UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
FOR
THE QUARTERLY PERIOD ENDED
COMMISSION
FILE NUMBER:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| Global Select Market | ||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically 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). ☒ 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 ☐ |
| 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 Act). Yes ☐ No
The issuer had shares of common stock, $ par value per share, outstanding as of November 7, 2024.
SURO CAPITAL CORP.
TABLE OF CONTENTS
| 1 |
PART I
Item 1. Financial Statements
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
| September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Investments at fair value: | ||||||||
| Non-controlled/non-affiliate investments
(cost of $ | $ | $ | ||||||
| Non-controlled/affiliate investments (cost
of $ | ||||||||
| Controlled investments
(cost of $ | ||||||||
| Total Portfolio Investments | ||||||||
| Investments in U.S. Treasury
bills (cost of $ | ||||||||
| Total Investments (cost of $ | ||||||||
| Cash | ||||||||
| Proceeds receivable | ||||||||
| Escrow proceeds receivable | ||||||||
| Interest and dividends receivable | ||||||||
| Deferred financing costs | ||||||||
| Prepaid expenses and other assets(1) | ||||||||
| Total Assets | ||||||||
| LIABILITIES | ||||||||
| Accounts payable and accrued expenses(1) | ||||||||
| Dividends payable | ||||||||
| 6.00% Notes due December 30, 2026(2) | ||||||||
| 6.50% Convertible Notes due August 14, 2029(3) | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Notes 7 and 10) | ||||||||
| Net Assets | $ | $ | ||||||
| NET ASSETS | ||||||||
| Common stock, par value $ per share ( authorized; and issued and outstanding, respectively) | $ | $ | ||||||
| Paid-in capital in excess of par | ||||||||
| Accumulated net investment loss | ( | ) | ( | ) | ||||
| Accumulated net realized loss on investments, net of distributions | ( | ) | ( | ) | ||||
| Accumulated net unrealized appreciation/(depreciation) of investments | ( | ) | ( | ) | ||||
| Net Assets | $ | $ | ||||||
| Net Asset Value Per Share | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| (1) | |
| (2) | |
| (3) |
| 2 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| INVESTMENT INCOME | ||||||||||||||||
| Non-controlled/non-affiliate investments: | ||||||||||||||||
| Interest income(1) | $ | $ | $ | $ | ||||||||||||
| Dividend income | ||||||||||||||||
| Controlled investments: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest income from U.S. Treasury bills | ||||||||||||||||
| Total Investment Income | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Compensation expense | ||||||||||||||||
| Directors’ fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Other expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Net Investment Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Realized Loss on Investments: | ||||||||||||||||
| Non-controlled/non-affiliated investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-controlled/affiliate investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Controlled investments | ( | ) | ( | ) | ||||||||||||
| Net Realized Loss on Investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Realized loss on partial repurchase of 6.00% Notes due December 30, 2026 | ( | ) | ( | ) | ||||||||||||
| Change in Unrealized Appreciation/(Depreciation) of Investments: | ||||||||||||||||
| Non-controlled/non-affiliated investments | ( | ) | ( | ) | ||||||||||||
| Non-controlled/affiliate investments | ||||||||||||||||
| Controlled investments | ( | ) | ( | ) | ||||||||||||
| Net Change in Unrealized Appreciation/(Depreciation) of Investments | ( | ) | ||||||||||||||
| Net Change in Net Assets Resulting from Operations | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net Change in Net Assets Resulting from Operations per Common Share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted(2) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted-Average Common Shares Outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted(2) | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| (1) | |
| (2) |
| 3 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net Assets at Beginning of Year | $ | $ | ||||||
| Change in Net Assets Resulting from Operations | ||||||||
| Net investment loss | ( | ) | ( | ) | ||||
| Net realized gain/(loss) on investments | ( | ) | ||||||
| Net change in unrealized appreciation/(depreciation) of investments | ( | ) | ||||||
| Net Change in Net Assets Resulting from Operations | ( | ) | ||||||
| Change in Net Assets Resulting from Capital Transactions | ||||||||
| Stock-based compensation | ||||||||
| Net Change in Net Assets Resulting from Capital Transactions | ||||||||
| Total Change in Net Assets | ( | ) | ||||||
| Net Assets at March 31 | $ | $ | ||||||
| Change in Net Assets Resulting from Operations | ||||||||
| Net investment loss | ( | ) | ( | ) | ||||
| Net realized loss on investments | ( | ) | ( | ) | ||||
| Net change in unrealized appreciation/(depreciation) of investments | ( | ) | ||||||
| Net Change in Net Assets Resulting from Operations | ( | ) | ( | ) | ||||
| Change in Net Assets Resulting from Capital Transactions | ||||||||
| Stock-based compensation | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Net Change in Net Assets Resulting from Capital Transactions | ( | ) | ( | ) | ||||
| Total Change in Net Assets | ( | ) | ( | ) | ||||
| Net Assets at June 30 | $ | $ | ||||||
| Change in Net Assets Resulting from Operations | ||||||||
| Net investment loss | $ | ( | ) | $ | ( | ) | ||
| Net realized loss on investments | ( | ) | ( | ) | ||||
| Realized loss on partial repurchase of 6.00% Notes due 2026 | ( | ) | ||||||
| Net change in unrealized appreciation/(depreciation) of investments | ||||||||
| Net Change in Net Assets Resulting from Operations | ( | ) | ||||||
| Change in Net Assets Resulting from Capital Transactions | ||||||||
| Stock-based compensation | ||||||||
| Repurchases of common stock | ( | ) | ||||||
| Net Change in Net Assets Resulting from Capital Transactions | ||||||||
| Total Change in Net Assets | ( | ) | ||||||
| Net Assets at September 30 | $ | $ | ||||||
| Capital Share Activity | ||||||||
| Shares outstanding at beginning of year | ||||||||
| Issuance of common stock under restricted stock plan, net(1) | ( | ) | ( | ) | ||||
| Shares repurchased | ( | ) | ( | ) | ||||
| Shares Outstanding at End of Period | ||||||||
See accompanying notes to condensed consolidated financial statements.
| (1) |
| 4 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net change in net assets resulting from operations | $ | ( | ) | $ | ||||
| Adjustments to reconcile net change in net assets resulting from operations to net cash provided by operating activities: | ||||||||
| Net realized loss on investments | ||||||||
| Net change in unrealized (appreciation)/depreciation of investments | ( | ) | ||||||
| Amortization of discount
on | ||||||||
| Amortization of discount
on | ||||||||
| Stock-based compensation | ||||||||
| Adjustments to escrow proceeds receivable | ( | ) | ||||||
| Accrued interest on U.S. Treasury bills | ( | ) | ||||||
| Purchases of investments in: | ||||||||
| Portfolio investments | ( | ) | ( | ) | ||||
| U.S. Treasury bills | ( | ) | ||||||
| Proceeds from sales or maturity of investments in: | ||||||||
| Portfolio investments | ||||||||
| U.S. Treasury bills | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Proceeds receivable | ( | ) | ||||||
| Escrow proceeds receivable | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Interest and dividends receivable | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Net Cash Provided by Operating Activities | ||||||||
| Cash Flows from Financing Activities | ||||||||
| Gross proceeds from the
issuance of | ||||||||
| Deferred debt issuance costs | ( | ) | ||||||
| Repurchases of | ( | ) | ||||||
| Realized loss on partial
repurchase of | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Net Cash Used in Financing Activities | ( | ) | ( | ) | ||||
| Total Increase in Cash Balance | ||||||||
| Cash Balance at Beginning of Year | ||||||||
| Cash Balance at End of Period | $ | $ | ||||||
| Supplemental Information: | 2024 | 2023 | ||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | ||||||||
| Right of use asset obtained in exchange for operating lease liabilities | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED)
September 30, 2024
| Portfolio Investments* | Headquarters/ Industry | Date of Initial Investment | Shares/ Principal/Quantity(5) | Cost | Fair Value | %
of Net Assets | ||||||||||||||
| NON-CONTROLLED/NON-AFFILIATE | ||||||||||||||||||||
| Learneo, Inc. (f/k/a Course Hero, Inc.) | Redwood City, CA | |||||||||||||||||||
| Preferred shares, Series A 8% | $ | $ | % | |||||||||||||||||
| Preferred shares, Series C 8% | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| CW Opportunity 2 LP**(8) | Evanston, IL | |||||||||||||||||||
| Membership Interest, Class A*** | $ | % | ||||||||||||||||||
| ARK Type One Deep Ventures Fund LLC**(9) | St. Petersburg, FL | |||||||||||||||||||
| Membership Interest, Class A | $ | % | ||||||||||||||||||
| Blink Health, Inc. | New York, NY | |||||||||||||||||||
| Preferred shares, Series A | % | |||||||||||||||||||
| Preferred shares, Series C | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| ServiceTitan, Inc. | Glendale, CA | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Whoop, Inc. | Boston, MA | |||||||||||||||||||
| Preferred shares, Series C | % | |||||||||||||||||||
| Locus Robotics Corp. | Wilmington, MA | |||||||||||||||||||
| Preferred shares, Series F 6% | % | |||||||||||||||||||
| FourKites, Inc. | Chicago, IL | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Supplying Demand, Inc. (d/b/a Liquid Death) | Los Angeles, CA | |||||||||||||||||||
| Preferred shares, Series F-1 | % | |||||||||||||||||||
| Canva, Inc.** | Sydney, Australia | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Shogun Enterprises, Inc. (d/b/a Hearth) | Austin, TX | |||||||||||||||||||
| Preferred shares, Series B-1 | % | |||||||||||||||||||
| Preferred shares, Series B-2 | % | |||||||||||||||||||
| Preferred shares, Series B-3 | % | |||||||||||||||||||
| Preferred shares, Series B-4 | % | |||||||||||||||||||
| Common Warrants, Strike Price $0.01, Expiration Date 7/12/2026 | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| CoreWeave, Inc. | Roseland, NJ | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare) | West Palm Beach, FL | |||||||||||||||||||
| Common shares, Class A(3) | % | |||||||||||||||||||
| Warrants, Strike Price $11.50, Expiration Date 7/19/2028(3) | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Neutron Holdings, Inc. (d/b/a/ Lime) | San Francisco, CA | |||||||||||||||||||
| Junior Preferred shares, Series 1-D | % | |||||||||||||||||||
| Junior Preferred Convertible Note 4% Due 5/11/2027*** | $ | % | ||||||||||||||||||
| Common Warrants, Strike Price $0.01, Expiration Date 5/11/2027 | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| True Global Ventures 4 Plus Pte Ltd**(10) | Singapore, Singapore | |||||||||||||||||||
| Limited Partner Fund Investment | $ | % | ||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED) - continued
September 30, 2024
| Portfolio Investments* | Headquarters/ Industry(15) | Date of Initial Investment | Shares/ Principal/Quantity(5) | Cost | Fair Value | %
of Net Assets | ||||||||||||||
| Orchard Technologies, Inc. | New York, NY | |||||||||||||||||||
| Preferred shares, Series D 8% | % | |||||||||||||||||||
| Senior Preferred shares, Series 2 | % | |||||||||||||||||||
| Senior Preferred shares, Series 1 7% | % | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| PayJoy, Inc. | San Francisco, CA | |||||||||||||||||||
| Preferred shares | % | |||||||||||||||||||
| Simple Agreement for Future Equity | $ | % | ||||||||||||||||||
| Total | % | |||||||||||||||||||
| Trax Ltd.** | Singapore, Singapore | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Preferred shares, Investec Series | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Residential Homes for Rent, LLC (d/b/a Second Avenue)(11) | Chicago, IL | |||||||||||||||||||
| Preferred shares, Series A | % | |||||||||||||||||||
| Xgroup Holdings Limited (d/b/a Xpoint)(7)(12) | Philadelphia, PA | |||||||||||||||||||
| Preferred shares, Series A-1 | % | |||||||||||||||||||
| Series A-1 Warrants, Strike Price $0.0001, Expiration Date 5/14/2044 | % | |||||||||||||||||||
| Series A Warrants, Strike Price $0.0001, Expiration Date 5/14/2044 | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Forge Global, Inc. | San Francisco, CA | |||||||||||||||||||
| Common shares(3) | % | |||||||||||||||||||
| Oklo, Inc.**(13) | Santa Clara, CA | |||||||||||||||||||
| Common shares, Class A(3) | % | |||||||||||||||||||
| Varo Money, Inc.** | San Francisco, CA | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Aventine Property Group, Inc. | Chicago, IL | |||||||||||||||||||
| Common shares*** | % | |||||||||||||||||||
| Commercial Streaming Solutions Inc. (d/b/a BettorView)(7) | Las Vegas, NV | |||||||||||||||||||
| Simple Agreement for Future Equity | $ | % | ||||||||||||||||||
| Stake Trade, Inc. (d/b/a Prophet Exchange)(7) | New York, NY | |||||||||||||||||||
| Simple Agreement for Future Equity | $ | % | ||||||||||||||||||
| Skillsoft Corp. | Nashua, NH | |||||||||||||||||||
| Common shares(3) | % | |||||||||||||||||||
| EDGE Markets, Inc.(7) | San Diego, CA | |||||||||||||||||||
| Preferred shares, Series Seed | % | |||||||||||||||||||
| Rebric, Inc. (d/b/a Compliable)(7) | Denver, CO | |||||||||||||||||||
| Preferred shares, Series Seed-4 | % | |||||||||||||||||||
| Kinetiq Holdings, LLC | Philadelphia, PA | |||||||||||||||||||
| Common shares, Class A | % | |||||||||||||||||||
| CTN Holdings, Inc. (d/b/a Catona Climate, f/k/a Aspiration Partners, Inc.) | Marina Del Rey, CA | |||||||||||||||||||
| Preferred shares, Series A | % | |||||||||||||||||||
| Preferred shares, Series C-3 | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 7 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED) - continued
September 30, 2024
| Portfolio Investments* | Headquarters/ Industry(15) | Date of Initial Investment | Shares/ | Cost | Fair Value | %
of Net Assets | ||||||||||||||
| Fullbridge, Inc. | Cambridge, MA | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Promissory Note 1.47%, Due 11/9/2021(4)(14) | $ | % | ||||||||||||||||||
| Total | % | |||||||||||||||||||
| Treehouse Real Estate Investment Trust, Inc. | Chicago, IL | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Total Non-controlled/Non-affiliate | $ | $ | % | |||||||||||||||||
| NON-CONTROLLED/AFFILIATE(1) | ||||||||||||||||||||
| StormWind, LLC(15) | Scottsdale, AZ | |||||||||||||||||||
| Preferred shares, Series D 8% | $ | $ | % | |||||||||||||||||
| Preferred shares, Series C 8% | % | |||||||||||||||||||
| Preferred shares, Series B 8% | % | |||||||||||||||||||
| Preferred shares, Series A 8% | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Maven Research, Inc. | San Francisco, CA | |||||||||||||||||||
| Preferred shares, Series C | % | |||||||||||||||||||
| Preferred shares, Series B | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Curious.com, Inc. | Menlo Park, CA | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Total Non-controlled/Affiliate | $ | $ | % | |||||||||||||||||
| CONTROLLED(2) | ||||||||||||||||||||
| Colombier Sponsor II LLC**(6) | Palm Beach, FL | |||||||||||||||||||
| Class B Units | % | |||||||||||||||||||
| Class W Units | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Total Controlled | $ | $ | % | |||||||||||||||||
| Total Portfolio Investments | $ | $ | % | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 8 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED) - continued
September 30, 2024
| * | |
| ** | |
| *** | |
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) | |
| (8) | |
| (9) | |
| (10) | |
| (11) | |
| (12) | |
| (13) | |
| (14) | |
| (15) |
| 9 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2023
| Portfolio Investments* | Headquarters/ Industry | Date of Initial Investment | Shares/ Principal | Cost | Fair Value | %
of Net Assets | ||||||||||||||
| NON-CONTROLLED/NON-AFFILIATE | ||||||||||||||||||||
| Learneo, Inc. (f/k/a Course Hero, Inc.) | Redwood City, CA | |||||||||||||||||||
| Preferred shares, Series A 8% | $ | $ | % | |||||||||||||||||
| Preferred shares, Series C 8% | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| ServiceTitan, Inc. | Glendale, CA | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Blink Health, Inc. | New York, NY | |||||||||||||||||||
| Preferred shares, Series A | % | |||||||||||||||||||
| Preferred shares, Series C | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Locus Robotics Corp. | Wilmington, MA | |||||||||||||||||||
| Preferred shares, Series F 6% | % | |||||||||||||||||||
| Whoop, Inc. | Boston, MA | |||||||||||||||||||
| Preferred shares, Series C | % | |||||||||||||||||||
| Shogun Enterprises, Inc. (d/b/a Hearth)(13) | Austin, TX | |||||||||||||||||||
| Preferred shares, Series B-1 | % | |||||||||||||||||||
| Preferred shares, Series B-2 | % | |||||||||||||||||||
| Preferred shares, Series B-3 | % | |||||||||||||||||||
| Preferred shares, Series B-4 | % | |||||||||||||||||||
| Common Warrants, Strike Price $0.01, Expiration Date 7/12/2026 | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| FourKites, Inc. | Chicago, IL | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Orchard Technologies, Inc.(12) | New York, NY | |||||||||||||||||||
| Preferred shares, Series D 8% | % | |||||||||||||||||||
| Senior Preferred shares, Series 2 | % | |||||||||||||||||||
| Senior Preferred shares, Series 1 7% | % | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| True Global Ventures 4 Plus Pte Ltd** | Singapore, Singapore | |||||||||||||||||||
| Limited Partner Fund Investment(8) | **(8) | % | ||||||||||||||||||
| Neutron Holdings, Inc. (d/b/a/ Lime) | San Francisco, CA | |||||||||||||||||||
| Junior Preferred shares, Series 1-D | % | |||||||||||||||||||
| Junior Preferred Convertible Note 4% Due 5/11/2027*** | *** | $ | % | |||||||||||||||||
| Common Warrants, Strike Price $0.01, Expiration Date 5/11/2027 | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Forge Global, Inc.** | San Francisco, CA | |||||||||||||||||||
| Common shares(3) | **(3) | % | ||||||||||||||||||
| PayJoy, Inc. | San Francisco, CA | |||||||||||||||||||
| Preferred shares | % | |||||||||||||||||||
| Simple Agreement for Future Equity | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Residential Homes for Rent, LLC (d/b/a Second Avenue) | Chicago, IL | |||||||||||||||||||
| Preferred shares, Series A(6) | % | |||||||||||||||||||
| Varo Money, Inc.** | San Francisco, CA | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 10 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS - continued
December 31, 2023
| Portfolio Investments* | Headquarters/ Industry | Date of Initial Investment | Shares/ Principal | Cost | Fair Value | %
of Net Assets | ||||||||||||||
| Aventine Property Group, Inc. | Chicago, IL | |||||||||||||||||||
| Common shares*** | *** | % | ||||||||||||||||||
| Xgroup Holdings Limited (d/b/a Xpoint)**(7) | Philadelphia, PA | |||||||||||||||||||
| Convertible Note 6%, Due 10/17/2024(4) | $ | % | ||||||||||||||||||
| Commercial Streaming Solutions Inc. (d/b/a BettorView)(7) | Las Vegas, NV | |||||||||||||||||||
| Simple Agreement for Future Equity | % | |||||||||||||||||||
| Stake Trade, Inc. (d/b/a Prophet Exchange)(7) | New York, NY | |||||||||||||||||||
| Simple Agreement for Future Equity | % | |||||||||||||||||||
| AltC Sponsor LLC**(10)(14) | New York, NY | |||||||||||||||||||
| Common shares, Class B | % | |||||||||||||||||||
| Common shares, Class A | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Skillsoft Corp.** | Nashua, NH | |||||||||||||||||||
| Common shares(3) | % | |||||||||||||||||||
| Rebric, Inc. (d/b/a Compliable)(7) | Denver, CO | |||||||||||||||||||
| Preferred shares, Series Seed-4 | % | |||||||||||||||||||
| EDGE Markets, Inc.(7) | San Diego, CA | |||||||||||||||||||
| Preferred shares, Series Seed | % | |||||||||||||||||||
| Churchill Sponsor VII LLC**(10) | New York, NY | |||||||||||||||||||
| Common share units | % | |||||||||||||||||||
| Warrant units | % | |||||||||||||||||||
| Total | **(10) | % | ||||||||||||||||||
| Nextdoor Holdings, Inc.** | San Francisco, CA | |||||||||||||||||||
| Common shares, Class B(3) | % | |||||||||||||||||||
| YouBet Technology, Inc. (d/b/a FanPower)(7) | New York, NY | |||||||||||||||||||
| Preferred shares, Series Seed-2 | % | |||||||||||||||||||
| Kinetiq Holdings, LLC | Philadelphia, PA | |||||||||||||||||||
| Common shares, Class A | % | |||||||||||||||||||
| Trax Ltd.** | Singapore, Singapore | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Preferred shares, Investec Series | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Aspiration Partners, Inc. | Marina Del Rey, CA | |||||||||||||||||||
