements. 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 are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward looking statements including, without limitation:

 

  The effect of an economic downturn on 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;

 

  a contraction of available credit, which could impair our lending and investment activities;

 

  interest rate volatility, which could adversely affect our results, particularly if we elect to use leverage as part of our investment strategy;

 

  our future operating results;

 

  our business prospects and the prospects of our portfolio companies;

 

  our contractual arrangements and relationships with third parties;

 

  the ability of our portfolio companies to achieve their objectives;

 

  competition with other entities for investment opportunities;

 

  the speculative and illiquid nature of our investments;

 

  the use of borrowed money to finance a portion of our investments;

 

  the adequacy of our financing sources and working capital;

 

  the costs associated with being a public entity;

 

  the loss of key personnel;

 

  the timing of cash flows, if any, from the operations of our portfolio companies;

 

  the ability of our Advisor to locate suitable investments for us and to monitor and administer our investments;

 

  our ability to attract and retain highly talented professionals that can provide services to our Advisor ;

 

  our ability to qualify and maintain our qualification as a RIC under Subchapter M of the Code and as a BDC; and

 

  the effect of legal, tax and regulatory changes.

 

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Although we believe that the assumptions on which these forward looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward looking statement in this report 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 report. We do not undertake any obligation to update or revise any forward looking statements, or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, which preclude civil liability for certain forward looking statements are not applicable to us since we are a BDC under the 1940 Act. As used herein, the terms “we,” “our” and “us” refer to Parkview Capital Credit, Inc.

 

Overview

 

We were incorporated under the laws of the State of Maryland on November 25, 2014. We have elected to be regulated as a BDC under the 1940 Act and treated as a RIC, for federal income tax purposes. As such, we are required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our taxable income and tax-exempt interest.

 

All amounts presented are in thousands, except share data.

 

Revenues

 

We generate revenues in the form of interest income from the debt securities we hold and dividends and capital appreciation on either direct equity investments or equity interests obtained in connection with originating loans, such as options, warrants or conversion rights. The debt we invest in will typically not be rated by any rating agency, but if it were, it is likely that such debt would be below investment grade. We intend to structure our debt investments with interest payable quarterly, semi-annually or annually, but we may structure certain investments with terms to provide for longer interest payment periods or to allow interest to be paid by adding amounts due to the principal balance of the loan, resulting in deferred cash receipts. In addition, we may also generate revenue in the form of commitment, loan origination, structuring or diligence fees, fees for providing managerial assistance to our portfolio companies, and possibly consulting fees. Certain of these fees may be capitalized and amortized as additional interest income over the life of the related loan.

 

Expenses

 

All of our investment professionals and staff of our Advisor, when and to the extent engaged in providing us investment advisory and management services, and the base compensation, bonus and benefits, and the routine overhead expenses, of such personnel allocable to such services, are provided and paid for by our Advisor.

 

We bear all other costs and expenses of our operations, administration and transactions, including, but not limited to, those relating to:

 

  organization expenses;

 

  calculating our net asset value (including the cost and expenses of any independent valuation firms);

 

  expenses, including travel expense, incurred by our Advisor, its investment professionals, or payable to third parties, performing due diligence on prospective portfolio companies;

 

  the costs of the offerings of common shares and other securities, if any;

 

  the base management fee and any incentive fee;

 

  certain costs and expenses relating to distributions paid on our shares;

 

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  administration reimbursements payable under our Advisory Agreement;

 

  debt service and other costs of borrowings or other financing arrangements;

  

  the allocated costs incurred by our Advisor in providing managerial assistance to those portfolio companies that request it;

 

  amounts payable to third parties relating to, or associated with, making or holding investments;

 

  transfer agent and custodial fees;

 

  costs of hedging;

 

  commissions and other compensation payable to brokers or dealers;

 

  federal, state and local taxes;

 

  independent director fees and expenses;

 

  costs of preparing financial statements and maintaining books and records and filing reports or other documents with the SEC (or other regulatory bodies) and other reporting and compliance costs, including registration and listing fees, and the compensation of professionals responsible for the preparation of the foregoing;

 

  the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing costs), the costs of any stockholders’ meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;

 

  our fidelity bond;

 

  directors and officers/errors and omissions liability insurance, and any other insurance premiums;

 

  indemnification payments;

 

  direct costs and expenses of administration, including audit and legal costs; and

 

  all other expenses reasonably incurred by us in connection with making investments and administering our business.