| Preferred shares, Series A | % | |||||||||||||||||||
| Preferred shares, Series C-3 | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Fullbridge, Inc. | Cambridge, MA | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Promissory Note 1.47%, Due 11/9/2021(4)(11) | $ | % | ||||||||||||||||||
| Total | % | |||||||||||||||||||
| Treehouse Real Estate Investment Trust, Inc. | Chicago, IL | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Total Non-controlled/Non-affiliate | $ | $ | % | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 11 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS - continued
December 31, 2023
| Portfolio Investments* | Headquarters/ Industry | Date of Initial Investment | Shares/ Principal | Cost | Fair Value | %
of Net Assets | ||||||||||||||
| NON-CONTROLLED/AFFILIATE(1) | ||||||||||||||||||||
| StormWind, LLC(5) | Scottsdale, AZ | |||||||||||||||||||
| Preferred shares, Series D 8% | $ | $ | % | |||||||||||||||||
| Preferred shares, Series C 8% | % | |||||||||||||||||||
| Preferred shares, Series B 8% | % | |||||||||||||||||||
| Preferred shares, Series A 8% | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare)**(3)(15) | West Palm Beach, FL | |||||||||||||||||||
| Common shares, Class A |
|
% | ||||||||||||||||||
| Warrants, Strike Price $11.50, Expiration Date 7/19/2028 | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| OneValley, Inc. (f/k/a NestGSV, Inc.) | San Mateo, CA | |||||||||||||||||||
| Derivative Security, Expiration Date 8/23/2024(9) | % | |||||||||||||||||||
| Convertible Promissory Note 8% Due 8/23/2024(4) | $ | % | ||||||||||||||||||
| Total | % | |||||||||||||||||||
| Maven Research, Inc. | San Francisco, CA | |||||||||||||||||||
| Preferred shares, Series C | % | |||||||||||||||||||
| Preferred shares, Series B | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Curious.com, Inc. | Menlo Park, CA | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Total Non-controlled/Affiliate | (1) | $ | $ | % | ||||||||||||||||
| CONTROLLED(2) | ||||||||||||||||||||
| Architect Capital PayJoy SPV, LLC** | San Francisco, CA | |||||||||||||||||||
| Membership Interest in Lending SPV*** | $ | $ | $ | % | ||||||||||||||||
| Colombier Sponsor II LLC**(10) | Palm Beach, FL | |||||||||||||||||||
| Class B Units | % | |||||||||||||||||||
| Class W Units | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.) | Cupertino, CA | |||||||||||||||||||
| Preferred shares, Class A | % | |||||||||||||||||||
| Common shares | % | |||||||||||||||||||
| Total | % | |||||||||||||||||||
| Total Controlled | $ | $ | % | |||||||||||||||||
| Total Portfolio Investments | $ | $ | % | |||||||||||||||||
| U.S. Treasury(3) | ||||||||||||||||||||
| U.S. Treasury bill, 0%, due 3/28/2024*** | $ | % | ||||||||||||||||||
| U.S. Treasury bill, 0%, due 6/27/2024*** | $ | % | ||||||||||||||||||
| Total | % | |||||||||||||||||||
| TOTAL INVESTMENTS | $ | $ | % | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 12 |
SURO CAPITAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS - continued
December 31, 2023
| * | |
| ** | |
| *** | |
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) | |
| (8) | |
| (9) | |
| (10) | |
| (11) | |
| (12) | |
| (13) | |
| (14) | |
| (15) |
| 13 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
NOTE 1—NATURE OF OPERATIONS
SuRo Capital Corp. (“we”, “us”, “our”, the “Company” or “SuRo Capital”), formerly known as Sutter Rock Capital Corp. and as GSV Capital Corp. and formed in September 2010 as a Maryland corporation, is an internally managed, non-diversified closed-end management investment company. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and has elected to be treated, and intends to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
The Company’s date of inception was January 6, 2011, which is the date it commenced development stage activities. The Company’s common stock is currently listed on the Nasdaq Global Select Market under the symbol “SSSS” (formerly “GSVC”). Prior to November 24, 2021, the Company’s common stock traded on the Nasdaq Capital Market under the same symbol (“SSSS”). The Company began its investment operations during the second quarter of 2011.
The table below displays the Company’s subsidiaries as of September 30, 2024, which, other than GSV Capital Lending, LLC (“GCL”) and SuRo Capital Sports, LLC, are collectively referred to as the “Taxable Subsidiaries.” The Taxable Subsidiaries were formed to hold certain portfolio investments. The Taxable Subsidiaries, including their associated portfolio investments, are consolidated with the Company for accounting purposes, but have elected to be treated as separate entities for U.S. federal income tax purposes. GCL was formed to originate portfolio loan investments within the state of California and is consolidated with the Company for accounting purposes. Refer to “Note 2—Significant Accounting Policies—Basis of Consolidation” below for further detail.
| Subsidiary | Jurisdiction of Incorporation | Formation Date | Percentage Owned | |||||
| GCL | % | |||||||
| SuRo Capital Sports, LLC (“SuRo Sports”) | % | |||||||
| Subsidiaries below are referred to collectively as the “Taxable Subsidiaries” | ||||||||
| GSVC AE Holdings, Inc. (“GAE”) | % | |||||||
| GSVC AV Holdings, Inc. (“GAV”) | % | |||||||
| GSVC SW Holdings, Inc. (“GSW”) | % | |||||||
| GSVC SVDS Holdings, Inc. (“SVDS”) | % | |||||||
The Company’s investment objective is to maximize its portfolio’s total return, principally by seeking capital gains on its equity and equity-related investments, and to a lesser extent, income from debt investments. The Company invests principally in the equity securities of what it believes to be rapidly growing venture capital-backed emerging companies. The Company may invest in these portfolio companies through direct offerings of the prospective portfolio companies, transactions on secondary marketplaces for private companies, negotiations with selling stockholders, investment funds, or through special purpose vehicles (“SPVs”) and other investment funds for the purpose of investing in securities of a single private issuer. In addition, the Company may invest in private credit and in founders equity, founders warrants, and private investment in public equity transactions of special purpose acquisition companies (“SPACs”). The Company may also invest on an opportunistic basis in select publicly traded equity securities or certain non-U.S. companies that otherwise meet its investment criteria, subject to any applicable limitations under the 1940 Act.
| 14 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim unaudited condensed consolidated financial statements of the Company are prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is an investment company following the specialized accounting and reporting guidance specified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies. In the opinion of management, all adjustments, all of which were of a normal recurring nature, were considered necessary for the fair presentation of consolidated financial statements for the period have been included.
The results of operations for the current interim period are not necessarily indicative of results that ultimately may be achieved for any other interim period or for the year ending December 31, 2024. The interim unaudited condensed consolidated financial statements and notes hereto should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2023.
Basis of Consolidation
Under Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ (“AICPA”) Audit and Accounting Guide for Investment Companies, the Company is precluded from consolidating any entity other than another investment company, a controlled operating company that provides substantially all of its services and benefits to the Company, and certain entities established for tax purposes where the Company holds a 100% interest. Accordingly, the Company’s Condensed Consolidated Financial Statements include its accounts and the accounts of the Taxable Subsidiaries, GCL, and SuRo Sports, its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Segments
The Company invests in and lends to portfolio companies in various industries, including artificial intelligence, consumer goods and services, education technology, financial technology and services, logistics and supply chain, software-as-a-service, and others. The Company separately evaluates the performance of each of its portfolio company investments. However, because each of these venture capital investments has similar business and economic characteristics, they have been aggregated into a single reportable segment.
Use of Estimates
The preparation of Condensed Consolidated Financial Statements in accordance with GAAP requires the Company’s management to make a number of significant estimates. These include estimates of the fair value of certain assets and liabilities and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the Condensed Consolidated Financial Statements and the reported amounts of certain revenues and expenses during the reporting period. It is likely that changes in these estimates may occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ materially from such estimates.
Uncertainties and Risk Factors
The Company is subject to a number of risks and uncertainties in the nature of its operations, as well as vulnerability due to certain concentrations. Refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q for a detailed discussion of the risks and uncertainties inherent in the nature of the Company’s operations. Refer to “Note 4—Investments at Fair Value” for an overview of the Company’s industry and geographic concentrations.
Investments at Fair Value
The Company applies fair value accounting in accordance with GAAP and the AICPA’s Audit and Accounting Guide for Investment Companies. The Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level 1—Valuations based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access at the measurement date.
| 15 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Level 2—Valuations based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.
Level 3—Valuations based on unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. The majority of the Company’s investments are Level 3 investments and are subject to a high degree of judgment and uncertainty in determining fair value.
When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within the Level 3 table set forth in “Note 4—Investments at Fair Value” may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the measurement period in which the reclassifications occur. Refer to “Levelling Policy” below for a detailed discussion of the levelling of the Company’s financial assets or liabilities and events that may cause a reclassification within the fair value hierarchy.
Securities for which market quotations are readily available on an exchange are valued at the most recently available closing price of such security as of the valuation date. If there are legal or contractual restrictions on the sale or use of such security that under ASC 820-10-35, as modified by ASU 2022-03 (as defined below), should be incorporated into the security’s fair value measurement as a characteristic of the security that would transfer to market participants who would buy the security, the Company will consider those restrictions in the fair value determination of that security. Contractual sale restrictions on the sale or use of a security which are an entity-specific characteristic, rather than a security-specific characteristic (as discussed in ASU 2022-03), are not considered in the fair value determinations for such securities. The Company may also obtain quotes with respect to certain of its investments from pricing services, brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined to be adequate, the Company uses the quote obtained.
Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of management, the Company’s Board of Directors or the valuation committee of the Company’s Board of Directors (the “Valuation Committee”), does not reliably represent fair value, shall each be valued as follows:
| 1. | The quarterly valuation process begins with each portfolio company or investment being initially valued by the internal investment professionals responsible for the portfolio investment; | |
| 2. | Preliminary valuation estimates are then documented and discussed with senior management; | |
| 3. | For all investments for which there are no readily available market quotations, the Valuation Committee engages an independent third-party valuation firm to conduct independent appraisals, review management’s preliminary valuations and make its own independent assessment; |
| 16 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
| 4. | The Valuation Committee applies the appropriate valuation methodology to each portfolio asset in a consistent manner, considers the inputs provided by management and the independent third-party valuation firm, discusses the valuations and recommends to the Company’s Board of Directors a fair value for each investment in the portfolio; and | |
| 5. | The Company’s Board of Directors then discusses the valuations recommended by the Valuation Committee and determines in good faith the fair value of each investment in the portfolio. |
In making a good faith determination of the fair value of investments, the Board of Directors applies valuation methodologies consistent with industry practice. Valuation methods utilized include, but are not limited to, the following: comparisons to prices from secondary market transactions; venture capital financings; public offerings; purchase or sales transactions; analysis of financial ratios and valuation metrics of portfolio companies that issued such private equity securities to peer companies that are public; analysis of the portfolio company’s most recent financial statements, forecasts and the markets in which the portfolio company does business, and other relevant factors. The Company assigns a weighting based upon the relevance of each method to assist the Board of Directors in determining the fair value of each investment.
For investments that are not publicly traded or that do not have readily available market quotations, the Valuation Committee generally engages an independent valuation firm to provide an independent valuation, which the Company’s Board of Directors considers, among other factors, in making its fair value determinations for these investments. For the current and prior fiscal year, the Valuation Committee engaged an independent valuation firm to perform valuations of 100% of the Company’s investments for which there were no readily available market quotations.
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 Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the condensed consolidated financial statements.
Equity Investments
Equity investments for which market quotations are readily available in an active market are generally valued at the most recently available closing market prices and are classified as Level 1 assets. Equity investments with readily available market quotations that are subject to sales restrictions due to an initial public offering (“IPO”) by the portfolio company will be classified as Level 1. Any other equity investments with readily available market quotations that are subject to sales restrictions that would transfer to market participants who would buy the security may be valued at a discount for a lack of marketability (“DLOM”) to the most recently available closing market prices. These investments are generally classified as Level 2 assets. The DLOM used is generally based upon the market value of publicly traded put options with similar terms. For equity securities with readily available market quotations that are subject to entity-specific contractual sale restrictions, rather than security-specific contractual sale restrictions, if such entity-specific contractual sale restrictions first applied or were modified on or after December 15, 2023, the restrictions are not considered in the determination of fair value for that security. See “Recently Issued or Adopted Accounting Standards” for more information.
The fair values of the Company’s equity investments for which market quotations are not readily available are determined based on various factors and are classified as Level 3 assets. To determine the fair value of a portfolio company for which market quotations are not readily available, the Board of Directors applies the appropriate respective valuation methodology for the asset class or portfolio holding, which may involve analyzing the relevant portfolio company’s most recently available historical and projected financial results, public market comparables, and other factors. The Board of Directors may also consider other events, including the transaction in which the Company acquired its securities, subsequent equity sales by the portfolio company, and mergers or acquisitions affecting the portfolio company. In addition, the Board of Directors may consider the trends of the portfolio company’s basic financial metrics from the time of its original investment until the measurement date, with material improvement of these metrics indicating a possible increase in fair value, while material deterioration of these metrics may indicate a possible reduction in fair value.
| 17 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
In determining the fair value of equity or equity-linked securities (including simple agreement for future equity (“SAFE”) notes and warrants to purchase common or preferred stock) in a portfolio company, the Board of Directors considers the rights, preferences and limitations of such securities. When equity-linked securities expire worthless, any cost associated with these positions is recognized as a realized loss on investments in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows. In the event these securities are exercised into common or preferred stock, the cost associated with these securities is reassigned to the cost basis of the new common or preferred stock. These conversions are noted as non-cash operating items on the Condensed Consolidated Statements of Cash Flows.
Debt Investments
Given the nature of the Company’s current debt investments (excluding U.S. Treasuries), which are principally convertible and promissory notes issued by venture capital-backed portfolio companies, these investments are classified as Level 3 assets because there is no known or accessible market or market indices for these investment securities to be traded or exchanged. The Company’s debt investments are valued at estimated fair value as determined in good faith by the Company’s Board of Directors.
Options
The Company’s Board of Directors determines the fair value of options based on methodologies that can include discounted cash flow analyses, option pricing models, comparable analyses and other techniques as deemed appropriate. These investments are classified as Level 3 assets because there is no known or accessible market or market indices for these investment securities to be traded or exchanged. The Company’s options are valued at estimated fair value as determined in good faith by the Company’s Board of Directors.
Special Purpose Vehicles and Investment Funds
At various times, the Company may utilize SPVs and similar investment fund structures in the investment process. The Company advances money to these SPVs or investment funds that are formed for the specific purpose of investing in securities of a single private issuer. Generally speaking, these single asset SPVs have the following characteristics: (1) the underlying investment in the securities of the single private issuer is the sole activity of the SPV or investment fund; (2) the Company’s underlying ownership of the single private issuer is proportionate to the Company’s contributions made to the SPV or investment fund; and (3) the Company will receive its proportionate share of the cash proceeds as the single private issuer is monetized and distributed. The Condensed Consolidated Schedule of Investments presents the value of the Company’s investment in the SPV or investment fund. These SPV and fund investments are valued at estimated fair value as determined in good faith by the Company’s Board of Directors. The SPVs may incur a tax liability associated with distributions made by underlying portfolio investments. If an SPV or investment fund charges management fees or prepaid partnership expenses, those fees may adjust the cost of the SPV.
In valuing the Company’s investments in venture investment funds (“Venture Investment Funds”), the Company may apply the practical expedient provided by the ASC Topic 820 relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). ASC Topic 820 permits an entity holding investments in certain entities that either are investment companies, or have attributes similar to an investment company, and calculate NAV per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment.
Special Purpose Acquisition Companies
The Company’s Board of Directors measures its SPAC sponsor investments at fair value, which is equivalent to cost until a SPAC transaction is announced. After a SPAC transaction is announced, the Company’s Board of Directors will determine the fair value of SPAC investments based on fair value analyses that can include option pricing models, probability-weighted expected return method analyses and other techniques as deemed appropriate. Upon completion of the SPAC transaction, the Board of Directors utilizes the public share price of the entity, less a DLOM if there are security-specific contractual sale restrictions. The Company’s SPAC investments are valued at estimated fair value as determined in good faith by the Company’s Board of Directors.
| 18 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Portfolio Company Investment Classification
The Company is a non-diversified company within the meaning of the 1940 Act. The Company classifies its investments by level of control. As defined in the 1940 Act, control investments are those where the investor retains the power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual directly or indirectly owns beneficially more than 25% of the voting securities of an investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist when a company or individual directly or indirectly owns, controls or holds the power to vote 5% or more of the outstanding voting securities of a portfolio company. Refer to the Condensed Consolidated Schedules of Investments as of September 30, 2024 and December 31, 2023 for details regarding the nature and composition of the Company’s investment portfolio.
Levelling Policy
The portfolio companies in which the Company invests may offer their shares in IPOs. The Company’s shares in such portfolio companies are typically subject to lock-up agreements for 180 days following the IPO. Upon the IPO date, the Company transfers its investment from Level 3 to Level 1 due to the presence of an active market, or Level 2 if limited by the lock-up agreement. The Company prices the investment at the closing price on a public exchange as of the measurement date. In situations where there are legal or contractual restrictions on the sale or use of such security that under ASC 820-10-35 (as modified by ASU 2022-03) should be incorporated into the security’s fair value measurement as a characteristic of the security that would transfer to market participants who would buy the security, the Company will classify the investment as Level 2 subject to an appropriate DLOM to reflect the restrictions upon sale. The Company transfers investments between levels based on the fair value at the beginning of the measurement period in accordance with FASB ASC 820. For investments transferred out of Level 3 due to an IPO, the Company transfers these investments based on their fair value at the IPO date.
Securities Transactions
Securities transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into by the Company (i.e., trade date). Securities transactions outside conventional channels, such as private transactions, are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively.
Valuation of Other Financial Instruments
The carrying amounts of the Company’s other, non-investment financial instruments, consisting of cash, receivables, accounts payable, and accrued expenses, approximate fair value due to their short-term nature.
Cash
The Company custodies its cash with Western Alliance Trust Company, N.A., and may place cash in demand deposit accounts with other high-quality financial institutions. The cash held in these accounts may exceed the Federal Deposit Insurance Corporation insured limit. The Company believes the risk of loss associated with any uninsured balance is remote.
Escrow Proceeds Receivable
A
portion of the proceeds from the sale of portfolio investments are held in escrow as a recourse for indemnity claims that may arise under
the sale agreement or other related transaction contingencies. Amounts held in escrow are held at estimated realizable value and included
in net realized gains/(losses) on investments in the Condensed Consolidated Statements of Operations for the period in which they occurred
and are adjusted as needed. Any remaining escrow proceeds balances from these transactions reasonably expected to be received are reflected
on the Condensed Consolidated Statement of Assets and Liabilities as escrow proceeds receivable. Escrow proceeds receivable resulting
from contingent consideration are to be recognized when the amount of the contingent consideration becomes realized or realizable. As
of September 30, 2024 and December 31, 2023, the Company had $
| 19 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Deferred Financing Costs
The
Company records fees and expenses incurred in connection with financing or capital raising activities relating to the
Company’s shelf registration statement on Form N-2 as deferred financing costs. The Company also incurred additional offering
costs in connection with its
| September 30, 2024 | December 31, 2023 | |||||||
| Deferred debt issuance costs | $ | $ | ||||||
| Deferred financing costs | ||||||||
| Total | $ | $ | ||||||
Refer to “Note 10 — Debt Capital Activities” for further detail regarding the Company’s deferred debt issuance costs.
Operating Leases & Related Deposits
The Company accounts for its operating leases as prescribed by ASC 842, Leases, which requires lessees to recognize a right-of-use asset on the balance sheet, representing its right to use the underlying asset for the lease term, and a corresponding lease liability for all leases with terms greater than 12 months. The lease expense is presented as a single lease cost that is amortized on a straight-line basis over the life of the lease. Non-lease components (maintenance, property tax, insurance and parking) are not included in the lease cost. On September 1, 2024, the Company extended the previous operating lease for office space, for an additional term of three years and three months, expiring March 31, 2028 . The Company has recorded a right-of-use asset and a corresponding lease liability for the operating lease obligation. These amounts have been discounted using the rate implicit in the lease. Refer to “Note 7—Commitments and Contingencies—Operating Leases and Related Deposits” for further detail.
Stock-based Compensation
Using the fair value recognition provisions as prescribed by ASC 718, Stock Compensation, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the appropriate service period. Determining the fair value of stock-based awards requires considerable judgment, including estimating the expected term of stock options and the expected volatility of the Company’s stock price. Differences between actual results and these estimates could have a material effect on the Company’s financial results. Forfeitures are accounted for as they occur. Refer to “Note 11—Stock-Based Compensation” for further detail.
Revenue Recognition
The Company recognizes gains or losses on the sale of investments using the specific identification method. The Company recognizes interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis. The Company recognizes dividend income on the ex-dividend date.
Investment Transaction Costs and Escrow Deposits
Commissions
and other costs associated with an investment transaction, including legal expenses not reimbursed by the portfolio company, are included
in the cost basis of purchases and deducted from the proceeds of sales. The Company makes certain acquisitions on secondary markets,
which may involve making deposits to escrow accounts until certain conditions are met, including the underlying private company’s
right of first refusal. If the underlying private company does not exercise or assign its right of first refusal and all other conditions
are met, then the funds in the escrow account are delivered to the seller and the account is closed. Such transactions would be reflected
on the Condensed Consolidated Statement of Assets and Liabilities as escrow deposits. As of September 30, 2024 and December 31, 2023,
the Company had
| 20 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Unrealized Appreciation or Depreciation of Investments
Unrealized appreciation or depreciation is calculated as the difference between the fair value of the investment and the cost basis of such investment.
U.S. Federal and State Income Taxes
The Company elected to be treated as a RIC under Subchapter M of the Code beginning with its taxable year ended December 31, 2014, has qualified to be treated as a RIC for subsequent taxable years and intends to continue to operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least the sum of 90% of its investment company taxable income (“ICTI”), including payment-in-kind interest income, as defined by the Code, and 90% of its net tax-exempt interest income (which is the excess of its gross tax-exempt interest income over certain disallowed deductions) for each taxable year (the “Annual Distribution Requirement”). Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward into the next tax year ICTI in excess of current year dividend distributions. Any such carryforward ICTI must be distributed on or before December 31 of the subsequent tax year to which it was carried forward.
If the Company meets the Annual Distribution Requirement, but does not distribute (or is not deemed to have distributed) each calendar year a sum of (1) 98% of its net ordinary income for each calendar year, (2) 98.2% of its capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years (the “Excise Tax Avoidance Requirement”), it generally will be required to pay an excise tax equal to 4% of the amount by which the Excise Tax Avoidance Requirement exceeds the distributions for the year. To the extent that the Company determines that its estimated current year annual taxable income will exceed estimated current year dividend distributions from such taxable income, the Company will accrue excise taxes, if any, on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income.
So long as the Company qualifies and maintains its tax treatment as a RIC, it generally will not be subject to U.S. federal and state income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax liability related to income earned by the RIC will represent obligations of the Company’s investors and will not be reflected in the condensed consolidated financial statements of the Company. Included in the Company’s condensed consolidated financial statements, the Taxable Subsidiaries are taxable subsidiaries, regardless of whether the Company is a RIC. These Taxable Subsidiaries are not consolidated for income tax purposes and may generate income tax expenses as a result of their ownership of the portfolio companies. Such income tax expenses and deferred taxes, if any, will be reflected in the Company’s Condensed Consolidated Financial Statements.
If it is not treated as a RIC, the Company will be taxed as a regular corporation (a “C Corporation”) under Subchapter C of the Code for such taxable year. If the Company has previously qualified as a RIC but is subsequently unable to qualify for treatment as a RIC, and certain amelioration provisions are not applicable, the Company would be subject to tax on all of its taxable income (including its net capital gains) at regular corporate rates. The Company would not be able to deduct distributions to stockholders, nor would it be required to make distributions. Distributions, including distributions of net long-term capital gain, would generally be taxable to its stockholders as ordinary dividend income to the extent of the Company’s current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate stockholders would be eligible to claim a dividend received deduction with respect to such dividend; non-corporate stockholders would generally be able to treat such dividends as “qualified dividend income,” which is subject to reduced rates of U.S. federal income tax. Distributions in excess of the Company’s current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain. In order to requalify as a RIC, in addition to the other requirements discussed above, the Company would be required to distribute all of its previously undistributed earnings attributable to the period it failed to qualify as a RIC by the end of the first year that it intends to requalify for tax treatment as a RIC. If the Company fails to requalify for tax treatment as a RIC for a period greater than two taxable years, it may be subject to regular corporate tax on any net built-in gains with respect to certain of its assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if the Company had been liquidated) that it elects to recognize on requalification or when recognized over the next five years. Refer to “Note 9—Income Taxes” for further details.
| 21 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Net change in net assets resulting from operations per basic common share is computed using the weighted-average number of shares outstanding for the period presented. Diluted net change in net assets resulting from operations per common share is computed by dividing net increase/(decrease) in net assets resulting from operations for the period adjusted to include the pre-tax effects of interest incurred on potentially dilutive securities, by the weighted-average number of common shares outstanding plus any potentially dilutive shares outstanding during the period. When applicable, the Company uses the if-converted method in accordance with FASB ASC 260, Earnings Per Share (“ASC 260”), to determine the number of potentially dilutive shares outstanding. Refer to “Note 6—Net Increase in Net Assets Resulting from Operations per Common Share—Basic and Diluted” for further detail.
Recently Issued or Adopted Accounting Standards
In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” This change prospectively prohibits entities from taking into account certain contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. The standard is effective for annual periods beginning after December 15, 2023, and applied prospectively. The Company adopted the requirements of ASU 2022-03 during the period ended March 31, 2024.
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures.” The amendments in this update require more disaggregated information on income taxes paid. The standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted; however, the Company has not elected to adopt this provision as of the date of the condensed consolidated financial statements. The Company is still assessing the impact of the new guidance. However, it does not expect ASU 2023-09 to have a material impact on the Company’s future financial statements.
In March 2024, the FASB issued ASU 2024-01, “Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards.” ASU 2024-01 clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or not a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 is effective for public entities for fiscal years beginning after December 15, 2024, and interim periods in fiscal years beginning after December 15, 2024. Early adoption is permitted; however, the Company has not elected to adopt this provision as of the date of the condensed consolidated financial statements. The Company is currently evaluating the impact of the new guidance. However, it does not expect ASU 2024-01 to have a material impact on the Company’s future financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023- 07”),” which enhances disclosure requirements about significant segment expenses that are regularly provided to the chief operating decision maker (the “CODM”). ASU 2023-07, among other things, (i) requires a single segment public entity to provide all of the disclosures as required by Topic 280, (ii) requires a public entity to disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources and (iii) provides the ability for a public entity to elect more than one performance measure. ASU 2023-07 is effective for the fiscal years beginning after December 15, 2023, and interim periods beginning with the first quarter ended March 31, 2025. Early adoption is permitted and retrospective adoption is required for all prior periods presented. The Company is currently assessing the impact of this guidance, however, the Company does not expect a material impact on its condensed consolidated financial statements.
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards and any that are not yet effective will not have a material impact on its condensed consolidated financial statements upon adoption.
NOTE 3—RELATED-PARTY ARRANGEMENTS
The Company’s executive officers and directors serve or may serve as officers, directors, or managers of entities that operate in a line of business similar to the Company’s, including new entities that may be formed in the future. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of the Company or the Company’s stockholders.
| 22 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
The 1940 Act prohibits the Company from participating in certain negotiated co-investments with certain affiliates unless it receives an order from the SEC permitting it to do so. As a BDC, the Company is prohibited under the 1940 Act from participating in certain transactions with certain of its affiliates without the prior approval of the Board of Directors, including its independent directors, and, in some cases, the SEC. The affiliates with which the Company may be prohibited from transacting include its officers, directors, and employees and any person controlling or under common control with the Company, subject to certain exceptions.
In the ordinary course of business, the Company may enter into transactions with portfolio companies that may be considered related-party transactions. To ensure that the Company does not engage in any prohibited transactions with any persons affiliated with the Company, the Company has implemented certain written policies and procedures whereby the Company’s executive officers screen each of the Company’s transactions for any possible affiliations between the proposed portfolio investment, the Company, companies controlled by the Company, and the Company’s executive officers and directors.
The
Company’s investment in Churchill Sponsor VII LLC, the sponsor of Churchill Capital Corp. VII, a SPAC, constituted a “remote-affiliate”
transaction for purposes of the 1940 Act in light of the fact that Mark D. Klein, the Company’s Chairman, Chief Executive Officer
and President, has a non-controlling interest in the entity that controls Churchill Sponsor VII LLC, and is a non-controlling member
of the board of directors of Churchill Capital Corp. VII. In addition, Mr. Klein’s brother, Michael Klein, is a control person
of such Churchill entities. On August 18, 2024, Churchill Capital Corp. VII announced that it would not consummate an initial business
combination within the time period required by its Amended and Restated Certificate of Incorporation, as amended, and the Company realized
a loss on the entirety of its Churchill Sponsor VII LLC common share units and warrant units in the amount of $
The
Company’s investment in Skillsoft Corp. (f/k/a Software Luxembourg Holding S.A.) (“Skillsoft”) constituted a “remote-affiliate”
transaction for purposes of the 1940 Act in light of the fact that Mr. Klein has a non-controlling interest in the entity that controlled
Churchill Sponsor II LLC, the sponsor of Churchill Capital Corp. II, a SPAC, and was a non-controlling member of the board of directors
of Churchill Capital Corp. II, through which the Company executed a private investment in public equity transaction in order to acquire
common shares of Skillsoft alongside the merger of Skillsoft and Churchill Capital Corp II. In addition, Mr. Klein’s brother, Michael
Klein, was a control person of such Churchill entities. As of September 30, 2024, the fair value of the Company’s remote-affiliate
investment in Skillsoft was $
The
Company’s initial investment in Shogun Enterprises, Inc. (d/b/a Hearth) on February 26, 2021 constituted a “remote-affiliate”
transaction for purposes of the 1940 Act in light of the fact that Keri Findley, a former senior managing director of the Company until
her departure on March 9, 2022, was, at the time of investment, a non-controlling member of the board of directors of Shogun Enterprises,
Inc. and held a minority equity interest in such portfolio company. As of September 30, 2024, the fair value of the Company’s remote-affiliate
investment in Shogun Enterprises, Inc. (d/b/a Hearth) was $
The Company’s investment in Architect Capital PayJoy SPV, LLC also constituted a “remote-affiliate” transaction for purposes of the 1940 Act in light of the fact that Ms. Findley, at the time of investment, was a non-controlling member of the board of directors of the investment manager to Architect Capital PayJoy SPV, LLC, and held a minority equity interest in such investment manager. On June 28, 2024, the Company redeemed the entirety of its Membership Interest in Architect Capital PayJoy SPV, LLC.