 

From time to time, our Advisor may pay amounts owed by us to third-party providers of goods or services. We will subsequently reimburse our Advisor for such amounts paid on our behalf. In addition, we reimburse the Advisor for the allocable portion of the compensation paid by the Advisor (or its affiliates) to our chief compliance officer and chief financial officer (based on the percentage of time such individuals devote, on an estimated basis, to the business and affairs of the Company). All of these expenses are ultimately borne by our stockholders.

 

 21 

 

  

Portfolio and Investment Activity

 

The fair value of our investments was approximately $36,574 (excluding $26,993 held in U.S. Treasury Bills) and $29,955 (excluding $11,999 held in U.S. Treasury Bills) in 8 and 12 portfolio companies as of June 30, 2018 and 2017, respectively. Our investment activity (including U.S. Treasury Bills) for the six months ended June 30, 2018 and 2017 is as follows (information presented herein is at amortized cost unless otherwise indicated):

 

   Six Months Ended
June 30,
 
   2018   2017 
Amortized cost of investments, beginning  $56,944   $44,036 
Cost of investments purchased   54,854    35,333 
Paid-in-kind interest   170    394 
Proceeds from sales and repayments of investments   (47,275)   (30,367)
Net amortization of premium on investments   30    41 
Realized gain (loss) on sold/repaid investments   45    (7)
Amortized cost of investments, ending  $64,768   $49,430 

  

Refer to “Part I. Financial Information, Item 1. Financial Statements – Note D – Investment Portfolio” of this quarterly report on Form 10-Q for a summary of the composition of our portfolio at amortized cost and fair value as of June 30, 2018 and December 31, 2017.

 

As of June 30, 2018 and 2017, the investments in our portfolio were purchased at a weighted average price of 99.96% and 99.5% of par value, respectively. The weighted average yields, based on the amortized cost and fair value of our portfolio as of June 30, 2018, were 11.2% and 11.4%, respectively, and as of June 30, 2017, were 11.5%, and 11.2%, respectively.

 

Our investment in Action Resources is on non-accrual. Action Resources represents 6.7% of our portfolio at fair value as of June 30, 2018.

 

Direct Origination

 

We intend to leverage our Advisor’s industry relationships to directly source investment opportunities. Such investments are originated or structured for us or made by us and are not generally available to the broader market. These investments may include both debt and equity components. We believe directly originated investments may offer higher returns and more favorable protections than broadly syndicated transactions. The following tables present certain selected information regarding the direct originations entered into during the six months ended June 30, 2018 and the year ended December 31, 2017: 

 

  

For the

Six Months
Ended

  

For the

Year Ended

 
New Direct Originations  June 30,
2018
   December 31,
2017
 
Total commitments (including unfunded commitments)  $        -   $9,719 
Paid-in-kind interest   -    - 
Investment paydowns   -    - 
Net direct origination  $-   $9,719 

 

 22 

 

 

   For the Six Months Ended   For the Year Ended 
   June 30, 2018   December 31, 2017 
   Commitment       Commitment     
New Direct Originations by Asset Class  Amount   Percentage   Amount   Percentage 
Senior Secured Loans - First Lien  $           -    -   $3,425    35%
Senior Secured Loans - Second Lien   -    -    -    - 
Equity Investments       -         -    6,294    65%
    -    -    9,719    100%

 

  

For the

Six Months

Ended

June 30,
2018

  

For the

Year Ended
December 31,

2017

 
Average New Direct Origination Commitment Amount           $-   $2,430 
Weighted Average Maturity for New Direct Originations             0.86 years 
Gross Portfolio Yield (based on amortized cost) of New Direct Originations Funded during Period       -    9.5%

  

The following table presents certain selected information regarding our direct originations as of June 30, 2018 and December 31, 2017:

 

Characteristics of All Direct Originations held in Portfolio  June 30,
2018
   December 31,
2017
 
Number of Portfolio Companies   6    6 
Average Annual EBITDA of Portfolio Companies  $6,930   $7,030 
Average Leverage Through Tranche of Portfolio Companies - Excluding Equity/Other and Collateralized Securities (1)   6.3x    5.9x 
Gross Portfolio Yield (based on amortized cost) of Funded Direct Originations   11.8%   11.7%

 

(1) Average Leverage Through Tranche of Portfolio Companies-Excluding Equity/Other and Collateralized Securities is 2.89x as of both June 30, 2018 and December 31, 2017 excluding the securities that are currently on non-accrual.

 

Portfolio Composition by Strategy and Industry

 

Although our primary focus is to invest in directly originated transactions, in certain circumstances we will also invest in the broadly syndicated loan and high yield markets. Broadly syndicated loans and bonds are generally more liquid than our directly originated investments and provide a complement to our less liquid strategies.

 

The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the total portfolio assets in such strategies:

 

   June 30, 2018   December 31, 2017 
Portfolio Composition by Strategy  Fair Value   Percentage of Portfolio   Fair Value   Percentage of Portfolio 
Direct Origination  $35,198    55%  $29,843    54%
Broadly Syndicated   1,376    2%   5,505    10%
U.S. Government Securities   26,993    43%   19,499    36%
   $63,567    100%  $54,847    100%

 

Refer to “Part I. Financial Information, Item 1. Financial Statements – Note D – Investment Portfolio” of this quarterly report on Form 10-Q for a description of investments by industry classification and the percentage, by fair value, of the total portfolio assets in such industries.

 

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Portfolio Asset Quality

 

In addition to various risk management and monitoring tools, our Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. Our Advisor uses an investment rating scale of 1 to 5. The following is a description of the conditions associated with each investment rating:

 

Investment

Rating

  Summary Description
1   Investment exceeding expectations and/or capital gain expected.
2   Performing investment generally executing in accordance with the portfolio company’s business plan—full return of principal and interest expected. Each investment is initially rated 2.
3   Performing investment requiring closer monitoring.
4   Underperforming investment—some loss of interest or dividend possible, but still expecting a positive return on investment.
5   Underperforming investment with expected loss of interest and some principal.

 

The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of June 30, 2018 and December 31, 2017:

 

    June 30, 2018   December 31, 2017 
Investment Rating   Fair
Value
   Percentage of
Portfolio
   Fair
Value
   Percentage of
Portfolio
 
 1   $  -    -   $-    - 
 2    46,947    74%   42,018    77%
 3    12,338    19%   8,806    16%
 4    -    -    -    - 
 5    4,282    7%   4,023    7%
 Total   $63,567    100%  $54,847    100%

 

The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.

 

Recent Accounting Pronouncements

 

Refer to “Part I. Financial Information, Item 1. Financial Statements – Note B – Summary of Significant Accounting Policies” of this quarterly report on Form 10-Q for a description of recent accounting pronouncements.

 

Results of Operations

 

Three Months Ended June 30, 2018 and 2017

 

Investment Income

 

For the three months ended June 30, 2018 and 2017, total investment income totaled $966 and $845, respectively, of which $477 and $664, respectively, was attributable to portfolio interest (excluding PIK interest) earned on our first and second lien senior secured loans, $329 and $71, respectively, was attributable to dividend income earned, and $17 and $18, respectively, was attributable to amortization of loan origination fees received. For the three months ended June 30, 2018 and 2017, $65 and $0, respectively, of our portfolio interest was attributable to default interest on the Medi-fare Drug & Pharmaceutical Compounding LLC first lien senior secured loan.