In
addition, Ms. Findley and Claire Councill, a former investment professional of the Company until her departure on April 15, 2022, were
non-controlling members of the board of directors of Colombier Acquisition Corp., a SPAC, which was sponsored by Colombier Sponsor LLC,
one of the Company’s portfolio companies until its dissolution upon completion of Colombier Acquisition Corp.’s business
combination into PSQ Holdings, Inc. (d/b/a PublicSquare). As of September 30, 2024, the fair value of the Company’s investment
in PSQ Holdings, Inc. (d/b/a PublicSquare) was $
The
Company’s investment in AltC Sponsor LLC, the sponsor of AltC Acquisition Corp, a SPAC, constituted a “remote-affiliate”
transaction for purposes of the 1940 Act in light of the fact that Mr. Klein has a non-controlling interest in one of the entities that
controlled AltC Sponsor LLC, and Allison Green, the Company’s Chief Financial Officer, Chief Compliance Officer, Treasurer and
Secretary, was a non-controlling member of the board of directors of AltC Acquisition Corp until its dissolution upon completion of AltC
Acquisition Corp.’s business combination into Oklo, Inc. As of September 30, 2024, the fair value of the Company’s investment
in Oklo, Inc. was $
| 23 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
NOTE 4—INVESTMENTS AT FAIR VALUE
Investment Portfolio Composition
The
Company’s investments in portfolio companies consist primarily of equity securities (such as common stock, preferred stock and
options or agreements to purchase or acquire common and preferred stock), and to a lesser extent, debt securities, issued by private
and publicly traded companies. The Company may also, from time to time, invest in U.S. Treasury bills. Non-portfolio investments represent
investments in U.S. Treasury bills. As of September 30, 2024, the Company had
The following tables summarize the composition of the Company’s investment portfolio by security type at cost and fair value as of September 30, 2024 and December 31, 2023:
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Cost | Fair Value | Percentage of Net Assets | Cost | Fair Value | Percentage of Net Assets | |||||||||||||||||||
| Private Portfolio Companies | ||||||||||||||||||||||||
| Preferred Stock(1) | $ | $ | % | $ | $ | % | ||||||||||||||||||
| Common Stock(2) | % | % | ||||||||||||||||||||||
| Debt Investments | % | % | ||||||||||||||||||||||
| Options | % | % | ||||||||||||||||||||||
| Total Private Portfolio Companies | % | % | ||||||||||||||||||||||
| Publicly Traded Portfolio Companies | ||||||||||||||||||||||||
| Common Stock | % | % | ||||||||||||||||||||||
| Options | % | % | ||||||||||||||||||||||
| Total Publicly Traded Portfolio Companies | % | % | ||||||||||||||||||||||
| Total Portfolio Investments | % | % | ||||||||||||||||||||||
| Non-Portfolio Investments | ||||||||||||||||||||||||
| U.S. Treasury Bills | % | % | ||||||||||||||||||||||
| Total Investments | $ | $ | % | $ | $ | % | ||||||||||||||||||
| (1) | |
| (2) |
| 24 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
The geographic and industrial compositions of the Company’s portfolio at fair value as of September 30, 2024 and December 31, 2023 were as follows:
| As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||||||||||
| Fair Value | Percentage of Portfolio | Percentage of Net Assets | Fair Value | Percentage of Portfolio | Percentage of Net Assets | |||||||||||||||||||
| Geographic Region | ||||||||||||||||||||||||
| West | $ | % | % | $ | % | % | ||||||||||||||||||
| Northeast | % | % | % | % | ||||||||||||||||||||
| Midwest | % | % | % | % | ||||||||||||||||||||
| Southeast | % | % | % | % | ||||||||||||||||||||
| International | % | % | % | % | ||||||||||||||||||||
| Total | $ | % | % | $ | % | % | ||||||||||||||||||
| As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||||||||||
| Fair Value | Percentage of Portfolio | Percentage of Net Assets | Fair Value | Percentage of Portfolio | Percentage of Net Assets | |||||||||||||||||||
| Industry | ||||||||||||||||||||||||
| Software-as-a-Service | $ | % | % | $ | % | % | ||||||||||||||||||
| Artificial Intelligence Infrastructure & Application | % | % | % | % | ||||||||||||||||||||
| Consumer Goods & Services | % | % | % | % | ||||||||||||||||||||
| Education Technology | % | % | % | % | ||||||||||||||||||||
| Logistics & Supply Chain | % | % | % | % | ||||||||||||||||||||
| Financial Technology & Services | % | % | % | % | ||||||||||||||||||||
| SuRo Sports | % | % | % | % | ||||||||||||||||||||
| Total | $ | % | % | $ | % | % | ||||||||||||||||||
| 25 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
The table below details the composition of the Company’s industrial themes presented in the preceding tables:
| Industry Theme | Industry | |
| Artificial Intelligence Infrastructure | Advanced Nuclear Technology | |
| & Application | AI Application Fund | |
| AI Infrastructure | ||
AI Infrastructure Fund | ||
| Consumer Goods & Services | E-Commerce Marketplace | |
| Fitness Technology | ||
| Lifestyle Beverage Brand | ||
| Micromobility | ||
| Social Networking | ||
| Education Technology | Business Education | |
| Interactive Learning | ||
| Online Education | ||
| Financial Technology & Services | Cannabis REIT | |
| Carbon Credit Services | ||
| Financial Services | ||
| Mobile Access Technology | ||
| Mobile Finance Technology | ||
| Online Marketplace Finance | ||
| Real Estate Platform | ||
| Special Purpose Acquisition Company | ||
| Venture Investment Fund | ||
| Logistics & Supply Chain | Clean Technology | |
| Supply Chain Technology | ||
| Warehouse Automation | ||
| Software-as-a-Service | Contractor Management Software | |
| Global Innovation Platform | ||
| Home Improvement Finance | ||
| Knowledge Networks | ||
| Pharmaceutical Technology | ||
| Productivity Software | ||
| Retail Technology | ||
| Social Data Platform | ||
| SuRo Sports | Digital Media Technology | |
| Gaming Licensing | ||
| Gaming Technology | ||
| Geolocation Technology | ||
| Interactive Media & Services | ||
| Sports Betting |
| 26 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Investment Valuation Inputs
The fair values of the Company’s investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of September 30, 2024 and December 31, 2023 are as follows:
| As of September 30, 2024 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Securities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
| Investments at Fair Value | ||||||||||||||||
| Private Portfolio Companies | ||||||||||||||||
| Preferred Stock(1) | $ | $ | $ | $ | ||||||||||||
| Common Stock(2) | ||||||||||||||||
| Debt Investments | ||||||||||||||||
| Options | ||||||||||||||||
| Private Portfolio Companies | ||||||||||||||||
| Publicly Traded Portfolio Companies | ||||||||||||||||
| Common Stock | ||||||||||||||||
| Options | ||||||||||||||||
| Publicly Traded Portfolio Companies | ||||||||||||||||
| Total Investments at Fair Value | $ | $ | $ | $ | ||||||||||||
| (1) | |
| (2) |
| As of December 31, 2023 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Securities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
| Investments at Fair Value | ||||||||||||||||
| Private Portfolio Companies | ||||||||||||||||
| Preferred Stock | $ | $ | $ | $ | ||||||||||||
| Common Stock(1) | ||||||||||||||||
| Debt Investments | ||||||||||||||||
| Options | ||||||||||||||||
| Private Portfolio Companies | ||||||||||||||||
| Publicly Traded Portfolio Companies | ||||||||||||||||
| Common Stock | ||||||||||||||||
| Options | ||||||||||||||||
| Publicly Traded Portfolio Companies | ||||||||||||||||
| Total Portfolio Investments | ||||||||||||||||
| Non-Portfolio Investments | ||||||||||||||||
| U.S. Treasury bills | ||||||||||||||||
| Total Investments at Fair Value | $ | $ | $ | $ | ||||||||||||
| (1) |
| 27 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Significant Unobservable Inputs for Level 3 Assets and Liabilities
In accordance with FASB ASC 820, Fair Value Measurement, the tables below provide quantitative information about the fair value measurements of the Company’s Level 3 assets as of September 30, 2024 and December 31, 2023. In addition to the techniques and inputs noted in the tables below, according to the Company’s valuation policy, the Board of Directors may also use other valuation techniques and methodologies when determining the fair value measurements of the Company’s assets. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the fair value measurements of the Company’s assets. To the extent an unobservable input is not reflected in the tables below, such input is deemed insignificant with respect to the Company’s Level 3 fair value measurements as of September 30, 2024 and December 31, 2023. Significant changes in the inputs in isolation would result in a significant change in the fair value measurement, depending on the input and the materiality of the investment. Refer to “Note 2—Significant Accounting Policies—Investments at Fair Value” for more detail.
As of September 30, 2024
| Asset | Fair Value | Valuation Approach/ Technique(1) | Unobservable Inputs(2) | Range (Weighted Average)(3) | ||||||||
| Preferred stock in private companies(6) | $ | |||||||||||
| % | ||||||||||||
| % | ||||||||||||
| % | ||||||||||||
| Common stock in private companies(7) | $ | |||||||||||
| % | ||||||||||||
| % | ||||||||||||
| Debt investments | $ | |||||||||||
| Options | $ | |||||||||||
| % | ||||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) |
| 28 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
As of December 31, 2023
| Asset | Fair Value | Valuation Approach/ Technique(1) | Unobservable Inputs(2) | Range (Weighted Average)(3) | ||||||||
| Preferred stock in private companies | $ | |||||||||||
| % | ||||||||||||
| Common stock in private companies(6) | $ | |||||||||||
| % | ||||||||||||
| Debt investments | $ | |||||||||||
| % | ||||||||||||
| Options | $ | |||||||||||
| % | ||||||||||||
| % | ||||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) |
| 29 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
The aggregate values of Level 3 assets and liabilities changed during the nine months ended September 30, 2024 as follows:
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||
Preferred
Stock(1) |
Common
Stock(2) | Debt Investments | Options | Total | ||||||||||||||||
| Assets: | ||||||||||||||||||||
| Fair Value as of December 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| Transfers out of Level 3 | ( | ) | ( | ) | ||||||||||||||||
| Purchases, capitalized fees and interest | ||||||||||||||||||||
| Sales/Redemptions of investments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Exercises and conversions | ( | ) | ||||||||||||||||||
| Realized gains/(losses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net change in unrealized appreciation/(depreciation) included in earnings | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Fair Value as of September 30, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
| Net change in unrealized appreciation/ (depreciation) of Level 3 investments still held as of September 30, 2024 | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||
| (1) | |
| (2) | |
| (3) | During the nine months ended September 30, 2024, the Company’s portfolio investments had the following corporate actions which are reflected above: |
| Portfolio Company | Conversion from | Conversion to | ||
| AltC Sponsor LLC | Common shares, Class A Common shares, Class B |
Oklo, Inc. - Common shares, Class A (Level 2) | ||
| Xgroup Holdings Limited (d/b/a Xpoint) | Convertible
Note |
Preferred shares, Series A-1 Warrants, Series A-1 Warrants, Series A |
| 30 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
The aggregate values of Level 3 assets and liabilities changed during the year ended December 31, 2023 as follows:
| Year Ended December 31, 2023 | ||||||||||||||||||||
Preferred
Stock |
Common
Stock(1) | Debt Investments | Options | Total | ||||||||||||||||
| Assets: | ||||||||||||||||||||
| Fair Value as of December 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||
| Transfers out of Level 3 | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Purchases, capitalized fees and interest | ||||||||||||||||||||
| Sales/Maturity of investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Exercises and conversions(1) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Realized gains/(losses) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net change in unrealized appreciation/(depreciation) included in earnings | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Fair Value as of December 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| Net change in unrealized appreciation/ (depreciation) of Level 3 investments still held as of December 31, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||
| (1) | |
| (2) | During the year ended December 31, 2023, the Company’s portfolio investments had the following corporate actions which are reflected above: |
| Portfolio Company | Conversion from | Conversion to | ||
| Orchard Technologies, Inc. | Preferred shares, Series D Simple Agreement for Future Equity |
Senior Preferred shares, Series 1 Senior Preferred shares, Series 2 Common Shares, Class A | ||
| Shogun Enterprises, Inc. (d/b/a Hearth) | Convertible
Note |
Preferred Shares, Series B-3 | ||
| Colombier Sponsor LLC | Class B Units Class W Units |
PSQ Holdings, Inc. (d/b/a PublicSquare) - Common shares, Class A (Level 2) PSQ Holdings, Inc. (d/b/a PublicSquare) Warrants (Level 1) | ||
| AltC Sponsor LLC | Share units | Common shares, Class A Common shares, Class B |
| 31 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Schedule of Investments In, and Advances to, Affiliates
Transactions during the nine months ended September 30, 2024 involving the Company’s controlled investments and non-controlled/affiliate investments were as follows:
| Type/Industry/Portfolio Company/Investment | Shares/ Principal/ Quantity | Interest, Fees, or Dividends Credited in Income | Fair Value at December 31, 2023 | Transfer In/ (Out) | Purchases, Capitalized Fees, Interest and Amortization |
Sales/Redemptions | Realized Gains/(Losses) | Unrealized Gains/(Losses) | Fair Value at September 30, 2024 | Percentage of Net Assets | ||||||||||||||||||||||||||||||
| CONTROLLED INVESTMENTS*(2) | ||||||||||||||||||||||||||||||||||||||||
| Options | ||||||||||||||||||||||||||||||||||||||||
| Special Purpose Acquisition Company | ||||||||||||||||||||||||||||||||||||||||
| Colombier Sponsor II LLC**–Class W Units | $ | $ | $ | $ | $ | $ | $ | $ | % | |||||||||||||||||||||||||||||||
| Total Options | — | — | % | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
| Clean Technology | ||||||||||||||||||||||||||||||||||||||||
| SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)–Preferred shares, Class A | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||||
| Total Preferred Stock | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||
| Clean Technology | ||||||||||||||||||||||||||||||||||||||||
| SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)–Common shares | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Mobile Finance Technology | ||||||||||||||||||||||||||||||||||||||||
| Architect Capital PayJoy SPV, LLC**–Membership Interest in Lending SPV*** | $ | ( | ) | ( | ) | % | ||||||||||||||||||||||||||||||||||
| Special Purpose Acquisition Company | ||||||||||||||||||||||||||||||||||||||||
| Colombier Sponsor II LLC**–Class B Units | % | |||||||||||||||||||||||||||||||||||||||
| Total Common Stock | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||||
| TOTAL CONTROLLED INVESTMENTS*(2) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | % | |||||||||||||||||||||||||||
| NON-CONTROLLED/AFFILIATE INVESTMENTS*(1) | ||||||||||||||||||||||||||||||||||||||||
| Debt Investments | ||||||||||||||||||||||||||||||||||||||||
| Global Innovation Platform | ||||||||||||||||||||||||||||||||||||||||
| OneValley,
Inc. (f/k/a NestGSV, Inc.) –Convertible Promissory Note | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | % | ||||||||||||||||||||||||||
| Total Debt Investments | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||||
| Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
| Knowledge Networks | ||||||||||||||||||||||||||||||||||||||||
| Maven Research, Inc.–Preferred shares, Series C | % | |||||||||||||||||||||||||||||||||||||||
| Maven Research, Inc.–Preferred shares, Series B | % | |||||||||||||||||||||||||||||||||||||||
| Total Knowledge Networks | % | |||||||||||||||||||||||||||||||||||||||
| Interactive Learning | ||||||||||||||||||||||||||||||||||||||||
| StormWind, LLC(5) – Preferred shares, Series D 8% | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| StormWind, LLC(5) – Preferred shares, Series C 8% | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| StormWind, LLC(5) – Preferred shares, Series B 8% | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| StormWind, LLC(5) – Preferred shares, Series A 8% | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Total Interactive Learning | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Total Preferred Stock | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Options | ||||||||||||||||||||||||||||||||||||||||
| Global Innovation Platform | ||||||||||||||||||||||||||||||||||||||||
| OneValley,
Inc. (f/k/a NestGSV, Inc.)–Derivative Security, Expiration Date | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||||
| Total Global Innovation Platform | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||||
| E-Commerce Marketplace | ||||||||||||||||||||||||||||||||||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare)**(3)(4) – Warrants | ( |
) | % | |||||||||||||||||||||||||||||||||||||
| Total Options | ( |
) | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||
| Online Education | ||||||||||||||||||||||||||||||||||||||||
| Curious.com, Inc.–Common shares | % | |||||||||||||||||||||||||||||||||||||||
| E-Commerce Marketplace | ||||||||||||||||||||||||||||||||||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare)**(3)(4) – Common shares, Class A | ( |
) | % | |||||||||||||||||||||||||||||||||||||
| Total Common Stock | ( |
) | % | |||||||||||||||||||||||||||||||||||||
| TOTAL NON-CONTROLLED/AFFILIATE INVESTMENTS*(1) | $ | $ | $ | ( |
) | $ | $ | ( | ) | $ | ( | ) | $ | $ | % | |||||||||||||||||||||||||
| 32 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
| * | |
| ** |
| *** |
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
| 33 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Schedule of Investments In, and Advances to, Affiliates
Transactions during the year ended December 31, 2023 involving the Company’s controlled investments and non-controlled/affiliate investments were as follows:
| Type/Industry/Portfolio Company/Investment | Principal/ Quantity | Interest, Fees, or Dividends Credited in Income | Fair Value at December 31, 2022 | Transfer In/ (Out) | Purchases, Capitalized Fees, Interest and Amortization | Sales | Realized Gains/(Losses) | Unrealized Gains/(Losses) | Fair Value at December 31, 2023 | Percentage of Net Assets | ||||||||||||||||||||||||||||||
| CONTROLLED INVESTMENTS*(2) | ||||||||||||||||||||||||||||||||||||||||
| Options | ||||||||||||||||||||||||||||||||||||||||
| Special Purpose Acquisition Company | ||||||||||||||||||||||||||||||||||||||||
| Colombier Sponsor II LLC**–Class W Units | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | % | |||||||||||||||||||||||||||||
| Colombier Sponsor LLC**(6) –Class W Units | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Total Options | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||||
| Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
| Clean Technology | ||||||||||||||||||||||||||||||||||||||||
| SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)–Preferred shares, Class A | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Total Preferred Stock | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||
| Clean Technology | ||||||||||||||||||||||||||||||||||||||||
| SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)–Common shares | % | |||||||||||||||||||||||||||||||||||||||
| Mobile Finance Technology | ||||||||||||||||||||||||||||||||||||||||
| Architect Capital PayJoy SPV, LLC**–Membership Interest in Lending SPV*** | $ | % | ||||||||||||||||||||||||||||||||||||||
| Special Purpose Acquisition Company | ||||||||||||||||||||||||||||||||||||||||
| Colombier Sponsor II LLC**–Class B Units | % | |||||||||||||||||||||||||||||||||||||||
| Colombier Sponsor LLC**(6) –Class B Units | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Total Common Stock | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| TOTAL CONTROLLED INVESTMENTS*(2) | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | % | |||||||||||||||||||||||||||
| 34 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
| Type/Industry/Portfolio Company/Investment | Principal/ Quantity | Interest, Fees, or Dividends Credited in Income | Fair Value at December 31, 2022 | Transfer In/ (Out) | Purchases, Capitalized Fees, Interest and Amortization | Sales | Realized Gains/(Losses) | Unrealized Gains/(Losses) | Fair Value at December 31, 2023 | Percentage of Net Assets | ||||||||||||||||||||||||||||||
| NON-CONTROLLED/AFFILIATE INVESTMENTS*(1) | ||||||||||||||||||||||||||||||||||||||||
| Debt Investments | ||||||||||||||||||||||||||||||||||||||||
| Global Innovation Platform | ||||||||||||||||||||||||||||||||||||||||
| OneValley, Inc. (f/k/a NestGSV, Inc.) –Convertible Promissory Note 8%, Due 8/23/2024(3) | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | % | ||||||||||||||||||||||||||||
| Total Debt Investments | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
| Knowledge Networks | ||||||||||||||||||||||||||||||||||||||||
| Maven Research, Inc.–Preferred shares, Series C | % | |||||||||||||||||||||||||||||||||||||||
| Maven Research, Inc.–Preferred shares, Series B | % | |||||||||||||||||||||||||||||||||||||||
| Total Knowledge Networks | % | |||||||||||||||||||||||||||||||||||||||
| Digital Media Platform | ||||||||||||||||||||||||||||||||||||||||
| Ozy Media, Inc.(7) – Preferred shares, Series C-2 6% | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Ozy Media, Inc.(7) – Preferred shares, Series B 6% | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Ozy Media, Inc.(7) – Preferred shares, Series A 6% | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Ozy Media, Inc.(7) – Preferred shares, Series Seed 6% | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Total Digital Media Platform | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Interactive Learning | ||||||||||||||||||||||||||||||||||||||||
| StormWind, LLC(4) – Preferred shares, Series D 8% | % | |||||||||||||||||||||||||||||||||||||||
| StormWind, LLC(4) – Preferred shares, Series C 8% | % | |||||||||||||||||||||||||||||||||||||||
| StormWind, LLC(4) – Preferred shares, Series B 8% | % | |||||||||||||||||||||||||||||||||||||||
| StormWind, LLC(4) – Preferred shares, Series A 8% | % | |||||||||||||||||||||||||||||||||||||||
| Total Interactive Learning | % | |||||||||||||||||||||||||||||||||||||||
| 35 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
| Type/Industry/Portfolio Company/Investment | Principal/ Quantity | Interest, Fees, or Dividends Credited in Income | Fair Value at December 31, 2022 | Transfer In/(Out) | Purchases, Capitalized Fees, Interest and Amortization | Sales | Realized Gains/ (Losses) | Unrealized Gains/ (Losses) | Fair Value at December 31, 2023 | Percentage of Net Assets | ||||||||||||||||||||||||||||||
| Total Preferred Stock | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Options | ||||||||||||||||||||||||||||||||||||||||
| Digital Media Platform | ||||||||||||||||||||||||||||||||||||||||
| Ozy
Media, Inc.(7) – Common Warrants, Strike Price $, Expiration Date | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Global Innovation Platform | ||||||||||||||||||||||||||||||||||||||||
| OneValley,
Inc. (f/k/a NestGSV, Inc.)–Preferred Warrant Series B, Strike Price $, Expiration Date | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| OneValley,
Inc. (f/k/a NestGSV, Inc.)–Derivative Security, Expiration Date | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Total Global Innovation Platform | ( | ) | ( | ) | % | |||||||||||||||||||||||||||||||||||
| E-Commerce Marketplace | ||||||||||||||||||||||||||||||||||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare)**(6) – Warrants | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Total Options | ( | ) | % | |||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||
| Online Education | ||||||||||||||||||||||||||||||||||||||||
| Curious.com, Inc.–Common shares | % | |||||||||||||||||||||||||||||||||||||||
| E-Commerce Marketplace | ||||||||||||||||||||||||||||||||||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare)**(6) – Class A Common shares | % | |||||||||||||||||||||||||||||||||||||||
| Total Common Stock | % | |||||||||||||||||||||||||||||||||||||||
| TOTAL NON-CONTROLLED/AFFILIATE INVESTMENTS*(1) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | % | |||||||||||||||||||||||||||
| * |
| 36 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
| ** |
| *** |
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) |
| 37 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
NOTE 5—COMMON STOCK
Share Repurchase Program
On
August 8, 2017, the Company announced a $ million discretionary open-market share repurchase program of shares of the Company’s
common stock, $ par value per share, of up to $ million until the earlier of (i) August 6, 2018 or (ii) the repurchase of $
million in aggregate amount of the Company’s common stock (the “Share Repurchase Program”). Following several intervening
approvals from the Company’s Board of Directors to increase the amount of shares of the Company’s common stock that may be
repurchased under the discretionary Share Repurchase Program and/or to extend the Share Repurchase Program to later expiration dates, on August 7, 2023, the Company’s Board of Directors authorized an extension of, and an increase in the amount of
shares of the Company’s common stock that may be repurchased under, the discretionary Share Repurchase Program until the earlier
of (i) October 31, 2024 or (ii) the repurchase of $
The timing and number of shares to be repurchased will depend on a number of factors, including market conditions and alternative investment opportunities. The Share Repurchase Program may be suspended, terminated or modified at any time for any reason and does not obligate the Company to acquire any specific number of shares of its common stock. Under the Share Repurchase Program, the Company may repurchase its outstanding common stock in the open market, provided that it complies with the prohibitions under its insider trading policies and procedures and the applicable provisions of the 1940 Act and the Exchange Act.
During the three and nine months ended September 30, 2024, the Company did t repurchase any shares of the Company’s common stock under the Share Repurchase Program. During the three and nine months ended September 30, 2023, the Company repurchased shares of the Company’s common stock under the Share Repurchase Program. As of September 30, 2024, the dollar value of shares that remained available to be purchased by the Company under the Share Repurchase Program was approximately $ million.
Modified Dutch Auction Tender Offer
On February 20, 2024, the Company commenced a modified “Dutch Auction” tender offer (the “Modified Dutch Auction Tender Offer”) to purchase up to shares of its common stock from its stockholders, which expired on April 1, 2024. In accordance with the terms of the Modified Dutch Auction Tender Offer, the Company selected the lowest price per share of not less than $ per share and not greater than $ per share.
Pursuant
to the Modified Dutch Auction Tender Offer, the Company repurchased shares, representing
Amended and Restated 2019 Equity Incentive Plan
Refer to “Note 11—Stock-Based Compensation” for a description of the Company’s restricted shares of common stock granted under the Amended & Restated 2019 Equity Incentive Plan (as defined therein).
At-the-Market Offering
On
July 29, 2020, the Company entered into an At-the-Market Sales Agreement, dated July 29, 2020 (as amended, the “Sales Agreement”),
with BTIG, LLC, JMP Securities LLC and Ladenburg Thalmann & Co., Inc. (collectively, the “Agents”). Under the Sales Agreement,
the Company may, but has no obligation to, issue and sell up to $
| 38 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Sales of the Shares, if any, will be made by any method that is deemed to be an “at-the-market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on the Nasdaq Global Select Market or sales made to or through a market maker other than on an exchange, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at other negotiated prices. Actual sales in the ATM Program will depend on a variety of factors to be determined by the Company from time to time.
The
Agents will receive a commission from the Company equal to up to
During
the three and nine months ended September 30, 2024 and 2023, the Company did not issue or sell Shares under the ATM Program. As of September
30, 2024, up to approximately $
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Earnings per common share–basic: | ||||||||||||||||
| Net change in net assets resulting from operations | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted-average common shares–basic | ||||||||||||||||
| Earnings per common share–basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Earnings per common share–diluted: | ||||||||||||||||
| Net change in net assets resulting from operations | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Adjustment for interest and amortization on | ||||||||||||||||
| Net change in net assets resulting from operations, as adjusted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Adjustment for dilutive effect of | ||||||||||||||||
| Weighted-average common shares outstanding–diluted(1) | ||||||||||||||||
| Earnings per common share–diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| (1) |
NOTE 7—COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may enter into investment agreements under which it commits to make an investment in a portfolio company at some future date or over a specified period of time.
From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of its rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon its business, financial condition or results of operations. The Company is not currently a party to any material legal proceedings.
| 39 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Operating Leases and Related Deposits
The Company currently has one operating lease for office space for which the Company has recorded a right-of-use asset and lease liability for the operating lease obligation. The lease originally commenced on June 3, 2019 and expired on August 31, 2024. On September 1, 2024, the Company extended the previous operating lease for office space for an additional term of three years and three months, expiring March 31, 2028. The lease expense is presented as a single lease cost that is amortized on a straight-line basis over the life of the lease.
As
of September 30, 2024 and December 31, 2023, the Company booked a right-of-use asset and operating lease liability of $
The following table shows future minimum payments under the Company’s operating lease as of September 30, 2024:
| For the Year Ended December 31, | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| $ | ||||
| 40 |
SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
NOTE 8—FINANCIAL HIGHLIGHTS
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Per Basic Share Data | ||||||||||||||||
| Net asset value at beginning of the year | $ | $ | $ | $ | ||||||||||||
| Net investment loss(1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net realized loss on investments(1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Realized loss on partial repurchase of 6.00% Notes due December 30, 2026(1) | ( | ) | ( | ) | ||||||||||||
| Net change in unrealized appreciation/(depreciation) of investments(1) | ( | ) | ||||||||||||||
| Repurchase of common stock(1) | ||||||||||||||||
| Stock-based compensation(1) | ||||||||||||||||
| Net asset value at end of period | $ | $ | $ | $ | ||||||||||||
| Per share market value at end of period | $ | $ | $ | $ | ||||||||||||
| Total return based on market value(2) | % | % | % | ( | )% | |||||||||||
| Total return based on net asset value(2) | ( | )% | % | ( | )% | % | ||||||||||
| Shares outstanding at end of period | ||||||||||||||||
| Ratios/Supplemental Data: | ||||||||||||||||
| Net assets at end of period | $ | $ | $ | $ | ||||||||||||
| Average net assets | $ | $ | $ | $ | ||||||||||||
| Ratio of net operating expenses to average net assets(3) | % | % | % | % | ||||||||||||
| Ratio of net investment loss to average net assets(3) | ( | )% | ( | )% | ( | )% | ( | )% | ||||||||
| Portfolio Turnover Ratio | % | % | % | % | ||||||||||||
| (1) | |
| (2) | |
| (3) |
NOTE 9—INCOME TAXES
The Company elected to be treated as a RIC under Subchapter M of the Code beginning with its taxable year ended December 31, 2014 and has qualified to be treated as a RIC for subsequent taxable years. The Company intends to continue to operate so as to qualify to be subject to tax treatment as a RIC under Subchapter M of the Code and, as such, will not be subject to U.S. federal income tax on the portion of taxable income (including gains) distributed as dividends for U.S. federal income tax purposes to stockholders. Taxable income includes the Company’s taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized investment gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as such gains or losses are not included in taxable income until they are realized.
To
qualify and be subject to tax as a RIC, the Company is required to meet certain income and asset diversification tests in addition to
distributing dividends of an amount generally at least equal to
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SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
As
a RIC, the Company will be subject to a
Depending
on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current taxable
year distributions from such taxable income into the next taxable year and incur a
The Company has taxable subsidiaries which hold certain portfolio investments in an effort to limit potential legal liability and/or comply with source-income type requirements contained in the RIC tax provisions of the Code. These taxable subsidiaries are consolidated for GAAP and the portfolio investments held by the taxable subsidiaries are included in the Company’s condensed consolidated financial statements and are recorded at fair value. These taxable subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments. Any income generated by these taxable subsidiaries generally would be subject to tax at normal corporate tax rates based on its taxable income.
The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that it may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.
The Company is required to include net deferred tax provision/benefit in calculating its total expenses even though these net deferred taxes are not currently payable/receivable.
For U.S. federal and state income tax purposes, a portion of the Taxable Subsidiaries’ net operating loss carryforwards and basis differences may be subject to limitations on annual utilization in case of a change in ownership, as defined by federal and state law. The amount of such limitations, if any, has not been determined. Accordingly, the amount of such tax attributes available to offset future profits may be significantly less than the actual amounts of the tax attributes.
The Company and the Taxable Subsidiaries identified their major tax jurisdictions as U.S. federal, New York, and California and may be subject to the taxing authorities’ examination for the tax years 2020–2023 in New York and 2019–2023 in California, respectively. Further, the Company and the Taxable Subsidiaries accrue all interest and penalties related to uncertain tax positions as incurred. As of September 30, 2024, there were no material interest or penalties incurred related to uncertain tax positions.
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SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
NOTE 10—DEBT CAPITAL ACTIVITIES
6.00% Notes due 2026
On
December 17, 2021, the Company issued $
The 6.00% Notes due 2026 are direct unsecured obligations of the Company and rank pari passu, or equal in right of payment, with all outstanding and future unsecured, unsubordinated indebtedness of the Company; senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the 6.00% Notes due 2026; effectively subordinated to any of the Company’s future secured indebtedness (including indebtedness that is initially unsecured in respect of which the Company subsequently grants a security interest), to the extent of the value of the assets securing such indebtedness (provided, however, that the Company has agreed under the Indenture to not incur any secured or unsecured indebtedness that would be senior to the 6.00% Notes due 2026 while the 6.00% Notes due 2026 are outstanding, subject to certain exceptions); and structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries.
The
Company records certain fees and expenses incurred in connection with its 6.00% Notes due 2026 as deferred debt issuance costs. Such
costs are reflected in the carrying value of the 6.00% Notes due 2026. As of September 30, 2024 and December 31, 2023, the Company
had deferred debt issuance costs of $
| September 30, 2024 | December 31, 2023 | |||||||
| Aggregate principal amount of 6.00% Notes due 2026 | $ | $ | ||||||
| Direct deduction of deferred debt issuance costs | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
The
6.00% Notes due 2026 are listed for trading on the Nasdaq Global Select Market under the symbol “SSSSL”. The reported closing
market price of SSSSL on September 30, 2024 and December 31, 2023 was $
On
August 6, 2024, the Company’s Board of Directors approved a discretionary note repurchase program (the “Note Repurchase Program”),
which allows the Company to repurchase up to
6.50% Convertible Notes due 2029
On
August 14, 2024, the Company issued $
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SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
The
6.50% Convertible Notes due 2029 are direct unsecured obligations of the Company and rank pari passu, or equal in right of payment, with
any outstanding existing or future unsecured, unsubordinated indebtedness of the Company. The 6.50% Convertible Notes due 2029 are junior
in right of payment to any existing or future secured credit facility; provided, however, that if the Company enters into a future credit
facility senior in right of payment to the 6.50% Convertible Notes due 2029 (including any secured indebtedness), the interest on the outstanding principal amount of the 6.50% Convertible Notes due 2029 shall increase as of the date of such entry to
The
Company records fees and expenses incurred in connection with its 6.50% Convertible Notes due 2029 as deferred debt issuance costs. Such
costs are reflected in the carrying value of the 6.50% Convertible Notes due 2029. As of September 30, 2024, the Company had deferred
debt issuance costs of $
| September 30, 2024 | December 31, 2023 | |||||||
| Aggregate principal amount of 6.50% Convertible Notes due 2029 | $ | $ | ||||||
| Direct deduction of deferred debt issuance costs | ( | ) | ||||||
| Total | $ | $ | ||||||
Amended and Restated 2019 Equity Incentive Plan
On June 19, 2020, the Company’s Board of Directors adopted, and the Company’s stockholders approved, an amendment and restatement of the Company’s 2019 Equity Incentive Plan (the “Amended & Restated 2019 Equity Incentive Plan”) under which the Company is authorized to grant equity awards for up to shares of its common stock. In accordance with the exemptive relief granted to the Company by the SEC on June 16, 2020 with respect to the Amended & Restated 2019 Equity Incentive Plan, the Company is generally authorized to (i) issue restricted shares as part of the compensation package for certain of its employees, officers and all directors, including non-employee directors (collectively, the “Participants”), (ii) issue options to acquire shares of its common stock (“Options”) to certain employees, officers and employee directors as a part of such compensation packages, (iii) withhold shares of the Company’s common stock or purchase shares of common stock from the Participants to satisfy tax withholding obligations relating to the vesting of restricted shares or the exercise of Options granted to the certain Participants pursuant to the Amended & Restated 2019 Equity Incentive Plan, and (iv) permit the Participants to pay the exercise price of Options granted to them with shares of the Company’s common stock.
Under
the Amended & Restated 2019 Equity Incentive Plan, each non-employee director will receive an annual grant of $
Other than such restricted shares granted to non-employee directors, the Compensation Committee of the Company’s Board of Directors may determine the time or times at which Options and restricted shares granted to other Participants will vest or become payable or exercisable, as applicable. The exercise price of each Option will not be less than 100% of the fair market value of the Company’s common stock on the date the option is granted. However, any optionee who owns more than 10% of the combined voting power of all classes of the Company’s outstanding common stock (a “10% Stockholder”), will not be eligible for the grant of an incentive stock option unless the exercise price of the incentive stock option is at least 110% of the fair market value of the Company’s common stock on the date of grant. Generally, no Option will be exercisable after the expiration of ten years from the date of grant. In the case of an Option granted to a 10% Stockholder, the term of an incentive stock option will be for no more than five years from the date of grant.
During the nine months ended September 30, 2024, the Company did not grant any restricted shares to the Company’s officers pursuant to the Amended & Restated 2019 Equity Incentive Plan.
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SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
For the nine months ended September 30, 2024 and 2023, the Company recognized stock-based compensation expense of $ and $, respectively, not including executive and employee forfeits. As of September 30, 2024 and December 31, 2023, there were approximately $ and $, respectively, of total unrecognized compensation costs related to the restricted share grants. Compensation expense associated with the restricted shares is recognized on a quarterly basis over the respective vesting periods.
| Number of Restricted Shares | ||||
| Outstanding as of December 31, 2023(1) | ||||
| Granted | ||||
| Vested(2) | ( | ) | ||
| Forfeited | ( | ) | ||
| Outstanding as of September 30, 2024 | ||||
| Vested as of September 30, 2024 | ||||
| (1) | |
| (2) |
The Amended & Restated 2019 Equity Incentive Plan provides for the concept of “net share settlement.” Specifically, it provides that the Company is authorized to withhold the Common Stock at the time the restricted shares are vested and taxed in satisfaction of the Participant’s tax obligations.
NOTE 12—SUBSEQUENT EVENTS
Portfolio Activity
From October 1, 2024 through November 7, 2024, the Company made the following investments (not including capitalized transaction costs).
| Portfolio Company | Investment | Transaction Date | Amount | |||||
| CoreWeave, Inc. | Series A Preferred Shares | $ | ||||||
| IH10, LLC(1) | Membership Interest | |||||||
| Total | $ | |||||||
| (1) |
From October 1, 2024 through November 7, 2024, the Company exited or received proceeds from the following investments.
| Portfolio Company | Transaction Date | Quantity | Average Net Share Price (1) | Net Proceeds | Realized Gain(2) | |||||||||||||
| PSQ Holdings, Inc. (d/b/a PublicSq.) - Public Common Shares(3) | $ | $ | $ | |||||||||||||||
| Total | $ | $ | ||||||||||||||||
| (1) | |
| (2) | |
| (3) |
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SURO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
The Company is frequently in negotiations with various private companies with respect to investments in such companies. Investments in private companies are generally subject to satisfaction of applicable closing conditions. In the case of secondary market transactions, such closing conditions may include approval of the issuer, waiver or failure to exercise rights of first refusal by the issuer and/or its stockholders and termination rights by the seller or the Company. Equity investments made through the secondary market may involve making deposits in escrow accounts until the applicable closing conditions are satisfied, at which time the escrow accounts will close and such equity investments will be effectuated.
6.00% Notes due 2026 - Note Repurchase Program
Between
October 1, 2024 and October 4, 2024, the Company repurchased an additional units of the 6.00% Notes due 2026 under the Note Repurchase
Program. As of November 7, 2024, the aggregate principal dollar amount of 6.00% Notes due 2026 that may yet be repurchased by the Company
under the Note Repurchase Program is approximately $
6.50% Convertible Notes Due 2029
Pursuant
to the Note Purchase Agreement, on October 9, 2024 the Company issued and sold, and the Purchaser purchased, $
Share Repurchase Program
On
October 29, 2024, the Company’s Board of Directors authorized an extension of the Company’s discretionary Share Repurchase
Program until the earlier of (i) October 31, 2025 or (ii) the repurchase of $
The timing and number of shares to be repurchased pursuant to the Company’s discretionary Share Repurchase Program will depend on a number of factors, including market conditions and alternative investment opportunities. The Share Repurchase Program may be suspended, terminated or modified at any time for any reason and does not obligate the Company to acquire any specific number of shares of its common stock. Under the Share Repurchase Program, the Company may repurchase its outstanding common stock in the open market, provided that it complies with the prohibitions under its insider trading policies and procedures and the applicable provisions of the 1940 Act and the Exchange Act.
As of November 7, 2024, the dollar value of shares that remained available to be purchased by the Company under the Share Repurchase Program was approximately $ million.