 

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For the three months ended June 30, 2018 and 2017, $78 and $92, respectively, of our total investment income constituted PIK interest. As of June 30, 2018, four of our portfolio companies paid all or a portion of their interest payments in the form of PIK interest, including our position in Action Resources, which was restructured so that the entire position is payable in PIK interest. Action Resources was placed on non-accrual during the three months ended June 30, 2017 and accordingly, our investment income does not include any PIK interest related to Action Resources for the three months ended June 30, 2018. The increase in investment income was primarily due to the dividend income pertaining to the increased preferred shares that we own of Lone Star Brewery Development, Inc.

 

Operating Expenses

 

Total operating expenses were $586 for the three months ended June 30, 2018, and consisted of base management fees of $321 (less a fee waiver of $122), professional fees of $187 and other general and administrative fees of $200. Total operating expenses were $542 for the three months ended June 30, 2017, and consisted of base management fees of $248 (less a fee waiver of $64), professional fees of $173 and other general and administrative fees of $185. We did not incur any incentive fees for the three months ended June 30, 2018 or 2017. The increase in operating expenses was driven by an increase in portfolio size during the three months ended June 30, 2018 as well as our shift to self originated investments, which require additional management and oversight compared to syndicated loans. Our operating expenses were 1.49% and 1.46% of our average net assets for the three months ended June 30, 2018 and 2017, respectively. As we continue to execute our strategy and grow our portfolio, we expect our operating expenses as a percentage of our average net assets to decrease. Professional fees include legal, audit, compliance, valuation, technology and other professional fees incurred related to our management. Other general and administrative expenses include custody, printer fees, research, subscriptions and other costs.

 

In order to meet the diversification tests required to qualify as a RIC, we acquired the following in face value of short-term U.S. Treasury Bills. The purchases had the effect of increasing management fees payable to the Advisor, all of which were waived by the Advisor:

 

Date acquired  Amount
acquired
 
     
Impact in 2018     
June 28, 2018  $26,993 
March 29, 2018  $22,000 
      
Impact in 2017     
June 29, 2017  $13,000 
March 29, 2017  $12,500 

 

These transactions had the effect of increasing management fees payable to the Advisor in an amount of $122 and $64 for the three months ended June 30, 2018 and 2017, respectively, all of which was also waived by the Advisor.

 

Net Investment Income

 

Our net investment income totaled $380 and $303, respectively ($0.10 and $0.08 per weighted average shares outstanding), for the three months ended June 30, 2018 and 2017.

 

Net Realized Gain on Investments

 

For the three months ended June 30, 2018 and 2017 we had net realized gains of $7 and $3, respectively, resulting from the sale of investments in our portfolio. 

 

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Net Unrealized Appreciation on Investments

 

Net change in unrealized appreciation on investments reflects the net change in the fair value of our investment portfolio. For the three months ended June 30, 2018 and 2017, we had net unrealized appreciation on our portfolio of $846 and $373, respectively.  

 

Changes in Net Assets from Operations

 

For the three months ended June 30, 2018 and 2017, we recorded a net increase in net assets resulting from operations of $1,233 and $679 ($0.31 and $0.18 per weighted average shares outstanding), respectively.

 

Six Months Ended June 30, 2018 and 2017

 

Investment Income

 

For the six months ended June 30, 2018 and 2017, total investment income totaled $1,932 and $1,929, respectively, of which $1,057 and $1,324, respectively, was attributable to portfolio interest (excluding PIK interest) earned on our first and second lien senior secured loans, $605 and $142, respectively, was attributable to dividend income earned and $35 and $69, respectively, was attributable to amortization of loan origination fees received. For the six months ended June 30, 2018 and 2017, $65 and $0, respectively, of our portfolio interest was attributable to default interest on the Medi-fare Drug & Pharmaceutical Compounding LLC first lien senior secured loan.