NOTE 13—SUPPLEMENTAL FINANCIAL DATA
Summarized Financial Information of Unconsolidated Subsidiaries
In accordance with the SEC’s Regulation S-X and GAAP, the Company is not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which the Company has a controlling interest; however, the Company must disclose certain financial information related to any subsidiaries or other entities that are considered to be “significant subsidiaries” under the applicable rules of Regulation S-X.
The Company’s controlled portfolio company as of September 30, 2024, Colombier Sponsor II LLC, did not meet the definition of a “significant subsidiary” as set forth in Rule 1-02(w)(2) of Regulation S-X. For comparability purposes, the Company has omitted the previously disclosed summarized financial information of the Company’s significant subsidiaries for the quarter ended September 30, 2023 as the Company’s significant subsidiaries would not have been considered significant subsidiaries under Rule 1-02(w)(2).
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements.
The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including, without limitation, statements as to:
| ● | our future operating results; | |
| ● | our dependence upon our management team and key investment professionals; | |
| ● | our business prospects and the prospects of our portfolio companies; | |
| ● | our ability to manage our business and future growth; | |
| ● | the impact of investments that we expect to make; | |
| ● | risks related to investments in growth-stage companies, other venture capital-backed companies, and generally U.S. companies; | |
| ● | our contractual arrangements and relationships with third parties; | |
| ● | our ability to make distributions; | |
| ● | the dependence of our future success on the general economy and its impact on the industries in which we invest; | |
| ● | risks related to the uncertainty of the value of our portfolio investments; | |
| ● | the ability of our portfolio companies to achieve their objectives; | |
| ● | change in political, economic or industry conditions; | |
| ● | our expected financings and investments; | |
| ● | the impact of changes in laws or regulations (including the interpretation thereof), including tax laws, on our operations and/or the operation of our portfolio companies; | |
| ● | the adequacy of our cash resources and working capital; | |
| ● | risks related to market volatility, including general price and volume fluctuations in stock markets; and | |
| ● | the timing of cash flows, if any, from the operations of our portfolio companies. |
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including, without limitation:
| ● | an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; |
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| ● | an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio; | |
| ● | a contraction of available credit and/or an inability to access the equity markets could impair our investment activities; | |
| ● | increases in inflation or an inflationary economic environment could adversely affect our portfolio companies’ operating results, causing us to suffer losses in our portfolio; | |
| ● | interest rate volatility could adversely affect our results, particularly because we use leverage as part of our investment strategy; and | |
| ● | the risks, uncertainties and other factors we identify in the sections entitled “Risk Factors” in our quarterly reports on Form 10-Q, our annual report on Form 10-K, and in our other filings with the SEC. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this quarterly report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in our quarterly reports on Form 10-Q and our annual report on Form 10-K in the “Risk Factors” sections. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report on Form 10-Q. The following analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto contained elsewhere in this quarterly report on Form 10-Q.
Overview
We are an internally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and has elected to be treated, and intends to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
Our investment objective is to maximize our portfolio’s total return, principally by seeking capital gains on our equity and equity-related investments, and to a lesser extent, income from debt investments. We invest principally in the equity securities of what we believe to be rapidly growing venture capital-backed emerging companies. We acquire our investments through direct investments in prospective portfolio companies, secondary marketplaces for private companies, negotiations with selling stockholders, and through investments in SPVs and investment funds that invest directly in the equity or debt of a single private issuer. In addition, we may invest in private credit and in the founders equity, founders warrants, venture capital investment funds, and private investment in public equity (“PIPE”) transactions of special purpose acquisition companies (“SPACs”). We may also invest on an opportunistic basis in select publicly traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria, subject to applicable requirements of the 1940 Act. To the extent we make investments in private equity funds and hedge funds that are excluded from the definition of “investment company” under the 1940 Act by Section 3(c)(1) or 3(c)(7) of the 1940 Act, we will limit such investments to no more than 15% of our net assets.
In regard to the regulatory requirements for BDCs under the 1940 Act, some of these investments may not qualify as investments in “eligible portfolio companies,” and thus may not be considered “qualifying assets.” “Eligible portfolio companies” generally include U.S. companies that are not investment companies and that do not have securities listed on a national exchange. If at any time less than 70% of our gross assets are comprised of qualifying assets, including as a result of an increase in the value of any non-qualifying assets or decrease in the value of any qualifying assets, we would generally not be permitted to acquire any additional non-qualifying assets until such time as 70% of our then-current gross assets were comprised of qualifying assets. We would not be required, however, to dispose of any non-qualifying assets in such circumstances.
Our investment philosophy is based on a disciplined approach of identifying promising investments in high-growth, venture-backed companies across several key industry themes which may include, among others, Software-as-a-Service, Artificial Intelligence, Consumer Goods & Services, Education Technology, Logistics & Supply Chain, Financial Technology & Services, and SuRo Sports. Our investment decisions are based on a disciplined analysis of available information regarding each potential portfolio company’s business operations, focusing on the portfolio company’s growth potential, the quality of recurring revenues, and path to profitability, as well as an understanding of key market fundamentals. Venture capital funds or other institutional investors have invested in the vast majority of companies we evaluate.
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We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company’s common equity, and convertible debt securities with a significant equity component. Typically, our preferred stock investments are non-income producing, have different voting rights than our common stock investments and are generally convertible into common stock at our discretion. As our investment strategy is primarily focused on equity positions, our investments generally do not produce current income and therefore we may be dependent on future capital raising to meet our operating needs if no other source of liquidity is available.
We seek to create a low-turnover portfolio that includes investments in companies representing a broad range of investment themes.
Our History
We formed in 2010 as a Maryland corporation and operate as an internally managed, non-diversified closed-end management investment company. Our investment activities are supervised by our Board of Directors and managed by our executive officers and investments professionals, all of which are our employees.
Our date of inception was January 6, 2011, which is the date we commenced development stage activities. We commenced operations as a BDC upon completion of our IPO in May 2011 and began our investment operations during the second quarter of 2011.
On and effective March 12, 2019, our Board of Directors approved our internalization (the “Internalization”), and we began operating as an internally managed non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. Our Board of Directors approved the Internalization in order to better align the interests of our stockholders with its management. As an internally managed BDC, we are managed by our employees, rather than the employees of an external investment adviser, thereby allowing for greater transparency to stockholders through robust disclosure regarding our compensation structure. As a result of the Internalization, we no longer pay any fees or expenses under an investment advisory agreement or administration agreement, and instead pay the operating costs associated with employing investment management professionals including, without limitation, compensation expenses related to salaries, discretionary bonuses and restricted stock grants.
Portfolio and Investment Activity
Nine Months Ended September 30, 2024
The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments and the sales of existing investments. The fair value as of September 30, 2024 of all of our portfolio investments was $199,302,778.
During the nine months ended September 30, 2024, we funded investments in an aggregate amount of $57,500,344 (not including capitalized transaction costs) as shown in the following table:
| Portfolio Company | Investment | Transaction Date | Gross Payments | |||||
| Supplying Demand, Inc. (d/b/a Liquid Death) | Preferred shares, Series F-1 | 1/18/2024 | $ | 9,999,996 | ||||
| Canva, Inc. | Common shares | 4/17/2024 | 9,999,948 | |||||
| CW Opportunity 2 LP(1) | Membership Interest, Class A | 5/7/2024 | 15,000,000 | |||||
| ARK Type One Deep Ventures Fund LLC(2) | Membership Interest, Class A | 9/25/2024 | 17,500,000 | |||||
| CoreWeave, Inc. | Common shares | 9/26/2024 | 5,000,400 | |||||
| Total | $ | 57,500,344 | ||||||
| (1) | CW Opportunity 2 LP is a special purpose vehicle (“SPV”) that is solely invested in the Series C Preferred Shares of CoreWeave, Inc. We are invested in the Series C Preferred Shares of CoreWeave, Inc. through our investment in the Class A Interest of CW Opportunity 2 LP. |
| (2) | ARK Type One Deep Ventures Fund LLC is an investment fund for which the Class A Interest is solely invested in the Convertible Equity of OpenAI Global, LLC. We are invested in the Convertible Equity of OpenAI Global, LLC through our investment in the Class A Interest of ARK Type One Deep Ventures Fund LLC. |
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During the nine months ended September 30, 2024, we capitalized fees of $286,411.
During the nine months ended September 30, 2024, we exited or received proceeds from investments (not including short-term U.S. Treasury bills) in the amount of $14,941,469, net of transaction costs, and realized a net loss on investments of $14,167,198 (including adjustments to amounts held in escrow receivable) as shown in following table:
| Portfolio Company | Transaction Date | Quantity | Average Net Share Price(1) | Net Proceeds | Realized Gain/(Loss)(2) | |||||||||||||
| Nextdoor Holdings, Inc.(3) | Various | 112,420 | $ | 1.92 | $ | 215,318 | $ | (411,151 | ) | |||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare) - Warrants(4) | Various | 100,000 | 1.03 | 102,998 | 60,067 | |||||||||||||
| Architect Capital PayJoy SPV, LLC(5) | 6/28/2024 | N/A | N/A | 10,000,000 | (6,745 | ) | ||||||||||||
| True Global Ventures 4 Plus Pte Ltd(6) | 6/28/2024 | N/A | N/A | 233,019 | — | |||||||||||||
| PSQ Holdings, Inc. (d/b/a PublicSq.) - Public Common Shares(7) | Various | 359,845 | $ | 2.82 | 1,015,184 | 731,722 | ||||||||||||
| Churchill Sponsor VII LLC | 8/18/2024 | N/A | N/A | — | (300,000 | ) | ||||||||||||
| YouBet Technology, Inc. (d/b/a FanPower) | 8/22/2024 | N/A | N/A | — | (752,943 | ) | ||||||||||||
| OneValley, Inc. (f/k/a NestGSV, Inc.)(8) | 8/29/2024 | N/A | N/A | 3,000,000 | (6,598,530 | ) | ||||||||||||
| SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)(9) | 9/30/2024 | N/A | N/A | 374,950 | (6,786,462 | ) | ||||||||||||
| Total | $ | 14,941,469 | $ | (14,064,042 | ) | |||||||||||||
| (1) | The average net share price is the net share price realized after deducting all commissions and fees on the sale(s), if applicable. |
| (2) | Realized gain/(loss) does not include adjustments to amounts held in escrow receivable. |
| (3) | As of February 23, 2024, we had sold our remaining Nextdoor Holdings, Inc. public common shares. |
| (4) | As of September 30, 2024, we held 2,296,037 remaining PSQ Holdings, Inc. (d/b/a PublicSquare) public warrants. |
| (5) | On June 28, 2024, we redeemed the entirety of our Membership Interest in Architect Capital PayJoy SPV, LLC. |
| (6) | On June 28, 2024, we received a return of capital distribution from our investment in True Global Ventures 4 Plus Pte Ltd. |
| (7) | As of September 30, 2024, we held 1,616,187 remaining PSQ Holdings, Inc. (d/b/a PublicSquare) public common shares. |
| (8) | On August 29, 2024, we sold our remaining position in OneValley, Inc. (f/k/a NestGSV, Inc.). |
| (9) | On September 20, 2024, SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.) dissolved its business and made a final distribution. |
During the nine months ended September 30, 2024, we wrote-off our investments in Churchill Sponsor VII LLC and YouBet Technology, Inc. (d/b/a FanPower) following their dissolution.
Nine Months Ended September 30, 2023
The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments and the sales of existing investments. The fair value, as of September 30, 2023, of all of our portfolio investments, excluding short-term U.S. Treasury bills, was $193,492,718.
During the nine months ended September 30, 2023, we funded investments in an aggregate amount of $21,133,257 (not including capitalized transaction costs or investments in short-term U.S. Treasury bills) as shown in the following table:
| Portfolio Company | Investment | Transaction Date | Gross Payments | |||||
| Orchard Technologies, Inc.(1) | Preferred shares, Series 1 | 1/13/2023 | $ | 2,000,000 | ||||
| True Global Ventures 4 Plus Pte Ltd(2) | Limited Partner Fund Investment | 3/31/2023 | 1,330,000 | |||||
| PayJoy, Inc. | Simple Agreement for Future Equity (SAFE) | 5/25/2023 | 500,000 | |||||
| ServiceTitan, Inc. | Common shares | 6/30/2023 | 9,999,990 | |||||
| FourKites, Inc. | Common shares | Various | 5,803,269 | |||||
| Shogun Enterprises, Inc. (d/b/a Hearth)(3) | Preferred shares, Series B-4 | 7/12/2023 | 499,998 | |||||
| Stake Trade, Inc. (d/b/a Prophet Exchange) | Simple Agreement for Future Equity (SAFE) | 7/26/2023 | 1,000,000 | |||||
| Total | $ | 21,133,257 | ||||||
| (1) | On January 13, 2023, we invested $2.0 million in Orchard Technologies, Inc.’s Series 1 Senior Preferred financing round. As part of the transaction, we exchanged a portion of our existing Series D Preferred shares investment for Series 1 Senior Preferred shares, Series 2 Senior Preferred shares, and Common shares. Additionally, our previous investment in the Simple Agreement for Future Equity was converted into additional Series 1 Senior Preferred shares. |
| (2) | On March 31, 2023, the previously unfunded capital commitment of $1.3 million was deemed fully contributed in lieu of cash distributions. On March 31, 2023, the full $2.0 million capital commitment to True Global Ventures 4 Plus Fund LP had been called and funded. |
| (3) | On July 12, 2023, we invested $0.5 million in Shogun Enterprises, Inc. (d/b/a Hearth)’s Series B-4 Preferred financing round. As part of the transaction, the previous investment in the Convertible Note was converted into Series B-3 Preferred shares. Additionally, we received Common Warrants as part of the transaction. |
During the nine months ended September 30, 2023, we capitalized fees of $33,676.
During the nine months ended September 30, 2023, we exited or received proceeds from investments in the amount of $9,658,163, net of transaction costs, and realized a net loss on investments of $14,542,137 (including adjustments to amounts held in escrow receivable) as shown in following table:
| Portfolio Company | Transaction Date | Quantity | Average Net Share Price(1) | Net Proceeds | Realized Gain/(Loss)(2) | |||||||||||||
| Kahoot! ASA(3) | Various | 38,305 | $ | 1.97 | $ | 75,601 | $ | (100,466 | ) | |||||||||
| NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.)(4) | Various | 123,938 | 18.50 | 2,293,102 | (186,748 | ) | ||||||||||||
| Nextdoor Holdings, Inc.(5) | Various | 1,539,996 | 3.06 | 4,715,375 | (3,824,934 | ) | ||||||||||||
| Rent the Runway, Inc.(6) | 1/4/2023 | 79,191 | 3.05 | 241,456 | (961,837 | ) | ||||||||||||
| Residential Homes for Rent, LLC (d/b/a Second Avenue)(7) | Various | N/A | N/A | 750,000 | — | |||||||||||||
| True Global Ventures 4 Plus Pte Ltd(8) | Various | N/A | N/A | 1,582,629 | 1,330,000 | |||||||||||||
| Ozy Media, Inc.(9) | 5/4/2023 | 3,492,465 | N/A | — | (10,945,024 | ) | ||||||||||||
| Total | $ | 9,658,163 | $ | (14,689,009 | ) | |||||||||||||
| (1) | The average net share price is the net share price realized after deducting all commissions and fees on the sale(s), if applicable. |
| (2) | Realized gain/(loss) does not include adjustments to amounts held in escrow receivable. |
| (3) | As of March 8, 2023, we had sold our remaining Kahoot! ASA public common shares. |
| (4) | As of September 30, 2023, we held 105,820 remaining NewLake Capital Partners, Inc. public common shares. |
| (5) | As of September 30, 2023, we held 262,420 remaining Nextdoor Holdings, Inc. public common shares. |
| (6) | As of January 4, 2023, we had sold our remaining Rent the Runway, Inc. public common shares. |
| (7) | During the nine months ended September 30, 2023, approximately $0.9 million was received from Residential Homes for Rent, LLC (d/b/a Second Avenue) related to the 15% term loan due December 23, 2023. Of the proceeds received, approximately $0.8 million repaid a portion of the outstanding principal and the remaining was attributed to interest. |
| (8) | The previously unfunded capital commitment of $1.3 million was deemed fully contributed in lieu of cash distributions. |
| (9) | On May 4, 2023, we abandoned our investment in Ozy Media, Inc. |
During the nine months ended September 30, 2023, we wrote-off our investment in Ozy Media, Inc. following our abandonment.
Results of Operations
Comparison of the Nine Months Ended September 30, 2024 and 2023
Operating results for the three and nine months ended September 30, 2024 and 2023 are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Total Investment Income | $ | 888,717 | $ | 1,465,746 | $ | 3,444,161 | $ | 4,137,046 | ||||||||
| Interest income | 722,564 | 1,402,601 | 3,256,133 | 3,947,611 | ||||||||||||
| Dividend income | 166,153 | 63,145 | 188,028 | 189,435 | ||||||||||||
| Total Operating Expenses | $ | 4,096,590 | $ | 4,134,172 | $ | 13,530,561 | $ | 14,832,577 | ||||||||
| Compensation expense | 1,916,361 | 2,123,704 | 6,300,188 | 6,378,330 | ||||||||||||
| Directors’ fees | 171,661 | 161,661 | 510,599 | 483,887 | ||||||||||||
| Professional fees | 515,244 | 277,075 | 1,830,628 | 2,184,488 | ||||||||||||
| Interest expense | 1,153,466 | 1,215,248 | 3,582,000 | 3,642,801 | ||||||||||||
| Income tax expense | — | — | 54,894 | 620,606 | ||||||||||||
| Other expenses | 339,858 | 356,484 | 1,252,252 | 1,522,465 | ||||||||||||
| Net Investment Loss | $ | (3,207,873 | ) | $ | (2,668,426 | ) | $ | (10,086,400 | ) | $ | (10,695,531 | ) | ||||
| Net realized loss on investments | (13,713,512 | ) | (1,461,281 | ) | (14,167,198 | ) | (14,542,137 | ) | ||||||||
| Realized loss on partial repurchase of 6.00% Notes due December 30, 2026 | (145,244 | ) | — | (145,244 | ) | — | ||||||||||
| Net change in unrealized appreciation/(depreciation) of investments | 11,614,384 | 29,323,067 | (13,769,932 | ) | 39,427,513 | |||||||||||
| Net Change in Net Assets Resulting from Operations | $ | (5,452,245 | ) | $ | 25,193,360 | $ | (38,168,774 | ) | $ | 14,189,845 | ||||||
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Investment Income
Investment income decreased to $888,717 for the three months ended September 30, 2024 from $1,465,746 for the three months ended September 30, 2023. The net decrease between periods was primarily due to the cessation of interest income from short-term U.S. Treasury bills, and from Architect Capital PayJoy SPV, LLC following the redemption of our investment in June 2024. Additional decreases in interest income were from Xgroup Holdings Limited (d/b/a Xpoint), Shogun Enterprises, Inc. (d/b/a Hearth), and the repayment in full of the Residential Homes for Rent, LLC (d/b/a Second Avenue) term loan as of December 26, 2023, as well as a decrease in dividend income from NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) following our complete exit in December 2023. The decreases were offset by an increase in interest income received on cash, and an increase in PIK dividend income from CW Opportunity 2 LP during the three months ended September 30, 2024, relative to the three months ended ended September 30, 2023.
Investment income decreased to $3,444,161 for the nine months ended September 30, 2024 from $4,137,046 for the nine months ended September 30, 2023. The net decrease between periods was primarily due to a decrease in interest income from short-term U.S. Treasury bills, Xgroup Holdings Limited (d/b/a Xpoint), and Shogun Enterprises, Inc. (d/b/a Hearth), a repayment in full of the Residential Homes for Rent, LLC (d/b/a Second Avenue) term loan as of December 26, 2023, and a decrease in dividend income from Aventine Property Group and NewLake Capital Partners, Inc. (f/k/a GreenAcreage Real Estate Corp.) following our complete exit in December 2023. The decrease was offset by an increase in interest income received on cash and an increase in PIK dividend income from CW Opportunity 2 LP during the nine months ended September 30, 2024, relative to the nine months ended September 30, 2023.
Operating Expenses
Total operating expenses decreased to $4,096,590 for the three months ended September 30, 2024 from $4,134,172 for the three months ended September 30, 2023. The decrease in operating expense was primarily due to decreases in compensation expense and interest expense, offset by an increase in professional fees and directors’ fees during the three months ended September 30, 2024, relative to the three months ended September 30, 2023.
Total operating expenses decreased to $13,530,561 for the nine months ended September 30, 2024 from $14,832,577 for the nine months ended September 30, 2023. The decrease in operating expense was primarily due to decreases in income tax expense related to blocker corporations, professional fees, other expenses, and interest expense, offset by a slight increase in directors’ fees during the nine months ended September 30, 2024, relative to the nine months ended September 30, 2023.
Net Investment Loss
For the three months ended September 30, 2024, we recognized a net investment loss of $3,207,873, compared to a net investment loss of $2,668,426 for the three months ended September 30, 2023. The change between periods resulted from a decrease in total investment income and operating expenses during the three months ended September 30, 2024, relative to the three months ended September 30, 2023.
For the nine months ended September 30, 2024, we recognized a net investment loss of $10,086,400, compared to a net investment loss of $10,695,531 for the nine months ended September 30, 2023. The change between periods resulted from a decrease in investment income and operating expenses during the nine months ended September 30, 2024, relative to the nine months ended September 30, 2023.
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Net Realized Loss on Investments
For the three months ended September 30, 2024, we recognized a net realized loss on our investments of $13,713,512, compared to a net realized loss of $1,461,281 for the three months ended September 30, 2023. The components of our net realized losses on portfolio investments for the three months ended September 30, 2024 and 2023, excluding short-term U.S. Treasury bills and fluctuations in escrow receivables estimates, are reflected in the tables above, under “—Portfolio and Investment Activity.”
For the nine months ended September 30, 2024, we recognized a net realized loss on our investments of $14,167,198, compared to a net realized loss of $14,542,137 for the nine months ended September 30, 2023. The components of our net realized losses on portfolio investments for the nine months ended September 30, 2024 and 2023, excluding short-term U.S. Treasury bills and fluctuations in escrow receivables estimates, are reflected in the tables above, under “—Portfolio and Investment Activity.”
Net Change in Unrealized Appreciation/(Depreciation) of Investments
For the three months ended September 30, 2024 and 2023, we had a net change in unrealized appreciation/(depreciation) of $11,614,384 and $29,323,067, respectively. The following tables summarize, by portfolio company, the significant changes in unrealized appreciation/(depreciation) of our investment portfolio for the three months ended September 30, 2024 and 2023.
| Portfolio Company | Net Change in Unrealized Appreciation/(Depreciation) For the Three Months Ended September 30, 2024 | Portfolio Company | Net Change in Unrealized Appreciation/(Depreciation) For the Three Months Ended September 30, 2023 | |||||||
| OneValley, Inc. (f/k/a NestGSV, Inc.)(1) | $ | 6,940,288 | Learneo, Inc. (f/k/a Course Hero, Inc.) | $ | 32,856,880 | |||||
| SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)(1) | 6,791,412 | ServiceTitan, Inc. | 1,948,436 | |||||||
| Whoop, Inc. | 4,400,611 | Forge Global, Inc. | (1,003,231 | ) | ||||||
| CW Opportunity 2 LP | 2,908,096 | Orchard Technologies, Inc. | (1,286,496 | ) | ||||||
| Trax, Ltd. | 2,798,224 | Aspiration Partners, Inc. | (3,689,833 | ) | ||||||
| FourKites, Inc. | 1,419,554 | |||||||||
| Blink Health, Inc. | (2,518,714 | ) | ||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare)(1) | (3,225,423 | ) | ||||||||
| Learneo, Inc. (f/k/a Course Hero, Inc.) | (8,205,015 | ) | ||||||||
| Other(2) | 305,351 | Other(2) | 497,311 | |||||||
| Total | $ | 11,614,384 | Total | $ | 29,323,067 | |||||
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| (1) | The change in unrealized appreciation/(depreciation) reflected for these investments resulted from the full or partial exit of the investment, which resulted in the reversal of previously accrued unrealized appreciation/(depreciation), as applicable. |
| (2) | “Other” represents investments for which individual changes in unrealized appreciation/(depreciation) was less than $1.0 million for the three months ended September 30, 2024 and 2023. |
For the nine months ended September 30, 2024 and 2023, we had a net change in unrealized appreciation/(depreciation) of $(13,769,932) and $39,427,513, respectively. The following tables summarize, by portfolio company, the significant changes in unrealized appreciation/(depreciation) of our investment portfolio for the nine months ended September 30, 2024 and 2023.
| Portfolio Company | Net Change in Unrealized Appreciation/(Depreciation) For the Nine Months Ended September 30, 2024 | Portfolio Company | Net Change in Unrealized Appreciation/(Depreciation) For the Nine Months Ended September 30, 2023 | |||||||
| OneValley, Inc. (f/k/a NestGSV, Inc.)(1) | $ | 7,696,978 | PSQ Holdings, Inc. (d/b/a PublicSq.) | $ | 15,395,054 | |||||
| SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)(1) | 6,779,031 | Learneo, Inc. (f/k/a Course Hero, Inc.) | 14,861,095 | |||||||
| Blink Health, Inc. | 5,660,007 | Ozy Media, Inc.(1) | 10,945,024 | |||||||
| Whoop, Inc. | 4,219,966 | Nextdoor Holdings, Inc.(1) | 5,304,938 | |||||||
| FourKites, Inc. | 3,323,577 | Shogun Enterprises, Inc. (d/b/a Hearth) | 4,187,278 | |||||||
| ServiceTitan, Inc. | 3,322,322 | ServiceTitan, Inc. | 1,940,351 | |||||||
| CW Opportunity 2 LP | 2,897,806 | Varo Money, Inc. | 1,689,042 | |||||||
| Trax, Ltd. | 2,798,224 | Whoop, Inc. | (2,389,579 | ) | ||||||
| Varo Money, Inc. | (1,057,947 | ) | Trax, Ltd. | (2,927,814 | ) | |||||
| Orchard Technologies, Inc. | (1,186,533 | ) | Orchard Technologies, Inc. | (4,775,546 | ) | |||||
| Forge Global, Inc. | (2,429,255 | ) | Aspiration Partners, Inc. | (6,541,511 | ) | |||||
| StormWind, LLC | (3,890,411 | ) | ||||||||
| PSQ Holdings, Inc. (d/b/a PublicSquare)(1) | (5,722,756 | ) | ||||||||
| Learneo, Inc. (f/k/a Course Hero, Inc.) | (35,149,678 | ) | ||||||||
| Other(2) | (1,031,263 | ) | Other(2) | 1,739,181 | ||||||
| Total | $ | (13,769,932 | ) | Total | $ | 39,427,513 | ||||
| (1) | The change in unrealized appreciation/(depreciation) reflected for these investments resulted from the full or partial exit of the investment, which resulted in the reversal of previously accrued unrealized appreciation/(depreciation), as applicable. |
| (2) | “Other” represents investments for which individual changes in unrealized appreciation/(depreciation) was less than $1.0 million for the nine months ended September 30, 2024. |
Recent Developments
6.00% Notes Due 2026 - Note Repurchase Program
On August 6, 2024, our Board of Directors approved a discretionary note repurchase program (the “Note Repurchase Program”), which allows us to repurchase up to 46.67%, or $35.0 million in aggregate principal amount, of our 6.00% Notes due 2026 through open market purchases, including block purchases, in such manner as will comply with the provisions of the 1940 Act and the Exchange Act. During the three months ended September 30, 2024, we repurchased and retired $25.3 million of aggregate principal amount of the 6.00% Notes due 2026. As of September 30, 2024, the dollar value of 6.00% Notes due 2026 that remained available to be purchased under the Note Repurchase Program was approximately $9.7 million.
Refer to “Note 10—Debt Capital Activities” to our Condensed Consolidated Financial Statements as of September 30, 2024 for more information regarding the 6.00% Notes due 2026.
Between October 1, 2024 and October 4, 2024, we repurchased an additional 201,446 units of the 6.00% Notes due 2026 under the Note Repurchase Program. As of November 7, 2024, the aggregate principal dollar amount of 6.00% Notes due 2026 that may yet be repurchased by us under the Note Repurchase Program is approximately $4.7 million.
6.50% Convertible Notes due 2029
On August 14, 2024, we issued $25.0 million aggregate principal amount of the 6.50% Convertible Notes due 2029 to a private purchaser (the “Purchaser”), which bear interest at a rate of 6.50% per year, payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year, commencing on September 30, 2024. We received $24.3 million in proceeds from the issuance, net of underwriting discounts and commissions. The 6.50% Convertible Notes due 2029 mature on August 14, 2029, unless previously repurchased, redeemed or converted in accordance with their terms. We do not have the right to redeem the 6.50% Convertible Notes due 2029 prior to August 6, 2027.
The 6.50% Convertible Notes due 2029 will be convertible into shares of our common stock at the Purchaser’s sole discretion at an initial conversion rate of 129.0323 shares of common stock per $1,000 principal amount of the 6.50% Convertible Notes due 2029, subject to adjustment as provided in the Notes Purchase Agreement.
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Refer to “Note 10—Debt Capital Activities” to our Condensed Consolidated Financial Statements as of September 30, 2024 for more information regarding the 6.50% Convertible Notes due 2029.
On October 9, 2024, we issued and sold $5.0 million in aggregate principal amount of additional 6.50% Convertible Notes due 2029 (the “Additional Notes”). The Additional Notes are treated as a single series with our initial issuance of $25.0 million in aggregate principal amount of the outstanding 6.50% Convertible Notes due 2029 (the “Initial Notes”) and have the same terms as the Initial Notes. The Additional Notes are fungible and rank equally with the Initial Notes. Upon issuance of the Additional Notes, the outstanding aggregate principal amount of our 6.50% Convertible Notes due 2029 became $30.0 million.
Share Repurchase Program
On October 29, 2024, our Board of Directors authorized an extension of the Share Repurchase Program until the earlier of (i) October 31, 2025 or (ii) the repurchase of $64.3 million in aggregate amount of our common stock.
The timing and number of shares to be repurchased pursuant to the Share Repurchase Program will depend on a number of factors, including market conditions and alternative investment opportunities. The Share Repurchase Program may be suspended, terminated or modified at any time for any reason and does not obligate us to acquire any specific number of shares of its common stock. Under the Share Repurchase Program, we may repurchase our outstanding common stock in the open market, provided that we comply with the prohibitions under our insider trading policies and procedures and the applicable provisions of the 1940 Act and the Exchange Act.
As of November 7, 2024, the dollar value of shares that remained available to be purchased under the Share Repurchase Program was approximately $25.0 million.
Portfolio Activity
Please refer to “Note 12—Subsequent Events” to our Condensed Consolidated Financial Statements as of September 30, 2024 for details regarding activity in our investment portfolio from October 1, 2024 through November 7, 2024.
We are frequently in negotiations with various private companies with respect to investments in such companies. Investments in private companies are generally subject to satisfaction of applicable closing conditions. In the case of secondary market transactions, such closing conditions may include approval of the issuer, waiver or failure to exercise rights of first refusal by the issuer and/or its stockholders and termination rights by the seller or us. Equity investments made through the secondary market may involve making deposits in escrow accounts until the applicable closing conditions are satisfied, at which time the escrow accounts will close and such equity investments will be effectuated.
Liquidity and Capital Resources
Our liquidity and capital resources are generated primarily from the sales of our investments and the net proceeds from public offerings of our equity and debt securities, including pursuant to our continuous at-the-market offering of shares of our common stock as discussed below under “Equity Issuances and Debt Capital Activities — At-the-Market Offering”. In addition, on December 17, 2021, we issued $75.0 million aggregate principal amount of 6.00% Notes due December 30, 2026 (the “6.00% Notes due 2026”), of which $49.7 million remain outstanding, and on August 14, 2024, we issued $25.0 million aggregate principal amount of 6.50% Convertible Notes due August 14, 2029 (the “Convertible Notes”), all of which remain outstanding. For additional information, see below and “Note 10—Debt Capital Activities” to our Condensed Consolidated Financial Statements as of September 30, 2024.
Our primary uses of cash are to make investments, pay our operating expenses, and make distributions to our stockholders. For the nine months ended September 30, 2024 and 2023, our operating expenses including interest payments on our debt obligations were $13,530,561 and $14,832,577, respectively.
| Cash Reserves and Liquid Securities | September 30, 2024 | December 31, 2023 | ||||||
| Cash | $ | 32,737,114 | $ | 28,178,352 | ||||
| Cash Equivalents: | ||||||||
| U.S. Treasury bills(1) | — | 63,810,855 | ||||||
| Securities of publicly traded portfolio companies: | ||||||||
| Unrestricted securities(2) | 6,720,010 | 6,970,612 | ||||||
| Subject to other sales restrictions(3) | 1,405,641 | 8,542,386 | ||||||
| Securities of publicly traded portfolio companies | 8,125,651 | 15,512,998 | ||||||
| Total Cash Reserves and Liquid Securities | $ | 40,862,765 | $ | 107,502,205 | ||||
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| (1) | Consists of short-term U.S. Treasury bills. |
| (2) | “Unrestricted securities” represents common stock and warrants of our publicly traded portfolio companies that are not currently subject to any restrictions upon sale. We may incur losses. |
| (3) | Securities of publicly traded portfolio companies “subject to other sales restrictions” represents common stock of our publicly traded portfolio companies that are currently subject to certain lock-up restrictions. |
During the nine months ended September 30, 2024, cash increased to $32,737,114 from $28,178,352 at the beginning of the year. The increase in cash was primarily due to maturity of our investments in short-term U.S. Treasury bills, the sale or exit of investments, and other investment income received, offset by the purchase of new investments, repurchase of our common stock pursuant to a modified “Dutch Auction” tender offer (the “Modified Dutch Auction Tender Offer”), payment of our operating expenses, and payment of interest on the 6.00% Notes due 2026 and 6.50% Convertible Notes due 2029. For additional information relating to the Modified Dutch Auction Tender Offer, see “Modified Dutch Auction Tender Offer” below and “Note 5 - Common Stock” to our Condensed Consolidated Financial Statements as of September 30, 2024.
Currently, we believe we have ample liquidity to support our near-term capital requirements. Consistent with past and current practices, we will continue to evaluate our overall liquidity position and take proactive steps to maintain the appropriate liquidity position based upon the current circumstances.
Contractual Obligations
A summary of our significant contractual payment obligations as of September 30, 2024 is as follows:
| Payments Due By Period (in millions) | ||||||||||||||||||||
| Total | Less than 1 year | 1–3 years | 3–5 years | More than 5 years | ||||||||||||||||
| 6.00% Notes due 2026(1) | $ | 49.7 | $ | — | $ | 49.7 | $ | — | $ | — | ||||||||||
| 6.50% Convertible Notes due 2029(2) | $ | 25.0 | $ | — | $ | — | $ | 25.0 | $ | — | ||||||||||
| Operating lease liability | 0.5 | 0.1 | 0.3 | 0.1 | — | |||||||||||||||
| Total | $ | 75.2 | $ | 0.1 | $ | 50.0 | $ | 25.1 | $ | — | ||||||||||
| (1) | Reflects the principal balance payable to investors for the 6.00% Notes due 2026 as of September 30, 2024. Refer to “Note 10—Debt Capital Activities” in our Condensed Consolidated Financial Statements as of September 30, 2024 for more information. |
| (2) | Reflects the principal balance payable to investors for the 6.50% Convertible Notes due 2029 as of September 30, 2024. Refer to “Note 10—Debt Capital Activities” in our Condensed Consolidated Financial Statements as of September 30, 2024 for more information. |
Share Repurchase Program
During the three and nine months ended September 30, 2024, we did not repurchase any shares of our common stock under the discretionary open-market share repurchase program (the “Share Repurchase Program”). During the three and nine months ended September 30, 2023, we repurchased 186,493 shares of our common stock under the Share Repurchase Program. As of September 30, 2024, the dollar value of shares that remained available to be purchased under the Share Repurchase Program was approximately $20.7 million. On August 7, 2023, our Board of Directors authorized an extension of, and an increase in the amount of shares of our common stock that may be repurchased under the discretionary Share Repurchase Program until the earlier of (i) October 31, 2024 or (ii) the repurchase of $60.0 million in aggregate amount of our common stock.
Under the Share Repurchase Program, we may repurchase our outstanding common stock in the open market, provided that we comply with the prohibitions under our insider trading policies and procedures and the applicable provisions of the 1940 Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules promulgated thereunder. For more information on the Share Repurchase Program, see “Note 5—Common Stock” to our Condensed Consolidated Financial Statements as of September 30, 2024.