 

For the six months ended June 30, 2018 and 2017, $170 and $394, respectively, of our total investment income constituted PIK interest. As of June 30, 2018, four of our portfolio companies paid all or a portion of their interest payments in the form of PIK interest, including our position in Action Resources, which was restructured so that the entire position is payable in PIK interest. Action Resources was placed on non-accrual during the six months ended June 30, 2017 and accordingly, our investment income does not include any PIK interest related to Action Resources for the six months ended June 30, 2018 and 2017. The decrease in investment income was primarily due to the Action Resources investment being on non-accrual, partially offset by an increase in the size of our overall portfolio.

 

Operating Expenses

 

Total operating expenses were $1,226 for the six months ended June 30, 2018, and consisted of base management fees of $616 (less a fee waiver of $224), professional fees of $445 and other general and administrative fees of $389. Total operating expenses were $1,168 for the six months ended June 30, 2017, and consisted of base management fees of $486 (less a fee waiver of $124), professional fees of $426 and other general and administrative fees of $380. We did not incur any incentive fees for the six months ended June 30, 2018 or 2017. The increase in operating expenses was primarily driven by an increase in management fees resulting from an increased portfolio size during the six months ended June 30, 2018 as well as our shift to self originated investments, which require additional management and oversight compared to syndicated loans. Our operating expenses were 3.11% and 3.14% of our average net assets for the six months ended June 30, 2018 and 2017, respectively. As we continue to execute our strategy and grow our portfolio, we expect our operating expenses as a percentage of our average net assets to decrease. Professional fees include legal, audit, compliance, valuation, technology and other professional fees incurred related to our management. Other general and administrative expenses include custody, printer fees, research, subscriptions and other costs.

 

 26 

 

 

In order to meet the diversification tests required to qualify as a RIC, we acquired the following in face value of short-term U.S. Treasury Bills. The purchases had the effect of increasing management fees payable to the Advisor, all of which were waived by the Advisor:

 

Date acquired  Amount
acquired
 
Impact in 2018     
June 28, 2018  $26,993 
March 29, 2018  $22,000 
December 28, 2017  $19,500 
      
Impact in 2017     
June 29, 2017  $13,000 
March 29, 2017  $12,500 
December 29, 2016  $12,000 

 

These transactions had the effect of increasing management fees payable to the Advisor in an amount of $224 and $124 for the six months ended June 30, 2018 and 2017, respectively, all of which were also waived by the Advisor.

 

Net Investment Income

 

Our net investment income totaled $706 and $761, respectively ($0.18 and $0.20 per weighted average shares outstanding), for the six months ended June 30, 2018 and 2017.

 

Net Realized Gain (Loss) on Investments

 

For the six months ended June 30, 2018 and 2017 we had net realized gain (loss) of $46 and ($7), respectively, resulting from the sale of investments in our portfolio. 

 

Net Unrealized Appreciation (Depreciation) on Investments

 

Net change in unrealized appreciation (depreciation) on investments reflects the net change in the fair value of our investment portfolio. For the six months ended June 30, 2018 and 2017, we had net unrealized appreciation on our portfolio of $896 and $112, respectively.  

   

Changes in Net Assets from Operations

 

For the six months ended June 30, 2018 and 2017, we recorded a net increase in net assets resulting from operations of $1,648 and $866 ($0.41 and $0.23 per weighted average shares outstanding), respectively.

 

Hedging

 

We may, but are not required to, enter into interest rate, foreign exchange or other derivative agreements to hedge interest rate, currency, credit or other risks, but we do not generally intend to enter into any such derivative agreements for speculative purposes. Such hedging activities, which would be in compliance with applicable legal and regulatory requirements, may include the use of futures, options and forward contracts. We would bear the costs incurred in connection with entering into, administering and settling any such derivative contracts. There can be no assurance any hedging strategy we employ will be successful. Since inception, we have not entered into any hedging transactions.

 

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Financial Condition, Liquidity and Capital Resources

 

As of June 30, 2018, we had cash and cash equivalents of approximately $1,163. We raise capital through a private offering of our shares in order to acquire a portfolio of debt and equity investments consistent with our investment objective and strategy. We generate cash flows from fees, interest and dividends earned from our investments as well as principal repayments and proceeds from sales of our investments. We anticipate additional principal repayments from some of our investments in the near term. The decrease in cash of $942 during the six months ended June 30, 2018 was primarily driven by our additional investments in Lone Star Brewery Development, Inc, Ebony Media Holdings, LLC and Langham Creek LLC, offset by the sale of our investments in American Bath Group, LLC and Lionbridge Technologies, Inc. and paydowns of investments in Medi-fare Drug & Pharmaceutical Compounding, LLC. Prior to deploying the capital we raise in our private offering of shares, we intend to invest in cash equivalents, U.S. government securities, repurchase agreements and high quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our intent to be taxed as a RIC.

 

We may borrow funds to make investments, to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our board of directors determines that leveraging our portfolio would be in our best interests.

 

Critical Accounting Policies

 

Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. Refer to “Part I. Financial Information, Item 1. Financial Statements – Note B – Summary of Significant Accounting Policies” of this quarterly report on Form 10-Q for a description of the summary of significant accounting policies.

 

Contractual Obligations

 

We have entered into an agreement with our Advisor to provide us with investment advisory services. Refer to “Part I. Financial Information, Item 1. Financial Statements – Note C – Related Party Transactions – Advisory Agreement” for a discussion of the fees payable pursuant to the Advisory Agreement.

 

Off-Balance Sheet Arrangements

 

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

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are subject to financial market risks, including changes in interest rates. As of June 30, 2018, our portfolio primarily consisted of investments paying fixed rates of interest. In addition, in the future we may seek to borrow funds in order to make additional investments. If we borrow funds to make additional investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we would be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we have debt outstanding, our cost of funds would increase, which could reduce our net investment income, especially to the extent we continue to hold fixed rate investments. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a materially adverse effect on our business, financial condition and results of operations.

 

A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to a portion of our debt investments, especially to the extent that we hold variable rate investments. However, as of June 30, 2018, 3.38% of our portfolio, excluding our US Government Securities, paid variable rates of interest. An increase in interest rates for any variable rate investments that we hold could make it easier for us to meet or exceed our incentive fee return, as defined in our Advisory Agreement, and may result in a substantial increase in our net investment income, and also to the amount of incentive fees payable to our Advisor with respect to our increasing pre-incentive fee net investment income.  

 

Item 4. Controls and Procedures.

 

An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) was carried out by us under the supervision and with the participation of our chief executive officer, who serves as our principal executive officer, and our chief financial officer, who serves as our principal financial officer. Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2018, our disclosure controls and procedures were effective to ensure (i) that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, in order to allow timely decisions regarding required disclosure.

 

Our management, including our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d-15(f)) that occurred during the quarter ended June 30, 2018 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.

 

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, neither we nor the Advisor is currently a party to any pending material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or against the Advisor.

 

Item 1A. Risk Factors.

 

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on April 2, 2018. 

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

None. 

 

Item 6. Exhibits.

 

(a) Exhibits

 

31.1* Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2* Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1* Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

*Filed herewith

 

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SIGNATURES

 

Pursuant to the requirements 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.

 

  PARKVIEW CAPITAL CREDIT, INC.
   
Date: August 13, 2018 /s/ KEITH W. SMITH
  Keith W. Smith
  Chief Executive Officer
(Principal Executive Officer)
   
Date: August 13, 2018 /s/ CHARLES M. JACOBSON
  Charles M. Jacobson
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

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