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Modified Dutch Auction Tender Offer
On February 20, 2024, we commenced the Modified Dutch Auction Tender Offer to purchase up to 2,000,000 shares of our common stock from our stockholders, which expired on April 1, 2024. In accordance with the terms of the Modified Dutch Auction Tender Offer, we selected the lowest price per share of not less than $4.00 per share and not greater than $5.00 per share.
Pursuant to the Modified Dutch Auction Tender Offer, we repurchased 2,000,000 shares, representing 7.9% of our then-outstanding shares, on or about April 5, 2024 at a price of $4.70 per share. We used available cash to fund the purchase of our shares of common stock in the Modified Dutch Auction Tender Offer and to pay for all related fees and expenses.
Off-Balance Sheet Arrangements
As of September 30, 2024 and December 31, 2023, we had no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices. However, we may employ hedging and other risk management techniques in the future.
Equity Issuances and Debt Capital Activities
At-the-Market Offering
On July 29, 2020, we entered into an At-the-Market Sales Agreement, dated July 29, 2020 (as amended, the “Sales Agreement”), with BTIG, LLC, JMP Securities LLC, and Ladenburg Thalmann & Co., Inc. (collectively, the “Agents”). Under the Initial Sales Agreement, we may, but have no obligation to, issue and sell up to $150.0 million in aggregate amount of shares of our common stock (the “Shares”) from time to time through the Agents or to them as principal for their own account (the “ATM Program”). We intend to use the net proceeds from the ATM Program to make investments in portfolio companies in accordance with our investment objective and strategy and for general corporate purposes.
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During the three and nine months ended September 30, 2024, we did not issue or sell Shares under the ATM program. As of September 30, 2024, up to approximately $98.8 million in aggregate amount of the Shares remain available for sale under the ATM Program. During the three and nine months ended September 30, 2023, we did not issue or sell Shares under the ATM program.
Refer to “Note 5—Common Stock” to our Condensed Consolidated Financial Statements as of September 30, 2024 for more information regarding the ATM Program.
6.00% Notes due 2026 - Note Repurchase Program
On August 6, 2024, our Board of Directors approved the Note Repurchase Program, which allows us to repurchase up to 46.67%, or $35.0 million in aggregate principal amount, of our 6.00% Notes due 2026 through open market purchases, including block purchases, in such manner as will comply with the provisions of the 1940 Act and the Exchange Act. During the three months ended September 30, 2024, we repurchased and retired $25.3 million of aggregate principal amount of the 6.00% Notes due 2026. As of September 30, 2024, the dollar value of 6.00% Notes due 2026 that remained available to be purchased under the Note Repurchase Program was approximately $9.7 million.
Refer to “Note 10—Debt Capital Activities” to our Condensed Consolidated Financial Statements as of September 30, 2024 for more information regarding the 6.00% Notes due 2026.
6.50% Convertible Notes due 2029
On August 14, 2024, we issued $25.0 million aggregate principal amount of the 6.50% Convertible Notes due 2029 to the Purchaser, which bear interest at a rate of 6.50% per year, payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year, commencing on September 30, 2024. We received $24.3 million in proceeds from the issuance, net of underwriting discounts and commissions. The 6.50% Convertible Notes due 2029 mature on August 14, 2029, unless previously repurchased, redeemed or converted in accordance with their terms. We do not have the right to redeem the 6.50% Convertible Notes due 2029 prior to August 6, 2027.
The 6.50% Convertible Notes due 2029 will be convertible into shares of our common stock at the Purchaser’s sole discretion at an initial conversion rate of 129.0323 shares of common stock per $1,000 principal amount of the 6.50% Convertible Notes due 2029, subject to adjustment as provided in the Notes Purchase Agreement.
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Refer to “Note 10—Debt Capital Activities” to our Condensed Consolidated Financial Statements as of September 30, 2024 for more information regarding the 6.50% Convertible Notes due 2029.
Distributions
The timing and amount of our distributions, if any, will be determined by our Board of Directors and will be declared out of assets legally available for distribution. The following table lists the distributions, including dividends and returns of capital, if any, per share that we have declared since our formation through September 30, 2024. The table is divided by fiscal year according to record date:
| Date Declared | Record Date | Payment Date | Amount per Share | |||||
| Fiscal 2015: | ||||||||
| November 4, 2015(1) | November 16, 2015 | December 31, 2015 | $ | 2.76 | ||||
| Fiscal 2016: | ||||||||
| August 3, 2016(2) | August 16, 2016 | August 24, 2016 | 0.04 | |||||
| Fiscal 2019: | ||||||||
| November 5, 2019(3) | December 2, 2019 | December 12, 2019 | 0.20 | |||||
| December 20, 2019(4) | December 31, 2019 | January 15, 2020 | 0.12 | |||||
| Fiscal 2020: | ||||||||
| July 29, 2020(5) | August 11, 2020 | August 25, 2020 | 0.15 | |||||
| September 28, 2020(6) | October 5, 2020 | October 20, 2020 | 0.25 | |||||
| October 28, 2020(7) | November 10, 2020 | November 30, 2020 | 0.25 | |||||
| December 16, 2020(8) | December 30, 2020 | January 15, 2021 | 0.22 | |||||
| Fiscal 2021: | ||||||||
| January 26, 2021(9) | February 5, 2021 | February 19, 2021 | 0.25 | |||||
| March 8, 2021(10) | March 30, 2021 | April 15, 2021 | 0.25 | |||||
| May 4, 2021(11) | May 18, 2021 | June 30, 2021 | 2.50 | |||||
| August 3, 2021(12) | August 18, 2021 | September 30, 2021 | 2.25 | |||||
| November 2, 2021(13) | November 17, 2021 | December 30, 2021 | 2.00 | |||||
| December 20, 2021(14) | December 31, 2021 | January 14, 2022 | 0.75 | |||||
| Fiscal 2022: | ||||||||
| March 8, 2022(15) | March 25, 2022 | April 15, 2022 | 0.11 | |||||
| Total | $ | 12.10 | ||||||
| (1) | The distribution was paid in cash or shares of our common stock at the election of stockholders, although the total amount of cash distributed to all stockholders was limited to approximately 50% of the total distribution to be paid to all stockholders. As a result of stockholder elections, the distribution consisted of 2,860,903 shares of common stock issued in lieu of cash, or approximately 14.8% of our outstanding shares prior to the distribution, as well as cash of $26,358,885. The number of shares of common stock comprising the stock portion was calculated based on a price of $9.425 per share, which equaled the average of the volume weighted-average trading price per share of our common stock on December 28, 29 and 30, 2015. None of the $2.76 per share distribution represented a return of capital. |
| (2) | Of the total distribution of $887,240 on August 24, 2016, $820,753 represented a distribution from realized gains, and $66,487 represented a return of capital. |
| (3) | All of the $3,512,849 distribution paid on December 12, 2019 represented a distribution from realized gains. None of the distribution represented a return of capital. |
| (4) | All of the $2,107,709 distribution paid on January 15, 2020 represented a distribution from realized gains. None of the distribution represented a return of capital. |
| (5) | All of the $2,516,452 distribution paid on August 25, 2020 represented a distribution from realized gains. None of the distribution represented a return of capital. |
| (6) | All of the $5,071,326 distribution paid on October 20, 2020 represented a distribution from realized gains. None of the distribution represented a return of capital. |
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| (7) | All of the $4,978,504 distribution paid on November 30, 2020 represented a distribution from realized gains. None of the distribution represented a return of capital. |
| (8) | All of the $4,381,084 distribution paid on January 15, 2021 represented a distribution from realized gains. None of the distribution represented a return of capital. |
| (9) | All of the $4,981,131 distribution paid on February 19, 2021 represented a distribution from realized gains. None of the distribution represented a return of capital. |
| (10) | All of the $6,051,304 distribution paid on April 15, 2021 represented a distribution from realized gains. None of the distribution represented a return of capital. |
| (11) | The distribution was paid in cash or shares of our common stock at the election of stockholders, although the total amount of cash distributed to all stockholders was limited to approximately 50% of the total distribution to be paid to all stockholders. As a result of stockholder elections, the distribution consisted of 2,335,527 shares of common stock issued in lieu of cash, or approximately 9.6% of our outstanding shares prior to the distribution, as well as cash of $29,987,589. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.07 per share, which equaled the average of the volume weighted-average trading price per share of our common stock on May 12, 13, and 14, 2021. None of the $2.50 per share distribution represented a return of capital. |
| (12) | The distribution was paid in cash or shares of our common stock at the election of stockholders, although the total amount of cash distributed to all stockholders was limited to approximately 50% of the total distribution to be paid to all stockholders. As a result of stockholder elections, the distribution consisted of 2,225,193 shares of common stock issued in lieu of cash, or approximately 8.4% of our outstanding shares prior to the distribution, as well as cash of $29,599,164. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.55 per share, which equaled the average of the volume weighted-average trading price per share of our common stock on August 11, 12, and 13, 2021. None of the $2.25 per share distribution represented a return of capital. |
| (13) | The distribution was paid in cash or shares of our common stock at the election of stockholders, although the total amount of cash distributed to all stockholders was limited to approximately 50% of the total distribution to be paid to all stockholders. As a result of stockholder elections, the distribution consisted of 2,170,807 shares of common stock issued in lieu of cash, or approximately 7.5% of our outstanding shares prior to the distribution, as well as cash of $28,494,812. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.39 per share, which equaled the average of the volume weighted-average trading price per share of our common stock on November 11, 12, and 13, 2021. None of the $2.00 per share distribution represented a return of capital. |
| (14) | All of the $23,338,915 distribution paid on January 14, 2022 represented a distribution from realized gains. None of the distribution represented a return of capital. |
| (15) | All of the $3,441,824 distribution paid on April 15, 2022 represented a distribution from realized gains. None of the distribution represented a return of capital. |
We intend to focus on making equity-based investments from which we will derive primarily capital gains. As a consequence, we do not anticipate that we will pay distributions on a quarterly basis or become a predictable distributor of distributions, and we expect that our distributions, if any, will be much less consistent than the distributions of other BDCs that primarily make debt investments. If there are earnings or realized capital gains to be distributed, we intend to declare and pay a distribution at least annually. The amount of realized capital gains available for distribution to stockholders will be impacted by our tax status.
Our current intention is to make any future distributions out of assets legally available therefrom in the form of additional shares of our common stock under our dividend reinvestment plan, except in the case of stockholders who elect to receive dividends and/or long-term capital gains distributions in cash. Under the dividend reinvestment plan, if a stockholder owns shares of common stock registered in its own name, the stockholder will have all cash distributions (net of any applicable withholding) automatically reinvested in additional shares of common stock unless the stockholder opts out of our dividend reinvestment plan by delivering a written notice to our dividend paying agent prior to the record date of the next dividend or distribution. Any distributions reinvested under the plan will nevertheless be treated as received by the U.S. stockholder for U.S. federal income tax purposes, although no cash distribution has been made. As a result, if a stockholder does not elect to opt out of the dividend reinvestment plan, it will be required to pay applicable federal, state and local taxes on any reinvested dividends even though such stockholder will not receive a corresponding cash distribution. Stockholders that hold shares in the name of a broker or financial intermediary should contact the broker or financial intermediary regarding any election to receive distributions in cash.
So long as we qualify and maintain our tax treatment as a RIC, we generally will not be subject to U.S. federal and state income taxes on any ordinary income or capital gains that we distribute at least annually to our stockholders as dividends. Rather, any tax liability related to income earned by the RIC will represent obligations of our investors and will not be reflected in our condensed consolidated financial statements. See “Note 2—Significant Accounting Policies—U.S. Federal and State Income Taxes” and “Note 9—Income Taxes” to our Condensed Consolidated Financial Statements as of September 30, 2024 for more information. The Taxable Subsidiaries included in our Condensed Consolidated Financial Statements are taxable subsidiaries, regardless of whether we are taxed as a RIC. These taxable subsidiaries are not consolidated for income tax purposes and may generate income tax expenses as a result of their ownership of the portfolio companies. Such income tax expenses and deferred taxes, if any, will be reflected in our condensed consolidated financial statements.
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Critical Accounting Estimates and Policies
Critical accounting policies and practices are the policies that are both most important to the portrayal of our financial condition and results, and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. These include estimates of the fair value of our Level 3 investments and other estimates that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reporting period. It is likely that changes in these estimates will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ materially from such estimates. See “Note 2—Significant Accounting Policies” to our Condensed Consolidated Financial Statements as of September 30, 2024 for further detail regarding our critical accounting policies and recently issued or adopted accounting pronouncements.
Related-Party Transactions
See “Note 3—Related-Party Arrangements” to our Condensed Consolidated Financial Statements as of September 30, 2024 for more information.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Our equity investments are primarily in growth companies that in many cases have short operating histories and are generally illiquid. In addition to the risk that these companies may fail to achieve their objectives, the price we may receive for these companies in private transactions may be significantly impacted by periods of disruption and instability in the capital markets. While these periods of disruption generally have little actual impact on the operating results of our equity investments, these events may significantly impact the prices that market participants will pay for our equity investments in private transactions. This may have a significant impact on the valuation of our equity investments.
Valuation Risk
Our investments may not have a readily available market quotation, as such term is defined in Rule 2a-5 under the 1940 Act, and we value these investments at fair value as determined in good faith by our Board of Directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is possible that the difference could be material. In addition, if we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.
Interest Rate Risk
We are subject to financial market risks, which could include, to the extent we utilize leverage with variable rate structures, changes in interest rates. As we invest primarily in equity rather than debt instruments, we would not expect fluctuations in interest rates to directly impact the return on our portfolio investments, although any significant change in market interest rates could potentially have an adverse effect on the business, financial condition and results of operations of the portfolio companies in which we invest. As of September 30, 2024, all of our debt investments and outstanding borrowings bore fixed rates of interest.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2024, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. Furthermore, third parties may seek to impose liability on us in connection with the activities of our portfolio companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us. While the outcome of any future legal or regulatory proceedings cannot be predicted with certainty, we do not expect that any such future proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Equity Securities
We did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities(1)
Information relating to our purchases of our common stock during the nine months ended September 30, 2024 is as follows:
| Period | Total Number of Shares Purchased(2) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Share Repurchase Program | ||||||||||||
| January 1 through January 31, 2024 | — | $ | — | — | $ | 20,686,087 | ||||||||||
| February 1 through February 28, 2024 | — | — | — | 20,686,087 | ||||||||||||
| March 1 through March 31, 2024 | — | — | — | 20,686,087 | ||||||||||||
| April 1 through April 30, 2024(3) | 2,000,000 | 4.70 | 2,000,000 | 20,686,087 | ||||||||||||
| May 1 through May 31, 2024 | — | — | — | 20,686,087 | ||||||||||||
| June 1 through June 30, 2024 | — | — | — | 20,686,087 | ||||||||||||
| July 1 through July 31, 2024 | — | — | — | 20,686,087 | ||||||||||||
| August 1 through August 31, 2024 | 12,000 | 3.84 | — | 20,686,087 | ||||||||||||
| September 1 through September 30, 2024 | — | — | — | 20,686,087 | ||||||||||||
| Total | 2,012,000 | 2,000,000 | ||||||||||||||
| (1) | On August 7, 2023, our Board of Directors approved an extension of the Share Repurchase Program until the earlier of (i) October 31, 2024 or (ii) the repurchase of $60.0 million in aggregate amount of our common stock. The timing and number of shares to be repurchased will depend on a number of factors, including market conditions and alternative investment opportunities. The Share Repurchase Program may be suspended, terminated or modified at any time for any reason and does not obligate us to acquire any specific number of shares of our common stock. During the three and nine months ended September 30, 2024, we did not repurchase shares of common stock under the Share Repurchase Program. As of September 30, 2024, the dollar value of shares that remained available to be purchased under the Share Repurchase Program was approximately $20.7 million. For more information on the Share Repurchase Program, see “Note 5 — Common Stock” to our Condensed Consolidated Financial Statements as of September 30, 2024. |
| (2) | Includes purchases of our common stock made on the open market by or on behalf of any “affiliated purchaser,” as defined in Exchange Act Rule 10b-18(a)(3), of the Company. |
| (3) | On April 5, 2024, we repurchased 2,000,000 shares of our common stock pursuant to the Modified Dutch Auction Tender Offer. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Modified Dutch Auction Tender Offer” in Part I of this quarterly report on Form 10-Q for more information. |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) None.
(b) None.
The Company has adopted insider trading policies and procedures governing the purchase, sale, and disposition of the Company’s securities by officers and directors of the Company that are reasonably designed to promote compliance with insider trading laws, rules and regulations.
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Item 6. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
| (1) | Previously filed in connection with Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 (File No. 333-171578), filed on March 30, 2011, and incorporated by reference herein. |
| (2) | Previously filed in connection with the Registrant’s Current Report on Form 8-K (File No. 814-00852), filed on June 1, 2011, and incorporated by reference herein. |
| (3) | Previously filed in connection with the Registrant’s Current Report on Form 8-K (File No. 814-00852) filed on August 1, 2019, and incorporated by reference herein. |
| (4) | Previously filed in connection with the Registrant’s Current Report on Form 8-K (File No. 814-00852) filed on June 16, 2020, and incorporated by reference herein. |
| (5) | Previously filed in connection with the Registrant’s Registration Statement on Form N-2 (File No. 333-239681), filed on July 2, 2020, and incorporated by reference herein. |
| (6) | Previously filed in connection with the Registrant’s Current Report on Form 8-K (File No. 814-00852) filed on December 17, 2021, and incorporated by reference herein. |
| (7) | Previously filed in connection with the Registrant’s Annual Report on Form 10-K (File No. 814-00852) filed on March 11, 2022, and incorporated by reference herein. |
| (8) | Previously filed in connection with the Registrant’s Quarterly Report on Form 10-Q (File No. 814-00852) filed on August 8, 2024, and incorporated by reference herein. |
| * | 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.
| SURO CAPITAL CORP. | |||
| Date: | November 8, 2024 | By: | /s/ Mark D. Klein |
| Mark D. Klein | |||
| Chairman, President and Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| Date: | November 8, 2024 | By: | /s/ Allison Green |
| Allison Green | |||
| Chief Financial Officer, Chief Compliance Officer, Treasurer, and Corporate Secretary | |||
| (Principal Financial and Accounting Officer) | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: November 8, 2024 | By: | /s/ Mark D. Klein |
Mark D. Klein Chairman, President and Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 8, 2024 | By: | /s/ Allison Green |
Allison Green Chief Financial Officer, Chief Compliance Officer, Treasurer, and Corporate Secretary (Principal Financial and Accounting Officer) |
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